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AU BoQ is looking better now - Grimshaw says debt the focus

Property Here - Friday, April 19, 2013

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BANK of Queensland has swung back into profitability by staunching problem debts, including cracking down on some loans to "mum and dad'' borrowers.

Half-year profits at the 269-branch lender yesterday rose to $100 million, compared to a $90 million loss a year ago.

The earlier haemorrhaging came from a shock $327 million impairment expense for bad debts - including a large swathe of potentially future problem loans. This time the expense was $59.5 million.

"The business is actually performing, we're getting through the bad and doubtful debt position (and) expenses are under control,'' BoQ chief executive Stuart Grimshaw said yesterday.

The result, for the six months to February 28, showed BoQ's lending to retail borrowers was below industry averages.

But Mr Grimshaw argued this was because BoQ had eased down on lines of credit, and home loans otherwise were above industry rates.

Lines of credit are set amounts people can draw down and typically are secured by homes.There are no structured repayment programs.

BoQ had noted arrears were higher in this sector than home loans, so since last year it had eased back on this area.

The bank is looking to boost performance by further rejigging commissions for its franchised branch owners.

Commissions had previously been skewed more to getting loans and now more focus would be on "deposits, quality, compliance'', Mr Grimshaw said.

Efficiency was improving, he said, citing how opening a customer account now took five minutes as opposed to 30 minutes previously.

He said the economy faced challenges with confidence, a key issue in building an appetite for borrowing.

"Queensland's still doing it reasonably tough. It's mainly in the small end of town,'' he said.

Arrears for commercial loans deteriorated, which BoQ attributed to "difficult trading conditions'' for small to medium customers. Changes to risk management meant problem loans were picked up earlier, BoQ said.
Overall lending was tipped to remain subdued.

"t just means we've got to keep being different,'' said Mr Grimshaw, highlighting areas such as agriculture as targets.

Yesterday's profit was boosted by improved margins on loans.

But it also incurred almost $12 million in redundancy costs after cutting 100 staff. It has 1362 employees.

Jamie Nicol, chief investment officer of fund manager Dalton Nicol Reid, said a positive surprise from the result was BoQ's strong underlying earnings after reining in costs.

But the bad debt charge remained at the upper end of expectations, he said.

"The big picture is what happens to bad debts over the next three years because that's going to drive all your earnings growth,'' he said.

Mr Nicol welcomed BoQ's lifting the dividend from 26c to 28c.

On BoQ's preferred ``cash earnings basis'', cost ratios and interest margins improved compared to six months earlier. Its interest margins, however, were below regional peers.

Diluted earnings per share fell slightly to 36.1c.

BoQ shares closed down 15c at $9.45. The stock has improved more than 32 per cent since this time last year when it was trading at $7.14.

Net profi t $100.5m 211%
Impairment expense $59.5m 82%
Interim dividend 28¢ 7.7%

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