Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2017 Earnings Presentation
49 slides from Bank Of Queensland's earnings presentation, Oct 12, 2017
Slide 1: FY17 Results Presentation
FY20 Results Presentation 12 October 2017
Slide 2: Welcome and presentation overview
For personal use only Ladies and gentlemen, welcome to BOQ’s full year financial result for 2017. My name is Tanny Mangos and I am the General Manager Corporate Affairs and Investor Relations. Thank you for joining us today, in the room, on the phones and also by webcast. For today’s presentation, M
Slide 3: Full year result highlights
For personal use only Thank you Tanny and good morning. I’ll begin with the highlights of BOQ’s full year result on slide 3. We have delivered a sound result for 2017, with improved performance in the second half. The improvement in both lending growth and margin is in line with the guidance we prov
Slide 4: Highlights: expenses and capital position
management over the past five years. I am also pleased to report that we have delivered on our expense targets. We have found savings throughout the organisation which have allowed us to reinvest in our growth businesses. For personal use only Our capital position is very strong. We are in an enviab
Slide 5: Key financial elements of the result
For personal use only Turning now to the key financial elements of the result on slide 4. Cash earnings increased by 5 per cent to 378 million dollars. This included a 16 million dollar profit on the disposal of a vendor finance entity. We will discuss this in further detail later. Excluding this on
Slide 6: Key underlying drivers of the result
For personal use only Moving to the key underlying drivers of the result on slide 5. We achieved lending growth of 665 million dollars for the full year. Net interest margin was down 7 basis points to 1.87 per cent. Our cost to income ratio was down to 46.6 per cent and our loan impairment expense r
Slide 7: Second half momentum
For personal use only One of the most pleasing aspects of the result is the improved momentum in the second half as shown on slide 6. The second half largely played out as we said it would at our first half result. Lending growth improved significantly, in both the housing and commercial loan portfo
Slide 8: Housing loan growth by channel
For personal use only Slide 7 shows the improvement in housing loan growth across all channels in the second half. The branch network remains a core part of our proposition for customers, not only in lending, but increasingly for deposits. We have been through a period of transition, improving the q
Slide 9: Broker volumes and Virgin Money growth
confirm we have been managing comfortably within our capacity under regulatory limits. The increase in broker volumes has also been assisted by the convergence of serviceability tests, as well as income and expense validation requirements across the industry. BOQ took a conservative approach to regu
Slide 10: Growth in niche businesses
For personal use only We have also made good progress in growing our niche businesses during the year. BOQ Specialist delivered strong loan growth across both its housing and commercial loan books. This business now serves more than 30,000 customers, which is up from around 19,000 when we acquired t
Slide 11: Asset quality
For personal use only Turning to slide 9. The resilience we have built into the Bank is becoming increasingly evident. Impaired assets as a percentage of total loans is down to 44 basis points, while loan impairment expense was just 10 basis points of total loans in the second half. The commercial l
Slide 12: Portfolio health
Overall, we remain very comfortable with the health of the portfolio. There are no signs of systemic stress emerging. For personal use only 9
Slide 13: Cost management
For personal use only Another highlight of this result is our disciplined approach to cost management. We have delivered on our 1 per cent underlying expense growth target, with underlying expenses of 510 million dollars. We achieved this target while still investing in the business. Included in our
Slide 14: Investing for the future
We continue to invest for the future, and I will provide some more information on this in the outlook section. For personal use only 10
Slide 15: Capital and funding
For personal use only Moving to capital and funding on slide 11. Our customer deposit growth has been pleasing. We have grown our at-call transaction account balances at a compound annual rate of 9 per cent since 2015. We have achieved even stronger growth in mortgage offset accounts, at a compound
Slide 16: Capital management and special dividend
course of action at this stage. In addition to the determination to pay an 8 cent special dividend, the Board has suspended the dividend reinvestment plan. For personal use only 11
Slide 17: Progress against strategy
For personal use only Looking at our progress against strategy on slide 12, and I am pleased to report that we have delivered on our objectives. We have expanded channels for customers to engage with us, including mortgage brokers as well as enhancing our digital capability. We have continued to gro
Slide 18: Financial Detail
>» Financial Detail Anthony Rose Chief Financial Officer 13
Slide 19: Profit and loss
For personal use only Thanks Jon and good morning. I’ll start on slide 14, which sets out our profit and loss. On a headline basis our cash earnings after tax increased 5 per cent to 378 million dollars. This was driven primarily by a 28 per cent reduction in loan impairment expense. On this slide w
Slide 20: Half-on-half earnings
For personal use only Again, we have provided adjusted figures here to strip out the 16 million dollar profit from the vendor finance entity disposal. After adjusting for this, you can see the business has delivered a 7 per cent increase in earnings in the second half. This was driven by net interes
Slide 21: Loan portfolio
For personal use only Starting with the loan portfolio on slide 16. Following a contraction in the first half, we did see a return to growth in the second half of the year. Pleasingly, the loan portfolio has continued to diversify geographically, with Queensland concentration now down to 46 per cent
Slide 22: Retail portfolio
For personal use only Digging into the retail portfolio on slide 17. All distribution channels demonstrated improvement in the second half. The chart on the top right, shows monthly housing settlements by channel, and as you can see, our owner managed branches are still our biggest contributor to ou
Slide 23: Commercial loan growth
For personal use only Moving to commercial loan growth on slide 18, and as you can see on the bottom right, the portfolio grew strongly in the second half. This followed a first half which was impacted by a small number of large customer paydowns. Across the full year, we saw solid growth in the BOQ
Slide 24: Commercial Queensland concentration
Lastly, I’ll point out that Queensland concentration in the commercial book is now down to 38 per cent, which we believe provides a good level of diversification. Changes in concentration levels going forward will now reflect underlying business opportunity. For personal use only 18
Slide 25: Funding and deposits
For personal use only Looking at the funding side of the balance sheet. And I’m now on slide 19. Our 2017 lending growth has been fully funded by deposit growth. Our deposit to loan ratio finished the year at 69 per cent. There has also been an improvement in the mix of deposit funding. As Jon has a
Slide 26: Ratings actions and term funding
Moody’s undertook a similar industry downgrade action in the month following, but pleasingly BOQ’s rating was maintained at A3. Following this outcome, active work with the Bank’s funding counterparties in these segments re-established limits to levels largely equivalent to those prevailing before S
Slide 27: Net interest margin
For personal use only If we move on to the margin story - and I’m now on slide 20. This was a story of two halves. In the first half, we experienced 5 basis points of margin contraction, which we thought would reverse in the second half. We did achieve that profile with a restoration of our margin t
Slide 28: Net interest margin outlook
driven largely by a retracing of spreads on term deposits that had widened significantly in the first half. Capital and low cost deposits, or the return on our replicating portfolio, was a 2 basis point drag on our margin and consistent with our previous guidance. Looking ahead, we see a further 1 b
Slide 29: Non interest income
For personal use only Moving to Non Interest Income on slide 21. Although the headline result was fairly stable for this line, the 2017 result was supported by the 16 million dollar profit on disposal of the vendor finance entity that I mentioned earlier. This transaction arose from a contractual ar
Slide 30: Non interest income trends
stabilised at 10 to 11 million dollars per half. Meanwhile, opportunities to generate trading income have also reduced significantly. We expect the impact on the Bank’s owned ATM network, following recent industry For personal use only fee changes, to be a further one and a half million dollar headw
Slide 31: Expenses
For personal use only Shifting to expenses on slide 22 and we’ve been pleased with this result. We’ve delivered the savings we needed to keep our underlying cost growth to 1 per cent this year. We’ve also achieved this while absorbing higher IT software amortisation and a full-year impact from the t
Slide 32: Asset quality and impairment
For personal use only Looking now at asset quality. I’m now on slide 23. This is a very pleasing story. Loan impairment expense was down 28 per cent on the prior year, with reductions across all portfolios. Total impaired assets and the emergence of new impaired assets also decreased from 2016. The
Slide 33: Specific provision and collective provision
being actively managed, with limited options for refinance, but moved to default in the half. Deterioration in collateral asset values in Central Queensland has resulted in a specific provision charge of 16 million dollars for this exposure. In 2012, there was a significant portfolio of larger expos
Slide 34: Provisioning and new model
For personal use only Although provisions reduced during the year, this was in line with improvements in credit quality metrics across the portfolio. The Bank has been building a new collective provision model. The new model is in the final stages of validation and is expected to be adopted in the f
Slide 35: Arrears
For personal use only Looking at arrears, and all portfolios have performed very well. In the housing book, 90-day arrears increased 9 basis points over the half and 3 basis points for the full year. We have seen some impact of continued softening in the Central Queensland economy, as well as a dela
Slide 36: Capital
For personal use only Moving to capital on slide 26. Our underlying capital generation was 14 basis points in the second half, which helped to boost our Common Equity Tier 1 ratio to 9.39 per cent. There are 2 impacts expected in the first half of FY18 that will further improve the Common Equity Tie
Slide 37: Capital target and special dividend
We have been pleased with the clarity provided by APRA’s guidance on unquestionably strong in July this year. Although there is still some uncertainty around the risk weighting framework, we believe it is appropriate that a conservative capital profile is maintained. Whilst it may be possible to tar
Slide 38: Summary & Outlook
summary & Outlook Jon Sutton Managing Director & CEO 27
Slide 39: Operating environment
For personal use only There is no doubt that the environment we are operating in is changing rapidly. Regulatory, legislative and political pressures require banks to be more focused and nimble than ever before. Customers also expect more from their banks, particularly in terms of trust. At BOQ, we
Slide 40: Economic and housing market outlook
growth has been strong. With the unemployment rate around its decade average and interest rates low, loan losses have been minimal. But the consumer has been weighed down by stagnant wage growth, rising utility prices and high underemployment. In Queensland, the South-East is performing well. Agricu
Slide 41: Strategy pillars
For personal use only Turning to slide 30 and our strategy. We remain committed to our strategy of targeting niche customer segments that value a more intimate relationship. The four pillars of our strategy remain relevant and unchanged. Under the customer in charge pillar, we are seeking to achieve
Slide 42: Customer focus and digital transformation
We remain committed to proving it’s possible to love a bank. We will demonstrate this by our continued focus on our customers and the value we can create for them. This is a people business and to support our vision we are rolling out a Customer Heartbeat program across the group. The purpose of thi
Slide 43: Summary
For personal use only In summary, our niche strategy is delivering. Our distribution channels of Virgin Money, brokers, BOQ Specialist and the branch network give us greater reach than we have had before. We are cautious around the housing loan market, given that system growth is likely to slow. But
Slide 44: Hand back for Q&A
Thank you and now I will hand back to Tanny to moderate the Q&A. For personal use only 30
Slide 45: For personal use only
For personal use only 31
Slide 46: Housing Portfolio
HOUSING PORTFOLIO SUMMARY HOUSING PORTFOLIO LVR BANDS * Broker settlements increased to 28% including Virgin Money 12% 8% eRe . n 9 Interest only settlements trending to less than 30% 19% Hi 40-60% ‘ 17' + Room for growth under 10% investor cap ts) 61-80% Hi s1-90% 44% BB Greater than 90% PORTFOLIO
Slide 47: Exposure to High Risk Sectors
EXPOSURE TO HIGH RISK SECTORS APARTMENT CONSTRUCTION EXPOSURES") LENDING TO RESIDENTIAL APARTMENT CONSTRUCTION + $181m current exposure to residential construction * 28 developments across 3 states, completing 2018 through 2019 + Well diversified intra-state OTHER HIGHER RISK SECTORS + No material r
Slide 48: Abbreviations
ABBREVIATIONS 1H; First half of financial year 2H: Second half of financial year 30DPD: 30 days past due 9ODPD: 90 days past due ADI: Authorised Deposit-taking Institution ALM: Asset & Liability Management APRA: Australian Prudential Regulation Authority APS: ADI Prudential Standards Apts: Apartment
Slide 49: Disclaimer
DISCLAIMER This is a presentation of general background information about Bank of Queensland Limited's (BOO's) activities at the date of this document. Itis in summary form and does not purport to be complete. It should be read in conjunction with BOQ’s other periodic and continuous disclosure annou