Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2019 Earnings Presentation
40 slides from Bank Of Queensland's earnings presentation, Apr 11, 2019
Slide 1: HY19 Results Presentation
LHI9 REOWle PRESENTATION
Slide 2: Results Overview
RESULTS OVERVIEW Anthony Rose Interim CEO FINANCIAL DETAIL Matt Baxby Chief Financial Officer SUMMARY & OUTLOOK Anthony Rose Interim CEO Bonk of Queenstond Limited 2019 HW Yoor Rents Presertrtiny
Slide 3: Speaker Notes
Thanks Tanny and good morning everyone. Today’s result is in line with the announcement we made in February. It has been a difficult start to 2019. The results reflect a combination of industry-wide and BOQ- specific factors which I’ll talk through shortly. Although the headline numbers are disappoi
Slide 4: Half-Year Highlights
Relative to the first half of 2018, cash earnings were down 8 per cent to 167 million dollars. Basic cash earnings per share decreased 10 per cent to 41.8 cents. Return on equity reduced 110 basis points to 8.8 per cent. We have announced a first half dividend of 34 cents per share. This is a reduct
Slide 5: Key Drivers of the Result
Looking at the key drivers of the result on slide 5. Lending growth in the half was 500 million dollars or two per cent annualised. Net interest margin was down four basis points from the second half of 2018 to 1.94 per cent. Given lower revenue and a two per cent increase in operating expenses, the
Slide 6: BOQ Business
BOQ Business has continued to deliver solid levels of growth over the half, demonstrating that our niche specialisation strategy is working. Total lending growth was 756 million dollars or eight per cent annualised for the half. This included 303 million dollars or 13 per cent annualised growth in B
Slide 7: Retail Banking
As mentioned earlier, in Retail Banking, the performance has been mixed. Virgin Money, has once again exceeded expectations in both its housing loan growth and broader product distribution. Housing loan growth was 469 million dollars over the half, taking the portfolio balance to over two billion do
Slide 8: Retail Banking Initiatives
under development and is scheduled for delivery over the next year as part of the accelerated investment spend we announced at the FY18 results. In our branch network, starting seven years ago, we significantly increased risk requirements. In the Hayne environment, this has clearly been the right th
Slide 9: Asset Quality
Our conservative approach to risk has clearly benefited us in terms of asset quality. Impaired assets have continued to reduce, down seven per cent in the half to 152 million dollars or 33 basis points of gross loans. Housing arrears remain below industry averages, which we believe reflects our more
Slide 10: Industry Landscape
I want to touch on the industry landscape. The headwinds facing the sector have been growing. This has meant that industry returns have been declining for a number of years. We have welcomed the work of the Royal Commission and its focus on delivering improved customer outcomes. But the implementati
Slide 11: Financial Detail
FINANCIAL DETAIL
Slide 12: Group Financial Performance
Thanks Anthony. I’ll begin with the group financial performance on slide 11. Cash earnings after tax of 167 million dollars represents a decrease of eight per cent against the prior corresponding period and 12 per cent half on half. Comparing with the first half of 2018, loan growth was offset by a
Slide 13: Segment Performance
Breaking this result down to a segment level, there was a bigger impact in the Retail Bank, primarily due to lower income as loan balances and margin contracted. In BOQ Business, solid net interest income growth was offset by lower non-interest income and higher operating and loan impairment expense
Slide 14: Loan Portfolio
Moving to the loan portfolio on slide 13, gross loan growth of two per cent annualised was achieved in the half. This was driven by particularly strong growth in BOQ Finance at 13 per cent annualised and commercial loan growth of three per cent annualised. Virgin Money continued its strong momentum
Slide 15: Growth by Business Segment
Looking further into growth by business segment on slide 14, you can see that in the Retail Bank there was strong growth from Virgin Money mortgages. This is a continuation of our deliberate strategy to diversify by geography, customer segment and channel. The contraction in BOQ housing loans is due
Slide 16: Funding Mix
Looking at our funding mix on slide 15, the lower growth in assets has allowed us to continue to improve our liability mix and carefully manage margin. We increased the duration of our long term wholesale funding, while reducing balances of higher cost term deposits. During the half we launched two
Slide 17: Net Interest Margin
Turning to the movements in net interest margin on slide 16, the overall NIM reduced four basis points from the second half of 2018, to 1.94 per cent. The front to back book dynamic continued to have an impact, although slightly lower than previous periods at four basis points. This headwind was ful
Slide 18: Funding and Margin Outlook
below current levels relative to the cash rate. It is difficult to quantify this given the volatility we have seen, but our current expectation would be for a one basis point benefit in the second half of 2019 and further benefits in the following half as lower rates flow through to our hedges. Give
Slide 19: Non-Interest Income
Taking a look at non interest income on slide 17, we have seen continued pressure across all sub-categories here. Looking at the underlying trends, insurance income was lower due to decreased sales volumes. In line with industry trends, customer migration to lower fee products meant that fee income
Slide 20: Operating Expenses
Operating expense growth was kept to two per cent. Within this we absorbed some non-recurring items including a software impairment of two million dollars and executive transition costs totalling approximately one million dollars. Employee expense growth was kept to two percent, with employee number
Slide 21: Non-Cash Earnings Items
We have again provided a summary of the non-cash earnings items for the period. The largest of these were the amortisation of acquisition fair value adjustments and hedge ineffectiveness. This half we incurred three million dollars after tax in what we consider to be extraordinary regulatory complia
Slide 22: Asset Quality
Our asset quality metrics remain strong, as you can see on slide 20. Impaired assets have reduced a further seven per cent from FY18, with large reductions in the Retail and Commercial portfolios. BOQ Finance increased, but from very low levels. The level of new impaired assets has been very low wit
Slide 23: Arrears Trends
On slide 21 we have provided arrears trends for our three major portfolios. There is a seasonal uptick in the February quarter, which is broadly in line with the levels we experienced last year. 90 day arrears are a touch higher but remain at relatively benign levels. In the BOQ Finance portfolio, 3
Slide 24: Provisioning
Moving to provisioning on slide 22, there are a few points to note here. Firstly, our specific provisions have reduced by 10 per cent from the second half of 2018, reflecting improvements in the portfolio. Our specific provisioning coverage remains adequate at 51 per cent of impaired assets. Collect
Slide 25: Capital
Now to capital on slide 23. CET1 reduced five basis points in the half to 9.26 per cent. Underlying capital generation was 13 basis points but was offset by higher capitalised software, the transition to AASB 9 & 15, and statutory expense adjustments. Looking forward, our accelerated investment spen
Slide 26: Dividend
The dividend for the period is 34 cents per share. This is a reduction of 4 cents per share from recent periods. There are a number of factors that are taken into account in determining the appropriate level of dividends. In no particular order, these include our outlook for return on tangible equit
Slide 27: 25
25
Slide 28: Outlook and Priorities
Thanks Matt. I’ll start by reiterating that we acknowledge the earnings profile we have outlined today is below our expectations. However, we do have a clear plan to address this. In the next six to twelve months, we will continue to navigate the rising expectations of our regulators with a number o
Slide 29: Foundational Investments
A fundamental step in BOQ’s path to restoring returns, is delivering a number of ‘must do’ foundational investments. We are already well progressed on a number of major projects, including our technology infrastructure modernisation. This is a shift from an old style ‘on premise’ architecture to a m
Slide 30: New Way of Operating
The foundational ‘must do’ investments are critical and need to be delivered. At the same time, we also need to address our lower earnings profile by moving to a new way of operating. This will involve a laser like focus on the returns across the business, segment by segment. We are taking a systema
Slide 31: Virgin Money Digital Bank
We continue to have strong conviction around opportunities ahead for BOQ. A standout is the differentiated segment strategy that Virgin is delivering. We are now moving quickly to realise the future potential for Virgin Money as a fully fledged digital bank. We have committed five million dollars as
Slide 32: Regional Bank Advocacy
We would also like to brief you on a positive development, with the second tier banks aligned on a clear advocacy position on addressing the imbalance of industry risk weights to deliver a more level playing field. For some time we have been advocating for reforms necessary to ensure a levelling of
Slide 33: Summary
In summary, we will continue to build on our niche strategy which has transformed BOQ into a resilient, multi-channel business that is geographically diverse. Strong growth in Virgin Money, BOQ Finance and BOQ Specialist show there is good momentum in these parts of the business. We are delivering o
Slide 34: Appendices
APPENDICES
Slide 35: Housing Portfolio
HOUSING PORTFOLIO SUMMARY HOUSING PORTFOLIO LVR BANDS > Broker settlements at 30% including VMA os Bi tesstnan ox > Interest only settlements remain low 16% 40-60% > Owner occupied P&I loans represent 51% of portfolio 20% Hh cvcon Bi vv20% 44% I Greater tnan 20% PORTFOLIO METRICS 7 SETTLEMENT METRIC
Slide 36: Commercial Portfolio
COMMERCIAL PORTFOLIO PORTFOLIO BY INDUSTRY * 2%. 2%, or 35% 7%, Ot 3% = Property & construction Healthcare 1 Professional services ‘= Hospitality & accommodation PORTFOLIO BY STATE 16%) @QLD =NSW aVIC =WA @SA «Other PORTFOLIO BY EXPOSURE SIZE 2% a<sin $im-$5m 8 $5m-$10m ‘= $10m-$25m =$25m-$50m = $50
Slide 37: BOQ Finance Portfolio
BOQ FINANCE PORTFOLIO ASSET BY INDUSTRY 4%) ‘= Construction @ Agriculture = Retail trade ‘= Consumer borrowing. Healthcare Ss ‘ae Transport ‘= Manufacturing = Rental, Hiring, Real Estate = Professional ASSET BY STATE = Other ASSET BY TYPE a Trucks Cars = Other road vehicles, traiers = Mining & const
Slide 38: Limited Exposure to High Risk Sectors
LIMITED EXPOSURE TO HIGH RISK SECTORS APARTMENT CONSTRUCTION EXPOSURES > $167m current exposure to residential construction > I developments across 3 states, completing 2019 through 2020 > Well diversified intra-state within NSW and VIC OTHER HIGH RISK SECTORS > No material regional housing exposure
Slide 39: Abbreviations
ABBREVIATIONS 1H: First half of financial year 2H: Second half of financial year 3LOD: Three lines of defence 30DPD: 30 days past due 9ODPD: 90 days past due ‘AASB: Australian Accounting Standards Board ADI: Authorised Deposit-taking Institution AML/CTF: Anti-Money Laundering/Counter-Terrorism Finan
Slide 40: Disclaimer
This is a presentation of general background information about Bank of Queensland Limited's (BOQ's) activities at the date of this document. It is in summary form and does not purport to be complete. It should be read in conjunction with BOQ's other periodic and continuous disclosure announcements.