Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — 1H22 Earnings Presentation
66 slides from Bank Of Queensland's earnings presentation, Apr 14, 2022
Slide 1: Half year ended 28 February 2022
14 APRIL 2022 Half year ended 28 February 2022
Slide 2: Important notice and disclaimer
This is a presentation of general background information about Bank of Queensland Limited and its consolidated entities (BOQ’s) activities at the date of this document. It is in summary form, does not purport to be complete and should be read in conjunction with BOQ’s other periodic and continuous d
Slide 3: Contents
CONTENTS 1H22 Results Presentation About BOQ Business Performance Divisional Results Portfolio Quality Capital, Funding & Liquidity Economic Assumptions Abbreviations ‘BANK OF QUEENSLAND LIMITED 2022 Holf Year Results Presentation BOQ & GROUP
Slide 4: Group
GROUP ‘BANK OF QUEENSLAND LIMITED.
Slide 5: George Frazis, Managing Director & CEO
George Frazis Managing Director & CEO
Slide 6: 14% uplift in cash earnings PCP to $268m
1. 14% uplift in cash earnings PCP to $268m, driven by balance sheet growth, tightly managed costs and lower LIE. Statutory net profit of $212m: › Income profile impacted by legacy ME IEA decline prior to ownership and NIM pressure. › Expenses down 3% compared to prior sequential period. 2. Business
Slide 7: Higher cash profit driven by strong asset growth, controlled costs and improved portfolio quality
Higher cash profit driven by strong asset growth, controlled costs and improved portfolio quality 1H22 1H22 v 1H21 Total income 831 1% Operating expenses (461) 0% Underlying profit 370 1% Loan impairment expense 15 large Cash profit before tax 385 13% Income tax expense (117) 13% Cash earnings after
Slide 8: Income profile impacted by legacy ME interest earning assets decline and NIM pressures
Income profile impacted by legacy ME interest earning assets decline and NIM pressures 826 831 9 (4) (0.07) (0.05) 251 247 1.86 1.74 575 584 1H21 BOQ ME ME Bank 1H22 2H21 Underlying Liquidity 1H22 BOQ ME Bank 757 33 (49) 741 26 33 (49) 245 • (-12) ME • (-9) ME 224 31 • +45 BOQ • (-40) BOQ (5) (9) (6
Slide 9: Expense growth continues to trend down while supporting ongoing business growth
Expense growth continues to trend down while supporting ongoing business growth › Expense growth trending down for 5th consecutive half › Productivity and synergy savings offsetting expense growth to 5% support business volumes and business investment › Additional cost benefits expected to be derive
Slide 10: Strong lending growth continuing with uplift in housing and business lending
Strong lending growth continuing with uplift in housing and business lending 112% 52.5 56.5 58.3 3,204 740 22.0 -6% 20.7 1,512 20.5 4.8 10% 5.3 571 179 4.7 348 2,589 22.4 24.3 7% 26.1 19 52 514 1,004 (101) 16% 4.9 5.4 6.2 (14) (19) (24) 1 1H21 2H21 1H22 1H21 2H21 1H22 Housing Business Asset finance
Slide 11: Strong progress on key areas of focus
Strong progress on key areas of focus › High quality lending across the housing and business lending portfolios $32.3bn › ME returned to growth, ahead of schedule, and reversing FY21 29% downward trend 4% $16.8bn 22% › Focus on business lending delivering growth and market share with SME growing at
Slide 12: Integration program delivering ahead of plan
Integration program delivering ahead of plan ME returned to growth Risk, compliance and remediation stream well progressed › Aligned risk management and capability at ME with Single Board and leadership team in place the broader BOQ Group ADI consolidation completed, and ME Bank ADI licence Consolid
Slide 13: Regulatory & compliance programs completed
› Regulatory & compliance programs completed including APRA › Cultural transformation underway with positive reporting, KYC, Product Remediation and Complaints momentum in all key culture and engagement measures Management › Achievement approach embedded to ensure quality people › Open Banking Progr
Slide 14: Transformation on track and progressing as planned
Transformation on track and progressing as planned › Virgin mobile app launched to market in March 2021 › Attracting a younger customer who is urban and digitally savvy (54% under age of 39) › $0.5bn balances on new platform, $1.1bn total VMA deposits including offsets2 › Average balance per custome
Slide 15: Cultural transformation delivering improved outcomes for our people and business
Cultural transformation delivering improved outcomes for our people and business August 2020 August 2020 May 2020 May 2020 August 2020 59% 54% 58% 51% 72% August 2021 August 2021 August 2021 August 2021 August 2021 August 2021 64% 64% 74% 69% 81% 78% +5 +10 +16 +18 +9 Note: The 2022 engagement and c
Slide 16: Ewen Stafford, CFO & COO
Ewen Stafford Chief Financial Officer & Chief Operating Officer
Slide 17: Solid financial performance delivering 1% positive jaws
Solid financial performance delivering 1% positive jaws both PCP and sequentially 1H22 2H21 1H21 1H22 v 2H21 1H22 v 1H21 Net interest income 741 782 757 (5%) (2%) Non-interest income 90 65 69 38% 30% Total income 831 847 826 (2%) 1% Operating expenses (461) (473) (460) (3%) 0% Underlying profit 370
Slide 18: NIM impacted by competition, fixed rate lending and liquidity
NIM was impacted by intense competition fixed rate lending and liquidity, partially offset by funding benefits › Increased fixed rate housing volumes and rapidly rising swap rates have impacted NIM for the half › Front to back book NIM drag consistent with prior periods, reflecting ongoing competiti
Slide 19: Benefits expected from rising rate environment
Benefits expected from rising rate environment › Slowing fixed rate lending impacts and consistent pressure on front to back book › Fixed rate lending normalised to long term averages › Funding tailwinds continuing but to a lesser extent › Ongoing front to back book impacts › Replicating portfolio i
Slide 20: Strong non-interest income in the half
Strong non-interest income in the half with volume related banking income and one-off benefits › Stable banking fees due to product simplification offset by increase in underlying business volumes 90 › Other income benefited from: 4 69 › Seasonality and higher equipment sales 65 income 45 28 24 › On
Slide 21: Productivity and synergy benefits more than offsetting expense growth
Productivity and synergy benefits more than offsetting expense growth from volume growth and investment spend -5%2 -4% 473 461 8 9 (6) (10) (10) 8 13 (5) 35 (3) 3,172 30 39 22 32 3,300 3,257 3,133 408 Underlying expenses -4% 391 2H21 Volume Other 1 Productivity Synergies Investment Amortisation 1H22
Slide 22: Integration program delivering ahead of plan
Integration program delivering ahead of plan 1H22 FY22 FY23 FY24+ FY21 1H22 2H22 FY23 FY24 Synergies annualised run rate $33m c.$38-$42m c.$70 - $80m $95m+ Integration costs $13m $36m c.$34 - $40m c.$30 - $40m c.$10m Delivered percentage1 44% c.50 – 56% 100% 125%+ Cumulative $13m $49m c.$83 - $90m c
Slide 23: Ongoing investment to deliver transformation roadmap
Ongoing investment to deliver transformation roadmap › Capital investment in 1H22 continued, focused on single, cloud based, digital retail banking platform and key foundational components of Open Banking and Data Platform 154 › Velocity and cost of digital bank delivery is improving with each addit
Slide 24: Sound provisioning levels maintained
Sound provisioning levels maintained with economic conditions improving 374 311 289 26 271 31 22 204 199 (5) (9) (6) (77) 103 107 90 1H21 2H21 1H22 1H21 2H21 1H22 (55) (15) Specific Collective Specific Collective 221 243 194 32 38 7 77 36 78 (14) (4) 63 111 128 95 1H21 2H21 1H22 1H21 2H21 1H22 Housi
Slide 25: Housing and commercial arrears trends improving
Housing and Commercial arrears trends improving, parts of Asset Finance impacted by pandemic lockdowns › Low interest rate environment, low unemployment, rising house prices 174 171 and increased household deposits supporting lower housing arrears 143 › Commercial arrears continue to normalise to pr
Slide 26: Execution of funding plan delivering benefits
Execution of funding plan delivering benefits › Deposit to loan ratio broadly stable at 74% 83.5 87.4 › Growth in transaction deposits of 16%, savings & investments deposit growth of 7% 51.8 17.7 10% 19.4 9.3 4% 9.7 10.8 › Reliance on term deposits reduced by $1.3bn in the half 5.2 56.5 3% 58.3 › Lo
Slide 27: Investing in growth and transformation
Investing in growth and transformation › CET1 remains unquestionably strong and above the top end of the target range, at 9.68% (9.76% pro forma, including impact of March 9.76 2022 securitisation) 0.08 › Strong business growth generating earnings 9.91 10.03 › Continued investment in transforming th
Slide 28: Summary & Outlook
GROUP SUMMARY & OUTLOOK
Slide 29: Supporting customers and people; solid financial performance during 1H22
› Supporting our customers and people through ongoing challenging times › Solid financial performance during 1H22, delivering quality sustainable growth across retail and business bank › Strong quality loan growth offsetting heightened industry margin pressure › Demonstrating good operating efficien
Slide 30: FY22 outlook
› Australia remains well placed for continued economic recovery with low unemployment, high terms of trade and a large pipeline of residential construction and infrastructure › However, uncertainty remains given geopolitical tensions, elevated inflation, rising interest rates, supply chain and labou
Slide 31: About BOQ
GROUP ABOUT BOQ ‘BANK OF QUEENSLAND LIMITED.
Slide 32: Unique brands in niche segments serving customers for 148 years
UNIQUE BRANDS IN NICHE SEGMENTS SERVING CUSTOMERS FOR 147 YEARS Unique brands in niche segments serving customers for 148 years › Unique brands with proud history › Deeply anchored in local communities c. 570k BOQ › Highly specialised bankers, within niche industry segments c. 1.5m c. 35k Specialist
Slide 33: Combination of BOQ and ME has diversified the portfolio
Combination of BOQ and ME has diversified the portfolio › Well diversified profit, with 47% of profits from Retail Banking and 51% from Business Banking 1% › Lending portfolio diversified geographically across the East Coast of Retail Australia 47% Business › Multi-brand strategy enables differentia
Slide 34: Branch numbers and franchise network
› 1H22 branch numbers at 158 (incl. transaction centres) 1 25 › The franchise network remains a key differentiator for BOQ and is pivotal to the Bank’s deposit raising capabilities and growth in 12 32 22 68 1,828 mortgages and SME lending 7 6 1,209 2,245 › In 1H22 we expanded the number of brokers a
Slide 35: Branch summary by state
Feb-22 QLD NSW / ACT VIC WA NT TAS SA Total Corporate branches 22 5 6 11 - - - 44 Owner managed branches 68 19 11 5 1 2 1 107 Transaction centres 7 - - - - - - 7 Total 97 24 17 16 1 2 1 158 Aug-21 QLD NSW / ACT VIC WA NT TAS SA Total Corporate branches 25 7 10 11 - - - 53 Owner managed branches 66 1
Slide 36: Business Performance
GROUP BUSINESS PERFORMANCE ‘BANK OF QUEENSLAND LIMITED.
Slide 37: Transformation on track and progressing as planned
Transformation on track and progressing as planned Phase 1 – Foundational capabilities ✓ Key banking partnerships established FY20 – FY21 COMPLETE ✓ Cloud based core foundation built ✓ Mobile first capabilities focused on everyday banking ✓ New card management system ✓ In house loyalty and reward pl
Slide 38: Quality growth in housing
Quality growth in housing, with net growth and application volumes providing revenue tailwinds, whilst maintaining good turnaround times Quality Growth Portfolio 1H22 Flow 1H22 14% LVR > 90% 3.6 1.6 90 Days past due 59bps 24.3 29.4 Interest only %1 13 13 25.8 Investor % 31 29 3.2 2.4 2.6 PAYG % 82 1
Slide 39: Focus on SME lending delivering business growth
Focus on SME lending delivering business growth 101% › Business lending growing strongly, particularly in SME 340 › Small and medium growing at 2.5x system1, 2 169 100 › Corporate growing at 1.2x system2 104 240 › BOQ Specialist business continuing to deliver growth through 65 niche segment focus (3
Slide 40: $1.8bn growth in deposits in 1H22
› $1.8bn growth in deposits in 1H22, 1.0x system, with 3% growth in $32.3bn Retail and 10% growth in Business 29% › Proportion of at call deposits priced at or below 5bps has increased to 4% 45% $16.8bn 22% › Majority of low cost deposits sourced through Owner managers 45% showing the strength of th
Slide 41: Divisional Results
GROUP DIVISIONAL RESULTS ‘BANK OF QUEENSLAND LIMITED.
Slide 42: Positive growth in underlying profit across Retail Bank and BOQ Business
Positive growth in underlying profit across Retail Bank and BOQ Business 1H22 1H21 1H22 v 1H21 1H22 1H21 1H22 v 1H21 Net interest income 460 481 (4%) 280 270 4% Non-interest income 62 42 48% 25 25 0% Total income 522 523 (0%) 305 295 3% Operating expenses (321) (324) (1%) (140) (132) 6% Underlying p
Slide 43: Retail Bank and BOQ Business income and growth
1,016 792 377 265 1,051 2,915 2,212 348 740 499 1,162 179 739 (101) 2H21 1H22 2H21 1H22 2H21 1H22 2H21 1H22 Asset Finance Commerical Housing › Total income broadly flat at $522m › Total income up 3% to $305m › Maintained housing momentum in BOQ retail and VMA. ME returned to growth in › Continued mo
Slide 44: Growth across all brands
Growth across all brands, ongoing momentum in BOQ and VMA and ME returned to growth › Housing growth momentum continuing in BOQ and VMA and ME returned to +199% growth 2,212 › Ongoing deposit growth supporting business growth 739 312 1,248 1,103 › Phase 1 of VMA digital bank launched to market in Ma
Slide 45: Business lending momentum continues to build
› Business lending momentum continues to build enabled by strong +36% performance in SME lending 491 › Continued focus on niche market segments delivering lending growth 362 162 201 130 › Continuing to support customers through business impacts of COVID-19 21 384 229 258 › Ongoing growth in customer
Slide 46: Strong housing growth relative to market
Strong housing growth relative to market February YTD Lending to Households (APRA) Multiple (APRA) YTD (A) 3M (A) 1M YTD 3M 1M Market share Major 1 36.38% 40.39% 2.24% 4.8 5.2 4.7 4.28% International 1 22.48% 28.29% 3.15% 2.9 3.6 6.6 1.34% BOQ 14.06% 16.02% 1.36% 1.8 2.0 2.9 1.71% Regional 1 10.06%
Slide 47: BOQ growing above system, with focus on SME
BOQ growing above system, with focus on SME Lending to Businesses (APRA) Multiple (APRA) YTD (A) 3M (A) 1M YTD 3M 1M Market share International 1 45.57% 44.68% 3.87% 3.7 3.9 3.9 0.40% Major 1 19.24% 3.70% 0.19% 1.6 0.3 0.2 2.01% Major 2 15.98% 16.45% 0.82% 1.3 1.4 0.8 26.42% Major 3 14.44% 15.99% 1.
Slide 48: BOQ growing above system, with focus on SME
BOQ growing above system, with focus on SME 35.0% 35.0% 25.0% 26.2% 25.0% 20.5% 15.0% 16.7% 15.0% 5.0% 6.3% 5.0% -5.0% -5.0% -15.0% -15.0% Feb-21 Aug-21 Feb-22 Feb-21 Aug-21 Feb-22 BOQ Market BOQ Market Small and Medium YTD (A) Large YTD (A) Market Growth - RBA (As at 31 Jan 22) 5.0% Market Growth -
Slide 49: Portfolio Quality
GROUP PORTFOLIO QUALITY ‘BANK OF QUEENSLAND LIMITED.
Slide 50: Housing portfolio LVR and diversification
› Ongoing management of risk with LVR spread across bands 4% › Housing portfolio diversified across geography and channel 15% Up to and including 60% 31% › 96% of customers with LVR<90% >60% to 70% >70% to 80% >80% to 90% 32% 19% Greater than 90% 1% BOQ OMB 6% 8% BOQS 11% QLD 26% 31% BOQ Branch NSW
Slide 51: Geographic and industry diversification of asset finance portfolio
› Portfolio remains well diversified geographically 9% › Broad industry spread reducing concentration of asset finance portfolio 5% 30% QLD 8% NSW VIC WA 21% NZ Other 26% Construction 18% Transport 2% 13% Equipment Finance 21% Manufacturing 2% Structured Finance Agriculture 9% Dealer Finance 12% Ret
Slide 52: Business portfolio well diversified
› Business portfolio well diversified geographically 3% 6% › Strong growth across the core distribution channels of Business Banking, BOQS & owner managed branches ensuring diverse channel 17% QLD mix 39% NSW & ACT VIC WA Other 35% 2% 20% Property 15% 33% Health Care Construction Business Banking 5%
Slide 53: Enhanced geographic diversification
1H22 Balance Outstanding (%) 31% 30% 22% 11% 6% › Enhanced geographic diversification, FY17 Balance Outstanding (%) 50% 21% 14% 12% 3% Queensland housing portfolio reducing QLD NSW & ACT VIC WA Other over 4 years from 50% in FY17 to 31% in 1H22 › The addition of ME has further 1H22 Balance Outstandi
Slide 54: Strong post covid economic rebound
› Strong post covid economic rebound › Sector risks emerging given recent impacts from supply chain and rising cost › Historically low unemployment impacts › Increasing inflationary concerns › Construction industry comprises 9% of BOQ’s commercial portfolio and 18% of the asset finance book › Geopol
Slide 55: Specific and collective provisions decreased in the half
› Specific and Collective Provisions decreased in the half due to improvements in the economic outlook › Excluding ME, coverage above peers › Consolidation of ME portfolio has driven a shift in mix towards housing exposures, reducing coverage ratios 0.73% › Acquisition accounting adjustments have al
Slide 56: Capital, Funding & Liquidity
GROUP CAPITAL, FUNDING & LIQUIDITY ‘BANK OF QUEENSLAND LIMITED.
Slide 57: Replicating portfolio for capital and low cost deposits
› Slowing reduction from the low cash rate 6% environment on the capital and low cost deposit replicating portfolio › The inclusion of the ME balance sheet into the 4% Group has added $1.2bn of equity to the replicating portfolio and $760m to the low cost Replicating Portfolio Return deposit replica
Slide 58: Impacts of hedging costs had a flat NIM impact
› The impacts of hedging costs had a flat NIM impact in 1H22 0.6% › The basis exposure reduced during the half as a result of growth in at call deposit balances and due to higher proportion of fixed rate lending during the period 0.4% › Current sensitivity 0.5bps of NIM for every 10bps change in bas
Slide 59: Swap yields have increased dramatically over the half
› Swap yields have increased dramatically over the half and volatility has increased primarily due to offshore market pricing, central banks 2.79 2.87 pivoting to a hawkish tilt, rising inflationary pressures and 2.80 2.63 geopolitical concerns 2.24 › The move in swap rates over the 1st quarter of c
Slide 60: Loan growth funded through stable funding sources
› Loan growth funded through stable funding sources, including customer deposits and long term wholesale › Deposit to loan ratio of 74% despite the increase in loan growth in the half 75% 74% FUNDING USES FUNDING SOURCES 71% 1.8 (0.2) 0.4 (3.2) 3.3 1.0 (1.2) (1.9) Lending Other Assets1 Liquid Asset
Slide 61: Credit ratings
Rating Agency Short Term Long Term Outlook S&P A2 BBB+ Positive Fitch F2 A- Stable Moody’s P2 A3 Stable (1) The Bank monitors rating agency developments closely and is rated by Standard & Poor's (S&P), Fitch Ratings and Moody’s Investor Service
Slide 62: Economic Assumptions
GROUP ECONOMIC ASSUMPTIONS ‘BANK OF QUEENSLAND LIMITED.
Slide 63: Economic growth to be strong but with elevated inflation
Economic growth to be strong but with elevated inflation › Economic growth is likely to be strong for at least the next 1-2 years with a very low unemployment rate › There is a higher than usual uncertainty about the outlook › It looks increasingly likely that inflation will stay higher for longer ›
Slide 64: Consumer confidence has taken a hit from cost of living
› Consumer confidence has taken a hit from the › Business confidence has picked up with › System deposit growth has been elevated rise in the cost of living capex intentions elevated over COVID-19 › Consumers remain confident about the labour › The COVID-19 restrictions are proving a › Some slowing
Slide 65: Abbreviations
GROUP ABBREVIATIONS ‘BANK OF QUEENSLAND LIMITED.
Slide 66: Abbreviations
1H: First half of financial year DPD: Days past due NSFR: Net Stable Funding Ratio 2H: Second half of financial year EPS: Earnings per Share OMB: Owner Managed Branch 30DPD: 30 days past due ESA: Exchange Settlement Account OIS: Overnight Index Swap 90DPD: 90 days past due FTE: Full Time Equivalent