Is it wise to hold Bank of Queensland?

Team Veye | 19 Feb 2019 ASX - BOQ
Is it wise to hold Bank of Queensland?

Bank of Queensland Ltd (ASX: BOQ)

On 18th Feb’19, the bank released a trading and earnings update highlighting that based on January year-to-date performance, 1H19 cash earnings after tax was expected to be in the range of $165-170m, compared to the 1H18 cash earnings after tax result of $182m. A reduction in income from 1H18 was primarily contributed by Non Interest Income which was expected to be $8-10m lower than the 1H18 level of $75m. This was due to continued downward pressure across fee, trading, insurance and other income lines.

The bank further added that the Net Interest income was expected to be broadly in line with the 1H18 level of $475m, with Net Interest Margin (NIM) expected to be in the range of 1.93% to 1.95% (compared to 1.97% in 1H18). The reduction in NIM was primarily attributable to continuing funding cost pressures (including the elevated bank bill swap rate) and price competition for new loans. Some nonrecurring costs have also negatively impacted the half year result. Loan impairment expense was expected to be in the range of 11-13 basis points of gross loans. Underlying asset quality trends across the portfolio remained sound. The bank’s first half Common Equity Tier One (CET1) ratio expected to be above the 9.1% but the market conditions are expected to remain challenging and regulatory costs are likely to increase (Data Source – Company Reports).


Veye’s Take

The stock price of the bank slipped 25% between Jan’18 till date and the major contributors have been the Interim Banking Royal Commission Report which has led to loss of trust by the investors, weak results, market slump and the recent one being lower non-interest income. The stock had started recovering post-Christmas only to slip again in the second week of Feb’19. We reckon that majority of the banks are sailing in the same boat and will be bearing regulatory costs which may have impact on their stock prices as highlighted by Bank of Queensland but the banks will surely be taking steps to mitigate the impact. We maintain a “Hold” on “Bank of Queensland Ltd” at the current price of $9.320


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