Why did Bank of Queensland shares underperform the ASX 200 in August?

It was a difficult month for the regional bank.

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The Bank of Queensland Ltd (ASX: BOQ) share price had a tricky month during August 2023. It fell by 4.6%, as we can use on the chart below.

It performed much worse than the S&P/ASX 200 Index (ASX: XJO) which only fell by 1.4% last month.

It wasn't as though one piece of news caused a crash during the month. It was more a steady decline as we can see on the chart above. There was one 'market sensitive' announcement that the market had to digest, but it didn't excite investors.

Leadership update

In the middle of August, the bank said its managing director and CEO Patrick Allaway will continue in his role and that the search process for a new CEO was discontinued.

BOQ said that this decision will "retain stability and continuity, supporting the seamless delivery" of its "strategic priorities to build a stronger, simpler and cost-effective digitally enabled bank".

The Bank of Queensland chair Warwick Negus said:

The board is delighted to affirm Patrick's position as CEO. The leadership energy and commitment he has shown in his position has revitalised our team, brought clarity to our goals and will serve BOQ well as we further strengthen and simplify our operations in the years ahead.

The now-permanent managing director and CEO Patrick Allaway said:

I am honoured to continue leading BOQ through our transformation to address our structural challenges as a mid-tier bank and deliver a competitive and sustainable model with improved outcomes for our customers, people and shareholders. I recognise that this will not be easy, requiring unwavering commitment to the disciplined execution of our strategic priorities and embracing our integrated risk program to build a better bank.

What's going wrong with Bank of Queensland shares?

The most recent operational update from BOQ wasn't the most promising.

There are (at least) two important metrics that can make a difference to a bank's profitability – its net interest margin (NIM) and how much it has lent out to borrowers.

It's seen as a positive sign if the loan book is growing in size over time, and it could be worrisome if the amount of lending is decreasing. A shrinking market share isn't something that shareholders want to see.

Near the end of July 2023, the ASX bank share reported its Basel III pillar 3 disclosures for the three months to May 2023, compared to the numbers at February 2023.

BOQ said that over the three months to May 2023, its residential mortgage lending balance decreased $300 million to $22.86 billion. This led to the total "on-balance sheet assets and off-balance sheet exposures" dropping by $193 million to $38.15 billion.

The ASX bank share is also facing pressure from regulators after reviews led to "identification of deficiencies in its operational resilience, risk culture and governance and anti-money laundering and counter-terrorism financing program".

On top of that, the BOQ (and many other banks) are facing NIM pressure because of robust competition, as we saw in the FY23 half-year result.

Bank of Queensland share price snapshot

Since the start of 2023, the BOQ share price has fallen 15% while the ASX 200 has risen around 5%.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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