BOQ first-half profit lifts 38% to $212m

Bank of Queensland’s (ASX: BOQ) was down -3.93% at the open after releasing a first-half profit, up 38% to $212m on the back of strong business momentum, tightly managed costs and improved portfolio quality.

For the six months ended February 28, the bank delivered a 14% increase in cash earnings to $268m, a significant beat against Goldman Sachs expected $222m.

While management attributes the strong result to lending momentum, higher non-interest income, carefully managed costs, and a loan impairment expense credit in the half, also contributing to performance was its net interest income (NII).

Margins

Due to a 12 basis points decline in the bank’s net interest margin (NIM) to 1.74% and the impact of an ME Bank decline in average interest earning asset balances prior to ownership, NII decreased 2% ($16m) to $741m.

Also impacting NIM was customer switching from variable to lower margin fixed rate loans, swap rates increasing faster than customer rates and an increase in liquid assets.

The ME Bank acquisition – which will cost circa $130m to $140m (pre-tax) over the life of the program – is expected to realise major pre-tax cost synergies and additional revenue benefits.

The bank declared a fully franked interim dividend per share of 22 cents, which represents 53% of first half FY22 cash earnings. However, the board plans to pay out 60-75% of full year cash earnings.

Result highlights include:

• Cash earnings after tax up 14% to $268m

• Total income up 1% to $831m

• Housing loan growth up 9% to $2.6bn

• Business loan growth up 8% to $600m

• Statutory net profit up 38% to $212m

• CET1 ratio of 9.68%

Commenting on the first half result, managing director and CEO, George Frazis noted:

Today’s result demonstrates our disciplined execution of the ME integration and digital transformation program and represents our fifth consecutive half of improved underlying performance.”

“We are a step closer to realising our bold strategy of building a truly multi-brand, cloud-based, digital retail bank with the launch of myBOQ joining VMA on the common core banking platform which enhances the customer experience."

Outlook

Management expects to deliver 2% positive jaws for FY22 – banking a metaphor for improved efficiency – and remains focussed on achieving quality, sustainable, profitable growth.

The bank expects to see NIM headwinds reducing and the continued benefits from integration and productivity programs driving a cost reduction of at least 1%.

Over the next 12 months, the second phase of the digital, cloud-based retail core banking platform will be available to customers and will include home loan products.

In light of uncertainty associated with covid over the next year, the bank will continue to maintain a prudent approach to provisioning.

Meantime, the bank has a strong capital position and expects CET1 to remain comfortably above 9.5%.

Bank of Queensland share price over 12 months.