Bank Of Queensland Limited · ASX:BOQ
Bank Of Queensland — H1 2019 Earnings Presentation
38 slides from Bank Of Queensland's earnings presentation, Apr 11, 2019
Slide 1: 1H19 Results Presentation
1H19 RESULTS PRESENTATION 11 APRIL 2019 Half year ended 28 February 2019
Slide 2: Presenters: Anthony Rose and Matt Baxby
Anthony Rose Interim CEO Matt Baxby Chief Financial Officer Anthony Rose Interim CEO 2
Slide 3: Niche growth, asset quality and capital remain strong
Niche growth, asset quality and capital remain strong Industry developments & Retail Bank performance impacting returns Initiatives underway for long term value creation 3
Slide 4: Impact of disposal of vendor finance entity
Impact of disposal of vendor finance entity Impact of disposal of vendor finance entity Impact of disposal of vendor finance entity Special dividend 4
Slide 5: Impact of disposal of vendor finance entity; Collective Provision increase
Impact of disposal of vendor finance entity Collective Provision increase 5
Slide 6: Total loan growth of $756m or 8% annualised
> Total loan growth of $756m or 8% annualised > Growth in BOQ Specialist & BOQ Finance demonstrates niche strategy is working > Focus on quality and return for risk 6
Slide 7: Successful diversification of distribution channels
> Successful diversification of distribution channels > Virgin Money continues to achieve strong levels of customer acquisition > Core Retail business continues to underperform due to three key constraints > Lending processes made complex by application of Virgin Money responsible lending Housing Lo
Slide 8: Impaired assets continue to reduce
> Impaired assets continue to reduce, reflecting appropriate risk appetite settings, loan origination practices and ongoing customer management > Arrears remain at benign levels, comparing favourably with peers > Capital level remains strong Major bank average BOQ (1) Peer data based on most recent
Slide 9: Returns declining across the sector
> Returns declining across the sector > Credit growth slowing, price competition intensifying, economic outlook more uncertain > Royal Commission completed with industry impact to be long lasting > Regulatory expectations and costs rising > Clear focus on improving customer outcomes > APRA self-asse
Slide 10: Financial Detail
FINANCIAL DETAIL CHIEF FINANCIAL OFFICER
Slide 11: Net interest income 1H19 $476m
1H19 1H19 v 1H18 1H19 v 2H18 Net interest income $476m - (3%) Non-interest income $65m (13%) (7%) Total income $541m (2%) (3%) Operating expenses ($268m) 2% 1% Underlying profit $273m (5%) (7%) Loan impairment expense ($30m) 36% 58% Cash profit before tax $243m (9%) (12%) Income tax expense ($76m) (
Slide 12: Segment results: Retail and Business banking
1H19 1H19 v 1H18 1H19 1H19 v 1H18 Net interest income $215m (5%) $261m 4% Non-interest income $32m (3%) $26m (13%) Total income $247m (5%) $287m 2% Operating expenses ($141m) - ($118m) 5% Underlying profit $106m (11%) $169m - Loan impairment expense ($10m) - ($20m) 67% Cash profit before tax $96m (1
Slide 13: Gross loan growth of 2% in a slowing market
> Gross loan growth of 2% in a slowing market BOQ Finance > BOQ Finance growth of 13% & Commercial growth of 3% Commercial > Housing growth through Virgin Money and BOQ Specialist, offset by contraction in branch network Housing & Consumer > Maintained discipline on credit standards BOQ Finance Comm
Slide 14: Continued strong growth through Virgin Money
> Continued strong growth through Virgin Money > All business lines achieved growth > Branches focused on deposit gathering and MFI > BOQ Specialist mortgage growth remains strong customer growth > Niche segment growth of $94m > Risk discipline maintained > BOQ Finance delivered very strong growth t
Slide 15: Customer deposits contracted, driven by a reduction in higher cost Term deposits
Long term > Customer deposits contracted, driven by a wholesale reduction in higher cost Term deposits > Deposit to loan ratio of 68% Short term wholesale > Took advantage of more favourable conditions for long term wholesale issuance Customer deposits > Fast Track Starter and Fast Track Saver Accou
Slide 16: Hedging cost headwind mitigated by funding mix and asset pricing
Third party costs Net interest margin > Hedging cost headwind mitigated by improvements Element 1H18 2H18 1H19 driven through funding mix and asset pricing Asset pricing benefits +4bps +2bps +4bps > Front book vs back book impact ongoing Front book pricing & mix (5bps) (5bps) (4bps) > Third party co
Slide 17: 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 > Improved contribution from Virgin Money and financial markets Trading income Insurance Other Banking 17
Slide 18: Expense growth contained to 2%; CTI 49.5%
Other > Expense growth contained to 2%; CTI 49.5% > Amortisation expected to increase with ongoing General investment IT > Rising regulatory & compliance costs expected going forward Occupancy Employee Assets under construction Software intangible asset balance (1) (1) Uplift in regulatory costs bef
Slide 19: Cash earnings after tax 1H19 $167m
1H19 2H18 1H18 Cash earnings after tax $167m $190m $182m Amortisation of acquisition fair value adjustments ($4m) ($2m) ($5m) Hedge ineffectiveness ($3m) ($2m) ($1m) Integration / transaction costs - ($1m) - Extraordinary regulatory /compliance ($3m) ($8m) ($1m) Software changes - ($11m) - Legacy it
Slide 20: Portfolio metrics remain strong
> Portfolio metrics remain strong BOQ Finance > Further reduction in impaired assets Group Total > Low volume of new impairments > Application of new Collective Provisioning model Retail has driven higher impairment expense Commercial BOQ Finance Exposure <$5m Exposure >$5m Retail to $10m Commercial
Slide 21: Arrears level remain low and steady across all portfolios
> Arrears level remain low and steady across all portfolios 30 DPD > Seasonal uptick on BOQ Finance 90 DPD > No areas of concern emerging (1) 30 DPD 30 DPD 90 DPD 90 DPD (1) Seasonal uptick which also includes $7m (14 bps), which has subsequently cleared in March 2019. 21
Slide 22: Specific Provision reduced by 10%
> Specific Provision reduced by 10% > Coverage levels remain strong > Collective Provision increases driven by application of new model under AASB 9 GRCL Collective Provision (1) Collective Provision and GRCL as a proportion of Risk-weighted assets. 22
Slide 23: 9.26% Common Equity Tier 1 ratio
Underlying capital generation +13bps (1) > 9.26% Common Equity Tier 1 ratio > Remain strongly capitalised > Underlying capital generation of 13bps > Increased capitalised investment spend expected to > Mix of asset growth tilted to higher risk-weighted reduce CET1 over 2H19 and FY20 business lines >
Slide 24: Dividend of 34 cents, a reduction of 4 cents per share
> Dividend of 34 cents, a reduction of 4 cents per share > Prudent approach taken enables adequate capital generation to support RWA growth and investment > DRP supports higher payout ratio and distribution of franking credits 24
Slide 25: Summary & Outlook
SUMMARY & OUTLOOK INTERIM CEO
Slide 26: Navigating rising regulatory requirements
Navigating rising regulatory requirements Delivery of foundational ‘must do’ investments Continue strong niche segment momentum Reinvigorate Retail Bank & leverage Virgin Money success Systematic approach to restoring earnings growth and returns 26
Slide 27: Investment delivered and in progress
Core infrastructure modernisation Regulatory uplift (BEAR, COBP, AML/CTF, 3LOD) Internet banking upgrade for End-to-end mortgage lending transformation program BOQ Specialist Online platform for FX & global payments eConveyancing (PEXA) BOQ Specialist mobile banking New Payments Platform app Branch
Slide 28: Segment by segment review of return on tangible equity
Segment by segment review of return on tangible equity Retail Banking strategy redevelopment Business simplification Capital/resource allocation Execution roadmap 28
Slide 29: Virgin Money continues to exceed expectations
> Continues to exceed expectations - strong home loan growth since launch, coupled with continued momentum across other product lines > Attracts a younger, more affluent and geographically diverse customer base > Compelling opportunity to accelerate the Virgin Money offering to create next generatio
Slide 30: Standardised banks hold on average 50%+ more capital than IRB banks
> Standardised banks hold on average 50%+ more IRB housing loan ROE Relative Standardised capital than IRB banks on housing loans (indexed at 100) housing loan ROE (indicative) > This leads to IRB banks generating Return on Equity Relative IRB ROE advantage which is 50%+ higher than Standardised Ban
Slide 31: Building on niche strategy success
Building on niche strategy success Delivering foundational ‘must do’ investments Established a path to improve long term value creation 31
Slide 32: Appendices
APPENDICES az
Slide 33: Housing portfolio metrics
Less than 40% > Broker settlements at 30% including VMA > Interest only settlements remain low 40-60% > Owner occupied P&I loans represent 51% of portfolio 61-80% 81-90% Greater than 90% Metrics (%) 1H18 2H18 1H19 Metrics (%) 1H18 2H18 1H19 Owner occupied 59 59 59 Owner occupied 61 61 61 Investment
Slide 34: Commercial Portfolio
COMMERCIAL PORTFOLIO PORTFOLIO BY INDUSTRY PORTFOLIO BY STATE PORTFOLIO BY EXPOSURE SIZE 9% 3% 2%. 2% 9, 2% 8% 4% \ 35% 7% 16%, 12% A1% a op 31% 30% 27% m Property & construction Healthcare a<$im $1m-$5m m Professional services Hospitality & accommodation Agriculture wQLD s\NSW mVIC WA SA = Other Oa
Slide 35: BOQ Finance Portfolio
BOQ FINANCE PORTFOLIO ASSET BY INDUSTRY ASSET BY STATE ASSET BY TYPE 5% 2% 17% A 1% 4 7% 7% 10% assis m Trucks = Construction Transport Cars mw Agriculture Manufacturing wQLD NSW @ VIC WA mw Other road vehicles, trailers Mining & construction mw Retail trade Rental, Hiring, Real Estate = Other plant
Slide 36: $167m current exposure to residential construction
> $167m current exposure to residential construction > 11 developments across 3 states, completing 2019 through 2020 Limit - $26m Exposure - > Well diversified intra-state within NSW and VIC $6m # Apts - 75 75 198 65 > No material regional housing exposures 100 21 Limit - $144m Exposure - > No syste
Slide 37: Glossary of abbreviations
1H: First half of financial year DPD: Days past due 2H: Second half of financial year DRP: Dividend Reinvestment Plan 3LOD: Three lines of defence DTA: Deferred tax asset 30DPD: 30 days past due EPS: Earnings per share 90DPD: 90 days past due FY: Financial year AASB: Australian Accounting Standards
Slide 38: Important notice
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.