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Loan losses, underpaid wages weigh on BOQ results

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Bank of Queensland has flagged a $175 million loan impairment expense with a further $11 million provisioned for remediating underpaid staff, ahead of the release of its full-year results.

The bank flagged the items on Tuesday, warning shareholders they would see an impacts for financial year 2020.

BOQ has engaged external third parties to assist with the analysis and remediation process for irregular superannuation payments, with its investigation still ongoing and yet to determine the full impact of the errors. 

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The bank stated it had made a “full and unreserved apology” to individuals affected by the payment errors, having advised the Fair Work Ombudsman and the Financial Services Union. 

It had decided to undertake a review of its employee pay after watching other banks such as Westpac and NAB reveal systemic underpayment issues.

The bank’s initial internal review identified irregularities in superannuation payments, finding potential issues relating to people employed under an enterprise agreement and specific requirements under the 2010, 2014 and 2018 agreements. 

BOQ has already made super payments to the Tax Office as part of the superannuation guarantee amnesty in the amount of $2.4 million.

Chief executive and managing director George Frazis said the remediations were an “absolute priority”.

Meanwhile, the loan impairment expense has included a COVID-19-related collective provision expense of $133 million (pre-tax), based on the bank’s analysis of customers on the banking relief package and their likelihood of recovery as well as RBA data and an exposure review.

The $175 million expense equates to approximately 37 bps of gross loans. The $133 million provision expense has comprised a $10 million provision in the first half, with a further $123 million being set aside in the second. 

Higher unemployment, downgrades to property prices and the increased duration of the economic downturn are the industry and sector impact assumptions BOQ has adopted.

The bank has increased its probability weightings to the downside and severe case scenarios from those in its first-half modelling assumptions.

In the downside scenario, which BOQ has given a 20 per cent probability weighting, GDP would shrink by 7.5 per cent for the year, unemployment would be 10.5 per cent and residential and commercial property prices are expected to fall by 10 and 15 per cent respectively.

But its base scenario, which has a 75 per cent probability, would see unemployment sit at 10 per cent for this year, while GDP fell by 6 per cent. 

“The revised provision reflects the anticipated lifetime losses on the current portfolio relating to the impacts of COVID-19 in line with AASB 9 Financial Instruments,” Mr Frazis said.

As at 31 August, BOQ had 12 per cent of housing customers and 16 per cent of SME customers on the banking relief package. Of those customers, a quarter were reported to be making full or partial repayments.

Shareholders are yet to find out about dividends for the full year, with the chief signalling the board will declare their final determination with the bank’s full-year results. 

“We are very aware of the importance of dividends to our shareholders, including to our significant number of loyal retail shareholders,” Mr Frazis said.

“We have completed our scenario analysis in relation to dividends and have consulted with APRA in line with the guidance issued on 29 July 2020.”

BOQ’s full-year results are set to be released on 14 October.

 

Loan losses, underpaid wages weigh on BOQ results
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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