Where next as the Bank of Queensland defers its interim dividend

We examine the Bank of Queensland’s recent first-half results as well as look at the bank’s decision to defer its interim dividend.

The Bank of Queensland (BOQ) became the first of Australia’s major lenders to defer its dividend, when it announced its half-year results on Wednesday, 8 April.

In response to this release, shares in the bank fell by almost 5%, before finishing out the session some 2.14% lower. BOQ shares continued to underperform into the Easter break, finishing out Thursday's session some 0.9% lower, despite the ASX 200 Financials Index notching up some healthy gains.

Bank of Queensland share price: the outlook remains uncertain

Overall, the sector has been hit hard by the coronavirus pandemic, with the Financials Index down by more than 30% since February 21.

Compounding these issues, the Australian Prudential Regulation Authority (APRA) this week sent a letter to Australia's authorised deposit taking institutions – noting that it expected such institutions to ‘limit discretionary capital distributions’ and potentially make ‘prudent reductions’ to their dividend payments.

In response to all of this, the BOQ board said it would defer the payment of an interim dividend 'until the economic outlook is clearer.’

Beyond the Bank of Queensland, APRA’s directive is also likely to have a strong bearing on the dividend outlook for other lenders. Commonwealth Bank paid a dividend last week; but ANZ, NAB and Westpac will soon report half-year results to March 31. For reference, in a research note this week, UBS analysts cut their dividend forecast for those latter three banks to zero.

In a separate note to shareholders, BOQ said its decision to defer dividends was in direct response to APRA’s instructions, in light of the ‘significant disruption caused by COVID-19.’

‘BOQ understands the impact of this decision on shareholders, however also acknowledges this guidance as a prudent step for the industry,’ Chairman Patrick Alloway said.

First-half fundamentals at a glance

Overall, for the half-year, BOQ reported net cash earnings of $151 million, representing a year-over-year decline of 10%.

In step with that, the bank’s H1 profits (NPAT) came in at $93 million – representing a 40% drop on a year-over-year basis. Moreover, BOQ’s Net Interest Margin – a key metric of operating performance – fell by 3 basis points (0.03%) during the period to 1.89%.

Positively at least, BOQ saw its overall loan growth rise by 56% to $781 million. In saying that, the bank flagged that its loan performance could be volatile in the months ahead due to the headwinds facing the economy.

Elsewhere, and factoring in the potential impact of Covid-19, the bank has included a collective provision of between $49-71 million. However, this estimate was described as ‘subject to significant uncertainty.’

Looking forward, BOQ’s management further said:

'BOQ is well positioned as we enter this period with a strong balance sheet, capital and liquidity buffers, and sound asset quality.'

'While it remains difficult to assess the impact of COVID-19 on the economy, our customers and, as a result, our business, we are well-positioned to adapt to this challenging, rapidly changing environment.'

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