BOQ loss ominous for regional banks: FitchRatings
Update: since this story was published Bank of Queensland has provided a statement.
Bank of Queensland's (BOQ's) announcement yesterday of an annual loss has sounded a warning bell for Australia's regional banks, according to ratings house FitchRatings.
A BOQ announcement on the ASX entitled "Fit and focused - Bank of Queensland on course for a return to sustainable profitable growth" revealed a statutory loss of $17.1 million for the 2012 financial year.
The $17.1 million loss comes off the back of a $158.7 million profit in the 2011 financial year.
According to FitchRatings, the result is the first annual loss for an Australian bank in 20 years - and "highlights a key problem for the country's regional banks - that geographical concentration in commercial lending portfolios leaves them susceptible to localised weakness".
FitchRatings also noted that BOQ's loan impairment charges (LICs) more than doubled in the first half of its fiscal year - most of which are concentrated in assets in the south-east corner of Queensland, where the commercial property sector has faired particularly badly for several years.
"The bank's exposure to the area is proportionally greater than that of the major Australian banks and other regional lenders with the exception of Suncorp-Metway, which has a similar proportion of business in the region and faced similar problems," said the FitchRatings statement.
The ratings agency noted that the jump in LICs followed the appointment of Stuart Grimshaw as CEO in August 2011, who "instigated a review of BOQ's commercial loan portfolio". As a result of the review, FitchRatings does not expect "such poor figures to be repeated".
FitchRatings also pointed to the rise in mortgage arrears across the country and the fact that "south-east Queensland [has] experienced a larger deterioration than average".
"A Fitch report published in August also showed that Queensland is the worst-performing state in terms of mortgage delinquencies, and that most of the country's 10 worst-performing regions are now in Queensland, rather than New South Wales," said the FitchRatings statement.
A spokesperson for Bank of Queensland could not be reached before Money Management's deadline.
Update
A BOQ spokesperson said there is “no question that BOQ’s concentration in the South East corner has impacted our results.”
This is why the bank’s strategic focus is on multi-channel optimisation such as online, mobile and selective use of mortgage brokers, the spokesperson said, identifying Western Australia as a pilot region in the rollout of the multi-channel strategy.
“Our business banking strategy is also starting to bear fruit, with 20 new agribusiness and corporate bankers on-boarded across metro and regional areas of NSW and QLD to drive customer acquisition and asset growth,” the bank stated.
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