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Lending slows by 18% at regional bank

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Reporter 7 minute read

A non-major lender has reported an 18.3 per cent fall in lending growth over the past quarter and a dramatic slowdown in interest-only lending over the last 12 months.

Bank of Queensland (BOQ) this week released its financial results for the first half of 2018 (1H18), in which it reported an 18.3 per cent drop in lending growth over the past quarter from $822 million in 2H17 to $671 million in 1H18.

However, managing director and CEO John Sutton highlighted an increase in the bank’s lending growth by over $800 million from negative growth of $157 million in the previous corresponding period (1H17).

The CEO attributed the year-on-year rise to growth in BOQ’s commercial lending portfolio and an increase in mortgage lending through its third-party channel.

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“I am pleased to report that lending growth has improved. This was supported by our commercial niche segments as well as home loan growth through the Virgin Money, BOQ Specialist and BOQ Broker channels,” Mr Sutton said.

“The first half has traditionally been a lower asset growth period for BOQ, so we are pleased with the steady rates of growth this half compared with 1H17.”

BOQ’s statutory net profit also grew, rising by 8 per cent YOY to $174 million.

Mr Sutton also reiterated BOQ’s support for the broking industry, following the bank’s joint submission to the Productivity Commission (PC ) alongside AMP, Suncorp, Bendigo Bank, MyState and ME.

“Brokers play a critical role in the Australian financial landscape, and they have done so for many years,” the CEO said.

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“We fully support the broker business, because customers choose to go to brokers, they choose to deal with brokers, and they trust brokers.”

The managing director noted that the bank has “seen the fruits” of the broker channel, citing growth in its “broker-led” home lending and Virgin Money platforms.

Brokers here to stay

The CEO said that BOQ would await the outcomes of proposed broking industry reforms put forward by the PC and the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry before implementing changes to its lending practices.

“I don’t see the broking industry disappearing,” the CEO added.

“Will there be changes in the ways that brokers are remunerated? That may be a possibility and I’m sure the industry would have to work through that.

“I think what is really important is that before we jump to any conclusions is to really see what is the outcome from the royal commission, and what is the legislative outcome or reform, if any. But at BOQ, we fully support the broking industry.”

Further, Mr Sutton emphasised BOQ’s commitment to meet responsible lending obligations but noted the impact that such compliance has had on the bank’s growth.

“We moved to adopt enhanced servicing, validation and responsible lending practices much earlier than many of our peers,” Mr Sutton said.

“Although this has hampered our growth in prior periods, we think it was the most prudent approach to take for the long term.”

Chief financial officer Anthony Rose also reported that as a result of the bank’s compliance with regulatory caps on interest-only (IO) lending, BOQ’s offering of such loans has “slowed down dramatically” from 37 per cent in 1H17 to 16 per cent in 1H18.

Moreover, Mr Sutton noted that despite the challenges facing the industry, he believes BOQ is well placed to achieve its objectives.

“The industry faces challenges of low credit growth, low interest rates, regulatory uncertainty, increasing consumer expectations and increased scrutiny of conduct and culture,” the CEO said.

“In this environment, our long-term strategy remains the right one: we are building out our business bank in higher growth sectors of the economy and opening up new retail channels.

“We also remain focused on our customers, investing in a number of initiatives across the group that will improve our digital offering, bring us closer to our customers and enable us to provide them with a differentiated service offering.

“Our very strong capital position provides us with the flexibility to consider options that will deliver the best value to our shareholders.”

BOQ sells insurance subsidiary

The bank has also announced the sale of its subsidiary, St Andrew’s Insurance, to Freedom Insurance Group.

BOQ noted that, subject to completion adjustments, the profit generated from the sale is approximately $8 million.

“In recent years, [the] business and industry dynamics have changed dramatically, to the point where we believe Freedom is better placed to support St Andrew’s future aspirations,” Mr Sutton said.

[Related: Loan comparison tool could undermine broking, banks warn]

Lending slows by 18% at regional bank
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