Meanwhile the Bank of Queensland has joined its larger peers by forcing shareholders to share in the pain now afflicting the sector by taking a dividend cut.
The bank last Thursday cut payout by 25%, despite lifting earnings by nearly 30%.
BoQ, which is one of the last three remaining mid-tier institutions after the takeovers of St George and BankWest, said the decision to reduce its shareholder pay-out was aimed at preserving cash because of the current “challenging market environment”.
Investors will see the interim dividend fall from 35 cents a year ago to 26 cents fully franked this time.
The bank is following its major rivals who have flagged the likelihood of dividend cuts in their next round of results which start appearing next week.
The company said the cut was " consistent with the wider banking market it was now necessary and prudent for the Bank to adopt a more conservative dividend policy in order to preserve capital strength in the current challenging market conditions."
The shares closed down more than 5%, or 45 cents at $8.25 on Thursday.
Like its other regional competitor, Bendigo and Adelaide, the BoQ has been hit by higher funding costs
BoQ’s results came after its regional rival, the Bank of Bendigo and Adelaide, warned earlier this week that its forthcoming full year profit would be as much as $50 million lower than first expected because of the slowdown in the economy and rising interest costs which have compressed profit margins..
However, Bendigo still expects to make between $205 million and $218 million this year.
"As flagged at our FY08 results last October and again in February, increased funding costs continue to compress our net interest margins (NIM).
“However, we expect to recover some of this margin in the 2H09 with lower cost of funds and re-pricing strategies. Signs of this recovery have already become evident in recent weeks, CEO David Liddy in Thursday’s profit announcement.
The lower pay-out came as BoQ reported a 29% rise in net profits to $84 million although its post-tax figure showed a fall of 25% to $46.3 million compared to a year ago, as restructuring and other costs hit the balance sheet.
The bank had a rise in provisions for bad debts, souring loans of $18 million and restructuring costs of a similar amount in a campaign to cut its cost base.
BoQ said income rose 20% to $304 million for the six months to the end of February.
“Net interest income jumped by the same amount to $226 million thanks to strong asset growth and the benefit of buying Home Building Society in Western Australia.
However, a jump in the bank’s costs to $212 million from $153 million over the corresponding period offset some of the rise in revenue.
One of the consequences of the move will be to reduce the number of owner managed branches in NSW from 56 outlets to 45, primarily as a result of under-performance and the continuing sluggish nature of the state’s economy.
“We have also taken action to rationalise our under-performing branches in NSW, where the performance was below both the Bank’s and the owner-managers’ expectations (OMB).
“A combination of factors including the sluggish NSW economy and the make-up of the branch management contributed to the under-performance of some NSW branches. We are consolidating our 56 existing NSW branches down to a core of approximately 45.
But that comments belied the reality of the changes in NSW where the bank is facing legal action over the takeover of at least seven of the 15 branches referred to by the bank in its profit announcement last week.
The operators of the 15 outlets have either been taken over, forcibly; have returned their keys, or have been sold.
It is a situation that could develop into a legal nightmare for the bank in NSW which is central to its new attempts to expand.
While it is fighting some of the former franchisees in the courts, the company will find it hard to expand and revamp its business model of OMB’s. While there is legal action, people will be reluctant to deal with BoQ.
“We will also focus on strengthening the continuing OMBs and converting corporate branches to OMBs in Queensland and WA. The unique OMB model provides exceptional growth over the corporate model," Mr Liddy said in the statement.
Mr Liddy said the Bank’s asset quality remained strong with arrears increasing marginally on the housing book, but with decreases reported for both the leasing and business segments.
“We have seen increases in our bad debts in the first half, however these levels remain below those of our competitors due to our lack of exposure to large corporate and property financing,” Mr Liddy said.
“We have no significant single-name exposures and do not lend to the large corporate/institutional end of the market.”
The bank has also merged its retail and business banking divisions to save money – a move which follows that of the larger banks such as Westpac and National Australia Bank.
As for the ongoing effects of the global economic crisis and its impact on Australia, BoQ said it benefited from the increased flow of deposits from customers which now make up 58% of its funding base.
However, it has also been squeezed by the rise in funding costs which has compressed margins.
The higher cost of using the Federal Government’s AAA rating to raise money from international credit markets was a problem and Mr Liddy called the for fee paid to Canberra to be the same for all banks (which would represent a subsidy to the bank and its customers
