The Bank of Queensland Limited (ASX: BOQ) share price is on watch after the bank released its FY22 half-year result.
BOQ is one of the larger banks in Australia outside of the big four ASX banks. It operates three brands – BOQ, ME Bank and Virgin Money Australia.
BOQ’s HY22 numbers
These are some of the main highlights from the result:
- Statutory net profit after tax rose 38% to $212 million
- Cash profit after tax increased by 14% to $268 million
- Cash earnings per share (EPS) rose by 16% to 41.1 cents
- Net interest margin (NIM) of 1.74%, down 12 basis points (0.12%) from FY21 second half
- Interim dividend of $0.22 per share
Growth drivers
Here are two aspects that drove the net profit higher.
Operating expenses decreased by 3% (compared to the FY21 second half) to $461 million. The integration plan with ME Bank continues, it delivered $33 million of run-rate synergies during the half. Synergy benefits have been increased from $70 million to $80 million in FY24 and beyond.
Lending growth was another area of improvement. Housing lending growth increased 9% to $2.6 billion while business loan growth was $0.6 billion, an increase of 8%.
NIM drop
But the decline of the NIM was clearly a negative. This is the difference between the lending rate (such as the mortgage interest rate) and the costs of the funding for that loan (such as the savings account interest rate). A lower NIM means lower profitability for a bank. That’s not helpful for the BOQ share price.
BOQ said that lower NIM was due to ‘industry dynamics’ including ongoing competition, higher fixed rate lending volumes and volatile ‘swap’ rates, as well as increased liquidity during the period.
Loan quality
BOQ said that its asset quality remains sound with prudent collective provisioning levels.
In terms of the loan impairment expense, it was a credit of $15 million in this period, reflecting an improvement in the collective provision as a result of the more favourable economic outlook and strong housing market.
BOQ dividend
The board of BOQ decided to pay a half-year dividend of $0.22 per share, representing a cash earnings dividend payout ratio of 53%.
Thoughts on the outlook and BOQ share price
BOQ commented that Australia remains well placed to continue its economic recovery, with low unemployment, high terms of trade and a large pipeline of residential construction and infrastructure work to be done.
However, the bank pointed to uncertainty with geopolitical tensions, elevated inflation, rising interest rates, supply chain and labour disruptions.
It is focused on delivering 2% ‘positive jaws’ in FY22, suggesting higher profitability.
BOQ expects to see NIM headwinds reduce. The benefits from integration and productivity programs are expected to reduce costs by at least 1%.
The dividend payout ratio target range is between 60% to 75% of cash earnings, so a bigger dividend could be on its way in six months.
I think that the BOQ share price has a compelling future, particularly as interest rates rise. It’s also a decent idea for dividends.
