Investors chased the shares of the Bank of Queensland (BOQ) higher yesterday as they ignored the underlying realities of what was a solid full year result.
The bank is the first of the four September 30 balancing institutions to report (another, the NAB, sprung a surprise of its own yesterday).
Bank of Queensland said net cash profit for the year jumped 20% to $301.2 million for 2014, thanks to lower funding costs and bad debt charges (the big driver for the improvement in the earnings of the big four banks in the past two years).
The result only just beat market forecasts and the lender’s own guidance released on August 13, but that was enough for the bank enthusiasts among investors yesterday.
The shares jumped 3% to $12.10.
BOQ 1Y – Bank of Queensland lifts profit
Statutory profit was 40% higher at $260.5 million and the bank said its cost to income ratio was down 0.4% to 43.9% which is about on par with the four majors.
Business lending rose strongly, but the bank failed to make a mark in the hot housing finance boom.
Lending to households increased by only 1% to $26.3 billion in the face of fierce competition from major lenders and subdued borrowing in Queensland, and that makes you wonder if the bank can repeat the 2013-14 performance this year.
Business lending is riskier than home lending and the economy, especially in Queensland, and is hardly going gangbusters.
But it said there was a solid rise in lending to business of 6%, 1.7 times as much as the nation’s overall business lending growth, beating its own target of 1.5 times the sector’s growth.
That above system growth was helped by the acquisition of the $2.5 billion loan book of Investec Bank (Australia) in July (now called BOQ Specialist, which contributed $3.1 million of profit in its first month of operations).
In fact BoQ said it added $400 million in business loans, taking them to a total of $5.6 billion in the past year, compared to a $200 million reduction in 2012 and a $100 million rise in 2013.
“Our ability to manage deposit pricing has delivered real benefits, supported by two credit rating upgrades during the year," acting CEO Jon Sutton said in a statement.
"The business bank continues to grow and, aided by the acquisition of BOQ Specialist, we have further diversified our portfolio by industry and geography."
Impressive as that talk is, it was a big fall in impaired assets that helped earnings to rise.
The bank said its impaired assets fell to $287.6 million at September 30, from $381.6 million.
The bank’s net interest margin – or interest from lending minus the cost of funding loans – rose 0.1 percentage points to 1.82% reductions in deposit and wholesale funding costs.
Final dividend is 34c a share, taking the full year payout to 66c a share, up 14% on the previous year.
That’s a generous payout ratio of 74% of profit (earnings per share of 89.5c ).
Then bank has yet to replace departed CEO Stuart Grimshaw, who bolted for the US six weeks ago to run a payday lender and pawnbroking business based in Texas.
