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Bank acquisition a big win for mortgage origination

An Australian non-major bank’s acquisition of an asset finance and leasing business has paid off by proving to be the group’s strongest distribution channel for residential mortgages. 

Bank of Queensland’s BOQ Specialist arm – a business acquired in 2014 from Investec Bank (Australia) and subsequently renamed – has made a significant contribution to the annual results of the group in its first full financial year since acquisition. BOQ Specialist serves health, medical and accounting customers by offering everyday banking facilities, asset and equipment finance loans, SMSF loans and residential mortgages. 

The BOQ Specialist book generated $1.4 billion of growth in home lending, contributing 68.4 per cent of the bank’s total housing portfolio growth of $1.9 billion for the full year to 31 August.

In a trading update yesterday, the bank noted that BOQ Specialist delivered above expectations with cash earnings of $43 million – $5 million ahead of guidance at the time of acquisition.

BOQ reported a 22 per cent increase in its statutory profit after tax to $318 million. After-tax cash earnings increased 19 per cent on the previous financial year, with the bank putting the positive result down to a higher net interest margin, a strong full year contribution from BOQ Specialist and further improvement in impairment expense.

Chief executive officer Jon Sutton said he was pleased the bank had delivered another record result in challenging market conditions.

“BOQ has now delivered record results for five successive halves, a significant achievement in an environment of low growth and changing regulations,” Mr Sutton said.

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“Though we have more work to do, particularly around returning to higher levels of asset growth, most of our key financial metrics are moving in the right direction.

“Overall we remain a bank that has come a long way in recent years and we are confident that we are well positioned for sustainable growth into the future.”

Net interest margin for the full year was 1.97 per cent, up 15 basis points on the prior year due largely to the higher margin BOQ Specialist business.

Mr Sutton said there are many factors driving the outlook for margins in the year ahead given the changing regulatory environment, with banks positioning for global industry change under the Basel IV framework expected to be introduced in the coming years.

“The potential reduction in the significant capital advantage enjoyed by advanced accredited banks should be a positive to BOQ’s competitive position and relative return performance,” he said.

While broker volumes generated the bulk of the growth in BOQ’s retail bank and represented 15 per cent of housing settlements in 2015, growth momentum in the third-party channel was lower than the first half.

The bank expanded its presence in the broker channel last year and now has BDMs supporting 2,506 accredited brokers in every state across the country.

The group is looking to grow this to an anticipated 4,000 brokers by the end of the 2016 financial year.

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