Boq Makes Decent Hand Of Crisis Time

The Age

Friday October 10, 2008

Eric Johnston

BANK of Queensland managing director David Liddy expects the Federal Government to boost the size of its $4 billion package aimed at helping banks and other lenders navigate their way through the global credit freeze.

The comments came as the smallest of the nation's listed banks yesterday reported a 2% dip in full-year profit, although Mr Liddy was cautiously optimistic about BoQ's prospects even in the face of one of the toughest banking environments in decades. "I think it's going to be a really tough 12 months, but we're well positioned, we're not going to do anything out of our core business," he said.

However, BoQ is facing a twofold problem. As a smaller bank it is finding it tougher to pin down fresh sources of funding outside its own deposit base, and the rising level of bad debts is starting to drag on earnings.

Still, Mr Liddy said BoQ had already secured most of its funding needs before the worst of the credit crisis hit, and strong deposit growth had reduced its reliance on wholesale markets.

BoQ's headline net profit of $126.8 million for the year to September 30 was down from $129.8 million in the previous corresponding period. However, cash earnings, a figure closely tracked by analysts, rose 10% to $145.5 million after booking several one-off items, including a $6.3 million profit on its sale of holdings in Visa International.

Full-year income grew by 14% to $570.6 million, although a 22% increase in cost outpaced revenue growth. Provision charges for the year dampened earnings, jumping 29% to $27 million. Specific provisions against single-name problem loans ran up 59% to $18.7 million.

The bank has abandoned its usual earnings guidance, saying volatile global markets make growth more difficult to predict.

Mr Liddy said lending growth had cooled but the bank had plenty of capacity for organic growth, particularly in its core market of retail customers and small-to-medium businesses.

The bank had no exposure to big-name problem loans or complex credit instruments.

BoQ is expected to tap the Federal Government's $4 billion package to invest in residential mortgage-backed securities. Mr Liddy expects the size of the package to increase "significantly" as lenders rush to sell securities into the funds.

Analysts said the result was largely in line with expectations, although the bank had done well in managing its margins in the face of tough funding markets.

"However," said Goldman Sachs JBWere, "the outlook for the bank looks increasingly uncertain given rising funding costs, rising bad debts and a slowdown in lending growth."

BoQ is the first of the banks with a September year-end to hand down its result. While it offers some clues to the crisis, analysts caution BoQ operates under different dynamics than do bigger rivals National Australia Bank or Westpac.

Fast mortgage growth underpinned BoQ's 23% rise in lending over the past year, which was nearly twice the rate of overall market growth.