BoQ in watchdog's view
Bank of Queensland has revealed regulators have been sniffing around.
Bank of Queensland has announced that it is at risk of “penalties, sanctions or other enforcement action” due to ongoing regulatory reviews of its risk culture and anti-money laundering compliance.
The bank has released a half-year result impacted by impairments and provisions, which contributed to a 4 per cent drop in cash net profit, down to $256 million, for the first half of the year compared to the previous year. The statutory profit for the six months to the end of February fell by 98 per cent to just $4 million, following a $200 million goodwill impairment and a $42 million provision for costs related to a new “integrated risk program”.
BoQ says it required a “material uplift” in its risk and compliance management.
The interim dividend was also reduced to 20¢ a share, and the bank said reviews conducted with regulators had revealed a need for improvement in operational resilience, risk culture, governance and anti-money laundering and counter-terrorism financing (AML/CTF) program and compliance.
AUSTRAC and APRA are among the regulators that Bank of Queensland said it is proactively engaging with on the new risk program.
Internal and external reviews had “identified a material uplift is required in BoQ’s operational resilience, risk culture and governance and BoQ’s anti-money laundering and counter-terrorism financing (AML/CTF) program and compliance”.
The anti-money laundering regulator, AUSTRAC, has previously acted against Commonwealth Bank and Westpac for breaches of AML and CTF regulations, which led to $700 million and $1.3 billion penalties respectively.
BoQ also took a $200 million non-cash impairment to goodwill, relating to its acquisition of the Home Building Society 16 years ago.
BoQ’s half-year results were also impacted by costs of integrating its latest acquisition, ME Bank, but it now says the integration has been completed, and synergies have been created. The growth in home loans remained flat, and business lending grew by 6 per cent. Its net interest margin of 1.79 per cent expanded by 0.05 percentage points, helped by higher interest rates, but the bank pointed to ongoing pressure from competition for deposits and housing loans.
Operating expenses jumped 7 per cent to $495 million, impacted by higher technology costs and inflation.
BoQ said the ongoing regulatory scrutiny of risk and compliance could put upward pressure on costs, and there is a risk that the group incurs increased costs in people, processes and systems to meet regulatory expectations.
Analysts have suggested that the outlook for Bank of Queensland is challenging, with Morgan Stanley, for example, expecting its pre-provision profit to decline by 10 per cent next year. Goldman Sachs analyst Andrew Lyons has noted that BOQ has a “higher exposure to housing, and its more rate-sensitive deposit base leaves it more exposed to the current industry-wide trends adversely impacting margins”.
Shares of Bank of Queensland have lost 7.4 per cent in value this year, similar to regional rival Bendigo and Adelaide Bank.