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BOQ retail bank in trouble

By James Mitchell
3 minute read

The regional bank is facing challenges attracting new franchisees after posting an 8 per cent fall in cash earnings in the first half of FY19.

On Thursday (11 April), Bank of Queensland (BOQ) announced that its return on equity had contracted 110 basis points to 8.8 per cent in 1H19. The bank also reduced its first half dividend by 4 cents a share to 34 cents per share, which interim CEO Anthony Rose said reflects the challenging revenue and cost environment that BOQ and the industry face. 

“Across the industry, as you are well aware, there have been significant changes in the banking landscape which has created revenue headwinds for the sector. In addition, the outcome from the royal commission is lifting expectations of the regulators. Adjusting to the new regulatory environment will come with a higher cost profile, absent any mitigating actions which we are of course exploring,” the chief executive said. 

“BOQ also has challenges that are specific to our business, particularly in the retail bank. Our digital customer offering, lending processes and the inability to attract new owner-managers with the overlay of regulatory uncertainty, has hampered customer acquisition and returns.”


While Virgin Money was the standout performer for the group, where home loans grew to $2.1 billion, the retail bank underperformed significantly. 

“There are some factors in this outcome that reflect where we have come from together with the conservative approach, we have taken to address industry changes. While this has clearly benefited us in terms of asset quality, it has hampered growth,” Mr Rose said. 

BOQ identified three key constraints that have had an adverse effect on the performance in its retail bank:  a more complex mortgage lending processes; a poor digital banking platform and trouble sourcing new owner-managers for its branch network. 

The regional lender is one of the few banks in the country that operates a franchise network. While this has traditionally been a unique selling point for the bank, increased regulatory scrutiny following the Hayne royal commission has found the bank struggling to recruit owner-managers for its branches. 

“In our branch network, starting seven years ago, we significantly increased risk requirements. In the Hayne environment, this has clearly been the right thing to do,” Mr Rose said. 

“Combining this with the overlay of uncertainty for owner managers, driven by the focus on incentive arrangements through the Sedgwick review, the royal commission and mortgage broker remuneration changes, it has been difficult to attract prospective owner managers to supplement the network for natural attrition. 

“From FY20, we are shifting to a new, simplified value-share structure, which will make the model more attractive for owner-managers and will be better aligned to customer and shareholder outcomes.”