Bank of Queensland posts profit surge

A drop in provisions for bad debts and improved margins have helped the Bank of Queensland post a record full-year cash profit of $301.2 million.

The cash profit, which excludes one-off items, is a 20 per cent increase on last year and is in line with market expectations.

The bank's net profit was up 40 per cent to $260.5 million.

Provisions for impaired assets fell by 25 per cent to $287.6 million, continuing a trend that has seen bad and doubtful debts halve over the past two years.

The other big driver of the profit was an increase in margins from cheaper wholesale and deposit funding.

However, the bank's mortgage lending grew by only 1 per cent, well behind its big four rivals which have been growing their home loans by closer to 7.5 per cent year-on-year.

"In a low retail credit growth environment, we've maintained our disciplined approach to growth," said acting chief executive officer Jon Sutton.

"We're not prepared to join the race to the bottom on pricing."

Regulatory changes

Mr Sutton - who stepped into the top job after former CEO Stuart Grimshaw's surprise exit in August - used the results presentation to push for significant regulatory reform out of Federal Government's Financial System Inquiry.

Mr Sutton says the current regulatory capital settings are anti-competitive and the big four banks' 'too big to fail' funding cost advantage had to be removed.

He says he hoped it would be addressed not only by the FSI, chaired by former CBA chief executive David Murray, but also the G20 leaders' summit to be held in Brisbane in November.

Mr Sutton argues the big banks should be forced to raise their internally calculated risk weightings on home loans, while the smaller regional banks should be allowed to lower their risk weightings.

The Bank of Queensland argues under current regulations it needs three times the capital backing for the average home loan compared to the big banks.

The bank's tier 1 capital position, or CET1 ratio, remained steady at 8.3 per cent over the year.

"The strength of our balance sheet and capital position sets us up well for any regulatory changes that might result from the Financial System Inquiry," Mr Sutton said.

However, he cautioned that any tougher lending rules the Reserve Bank may be contemplating to take the heat out of the Sydney and Melbourne housing markets should not carry any "unintended consequences" for markets elsewhere.

Subdued outlook

Mr Sutton says business investment and consumer confidence are expected to remain subdued in the year ahead as Australia transitions from mining investment to a more services-based economy.

"Barring any unforeseen macroeconomic impacts, BOQ expects sustainable growth in earnings and dividends as we realise the benefits of our four pillar strategy," Mr Sutton said.

One area for concern was a 6 per cent increase in operating expenses.

"While expense growth was higher than we would have liked, we remained committed to disciplined management of the bank's expense base," Mr Sutton added.

Mr Sutton says the higher costs reflect significant investment in frontline capabilities and the strategy to open more distribution channels, including an expansion in business banking and establishing a mobile banking unit.

The bank announced a final dividend of 34 cents per share, taking the full-year payout to 66 cents, a 14 per cent increase on 2013.

At midday (AEDT) Bank of Queensland shares were trading 2.5 per cent higher at $12.08.