Bank of Queensland has reported a 27 per cent gain in full-year profit as deposits and earnings from lending increased.
Net income for the year ended August 31 climbed to $179.6 million from $141.1 million a year earlier, the Brisbane-based bank reported today.
The shares rose as managing director David Liddy said shareholders can expect higher dividends this year after the bank increased lending and deposits faster than rivals.
The bank also cut costs as demand for borrowing by home buyers weakened after the central bank pushed through the biggest increases in interest rates by a Group of 20 member this year.
“We have continued to deliver on our commitments to the market, despite the difficult conditions,” Liddy said in a statement today. “We expect that bad debt losses have peaked.”
Shares in Bank of Queensland closed down 12 cents, or 1.1 per cent, at $10.40, after earlier rising on the news.
Loans grew at 2.5 times the pace of the nation’s total market and retail deposits expanded 1.5 times the system, the bank said today. Its net interest margin, a gauge of how profitable its lending business is, rose 4 basis points to 1.6 per cent in the full year. A basis point is 0.01 percentage point.
The bank boosted its full-year net interest margin, “despite increasing funding costs putting pressures on margins in the second half of this financial year,” Mr Liddy said.
The lender’s margin dropped in the second half of the year to 1.55 per cent from 1.65 per cent in the first half.
Rising rates
The bank’s results come as demand for borrowing stalls. Lending to the nation’s businesses shrank 0.6 per cent in August from July, the most in 10 months, taking the annual decline to 4 per cent, Reserve Bank figures showed on September 30. Home loans tumbled for seven straight months through April as RBA governor Glenn Stevens raised borrowing costs six times between October 2009 and May.
The bank’s provisions for bad debt, plus reserves for credit losses, jumped to $190.6 million as at August 31, from $134.3 million a year earlier.
“Overall it was disappointing, because of the higher bad debt and the margins in the second half were a bit low and that was unexpected,” said TS Lim, an analyst at Southern Cross Equities. “It’s going to be tough for them to achieve their target return-on-equity of 15 per cent in a couple of years.”
Rating cut
Bank of Queensland was downgraded last week by Daiwa Securities Capital Markets equity analyst Johan Vanderlugt, who said revenue from lending may slow as its business model remains “rather reliant upon wholesale funding,” which has become more expensive.
“Bank of Queensland is entering a lower-growth phase characterized by much lower loan and deposit growth rates than experienced over the past five years,” Mr Vanderlugt said in a note to investors.
Mr Liddy said today “we are guiding the market to expect higher dividends” in full-year 2011 after paying 52 cents a share for the full year.
The managing director also said Bank of Queensland intends to enter the motor vehicle finance market “within the next year.”