FALLING PROPERTY PRICES HURT BANK'S BOTTOM LINE

ASX-LISTED Bank of Queensland (BOQ) today blamed falling commercial property prices and volatile financial markets for its $90.6 million loss after tax for the six months ending February 29, 2012.

The result represents a 289 per cent drop on BOQ’s $48 million profit after tax in the previous corresponding period.

Profit before impairment charges and tax dwindled 1 per cent to $199.6 million due to a 13.1 per cent decline in operating income to $53.2 million fuelled by financial market volatility. Loan impairment expenses were up 144 per cent to $327.7 million, including so-called ‘specific’ and ‘collective’ provision outlays of $165.7 million and $162 million respectively.

“Arrears appear to be stabilising and we are making good progress on managing our impaired assets,” says managing director Stuart Grimshaw (pictured) in a written statement.

The bank has reviewed its commercial loans portfolio and resorted to using $160 million in overlays to avoid potential impacts of falling commercial property prices on loss-given default ratios. Impaired assets grew in gross terms by 30.2 per cent to $578.7 million compared to the end of August 2011.

Lending approvals for the half-year totalled $5.8 billion, up $200 million due to continuing subdued system growth. This increased BOQ’s pre-collective provision loans under management balance by an annualised 2 per cent to $33.8 billion.

“We’ve maintained discipline in expenditure, bucked the industry trend with improved NIM
performance in a tough funding environment and taken a responsible and conservative approach to management of our loan book,” says Grimshaw.

Operating income excluding insurance income fell 14 per cent to $52.9 million due to shrinking trading book income. Bank costs rose 6 per cent to $197 million, following a jump in software amortisation expenses.

Grimshaw believes the worst is behind him, pointing to strong investor interest in the bank’s $450 million capital raising.

“BOQ’s capital position will be significantly strengthened following the capital raising (which has raised $288 million to date),” he says.

“BOQ will have one of the soundest capital positions of banks in Australia. This reflects a greater level of conservatism at BOQ when it comes to our balance sheet, while also recognising the significant opportunities for organic growth that additional equity provides.”

Total income rose 2 per cent to $396.6 million and net interest income jumped 5 per cent to $323.5 million on the back of improved balance sheets, margins and insurance income.

Grimshaw’s growth plan for the second half of FY12 includes improving BOQ’s funding mix with retail deposits and enhanced business banking services for small to medium enterprises.

“BOQ will focus on our relationship based businesses of business banking, agribusiness and our core retail customers and will target growth above system over the long term whilst maintaining costs at or under inflation,” he says.

The bank opened five branches but closed three during the first-half, bringing its total to 262 with no corporate branches becoming owner-managed.

The Board of directors has approved a fully franked dividend of 26 cents per share to be paid on May 25.

BOQ shares today rose slightly to $7 a unit.