The Bank of Queensland Limited (ASX: BOQ) share price is on watch today after the regional bank provided a collective provision update.
BOQ’s provision update
BOQ released an update today to say that for the period ending 31 May 2021, it’s expecting to include a decrease in the collective loan provision $75 million. In other words, a capital release.
The lower collective provision is due primarily to the improved economic outlook, with a further reduction from improvements in data quality relating to collateral.
BOQ continues to monitor the ongoing economic impacts resulting from COVID-19 and will continue to assess the collective provision accordingly.
Management comments
BOQ Managing Director and CEO George Frazis said: “Today, Australia is experiencing strengthening business and consumer confidence driving our economic recovery, supported by strong housing growth, lower unemployment rates and increasing business investment.
“The reduction in the collective provision during the quarter reflects this improvement in the current economic environment. We continue to prudently manage our provisions to ensure we are well covered for any potential lifetime losses arising from COVID-19.”
Could the BOQ share price be an opportunity?
The last year has been a period of recovery for the regional bank. Over the last 12 months, the BOQ share price has risen 48%. In 2021 to date it has gone up more than 16%.
Profit growth is looking good at the moment. The bank reported in HY21 that its cash earnings after tax went up by 9% to $165 million. Total income increased 5% year on year, with 6% growth of net interest income. Expenses grew 4% due to business volume growth and higher spending on project operating expenses.
BOQ said that profit went up thanks to above-system loan growth (1.6x faster), a net interest margin (NIM) improvement, cost discipline and a strong capital position.
The NIM of 1.95% was an improvement of 3 basis points compared to the second half of FY20. This was largely driven by lower funding costs from reduced deposit rates and lower wholesale funding costs, partially offset by asset pricing and mix.
Today’s collective provision release announcement should mean more profit growth in the upcoming full year result. However, this capital release is only a one-off gain. It will be interesting to see if profit growth can continue beyond the initial COVID-19 recovery.
The BOQ share price has done well, but it’s not one of the ASX dividend shares I’m looking at because of the vulnerability to recessions.
