Bank of Queensland (BOQ) will fight hard for deposits and loan repayments this year after a flood-induced spike in bad debts wiped 14 per cent off its full year profit.
The Brisbane-based lender said fiscal 2012 would be a “turnaround year” after natural disasters and three corporate exposures almost doubled bad debts to $200.5 million, cutting net profit to $158.7 million for the year to August 31.
Normalised cash profit, which takes out one-off items, fell 10 per cent to $176.6 million, but underlying cash profit jumped 18 per cent to $447.4 million on strong performances from the non-bank units.
“Had the bad debts even stayed the same as (fiscal 2010) … we would have delivered at the top end of our $220 million to $250 million (original profit) guidance for (fiscal 2011),” acting chief executive Ram Kangatharan said on Thursday.
Still, BOQ’s board declared a final dividend of 28 cents per share, fully franked, bringing full year dividends to 54 cents per share, two cents higher than a year earlier.
Analysts said the underlying profit met market expectations, but all eyes were on BOQ’s asset quality and whether bad debts and arrears will decline.
“As long as arrears are high we’re concerned about bad debt trends and we wouldn’t expect it to reduce rapidly from the level it’s at right now,” chief financial officer Ewan Cameron said.
A stronger focus on debt collection has already paid off and BOQ hopes this will continue for its retail and commercial banking loan books in fiscal 2012, he added.
Bad debts as a proportion of gross loans and acceptances (GLA) jumped to 62 basis points – double the rate of the major banks – and this crimped BOQ’s net interest margin to 1.65 per cent.
Bad debts caused by retail banking customers will normalise to between 20 to 25 basis points of GLA to fiscal 2014, but will not fall back to 2009 levels, Mr Kangatharan said.
Like the big four banks, BOQ saw 90-day loan arrears rise in fiscal 2011, but Mr Kangatharan told AAP arrears had improved over the last three months.
BOQ grew its lending book by six per cent, two per cent better than the banking sector, and Mr Kangatharan said dissatisfied customers continue switching from the big four despite their discounting of loans and other products.
“The smaller players can feed off the elephant for a while yet.”
Meanwhile BOQ will continue fighting for deposits, which grew by a healthy 12 per cent over the year as Queenslanders boosted their overall savings rate from almost zero in 2009 to 10 per cent.
BOQ offered higher interest rates to attract depositors and will probably have to continue to do so in fiscal 2012 until the major banks offer lower rates, Mr Cameron said.
Retail deposits fund 52 per cent of its lending and BOQ is aiming to match the big four by boosting retail deposits to 60 per cent.
Moves by some banks to freeze pay rises and possibly cut jobs will not be followed by BOQ.
“We don’t have any plans to do that,” Mr Kangatharan said.
BOQ’s shares gained 11 cents, or 1.4 per cent, to close at $8.10.
