The Bank of Queensland Limited (ASX: BOQ) share price will be on watch after releasing its FY21 half year result.
What happened in BOQ’s HY21 result?
The bank reported 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 net interest margin (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.
Thankfully, the retail business delivered a strong turnaround and showed the third consecutive half of improved performance, demonstrating its strategy is delivering good results.
Statutory profit showed a lot stronger growth, increasing 66% to $154 million.
Loan impairment expense and loan book
BOQ reported that its loan impairment expense fell by 14% to $24 million as impairments reduced to historical levels. The bank said it remains prudently provisioned to withstand future losses arising as a result of COVID-19 as government stimulus measures reduce.
Arrears across both the housing and commercial portfolios improved during the half as customers returned to ‘performing’ and collections activity recommenced. BOQ said that 95% of loans on housing banking relief packages and 97% of SME loans have returned to ‘performing’.
BOQ dividend and balance sheet
The BOQ dividend decided to declare an interim dividend of 17 cents per share, reflecting a 11 cents per share increase on the prior corresponding period.
BOQ’s balance sheet continues to improve. Its common equity tier 1 (CET1) increased by 25 basis points (0.25%) during the half to 10.03%. This reflects good organic capital generation, as well as a lower dividend. This capital is above BOQ’s target range of 9% to 9.5%, which will fund future investment and growth.
Is this a good share price to buy BOQ shares?
At the pre-open price of $8.90, BOQ shares are actually higher than they were before the COVID-19 crash.
Things certainly look promising for BOQ if it can get the ME Bank acquisition across the line. That would allow it to challenge the bigger banks of National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Bank Group Ltd (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Group (ASX: WBC) more evenly.
If BOQ pays the same dividend in six months, then it currently offers a fully franked dividend yield of 3.8%. That’s not bad, but there are other ASX dividend shares that may be able to offer a bigger dividend yield this year.
