Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — FY2018 Earnings Presentation
35 slides from Bank Of Queensland's earnings presentation, Oct 4, 2018
Slide 1: 2018 Results Presentation
2018 RESULTS PRESENTATION 4 OCTOBER 2018 Year ended 31 August 2018
Slide 2: Presenters: Jon Sutton and Matt Baxby
Jon Sutton Managing Director & CEO Matt Baxby Chief Financial Officer Jon Sutton Managing Director & CEO 2
Slide 3: Evolution of the business continues
Evolution of the business continues Good underlying result in a difficult environment Consistent growth in commercial niche segments Asset quality remains a key strength Utilising strong capital position to invest for the future 3
Slide 4: Special dividend
Special dividend (1) FY17 shows an adjusted view to exclude the $16m profit on disposal of a vendor finance entity 4
Slide 5: (1) FY17 shows an adjusted view to exclude the $16m profit on disposal of
(1) FY17 shows an adjusted view to exclude the $16m profit on disposal of a vendor finance entity 5
Slide 6: More diversified business mix
BOQ Finance BOQS > More diversified business mix Commercial BOQ > Managing the business for long term returns Commercial > Next phase of evolution will involve implementation BOQS Housing of new customer-facing systems and processes VMA BOQ Housing +6% CAGR > Focused on enhancing customer experience
Slide 7: Significant headwinds facing the sector
> Significant headwinds facing the sector +2% > Underlying revenue growth of 2% > NIM increased 5bps to 1.98% despite impact of basis > Lending growth funded by improved deposit mix > Expense growth contained while still investing in the business +5bps Customer deposit growth Lending growth (1) Excl
Slide 8: Total loan growth of $1.5bn with above-system growth in commercial
> Total loan growth of $1.5bn with above-system growth in commercial > VMA & BOQ Specialist continue to drive housing loan growth > BOQ Finance delivered particularly strong growth > Branches funded lending growth through solid levels of deposit growth +43% 8
Slide 9: Impaired assets down 15%, loan impairment expense down 15%
> Impaired assets down 15%, loan impairment expense down 15% > Arrears levels remain benign and favourable to peers > Ongoing improvement a direct consequence of clear risk appetite and responsible lending practices Major bank average BOQ (1) Peer data based on Pillar 3 Residential Mortgage disclosu
Slide 10: CET1 ratio compares favourably with peers
> CET1 ratio compares favourably with peers > Customer expectations around digital experience continue to rise > Additional capital investment will help to position the business for future success > 7bps of additional CET1 to be utilised for digital banking platforms and customer experience improvem
Slide 11: Financial Detail
FINANCIAL DETAIL CHIEF FINANCIAL OFFICER
Slide 12: Net interest income FY18 $965m
FY18 FY18 v FY17 FY18 v FY17 adjusted(1) Net interest income $965m 4% 4% Non interest income $145m (17%) (9%) Total income $1,110m 1% 2% Operating expenses ($527m) 3% 3% Underlying profit $583m (1%) 2% Loan impairment expense ($41m) (15%) (15%) Profit before tax $542m - 3% Income tax expense ($170m)
Slide 13: Net interest income 2H18 $490m
2H18 2H18 v 1H18 2H18 v 2H17 adjusted(1) Net interest income $490m 3% 3% Non interest income $70m (7%) (11%) Total income $560m 2% 1% Operating expenses ($265m) 1% 2% Underlying profit $295m 2% 1% Loan impairment expense ($19m) (14%) (10%) Profit before tax $276m 4% 2% Income tax expense ($86m) 2% 2
Slide 14: FY18 results by segment
FY18 FY18 v FY17 FY18 FY18 v FY17 adjusted(1) Net interest income $458m 3% $514m 7% Non interest income $67m (3%) $59m (5%) Total income $525m 2% $573m 5% Operating expenses ($281m) 3% ($228m) 4% Underlying profit $244m 1% $345m 6% Loan impairment expense ($15m) 7% ($26m) (24%) Profit before tax $22
Slide 15: Gross loan growth of 3% in a slowing market
> Gross loan growth of 3% in a slowing market BOQ Finance > Commercial lending growth of 1.2x system, driven by niche segments Commercial > Housing growth driven by VMA and BOQ Specialist, with improvement in branch network Housing & Consumer > Maintained discipline around credit standards BOQ Finan
Slide 16: Improved growth profile supported by VMA and BOQ Broker channel
> Improved growth profile supported by VMA and > Consistent growth across all business lines BOQ Broker channel > BOQ Specialist mortgage growth remains strong > Growth being balanced with margin and risk > Niche segment growth of $623m > Branches focused on deposit gathering and MFI > BOQ Finance d
Slide 17: Customer deposit growth of 4%
Long term > Customer deposit growth of 4% wholesale > Deposit to loan ratio of 69% Short term > Shift in mix towards savings from term deposits wholesale > Selective long term wholesale issuance when market Customer conditions permit deposits Senior unsecured Securitisation / Covered bond Sub-debt /
Slide 18: Hedging cost headwind mitigated by funding mix and asset pricing
Third party costs Net interest margin > Hedging cost headwind mitigated by improvements Element 2H17 1H18 2H18 driven through funding mix and asset pricing Asset pricing benefits +6bps +4bps +2bps > Front book vs back book impact ongoing Front book pricing & mix (4bps) (5bps) (5bps) > 2bps benefit f
Slide 19: Ongoing pressure on banking fees
> Ongoing pressure on banking fees > Limited opportunities for trading income generation > Insurance income continues to trend lower Profit on sale > Digital financial market offering to launch in FY19 should start to provide some offset Trading income Insurance Other Banking 19
Slide 20: Expense growth contained to 3%; CTI 47.5%
> Expense growth contained to 3%; CTI 47.5% > Core expense growth of 1%(1) > Amortisation increasing with ongoing IT investment Other > Increased capital investment flagged for FY19 General IT Occupancy Assets under construction Employee Software intangible asset balance (1) Core expenses excludes a
Slide 21: Cash earnings after tax FY18 $372m
FY18 FY17 Cash earnings after tax $372m $378m Amortisation of acquisition fair value adjustments ($7m) ($13m) Hedge ineffectiveness ($3m) ($9m) Integration / transaction costs ($1m) ($1m) Regulatory /compliance ($9m) - Software changes ($11m) - Legacy items ($5m) ($3m) Statutory Net Profit after tax
Slide 22: Ongoing improvement evident across all metrics
> Ongoing improvement evident across all metrics BOQ Finance > 15% reduction in impaired assets and loan impairment expense Group Total > Low volume of new impairments Retail Commercial BOQ Finance Exposure <$5m Exposure >$5m Retail to $10m Commercial Exposure >$10m 22
Slide 23: Arrears levels remain low and steady across all portfolios
> Arrears level remain low and steady across all portfolios 30 DPD > Small increase in commercial arrears 90 DPD > No areas of concern emerging 30 DPD 30 DPD 90 DPD 90 DPD 23
Slide 24: Coverage levels remain adequate
> Coverage levels remain adequate > Collective Provisions – AASB 9 impact muted due to model and overlay changes in prior periods GRCL Collective Provision 24
Slide 25: 9.31% Common Equity Tier 1 ratio
Underlying capital generation +2bps One-off items (1) > 9.31% Common Equity Tier 1 ratio > Incremental spend of 7bps of CET1 over FY19 & FY20 > Underlying capital generation of +2bps to accelerate investment in digital assets > Impact from one-off items of (8bps) > Increased investment spend reduced
Slide 26: Summary & Outlook
SUMMARY & OUTLOOK MANAGING DIRECTOR & CEO
Slide 27: Competitive dynamics & value chain disruption
Competitive dynamics & value chain disruption Bank of Queensland Limited Regulatory reform & community expectations 27
Slide 28: Achieving digital parity and meeting our customers' digital needs
> Achieving digital parity and > Lift MFI penetration through > Overhauling key processes > Define and bring to life our meeting our customers’ deposit gathering and pricing > Developing capabilities to purpose for our people and digital needs for risk drive efficiency through customers > Delivering
Slide 29: Investing in platforms that can be leveraged across all brands
> Investing in platforms that can be leveraged across all brands Digital Digitised > Focus on enhancing connectivity with customers banking processes > Keeping pace with expectations of digitally active platform & fulfilment customers upgrade Enable holistic view Call centre of re-platform customers
Slide 30: Strategy delivering results
Strategy delivering results Asset quality resilient Investing for future customer needs Ready to respond to regulatory reform 30
Slide 31: Appendices
APPENDICES az
Slide 32: Broker settlements at 30% including VMA
Less than 40% > Broker settlements at 30% including VMA > Interest only settlements reduced significantly 40-60% > Owner occupied P&I loans represent 50% of 61-80% portfolio 81-90% Greater than 90% Metrics (%) 2H17 1H18 2H18 Metrics (%) 2H17 1H18 2H18 Owner occupied 59 59 59 Owner occupied 63 61 61
Slide 33: $154m current exposure to residential construction
> $154m current exposure to residential construction > 14 developments across 3 states, completing 2018 through 2019 Limit - $61m Exposure - > Well diversified intra-state within NSW and VIC $31m # Apts - 257 182 75 116 148 > No material regional housing exposures 114 107 Limit - $139m Exposure - >
Slide 34: Glossary of terms and abbreviations
1H: First half of financial year DTA: Deferred tax asset 2H: Second half of financial year EPS: Earnings per share 30DPD: 30 days past due FY: Financial year 90DPD: 90 days past due GLA: Gross Loans & Advances AASB: Australian Accounting Standards Board GRCL: General Reserve for Credit Losses APRA:
Slide 35: Important notice and general background information
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.