Non-major lifts margin by 20bps

A regional bank has managed to increase its net interest margin over the six months to 28 February, despite the low-rate environment.

Bank of Queensland yesterday announced record interim cash earnings after tax of $167 million for the six months to 28 February 2015.

The lender said the solid result was driven by growing momentum in lending growth and strong net interest margin performance.

Despite a highly competitive market, the bank’s net interest margin rose by 20 basis points from February 2014 to 1.97 per cent. This was down to an 11 basis point increase from BOQ Specialist as well as ongoing pricing discipline, the group said.

“While the market remains incredibly competitive, both in business and home lending, we are growing our book without compromising asset quality or cutting pricing to the bone,” BOQ managing director and chief executive Jon Sutton said.

“Even with BOQ Specialist’s contribution, this is a very good performance, given market conditions."

In its first full half since acquisition in July 2014, BOQ Specialist achieved lending growth of $352 million in on-balance sheet mortgages, on track to exceed its target for the full financial year, the group said in a trading update yesterday.

Mr Sutton said the result showed BOQ was continuing to make steady progress in delivering its strategy.

“What you see today is a bank that has come a long way in recent years. Strong foundations are now in place and we’re well into building a bank that is lower risk, lower volatility, and set up for sustainable growth,” he said.

“This is another solid result which represents a record half-year profit for BOQ. I am particularly pleased to see lending growth improve while the Bank’s risk settings, margins, balance sheet and capital position are all strengthening.”

Mr Sutton noted that lending growth headed back towards system levels as a result of the strategic initiatives BOQ has implemented in recent years, including expansion of the mortgage broker channel and investment in the business bank’s presence and capabilities.

The housing book saw increased diversification, with 57 per cent of applications originating from outside Queensland, largely driven by the broker channel which contributed $420 million of loan growth and accounted for 14 per cent of settlements.

BOQ Finance grew by an annualised 6 per cent over the half to $4.0 billion.

“While it was pleasing to see genuine growth momentum across each of our businesses, it was equally important that this wasn’t at the expense of our risk fundamentals or margins,” Mr Sutton said.

“We believe we can continue to drive growth through our existing strategy especially when you consider we’re still below our peers’ market share in the broker channel and we have further upside through BOQ Specialist, as well as Virgin Money Australia where we expect to launch mortgages within 12 months,” he said.

 

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