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Bank of Queensland full review - Is the worst over? Will the PEPS be called?

by William Arnold | Oct 24, 2012
  • Bank of Queensland (BoQ) is one of Queensland's oldest financial institutions. BoQ has a network of around 270 branches, of which about 200 are owner-managed. Queensland represents 60% of exposure the bank’s lending book. BoQ also has exposure in Victoria (16%), NSW (13%) and WA (8%). The bank operates through three business lines: Banking, Finance and Insurance
  • BoQ has a weaker franchise outside of its home state, and is susceptible to adverse operating conditions and heightened competition from Australia's major banks
  • The losses recorded in FY12 highlight how concentration is a key driver of risk
  • While BoQ's loan loss provisions and net charge-offs increased dramatically FY12, the five-year averages for these measures are more comparable to that of the major banks and some peer banks
  • Non-performing loans decreased across the second half, as have new stressed assets. The Bank has taken steps to amend and tighten lending policies and future credit losses should begin to track lower (in the absence of broader economic deterioration)
  • BoQ has notable exposure to confidence-sensitive wholesale funding. Considering that it has less funding flexibility than the major banks and is less systemically important to the Australian banking system, BoQ could be more vulnerable to a significantly dislocated funding environment, should one eventuate
  • Given the capital raising, and assuming no further significant loan provisioning, BoQ's capital position is strong. While equivalent Basel III ratios are not given, the bank states that it is well positioned “to meet these requirements that will come into effect from January 2013”
  • BoQ is of low systemic importance given its small size and market share in retail banking at a national level. In the absence of extraordinary government support BoQ would probably not lead to system wide financial stress and therefore may not receive support if required
  • While BoQ has had a tough year, the worst should now be over. The bank was able to post significant provisioning and offset this through the raising of more capital. The asset quality issues have prompted review and implementation of new credit policies and risk management. Looking forward the story should be one of recovery and improving results unless there is further economic deterioration

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