Bank of Queensland (ASX:BOQ) Q4 2026 Earnings Call

0:01 Good morning and welcome to today's briefing. Following the opening presentations, we will move to a question and answer session. If you are on the phone line and wish to ask a question today, please dial star on your telephone keypad to join the queue. I will now hand over to the Bank of Queensland team.

0:20 Good morning and welcome to BOQ's financial results presentation for the full year ended 31st of August, 2026. My name is Jessica Smith and I am the General Manager of Investor Relations and Corporate Affairs at BOQ. On behalf of the management team, I would like to acknowledge the traditional custodians of the land we are meeting on today, the Gadigal people of the Eora Nation. We pay our respects to Elders past and present. I'm joined in the room today by BOQ's Managing Director and Chief Executive Officer Rod Finch and our Chief Financial Officer Rachel Kelleway who will present the results. We are also joined in the room by BOQ's Executive Team. Following the briefing there will be an opportunity for questions. I will now hand over to Rod.

1:09 Thanks Jess. Good morning everyone and thank you for joining. Today I'll take you through the strong progress BOQ have made in FY26 to position us for sustainable growth in FY27. We set the foundations of a simpler specialist bank, maintained disciplined cost management, strengthened our capital position and returned capital to shareholders. This year, BOQ delivered $358 million in cash earnings after tax, excluding notable items, with net interest margin of 1.7%. This was supported by the decisions we've made to optimise our balance sheet, improve our funding mix and grow with strong risk-adjusted returns. We completed our whole of loan sale and in August we paid a fully franked special dividend of 15 cents per share. Our on-market share buyback is also underway.

2:02 The board has declared a fully franked final dividend of 20 cents per share, recognising the group's resilient financial position and strong capital levels. This brings total dividends for the year to 55 cents per share. With the completion of mean migration, all mere customers and 68% of all retail customers are now on the digital bank. We have begun scaling the digital mortgage with 88% of application volume and 83% of settlements occurring through digital channels. Our remedial action plans are well progressed with 74% of all activities now complete. While there is more work to do, the risk frameworks we have built through the programs are being embedded across the organisation, and our risk culture, measured through our people surveys, continues to improve.

2:54 In FY26, we continued to recycle our balance sheet from home lending to business lending and established our capital partnership with Challenger. We supported 1.4 million customers across Australia. Our branch network has aligned to identified growth areas, especially focused on Queensland. We expanded our co-located retail and business banking centre model, and we continue to support the communities we operate in through deeply connected partnerships. Looking closer at the financial results, we delivered total income of $1.7 billion, up 1% year-on-year, and strong cost management meant expense growth was 2%, below inflation and in line with our guidance. We saw improved momentum in the second half with cash earnings of $182 million, up 3%, half on half, and a six basis point margin expansion.

3:47 Rachel will talk to the financial results in more detail shortly. Since we reset the strategy in 2023, we have worked through an ambitious transformation agenda with a clear strategy to deliver a simpler specialist bank. Over the course of three years we developed and are now well progressed in delivering against our risk programs. This has given us strong foundations in our risk practices and operational resilience. Converting and optimising our branch network to align more closely with growth corridors and our Queensland heritage has given us the ability to deploy more business bankers into key geographies and better reflect customer preferences. 74% of branches are located in Queensland, reflecting our strategy in this key market.

4:36 Our technology landscape has simplified throughout this time and we have halved our core banking systems. We decommissioned 41% of technology assets and 90% of target state IT assets are in the cloud. We have delivered 82% of our simplification agenda with line of sight to the remaining benefits into FY27. This program has delivered property footprint reduction, a simplified operating model and establishing our strategic partnership with Capgemini to create efficiencies. We completed the integration of MEE, built the digital end-to-end bank and all MEE customers are now on that platform. We are on track to complete the decommissioning of MEE legacy technology by the end of this calendar year. After three years of building the right foundations, simplifying our operations, Building and scaling the digital proposition, we now have the platform for a focused and disciplined return to growth.

5:33 We remain committed to our strategy of becoming a simpler specialist bank, underpinned by our vision to be the bank that customers choose. To deliver a sustainable return to growth, we have refreshed our strategic pillars. These are growing our customer relationships, rewiring the bank for the future, accelerating the culture shift and optimising the bank economics. I'll step through these pillars now in more detail. Growing our customer relationships. We are clear and deliberate on the customer segments we are targeting growth in. We are concentrating on the segments where we feel we have the experience and capability to win, family-owned businesses and everyday Australians. This focus is anchored to our home state of Queensland, where our heritage and foundational strength means we are well positioned to capitalise on the growth underway.

6:26 Deposits are central to how we want to grow, and we will use the improved offering in our digital bank to deepen relationships and fund our growth with quality deposits. Rewiring the bank for the future builds on the investments we've made to date to create operational leverage. We will continue to simplify and scale, benefiting from a modern technology and data platform, which supports faster delivery of customer features and has us well positioned to further deploy AI. We've simplified and better aligned our product suite to customer preferences and enabled more straight-through processing, and we will continue to add automation to these simpler services. Through accelerating the culture shift, we are creating a culture that is risk-focused, accountable and outcomes-based.

7:12 We are committed to equipping our people with the skills they need in a dynamic environment, upskilling in AI capability and strengthening our leadership capabilities to adapt and better serve customers and compete in the future. Optimising the bank economics is an approach to growth that is disciplined and accretive to returns. We will do that through the careful allocation of capital and growing capitalite earnings. With our digital retail deposits fully in market, our funding mix will be a key focus in supporting profitable growth. Our business bank has continued to grow, with commercial lending up 16%. A proposition for business banking is underpinned by our strong position in Queensland and the deep industry expertise we offer in key segments, especially health, agriculture and diversified industry customers.

8:04 Half of our lending is to our target segment, established family-owned and managed businesses supported by bankers who have enduring relationships, understand their customers and are committed to their growth and success over the long term. We have welcomed 42 additional business bankers since 2024 and they have provided strong volume growth. This year we expanded our co-located business and retail banking hubs in specific gross locations and these hubs have contributed 20% of the commercial lending growth. Within asset finance we established the capital partnership for the $3.6 billion whole of loan sale for equipment finance assets. The business bank is focused on scaling equipment finance lending through the partnership, which generates capital-like earnings without funding requirements and no direct credit risk.

8:56 Excluding the whole of loan sale, asset finance grew 5% this year. This was driven by structured finance and novated leasing, in particular from continued strong demand for electric vehicles. Turning to the retail bank, we had two key priorities this year. completing the migration and shifting mortgage origination to digital channels. We have delivered both. All new customers are now on the digital bank, which offers greater automation, increased self-service and benefits the group with lower unit costs across both origination and servicing. As we focused on scaling digital mortgages, we exited the year with 88% of home lending flow through our digital channels. We've seen strong mortgage application volumes with a 14% increase in the second half, providing momentum into FY27.

9:47 While acknowledging this uplift is off a low base, it is a positive indicator of the platform's capacity to scale.

9:55 Digital home loan customers have 5.5 times higher transaction account balances than deposit-only customers, which highlights the importance of our strategy to win a greater share of our retail customers' banking relationships. This will be a key focus as we return to growth. The digital bank is a material shift in how we attract and serve our customers with features and product types continuing to be rolled out through FY27. There is a changing demographic of customers being acquired to a younger cohort with emerging wealth where we can serve more of their needs over time. We are seeing organic growth in deposits and customers with over $2 billion in new to bank deposits this year and we saw a strong increase in customers using the platform as compared to FY25.

10:44 As we return to lending growth, we remain sharply focused on quality deposit growth. As I noted, rewiring the bank is about leveraging the assets we've built and creating operational capacity for growth. With a simplified business and fewer platforms, products and processes to run, more of our time, investment and attention can go to customers and discipline growth. We are focused on further automation of processes, less manual intervention and managing our cost base efficiently. Improving the cost to attract and serve customers is a key focus. We have reduced the cost to originate a home loan by 22% and remain on track to deliver a 50% reduction at scale. Further functionality releases are planned over FY27.

11:31 Branch productivity across the optimised network has improved with an 8% increase in home lending applications per branch this half against the prior corresponding period and we expect this to continue to improve as the digital mortgage is rolled out across the network in FY27. Increasing banker productivity is also crucial. Since FY23 we have seen 17% growth in business lending settlements per banker. As we leverage the tools we have built further enhance our processes and deploy AI, we will free up our bankers to spend more time with their customers. Turning now to how we will accelerate the culture shift to one that is more risk focused, accountable and outcomes orientated. Our remedial action plans are well progressed.

12:17 We have completed 66% of activities in Program RQ and 83% in AML First. Our risk culture continues to be an important indicator of how this is translating into daily activities and one we will continue to monitor closely. We have maintained a steady people experience during a period of significant transformational change, which is a testament to the dedication of our people. Recognising the dynamic environment we operate in, we are building ways of working and capabilities for our people to learn and adapt to emerging technologies. Over half of our people have participated in training through our AI Academy. And over 70% of our people are now using AI agents and tools as part of their day-to-day work.

13:02 In supporting our customers, we prevented or recovered $7.5 million in losses to customers affected by scams and online fraud. Biometric capability in the digital bank intercepted over 99% of attempts to open fraudulent deposit accounts. During a period of further cost of living challenges, we supported approximately 4,000 customers experiencing financial difficulty. Optimising the bank economics is an ongoing discipline between volume, returns and capital efficiency. Our track record on strong cost management has resulted in sub-inflation cost growth in the last two years. We have, for several years, recycled the balance sheet towards higher returning business lending, particularly while we built the retail digital proposition.

13:49 Alongside this, we have reduced our reliance on wholesale funding and increased our deposit to loan ratio. Ongoing cost discipline, thoughtful investment and rigorous capital management provide a more resilient, more flexible bank and allows us to pursue returns-focused growth. This will be enhanced through the scaling of new capitalized income streams through the partnership and attracting digital deposits. As a Queensland bank with a 152 year history, we recognise the integral part we play in supporting our customers and the domestic economy and the communities in which we operate. Our community partnership model has continued to evolve with cross-promotional opportunities between our primary partner, Orange Sky Australia, and supporting grassroots engagements through Queensland Rugby Union and the Queensland Reds.

14:39 We contributed approximately $2 million to community partners this year, enabling support for community connection and vulnerable Australians. This year, we have delivered our first mandatory climate-related disclosures in our annual report and will continue to engage with industry, regulators and our stakeholders in this area. I will now hand over to Rachel for more detail on the financial results.

15:07 Thank you, Rod, and good morning, everyone. Financial year 2026 was another transformational year for BOQ, with the financial result reflecting cost discipline and the delivery of capital initiatives. Stepping through the result, total income increased 1% over the year. Flat net interest income reflects an increase of six basis points in margin, offset by lower assets, as assets reduced following the sale of the equipment finance portfolio announced in May. and the continued shift in our balance sheet from home lending to business lending. Non-interest income increased 12% driven by new origination and servicing fee income relating to our capital partnership and high business lending fees.

15:52 Operating expenses excluding notable items increased 2% below inflation supported by simplification program benefits. Loaning payment expense increased largely as a result of the non-recurrence of a prior year commercial lending write-back and this resulted in cash earnings excluding notable items being 7% lower at $358 million. Second half trends were positive with cash earnings excluding notable items up 3% to $182 million. Total income was up 2% supported by a stronger margin and there was a 1% reduction in expenses. This saw underlying profit increase 8%, which was partially offset by a higher loan impairment expense of $34 million.

16:41 As disclosed in August, a $33 million post-tax impairment was recognised as a notable item, predominantly relating to technology assets. When including this, cash earnings were down 15% against both the prior year and the first half. Statutory net profit after tax of $250 million was an increase of 88%. The prior year included impairment of goodwill. The most significant item in the current year was the $52 million impact of the equipment finance whole of loan sale as disclosed in May. Costs of $22 million relate to the second year of the branch strategy conversion costs, with the total cost of this program remaining unchanged.

17:26 The amortisation of acquisition, fair value adjustments and hedging and fair value impacts had a minimal impact in the year. Margin increased six basis points to 1.73% in the second half. Lending was a five basis point headwind with competition remaining elevated. There was a two basis point impact from housing and a two basis points impact from business lending. We saw a continued mixed benefit from shifting our portfolio towards business lending and and the portfolio sale impacted the lending side of the balance sheet by one basis point. Funding was an 11 basis point benefit as we transformed our balance sheet and required less funding. We saw positive benefits from disciplined pricing on at-call savings and term deposits benefited from favourable spreads.

18:18 There was a mixed benefit as we retired higher cost wholesale funding. positive impacts from a higher cash rate environment benefited margin by three basis points across the replicating and uninvested portfolios. This was partly offset by a one basis point impact from holding higher liquid assets which were deployed in the months after the portfolio sale. Lastly, we saw the non-recurrence of the brokerage benefit we called out in April. Bringing the impacts of the sale of the equipment finance portfolio together, in line with previous guidance, the margin impact was broadly neutral. Funding benefits offset the small negative on lending and the short-term liquidity impact. The slide also outlines considerations when looking at the first half 2027 margin, where we expect a modest first half uplift, noting the inherent uncertainty.

19:09 We expect competition for lending and deposits to remain elevated, with a higher interest rate environment and slowing of... is expected to see the continuation of a mixed benefit. As asset growth returns, we will remain disciplined in funding that growth with a focus on growing customer deposits. Lastly, the replicating portfolio will continue to be a tailwind. Our strategic model is to retain the customer relationship and origination and servicing capability while partnering where it makes sense for access to balance sheet or product capability. These partnerships are important and enable us to broaden our relationships with customers, diversify and increase capital like income and are accretive to return on equity.

20:05 In the year, non-interest income increased 12% to $159 million. Banking income increased 9% and was driven by higher business lending fees and the full year benefits from the branch conversion. The capital partnership contributed $14 million from origination and servicing fees, which commenced in May. Lastly, we saw a temporary reduction in commission income as a result of transitioning to new partners. Looking to 2027, we expect the full year benefit run rate of the capital partnership Commission's income to marginally improve, following partner transition and other items to remain broadly stable. At the half-year, we provided guidance on the moving parts of the back-book transaction and forward flow partnership for 2026, with slide 24 showing delivery against that.

20:56 Net interest income reduced in line with guidance and we saw non-interest income slightly above. Overall, resulting in no impact to total income, which was slightly better than expected outcomes. Cash earnings were the $3 million gain and within the guided range. The most meaningful driver of shareholder value comes from the optimisation of capital. The on-market buyback commenced in August. As a result, the benefit to return on equity in 2026 was not material. We are planning to continue the on-market buyback through 2027 and expect the previously guarded return on equity and earnings per share benefits to come through as the buyback completes. Operating expenses increased 2% on the prior year, delivering on the sub-inflation cost guidance provided our first half results.

21:47 When normalising for the impact of operating the branch network, underlying costs reduced 1.6% and is the second consecutive year of underlying cost reduction. There was a $25 million cost increase driven by inflation, higher risk and technology costs and amortisation increased by $15 million in the year. Looking to 2027, we expect to see similar drivers of cost movements. Themes of elevated inflation, growth in technology costs supporting new digital platforms, ongoing investment in risk including financial crime and higher amortisation are expected to continue. These four categories of increases will be offset by ongoing benefits from the simplification program.

22:34 In 2023, we embarked on an ambitious plan to simplify the business and drive $200 million of productivity benefits into our cost base. This has increased to $250 million in 2024 as we restructured our operating model and converted the branch network. On exit of 2026, 82% of the program has been delivered and $60 million was delivered in the P&L in the year. 2026 included business processing transitioning to Capgemini, further branch and corporate property optimisation and a structural decrease in telecommunications costs. We have line of sight of the remaining two components of the program. Decommissioning of the MEE heritage environment is currently underway and 2027 will continue to see the transition of services to Capgemini.

23:27 Our track record of disciplined expense management gives us confidence in leveraging our cost base to deliver a return-focused, sustainable return to growth. In 2026, we invested $180 million into the business with the focus of delivery moving from building the core platform to migrating customers onto it. The digital home loan was also delivered. We commenced the work needed for migrating BOQ retail customers, and continued to invest in business bank capability. The carrying value of our technology assets reduced 5% to $540 million. Moving on to portfolio quality. Loan impairment expense is normalising off a low base and is eight basis points to GLA.

24:14 The year-on-year increase reflects the non-repeat of the provision release in commercial lending, which benefited the prior year, and a higher collective provision. Looking at the second half, there was a $12 million retail lending expense driven by a collective provision increase, reflecting uncertainty in the economic outlook, higher interest rates, ongoing cost of living pressures and a softening in house prices. 90-day arrears increased slightly to 104 basis points and reflects a contraction of the portfolio, with balances in arrears broadly stable over the half. Commercial lending loan impairment expense was $7 million, with stable 90-day arrears, stable impaired assets and low specific provision activity.

25:01 In asset finance, loan impairment expense reduced to $15 million in the second half as the single name exposure we called out at the half year did not repeat. Normalising for the portfolio sale, 90-day arrears increased from 96 to 103 basis points while total balances in arrears reduced over the half. Impaired assets were reduced 11% in the half and are 20% lower than a year ago. Asset quality continues to remain sound. However, we are conscious of and are closely monitoring the pressures facing households and businesses. We have $274 million in provisions. During the year, we had the equipment finance sale and the sale of the MEE unsecured lending portfolio.

25:49 Those two portfolio changes resulted in an associated provision reduction of $32 million as that credit risk moved off our balance sheet. Normalising for those impacts, our total provision to GLAs is at 38 basis points, an increase of two basis points in the second half. Retail coverage increased to reflect greater uncertainty in the economic outlook, including cost of living pressures and a softening in house prices. Coverage in commercial and asset finance remained relatively stable and we continue to hold overlays for industries where we see the potential for additional stress. We are holding $74 million of provisions above our base case scenario. If we were to enter the downside scenario, a provision increase of $32 million would be required.

26:40 Onto funding and liquidity. We took the opportunity to optimise the funding stack using the proceeds of the portfolio sale with funding reducing $4.6 billion in the half. Higher costs, long-term wholesale funding reduced 12%. Deposits remain our primary funding source and we are looking to grow retail deposits to support the return to growth. Deposit funding as a percentage of total funding increased to 73% and our deposit to loan ratio increased to 87%. Our liquidity metrics are strong with a quarterly average LCR of 136% and a spot net stable funding ratio of 123%. We ended the year with a CET1 ratio of 11.64%.

27:26 Returning the capital released from the portfolio sale to shareholders provides an enduring benefit to both return on equity and earnings per share. The sale released approximately $3.2 billion of risk-weighted assets, equivalent to 78 basis points of capital. And in August, we paid a fully franked special dividend of $0.15 per share and commenced an on-market share buyback. Pro forma for completion of the buyback, our CET1 ratio is 11.14%, above the top end of our management target range. Looking at the underlying capital position, earnings generated 47 basis points and we returned 35 basis points to shareholders in the ordinary interim dividend.

28:11 Growth in business lending increased underlying risk-weighted assets. This was partially offset by lower home lending and loan origination costs with a net impact of 15 basis points. The Board has determined a fully franked final dividend of 20 cents per share representing 72.9% of second-half cash earnings, excluding notable items. The dividend reinvestment plan will operate with no discount and is expected to be satisfied in full by an on-market purchase of shares. Our strong capital position supports resilience and provides capacity to grow and invest in line with our strategy to be a simpler specialist bank. I'll now hand back to Rod to talk to the outlooks.

28:59 Thanks Rachel. As we look to FY27 there are risks in the economic environment. Competition for deposits is likely to continue as customers look for returns in a higher cash rate environment. This may be exacerbated by uncertainty in the wholesale funding markets. We are targeting a similar level of commercial lending growth and remain committed to returning to housing growth in FY27. We expect the competition for quality lending to continue. In the first half, subject to market conditions, we expect a modest uplift in margin with the component parts as outlined by Rachel. We expect strong growth in non-interest income with the full year benefits from the capital partnership and normalising commission income.

29:46 With the tail of our productivity program flowing into FY27, we are targeting flat annual cost growth. We will continue to support our customers as they manage through a higher cash rate environment and continued cost of living pressures. We expect relatively stable loan impairment expense and our portfolio quality remains sound. We maintain our CET1 target ratio of 10.25% to 10.75% and expect to complete our buyback in FY27. Our dividend payout target range is unchanged at 60% to 75% of cash earnings. The foundations we have set position us well for a sustainable return to growth anchored on our strengths and differentiation in the market.

30:31 We have a committed team delivering for our customers. Thank you to our people for their continued dedication and resilience. Our customers we're here to serve and our shareholders for their support. I'll now hand over to Jess for Q&A.

30:47 Thank you Rod. We will now move to questions. To ensure all participants have an opportunity to ask questions today, please limit to two questions each. Operator, can we please have the first question? Thank you. Our first question today comes from Thomas Strong from Citi. Thomas, please go ahead after the beep.

31:11 Good morning and thanks for taking my questions. Perhaps just a question starting on mortgage growth, Rod. I mean, you've been talking the return to growth in 27 for some time and you've done your bit in terms of lowering the cost to serve. But can you talk about what sustainable growth looks like now versus what you might have anticipated six months ago, just given higher competition, slowing investor activity and pretty poor sentiment overall?

31:39 Yeah, thanks Tom. So I think for us the way we've approached this is similar to what we talked to at the half, which is I think this year we've seen some major milestones completed, which is that really build out of the digital bank and the originations we now see flowing through it, which the numbers we talked to earlier, around 88% is originating onto that platform. That gives us a different set of economics, as does the conversion of the branch network that we completed earlier. a couple of years ago. So for us now, that is the basis for which we can think differently about the returns there. We're very mindful about the outlook that we're looking into. I come back to what we are focused on, and that is sustainable return to growth. So you should expect to see growth where we're comfortable with an acquisition margin that's accretive to current ROE and ultimately supporting us to get back to returns above the cost of capital. But we recognise it's a challenging environment out there.

32:28 We are focused on returning the balance sheet to growth this year, but it really needs to be at the right conditions

32:38 Great, thanks for that. And second question, just I guess on market conditions as well. Can you just give some commentary around the capital partnership with Challenger? I mean, again, you made the comment that you've got flexibility to originate on balance sheet or through the partnership. Like how are you navigating that sort of business given we're a few months into that partnership now in terms of what's attractive in the market?

33:02 Yeah, the partnership is where we want it to be. That is well underway. We've established a good working relationship. Really, for us, it's about serving more customers and capturing the opportunity that we saw in the market. So in terms of where the challenger partnership is, it's in line with our expectations.

33:21 Thanks very much, Rod. Thank you. Our next question comes from Matthew Donger from BAML. Matthew, please go ahead.

33:33 Yes, thank you very much. I just wanted to follow up on the mortgage growth question. The application volumes on slide 37 you show, if I just look at August, you're annualising over $25 billion of volumes. So what's the right level to grow the book here, Rod, and what returns do you think you're writing new mortgages at?

33:57 Thanks, Matt. So as I mentioned, the volume that we have seen in application momentum at BOQ, we are coming off a low base. So as we've talked over previous periods, we stepped back while the economics weren't working for us in that mortgage portfolio. With those big structural and transformational pieces now in place, we're more confident stepping back into the market. So that 40% is off a low base, and it is a portfolio approach that we're taking. So across both first and third parties, where we have kind of anchored ourselves is ensuring that the acquisition returns that are coming through on the margins are accreted through our current rally. and it's really over time working to get that back up to the cost of capital. So we're comfortable with where we're at at the moment. It is a mix across both first and third parties. We're also looking at different segments within the portfolio in terms of product types and features. We recognise, as I said earlier to Tom's question, it is a different market than it was six months ago, but what we've really built is an ability to work through the cycle and work through the segments that we feel like we can generate the creative returns for.

35:00 Great, thank you. And if I could just follow up on costs. We can see that the investment spend read based lower to around $370 million over the last year. Large composition shift in the cost base coming in FY27 with ME decommissioning and Capgemini. Can you just talk to what is the right level of investment spend going forward for your business?

35:23 Yes, so in terms of where we're at in the transformation, the big heavy lifting in terms of remedial action plans and replatforming of the technology environment is behind us. So as we've got it to, we're getting to a level now that we think is consistent with investment going forward. I think what I would say is... with the strong capital position that we have. We do have the capacity of where we see the right investment and right business case to have the capacity to invest, but it really will be driven by the returns that we see from that investment. So we're comfortable with where we're at and really now it's about making sure we're investing thoughtfully to support improved returns.

35:58 Thank you. Our next question comes from Brendan Sproles from Goldman Sachs. Brendan, please go ahead.

36:09 Good morning, Brendan Sprouse from Goldman Sachs. Rachel, I just have a question on your second half, bad and doubtful debt expense. I mean, you've shown us $34 million, but when I look on slide 29, the collective in total fell, I think, $16 million, and I think you called out the sale of the equipment finances, one of the drivers of that. So given that right back, can you maybe talk about the individual provisioning charges that you've had to take during the half and what's the source of them?

36:38 Yeah. Hi, Brendan. So, yeah, there's actually two drivers, really, of the overall reduction in provisioning. And the first, you know, they're actually nearly equally attributable. But the first, as you called out, is the sale of the equipment finance portfolio. The second is the sale of the me, unsecured, mostly credit card portfolio that occurred around close at the first half. We noted it then, minimal impact to P&L, but actually did have a as you would expect on an unsecured portfolio, had a collective provision associated with that, which was sort of out-weighted given the size of the balance sheet. So if you remove those two impacts, actually the collective provision is sort of broadly flat to the same period last year and up about 6.5%, half on half. And so there is an underlying increase in the collective provision.

37:32 Noting also that the balance sheet has declined given the home lending contraction as well. The biggest increases in collective provision really come from the retail lending portfolio where we have taken effectively a more pessimistic view on the economic outlook in our downside and severe downside economic scenarios. We have about 45% weighting to those downside scenarios, and the weighting hasn't changed, but we think, compared to when we were talking to you in April, that the economic outlook has deteriorated.

38:08 Just a follow-up question. So those portfolio divestments that you made, you called out the credit card and the one secured and the equipment finance, do those write-backs run through the P&L?

38:27 So effectively, they will be in the lower loan impairment expense number, yes. The equipment finance portfolio right back was wrapped up in part of the transaction cost, so that benefit went into the overall below-the-line sort of cash-adjusted statutory number that you see, I think it's $52 million in total in the year.

38:55 Thank you. And just a second question in your NIM on slide 22. In the first half, you indicated that you had on the asset lending side a four basis point headwind from the timing of the cash rate. I was wondering whether that has appeared here in the second half as a reversal or whether that is still to come in FY27.

39:16 Yeah, so it was in the first half when we talked to that. If you recall where we were in the cash rate cycle, we had actually seen in the period prior, we had seen reductions in the cash rate and then the cash rate started picking up quite quickly in what was our first half. And so the dual impact of that created what was quite a visible net interest income impact in the margin walk. This period, because we've just seen effectively two periods where we've seen rates rising, the delta hasn't been as great. So it's not an impact in the margin walk.

39:58 Thank you. Our next question today comes from Brian Johnson from MST Marquee. Brian, please go ahead.

40:09 Thank you very much. And congratulations on some of the stuff we can see coming through. Two questions. If I have a look on slide 50, I can see that your business lending book has got a lot of property in it and property's got a lot of issues at the moment. I know you're telling us that most of it is well secured, but there's a lot of argument that values could actually be falling. Is there any chance that we could get a little bit more detail of what that actually is, that 92 point, that substantial balance, that 35% is pretty chunky, but could we get some kind of breakdown on that by sector?

40:46 Yeah, thanks, Brian, and thanks for the question. So on slide 13 of the deck, we've tried to outline a couple of lenses through which we think about our business banking franchise and how we manage the business. So on the right-hand side there, you'll see from a commercial lending perspective, one of the lenses from an exposure point of view with which we cut the bank, and it gives you a sense of the profiles. And then the industry segments, and I'd call out there the diversified industries that you see on the right-hand side of that chart, on the left section of the chart. The most of the lending that we're doing, you see that's where the growth is, and a lot of the lending we're doing in that part, these are operating or trading businesses, and they're also investing in existing properties as part of a wealth diversification strategy as part of their business. And that is a kind of key strategy they're deploying, and we're supporting that with our customers. The difference you see there to what you've called out on page 50 is the page 50 definition is on a pure ANZIC basis.

41:39 that is where it reflects the income source that's driving servicing the asset underlying and in those cases it's where the primary income is coming from. So the difference is there is where a customer is choosing to service the commercial property through the lease payments that would be coming through as a property lend even though they are running a wider trading business or an operating business as part of their overall kind of portfolio of businesses that they run. Again, we think it's business that we understand. We are really comfortable with the quality of the assets that we're lending to. We understand the credit risk that we're taking, and we're very thoughtful about the outlook, and we take that into account when we're thinking about the future pipeline and the deals that we're doing.

42:23 So, Rod, it's existing business customers just going and buying the building that they're operating out of. Is that kind of what it is?

42:30 or an investment property as well. So we have clients who are kind of borrowing the property next door or they're seeing it as a way to diversify their asset base and their income streams off their trading.

42:45 Okay. The second question, if I may, just on slide 26, just thinking about the productivity kicker for next year, we know you get the 13 million run rate comes through in FY27 that you didn't realise in this period. How much of that 45 million do you reckon actually hits the P&L in 27?

43:09 So, Brian, we've called out really the two initiatives that would deliver the residual amount into P&L. So we are planning to see that benefit drop into the P&L and that's the decommissioning of the legacy ME systems. They're currently underway. They're currently in the process of archiving and literally turning things off. So clear line of sight. And then through 2027, the residual amount is the transition of services to Capgemini, which comes at a lower cost. So that full P&L benefit will come through in 2027.

43:41 So that in part is another benefit that comes through in 2028? when you get full period impact of it? So what you're saying is it's actually greater than 45? Is that the way you think about it?

43:55 No, I mean, there's, you know, the component relating to the legacy me bank systems, that's sort of, you know, occurring really the, like, let's just say towards the end of the first quarter, maybe into the second quarter. So there will be a small benefit come through into 2028 off the back of that, you know, very sort of small that will continue. The transition of services, you know, that will just come through through the year. There will probably be a tailwind that continues into 2028, but we will still be looking at how to manage the cost base into 2028 off the back of all of the moving parts, including inflation, higher amortisation and things that will continue through to that period again.

44:40 Rod, can I just push my luck with a third question, if I may? When I have a look on the data sets, I can see Bank of Queensland just saying you're going to be very disciplined on housing. I can see that you're going more and more digital, which is great. You say that at the moment the cost reduction is 22%, goes to 50%, but I'd suggest to you that's kind of like minuscule relative to the competitive margin dynamic that we see. But if I have a look on the data sets, I can see ME Bank is basically matching Macquarie with the most aggressive owner-occupied rates in the market. Can you just reconcile that for us? If you're going more and more digital... where basically price is the option, it just doesn't seem to ring true matching the price with basically the most aggressive player in town, particularly through digital.

45:34 I mean, how can we wrap those things together?

45:37 Thanks, Brian. So for us, we very much take a portfolio approach. So we recognise that brokers are a key factor in this market. Customers are choosing that. They choose that portfolio. through the cycle. So we, to participate in the mortgage market, we need to have a good proposition in that space and that is really our me brand that we take to market. I think the way we've built the digital mortgage and thought about that business more holistically is absolutely, you know, we need, it is continue on that efficiency route of making it a very efficient platform to originate and serve. But increasingly we're thinking really about those first party channels as well, both through our BOQ brand and our Virgin brand where we are in market with the digital mortgage as well. When we look at that composition and we look at the different product sets in it as well, it's really about looking at that overall and certainly the returns in first party we're very comfortable with. And in that overall approach, that portfolio approach, which is a mix of channel, different product types and where we might sit on the risk curve, albeit being really conscious of the market we're facing into, that is how we get comfortable with returning to growth overall in mortgages.

46:47 Thank you. Our next question comes from Andrew Triggs from JP Morgan. Andrew, please go ahead. Andrew, you are live. Please double check you're not on

47:09 mute. Sorry about that. Good morning. Just on a nim, obviously the approved benefit from strong funding, cost management, post-decrement finance sale, Can you talk through, please, just your confidence around a sustainable return to NII growth in what is a competitive mortgage market world? And as a related point to that, I mean, how can you be sure that while growing digital deposits, they're just not deposits that are the bleeding price edge?

47:35 Yeah, thanks. I'll start with the deposits and then I'll circle back on the mortgage. So deposits, it's how we've grown over the last couple of years. We've added some stats in there. And I think it's that mix of transactional accounts along with that pool as well, obviously the way those products are constructed. And similar to the answer for Brian, it's a portfolio approach that we take. So there'll be different price points that we take for certain segments that we're looking to attract. I think we are balancing that growth in the context of the wider portfolio and how we're optimising that through... wholesale funds and also third party deposits. And I think the other factor that we take into account in how we're looking at funding mix and optimising that going forward is the challenger partnership and the fact that that is funding that we're no longer required to support to grow asset finance. And so for us, very much a portfolio approach again.

48:25 Underlying that is obviously just growing transactional balances. I think the other area, Andrew, that we recognise we have an opportunity to grow is deposits for our business customers. We don't do a lot of that. We have some gaps in the proposition and that's something we're addressing strategically but I think we also see some areas there that we can do more in the near term and that's something we're focused on as well and we think there's some upside for us. So it is a long game. It's shifting that mix over time and we think that's an important part and really what underpins our return to growth. overall as a business. On mortgages, as I said earlier, it's really about being really disciplined around where we want to play, understanding what role our brands play in the mortgage market, looking at leveraging particularly those first-party brands that we have and looking to grow more there, but balancing that in an overall portfolio sense.

49:15 Yeah, thank you. But overall, would you say that the cost of your digital deposits is improving either relative to history or relative to peers. Do you have a lens on that? Transaction accounts aside, really just the savings account. If one of your regional bank peers is doing a very good job in growing digital savings accounts and that is leading to new improvements, I'm just wondering whether there's a similar story here.

49:43 Look, we're comfortable with where we're sitting. We see, you know, it's core to our strategy, which is really deposit-led growth, and we've been really thoughtful around how we want to grow, and so the product settings are very deliberate. For us, continuing to grow those retail deposits, and I want to include business deposits in that definition, that is, we see there's an opportunity for us to improve our funding mix over time by focusing in that space. We recognise it takes time to build that up, but we're really comfortable that we've got a proposition that's winning, and we're comfortable that that's supporting the kind of returns aspiration we're looking for over the next couple of years.

50:17 Thanks, Rod. And just a quick one on mortgage originations or applications, should I say, in the fourth quarter. Could you give us a number in terms of, perhaps, Rachel, the mix of broker and proprietary on that fourth quarter application flow? We've got the FY26 flow number, but just interested in the period where you sort of pick up in applications.

50:39 Yeah, the sort of broker-proprietary mix is still, you know, it's in line with market but heavily broker as you would expect for us given we are just launching the digital prop channel. We have seen through our branches an increase in productivity and so we've seen some, you know, uplifting momentum or some momentum through our branch network in the period as well but still, you know, largely in line with market which is, you know, broker-led.

51:09 And Rachel, the period over time, that might start to change?

51:12 Yeah, that is our plan for sure. I mean, whilst we have been in the build of the digital home loan mortgage, we have been effectively relying much more on broker than we see going forward. But look, customers are still tending to like to use brokers for lots of different obvious reasons. And so we expect that to remain a very important channel for us. Thank you. Thank you. Our next question comes from Richard Wiles from Morgan Stanley. Richard please go ahead.

51:51 Good morning. I have two questions. The first relates to the mortgages. As we've discussed, you've highlighted the improved applications. Can you also comment on how much of that increase in applications is driven by refinancing and also what trends you're seeing in runoff?

52:12 Thanks, Richard. So, look, I think the market we're operating in at the moment, which is more of a refinance market, so that is underpinning a large percentage of our application volume. So, purchases have really softened, given what we've seen in the market. So, that's what reflected in the second half. Looking forward from there, look, I think we'll play out where the market goes to from here. I think for us, It's about maintaining a really clear understanding of the acquisition margin we're acquiring at and making sure we've got those settings right. So at this stage, it is really driven by refinancing.

52:52 So Rod, historically refinancing has made about 35% of volume. I've heard anecdotes that at the moment it's 60 to 65. Is that consistent with what you're seeing? And could you also comment on the runoff of your book?

53:10 Apologies, I missed the runoff. So in terms of refining, that's ballpark. I think that's reasonable to see where the market is at at the moment in terms of refis. In terms of runoff, look, it is kind of improving a little over recent time, and that's really a feature of less property sales in the market, less purchases, less properties changing hands. You tend to see that segment of people aren't upgrading and changing out properties. So runoff has slightly improved, given that market that we're seeing with purchases dropping off.

53:41 I might just add, just in terms of the implications on margin, and particularly... retention discounting, which is a theme in the industry at the moment. If you look back sort of beyond 12 months ago, we saw high levels of retention discounting, so high volumes and high amounts of retention discounting in the market. You saw that come through our margin sort of through 2025 and the beginning of 2026. It did actually come down through 2026, so less volume and at a less discount. The last couple of months, probably the last two to three months, we have started to see that trend back up again. So you should expect to see across the industry some margin headwinds relating to retention discounting, I expect.

54:31 Okay, thank you. And just a question on deposits. In your slide 22 you say that TDs provided a four basis point benefit in the second half 26. Can you give us some sort of indication of what you're expecting to be the impact in the period ahead? I assume TDs will become a margin headwind for a short period given some of the recent pricing dynamics.

54:59 That's right. That's exactly what we are expecting to happen. What we saw through the second half was swap rates increasing and market typically not really following as fast and so there was some repricing effectively on the term deposit portfolios. That gave us a four basis point benefit in the second half. We are assuming that that is a slight negative into the first half of our 2027 given spreads and where they're at and the fact that we are needing to start to return to growth. and that part of that funding mix will likely come from term deposits.

55:35 Okay.

55:36 Thank you. Our next question comes from John Mott from Baranjeri. John, please go ahead.

55:46 Thank you. Thank you. Question on slide 13, which you've given us a lot more detail on the growth in the commercial lending. Look, I think BJ talked about this a little bit earlier, but just want to go into a bit on the growth that you've seen. So over the last two years, you've seen that commercial book growth by $3.7 billion up to $15 billion, so about 30%. And you've given us the breakdown in the size of the customers, so about half of it in family-owned, but also about 26%. is in wholesale and syndicated loans, which are very large, over $50 million in size. Can you give us what that breakdown between the family-owned and syndicated looked like two years ago, and so how much the very rapid 30% growth in business lending, commercial lending, has actually come in large customers?

56:40 Yeah, look, I think what we've tried to outline on 13 is how we go to market and how we think about it. We've I would say that wholesale and syndicated business has been part of our business bank for a long time and it's something that we do see an opportunity to grow with the right customers. We have a lot of our long-standing Queensland customers in there but we also participate in syndicated lending at the right margin and that's how we think about the composition strategy going forward. So we have seen growth across all dimensions but we have also seen growth in those higher lending or higher kind of credit balances. For us, It is really consistent. We understand the segments we're playing in. We're looking for that balance growth across the board and participating in credit that we understand. And then we have a track record in.

57:25 So for us, it's really just continuing on that path. As we've called out, what we really want to focus on is that family-owned and operated businesses. Our health business is part of that. We classify the kind of specialists a segment that we offer or we go to market for there. But overall, we're really looking for a composition that's balanced across the board and where we see the opportunity for lending growth in segments we understand, including that wholesale and syndicated business. That would be part of our strategy going forward.

57:58 Okay, and just following up, if I go over slide 28 where you break down the loan accounting expenses, and you break down the up and consumer, the commercial, and then the asset finance. Over the last couple of years, you've grown that commercial book by $3.7 billion, but even if you exclude the $24 billion that you released in the first half, 25, the total credit charge for this book's only been $12 million. You've grown the book $3.7 billion and only put 12 aside for credit and payment charges. It doesn't look like much of the provision has been built against that, especially when we are in a more challenged economic environment. Can you explain why the credit charge is so low for that commercial book, given the rapid growth that you're saying?

58:47 Yeah, I mean, look, the performance of the current portfolio is actually quite stable. So we have seen stable arrears. We have seen lower actual impaired assets, which are two of the inputs. Our our modelling assumes, as I said before, sort of a more pessimistic outlook into the future. John, you're right. The actual loan impairment expense to assets at the moment is about nine basis points in the second half, taking it to about seven basis points over the full year. We think the long-run average for that portfolio is higher than that. And so to kind of get us to that total portfolio view, which we've been talking about now at maybe sort of eight or nine basis points of GLA, which is kind of where we're at at an aggregate level.

59:35 So, you know, there are always going to be, you know, swings and roundabouts within the portfolios. We are still under what we think our long-run average is in terms of provisioning or in terms of expense, sorry, over the GLAs in the period. But everything that we are seeing in the portfolio is actually quite strong.

59:55 Okay, but it only takes one or two individual provisions for that to move very, very quickly because there's not much left to put aside for that rapid growth. I think you're saying over 50 years?

1:00:06 Yeah, look, I think we're conscious of the risk that we're taking. I think for where we are focused, we understand the risks. We've been working in these segments for a long time. We have really clear policies that we're working to. Those policies haven't changed. We're very disciplined around where we allocate capital. We want to do it at the right margin. So we recognise... The risks that we're taking, we have experience in it, and I think for us, we go through the provisioning process every six months. It's a robust process, and to the points that Rach has talked to, we think we've got the provisioning where it needs to be, but we're conscious of the outlook we're working, we're facing into as well. Thank you. Our next question comes from Christian Mazza from Jordan. Christian, please go ahead.

1:00:54 Good morning, Sam, and thanks for taking my questions. Throughout the presentation, you've mentioned quality deposits a number of times. Could you please define your view of a quality deposit? As we've seen on slide 54, deposits paying more than 5% has gone from 4% of total deposits in first half 26 up to 44% in second half 26.

1:01:17 Yeah, thanks. Look, I would define it as... a retail or business customer. We're holding their transaction account. We're also supporting them with their at-call needs as well, and those deposits are persisting over time. I think for us, one of the big strategic headwinds that BOQ is always faced into is that lack of that kind of everyday banking transactional deposit offering. We're seeing traction in that space. It takes time to build up. and we think that is good business for us. Even at higher funding costs, and I think you're seeing the rate cycle play out here, their customer rates, so there's obviously an increasing rate cycle playing out in the numbers that you've seen on 54. We price in the market where we think we need to be to grow those deposits over time. We see this as good funding for us. It's reducing our reliance on wholesale funding costs It gives us benefits. We think there's more we can do on the business banking side.

1:02:06 And so for us, we think this is the core to our strategy, growing retail deposits, thinking differently about how we might go to market in this space to grow. So we're really comfortable with the proposition that we've got. We recognise in this market there is more focus for customers in a high-cost living environment about looking for a good rate. And as an industry, it is much easier to switch for customers now between their savings at call and transactions accounts. So for us, we think we've got the right proposition. We want to grow in this space. That's the price that we set the price really optimising at a portfolio level across the whole funding stack. So it's something we're going to continue to focus on.

1:02:48 Okay, thanks. And secondly, on non-housing loans, following the back of John's question, it's gone up to 26% of the book, up from 22%, but provisions for non-home loans has fallen from 1.9% to 1.4%. How do you reconcile this with an outlook that's more risky and uncertain going forward with the turbulence in private credit and even falling house prices on the back of that and commercial property prices?

1:03:17 So, look, it comes back to the same answer, really, which is that we look at the quality of our portfolio. We are not seeing indicators at the moment. is tracking low, both in 90 days and also 30 days. We have a slight increase if we're getting really granular in arrears in the full year, but that was two customers where we don't expect there to be actually any losses. all of the indicators that we look at within our portfolio are suggesting that it is a high quality portfolio. Obviously then we overlay a view of the general economic outlook in the way that we look at the ECL modelling and we have taken a more pessimistic view of that which results in a slight increase overall in the collective provision.

1:04:17 but there's nothing we're seeing in our portfolio at this point that suggests that we need to take any more expense there. As I said, though, we are still off long-run averages in that portfolio, so there could be an expectation that impairment expense could increase in that portfolio going forward.

1:04:37 Okay, thanks, Ed. It's just interesting, considering on slide four you were saying the economic forecast that you put out has deteriorated materially since when I was 26, so we thought maybe there should be some extra provisioning based on the back of that, but that makes sense. Thank you. Our next question comes from Ed Henning from CLSA. Ed, please go ahead.

1:05:05 Thank you, Tate. Thank you for taking my questions. Just following on asset quality for a second, you've obviously touched on a couple of times there that you're below the long run average. Can you just talk about on slide 52 what industries you've got overlays for and then on slide 59 you talk about a peak in the cash rate, you know, is that assumed in your forward-looking provisions that the cash rate has peaked? And if we do get another increase, will that see, you know, a worsening economic outlook from your forward ECL provisions?

1:05:42 So just on the first point, the industry overlays we have include construction and transport predominantly, and particularly the transport overlay largely relates to our asset finance portfolio. We had a small industry overlay on agribusiness, but our portfolio size there is actually not material. In terms of the general economic portfolio, Outlook, we have assumed... I mean, we run three different scenarios, obviously, but we run for the base case downside and severe downside. They're all outlined in the disclosure, other than the severe downside, which is, as you can expect, another kind of material reduction in GDP growth, significantly higher unemployment.

1:06:31 And so in that example, actually, cash rates start to come off, but not materially.

1:06:38 Okay, thank you. Next question, just going back to the margin for a second, and obviously you've talked about slightly higher in the first half. Can you just break down the components a little bit? You talked about there's a headwind now potentially for the TDs because you did some repricing in the previous period, but you're pushing back into growth. You talked about deposit competition. I'm specifically interested in just the more the funding costs beyond TDs. which you highlighted at call, is that still going to be a tailwind for you or potentially with the growth in the book and deposit competition, that may not be as big a tailwind for you in the next half?

1:07:18 Yeah. I might just give you a couple of the component parts outside of funding as well just to kind of outline how we get to the sort of modest uplift in the first half 27. If I take lending for a minute, we expect the home lending impact on margin to be broadly consistent with what we've seen not only in the last half, actually, but in the couple of halves prior. So that is largely driven by retention discounting, but we still do have a small front-to-back book difference, and that includes our quite disciplined return to growth on home lending. So you should not expect a significant impact on margin in the first half, driven by pricing for growth, for example.

1:08:04 Commercial lending is a little bit more interesting. So whilst we saw a two basis point impact in the second half, we expect that to still be a negative to margin overall, but just slightly less. And so that's largely off the back of What we saw in the first half was a significant shift in sort of industry dynamics in competition for business lending. It was quite intense. So the impact on margin was felt. It continued through basically the kind of flow on impacts and that continued through the second half. But what we've seen in terms of pricing in that portfolio is that it's still competitive and elevated, but not as intense as it was particularly through the end of the first half.

1:08:49 and so that will be still a negative as I said but it's just slightly less so. We'll see the mixed benefits continue at a similar level as we have the past couple of halves as we shift the balance sheet still from home lending to business lending at a total level and then you won't see the impacts of the sale repeat so that's all behind us now. Funding is definitely the sort of I would describe it as the swing factor in our margin outlook and that is not only because of our return to growth but also where cash rates go, whether there's a possibility of another increase, how the industry and the competitive market reacts to that. And so we're assuming certainly no funding benefit to continue into the first half but we're not expecting a significant negative and we are expecting it to be broadly flat but there is definitely some risk to the upside and the downside depending on interest rate environments and competitive dynamics. And then largely, the confidence we have in the modest uplift then comes through as a result of the most recent cash rate change that happened in late September.

1:10:02 So our first month of this half, ongoing tailwinds from our replicating portfolio and the normalisation of liquidity. So that will be a slight tailwind into the first half as well.

1:10:20 That's great. Thank you very much. Our next question comes from Nick Dalton from Jefferies. Nick, please go ahead.

1:10:31 Hi, Rod and Rachel.

1:10:34 Just a quick one for me on returns. Your answer to the previous question has touched on this seriously. So maybe the answer is a summation of everything you've said so far. But your returns are still well below the cost of capital. What is the pathway in your view of getting the ROE back to at least the cost of capital level?

1:10:54 And what are the levers do you expect they're going to have to do a lot of the heavy lifting to get there?

1:10:58 Thanks for the question, Nick. So... For us there's really three key pillars and our strategy is structurally aligned to this and they are the drivers of RoE from our perspective. The first is optimising our funding mix and that is talking to what we have earlier today around growing our transactional deposit base, increasing the deposit and needs that we're meeting with our customers and continuing to grow that over time. Optimising our funding mix more broadly than that in terms of the capital partnership is a core element as is other elements. Covered bonds are a core part of our funding stack as well so Funding mix is the starting point. I think continuing to generate operational leverage as an organisation. We've invested heavily in technology. We're well placed to continue to leverage upside from that from a productivity point of view.

1:11:44 So continuing to see that leverage in the business in terms of serving more customers, supporting growth through the existing cost base and maintaining that disciplined cost management approach that we've maintained over a couple of years now. And the final element is around optimising the balance sheet and that's really continuing to look at the efficient and disciplined allocation of capital, recycling capital into higher margin business and where we see the opportunity to extend the partnership model that we've established. That is another element that we'll continue to look at. So it's really those three key pillars that provide us a pathway back to returns at or above our cost of capital. Our next question comes from Carlos Cacho from Macquarie.

1:12:32 Carlos, please go ahead.

1:12:36 Thanks for the opportunity to ask a question. First, I just wanted to ask on your outlook comment for stable impairment expenses, I was just wondering, are you kind of thinking about that on a financial year or second half basis, given that there was a release of provisions in the first half and how we should think about that going forward.

1:12:58 We're looking at it over the course of the financial year is the short answer. And I think for us, it's really informed by those comments we talked to earlier. As Rachel has said, we've called out for a couple of periods. We do see ourselves getting back to that long run average. And so we're approaching that given the result that we've got. But in terms of the specific question on the outlook guidance we've given, it's over the course of the financial year.

1:13:21 Sorry, I meant more kind of is that, you know, if we look at 26, it was kind of nine bits. Sorry, second half 26, it was nine. Like, should we think about that or should we think about FY26 as a whole or second half 26 as being the relative starting point?

1:13:36 Yeah, you should assume that the actual expense is broadly consistent with FY26. So, as you said, we had... nine basis points in the second half. It was eight basis points over the full year. Obviously, it's going to be largely dependent on the timing of growth in the balance sheet. But look, I think we've given pretty specific guidance on this actually, which is that we expect the expense amount in the P&L to be broadly consistent over the full year. So this year's expense repeated through next year.

1:14:11 Thank you. And then just secondly, I'm just curious. You've made some comments that business competition is probably a little bit less intense. Anecdotally, we've heard through the industry that with the stresses emerging in private credit, there's been certainly a pullback. from the availability of private credit and increasing the cost of it. I'm just wondering if you're seeing any opportunities to maybe pick up customers who might have previously gone into private credit, given you do do a lot of property-backed lending, and that's obviously where most of the private credit playing is, so it does seem like there'd probably be a reasonable bit of overlap for maybe some of those high-quality customers that were competed away over the last two years when private credit became so prolific.

1:14:55 Yeah, look, I think, Carlos, we are seeing business lending is resilient at the moment. We've seen that coming through the market stats. For us, I wouldn't say necessarily that we're seeing customers coming across for a private credit. We're really clear on the segments we're playing. They're established businesses that are up and running and have been for some time. We've kind of got a really clear view of the customers we want to target. We're not seeing a lot of it. Most of our growth comes from our existing customers. There is an element of new to bank, but it is really in line with those key segments that we called out that we're looking to extend or deeper relationships with customers and grow more. So for us, it's really just focusing on that customer cohort. We're not seeing too much come across there.

1:15:42 Thank you. Our last question comes from Nathan Leed from Morgans. Nathan, please go ahead.

1:15:52 Hey Rod and Rachel, thanks for your presentation. It's just three or so for me if you don't mind. So first up on slide 24 and within the outlook statements also you talk about strong non-interest income growth coming through an FY27. Do we sort of go to that slide 24, look at that $14 million that was actually delivered and annualise that and that's the sort of expectation for FY27?

1:16:19 Nathan, you know the way that I think about this is their partnership really sort of got off the ground in May. And so annualising it, from my perspective, is the base case. I would say there's upside given the momentum in that forward flow arrangement sort of picked up even through the last quarter of our results. So it's a good starting point. I think you should probably think that that is our base case.

1:16:48 Okay, that's fantastic. Second, just on the cost base, there's no comments within the packet I see about getting to work on the BOQ sort of heritage legacy cost base. Can you sort of talk us through what your targets are there when you're expecting to really get going on it and what the potential for cost out is on that element of the business?

1:17:11 Thanks, Nathan. So where we're at is still absolutely part of our strategic forward plan where we'd like to get all of our customers onto the digital stack and benefit from the better proposition there. Planning is underway. We're still, as Rach called out earlier, looking to just complete the final steps of the decommissioning of the legacy technology for me. We are turning our attention to the BOQ heritage side of the business. There's some different characteristics of our business that we need to take into account, the primary one being it's a branch-based model as well as being digital. So slightly different approach to how we think about managing the change experience there for customers. We learn a lot through the meMigration that is also getting built into the BOQ. I would think about this in the same timeframes as the meMigration.

1:17:57 They're things that are complex and we want to make sure we do it safely and minimise disruption to the organisation and customers. around the same timeframe, around two to three years is the right timeframe. And then similar cost kind of step down that we've called out for the mean migration and deconditioning as well. I think that's the right way to think about it.

1:18:18 Okay, that's great. And then the third one for me, you know, you're saying about the loan impairment charge on a million dollar basis being flat, FY27 versus 26. you've got home lending returning to growth. You've got some pretty strong business or commercial lending growth. Please just, if you could clarify just whether that's on a million-dollar basis or on a percentage basis, what the target is there. I'm just interested, if you've got that amount of gross loan growth coming through, how is it that the loan impairment charge actually stays flat also in FY27 or into FY27?

1:18:58 just to answer the more specific part of that question, it is on a dollar basis. And look, you know, it is heavily caveated, as you would expect, given the uncertainty in the economic environment. As John called out earlier, you know, the need for any sort of one-off specific provisions that need to be raised through the period if a customer does, you know, kind of fall into arrears or into trouble. And so... Our assumption is that it's in a dollars basis because we've looked at our current portfolio with the current inputs that we've looked at in terms of forward look assumptions around the economy, but that can shift really quickly. We've seen a much more volatile environment.

1:19:47 in the last few months, in the last probably year, I would say, than probably in the few periods before that. And so we will come back to the market and update if that changes. But at this point, that's our sort of our best expected outlook for a learning family expense.

1:20:05 Okay. So it's going to decline on a basis points of GLA basis, therefore 27th?

1:20:11 Look, there's always a number of one-offs in the portfolio, so we've looked at those. So we did take some specific provisions in this year. We don't expect that to repeat as we stand here today, but as I said, that is a risk. The portfolio growth, you know, we've talked about a sustainable return to growth. It's about the same level of growth that we're assuming from a business lending perspective. but we won't take on any of the credit risk relating to the equipment finance part of the asset finance portfolio given the forward flow arrangement we have with Challenger. And then lastly, our return to growth in housing is not a hugely ambitious, undisciplined return to growth in 2027.

1:20:56 It is a very much a slow and steady, ensuring we get the right returns, as Rod outlined earlier. And so we don't see a material impact on the collective provision relating to housing. It will obviously come with a collective provision, but not material.

1:21:15 Okay. And, Lacey, you talked about your long-run expectations for loan impairment expenses, sort of like eight to nine basis points. Could you actually just talk us through what you're thinking in terms of the different segments on a long-run basis? Yeah, I mean, we...

1:21:33 Sorry.

1:21:36 Please fire away.

1:21:39 Yeah, sorry. Look, for the three kind of broad categories, housing, we think that sits between two and four basis points. commercial lending can be sort of around 20 basis points. And then asset finance is obviously the highest at about 45 basis points. There are different subsets of that asset finance portfolio that can vary quite significantly, but at an aggregate level, about 45 basis points. Noting that for equipment finance, that's largely not coming onto our balance sheet going forward. But look, these are long-run averages, and there are just as many arguments to say that history, you know, the future is not going to look like the past, but that is, as we stand here today, our sort of best estimate as to where we think long-run averages sit.

1:22:26 Great. Thank you. Thank you. There are no further questions. I'll now hand back to Jessica.

1:22:35 Thank you everyone for joining today's call. If you have any further questions, please reach out to the BOQ Investor Relations team and we look forward to connecting with many of you over the coming days. Thank you.