Growth in home loan settlements via the broker channel has softened the blow of the non-major's negative mortgage growth.
The Bank of Queensland (BOQ) has released its financial results for the first half of the 2019 financial year (1H19), reporting negative mortgage growth of $248 million, down from positive growth of $11 million in 1H18, with its overall portfolio dropping to $24.7 billion.
The fall was driven by a $717 million contraction in settlements through BOQ’s retail bank, which was offset by a $469 million rise in home loan volumes through its subsidiary, Virgin Money Home Loans.
BOQ’s chief financial officer, Matt Baxby, acknowledged the contribution of the broker channel in driving settlement growth through Virgin Money Home Loans.
“We did see strong broker origination through Virgin Money, that’s what led to that slight uplift,” he noted.
The bank reported that 17 per cent of mortgages in its portfolio were originated by the broker channel, up from 13 per cent in 1H18, while the proportion of its home loan flows through the broker channel remained stable at 30 per cent.
BOQ unable to replenish losses
According to Mr Baxby, one of the main drivers of the contraction in home lending was the bank’s failure to replenish losses incurred from a “higher level of run-off from a large trench of three-year fixed rate loans, which matured during the half”.
The CFO said reduced volumes reflected the “competitive nature of the mortgage market, particularly in the broker channel”.
Mr Baxby also attributed negative home lending growth to complexities in the mortgage application process as a result of tighter underwriting standards.
“We have a program of work to address this and streamline the experience for brokers and customers,” he added.
Slow system credit growth in response to weakening demand and turnover in the in-housing market was also cited by the CFO.
The non-major reported that as at the close of 1H19, owner-occupied home loans made up 59 per cent of its mortgage portfolio, while investment loans made up 41 per cent of its book.
The proportion of interest-only loans fell by 7 per cent, from 32 per cent to 25 per cent, while the average weighted LVR dropped slightly to 66 per cent.
Further, BOQ revealed that its commercial lending volumes also slipped, falling from $277 million in 1H18 to $159 million in 1H19.
Growth in the bank’s asset finance division partially offset the sharp declines in home and commercial lending, with BOQ Finance volumes increasing from $15 million in 1H18 to $309 million.
BOQ’s total lending growth slowed by $171 million, from $671 million in 1H18 to $500 million in 1H19, with its overall loan book now totalling $45.7 billion.
The bank’s net interest margin contracted by 3 basis points, from 1.97 per cent to 1.94 per cent.
On the whole, BOQ’s statutory net profit after tax (NPAT) fell by 10 per cent to $156 million.
Reflecting on the bank’s performance, interim CEO Anthony Rose pointed to changes in market conditions and the evolving regulatory landscape in the aftermath of the banking royal commission.
“Across the industry, there have been significant changes in the banking landscape, which has created revenue headwinds for the sector,” Mr Rose said.
“We have welcomed the work of the royal commission and its focus on delivering improved customer outcomes.
“Although the royal commission made no express recommendations or referrals against BOQ, implementation of the commission’s recommendations will clearly have long-lasting and industry-wide implications.”
He continued: “Regulator expectations are also shifting in response to the commission’s findings. Making the changes necessary to ensure compliance with these new regulatory obligations and expectations will increase costs for all banks.
“BOQ also has challenges that are specific to our business, particularly in the retail bank, where our lending processes, digital platforms and the ability to attract new owner managers in an environment of regulatory uncertainty have hampered customer acquisition and returns.
“We fully acknowledge there is significant room for improvement, and we are working on a number of key initiatives to address the challenges we face.”
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