09/10/2008 - 09:20

WA takeover dents BoQ net profit

09/10/2008 - 09:20

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A one-off expense associated with the takeover of Western Australia-based Home Building Society has slightly dented Bank of Queensland's net profit, which slipped 2 per cent for the 2008 fiscal year.

A one-off expense associated with the takeover of Western Australia-based Home Building Society has slightly dented Bank of Queensland's net profit, which slipped 2 per cent for the 2008 fiscal year.

Despite the dip in net profit, the regional lender expects to grow faster than its competitors as it focuses on increasing deposits through its owner occupied branches.

The regional lender said it would "look at opportunistically buying" in retail banking but would focus in first half fiscal 2009 on bedding down Home Building Society.

Shares in BOQ rose today, as the Australian market declined, after it reported normalised profit for the 12 months to August of $155.4 million, up 46 per cent, and increased the dividend to a record.

BOQ's net profit fell to $126.8 million.

"Our strategy is really about sticking to the basics. In these times its good to be a boring bank," chief executive David Liddy said in Brisbane at a conference with analysts and journalists.

Mr Liddy said the Brisbane-based bank was focused on growing the existing business, particularly by increasing the number of owner managed branches and focusing on the fast growing states of Queensland and Western Australia.

"We're very lucky to have Queensland as our base," Mr Liddy said.

He pointed to internal analysis that showed branches increase their deposit growth rate to 33 per cent after being converted to owner-managed branches.

"There's a self-interest incentive for the manager to grow their businesses," Mr Liddy said.

The integration with Home Building Society was about nine months ahead of schedule, and the extra income from the merger was $5.67 million in 2008, compared with the forecast of $4 million.

BOQ shares rose 29 cents, or 2.52 per cent, to $11.79 as of 1501 AEDT, as the benchmark S&P/ASX 200 Index declined 0.72 per cent. BOQ stock has lost 34 per cent this year, in line with the financial service companies as a whole, falling to a three-year low of $11.50 yesterday.

BOQ's revenue grew 14 per cent to $570.6 million and the bank declared a final dividend of 38 cents per share, fully franked, up one cent on the prior corresponding period.

That took the full-year payment to a record 73 cents.

Mr Liddy said BOQ's "solid result" came despite the financial and credit crisis of the past year, which he described as unprecedented in his 41 years in banking.

"We've maintained a strong capital and liquidity position," he said.

The bank had "no material direct exposures to stressed local or offshore assets," he said.

The bank's net interest margin increased from 1.62 per cent in the first half of 2008 to 1.70 per cent in the second half.

"Margins are expected to come under pressure in the year ahead as wholesale funding continues to be re-priced," Mr Liddy said.

To make the bank less reliant on outside funding, BOQ increased its deposits by 53 per cent to $14 billion during 2008, including those held by Home.

That meant 45 per cent of BOQ's loan funding now came from deposits, in line with the big banks.

The rest of the funding has to come from elsewhere, and BOQ said it was focused on diversifying its sources. The bank had successfully issued over $1 billion of mortgage backed securities in the past year.

Mr Liddy said the bank had improved efficiency and its operating costs significantly, with the cost to income ratio falling to 56.1 per cent from 62.6 per cent in 2007, and this had helped to offset increased funding costs.

 

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