Why the Bank of Queensland Limited share price is crumbling today

Credit: Mighty Travels

Shares in Bank of Queensland Limited (ASX: BOQ) are down 2% to $11.36 this afternoon after the regional lender posted a net profit of $179 million on a total income of $552 million for the six months ending 29 February 2016.

The bank also announced a 25 basis point lift in home loan lending rates for investors and 12 basis points for owner occupiers effective from 15 April 2016. Last year all of the big four banks like Westpac Banking Corp (ASX: WBC) and National Australia Ltd. (ASX: NAB) moved to increase home loan rates for borrowers, despite no lift in the Reserve Bank’s cash rate.

BOQ predictably blamed the out-of-cycle home loan hikes on “competition and funding headwinds”, although its net interest margin was a healthy 1.97% and the rate hikes won’t impress customers.

Bank chief executives such as those at Commonwealth Bank of Australia (ASX: CBA) or ANZ  have made a regular habit recently of claiming conditions are “tough” or “challenging” when announcing record profit after record profit on the back of residential property markets booming at record rates. This as public relations spin remains crucial in fooling customers into thinking the banks are on their side, rather than being out to gouge them for every last dollar possible.

BOQ delivered basic earnings per share up 5% on the prior half to 47.8 cents, which on an annualised basis means it trades on around 11.8x earnings per share.

The bank also managed to lift the dividend 2 cents over the prior corresponding half to 38 cents per share, despite the “high levels of competition and volatile wholesale funding markets” making life predictably tough for the bank.

In all fairness the banks have faced some regulatory headwinds regarding increased capital adequacy requirements recently, but the high-single digit profit growth delivered by BOQ in the context of a soft Australian economy demonstrates why banking remains the planet’s most lucrative industry.

If I were an investor in Australian retail banks I would find it hard to go past the all round quality and diversification of the Commonwealth Bank. However, I feel there are far better opportunities on the market for dividend investors at the moment outside the residential-property-exposed banking space.

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Motley Fool contributor Tom Richardson has no position in any stocks mentioned.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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