Why has the Bank of Queensland (BOQ) share price stumbled?
Shares in the Brisbane-based lender have dropped about 9% in the last 6 months.
Bank of Queensland (ASX: BOQ) has been among the most traded shares on the ASX on Thursday but investors seem to be unimpressed with the lender. As such the share has fallen 4% during early trading.
The weak sentiment is not affecting other stocks in the banking sector though, with 3 of the Big Four – Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) all trading in the green.
What is affecting the BOQ stock price?
The drop in the BOQ stock price comes after the Brisbane-based lender posted its half-year results. For the 6 months to 28 February, Bank of Queensland booked cash earnings of $268 million, a 14% improvement over the same period a year ago.
Revenue for the half year jumped 44% from a year earlier to $833 million, with the strong result coming on the back of sizeable growth in home loans, disciplined expense management and digital transformation.
But investors seem to have focused on some troubling aspects of the overall result. The first among these was the bank's interim dividend of 22 cents a share, which took the payout ratio to 53%, below the company's target full year guidance range of 60%-75%.
Investors were also focused on BOQ's net interest margins, or the difference between its lending rate and cost of funds, which dropped 12 basis points in the half to 1.74%. The lender blamed this on continued competition, higher fixed rate lending volumes and increased liquidity.
It comes after Bank of Queensland raised $1.3 billion last year to pay for its acquisition of ME Bank, which diluted the equity for existing shareholders.
Uncertain outlook
The lender said its home lending book had grown at 1.8 times industry levels in the 6-month period. While certainly positive, the news comes at a time when the property boom in Australia has already peaked, with growth now slowing down sharply.
The market also expects the Reserve Bank to lift interest rates as early as June in an effort to control rising inflationary pressures. Many economists are tipping for the pandemic emergency rate cuts of 2020 to be unwound from June and a cash rate of 1-1.25% by year-end.
Despite the overall uncertain environment, BOQ says it is "cautiously optimistic" on the outlook for Australia's economic recovery. The lender said it remains focused on achieving quality, sustainable, profitable growth in fiscal 2022.
"We expect to see NIM headwinds reducing and the continued benefits from our integration and productivity programs driving a cost reduction of at least 1%," CEO George Frazis said.
The lender expects its CET1 capital ratio to remain comfortably above 9.5%, and reiterated its dividend payout ratio to a target range of 60-75% of cash earnings.
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