The Bank of Queensland Ltd (ASX: BOQ) share price is up more than 3% after the company announced its FY25 result with pleasing progress.
FY25 result
Here are some of the main numbers of the bank:
- Net interest margin (NIM) improved 8 basis points (0.08%) to 1.64%
- Home lending declined 7%, or $4.3 billion
- Commercial lending grew 14%, or $1.6 billion
- Cash earnings after tax grew 12% to $383 million
- Statutory net profit after tax (NPAT) fell 53% to $133 million
- FY25 second half dividend hiked by 11.1% to $0.20 per share
Breakdown of performance
The improvement in the NIM is pleasing because it tells investors how much profit (in percentage terms) it’s making from its lending, while also including the cost of the funding (such as term deposits). There was an improvement of 13 basis points (0.13%) in the second half compared to the first half.
At a time when the lending industry is so competitive, with the added complication of brokers, it’s pleasing to see that lending profitability has improved.
However, it appears to have come at the expense of market share in its home lending. It’s prioritising making profit over loan volume, which is leading to the company recycling capital to higher return businesses (namely commercial lending).
BOQ’s commercial lending has seen strong progress across healthcare, agriculture, and diversified businesses and asset finance lending primarily across novated leases, partially offset by the planned reduction in home loans originated through the business bank.
Expenses and loan quality
The company managed to grow its total income by 4% and operating expenses were flat.
BOQ said simplification initiatives offset inflation, the uplift from the branch conversion, and ongoing investment in the business bank, digital transformation and risk and regulatory programs. Excluding the uplift from the branch conversion, expenses reduced 4% compared to FY24.
In terms of the loan impairment expense, it came to $21 million for the year, representing a 5% year over year increase. That represents 3 basis points (0.03%) of gross loans and advances.
The loan impairment increase was driven by asset finance, with an increase in the collective provision, partly offset by commercial lending which experienced lower collective and specific provisions as a number of large, impaired matters were resolved, and arrears continued to improve.
Home lending credit quality remained “benign” with a contraction of balances and strong property valuations.
Outlook for the Bank of Queensland (BOQ) share price
BOQ noted that the labour market remains resilient, although there has been a modest rise in the unemployment rate. Business and consumer confidence is improving, according to the bank.
The regional bank believes the economy will strengthen further over the course of FY26, reflecting the benefits of lower inflation and stronger growth in household disposable incomes.
Any further rate cuts could support the domestic economic outlook and BOQ remains optimistic about the longer-term view.
The BOQ share price has risen over the last couple of years, so it’s not as good value now as it was, in my view. It’s pleasing to see the progress the business is making, but I think there could be better ideas available.
