Powered by MOMENTUM MEDIA

Frazis takes on BOQ as margin pressure intensifies

— 1 minute read

George Frazis will take over as Bank of Queensland’s chief executive this week as analysts turn even more bearish on the bank’s ability to cope with a low interest rate environment.

On Monday (2 September), BOQ announced via a trading update that current interim CEO Anthony Rose will conclude his employment with BOQ on 31 December 2019. Between now and then he will be working on a seamless leadership transition to new CEO George Frazis, who commences this week. Mr Rose is the second senior executive to leave the group in recent months after CFO Matt Baxby announced that he will be leaving the bank in October. 

While most of the Australian banks have reported their financial results for fiscal 2019, BOQ is due to announce its results next month. Morningstar analyst Nathan Zaia said he will be keeping a close eye on the bank’s margins and costs. He also hopes Mr Frazis will be able to provide some update on the group’s simplification program. 

Advertisement
Advertisement

“We currently project NIM, at 1.95 in fiscal 2019, to moderate to 1.9 per cent in 2020,” Mr Zaia said. 

“In a very competitive home lending environment, we do not expect the bank to be able to absorb the impact of lower rates, given a portion of deposit funding is already paying zero or very low rates.

While Morningstar expects BOQ’s margins to edge back up to 1.95 per cent in the longer term, Mr Zaia stressed that the delivery of a simple business model and the ability to attract new branch owner managers will be paramount to the regional bank’s success. 

“We like the appointment of George Frazis as CEO and hope it marks the beginning of a new leadership stability, with the search for a new CFO also currently underway,” he said. 

“Operating at a cost disadvantage to the major banks, management execution on customer service, a simple business model which can attract new branch owners, and a tight rein on costs, are crucial to the bank’s outlook.”

In April, Bank of Queensland reported negative mortgage growth of $248 million, down from positive growth of $11 million in 1H18, with its portfolio dropping to $24.7 billion.

The fall was driven by a $717 million contraction in settlements through BOQ’s retail bank, offset by a $469 million rise in home loan volumes through its subsidiary, Virgin Money Home Loans.

The regional lender is well aware of the challenges within its retail bank, which is effectively franchised with branches being run by “owner-managers”. Given the negative press generated by the royal commission, attracting new owner managers has been difficult for BOQ.

Morningstar analyst David Ellis praised the appointment of Mr Frazis, which was announced in early June. An experienced banker with 17 years in the industry, Mr Frazis was most recently as CEO of Westpac’s consumer bank and CEO at St George Bank. 

“While Frazis has strong credentials and deeply understands the dynamics of Australia’s consumer banking industry, he will be taking control of a regional player with a small geographic distribution footprint, higher funding and operational costs, a lower credit rating and tougher regulatory capital burden,” Mr Ellis said. 

The Morningstar analyst believes the challenge for Mr Frazis is to assume a bigger role in a smaller organisation that lacks market share, brand awareness, distribution capabilities and funding advantages that major banks enjoy. 

The bank lacks access to lower cost funding options and has a much lower return on equity than the major banks,” Mr Ellis said. 

Under Mr Frazis’ leadership, Westpac’s consumer bank attracted more than a million new customers in the past four years. Digital channels now account for a third of sales. 

“Frazis will have to do the same at Bank of Queensland,” Mr Ellis said.

Mr Frazis commences as CEO of BOQ on Thursday, 5 September.

 

Frazis takes on BOQ as margin pressure intensifies
George Frazis
ID logo
James Mitchell

James Mitchell

James Mitchell is the editor of the Wealth and Wellness suite of platforms at Momentum Media including Investor Daily, ifa, Fintech Business, Adviser Innovation and Wellness Daily.

related articles

promoted stories

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.