Bank of Queensland’s new management is confident an overhaul of its lending practices will prevent a repeat of its $17 million full year loss – the first posted by a local bank in two decades.
The loss was caused by $401 million in costs from unrecoverable loans, more than double the cost incurred in the previous year.
That was caused by BOQ’s exposure to the struggling property market in Queensland, where 60 per cent of its loans are written.
The majority of bad debt costs came in the first six months of the year, after newly installed chief executive Stuart Grimshaw began a review of BOQ’s portfolio.
An improved second half performance was unable to offset that first half loss.
The bank has now reached a turnaround point, and BOQ’s loan portfolio problems are in the past, Mr Grimshaw said.
“We’ve spent a lot of time getting our hands around it, and we’re comfortable with the position we are in,” he told analysts.
The new executive team has removed some middle management staff and reset the bank’s risk appetite in response to the loan issues.
More resources are now devoted to home loan decisions and the timing of loans, the bank said.
But economic conditions remain challenging, illustrated by low demand for loans caused by weak consumer sentiment, Mr Grimshaw said.
However, there had been an improvement in clearance rates in property markets on the Sunshine and Gold coasts, where some property prices have fallen by up to 50 per cent, he said.
“That doesn’t mean that property prices are going to suddenly ramp up but what we seem to be getting is a meeting of minds between the sellers and the buyers, and that’s an important start for getting ourselves out of what has been a free-fall in some of these coastal areas,” he said.
Despite the full year loss, which compared to a net profit of $158.7 million in the previous 12 months, BOQ declared dividends of 52 cents per share for the year, down only slightly from 54 cents in the previous year.
That was a reflection of management’s confidence in returning BOQ to sustained profitability, the bank’s chief financial officer Anthony Rose said.
But analysts remain cautious.
“Were Australia’s GDP growth to slip below trend – something the RBA has hinted in recent communication – the overall banking sector will likely be confronted by increased bad debt challenges,” Patersons analyst Tony Farnham said.
BOQ shares were down five cents at $7.30 at 1519 AEDT.
