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- Bank of Queensland (BOQ) has upped its loan impairment charge amid concerns Australia is heading for a credit implosion
- The lender, headquartered in Queensland, tabled a $175 million expense to cover souring loans in its FY20 financials
- As part of that figure, BOQ has set aside $133 million to cover COVID-19-related expenses — up from the $10 million earmarked in FY20’s first half
- BOQ says the upgrade is based on new data from the Reserve Bank of Australia (RBA), which suggests unemployment rates are set to rise while housing prices soften, leading to a drawn-out economic downturn
- Today, the lender also announced it would table an $11 million disbursement to cover employee underpayment costs
- It comes after an internal probe uncovered $2.4 million in unpaid superannuation
- With softening restrictions to credit access and a rise in deferrals, it seems Bank of Queensland is preparing for the borrowing bubble to burst
- Today, shares in the major bank fell 6.61 per cent to trade for $5.93
Bank of Queensland (BOQ) has upped its loan impairment charge amid concerns Australia is heading for a credit implosion.
The lender, headquartered in Queensland, tabled a $175 million expense to cover souring loans in its FY20 financials.
As part of that figure, BOQ has set aside $133 million to cover COVID-19-related expenses. It’s a huge jump on the bank’s original coronavirus provisions, which totalled just $10 million back in April.
The extra $123 million will support the lender as the country gears up for a longer-than-expected and potentially deeper recession, brought on by the global pandemic.
“The revised provision reflects the anticipated lifetime losses on the current portfolio relating to the impacts of COVID‐19,” said BOQ’s Managing Director and Chief Executive Officer, George Frazis.
“BOQ is committed to supporting customers during this difficult period through a range of relief measures and by ensuring a flow of new credit into the economy to help small and medium businesses get back on their feet,” he continued.
More broadly, the bank’s total loan provision — a sixfold increase on BOQ’s first-half reserve of $28 million — was based on revised economic forecasts.
The bank says new data from the Reserve Bank of Australia (RBA) suggests unemployment rates are set to rise while housing prices soften, leading to a drawn-out economic downturn.
As a result, the ASX-200 lister has doubled down and upped its probability ratings to the downside and severe scenarios.
Underpayments impairment
The loan impairment won’t be the only additional expense on the bank’s FY20 balance sheet.
Today, the lender also announced it would table an $11 million disbursement to cover employee underpayment costs.
An earlier internal review, which BOQ said was triggered by similar remuneration issues outside the business, uncovered $2.4 million in unpaid superannuation.
“We will get this right and we will make sure our people, past and present receive every cent they are owed. This is an absolute priority,” the CEO stated.
As the probe continues, the lender has earmarked $8.6 million — in addition to the $2.4 million for superannuation payments — to cover future expenses, bringing the total impairment to $11 million.
Bank of Queensland’s full FY20 results, which will include these latest impairments, will hit the market in mid-October.
What’s to come?
The Queensland lender’s move to up provisions for souring loans comes as laws covering credit applications relax.
Last week, Treasurer Josh Frydenburg announced the Federal Government would simplify the application process in a bid to free up credit and stimulate the economy.
Essentially, the changes mean there’s less information credit hopefuls are required to hand over when they tap the banks for fresh funds — making it easier to access credit for a home or personal loan.
It seems lending levels are already on the rise, with the Australian Bureau of Statistics (ABS) recording the highest-ever spike in home loan lending back in July.
However, the spike in applications comes an increase in deferrals. The Australian Prudential Regulation Authority (APRA) reported 10 per cent of all housing and small business loans — valued at a whopping $266 billion —had been deferred in late May.
With softening restrictions to credit access and a rise in deferrals, it seems Bank of Queensland is preparing for the borrowing bubble to burst.
How the other banks respond and prepare amid the lending law changes remains to be seen.
Today, shares in the major bank fell 6.61 per cent to trade for $5.93 at 2:40 pm AEST.
