Bank of Queensland Limited (ASX: BOQ) has reported its FY19 half year result, is it time to buy shares?

BOQ is one of Australia’s leading ‘regional’ banks with more than 180 branches throughout Australia. Unlike many other banks, many of BOQ’s branches are run by their ‘owner-managers’, who are effectively small business owners. Most of BOQ’s loans are mortgages.

BOQ’s FY19 Half Year Result

The Queensland-based bank reported that its cash earnings after tax fell by 8% to $167 million and the statutory net profit after tax (NPAT) dropped by 10% to $156 million.

There was an unfortunate combination of the operating expenses growing by 2% but the net interest margin (NIM), the difference between the amount it pays for loan funding and what it gets for loaning money out, fell by 0.03% to 1.94%.

During the period BOQ had a loan impairment expense of $30 million, or 13 basis points (0.13%) of total loans.

BOQ reported that its common equity tier 1 (CET1) ratio, which says how capitalised and safe it is, was 9.26%. The return on average equity (ROE) dropped 110 basis points, or 1.1%, to 8.8%.

BOQ Dividend

The BOQ Board decided to declare a dividend of 34 cents per share, which is a 10% reduction from last year, reflecting the 10% fall in profit per share (EPS) and the challenging revenue and cost environment that BOQ and the industry face.

BOQ Management Comments

BOQ Interim CEO Anthony Rose said: “Across the industry, there have been significant changes in the banking landscape which has created revenue headwinds for the sector.”

He continued, “Regulator expectations are also shifting in response to the Commission’s findings. Making the changes necessary to ensure compliance with these new regulatory obligations and expectations will increase costs for all banks.”

Any Silver Linings?

There was “strong levels of growth” in Virgin Money Australia, BOQ Finance and BOQ Specialist. The bank said its niche businesses are performing well.

Virgin Money Australia grew its housing loan book by $469 million, BOQ Finance’s book growth was $303 million and BOQ Specialist grew its housing and commercial loan books by $287 million and $70 million respectively.

Plus, BOQ said that its asset quality metrics remain resilient and its arrears are still benign. BOQ has deliberately chosen not to chase growth by lowering lending standards.

Is BOQ A Buy?

Mr Rose warned that the second half of the year’s earnings are unlikely to improve compared to the first half.

That means the revenue growth is likely to be sluggish, so I don’t think it’s the right time to buy BOQ shares. But in the longer term banking is going to get more competitive, particularly with more digital banks getting banking licences. A dividend alone shouldn’t be enough to justify an investment.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.