The Bank of Queensland Ltd (ASX: BOQ) share price has jumped 5% in reaction to the FY24 first-half result.
FY24 first-half result
Here are some of the highlights from the first six months of the regional bank‘s 2024 financial year:
- Net interest margin (NIM) down 3 basis points (0.03%) to 1.55%
- Housing loan portfolio down 1% ($411 million)
- Cash operating expenses up 6% to $524 million
- Cash earnings after tax down 33% to $172 million
- Cash profit / earnings per share down 33% to $0.262
- Statutory net profit after tax (NPAT) of $151 million
- Interim dividend of $0.17 per share, down 15%
BOQ said total income was down 12% due to lower margins caused by competitive pressures and a contraction in lending.
The expenses rose so much because of inflation and continued investment in ‘risk’, compliance and technology. Business as usual cost growth was only 1.2% in the half.
Pleasingly, BOQ said its asset quality (meaning its loans) remains “sound” with a low loan impairment expense and “prudent provisioning”. BOQ explained the continued focus on making good returns resulted in the small reduction of its housing portfolio. The arrears and bad debts could be important for the BOQ share price over the next 12 months.
Growth in the niche business banking segments, including novated leasing and lending to the health and agriculture sectors, though this was partially offset by a cautious approach to commercial real estate lending.
The bank also pointed to progress on four key areas.
One, it approved remedial actions plans with regulators. Second, it simplified operations with the sale of non-core asset and progress on productivity program. Third, the digital mortgage and legacy migration infrastructure has been built, with the first phase launch in the second half of 2024. Finally, there has been an organisational shift to focus on the return to equity (ROE) and improve shareholder returns.
Outlook for the BOQ share price
Management said the bank is optimistic on a long-term view, with the Australian economy remaining resilient and well-supported by low unemployment and strong investment.
It’s expecting the loan impairment expense to remain below long-run averages.
BOQ is expecting revenue and margin pressures to “moderate” in the second half of 2024, though deposit competition is expected to continue. It’s expecting home lending margin compression to stabilise and its home lending decline to moderate, with business banking growth to “increase”.
Costs are expected to keep increasing due to inflation and continued investment in the business. It said it’s on track to deliver low single-digit business as usual expense growth for the second half of 2024.
I wouldn’t say BOQ is an appealing investment at the moment. It’s doing the right things to try to protect profitability, but the profit is going in the wrong direction. Banking is a very competitive sector, so there are other ASX dividend shares I’d rather go for.
