BOQ to address disadvantages and invest in ‘legacy issues’

Bank of Queensland (BOQ) has confirmed it will address its “core structural disadvantages” along with investing in “legacy issues” that it said have been impacting its performance during the higher interest rate environment.

At the lender’s 2023 annual general meeting, managing director and chief executive Patrick Allaway stated that the bank would look to build on its deficiencies in the year ahead.

Reviewing the lender’s issues Mr Allaway labelled its online banking capability as the primary difficulty it needed to address.

He commented: “Firstly, our historic inferior online banking experience and low base of transaction accounts, which did not start to be addressed until 2020. This is impacting [our] relative funding costs in a higher interest rate environment.

“While we have now delivered digital banking and real-time payments, it will take time for lower funding cost transaction accounts to continue building.

“Secondly, the lack of automated processes and limited integration of legacy systems, which has been a root cause of operational resilience and risk weaknesses.”

Mr Allaway also singled out the lender’s “inadequate integration of historical acquisitions”, which he said had resulted in BOQ having an “overly complex organisation, duplicative siloed functions, and ultimately a higher cost to serve”.

As part of addressing the challenges, he stated that the launch of apps across all three brands, BOQ, ME, and Virgin Money, with a common digital core platform was leading to “an improved customer experience”, with $5.5 billion in deposits and over 20 per cent of customers on the platforms.

BOQ’s CEO added that the bank’s digital push also saw it reach the testing phase for its digital mortgages product, which is scheduled for delivery in 2024 and will “significantly improve our customer experience as well as halve our mortgage origination and processing costs”.

Regarding BOQ’s position in the coming year, Mr Allaway stated: “We are managing what we can control, in an environment that remains uncertain, we are focused on simplifying and optimising our business for growth, with a lower cost to serve, when the cycle turns.

“While the Australian economy remains resilient, we do anticipate increasing economic risk into next year due to the lagged impact of sustained higher interest rates combined with the increased cost of living.

“We anticipate that our simplification program will partially offset cost inflation and increasing regulatory impost with low single-digit growth to our underlying cost base.

“The combination of these impacts is likely to deliver lower returns in FY24. We anticipate returning to profitability growth in FY25 and FY26 when the cycle turns.”

Enforceable undertakings

Mr Allaway also acknowledged the bank’s enforceable undertakings, one with the Australian Prudential Regulation Authority (APRA) and the other with the Australian Transaction Reports and Analysis Centre (AUSTRAC).

He said the lender had agreed to the two court-enforceable undertakings to deliver the remedial action plans. He added that the lender was “embracing these multi-year programs of work as an opportunity to build a stronger and simpler bank”.

The undertakings related to the bank fixing deficiencies in its operational resilience, risk culture, and governance, with the other concerning shortcomings in its anti-money laundering and counterterrorism financing program.

Looming leadership reshuffle revealed

In his address, Mr Allaway also revealed that BOQ’s group chief risk officer David Watts will retire in late 2024 as part of what he called “a planned orderly succession process”.

Mr Watts joined the group in March 2022 to help improve the lender’s risk capability, with the recognition that it would be his last executive role before his retirement in late 2024, according to the bank.

Mr Allaway added: “David is instrumental in transforming our risk management and compliance capability and will continue to do so with a seamless transition planned for late 2024.”

[Related: BOQ Group anticipates ‘increasing risk’ in FY24]