Bank of Queensland Ltd (ASX: BOQ) reported its half-year results yesterday morning and reported lower key numbers across the board. So, should investors be worried that we could see more of the same from the Big Four banks in May?
What did Bank of Queensland report?
BOQ reported lower cash earnings, a compressed net interest margin (NIM) and higher loan impairment expense in an all-around disappointing result.
The key results from BOQ's results include the following:
- Cash earnings after tax fell 8% on prior corresponding period (pcp) to $167 million
- Statutory net profit after tax (NPAT) fell 10% on pcp to $156 million
- Net interest margin (NIM) fell 3 basis points (bps) to 1.94%
- Loan impairment expense came in at 13 bps of gross loans and advances (GLAs)
- Common Equity Tier 1 (CET1) ratio of 9.26%
Is this a warning sign ahead of Big Four results in May?
BOQ has endured a difficult year and has been hampered by idiosyncratic events such as the Townsville floods and ongoing financial stress caused by the drought in northern regional Australia.
The bank has also seen its NIM fall lower this year in part due to tightening lending growth and also due to its high term deposit rates it has had to offer in a bid to attract more customer deposits.
While the outlook for Australian banking and the likes of Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), there are headwinds for the banking sector.
The Big Four emerged relatively unscathed from the 2018 Financial Services Royal Commission but have had to battle volatile wholesale funding costs, record household debt-to-income ratios and tighter lending standards along the way.
I think the latest BOQ result is more reflective of BOQ's position in the market and the difficulties facing regional Australia than it is the banking system.
The Big Four banks continue to control a large swathe of the lending market in Australia and the recent housing correction could well strengthen the banks' ability to lend into 2020 and beyond.
For those looking for a more high-risk, high-reward growth play, this top-rated stock in a booming new-age industry could be the perfect portfolio fit.
