Bank of Queensland (BOQ) has reflected a solid $151 million net profit in its latest half-yearly results, but flagged a $1bn dip in customer deposits along with increased numbers of customers moving to variable rate mortgages in a bid to reduce overall interest expense in the current economic environment.

The bank’s cash earnings after tax were $172 million, including a one-off after-tax adjustment of $19 million related to the sale of a non-core New Zealand asset portfolio. Total income declined 12% from the prior comparative period due to lower margins and a contraction in lending. Expenses increased 6% due to inflation and continued investment in risk, compliance and technology.

“This result has been impacted by continuing industry headwinds, with heightened competition for lending and deposits and higher funding costs. Pleasingly, in a reduced revenue and high inflation environment, we have held BAU cost growth at just 1.2% in the half,” said BOQ Managing Director and Chief Executive Officer, Patrick Allaway.

BOQ’s focus is on strengthening, simplifying, digitising and optimising the business. The bank has approved Remedial Action Plans with regulators, simplified operations with the sale of non-core assets, and made progress on a productivity program. BOQ is building out digital mortgage and legacy migration infrastructure, with the first phase launch due in the second half of 2024.

“Real progress has been made against our strategic priorities. We have made a good start to our simplification productivity agenda and have agreed Remedial Action Plans with our regulators, to continue strengthening the bank. Our digital transformation is progressing on plan. We have built and tested both our digital mortgage and legacy migration infrastructure, with these key milestones moving to delivery stage in the second half,” Allaway said.

Customer satisfaction with BOQ’s mobile app increased, with a Net Promoter Score of +24 on myBOQ, compared to +11 on the legacy BOQ app. Retail banking income was down from $500m to $393m in the half year, while business banking was down $10m over the same period to $329m. Statutory NPAT for 1H24 was $151 million, a significant increase on 1H23. Cash NPAT for 1H24 was $172 million, a 33% decline on 1H23, driven by lower revenue and higher operating costs. Operating expenses were up 6% to $524 million.

“We have a dedicated and committed leadership team and a clear transformation roadmap. We continue to have high conviction that our transformation plan will address legacy issues and deliver a stronger and simpler bank,” Allaway said.

Housing loan contraction of $0.4 billion in the period was due to prioritising economic return over volume growth. Customer deposit growth declined by $1.0 billion, or 3%, due to a lower funding requirement. Business loan growth was $4 million, with growth in novated leasing and lending to the agriculture and healthcare sectors offset by a cautious approach to lending in the commercial real estate sector.

“We remain optimistic on the long-term view; the Australian economy remains resilient and well supported by low unemployment and strong investment,” Allaway said. “We anticipate revenue and margin pressures to moderate in the second half of 2024. Deposit competition to continue as TFF refinancing continues. We expect home lending margin compression to stabilise and BOQ’s home lending decline to moderate, with business banking growth to increase. While our cost base will be impacted by ongoing inflation and continued investment in the business, we are on track to deliver low single digit BAU expense growth for 2H24.”