The Bank of Queensland Ltd (ASX: BOQ) share price fell by 18% during the 2023 Australian financial year, being the 12 months to 30 June 2023.
The S&P/ASX 200 Index (ASX: XJO) went up by around 10% in FY23, so the regional ASX bank share underperformed by close to 30%.
BOQ's own financial year runs differently from the Australian tax/financial year, but that's the time period we're going to look at.
FY23 started during a sell-off of the ASX share market, so it's understandable that the ASX 200 did well because it started from a relatively low valuation. But, things went wrong for the Bank of Queensland share price, as encapsulated in the ASX bank share's FY23 half-year result.
Profit margins hurting
The bank advised that its cash earnings after tax dropped by 4% to $256 million.
While the ASX bank share was able to report a 4 basis point (0.04%) increase from the second half of FY22 to 1.79%, it also reported that operating expenses increased by 7% to $495 million.
It benefited in the first half from the rising interest rate environment as banks passed on rate hikes to borrowers faster than savers.
However, there has been an increased level of mortgage competition as well as escalated deposit competition due to the term funding facility refinancing, with "interim margin compression anticipated".
Investors have put pressure on bank valuations since February, when it became apparent how much competition there was. Since the 2023 peak in February, the Bank of Queensland share price is down around 25%.
Risk culture
In mid-April, the bank announced it would undertake an 'integrated risk program' to "strengthen its commitment to risk management".
While it's good the company is doing this, the program comes with an anticipated cost of $60 million, which hurt the statutory profit in HY23.
BOQ said reviews identified this program was necessary and that a "material uplift is required in respect of BOQ's operational resilience, risk culture and anti-money laundering/counter-terrorism financing program and compliance."
The bank entered into enforceable undertakings with APRA and AUSTRAC as it works through the issues.
In addition to that, BOQ decided it was appropriate to write down $200 million of goodwill.
These two items, amounting to $260 million, caused a 98% fall in statutory net profit after tax (NPAT) to just $4 million.
Seeing profit sink so far is not helpful for the Bank of Queensland share price. While management may call these items non-cash, it does represent a reduction of shareholder value.
Bank of Queensland share price snapshot
It hasn't been a great start to the 2024 Australian financial year for the BOQ share price, with a further fall of 0.5% over the past week.
