The Bank of Queensland (BOQ) has outlined it much-anticipated turnaround plan after posting a $90.6 million first half loss.
BOQ became the first Australian bank to plunge into the red in nearly two decades on Wednesday when it unveiled the net loss for the half year to February 29.
A big rise in bad loans was behind the loss, which stood in stark contrast to the $48 million net profit for the same comparative period a year earlier.
BOQ had flagged the result in March, when it launched a $450 million capital raising to strengthen its balance sheet.
Chief executive Stuart Grimshaw was upbeat about the bank’s prospects as he outlined plans to return the bank to profitability.
BOQ aims to expand its business by tapping into the mining boom states of Queensland and Western Australia, the small to medium business market and farmers.
It also plans to investigate working with mortgage brokers to increase its home loan market share.
“We see opportunities in our core geographical markets (extractive industry, downstream small business and logistics) of Queensland and Western Australia,” Mr Grimshaw said.
“BOQ will focus on our relationship based businesses of business banking, agribusiness and our core retail customers and will target growth above system over the long term whilst maintaining costs at or under inflation.”
BOQ’s first half earnings took a tumble largely as a result of mounting loans arrears, which Mr Grimshaw said had finally begun to stabilise.
The increase in charges was caused by the variable Queensland economy since the 2011 floods, causing heavy falls in property valuations and a 30 per cent surge in BOQ’s non-performing loans.
The high Australian dollar and weakened consumer confidence also created a difficult economic environment, particularly in south east Queensland.
Mr Grimshaw said many of BOQ’s properties had been over valued due to a volatile housing market in south east Queensland, where it does the bulk of its business.
“Usually a two-year valuation if you’re in Sydney and Melbourne would be quite appropriate,” he said.
“What we found was that the exposures we had in south east Queensland particularly was the market was moving at a much faster rate.”
CLSA analyst Ed Henning said while it was a good sign that BOQ’s housing arrears had stabilised and the strategy to improve was solid, BOQ still needed time to prove itself.
“I think things are looking up but there are still some sceptics out there,” he said.
“I think you need to get more runs on the board before it can convert those sceptics into believers.”
But Fat Prophets analysts were worried there could be more bad news to come from BOQ.
“Whilst taking a hit here we wonder why there has not been the same introspection of the rest of the company’s loan book, and assessment of loan quality,” the analysts said in a report.
BOQ shares closed 18 cents higher at $7.14.
