The Bank of Queensland Limited (ASX: BOQ) share price will be one to watch this morning following the release of its half year results and an update on its dividend.
How did Bank of Queensland perform?
For the six months ended February 29, Bank of Queensland achieved cash earnings after tax of $151 million. This was down 10% on the prior corresponding period and 1% on the second half of FY 2019. This was driven by a combination of flat revenue and a 9% increase in operating expenses. The latter relates to investments in technology, and risk and regulatory compliance.
On a statutory basis, things were a lot worse. Statutory net profit after tax fell 40% to $93 million during the first half. However, this was largely the result of its previously announced restructuring charges and intangible asset review.
At the end of the period Bank of Queensland had a CET1 ratio of 9.91%, up 87 basis points since the end of FY 2019.
Another key metric of note was its net interest margin. Despite the Reserve Bank cuts, the bank’s net interest margin was reasonably resilient. It dropped just 3 basis points to 1.89%.
What about bad debts?
One of the main concerns of investors in the current environment is bad debts.
Bank of Queensland reported a Loan Impairment Expense of $30 million or 13 basis points of gross loans. This was flat on the prior corresponding period.
Looking ahead, the company acknowledges that impairments could rise. As such, it has made a preliminary overlay provision of $49 million to $71 million.
It is also working proactively with customers to help them navigate through the next six months. After which, it notes that it will need careful management once the six-month repayment holidays end. Furthermore, it is managing its biggest borrowers individually.
Bank of Queensland has responded to APRA’s request for banks to consider the deferment of dividends until the market outlook is clearer, by deferring its interim dividend.
The company’s chairman, Patrick Allaway, commented: “BOQ understands the impact of this decision on shareholders, however also acknowledges this guidance as a prudent step for the industry.”
How does this compare to expectations?
As I mentioned here, Goldman Sachs was expecting a 29% decline in first half cash earnings to $119 million. So, Bank of Queensland has smashed expectations here.
However, the broker wasn’t expecting the bank to defer its dividend. It had pencilled in a fully franked 25 cents per share interim dividend. Though, this estimate was made prior to APRA’s request.
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