Low interest rates and a “rapidly changing” operating environment contributed to a 6 per cent drop in the Bank of Queensland’s profits for the first half of the 2017 financial year, according to the lender.
BOQ yesterday announced interim cash earnings after tax of $175 million for the six months to 28 February 2017, down 2 per cent on the same period last year. Statutory net profit after tax was down 6 per cent to $161 million.
The bank cited “strong competition for loans and deposits” in a low interest rate environment as contributing factors to flat loan balances and a five basis-point reduction in its net interest margin over the half.
Commenting on the results, managing director and CEO Jon Sutton said that the bank is operating in a “rapidly changing operating environment where regulation, competitive dynamics and customer demands are shifting”.
“The industry faces challenges of low credit growth, low interest rates, regulatory uncertainty, rapidly changing consumer expectations and increased scrutiny of conduct and culture,” he said.
Indeed, the bank’s results come after a series of big banks and non-major lenders have hiked their rates in the past week, citing increasing funding costs and regulatory pressures.
A series of lenders have moved on rates in the past few days, with increases from AMP, CBA, ANZ, NAB, Homeloans, Bendigo Bank, St.George and Westpac ranging from seven to 117 basis points.
Commenting on the banks’ moves, AMP Capital chief economist Shane Oliver told Mortgage Business: “What they've done is entirely rational, they've covered their funding cost increases over the last six months, they're responding to the regulators, and also responding to the strong demand from investors for loans by putting rates up.”
BOQ's Mr Sutton noted, however, that the outlook for the second half of the year looks “more favourable” as lending application volumes have picked up in recent months.
He added that margin headwinds abated late in the first half, which saw a return of mortgage application momentum and deposit spreads improve.
Mortgage settlements ticking up
The percentage of mortgages written for owner occupiers by BOQ increased from 56 per cent in 1H16 to 70 per cent in 1H17.
Meanwhile, the percentage of investment settlements declined from 44 per cent in 1H16 to 30 per cent in 1H17.
CEO Mr Sutton noted that the bank’s loan book decreased by $168 million in the first half of 2017 due to regulatory pressures.
“Our approach to pricing and actions taken to remain within the APRA investor lending cap contributed to the contraction of the loan book,” he explained.
Chief financial officer Anthony Rose added that at an aggregate level, the bank’s loan portfolio contracted primarily due to the housing loan book.
“This has been an intensely competitive period not just in lending but also in retail deposits,” he said.
However, Mr Sutton said the bank has seen a 30 per cent uplift in mortgage application volumes in recent weeks.
“The pipeline of mortgage applications in the past six weeks has increased substantially across all channels,” he said. “Furthermore, we are not currently constrained by the APRA investor lending cap.”
“It is expected that this will contribute to better revenue momentum in the second half,” he concluded.
[Related: APRA action and bank rate hikes]