Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2018 Earnings Presentation
47 slides from Bank Of Queensland's earnings presentation, Apr 17, 2018
Slide 1: 1H18 Results Presentation
Oe 1H18 Results Presentation 17 April 2018
Slide 2: 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
Slide 3: Results Overview, Financial Detail, Summary & Outlook
Jon Sutton Results Overview Managing Director & CEO i ; ; Anthony Rose Financial Detail Chief Financial Officer Jon Sutton Summary & Outlook Managing Director & CEO Bank of Queensland Limited Results Presentation 1H18 3
Slide 4: Results overview highlights
For personal use only Good morning, I would like to begin with the highlights of the result. Our strategy to grow the right way, together with our deliberate approach of building our niche businesses, is delivering. We have proactively sought to diversify our lending across the Group over the past f
Slide 5: Capital position and St Andrew's sale
continue investing for the future. Our capital position remains very strong, providing us with options to enhance shareholder returns for the long term. These results were achieved against a backdrop of changing regulatory and For personal use only market conditions. Today we have also announced the
Slide 6: Key financial elements of the result
For personal use only Looking at the key financial elements of the result. Cash earnings after tax of 182 million dollars increased four per cent on 1H17. Earnings per share of 46.5 cents. This represents an increase of two per cent on 1H17. Return on equity increased 10 basis points to 9.9 per cent
Slide 7: Drivers of the result
For personal use only Slide 6 provides an overview of the drivers of these results. Total lending growth of $671 million in this half represents an uplift of more than $800 million compared to the contraction of $157 million in the first half of 2017. Net interest margin increased one basis point fr
Slide 8: Housing and commercial loan growth
For personal use only Moving to slide 7. We are seeing improvements in both housing and commercial loan growth. In housing, BOQ Broker, Virgin Money Australia and BOQ Specialist have all made strong contributions. We have also seen improvement in the branch network as branch numbers stabilise. As we
Slide 9: Retail Bank and BOQ Business
For personal use only Turning now to our Retail Bank and BOQ Business divisions. Retail Banking has continued to diversify its channels. BOQ Broker and Virgin Money Australia contributed 40 per cent of Retail’s home loan settlements in the first half of 2018. Overall, housing loan settlements increa
Slide 10: Transaction account deposit growth
Pleasingly, transaction account deposit growth has been strong at ten per cent since first half 17. For personal use only 8
Slide 11: BOQ Business niche strategy
For personal use only The BOQ Business division has continued to benefit from maturing its niche strategy across commercial customer segments. It achieved commercial loan growth of nearly 300 million dollars. This has been delivered across target segments that seek a real relationship banking propos
Slide 12: Asset quality
For personal use only Our asset quality remains sound, which is clearly evident across a number of metrics. Impaired assets have reduced to 39 basis points of total loans. Impairment expense has remained steady at 10 basis points of total loans. Our arrears trends remain benign, with the exception o
Slide 13: Cost efficiency and transformation
For personal use only We have continued to search for and extract efficiencies across the business. This has enabled us to reduce core expenses by four million dollars compared to last half. At the same time, we have been investing for the future with a large number of transformation initiatives und
Slide 14: Capital levels
For personal use only Our capital levels remain very strong. Following the Basel and APRA papers released in the past few months, we remain comfortable with our position. Relative to our peers, we are in a very strong position as a standardised bank at 9.42 per cent CET1. Our interim CET1 target of
Slide 15: Financial Detail
For personal use only 13
Slide 16: Profit and loss
For personal use only Thanks Jon. I’ll start with the P&L on slide 14. I’ll focus on comparisons with 1H17 given the day-count impact and seasonal factors mean this is the most appropriate point of comparison. Total Income increased by three per cent or 18 million dollars compared to 1H17. The prima
Slide 17: Cash earnings and 2H17 comparison
hybrid capital instruments, this meant that cash earnings increased four per cent or seven million dollars. The comparisons with the second half of 2017 are not as clear. The prior half included a 16 million dollar benefit from the disposal of a vendor finance entity, which is obviously non-recurrin
Slide 18: Loan portfolio growth
For personal use only Now moving on to business momentum and I’ll start with the loan portfolio on slide 15. We did achieve growth across all product portfolios. Total lending growth was 0.7x system, with housing loan growth tracking at half system and commercial loan growth at 1.6x system. Our stro
Slide 19: New reporting segments
For personal use only On slide 16 we have provided an overview of our new reporting segments, which reflect the way we manage the business day to day. Retail Banking incorporates housing loans and deposits originated through the branch network, direct channels, Virgin Money Australia and our mortgag
Slide 20: Retail Banking performance
For personal use only Turning to the performance of the Retail Banking segment specifically on slide 17, and the Retail division’s performance largely mirrors the group results in terms of the 1H17 comparison. Margin improvement supported income growth, while operating expenses increased due to high
Slide 21: Retail origination channels
For personal use only The Retail division is delivering on its strategy of diversifying its origination channels and we are seeing good results in this regard. Virgin Money Australia and BOQ broker channels each contributed 20 per cent of Retail’s settlement volumes. The branch network is still seei
Slide 22: BOQ Business performance
For personal use only Turning to BOQ Business on slide 19, and it may surprise some to see that it actually contributes a higher proportion of earnings than the Retail division. Given the majority of its assets are 100 per cent risk weighted though, we do allocate more capital to BOQ Business than R
Slide 23: BOQ Business niche segments
For personal use only The BOQ Business strategy is very much focused on growing in our target niche segments including medical & dental through BOQ Specialist, corporate healthcare & retirement living, hospitality & tourism and agribusiness. The business has demonstrated good success in these segmen
Slide 24: BOQ Finance geographic diversification
at diversifying its portfolio geographically, with QLD exposure down to just 37 per cent. For personal use only 20
Slide 25: Funding
For personal use only Moving to funding now on slide 21 and the story here is also one of diversification and improvement in mix. We have continued to build out our stable wholesale term funding sources, while also focusing on improving our growth in stickier and better margin transaction deposits.
Slide 26: Net interest margin
For personal use only Getting into the detail of net interest margin on slide 22, and I’ll point out that we have now moved in line with the rest of the industry in reporting our NIM net of offset accounts. This has an impact of around six basis points, which means our adjusted starting position fro
Slide 27: Net interest margin drivers and outlook
There was also a benefit of two basis points from the reduction that has occurred in the three month bank bills relative to the cash rate, which impacts the costs of hedging this element of the interest rate risk in our portfolio. The average cost of hedging reduced from 29 basis points in 2H17 to 2
Slide 28: Net interest margin outlook
couple of basis points higher than the 1H18 level, largely due to improved term deposit spreads. For personal use only 22
Slide 29: Non interest income
For personal use only Moving to non interest income on slide 23. As we have been saying for a number of periods, non interest income is a very challenging line to grow and we have to work very hard to even keep this line flat. That has been evident in this half with a five million dollar reduction.
Slide 30: Operating expenses
For personal use only Operating expenses have been closely managed. We continue to work on identifying opportunities to digitise and find efficiencies across the business. We must do this in order to provide the headroom for investments we to set the business up for the future. We have a number of s
Slide 31: Asset quality
For personal use only Turning now to asset quality, and there’s no doubt that our loan book is in very good shape. Loan impairment expense of 10 basis points and impaired assets of 173 million dollars or 39 basis points of gross loans are great numbers for the portfolio mix we have and given the jou
Slide 32: Provisioning coverage
For personal use only We have also maintained strong provisioning coverage levels. Given the improvements in the underlying portfolio trends, we have been able to reduce absolute provisions, but our coverage ratios have remained consistent. 26
Slide 33: Arrears
For personal use only Arrears levels remain benign. We have seen the usual seasonal increase in the post-Christmas period, but this has generally been at or below prior period levels. The spike that is most evident in the BOQ Finance portfolio in the 30 day arrears bucket. I’m pleased to say that's
Slide 34: Capital
For personal use only Turning to capital on slide 28 and there are a number of moving parts to discuss this half. Firstly, we have the capital management initiatives announced at the full year 17 results, namely the eight cent special dividend and DRP suspension. These initiatives reduced common equ
Slide 35: Capital management
released, and more water to go under the bridge, we feel that we are in a very strong position. As such, we continue to consider the best way to deploy excess capital to deliver enhanced shareholder returns into the future. For personal use only 28
Slide 36: Sale of St Andrew's
For personal use only Today we have also announced the sale of our St Andrew’s insurance business to Freedom Insurance Group. BOQ acquired St Andrew’s in 2010 and since that time it has made a very strong contribution to the group. In recent years, however, the business and industry dynamics have ch
Slide 37: For personal use only
With that, I will hand back to Jon. For personal use only 29
Slide 38: Summary & Outlook
>» summary & Outlook Jon Sutton Managing Director & CEO 30
Slide 39: External environment and regulation
For personal use only Thank you Anthony. As I turn to the outlook, it makes sense to consider the external environment we are operating in. With increased regulatory and public scrutiny of the banking sector, there is no doubt that conduct and trust remain a core focus for the industry. At BOQ we ar
Slide 40: Regional economic conditions
There are signs of improvement in the Queensland and Western Australian economies, while New South Wales and Victoria continue to perform well. In regional Queensland, the unemployment rate has declined in Mackay, Toowoomba and Townsville. The participation rate has risen across most regions, a sign
Slide 41: Long term strategy and initiatives
For personal use only In this environment, our long term strategy remains the right one. We are building out our business bank and opening up new retail channels. We remain focused on improving user experience in our digital offering. To do this, we are upgrading our online platforms and partnering
Slide 42: Summary of evolution since 2012
For personal use only In summary, since 2012 BOQ has consciously evolved. In the retail space, we have gone from being a mono-line distribution business to a diversified multi-channel retail bank. On the commercial side, we are now a niche specialist business bank with a focus on higher growth secto
Slide 43: Outlook
We believe competition and stability must co-exist. For the past decade, the default regulatory position has been focused on safety and stability. This has contributed to the emergence and maintenance of a concentrated market structure in retail banking. We have been advocating for regulatory settin
Slide 44: For personal use only
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Slide 45: Housing portfolio
HOUSING PORTFOLIO SUMMARY HOUSING PORTFOLIO LVR BANDS « Broker settlements increased to 30% including Virgin Money + Interest only settlements trending to less than 30% * Room for growth under 10% investor cap * Owner occupied P&l loans represent 49% of portfolio PORTFOLIO METRICS Metrics (%) Wir 27
Slide 46: Limited exposure to high risk sectors
LIMITED EXPOSURE TO HIGH RISK SECTORS LENDING TO RESIDENTIAL APARTMENT CONSTRUCTION APARTMENT CONSTRUCTION EXPOSURES + $90m current exposure to residential construction * 16 developments across 3 states, completing 2018 through 2019 + Well diversified intra-state OTHER HIGH RISK SECTORS * No materia
Slide 47: Abbreviations
ABBREVIATIONS 1H; First half of financial year 2H: Second half of financial year 30DPD: 30 days past due 90DPD: 90 days past due APRA: Australian Prudential Regulation Authority APS: ADI Prudential Standards Apts: Apartments AT1: Additional Tier One Avg: Average BDD: Bad & Doubtful Debt Expense bps: