Bank of Queensland (BOQ) says it has done its best to avoid a repeat of the bad loans that will lead a $91 million first half loss.
However, analysts are questioning whether the latest round of loan losses will be the last.
BOQ said impairment costs of $328 million on loans for the six months to February were more than double the $134 million incurred in the same period a year earlier.
The bank said the increase in impairment charges on badly performing loans would lead it to report a $91 million loss for its first half.
This is a turnaround from a $48 million profit in the previous corresponding period.
BOQ expects credit growth to be subdued also during the second half.
“The failure to move in on problem loans in recent history … is now coming home to roost,” City Index chief market analyst Peter Esho said.
He said BOQ had written off fewer bad debts during the financial crisis than other banks, leaving it more vulnerable to future losses.
Since the 2011 floods, Queensland’s economy has been quite variable, causing heavy falls in property valuations and a 30 per cent surge in BOQ’s non-performing loans, chief executive Stuart Grimshaw said.
“We wanted to protect the balance sheet from any future moves that could catch us by surprise.
“We feel we’ve positioned the balance sheet pretty well against future shocks,” Mr Grimshaw said.
He said BOQ made specific provisions for impaired loans of $166 million after it cut valuations on impaired property assets mostly in South-East Queensland.
Those properties include residential land and sub-divisions and luxury homes.
Smaller cuts to valuations were made for some industrial and commercial assets, newly appointed chief risk officer, Peter Deans said.
BOQ on Monday started its capital raising of $450 million from the sale of 74 million new shares to institutional and retail shareholders.
The new funds will pay for the bad loan provisions and will also improve BOQ’s capital position and help build its presence in the agribusiness and small business sectors.
Existing shareholders will be offered around $300 million new shares in an entitlement offer and that a further $150 million could be raised through the placement of shares to institutional shareholders.
BOQ’s shares were placed in a trading halt on Monday but will start trading on Wednesday after the institutional placement closes.
The shares last traded at $7.30.
BOQ will report final interim results on April 18.
The prudential regulator approved a fully franked interim dividend of 26 cents per share because it was confident of the bank’s future earnings potential, Mr Grimshaw said.