Exposure to SE Queensland commercial property market causes Bank of Queensland's first bank loss in 20 years

Bank of Queensland (BOQ) has posted the first full financial year Australian bank loss in 20 years, in part, due to its exposure to the declining south-east Queensland commercial property market as well as from operating in a tougher overall credit environment.

It reported a full-year loss of $17.1 million, compared with a net profit of $158.7 million in the previous 12 months.

It reported a 100% increase in its loan impairment expense of $401.0 million, compared with a prior year expense of $200.5 million.

“The increase in impaired assets is a result of a thorough independent review of the bank’s commercial loan portfolio and the continued decline in commercial property prices in Queensland in the first half,” reported the bank in its full-year accounts.

The bank’s $5.1 billion business and agricultural loan book is now in run off “due to impaired property asset realisations”.

BOQ chief executive Stuart Grimshaw, who took on the role in November, said today the bank was seeing stabilisation in the commercial portfolio, with “no new large impaired exposures” in the second half of the year.

The last Australian bank to report a full-year loss was ANZ, which made a $579 million loss two decades ago.

BOQ was profitable in the second half of the year and expects to return to profitability in the current financial year.

Commenting on the results, Grimshaw said the bank continued to operate in a low credit growth environment but was seeing signs of consumers returning to the housing market.

“Consumers are behaving cautiously and paying down their debt. More than 40% of Australian mortgage holders are at least one year ahead of schedule on their repayments.

“Household savings are at levels not seen since the late 80’s, despite falling interest rates.

“We are starting to see some early signs of consumers returning to the housing market, evidenced by auction clearance rates in capital cities improving,” he said.

“Stronger credit and collection processes are now in place and our risk management capability is vastly improved."

BOQ does 60% of its lending in Queensland with 16% in Victoria, 13% in NSW and 8% in WA.

It will look to tap into the bullish WA property market with an increased retail presence and use of mortgage brokers.

The bank expects the WA economy to continue to exhibit strong GDP growth and believes there is “significant opportunity to improve its market share using a multi?channel approach".

BOQ quit the mortgage broker market in 2004 to focus on its owner-managed franchised branches, but has recently returned to using brokers selectively to expand its footprint outside of Queensland.

The bank grew its home loan book by 5.1% over the financial year from $24.15 billion to $25.36 billion and also reported a decrease in the proportion of borrowers more than three months behind on their mortgage repayments from  0.93% in the first half of the year to 0.7% in the second half.

However, it also reported a tightening of net interest margins from 2.01% to 1.98% as well as increasing reliance on more retail deposits  (rising from 56% to 59% of funding). 

The improvement in arrears performance is across all states.

Despite the loss, the BOQ board approved a fully franked final dividend of 26¢ per share, taking the full year dividend to 52¢ per share.