The Bank of Queensland Limited (ASX: BOQ) share price is on watch today after providing an update about its FY22 progress.
FY22 update
BOQ is holding its annual general meeting (AGM) today.
The bank said that it is continuing to execute on its strategy, digital transformation and the ME Bank integration. Its aim is to transform BOQ into a digital bank with a personal touch.
BOQ reconfirmed the FY22 guidance of at least 2% ‘positive jaws’. This is referring to income growth being at least 2% better than expense growth.
The bank said that FY22 expenses are now expected to be around 1% lower than FY21, reflecting additional productivity benefits, with a greater proportion expected in the second half. It had previously said it was expecting expenses to rise in FY22.
ME Bank’s integration program is on track, with approximately $23 million of full year synergies delivered in the first quarter from “operating model changes” and early supply chain benefits.
In FY22 so far, it has seen strong application volumes across both the housing and business lending portfolios.
The BOQ, Virgin Money Australia and BOQ Specialist housing portfolio increased by around $1 billion for the quarter, continuing above market growth, and ME Bank returned to growth for November.
Business banking lending grew by around $200 million in the first quarter of FY22, with the asset finance business also performing well.
The bank also said that the growth in retail and business remains disciplined and high quality, with low levels of loans having loan to value ratios of more than 90% lending in mortgages.
Lower NIM
BOQ noted that the industry has experienced net interest margin (NIM) headwinds in the first quarter as a result of tougher trading conditions, including yield curve volatility after the RBA removed yield curve control. There is also intense price competition, increased fixed rate lending and higher ‘liquid’ asset balances.
All of that was to explain that BOQ is expecting a “slightly” lower FY22 NIM than previously expected.
Thoughts on BOQ and the share price
BOQ shares have declined by 14% over the last month. Yet, the bank is expecting profit growth over the next year or two, which should help the dividend too.
I would rather invest in BOQ than the other big banks of National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ). It has a higher potential dividend yield over the next couple of years.
However, the banking sector isn’t my preferred industry to be looking at for income – that’s normally listed investment companies (LICs).
