Full Year 2024 Bank of Queensland Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Brendan Sproules - Citi - Analyst : Hi, good morning, team Brendan Sproules from city. I have a couple of questions around the glide path to the FY26 ROE target of 8%. Given where your revenue is at the moment, you kind of need 15% to 20% higher revenue sort of over two years. I just want to understand how that will be achieved. Given that you still expect mortgage balances to reduce in 2025, you're anticipating stable margins. Just what sort of business banking revenue growth are you expecting here to contribute to this target?

Question: Brendan Sproules - Citi - Analyst : Fantastic. Thank you, Patrick. My second question is just around your cost guidance today, which is obviously sort of broadly flat. My question is around the investment spend profile that you sort of show on 28 which slide 28 which indicates in dollar terms, it's going to fall. I was just wondering around the composition of that because you did have the investment spend fall this year, but the P&L impact actually was $37 million higher. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 11:00PM, BOQ.AX - Full Year 2024 Bank of Queensland Ltd Earnings Call Can you sort of give us an indication of how much, how the expensed investment spend will change next year, and to what extent will that offset the higher amortization that you've also flagged in this result?

Question: Brendan Sproules - Citi - Analyst : Okay. Thank you.

Question: Jonathan Mott - Barrenjoey - Analyst : Thank you. I just wanted to follow on actually from one of the questions, Brendan just asked on slide 11. You talked a lot about the pickup in business banking that you expect to come through to drive revenues to get this ROE target. And if you look at 11, you did see a pickup in business lending and asset finance in that second half. But I remember going back to the first half and that number was flat and you called out that there was a run off of large loans and CRE at the same time. I just wanted to make sure firstly, that's finished. And I think there was a mention that the underlying growth in the target areas was around 3%. I wasn't sure whether you were mentioning that was actually the whole business bank or in your target markets. Could you give us an update on in your target areas of health agri and the SME what growth was coming specifically in those areas that makes up the [$319 million] growth in the second half?

Question: Jonathan Mott - Barrenjoey - Analyst : You're saying margin expansion as you move into business backing away from housing, is that so just wanted to make sure when (technical difficulty) expand?

Question: Jonathan Mott - Barrenjoey - Analyst : Yeah, that's a one off from the mix change. You're expecting a mix change from moving more into business lending away from housing, which could try and explain some of the revenue growth that you're anticipate (inaudible) to 8% target?

Question: Jonathan Mott - Barrenjoey - Analyst : I just wanted to get that. So when you're saying it will take time for the R&D to come over, it's not on at the beginning of March, they all convert straight away. It is a progress over time.

Question: Jonathan Mott - Barrenjoey - Analyst : Thank you.

Question: Ed Henning - CLSA - Analyst : Thanks for taking my questions. Just a couple from me. Firstly, just talking about the owner managed branches. Now, you've spoken to the managers. Can you just talk about your thoughts on attrition there and the housing to roll through next year? You've been kind of the book has been going backwards by roughly 1% the last two halves will that accelerate a little bit and has the attrition levels talked about before that, you know, a lot of them are going to come on and work as managers and staff are going to come on. Can you just talk about has the attrition that you're potentially going to be better or worse or what you anticipate now, after speaking to them, as the first question.

Question: Ed Henning - CLSA - Analyst : Okay. Thank you for that. And then just the second one on margin just to clarify. When you talk about broadly stable. Are you saying broadly stable on the second half margin or on the full year margin? And just within the margin, you have a 9 basis points benefit from the replicating portfolio. You talk about the benefit to continue. Can you just talk about the trend in that and how that will flow through for the next couple of years as in the slowing impact of it?

Question: Ed Henning - CLSA - Analyst : Thank you.

Question: Brian Johnson - MST Marquee - Analyst : Thank you very much and very informative presentation. A few questions if I may. The first one is previously, you've spoken about how the NIM is positively leveraged to rate cuts. But the replicating portfolio will do what it does, which is quite independent. Does that mean that we should be actually thinking that rate cuts when they come through are actually negative for the NIM?

Question: Brian Johnson - MST Marquee - Analyst : (multiple speakers) expressed that question, absent a dramatic move in bond rates, the replicating portfolio yield is just positive. So it's very hard not to see that basically happening. But can I just go back over and above that, if the RBA comes out and cuts rates, it would be an increment -- would it be an incremental negative for the margin?

Question: Brian Johnson - MST Marquee - Analyst : (multiple speakers) replication right time?

Question: Brian Johnson - MST Marquee - Analyst : Yeah, the replicating portfolio is kind of like an issue on the side. Just the next one if I may, and Patrick, this is one thing I really don't understand. You've got a slide which shows the digital home loan coming through, which all looks very impressive. It seems to ME, as though you talk about how it's available through the third party channel. We also can see that front book housing ROEs are below the cost of capital. Can you just talk about what your pricing strategy is through the branch through online and through the broker. Is there a differential pricing strategy coming through?

Question: Brian Johnson - MST Marquee - Analyst : SO, Patrick, if Macquarie continued to disrupt with a different pricing paradigm, we've got Westpac and ANZ that are pricing with a different paradigm. Does this make the 8% ROE target FY26 vulnerable, or just make it up through mix?

Question: Brian Johnson - MST Marquee - Analyst : Thank you.

Question: John Storey - UBS - Analyst : Thanks very much, and thanks for giving me a chance to ask a few questions. Patrick, maybe just on the first one, there's obviously been a lot of focus on business banking on this call. Just wanted to get a sense in terms of your business banking division. How much business do you actually write through commercial brokers? And how do you see this channel evolving for BOQ particularly in the context of the investment that you're making around growing your number of relationship bankers?

Question: John Storey - UBS - Analyst : So the number that I heard is 50%?

Question: John Storey - UBS - Analyst : Got you. Thanks. Racheal, maybe just the second one for you, just on the credit loss ratio, right? I've seen quite a low charge that you took and just reading your commentary. It sounds very similar to what we've seen for the other banks so far just in terms of the asset values being a little bit higher than expected and maybe some of the inputs quite conservative in terms of how the banks have approached it. But just cutting into your actual charge for the second half looks like there was quite a big release related to commercial lending. Maybe you could give a little bit more color or detail just around that. Is that a single name exposure that's come out or cured or exposure that's been sold? And you know, is this trend particularly, I guess within business banking commercial is something that we should expect to continue.

Question: John Storey - UBS - Analyst : Okey. And just in terms of the trend kind of going forward?

Question: John Storey - UBS - Analyst : Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 11:00PM, BOQ.AX - Full Year 2024 Bank of Queensland Ltd Earnings Call

Question: Victor German - Macquarie Group - Analyst : Good morning, and thank you. I was hoping to clarify a couple of points on your guidance if possible on slide 33. And ME, it appears that both expenses and revenue guidance includes the impact of branch consolidation. I just want to confirm, that's right?

Question: Victor German - Macquarie Group - Analyst : And referring to the earlier question, I think Patrick, you said that the guidance -- so you basically say you anticipate stable margins even though that relates to FY25 [hours], you are saying that we should read it as first half '25 comment?

Question: Victor German - Macquarie Group - Analyst : Okay, because, I would have thought that the second half given the benefits from the price consolidation. And even as, as I think Racheal discussed when rates start to fall, the impact on your unheard deposit should be small, combining those things, I would have thought, you should see positive trends on margins in the second half.

Question: Victor German - Macquarie Group - Analyst : There's nothing else that we should be mindful of.

Question: Victor German - Macquarie Group - Analyst : Understood, okay. And then on costs when you talk about lead expenses, again, this includes the uplift in that branch consolidation in the second half.

Question: Victor German - Macquarie Group - Analyst : Maybe to the extent you can or maybe Racheal, just a little bit more color because obviously that's a very substantial reduction of costs in the second half, given, given additional costs that you're planning to absorb. If you can maybe give us a little bit more context in terms of you obviously already talked about the reduction in, but there is a little bit of an offset in amortization expense. But also that comment you made around the aggregate cost saves that you're planning to achieve. Maybe you can conceptualize some of that in terms of what you're planning to achieve in the second half with respect to that $200 million to $250 million.

Question: Victor German - Macquarie Group - Analyst : If you can maybe give us a little bit of context of what proportion you think out of the simplifications, you'll be able to crystallize it in 2025?

Question: Victor German - Macquarie Group - Analyst : The reason I'm asking is obviously, if we're thinking that you'll be able to achieve those costs, there's obviously the remaining benefits to come in '26-'27. And so it would be useful for us to understand how much of that you would crystallize in '25 and ongoing benefits in future years?

Question: Victor German - Macquarie Group - Analyst : Thank you.

Question: Andrew Triggs - J.P. Morgan Securities Australia Ltd - Analyst : Thank you. Good morning. Racheal, maybe a first question for you just around a couple of follow ups on outlook. So firstly, on the first half '25 NIM guidance, does that assume any reduction in liquid assets? Noting that the LCR as you mentioned was very high at 148%. And then the question on the cost guidance was, what do you factor in in terms of the investment spend between upfront expensing and capitalized in FY25 specifically?

Question: Andrew Triggs - J.P. Morgan Securities Australia Ltd - Analyst : You've given quite specific guidance on the overall cost number. You must have the component parts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 11:00PM, BOQ.AX - Full Year 2024 Bank of Queensland Ltd Earnings Call

Question: Andrew Triggs - J.P. Morgan Securities Australia Ltd - Analyst : That's exactly the point. Why wouldn't that optimization happen in the first half of '25? Is there any reason for that conservatism?

Question: Andrew Triggs - J.P. Morgan Securities Australia Ltd - Analyst : Thank you. And just a second question, just on overall loan growth in FY25 you've obviously flagged headwinds to the mortgage book. We assume that the headwinds will grow just given the some of the [decisions] in the channels. But do you expect the overall loan book to actually experience growth or be flat or slightly down? Noting that the home loan book is more than three times the size of the business and finance book?

Question: Andrew Triggs - J.P. Morgan Securities Australia Ltd - Analyst : Thank you.

Question: Jeff Cai - Jarden - Analyst : Good morning. Thank you. Just a couple of clarifications. Firstly, on costs, has there been any change to the target of FY26 target being broadly flat to '23? So that's roughly about [960 million-plus] anything that you have for [O&B] convergence?

Question: Jeff Cai - Jarden - Analyst : Versus '23.

Question: Jeff Cai - Jarden - Analyst : Thank you, great. And then just very quickly on, on slide 11, in terms of business lending growth, you're sort of saying 7% annualized growth going forward. Is that on the four year '24 or the second half '24?

Question: Jeff Cai - Jarden - Analyst : Right. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 15, 2024 / 11:00PM, BOQ.AX - Full Year 2024 Bank of Queensland Ltd Earnings Call

Question: Richard Wiles - Morgan Stanley - Analyst : Good morning. I want to ask about the deposit is the average cost of the [$7 billion] of digital deposits higher or lower than the cost of the overall deposit portfolio. And how do you expect those deposit costs to evolve?

Question: Richard Wiles - Morgan Stanley - Analyst : So Racheal, maybe if I could just follow up on that, I mean, BOQs big challenge is that it has a legacy high cost deposit franchise. It's a competitive disadvantage versus many other players in the market, particularly the major banks. One of the potential benefits of your digital deposit strategy is that you can lower that cost of funding. And I know there's a lot of component parts here. But can you tell us whether the cost of funding of the $7 billion of digital deposits is lower than the legacy portfolio? If it's not, then why should we be so positive about the growth that you're getting in your digital deposits?

Question: Richard Wiles - Morgan Stanley - Analyst : Okay, thanks Patrick. And then the second question, I wanted to ask was just about the O&B conversion. Media reports have suggested that some of the owner managers are considering legal action. Can you give us any update on whether you expect that to be the case? And can you tell us whether you're confident that the upfront cost of the conversion that you flagged in August is unlikely to increase?

Question: Richard Wiles - Morgan Stanley - Analyst : Okay. Thanks for that update, Patrick.

Question: Matt Dunger - BofA Global Research - Analyst : Thank you, Patrick and Racheal. Just wondering if I could ask about the CT1 ratio and you've called out a 30 basis points impact previously from the branch conversions. Are you able to talk through some of your capital planning considerations of their avenues for capital generation we should consider particularly as you move into more risk weighted asset intensive business lending?

Question: Matt Dunger - BofA Global Research - Analyst : Great. Thank you. And just to follow up on that, if I could ask about the restructuring of following the conversions that you've talked about, you've taken the below the line cost of $33 million, that appears to be what you called out previously is should we expect any additional below the lines coming through in FY25?

Question: Matt Dunger - BofA Global Research - Analyst : Thank you.

Question: Cristian Methal - Jefferies - Analyst : Morning team. Can you hear me? Okay?

Question: Cristian Methal - Jefferies - Analyst : Is I just have one quick question. On page 96 of your Annual Report, there's a breakdown of the movement in impaired assets. In second half '24 you show realizations of [41 million]. Are you able to split them out between write-offs and [queers]?

Question: Cristian Methal - Jefferies - Analyst : Awesome. Thank you.