Westpac (ASX: WBC) contrasts Bank of Queensland (ASX: BOQ)
Stock
Bank of Queensland (ASX: BOQ) $9.32 as at 18/02/2019
Westpac (ASX: WBC) $26.25 as at 18/02/2019
Event
A couple of contrasting bank reports came out today highlighting the divergence between the major banks and the regionals.
Bank of Queensland is trading 6% lower today, one of the worst performing stocks in the ASX200 for the session, following the release of their 1st half update.
As is the case across the Australian credit market, loan growth is weak for BOQ while funding pressure has caused a decline in the net interest margin (NIM). The NIM is expected to fall 2-4bps from a year ago to 1.93%-1.95% while declining non-interest income (fees & charges, trading etc.) & a lack of loan growth will mean earnings will struggle. Regulatory costs have also climbed and will remain elevated for now thanks to the Royal Commission.
Despite the negativity on earnings, there are a few highlights in the update. The leasing business of BOQ has been helping stem the earnings leak while bad debts do remain low despite a small uptick that is expected. This won’t be enough however, and regionals are clearly doing it tougher than the majors.
Bank of Queensland (ASX: BOQ) Chart
On the other side of the ledger, Westpac (ASX: WBC) also had their first quarter update, and the stock is trading marginally higher on the session.
Contrasting to BOQ, Westpac managed to increase the NIM on the quarter, which should rise around 6bps for the half thanks to their out of cycle rate hikes. Westpac does face low loan growth, as is the same across all players in the market, however the big banks seem to have more power to maintain a higher NIM with lower funding costs while an effort to limit costs should flow through to profit growth for the year.
Elsewhere, impaired loans saw a small increase in line with BOQ, and Westpac’s capital position continues to stay strong as the bank approaches the APRA 10.5% CET1 ratio.
Westpac (ASX: WBC) Chart
Market Matters Take/Outlook
