Bank of Queensland Ltd.

The positive outlook on BoQ reflects our view that there is a one-in-three possibility that Australian banks will face reduced industry risks in the next two years. We believe that the Australian banking system's funding profile has been improving in the past 10 years on the back of growing customer deposits and falling offshore borrowing. We consider that the stronger systemwide funding metrics could be sustained despite a modest weakening in the next three years as the COVID-19 driven rise in customer deposits through 2020 unwinds and the Reserve Bank of Australia's (RBA) term funding matures. We expect that BoQ will maintain a strong risk-adjusted capital ratio of 10%-15% over the next two years. In addition, we consider that credit

...Australia-based Bank of Queensland Ltd. (BoQ) maintains a low-risk, retail banking focused, operating model. We do not consider BoQ's core banking operations complex or high-risk in nature, given its focus on residential mortgage and secured business lending. We believe BoQ can manage the risks its lending generates. We also believe the bank's management team has the required skills and experience to manage the heightened operation risk associated with its proposed acquisition and integration of Members Equity Bank Ltd. (ME Bank). We consider BoQ's strong capital levels a key credit strength for the bank, supporting future loan growth and providing a buffer against credit losses. Like regional bank peers, we consider BoQ well capitalized. We forecast BoQ to maintain a risk-adjusted capital (RAC) ratio of 10% to 15% over the next two years. Australia's small financial institutions, including BoQ, are vulnerable to funding pressure from major banks. We believe the major banks could bring...

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