Why has the Bank of Queensland (BOQ) share price stumbled?

Posted: 13 October 2021 1:04 pm
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Shares in the Brisbane-based lender have risen nearly 60% in the last 12 months.

The banking sector has been a drag on the overall ASX indices today and one reason for that has been poor sentiment in the Bank of Queensland (ASX: BOQ) stock. Shares in the company were among the most traded and, at the time of writing, down 4% to $9.36.

What is affecting the BOQ stock?

The drop in the stock price comes after the Brisbane-based lender posted its annual earnings. For the 12 months to August 31, Bank of Queensland booked cash earnings of $412 million, an 83% jump over the previous year.

The better than expected result comes on the back of strong growth in home loans, disciplined expense management and a reversal of its provisions for bad debt. All in all, a good result.

But investors seem to have latched on to some troubling aspects of the overall result. The first among these was the bank’s final dividend of 22 cents a share, which took the payout ratio to 61% – near the bottom of its guidance range.

It comes just months after Bank of Queensland raised $1.3 billion to pay for its acquisition of ME Bank, which diluted the equity for existing shareholders. CEO George Frazis said on Wednesday the bank’s integration with ME – which it acquired in July – is running ahead of schedule.

Investors were also focused on BOQ's expectation for net interest margins to be squeezed by 5–7 basis points this year, due to fierce competition amid a low interest rate environment. The bank also expects expenses to rise by 3% on an underlying basis as it looks to grow the combined business.

Home lending in focus

The lender said its home lending book had grown at 1.7 times industry levels in the 12-month period. While certainly a positive, the news comes at a time when red hot property prices are causing increasing anxiety to regulators in Australia.

Last week, the Australian Prudential Regulation Authority (APRA) tightened lending standards by increasing the minimum interest rate buffer it expects banks to use when assessing home loan applications, in a bid to slow home loan growth.

APRA’s move is likely to impact the major banks, which see the biggest proportion of their earnings contributed by the mortgage business. The COVID lockdowns have also resulted in higher loan repayment deferrals and fee waivers for the lenders.

Despite the overall uncertain environment, BOQ says it is cautiously optimistic about Australia’s economic outlook and expects to benefit from rising house prices and solid growth in consumer spending and business investment.

Investors would certainly be hoping for a repeat of the nearly 60% growth in its share price over the last year.

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