BOQ Reports 20% Statutory Profit Drop, $3.7bn Equipment Finance Sale Underway

Profit Decline Driven by Equipment Finance Portfolio Sale

Bank of Queensland Limited (ASX:BOQ) reported a 20% drop in statutory net profit after tax to $136 million for the half year ended 28 February 2026, primarily due to a $31 million post-tax loss recognized on the classification of its equipment finance portfolio as held for sale. The portfolio, valued at $3.7 billion, is being sold to Challenger Limited under a whole-of-loan sale and forward flow arrangement announced in April 2026, with completion expected between late April and early May 2026. This transaction will transfer ownership, funding, and credit risk to Challenger, while BOQ retains servicing responsibilities and will earn capital-light fee income.

Excluding this one-off impact, BOQ’s cash earnings after tax declined a more modest 4% to $176 million, reflecting higher income offset by increased expenses and a rise in loan impairment expense from a very low base. Total income rose 5% to $832 million, underpinned by revenue benefits from the branch conversion completed in March 2025 and growth in business banking fees. Net interest income increased 4% to $755 million, supported by a 10 basis point improvement in net interest margin (NIM) to 1.67%, despite a 2% contraction in average interest earning assets driven by a strategic shift towards higher-returning commercial lending.

Digital Bank Expansion and Branch Conversion Progress

BOQ continues to scale its digital bank with 72% of active retail customers migrated as of March 2026, and digital originations accounting for 75% of home lending flow. The bank has successfully converted its owner-managed branch network to corporate branches, enabling a more efficient footprint and improved application volumes. Digital deposits now represent 87% of new personal deposits, illustrating strong customer adoption of the digital platform. The bank’s focus on simplifying operations and embedding AI capabilities aims to reduce costs and enhance customer experience, with productivity initiatives delivering approximately 65% of targeted benefits to date.

Asset Quality and Capital Position Remain Robust

Asset quality metrics remain strong, with impaired assets down 11% to $84 million and 30-day past due arrears reduced by 14 basis points. Loan impairment expense increased to $20 million, reflecting a return to normalized levels after prior releases, notably due to a single large asset finance exposure and the non-recurrence of a commercial lending provision release in 1H25. The Common Equity Tier 1 (CET1) capital ratio improved 24 basis points to 11.18%, comfortably above the management target range of 10.25–10.75%, supported by capital generated from earnings and mark-to-market gains in reserves.

BOQ’s liquidity coverage ratio averaged 141.5% for the half, well above APRA’s 100% minimum requirement, and the net stable funding ratio stood at 123.3%, reflecting a stable and diversified funding base. Customer deposits contracted 2% to $65.3 billion, driven by a targeted run-off in term deposits and portfolio optimization, maintaining a deposit-to-loan ratio of 85%.

Dividend Maintained Amid Economic Uncertainty

The bank declared a fully franked interim dividend of 20 cents per share, representing a payout ratio of 75% of cash earnings, consistent with its target range of 60–75%. The dividend reinvestment plan will operate with no discount and is expected to be satisfied in full by on-market purchases. The Board emphasised the bank’s strong capital and liquidity position as a foundation to support shareholders and customers through ongoing economic uncertainty, including elevated inflation, rising cash rates, and geopolitical tensions arising from the Middle East conflict.

BOQ’s outlook anticipates continued elevated competition for lending and deposits, with a focus on maintaining or exceeding system growth in commercial lending. The bank expects home lending contraction to ease, with growth anticipated from FY27 as digital mortgage channels expand. Further productivity benefits are expected from the ongoing Capgemini partnership and the completion of ME customer migration to the digital platform.

Regulatory Engagement and Leadership Transition

BOQ remains actively engaged with regulators, including APRA, AUSTRAC, ASIC, and the ATO, addressing ongoing reviews and enforcement undertakings related to operational resilience, anti-money laundering, and compliance frameworks. The bank has made significant progress on its Remedial Action Plans, with 61% of activities completed and programs transitioning into the embed phase.

Leadership changes during the half included the appointment of Rod Finch as Managing Director and CEO effective 1 March 2026, succeeding Patrick Allaway who retired after stabilizing the bank’s strategic transformation. The executive team continues to prioritize digital transformation, operational simplification, and risk management enhancements.

This report follows BOQ’s recent $3.7bn capital partnership announcement with Challenger, which is central to its balance sheet optimization and capital return strategy.