2017 Annual Report
Year ended 31 August 2017
Contents
Chairman and Managing Director & CEO’s letter
Directors’ Report
Directors’ Details
Operating and Financial Review
Remuneration Report
Introductory Message
Remuneration Report
Lead Auditor’s Independence Declaration
Financial Report
Income Statements
Statements of Comprehensive Income
Balance Sheets
Statements of Changes In Equity
Statements of Cash Flows
Notes to the Financial Statements
Other Information
Directors’ Declaration
Independent Auditor’s Report
Shareholding Details
Shareholder Information
5 Year Financial Summary
Glossary
5
7
8
12
47
49
75
78
79
80
81
85
86
143
144
148
151
152
153
Find out more:
boq.com.au/annual_reports/2017
Continuing to deliver results for shareholders
Profit Results
($ Millions)
$301m
$261m
Cash Earnings
after Tax
Statutory Net Profit
after Tax
$357m
$318m
$360m $338m
$378m $352m
2014
2015
2016
2017
CASH EARNINGS AFTER TAX
5% increase
in earnings from FY16
$378m
STATUTORY NET PROFIT AFTER TAX
4% increase
in earnings from FY16
$352m
Earnings & Dividends
(Cents per ordinary share)
Basic Cash Earnings
per ordinary share
Dividends
per ordinary share
Special Dividend
per ordinary share
89.5
66
97.3
74
95.6
76
97.6
8
76
2014
2015
2016
2017
BASIC CASH EARNINGS
PER ORDINARY SHARE
(Cents per share)
DIVIDENDS
PER ORDINARY SHARE
(Cents per share)
SPECIAL DIVIDEND
PER ORDINARY SHARE
(Cents per share)
97.6¢
Up 2% from FY16
76¢
Unchanged from FY16
8¢
Net interest margin
%
1.87
Down 7bps from FY16
Cash cost to
income ratio
46.6
%
Down 20bps from FY16
Loan Impairment Expense
($ Millions)
86
74
67
2014
2015
2016
$48m
Down 28% from FY16
Cash return on equity
%
10.4
Up 10bps from FY16
48
2017
3
Bank of Queensland Limited and its Controlled Entities Delivering our strategy
Our strategy is to focus on niche segments where customers value a more intimate
banking relationship. It’s all part of our mission to prove it’s possible to love a bank.
Highlights for our 4 strategic pillars
Customer in charge
Grow the right way
190
190 branches including
109 Owner Managed branches
192
upgraded ATMs
211,000
internet banking customers
7,500
accredited brokers
$4.4 BILLION
in lending to niche business segments
11 BPS
Loan impairment expense 11 basis points
of gross loans and advances
9.39%
Common Equity Tier 1 capital
Always a better way
Loved like no other
DIGITISING LENDING
PLATFORMS
with improvements to our retail, commercial
and lease management systems
1%
Underlying expense growth
200+
employees signed up to the
Banking and Finance Oath
39%
women in leadership positions
$577,500
in community investment
Chairman’s and
Chairman and Managing Director & CEO’s 2017 Message
Managing Director & CEO’s Message
Dear Shareholder
Our 2017 financial year marks the fifth successive year that BOQ has delivered an
increased profit. Cash earnings after tax increased five per cent to $378 million
whilst statutory profit after tax grew four per cent to $352 million. Based on these
results, the Board has determined to pay a final dividend of 38 cents per ordinary
share. Following clarity from the Australian Prudential Regulation Authority on
‘unquestionably strong’ in July this year, and given our very strong capital position,
the Board has also determined to pay a special dividend of 8 cents per ordinary
share, taking the full year dividend to 84 cents per ordinary share.
The financial services industry has faced further challenges over the past 12 months.
Consumer concern about low wage growth and higher living expenses combined
with APRA’s new regulations to slow residential and particularly investor mortgage
growth resulted in subdued credit growth. Low interest rates, higher term deposit
funding costs and continued intense competition for new customers has contributed
to margin pressure. Further, increased regulatory changes and technological
advances present a growing expense burden.
Despite these challenges, we have continued to implement a strategy that positions
us well to embrace opportunities in this dynamic environment and deliver ongoing
value for shareholders. Our focus on niche customer segments has continued to
deliver results with solid growth through BOQ Specialist, BOQ Finance and our target
niche commercial segments. We have also continued to expand our presence in
the broker market which has contributed to our Virgin Money business exceeding
growth expectations in its home loan portfolio. Underlying this favourable trend is the
continued exceptional service provided by our branch network which remains a core
part of our business for both lending and deposits.
to one per cent. Indeed, our continuous improvement program continues to create
savings that we are reinvesting back into the business, particularly in technology
projects that will help us future proof BOQ. This year’s result was also supported by a
$16 million profit on the disposal of a vendor finance entity.
Importantly, we have also continued to deliver growth and profits without
compromising our robust risk management practices, with loan impairment expense
reducing to 11 basis points of gross loans and advances. We remain committed to
creating a bank that is more resilient over the longer term. Our disciplined approach
to growth has also helped us maintain our strong capital position, giving us options
for the future.
2017 was also a year characterised by greater political scrutiny of the banking sector.
We are proud to lead a business that upholds the highest ethical standards and we
have continued to focus on ethics, conduct and culture, ensuring we have a culture
that supports positive relationships with our stakeholders.
Our solid performance in this environment has only been possible through the
ongoing efforts of everyone across the BOQ Group. We would like to thank all of our
employees for making BOQ the great organisation it is today.
Finally, we would like to thank all of our shareholders for your ongoing support. Our
clear strategy, strong capital position and prudent approach to risk management
position us well in this environment to continue delivering value for you into the future.
We have also benefited from our disciplined approach to expense management
which has ensured we delivered on our promise to keep underlying expense growth
Roger Davis
Chairman
Jon Sutton
Managing Director & CEO
5
Annual Report 2017 BOQ.com.au 2017
Directors’ Report
The Directors present their report together with the financial report of Bank of Queensland Limited (‘the Bank’ or ‘BOQ’) and of the Consolidated Entity (or ‘Group’), being
the Bank and its controlled entities, for the year ended 31 August 2017 and the independent auditor’s report thereon.
Directors’ Details
The Directors of the Bank at any time during or since the end of the financial year are:
Name, qualifications and
independence status
Roger Davis
B.Econ. (Hons),
Master of Philosophy
Chairman
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Davis was appointed Chairman of the Bank on 28 May 2013 and has been a Director since August 2008. He has a Bachelor
of Economics (Hons) degree from the University of Sydney and a Master of Philosophy degree from Oxford. Mr Davis has over 32
years’ experience in banking and investment banking in Australia, the US and Japan. He was previously a Managing Director at
Citigroup where he worked for over 20 years and more recently was a Group Managing Director at ANZ Bank.
Mr Davis is currently a consulting Director at Rothschild Australia Limited. He is currently a Director of Argo Investments Limited,
Ardent Leisure Management Ltd and Ardent Leisure Ltd. He was formerly Chair of Charter Hall Office REIT (prior to its takeover)
and Esanda, and a non-executive director of The Trust Company Limited (prior to its takeover) and Aristocrat Leisure Ltd. He is the
Chairman of the unlisted entity, AIG Australia Limited.
Mr Davis is Chair of the Nomination & Governance Committee, a member of each of the Audit, Risk and Investment Committees,
and an attendee at all other Board Committees.
Jon Sutton
Managing Director and
Chief Executive Officer
Executive
Director
Mr Sutton was appointed as the Bank’s Managing Director and Chief Executive Officer in January 2015 following four months as
Acting Chief Executive Officer. Mr Sutton originally joined BOQ in July 2012 as Chief Operating Officer. Mr Sutton has more than 20
years’ experience in banking and prior to BOQ was the Managing Director of Bankwest. Before that, as Executive General Manager
of Commonwealth Bank Agribusiness (‘CBA’), Mr Sutton was central to the establishment of the CBA’s agribusiness segment which
grew strongly under his guidance and leadership.
Prior to this, Mr Sutton was General Manager of Client Risk Solutions at CBA, responsible for marketing derivative products
including interest rates, commodities and foreign exchange. He was also Head of Resources and Agribusiness and Head of
Corporate Risk Management Commodities, charged with marketing and commodity hedging products to Australian institutions
within the base metals, precious metals and energy sectors.
Mr Carter was appointed a Director of the Bank on 27 February 2014. Mr Carter was a founding Managing Partner of Ferrier
Hodgson South Australia, a corporate advisory and restructuring business, and has worked across a number of industries and
sectors in the public and private sectors. He has been involved with a number of state government-appointed restructures and
reviews including chairing a task force to oversee the government’s involvement in major resource and mining infrastructure
projects. Mr Carter had a central role in a number of key government economic papers including the Economic Statement on South
Australian Prospects for Growth, the Sustainable Budget Commission, and the Prime Minister’s 2012 GST Distribution Review.
Mr Carter has worked with all the major financial institutions in Australia. Before Ferrier Hodgson, Mr Carter was at Ernst & Young
for 14 years, including four years as Partner in Adelaide. During his time at Ernst & Young, he worked across the London, Hong
Kong, Toronto and New York offices. Mr Carter is the chair of Australian Submarine Corporation and Aventus Capital Limited, and
a Non-Executive Director of SkyCity Entertainment Group Limited, Genesee & Wyoming Australia Pty Ltd and Eudunda Farmers
Limited.
Mr Carter is the Chair of the Risk Committee, and a member of each of the Audit, Nomination & Governance and Investment
Committees.
Mr Haire was appointed a Director of the Bank on 18 April 2012. Mr Haire has more than 28 years’ experience in the international
cotton and agribusiness industry, including 26 years in agricultural commodity trading and banking. Mr Haire is the Chair of Cotton
Research and Development Corporation and he also serves as a Non-Executive Director of the Reef Casino Trust, and was formerly
a Director of Open Country Dairy (NZ) and New Zealand Farming Systems Uruguay. Mr Haire was appointed Executive Chairman of
Webster Limited in June 2015 and resigned from that position on 29 February 2016.
Mr Haire is Chair of the Audit Committee, and a member of each of the Risk, Information Technology and Investment Committees.
Bruce Carter
B Econ, MBA, FAICD, FICA
Non-Executive
Independent Director
Richard Haire
B.Ec, FAICD
Non-Executive
Independent Director
8
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ Report Name, qualifications and
independence status
John Lorimer
B Com
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Lorimer was appointed as a Director of the Bank on 29 January 2016. Mr Lorimer has spent more than 20 years in financial
services and held Executive roles in Australia, Asia and Europe. Mr Lorimer’s most recent executive roles were in the United
Kingdom where he was Group Head of Finance and then Group Head of Regulatory Risk and Compliance for Standard Chartered
Bank. He also has held a number of management positions in the retail bank of Citigroup and served as the Chairman of CAF Bank
Limited (a subsidiary of Charities Aid Foundation based in the United Kingdom).
He is a Non-Executive Director of Bupa Australia Pty Ltd and its subsidiaries, Max Bupa Health Insurance Ltd (India), Bupa Asia Ltd
(HK), and Aberdeen New Dawn Investment Trust plc. Mr Lorimer was formerly a Non-Executive Director of the Bupa Group board
and International Personal Finance plc.
Mr Lorimer is a member of each of the Risk and Information Technology Committees.
Warwick Negus
B Bus, M Com, SF Fin
Non-Executive
Independent Director
Mr Negus was appointed a Director of the Bank on 22 September 2016. Mr Negus has over 30 years of finance industry
experience in Asia, Europe and Australia. His most recent executive roles include Chief Executive Officer of 452 Capital, Chief
Executive Officer of Colonial First State Global Asset Management and Goldman Sachs Managing Director in Australia, London
and Singapore. He was also a Vice President of Bankers Trust Australia and was formerly a director of the UNSW Foundation
and FINSIA. Warwick is a Non-Executive Director of Washington H Soul Pattinson and Co, Virgin Australia Holding Limited, URB
Investments Limited, Pengana Capital Group Limited and Terrace Tower Group.
Mr Negus is a member of the Council of University of NSW and Chairman of UNSW Global Limited.
Mr Negus is a member of the Investment Committee.
Karen Penrose
B Comm, CPA, FAICD
Non-Executive
Independent Director
Ms Penrose was appointed a Director of the Bank on 26 November 2015. Ms Penrose has over 30 years’ business experience
across the finance, property and resources industries, including 20 years in banking with Commonwealth Bank of Australia and
HSBC Bank Australia. Ms Penrose is a Non-Executive Director of Vicinity Centres Limited, Spark Infrastructure Group, AWE Limited
and Future General Global Investment Company Limited (pro bono role). She was formerly a Non-Executive Director of Novion
Limited, Silver Chef Limited and UrbanGrowth NSW.
Margaret (Margie) Seale
BA, FAICD
Non-Executive
Independent Director
Ms Penrose is a member of each of the Audit, Human Resources & Remuneration and Investment Committees.
Ms Seale was appointed a Director of the Bank on 21 January 2014. Ms Seale has more than 25 years’ experience in Senior
Executive roles in Australia and overseas in the global publishing, health and consumer goods industries, and in the transition
of traditional business models to adapt and thrive in a digital environment. Most recently she was Managing Director of
Random House Australia (with managerial responsibility for Random House New Zealand) and President, Asia Development
for Random House Inc., the global company. Ms Seale remained on the Board of Penguin Random House as a Non-Executive
Director and then as Chair until September 2016. Amongst other roles prior to those at Random House, she held national
sales and national marketing roles with Oroton and Pan Macmillan respectively.
Ms Seale is a Non-Executive Director of Telstra Corporation Limited, Ramsay Health Care Limited, and Scentre Group Limited.
She has also served on the boards of the Australian Publishers’ Association, The Powerhouse Museum and Chief Executive
Women.
Ms Seale is a member of each of the Information Technology and Human Resources & Remuneration Committees.
Michelle Tredenick
B Sc, FAICD, F Fin
Non-Executive
Independent Director
Ms Tredenick has served on the Board of BOQ since February 2011. Michelle is an experienced company director and
corporate advisor with over 30 years’ experience in leading Australian businesses. She is currently a Non-Executive Director
of Canstar Pty Ltd, Urbis Pty Ltd, Cricket Australia and is Chairman of IAG NRMA Corporate Superannuation Trustee Board.
She is a member of the Senate of the University of Queensland and a Director of the Ethics Centre.
Ms Tredenick has previously held executive roles and been a member of the Executive Committee at National Australia Bank,
MLC and Suncorp-Metway Limited, as well as serving as an Executive Director of National Australia Bank and of certain MLC
group companies. Her experience includes holding the position of Chief Information Officer with each of these companies as
well as Head of Strategy and Marketing and divisional profit and loss roles in Corporate Superannuation, Insurance and Funds
Management. Ms Tredenick was also formerly a Non-Executive Director of Vocation Limited (in Liquidation).
Ms Tredenick is a Chair of the Information Technology Committee, and is a member of each of the Human Resources &
Remuneration, Risk and Nomination & Governance Committees.
9
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled Entities Name, qualifications and
independence status
David Willis
B Com, ACA, ICA, FAICD
Non-Executive Independent
Director
Experience, special responsibilities and other Directorships
Mr Willis was appointed a Director of the Bank in February 2010. Mr Willis has over 34 years’ experience in financial services in
the Asia Pacific, the UK and the USA. He is a qualified Accountant in Australia and New Zealand and has had 25 years’ experience
working with Australian and foreign banks. Mr Willis is a Director of CBH (A Grain Cooperative in Western Australia) and Interflour
Holdings, SE Asian flour milling company. Mr Willis chairs a Sydney based Charity “The Horizons Program”.
Mr Willis is Chair of the Human Resources & Remuneration Committee, and is a member of each of the Risk and the Nomination &
Governance Committees. He is also a Non-Executive Director of the Bank’s insurance subsidiary, St Andrew’s.
Company Secretaries
Michelle Thomsen
LLB/B Comm
Ms Thomsen was appointed General Counsel & Company Secretary on 13 July 2015. Prior to this, Ms Thomsen was EGM Associate General Counsel at Suncorp Group
Limited and has held a number of in house and private practice roles, including General Counsel positions for two funds listed on the Australian Securities Exchange and
she was a partner at SJ Berwin LLP in London, prior to returning to Australia in 2012.
Vicki Clarkson
BA/LLB (Hons), FGIA, FCIS, GAICD
Ms Clarkson joined BOQ as Company Secretary on 3 April 2017. Ms Clarkson commenced her career as a corporate lawyer at Blake Dawson Waldron (now Ashurst)
before joining Clayton Utz. Prior to working for BOQ, Ms Clarkson held senior legal and governance roles in ASX listed entities including Aurizon Holdings Limited, Flight
Centre Limited and Shine Corporate Ltd. Ms Clarkson is an active member and Deputy Chair of the Queensland State Council of the Governance Institute of Australia.
Directors’ Meetings
The number of meetings of the Bank’s Directors (including meetings of Committees of Directors) and the number of meetings attended by each Director during the
financial year were:
Board of
Directors
Board of
Directors -
St Andrews
Risk
Committee
Audit Committee
Nomination &
Governance
Committee
Human Resources
& Remuneration
Committee -
BOQ & St Andrews
Information
Technology
Committee
Investment
Committee
A
11
11
11
11
11
10
11
11
11
9
B
11
11
11
11
11
11
11
11
11
11
A
-
8
-
-
-
-
-
-
-
7
B
-
8
-
-
-
-
-
-
-
8
A
7
6
-
7
7
6
-
-
7
5
B
7
7
-
7
7
7
-
-
7
7
A
6
6
-
6
6
-
6
-
-
-
B
6
6
-
6
6
-
6
-
-
-
A
3
1
-
1
-
-
-
-
3
2
B
3
3
-
1
-
-
-
-
3
3
A
6
6
-
-
-
-
6
6
6
6
B
6
6
-
-
-
-
6
6
6
6
A
5
5
-
-
6
5
-
6
6
-
B
6
6
-
-
6
6
-
6
6
-
A
4
5
3
5
5
-
2
-
-
-
B
5
5
3
5
5
-
2
-
-
-
11
8
7
6
3
6
6
5
Roger Davis (1)
Jon Sutton (2)
Warwick Negus (3)
Bruce Carter
Richard Haire
John Lorimer
Karen Penrose
Margaret Seale
Michelle
Tredenick
David Willis (4)
Total number
of meetings held
A - Number of meetings attended
B - Number of meetings held during the time the Director was a member of the Board / Committee during the year. Mr Davis and Mr Sutton’s attendances as invitees
are also listed.
(1) Roger Davis is a member of the Audit and Risk Committees and chairs both the Investment Committee and Nomination & Governance Committee. He attends all other Board Committee meetings (as above), however he is not a
member of these.
(2) Jon Sutton is also a member of the St Andrews’ Audit and Risk Committees. Additionally, Mr Sutton attends the Bank’s Board Committee meetings by invitation of the Board.
(3) Warwick Negus was appointed as Director on 22 September 2016 and, as such, the details of meetings held and attended are for the period of time in which he was a Director during the financial year.
(4) David Willis is also a member of the St Andrews’ Audit Committee and Risk Committee.
10
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ Report 2017 Corporate Governance Statement is online
BOQ complies with its constitution, the Corporations Act 2001, the ASX Listing Rules, and the ASX Corporate Governance Council’s Corporate Governance Principles and
Recommendations (Third Edition) (ASX Principles), which is reflected in our Corporate Governance Statement. As an APRA-regulated entity,
BOQ also complies with the governance requirements prescribed by APRA under Prudential Standard CPS 510 Governance.
Information about BOQ’s Board and management, corporate governance policies and practices and Enterprise Risk Management Framework can be found in the
2017 Corporate Governance Statement available at: http://www.boq.com.au/aboutus_corporate_governance.htm
11
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled Entities CONTENTS - OPERATING AND FINANCIAL REVIEW
Page
1
1.1
1.2
1.3
1.4
2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
3
3.1
3.2
3.3
3.4
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Highlights and Strategy
Disclosure Considerations
Group Highlights
Strategy
Risk and Regulatory Developments
Group Performance Analysis
Income Statement and Key Metrics
Net Interest Income
Non-Interest Income
Insurance Overview
Operating Expenses
Capitalised Investment Spend
Lending
Business Settings
Asset Quality
Funding and Liquidity
Capital Management
Tax Expense
Appendices
Reconciliation of Statutory Profit to Cash Earnings
Operating Cash Expenses
Property, Plant & Equipment (Consolidated)
Cash Earnings Per Share (‘EPS’) Calculations
Issued Capital
Average Balance Sheet and Margin Analysis
Distribution Footprint
Credit Rating
Regulatory Disclosures
4.10
Liquidity Coverage Ratio
12
13
13
14
16
17
19
19
21
22
22
23
25
25
28
28
33
35
36
37
37
38
39
40
40
41
43
44
45
45
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ Report OPERATING AND FINANCIAL REVIEW
1. Highlights and Strategy
1.1 Disclosure Considerations
Future performance
This document contains certain ‘forward-looking statements’ about BOQ’s
business and operations, market conditions, results of operations, and financial
condition, capital adequacy and risk management practices which reflect BOQ’s
views held and current expectations as at the date of this document.
Forward-looking statements can generally be identified by the use of forward-looking
words such as ‘anticipate’, ‘believe’, ‘expect’, ‘project’, ‘forecast’, ‘estimate’, ‘likely’,
‘intend’, ‘should’, ‘will’, ‘could’, ‘may’, ‘target’, ‘plan’ and other similar expressions.
Forward-looking statements are not guarantees of future performance and
involve known and unknown risks, uncertainties and other factors, many of
which are beyond the control of BOQ and which may cause actual results to
differ materially from those expressed or implied in such statements. Readers
are cautioned not to place undue reliance on any forward-looking statements.
Actual results or performance may vary from those expressed in, or implied by,
any forward-looking statements.
BOQ does not undertake to update any forward-looking statements contained in
this document, subject to disclosure requirements applicable to it.
Rounding
In accordance with applicable financial reporting regulations and current industry
practices, amounts in this report have been rounded off to the nearest one million
dollars, unless otherwise stated. Any discrepancies between total and sums of
components in tables contained in this report are due to rounding.
Reconciliation of Statutory Profit to Cash Earnings ($m)
Note on Statutory Profit and Cash Earnings
Statutory Profit is prepared in accordance with the Corporations Act 2001 and
the Australian Accounting Standards, which comply with International Financial
Reporting Standards (‘IFRS’). Cash Earnings is a non-Accounting Standards
measure commonly used in the banking industry to assist in presenting a clear
view of the Bank’s underlying earnings. Refer to Section 4.1 of the Operating and
Financial Review Appendices for the reconciliation of Statutory Profit to Cash
Earnings.
The items excluded from Cash Earnings are consistent with the prior year.
Hedge ineffectiveness represents earnings volatility from hedges that are not fully
effective under the application of AASB 139 Financial Instruments: Recognition
and Measurement and create a timing difference in reported profit. These hedges
remain economically effective (Refer to the Reconciliation of Statutory Profit to
Cash Earnings chart below).
Figures disclosed in this report are on a Cash Earnings basis unless stated
as being on a Statutory Profit basis. Unless otherwise stated, all financial
comparisons in this document refer to the prior half (to 28 February 2017) and
the prior year (to 31 August 2016).
These non-statutory measures have not been subject to review or audit.
9
1
3
378
13
352
Statutory Net Profit
after Tax
Amortisation of customer
contracts
Hedge ineffectiveness
Integration / transaction
costs
Legacy items
Cash Earnings after
Tax
13
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 1.2 Group Highlights
Cash Earnings after Tax ($m)
Statutory Profit after Tax ($m)
360
UP 5%
378
190
179
181
175
203
16
187
338
UP 4%
352
164
171
167
161
2H15
2H16
1H16
Impact of disposal of vendor finance entity
Cash Basic Earnings per Share (‘EPS’) (cents)
1H17
UP 2%
97.6
95.6
51.5
47.8
47.8
45.5
2H17
2H15
1H16
2H16
Impact of disposal of vendor finance entity
1H17
Dividends per ordinary share (cents)
UP 11%
84
76
38
38
38
38
52.1
4.1
48.0
191
16
175
2H17
8
38
2H15
1H16
2H16
1H17
2H17
2H15
1H16
2H16
1H17
2H17
Impact of disposal of vendor finance entity
Special dividend
Cash Net Interest Margin (‘NIM’) (%)
Cash Cost to Income (‘CTI’) (%)
1.94
DOWN 7BPS
1.87
46.8
DOWN 20BPS
46.6
46.4
1.3
47.3
1.4
1.97
1.97
1.90
1.85
1.90
44.0
45.1
45.9
47.4
47.2
1.3
45.9
2H15
1H16
2H16
1H17
2H17
2H15
1H16
2H16
1H17
2H17
Restructuring
Impact of disposal of vendor finance entity
Cash Return on Average Equity (‘ROE’) (%)
Cash Return on Average Tangible Equity (‘ROTE’) (%)
UP 10BPS
10.4
10.3
10.9
0.8
13.8
DOWN 10BPS
13.7
14.3
1.1
11.2
10.5
10.2
9.8
10.1
15.0
14.0
13.6
13.0
13.2
2H15
1H16
2H16
1H17
2H17
2H15
1H16
2H16
1H17
2H17
Impact of disposal of vendor finance entity
Impact of disposal of vendor finance entity
14
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37Directors’ Report 1.2 Group Highlights (continued)
CASH EARNINGS AFTER TAX
CASH NET INTEREST MARGIN
OPERATING EXPENSES
$378m
Increased by 5 per cent on the prior year.
$362m excluding the impact of the disposal of a
vendor finance entity
1.87%
Down 7bps over the prior year driven by
challenging market dynamics, including a lower
yield curve and higher funding costs
$513m
1% increase in underlying expense profile while
investing in technology and expanding new
business lines
LOAN IMPAIRMENT EXPENSE
COMMON EQUITY TIER 1
$48m
Down 5bps to 11bps of lending and a 28 per
cent reduction over the prior year
9.39%
Increase of 39bps for the year
through strong organic capital generation
DIVIDENDS (1)
FINAL & INTERIM
$O.76
(1) One-off DRP suspension
SPECIAL
$O.08
BOQ delivered a five per cent increase in cash earnings to $378 million and a
four per cent increase in Statutory Net Profit after Tax to $352 million for the
2017 financial year. This result was achieved in a difficult operating environment,
while a significant transformation of the business was underway.
The first half of the year was characterised by challenges in the external market,
which hampered revenue growth through lower asset balances and net interest
margin. These headwinds eased in the second half of the year, with improvements
in both net interest margin and lending growth. Meanwhile the business continued
to focus on managing expenses and risks, which kept underlying expense
growth for the year below one per cent and resulted in a further reduction in loan
impairment expense.
The result includes a $16 million profit on the disposal of a vendor finance entity
in the second half, following the vendor’s decision to exercise its contractual
option to acquire the business. This disposal effectively brings forward future
earnings on the disposed portfolio into BOQ’s 2017 financial year and as such is
a non-recurring item. The disposal created a capital gain which was sheltered by
pre-existing capital losses that had not previously been taken to account.
Lending growth of two per cent or $0.7 billion was achieved in the 2017 financial
year. The second half saw a return to growth in the BOQ Commercial and BOQ
Finance channels as BOQ’s strategy of targeting defined niche sectors delivered
positive results. While mortgage growth has been flat for the year, two per cent
annualised growth was achieved in the second half as the Virgin Money (Australia)
(‘VMA’ or ‘Virgin Money’) and BOQ Specialist mortgage offerings continued to
produce strong results.
Net interest margin was down seven basis points to 1.87 per cent for the full
year, but increased five basis points in the second half to 1.90 per cent. Higher
term deposit rates contributed to the fall in margin in the first half, but these rates
improved in the second half which provided support to the margin, together with
home loan pricing changes.
Operating expenses were down one per cent from the prior year to $513 million,
with restructuring costs of $15 million that were incurred in the prior year.
Excluding this, operating expenses increased by one per cent. This included a
$10 million increase in IT software amortisation expense as BOQ continues to
deliver strategic initiatives and pursue its transformation agenda. Since the 2016
announcement of the program to reshape its operating model and organisational
structure, BOQ has continued to improve internal processes and deliver efficiency
improvements. This has enabled the Bank to invest in new channels, with that
investment being absorbed within the cost profile.
Further improvement in asset quality was evident across the portfolio. Loan
impairment expense was 28 per cent lower at $48 million in 2017, or a reduction
of five basis points to 11 basis points of gross loans and advances. The second
half result of ten basis points of gross loans and advances is a particularly strong
result. BOQ achieved good results in credit quality metrics across the portfolio as
arrears remained stable, while impaired assets were lower.
During the year BOQ continued to strengthen its balance sheet with strong capital
generation enabling an increase in the Common Equity Tier 1 ratio (‘CET1’) of
39 basis points to 9.39 per cent. Impending changes to the regulatory standard
APS120 Securitisation (that come into effect on 1 January 2018) and the
estimated reduction of the requirement for the Bank’s general reserve for credit
losses (‘GRCL’) upon implementation of a new collective provisioning model
planned for the first half of 2018, are expected to increase CET1 by a further 20
to 25 basis points. This positions BOQ very well for evolving regulatory capital
requirements.
The Board has determined to pay a final dividend of 38 cents per ordinary share fully
franked. The total ordinary dividend for the year is 76 cents, flat on the 2016 financial
year. The Board has also determined to pay a special dividend of 8 cents per ordinary
share fully franked. The dividend reinvestment plan (‘DRP’) has been suspended for
both the final and special dividends and will be reactivated on the next trading day
after the payments are made.
15
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 There’s Always a Better Way is about BOQ’s commitment to making systems
and processes simpler, faster and smarter. The aim is to improve efficiency,
reduce costs and deliver better customer service. This year, BOQ continued to
digitise its lending platforms by making improvements to retail, commercial and
lease management lending systems. Increased productivity across the Group
enabled it to achieve its one per cent underlying expense growth target for FY17.
BOQ also introduced investment and change management frameworks that
enabled it to respond quickly to emerging opportunities.
Loved Like No Other is about how BOQ maintains positive stakeholder
relationships by living its values, creating a place where people love to work and
contributing to the communities in which it operates. These are just some of the
things BOQ does to prove “It’s Possible to Love a Bank”.
This year BOQ reinforced its commitment to ethical conduct through an industry
leading commitment to the Banking and Finance Oath. The Bank also built on its
internal ethics training and conduct reporting, and introduced a range of team
based initiatives to embed company values and drive a culture of continuous
improvement. It continued to demonstrate its commitment to a diverse and
inclusive workforce by making significant progress on its reconciliation journey.
By continuing to focus on the four strategic pillars, BOQ aims to deliver robust and
sustainable financial performance, consistent growth in returns to shareholders
and superior service to customers and the wider community.
1.3 Strategy
BOQ is a full service financial institution whose primary function is gathering
deposits and lending. It is listed on the Australian Securities Exchange (‘ASX’)
and regulated by the Australian Prudential Regulation Authority (‘APRA’) as an
authorised deposit-taking institution (‘ADI’). It is one of the top 100 companies by
market capitalisation on the ASX.
BOQ was established in 1874 as the first Permanent Building Society in
Queensland. It has evolved into a national bank with a network of retail branches,
brokers and brands spanning every state and territory in Australia.
BOQ aims to build a differentiated position in the Australian financial services
sector by demonstrating to customers that “It’s Possible to Love a Bank”. BOQ’s
corporate strategy is to focus on niche customer segments that value a more
intimate banking relationship than they receive from the major banks. BOQ is one
of Australia’s leading regional banks, and one of the few not owned by one of the
major banks. Most of BOQ’s branches are run by local Owner Managers, meaning
the person running the branch owns the branch. As small business owners,
Owner Managers know what it means to deliver personal service. Through its
specialists from niche commercial segments including corporate healthcare &
retirement living, hospitality and agribusiness, BOQ provides a level of support to
business banking customers rarely offered by the major banks.
BOQ is committed to engaging positively with all stakeholders in a fair and
transparent way to create value for customers, employees, investors and the
communities in which it operates. For more information on BOQ’s approach
to sustainability and its key sustainability issues, please visit the sustainability
section of its website (http://www.boq.com.au/about-sustainability.htm).
Information on how BOQ continues to address its economic, social, environmental
and governance risks can be found in BOQ’s Corporate Governance Statement
available on the corporate governance page of its website (http://www.boq.com.
au/aboutus_corporate_governance.htm).
BOQ’s corporate strategy is delivered through its four strategic pillars: Customer
in Charge; Grow the Right Way; There’s Always a Better Way; and Loved Like No
Other.
Customer in Charge is about improving customers’ experience and expanding
BOQ’s avenues for growth by putting customers in charge of when, where and
how they choose to engage with BOQ. This is regardless of whether they come
into a branch, use online services, call on the phone or buy products through a
third party intermediary.
BOQ’s products, including Virgin Money home loans, are distributed by more than
7,500 accredited brokers, making the Bank more accessible to customers who
prefer to use brokers. In FY17, Virgin Money launched a website that improves
customers’ digital experience by personalising content. BOQ will roll out a similar
upgrade early next calendar year. The Bank also continued to modernise other
customer-facing channels by upgrading its branch fleet of ATMs.
Grow the Right Way is about building a strong and profitable business by making
the right decisions about where and how to grow. This includes focusing on niche
customer segments that value an intimate banking relationship. This year, BOQ
expanded its offering to niche segments through the acquisition of Centrepoint
Alliance Premium Funding Pty Ltd (‘BOQF Cashflow Finance’) to create a new
Cashflow Finance team within BOQ Finance, boosting the Bank’s specialist
skills. BOQ also further diversified its sources of funding with the launch of the
first conditional pass-through covered bond program by an Australian bank.
BOQ continued its conservative approach to lending, which has given it a high
quality portfolio. As existing franchise agreements expire, BOQ is moving Owner
Managers onto a new balanced scorecard agreement that includes a wider range
of metrics, such as customer and compliance measures.
16
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37Directors’ Report 1.4 Risk and Regulatory Developments
The financial services industry continues to face heavy scrutiny from the Federal
Government, regulators, investors and consumers. Over the past 12 months,
there has been a significant increase in regulatory consultations, inquiries and
industry reviews which has led, or is leading to, a number of changes that could
impact BOQ. The key areas of reform and areas of increased risk focus are
outlined below.
Regulatory developments
Productivity Commission inquiry into competition in the Australian financial
system
The Productivity Commission (‘Commission’) is undertaking an inquiry into
competition in the Australian financial system. The Commission will review
competition with a view to improving consumer outcomes, the productivity and
international competitiveness of the financial system and economy more broadly,
and supporting ongoing financial system innovation, while balancing financial
stability objectives. The Commission will issue a draft report in early 2018 and will
provide its final report to the Government by July 2018.
Banking Executive Accountability Regime
As part of the 2017-18 Budget, the Federal Government announced that it will
legislate to introduce a new Banking Executive Accountability Regime (‘BEAR’).
The intention of BEAR is to enhance the responsibility and accountability of banks
and their directors and senior executives.
The Federal Government intends to introduce the Bill to establish the BEAR when
Parliament resumes on 16 October 2017 and has proposed a commencement
date of 1 July 2018.
Australian Financial Complaints Authority
In 2016, the Federal Government undertook a review into the external dispute
resolution and complaints framework in financial services. As an outcome of
this review, a new ‘one-stop-shop’ for external dispute resolution (‘EDR’) – the
Australian Financial Complaints Authority – will be established with a proposed
commencement date of 1 July 2018.
BOQ also understands that the Federal Government proposes to introduce a
compensation scheme of last resort. The objective of the scheme is to provide
recourse for consumers with unpaid EDR determinations and who have exhausted
all other avenues for recovery. BOQ understands that an announcement on the
future of this scheme is expected before the end of 2017.
Australian Bankers’ Association ‘Better Banking’ Program
In April 2016, the Australian Bankers’ Association (‘ABA’) announced a six point
plan to increase transparency and accountability, improve customer outcomes
and build trust and confidence in banks. This plan has expanded into the ‘Better
Banking’ program (‘Program’) with the delivery of industry-led initiatives to
provide better products, better service and better culture for bank customers
The Program is well progressed and BOQ has implemented, or will be
implementing, the following initiatives:
1) the recommendations from Mr Stephen Sedgwick AO’s review into product
based payments and commissions;
2) the revised Code of Banking Practice, incorporating the recommendations
arising from the Australian Small Business and Family Enterprise Ombudsman’s
Small Business Loan Inquiry;
3) a Customer Advocate to support customers;
4) an updated Whistle-blower Policy to reflect the ABA’s Guiding Principles on
Improving Protections for Whistle-blowers; and
5) the ABA’s Conduct Background Check Protocol.
APRA announcement of ‘unquestionably strong’ capital benchmarks
On 19 July 2017, the Australian Prudential Regulation Authority (‘APRA’)
announced its assessment on the additional capital required for the Australian
banking sector to have capital ratios that are considered ‘unquestionably strong’.
This followed the 2014 Financial System Inquiry (‘FSI’), which endorsed the
benefits of a strong and well capitalised banking system and recommended that
APRA set capital standards such that capital ratios of authorised deposit-taking
institutions (‘ADIs’) are ‘unquestionably strong’. The Australian Government
subsequently endorsed this recommendation. APRA’s Information Paper outlined
their conclusions with respect to the quantum and timing of capital increases
that will be required for Australian ADIs to achieve unquestionably strong capital
ratios. APRA noted that for ADIs that use the standardised approach to credit
risk, they concluded that it is necessary to raise minimum capital requirements
by approximately 50 basis points from current levels to achieve capital ratios that
would be consistent with the goal of ‘unquestionably strong’. They also noted
that many ADIs already hold a capital surplus substantially in excess of current
minimum regulatory requirements, and will likely absorb this increase within their
existing capital resources without any need to raise additional capital.
Macro Prudential Regulation
On 31 March 2017, APRA published a letter to all ADIs outlining further measures
to reinforce sound residential mortgage lending practices. In this letter, APRA
outlined that it expects ADIs to:
•
limit the flow of new interest-only lending to 30 per cent of new residential
mortgage lending, and within that:
› place strict internal limits on the volume of interest-only lending at loan-
to-valuation ratios (‘LVRs’) above 80 per cent; and
› ensure there is strong scrutiny and justification of any instances of
interest-only lending at an LVR above 90 per cent;
• manage lending to investors in such a manner so as to comfortably remain
below the previously advised benchmark of 10 per cent growth;
•
review and ensure that serviceability metrics, including interest rate and net
income buffers, are set at appropriate levels for current conditions; and
• continue to restrain lending growth in higher risk segments of the portfolio
(e.g. high loan-to-income loans, high LVR loans and loans for very long terms).
This follows a similar letter to all ADIs in December 2014, in which APRA
indicated that growth in an ADI’s portfolio of investor lending above a benchmark
of 10 per cent would be viewed as a cause for supervisory action, including the
consideration of increased capital requirements.
17
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 • Dedicated Ethics & Security Committee comprised of Group Executive and
Management who both review and make decisions on actual or alleged
misconduct issues in addition analysing potential trends for future risks to the
group;
• Appointment of a Customer Advocate who champions the voice of the
customer and acts as the key internal arbitrator with a continual focus on
the best interests of the customer and who is focused on minimising the
likelihood of future complaints or incidents;
• Active participation in independent Industry Risk Culture Survey that
benchmarks BOQ against peers around attitudes to risk and governance. The
outcomes from the survey are then used to assist the ongoing development of
risk and culture program across the group; and
• The reporting and monitoring of Risk Culture has continued to mature, with
the ongoing enhancement of risk culture dashboards and the rollout of
divisional operational risk committees that support good governance of both
risk and culture.
Cyber & Business Resilience
Risk events that result from the external environment continue to be a major focus
for all financial institutions and third parties that support us. The increase cyber-
related attacks, environmental and weather events, pandemics or systems failures
can significantly disrupt the systems and processes that enable us to protect our
staff, customers and shareholders.
Across BOQ, both Cyber and Business Continuity are regarded as material
business risks that are activity managed and monitored across the Group. Critical
to BOQ’s investment in Cyber and Business Resilience is its:
• Specialised and highly-experienced staff;
• Ongoing simplification of systems to reduce the point of potential
compromise;
• Development of policies, processes and controls that adopt international and
industry standards and best practices;
• Strategic partners, through education and the assessment of their systems
and processes, that ensures they continue to maintain same level of resilience
and security as BOQ; and
• Ongoing development of business continuity plans and responses through
scenario based testing of systems and processes.
1.4 Risk and Regulatory Developments (continued)
Basel Committee on Banking Supervision - Basel III reforms
Following the global financial crisis, the Basel Committee on Banking Supervision
(‘Basel Committee’) has been considering a range of reforms to the Basel
III regulatory framework. As part of this, on 10 December 2015, the Basel
Committee released the second consultative document on ‘Revisions to the
Standardised Approach for credit risk’, which forms part of the their broader
review of the capital framework to balance simplicity and risk sensitivity, and
to promote comparability by reducing variability in risk-weighted assets across
banks and jurisdictions.
On 3 March 2017, the Basel Committee’s stated that its members reiterated their
broad support for the key features of the Basel III reforms, which include revisions
to the risk-weighted asset framework. The differences between members, where
they remain, have narrowed and work continues to reach an agreement. While
the finalisation of Basel III will take longer than originally expected, the Basel
Committee has stated that it remains determined to reach agreement on the
remaining elements, and recognises the importance of providing clarity and
certainty to all market participants.
Net Stable Funding Ratio (‘NSFR’)
On 20 December 2016, APRA released the final revised Prudential Standard APS
210 Liquidity (‘APS 210’) and Prudential Practice Guide APG 210 Liquidity (‘APG
210’) which incorporates, among other things, the NSFR requirements for some
ADIs.
APRA’s objective in implementing the NSFR in Australia for ADIs that are subject
to the Liquidity Coverage Ratio (‘LCR’), implemented in 2015, is to strengthen the
funding and liquidity resilience of these ADIs.
The NSFR encourages ADIs to fund their activities with more stable sources
of funding on an ongoing basis, and thereby promotes greater balance sheet
resilience. In particular, the NSFR should lead to reduced reliance on less-
stable sources of funding, such as short-term wholesale funding, that proved
problematic during the global financial crisis. The new APS 210 will commence
on 1 January 2018.
Areas of increased risk focus
Ethics & Business Conduct
The conduct of the financial services industry has been under increasing scrutiny
with a range of regulatory investigations impacting not just the brand and
reputation of the companies involved, but also heightening attention across the
broader industry. Regardless of the outcome, these investigations incur a cost and
a loss of value, so it’s understandable that stakeholders want greater clarity on
how ethics and business conduct are managed.
While it is not possible to control the actions of every individual within a company,
strong management controls and a culture that values integrity go a long way to
minimising the risk of adverse employee behaviour.
BOQ’s values, together with its range of policies and frameworks are the
foundational elements for how its people behave and are accountable for the
decisions they make. BOQ is committed to ensuring an ethical and accountable
behaviour across all staff within the Group and its strategic partners, which is
supported through:
• Ongoing education of all staff in ethics and values that is being constantly
reviewed and refreshed to ensure currency and focus;
18
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37Directors’ Report 2. Group Performance Analysis
2.1 Income Statement and Key Metrics
$ million
Net Interest Income
Non-Interest Income
Total Income
Operating Expenses
Underlying Profit
Loan Impairment Expense
Profit before Tax
Income Tax Expense
Cash Earnings after Tax
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Aug-17
Feb-17
Aug-17
vs Feb-17
926
175
1,101
(513)
588
(48)
540
(162)
378
937
173
1,110
(520)
590
(67)
523
(163)
360
(1%)
1%
(1%)
(1%)
-
(28%)
3%
(1%)
5%
474
95
569
452
80
532
(261)
(252)
308
(21)
287
(84)
203
280
(27)
253
(78)
175
5%
19%
7%
4%
10%
(22%)
13%
8%
16%
Statutory Net Profit after Tax
352
338
4%
191
161
19%
Key Metrics
Shareholder Returns
Share Price
Market Capitalisation
Dividends per ordinary share (fully franked)
Special dividend per ordinary share (fully franked)
Cash Earnings basis
Basic Earnings per Share (‘EPS’)
Diluted EPS
Dividend payout ratio (excluding special dividend)
Dividend payout ratio (including special dividend)
Statutory basis
Basic EPS
Diluted EPS
Dividend payout ratio (excluding special dividend)
Dividend payout ratio (including special dividend)
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Aug-17
Feb-17
Aug-17
vs Feb-17
($)
($ million)
(cents)
(cents)
12.59
4,932
76
8
(cents)
(cents)
(%)
(%)
(cents)
(cents)
(%)
(%)
97.6
93.9
78.3
86.6
90.9
87.8
84.1
93.0
10.55
4,020
76
-
95.6
90.7
79.9
79.9
89.8
85.5
85.1
85.1
19%
23%
-
-
2%
4%
(160bps)
670bps
1%
3%
(100bps)
(790bps)
12.59
4,932
38
8
52.1
49.9
73.3
88.8
49.1
47.2
77.9
94.3
11.85
4,590
38
-
45.5
43.7
84.1
84.1
41.8
40.3
91.4
91.4
6%
7%
-
-
14%
14%
(1080bps)
470bps
17%
17%
(1350bps)
290bps
19
For the year ended 31 August 2017Directors’ ReportFor the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37
2.1 Income Statement and Key Metrics (continued)
Key Metrics
Profitability and efficiency measures
Cash Earnings basis
Net Profit After Tax
Underlying Profit (1)
Net Interest Margin (‘NIM’)
Cost to Income Ratio
Loan Impairment Expense to Gross Loans
and Advances (‘GLA’)
Return on Average Equity
Return on Average Tangible Equity (2)
Statutory basis
Net Profit After Tax
Underlying Profit (1)
NIM
Cost to Income Ratio
Loan Impairment Expense to GLA
Return on Average Equity
Return on Average Tangible Equity (2)
Asset Quality
30 days past due (‘dpd’) Arrears
90dpd Arrears
Impaired Assets
Specific Provisions to Impaired Assets
Collective Provisions to Risk Weighted Assets
Capital
Common Equity Tier 1 Ratio
Total Capital Adequacy Ratio
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Aug-17
Feb-17
Aug-17
vs Feb-17
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
($ million)
(%)
(%)
(%)
(%)
378
588
1.87
46.6
11
10.4
13.7
352
555
1.87
49.6
11
9.7
12.7
470
257
192
55.1
0.42
360
590
1.94
46.8
16
10.3
13.8
338
563
1.93
49.6
16
9.7
13.0
461
234
232
50.1
0.50
9.39
12.37
9.00
12.29
5%
-
(7bps)
(20bps)
(5bps)
10bps
(10bps)
4%
(1%)
(6bps)
-
(5bps)
-
(30bps)
2%
10%
(17%)
500bps
(8bps)
39bps
8bps
2%
203
308
1.90
45.9
10
10.9
14.3
191
294
1.90
48.5
10
10.3
13.5
470
257
192
55.1
0.42
175
280
1.85
47.4
13
9.8
13.0
161
261
1.85
50.9
13
9.0
11.9
468
217
210
54.7
0.49
16%
10%
5bps
(150bps)
(3bps)
110bps
130bps
19%
13%
5bps
(240bps)
(3bps)
130bps
160bps
-
18%
(9%)
40bps
(7bps)
9.39
12.37
9.29
12.57
10bps
(20bps)
28,644
28,014
2%
Risk Weighted Assets (‘RWA’)
($ million)
28,644
28,054
(1) Profit before loan impairment expense and tax.
(2) Based on after tax earnings applied to average shareholders’ equity (excluding preference shares and treasury shares) less goodwill and identifiable intangible assets (customer related intangibles/brands and computer software).
20
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.2 Net Interest Income
$ million
Net Interest Income
Average Interest Earning Assets
Net Interest Margin
Year End Performance
Half Year Performance
Aug-17
Aug-16
926
49,397
1.87%
937
48,421
1.94%
Aug-17 vs
Aug-16
(1%)
2%
(7bps)
Aug-17
Feb-17
474
49,607
1.90%
452
49,237
1.85%
Aug-17 vs
Feb-17
5%
1%
5bps
Net Interest Income decreased by one per cent or $11 million from FY16. This
was driven by a seven basis point reduction in NIM over the year, which more
than offset an increase in average gross loans of two per cent. The margin
pressure was most pronounced in the first half, driven primarily by an increase in
term deposit funding costs.
The second half performance was much improved, with Net Interest Income
increasing by 4.9 per cent. This was due to an increase in average gross loans
over the half of 0.8 per cent, a five basis point increase in net interest margin and
a 1.6 per cent increase due to a higher number of days in the second half than
the first.
Net Interest Margin - February 2017 To August 2017
The increase in NIM during the second half is largely attributable to improved
funding costs, particularly in the term deposit market.
Repricing of lending rates on investor home loans (in both the first and second
halves), as well as the August repricing of interest-only home loan rates,
supported net interest margin in the second half. More additional flow on benefits
are expected in the first half of 2018.
0.02%
0.05%
0.02%
2.15%
0.30% (1)
1.85%
Feb 17
Asset Pricing and Mix
Funding Costs and Mix
Capital and Low
Cost Deposits
Net Interest Margin
Third Party Costs
(1) Third party costs largely represent commissions to Owner Managers and brokers.
Underlying movements within the NIM between the first and second halves included the following:
2.20%
0.30% (1)
1.90%
Aug 17
Asset Pricing and Mix: Loan repricing actions contributed positively to NIM by
five basis points. Lower rates being offered on new loans and repricing to retain
existing customers had a four basis point contractionary effect. The acquisition of
the BOQF Cashflow Finance portfolio contributed one basis point to NIM.
Funding Costs and Mix: Funding cost impacts increased NIM by five basis
points. The price competition for customer deposits eased, reducing average
funding costs and resulted in the majority of the impact in this element of the
margin movement for the period. Wholesale funding costs remained flat while the
impact of hedging the portfolio remained stable compared to the prior half.
Capital and Low Cost Deposits: The lower interest rate environment reduced
the returns on BOQ’s $4.2 billion replicating portfolio (covering BOQ’s capital and
low cost deposits) causing a two basis point reduction in NIM over the half. The
ongoing impact should reduce significantly in FY18 to one basis point for the year.
The earnings profile is expected to neutralise after that, based on future interest
rates implied by the current interest rate curve.
21
For the year ended 31 August 2017Directors’ ReportFor the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.3 Non-Interest Income
$ million
Banking Income
Insurance Income
Other Income
Trading Income
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17 vs
Aug-16
Aug-17
Feb-17
Aug-17 vs
Feb-17
96
21
51
7
99
26
30
18
(3%)
(19%)
70%
(61%)
1%
50
10
33
2
95
46
11
18
5
80
9%
(9%)
83%
(60%)
19%
Total Non-Interest Income
175
173
Non-interest income of $175 million is up one per cent on the prior year. The
declining trend in banking income continued to present challenges as customers
choose low or no fee products. Changes in the structure of interchange fees
and the Bank’s outsourced ATM fleet reduced transaction income by $6 million
against the prior year. This was offset by increased income from foreign exchange
and derivative sales to customers. The increase in banking income in the second
half reflected the increase in commercial loan growth and associated fees
charged on these products.
Other income increased $21 million during the year, driven mainly by a one-off
benefit from the disposal of a vendor finance entity after the vendor partner
exercised its option. An improved contribution from the Virgin Money third party
product distribution business contributed $5 million to the result this financial
year. The business achieved another year of strong growth in credit card
receivables, growing 20 per cent on FY16.
The trading income contribution was down on the prior year as the Group held
lower levels of traded liquidity instruments.
The St Andrew’s Insurance contribution is discussed in detail in section 2.4 below.
2.4 Insurance Overview
$ million
Gross Written Premium (net of refunds)
Net Earned Premium
Underwriting Result
Other Insurance Income
Total Income
Consolidation Adjustment
Group Insurance Result
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17 vs
Aug-16
Aug-17
Feb-17
70
68
17
3
20
1
21
62
70
21
4
25
1
26
13%
(3%)
(19%)
(25%)
(20%)
-
(19%)
35
34
9
1
10
-
10
35
34
8
2
10
1
11
Aug-17 vs
Feb-17
-
-
13%
(50%)
-
(100%)
(9%)
St Andrew’s Insurance contributed $21 million to non-interest income, a $5
million reduction from the prior year.
Gross written premiums were up 13 per cent due to growth in the volume of
regular premium policies, particularly from wholesale partnerships. Net earned
premiums were down three per cent due to a rise in reinsurance coverage and
associated reinsurance premiums.
The underwriting result was down $4 million to $17 million, due to a reduction in
net earned premiums, and an increase in commissions and administration fees
due to a higher mix of wholesale product volumes. Claims experience improved
on the prior year and was in line with expectations.
The change in business mix to an increasing proportion of wholesale products,
and the transition of the portfolio from previously more favourable terms with the
business’ historically largest distribution partner, has seen the earnings profile
decline in recent periods. This trend has stabilised, as indicated by the half-on-
half performance. Group insurance performance has been consistent across the
past three halves, at between $10 million and $11 million per half. The insurance
market is undergoing significant change and regulatory scrutiny, with new
requirements contributing to an uncertain outlook.
22
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.5 Operating Expenses
$ million
Employee Expenses
Occupancy Expenses
General Expenses
IT Expenses
Other Expenses
Operating Model
Total Operating Expenses (1)
Cost to Income Ratio
Cost to Income Ratio (excluding one-off costs) (2)
Number of employees (FTE) (1)
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17 vs
Aug-16
257
42
85
108
21
-
513
46.6%
46.6%
2,031
253
43
98
92
19
15
520
46.8%
45.5%
1,959
2%
(2%)
(13%)
17%
11%
(100%)
(1%)
(20bps)
110bps
4%
Aug-17
Feb-17
131
126
21
46
53
10
-
261
45.9%
45.9%
2,031
21
39
55
11
-
252
47.4%
47.4%
1,953
Aug-17 vs
Feb-17
4%
-
18%
(4%)
(9%)
-
4%
(150bps)
(150bps)
4%
(1) FTE numbers and Operating Expenses exclude Virgin Money third party costs as the net result is included in Non-Interest Income. Expenses relating to the Virgin Money mortgage offering has been included in the above table.
(2) One-off costs are related to operating model restructuring ($15 million) in FY16 .
Operating expenses exclude expenses relating to the white label product
distribution activities of Virgin Money, where the net result has been consolidated
in non-interest income for the determination of cash earnings. Total expenses for
the third party distribution activities of Virgin Money were $15 million for the year
which was consistent with the prior period. A reconciliation of cash earnings to
statutory profit is set out in section 4.1 (B).
Operating expenses decreased one per cent on the prior period to $513 million.
On an underlying basis (excluding non-recurring operating model costs and
the expenses related to the newly acquired BOQF Cashflow Finance business),
operating expenses increased by one per cent. IT software amortisation
expenses associated with the Group’s transformation agenda resulted in an
additional $10 million being incurred in 2017.
Operating expenses analysis ($m)
Core Expenses
Amortisation
Virgin Money mortgage offering
Restructuring
BOQ Finance Cashflow Finance
520
15
3
27
475
FY 16
1%
Underlying Cost Growth
505
510
513
3
9
37
464
FY 17
23
For the year ended 31 August 2017Directors’ ReportFor the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.5 Operating Expenses (continued)
In 2016, BOQ announced a program to reshape its operating model and
organisational structure through a number of productivity initiatives. This
program has resulted in the establishment of a mortgage hub as the Group’s
centre of excellence for mortgage processing. Along with the release of the
Retail Loan Origination platform in 2016, this means mortgages can be
processed faster and at a lower cost.
General expenses for 2017 benefited by $6 million compared to the prior year,
as a result of changes to the structure of the Bank’s outsourced ATM fleet, with
a commensurate reduction in Non-Interest Income. The increase in second half
general expenses is due to the timing of marketing programs between the first
and second half.
BOQ FTE FY17 vs FY16
IT expenses increased largely due to an increase of $10 million in the
amortisation profile following a significant increase in investment spend during
recent years.
BOQ continues to look for opportunities to improve processes that enhance
customer fulfillment and realise efficiencies that can be reinvested in
accelerating the Group’s digital transformation journey.
Employee numbers have increased 4 per cent over the year. Further investment has been made to support the Virgin Money mortgage offering and to
support the channel diversification strategy, as well as further BOQ’s digital investment & transformation agenda.
24
30
33
1,959
18
27
2,031
Aug-16
VMA Mortgage
Offering
Operating Model
Changes (1H17)
Digital
Investment &
Transformation
BOQF Cashflow
Finance
Regulatory &
Compliance
Enhancement
Aug-17
IT intangible assets amortisation profile ($m)
27
12
1H16
15
2H16
37
37%
increase
18
19
1H17
2H17
24
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.6 Capitalised Investment Spend
The Group’s transformation program, aligned to its four strategic pillars, has
required a number of significant investments during the past two years. In 2017,
several key initiatives delivered noticeable improvements in fulfillment services
and “time to yes” was reduced for both Retail and Business Banking customers.
The initiatives include the release of a new Retail Lending Origination platform, a
new leasing platform for the BOQ Finance business, and automation of manual,
paper based processes as part of the commercial lending origination process.
Other initiatives completed included the introduction of e-statements and the
foundational implementation of an application programming interface (‘API’)
gateway.
An award winning web experience platform for Virgin Money was launched
during FY17. The platform builds on the successful launch of the Virgin Money
Home Loan product in the second half of 2016. It has subsequently been
Carrying value of IT intangible assets ($m)(1)
released for BOQ Specialist customers and will be rolled out to BOQ branded
customers in early calendar year 2018.
Current and future investment will focus on enhancing BOQ Group’s core
capabilities including the adoption of Australia’s New Payments Platform, which
will improve efficiency, extend digital banking capabilities, and continue to
strengthen the Bank’s risk management and control environment.
The transformation program accelerated in the second half with an increase
in assets under construction. The rate of growth in the carrying value of IT
intangible assets has slowed over time as the annual amortisation charge moves
closer to the recent levels of initiative spend.
152
35
117
163
32
131
164
25
170
33
139
137
Assets under construction
Software Intangible asset balance
(1) Prior year balances have been restated to exclude the fair value adjustments for software intangibles recognised on acquisition of subsidiaries.
Feb-16
Aug-16
Feb-17
Aug-17
2.7 Lending
Loan growth improved during the second half despite intense competition for
principal and interest loans and a changing regulatory landscape. BOQ continued
to balance margin and asset quality during the year, while continuing to focus
on deposit acquisition. The strategy of targeting niche customer segments is
delivering results with BOQ Specialist, BOQ Finance and niche segments in
the BOQ branded commercial portfolio all posting solid growth. The new Virgin
Money mortgage offering delivered strong growth over the year. The portfolio has
now grown to more than $700 million.
BOQ continues to maintain prudent credit standards, along with robust
origination validation requirements. The lending portfolio has low levels of
arrears, an improving loan impairment expense profile and reduced impaired
asset balances (refer section 3.1 Asset Quality).
As at
$ million
Housing Lending
Housing Lending - APS 120 qualifying securitisation (2)
Commercial Lending
BOQ Finance
Consumer
Gross Loans and Advances
Specific and Collective Provisions
Net Loans and Advances
(1) Growth rates have been annualised.
(2) Securitised loans subject to capital relief under APRA Prudential Standard APS 120 Securitisation.
Aug-17
27,850
2,003
29,853
9,312
4,345
307
43,817
(227)
43,590
Feb-17
27,058
2,446
29,504
8,906
4,285
300
42,995
(252)
42,743
Aug-16
27,733
2,155
29,888
8,818
4,142
304
43,152
(256)
42,896
Aug-17
vs Feb-17(1)
Aug-17
vs Aug-16
6%
(36%)
2%
9%
3%
5%
4%
(20%)
4%
-
(7%)
-
6%
5%
1%
2%
(11%)
2%
25
For the year ended 31 August 2017Directors’ ReportFor the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.7 Lending (continued)
Growth in Gross Loans & Advances
Growth in Housing ($m)
2H16
(1.1%) Growth (1)
(0.2x) System (2)
1H17
(2.6%) Growth (1)
(0.4x) System (2)
(160)
11
479
(650)
(384)
200
394
(978)
(1) Growth rates have been annualised.
(2) Source: APRA Monthly Banking Statistics.
Housing Lending
Housing lending growth was constrained in 2017 due to competitive market
factors and macro-prudential regulation changes. While growth recovered
across the housing portfolio in the second half (up two per cent), this was
below APRA system growth. BOQ maintained prudent credit settings and took
a conservative approach to regulatory compliance, moving much earlier to
adopt enhanced servicing, validation and responsible lending practices than
many of its competitors. BOQ’s relative under-representation in higher growth
markets such as Sydney and Melbourne also constrained growth rates. The Bank
continues to focus on building service and fulfillment capability through the new
Retail Lending Origination platform and has centralised mortgage processing
capabilities, which is delivering efficiencies and an improved customer
experience.
BOQ Specialist continues to demonstrate strong momentum in mortgage
growth to its niche, professional client base. This portfolio provides significant
demographic and geographic diversification outside Queensland, and creates
opportunities to meet the commercial lending needs of professionals throughout
their lives. The first full year of the Virgin Money mortgage offering exceeded
expectations and provided another channel for BOQ to engage with a new
customer demographic. In the second half, Virgin Money grew by $490 million,
taking the portfolio to over $700 million. This growth is supporting the Bank’s
geographic diversification, with the vast majority of the Virgin Money portfolio
based outside of Queensland. Virgin Money continues to expand its broker
presence, and next year it plans to complement this with a direct online channel
and a broader product offering.
26
2H17
2.3% Growth (1)
0.4x System (2)
349
490
410
(551)
VMA Home Loans
BOQ Specialist
BOQ
BOQ growth through the broker channel improved in the second half. Broker
flows returned as other market participants implemented credit assessment,
serviceability and validation practices more closely aligned to those of BOQ. This
improved the Group’s relative market proposition. The second half saw 28 per
cent of mortgage settlements for the Group originate through the intermediary
channels enhancing the geographic diversification of the portfolio with over half
(52 per cent at the end of August) of the portfolio now comprising customers
outside Queensland.
The branch footprint reduced by seven locations in the second half, mainly
through branch consolidations. The program to optimise the network is now
complete and ongoing refinement will reflect business as usual levels of branch
re-alignment. Seven more ICON branches – including a refreshed flagship
branch in the Brisbane CBD – were opened during the year, bringing the total to
19 ICON branches.
BOQ continues to build a more efficient network, with higher average footings
per branch and stronger risk and compliance foundations. Engagement with the
Owner Managers transitioning to the new franchise agreement has been strong.
The agreement now covers 74 per cent of all Owner Managers and ensures the
network is better aligned with the Bank’s strategic objectives.
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 2.7 Lending (continued)
Growth in Commercial & BOQ Finance ($m)
FY16
FY17
560
301
259
127
494
188
306
BOQ
BOQ Specialist
BOQ Finance
Other (1)
203
183
20
Commercial
BOQ Finance
Commercial
BOQ Finance
FY16
FY17
Commercial
BOQ Finance
Commercial
BOQ Finance (3)
Growth rate
System growth (2)
Growth vs System
6.8%
8.0%
0.8x
3.2%
2.7%
1.2x
5.6%
6.3%
0.9x
4.4%
4.5%
1.0x
(1) Reflects the impact of the acquisition of the BOQF Cashflow Finance business and the decrease from the disposal of a vendor finance entity.
(2) Based on APRA and AFIA (previously known as AELA) system growth statistics.
(3) Excludes the acquisition of BOQF Cashflow Finance and disposal of a vendor finance entity.
BOQ Business
The commercial lending portfolio grew by six per cent over the year to $9.3
billion. Growth in the second half was significantly stronger across all segments.
BOQ Specialist delivered commercial loan book growth of seven per cent in its
core medical segment, maintaining an estimated 22 per cent market share in
this segment. Bespoke solutions to medical, dental and veterinary professionals
results in building deeper customer relationships from graduation through to
retirement. BOQ Specialist has captured a large part of the graduate market and
that is expected to sustain growth in the future as the lending requirements of
these customers transition through housing and commercial lending needs over
time.
BOQ Finance continues to provide strong, profitable asset growth, growing five
per cent to $4.3 billion. The extension into a new offering of BOQF Cashflow
Finance through the acquisition of Centrepoint Alliance’s insurance premium
funding business during the year has added a new dimension to the solid
organic growth already achieved in this niche market. The BOQ Finance products
now offered allow customers to access financing solutions across the supply
chain.
The BOQ branded commercial portfolio grew strongly in the second half, by
$306 million, following some large customer pay downs in the first half. The
Bank’s niche segment strategy is delivering, with the segments of corporate
healthcare & retirement living, hospitality & tourism and agribusiness all
delivering strong levels of new customer acquisition. Diversification has improved
significantly, with the Queensland concentration in the commercial book now
down to a comfortable level of 38 per cent.
The small business (‘SME’) lending strategy continued to evolve, with strong
referral volumes from the branch network to business bankers delivering good
results. The Bank’s ongoing investment in the delivery of product and digital
fulfillment capability, including the successful delivery of the Commercial Lending
Origination Environment (‘CLOE’) in the first half, resulted in improved processes
for customers.
Ongoing investment in developing financial markets services will support both
the Bank’s SME and commercial offerings in the future.
27
For the year ended 31 August 2017Directors’ ReportFor the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 3. Business Settings
3.1 Asset Quality
During 2017, improvement in asset quality was evident across the portfolio.
Loan impairment expense was down 28 per cent to $48 million, or 11 basis
points of gross loans and advances. BOQ achieved improvements in arrears
and impairments across all portfolios compared to the prior year and the Bank
continues to maintain sector-leading provisioning coverage.
The Bank has originated approximately two thirds of its current housing portfolio
during the past four financial years, under its revised risk appetite settings.
Loan Impairment Expense
Loan Impairment Expense / GLA
Impaired Assets
30dpd Arrears
90dpd Arrears
Collective Provision & GRCL / RWA
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Aug-17
Feb-17
Aug-17
vs Feb-17
($ million)
bps
($ million)
($ million)
($ million)
bps
48
11
192
470
257
83
67
16
232
461
234
91
(28%)
(5bps)
(17%)
2%
10%
(8bps)
21
10
192
470
257
83
27
13
210
468
217
90
(22%)
(3bps)
(9%)
-
18%
(7bps)
The table above summarises BOQ’s key credit indicators with comparison against August 2016 and February 2017:
• Ninety day arrears increased in the second half at a total portfolio level. The
housing portfolio showed an increase in the 90 day arrears bucket, due to a
continued softening of the economy and residential markets in Central
Queensland, as well as some flow on effects from the significant weather event
experienced in the region. The aggregate portfolio continued to perform well and
the performance of the commercial portfolio was stable. BOQ Finance payment
performance was very strong, with 30 day arrears down 39 per cent on the prior
year, the lowest level in the past six years.
• Loan impairment expense reduced by $19 million (28 per cent) to $48 million,
reflecting strong credit management practices introduced in prior years.
Improvement is evident across all portfolios from the prior year. This result
included a large exposure impairment in the commercial portfolio totaling $16
million relating to a Central Queensland property developer and investor. This was
a long term customer relationship that was identified as outside of risk appetite in
2012. It has been actively managed since, with limited options for exit. This was
the last remaining large exposure of a sizeable cohort of legacy exposures
identified in the 2012 asset quality review that has progressively been managed
out of the portfolio. The completion of this five year program triggered a review of
the adjustment made to the collective provision model that was made following
the asset quality review conducted in 2012. This model adjustment was
maintained at 2012 levels until a $14 million reduction was booked in the most
recent half.
• Impaired assets were down by $40 million (17 per cent) to $192 million for the
year. There were two impaired exposures greater than $5 million (three in FY16).
The Central Queensland exposure noted above was the one new exposure
recognised during this financial year. The other remaining exposure greater than
$5 million moved to an unconditional contract awaiting settlement after balance
date, in line with carrying value, that will further reduce impaired assets by $11
million.
28
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37
3.1 Asset Quality (Continued)
Loan Impairment Expense
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
Feb-17
Expense
($m)
Expense/GLA
(bps)
Expense
($m)
Expense/GLA
(bps)
Expense
($m)
Expense/GLA
(bps)
Expense
($m)
Expense/GLA
(bps)
Retail Lending
Commercial Lending
BOQ Finance
Underlying Loan Impairment Expense
Large commercial exposure impairment
Collective provision model adjustment
Total Loan Impairment Expense
20
13
13
46
16
(14)
48
7
14
30
10
4
(3)
11
16
22
29
67
-
-
67
5
25
70
16
-
-
16
9
8
2
19
16
(14)
21
6
17
9
9
7
(6)
10
11
5
11
27
-
-
27
7
11
51
13
-
-
13
The table above highlights improvement across the Group’s portfolios on an
underlying basis, excluding the impact of the large commercial exposure impairment
and the reduction in the collective provision model adjustment discussed earlier. The
BOQ Finance portfolio was the main driver of the reduction in the impairment
expense as repayment performance remained strong during the period, resulting in
a very low loss experience during the second half. This level of impairment expense
in the BOQ Finance portfolio is not expected to be repeatable. The housing portfolio
continues to benefit from the record low interest rate environment and a strong
residential property market.
Impaired Assets
$ million
Retail Lending
Commercial Lending
BOQ Finance
Total Impaired Assets
Impaired Assets / GLA
Impaired assets decreased by $40 million (17 per cent) to $192 million resulting in
a 10 basis point improvement in the impaired asset to GLA ratio over the year to 44
basis points. The reduction in Retail and BOQ Finance is due to improved economic
conditions combined with prudent risk settings, which led to a lower level of new
impairments recognised in the second half. Commercial lending impaired assets
decreased over the full year, but increased in the second half, due to one large
exposure to a Central Queensland property developer and investor of $29 million
As at
Aug-17
Feb-17
Aug-16
Aug-17
vs Feb-17
Aug-17
vs Aug-16
75
95
22
192
44bps
88
88
34
210
49bps
91
108
33
232
54bps
(15%)
8%
(35%)
(9%)
(5bps)
(18%)
(12%)
(33%)
(17%)
(10bps)
that transitioned to impaired status. The commercial portfolio contains the Bank’s
only two impaired exposures greater than $5 million, with one totaling $11 million
moving to unconditional contract after balance date, awaiting settlement. The
following graph outlines the movements in impaired assets since August 2016.
29
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28Appendices 37 3.1 Asset Quality (Continued)
Impaired Assets ($m)
57
16
27
14
79
15
30
34
232
33
91
108
70
7
21
42
88
19
34
35
Retail $13m (15%)
Commercial $7m (8%)
(17%)
192
22
75
95
210
34
88
88
Aug 16
New Impaired
Realisations
Feb 17
New Impaired
Realisations
Aug 17
Commercial
Retail
BOQ Finance
Provision Coverage
Total provisions decreased by $29 million during the year. Specific provision coverage is at 55 per cent which is up five percentage points on the previous year.
Collective provisions reduced over the year. A reduction to the collective provision model adjustment of $14 million was made to reflect the successful completion
of a program established in 2012 to exit a cohort of legacy risk exposures that were identified as outside of risk appetite. This is further supported by significant
improvement in credit quality.
$ million
Specific Provision
Collective Provision
Total Provisions
GRCL
Specific Provisions to Impaired Assets
Total Provisions and GRCL to Impaired Assets (1)
Total Provisions and GRCL to RWA (1)
(1) GRCL gross of tax effect.
As at
Aug-17
Feb-17
Aug-16
Aug-17
vs Feb-17
Aug-17
vs Aug-16
106
121
227
81
55%
179%
1.2%
115
137
252
81
55%
175%
1.3%
116
140
256
81
50%
160%
1.3%
(8%)
(12%)
(11%)
-
-
(9%)
(16%)
(13%)
-
500bps
400bps
1900bps
(10bps)
(10bps)
The Bank has been building a new collective provisioning model that is expected to be implemented in the first half of FY18. The model has been designed to
incorporate the requirements of AASB 9 (that covers a number of areas other than provisioning). It will be formally adopted for the 2018 financial year. No material
change to collective provisions is expected as a result of this change.
30
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 3.1 Asset Quality (Continued)
Specific Provisions ($m)
27
10
10
7
28
6
10
12
116
20
36
60
115
24
36
55
36
4
9
23
45
12
13
20
106
16
32
58
Aug 16
New Specifics
Realisations
Feb 17
New Specifics
Realisations
Aug 17
Retail
Commercial
BOQ Finance
Collective Provision and GRCL/RWA vs Peers
The graph below provides BOQ’s level of collective provisions and general reserve
for credit losses (‘GRCL’) to risk weighted assets (‘RWA’) against the current levels of
those of its peers, as published in their most recent financial reports. BOQ’s
coverage has dropped eight basis points over the year that includes a $14 million
reduction in the collective provision model adjustment. BOQ remains prudently
provisioned compared to industry peers.
Standardised Banks
Advanced Banks (1)
BOQ
0.90%
0.83%
0.41%
0.41%
0.66%
0.67%
0.49%
0.42%
0.36%
0.30%
Feb 17
FY17
SUN
0.53%
0.14%
BEN
0.76%
0.04%
0.79%
0.09%
0.76%
0.13%
0.78%
0.11%
0.72%
0.70%
0.63%
0.67%
NAB
ANZ
CBA
WBC
Collective Provision to RWA
General Reserve for Credit Losses to RWA
(1)
Advanced accredited approach to risk weightings causes coverage to appear higher on a relative basis to the standardised banks.
31
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28Appendices 37 3.1 Asset Quality (Continued)
Arrears
Portfolio
Balance
($m)
Key Metrics
Aug-17
Aug-17
Feb-17
Aug-16
Total Lending - Portfolio balance ($ million)
43,817
42,995
43,152
30 days past due ($ million)
90 days past due ($ million)
30 days past due: GLAs
90 days past due: GLAs
By Product
30 days past due: GLAs (Housing)
90 days past due: GLAs (Housing)
30 days past due: GLAs (Line of Credit)
90 days past due: GLAs (Line of Credit)
30 days past due: GLAs (Consumer)
90 days past due: GLAs (Consumer)
30 days past due: GLAs (Commercial)
90 days past due: GLAs (Commercial)
30 days past due: GLAs (BOQ Finance)
90 days past due: GLAs (BOQ Finance)
470
257
468
217
461
234
Proportion of Portfolio
1.07%
0.59%
1.09%
0.50%
1.07%
0.54%
1.02%
0.50%
2.19%
1.25%
1.30%
0.98%
1.22%
0.86%
0.47%
0.13%
0.98%
0.41%
2.09%
0.84%
2.00%
1.00%
1.35%
0.89%
0.65%
0.08%
0.98%
0.47%
1.93%
1.02%
1.97%
1.32%
1.23%
0.81%
0.75%
0.13%
27,618
2,235
307
9,312
4,345
Aug-17
vs Feb-17
Aug-17
vs Aug-16
2%
-
18%
(2bps)
9bps
4bps
9bps
10bps
41bps
(70bps)
(2bps)
(13bps)
(3bps)
2%
2%
10%
-
5bps
4bps
3bps
26bps
23bps
(67bps)
(34bps)
(1bps)
5bps
(18bps)
(28bps)
5bps
-
Retail Arrears
Housing arrears performance has remained in line with expectations. Low interest
rates and relatively stable employment markets across most of the country
continue to benefit mortgage customers. Weakness in the Central Queensland and
Western Australian economies with higher under-employment and unemployment
levels, as well as the lagged effect of the weather event in Queensland in the
second half, had an impact on payment performance.
BOQ Business Arrears
Commercial arrears have been tracking at levels that demonstrate the solid credit
characteristics of the portfolio. BOQ Finance arrears have remained low throughout
the year, with 30 day arrears at their lowest levels in six years. Ninety day arrears
remained low throughout the financial year, resulting in a lower loss experience
for the leasing portfolio in the second half.
32
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37
3.2 Funding and Liquidity
The funding strategy and risk appetite reflects the Group’s business strategy and
the current economic environment, and is managed to allow for scenarios that
could impact the funding position. During the year, BOQ grew customer deposits
by $0.6 billion, an increase of 2.2 per cent that materially, fully funded lending
growth for 2017. BOQ’s deposit to loan ratio rose by one percentage point to 69
per cent as at August 2017.
As part of an industry wide sector downgrade action, BOQ’s Standard & Poor’s
(‘S&P’) credit rating was downgraded in May to BBB+. This reduced demand
and increased the pricing required to maintain the Bank’s funding position in the
more rating sensitive segments of the wholesale and larger retail deposit markets.
Moody’s Investors Service undertook similar industry-wide downgrade action
in June, however BOQ’s A3 rating was retained. Following the positive Moody’s
outcome, active work with BOQ’s funding counterparties in the wholesale and
more rating sensitive elements of the retail deposit market re-established limits to
levels largely equal to those pre-dating the S&P action.
The increase in long-term wholesale funding of $200 million during the year was
created predominantly through senior unsecured debt issuance and the inaugural
covered bond issue, highlighting the Group’s ability to build additional capacity,
diversity and resilience into its funding programs in both domestic and offshore
markets.
The combination of growth in customer deposits and long-term wholesale funding
strengthened the Bank’s core stable funding profile ahead of the net stable
funding ratio (‘NSFR’) implementation at the start of 2018.
$ million
Customer Deposits (2)
Wholesale Deposits
Total Deposits
Borrowings
Other Liabilities
Total Liabilities
Funding Mix ($b)
46.1
9.1
7.5
46.3
9.1
6.8
46.8
9.3
7.3
As at
Feb-17
Aug-16 (1)
30,375
29,550
6,721
7,170
37,096
36,720
9,218
951
9,398
1,148
Aug-17
30,190
6,979
37,169
9,651
1,049
47,869
47,265
47,266
Long Term Wholesale ($b)
9.1
9.1
Aug-17
vs Feb-17 (2)
Aug-17 vs
Aug-16
(1%)
8%
-
9%
20%
3%
2%
(3%)
1%
3%
(9%)
1%
9.3
4.5
4.2
4.5
3.9
4.3
4.1
0.7
Aug 16
Sub-Debt/
Additional Tier 1 (4)
0.7
Feb 17
Securitisation/
Covered Bond
0.6
Aug 17
Senior Unsecured
29.5
30.4
30.2
Customer Deposits ($b)
29.5
1.4
2.3
8.8
30.4
1.6
2.3
8.9
30.2
1.7
2.5
9.1
Aug 16 (1)
Customer
Deposits (3)
Feb 17
Short Term
Wholesale
Aug 17
Long Term
Wholesale
17.0
17.6
16.9
Aug 16
Feb 17
Aug 17
(1) August 2016 customer and wholesale deposits have been restated to reflect a reclassification to align to industry practice.
(2) Growth rates have been annualised.
(3) The classification of customer deposits is defined as all deposits excluding those from financial institutions as defined under APS210 Liquidity.
(4) Additional Tier 1 securities consist of Convertible Preference Shares (‘CPS’) and Wholesale Capital Notes.
Term
Deposits
Savings &
Investment
Transaction
Accounts
Mortgage
Offsets
33
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28Appendices 37
3.2 Funding and Liquidity (continued)
BOQ’s liquidity strategy and risk appetite are designed to ensure it has the ability
to meet payment obligations as and when they fall due. To manage liquidity risk
BOQ maintains a portfolio of unencumbered, high-quality liquid assets, giving the
Bank a buffer to withstand a range of stress events, including those involving the
loss or impairment of both unsecured and secured funding sources.
As at 31 August 2017, the liquidity coverage ratio (‘LCR’) was 132 per cent and
the average for the quarter was 133 per cent, with an appropriate buffer held
against prudential limits.
The Group’s NSFR averaged 107 per cent during the period, positioning BOQ
well to have a prudent buffer in place by 1 January 2018 when the regulatory
Customer deposit funding
Wholesale deposit funding
Total GLA’s (net of specific provision) ($ million)
Deposit to Loan Ratio
standard comes into place. BOQ continues to take all reasonable steps to reduce
its reliance on the committed liquidity facility (‘CLF’) and strengthen the NSFR by
growing stable sources of funding, including customer deposits and long-term
wholesale funding.
BOQ continues to diversify its holdings of Tier 1 high quality liquid assets
(‘HQLA1’), including deposits with central banks, and Australian Commonwealth
Government and Semi-Government securities.
As at
Aug-17
Feb-17
Aug-16
81%
19%
43,711
69%
82%
18%
42,880
71%
79%
21%
43,036
68%
Aug-17
vs Feb-17
Aug-17
vs Aug-16
(1%)
1%
2%
(2%)
2%
(2%)
2%
1%
Funding
BOQ has increased the long-term wholesale funding portfolio over the year using
a variety of wholesale debt products. The Bank focuses on three main elements to
meet its objectives – capacity growth, resilience and diversity – while minimising
the cost of funds and maintaining its ability to take advantage of opportunities in
the most appropriate markets.
A new AUD $3.25 billion Conditional Pass-Through Covered Bond program was
established in May 2017. It will complement all aspects of BOQ’s wholesale debt
funding strategy. The inaugural EUR500 million, five year transaction was settled
in July.
Major Maturities
During the past year, BOQ maintained its senior unsecured credit curve with
a new three-year issue in May 2017, this was in addition to the four-year
transaction executed in the first half. BOQ also took advantage of the private
placement market, raising additional funding both domestically and through
its Euro Medium Term Note program. The five-year covered bond transaction
extended the tenor of the wholesale portfolio while offering diversification benefits.
The Bank also accessed the residential mortgage-backed securities (‘RMBS’)
markets in February 2017, issuing a $1 billion capital relief transaction.
Major Maturities ($m) (1) (2) (3)
800
600
400
200
0
50
550
600
300
NEW LONG TERM WHOLESALE FUNDING
150
550
600
600
600
150
600
744
Dec-17
Feb-18 May-18 Aug-18
Nov-18 Feb-19 May-19 Aug-19
Nov-19 Feb-20 May-20
Aug-20 Nov-20 Feb-21
Aug-21
Nov-21
Feb-22 May-22 Aug-22
Senior Unsecured
Subordinated Debt
Additional Tier 1
Covered Bond
(1) Any transaction issued in a currency other than AUD is shown in the applicable AUD equivalent hedged amount.
(2) Senior unsecured maturities greater than or equal to $50 million shown, excludes private placements.
(3) Redemption of Subordinated Debt Notes and Additional Tier 1 instruments at the scheduled call date is at BOQ’s option and is subject to obtaining prior written approval from APRA.
34
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 3.2 Funding and Liquidity (continued)
BOQ maintains a portfolio of repurchase agreement eligible, diversified and
marketable high quality liquid assets (‘HQLA1’) to facilitate balance sheet
liquidity and meet internal and external requirements. The credit quality of the
liquid asset portfolio continued to improve through 2017 as the Bank’s HQLA1
holdings increased.
Liquidity Composition - Basel III ($b)
BOQ was granted a $2.5 billion RBA Committed Liquidity Facility for the 2017
calendar year, enabling it to meet its minimum regulatory requirement of greater
than 100 per cent LCR.
8.4
2.7
2.6
3.1
Aug 16
HQLA1 (1)
9.3
3.2
2.9
3.2
8.3
2.8
1.9
3.6
Feb 17
Liquid Assets (2)
Aug 17
Internal RMBS (3)
(1) HQLA1 includes government and semi-government securities, cash held with RBA and notes & coins.
(2) Liquid Assets include all unencumbered RBA repurchase eligible liquid assets able to be pledged as collateral to the RBA under the CLF.
(3) Internal RMBS are able to be pledged as collateral to the RBA CLF.
3.3 Capital Management
Capital Adequacy
$ million
Common Equity Tier 1 (‘CET1’)
Additional Tier 1 Capital
Total Tier 2
Total Capital Base
Total RWA
Common Equity Tier 1 Ratio
Total Capital Adequacy Ratio
As at
Feb-17
2,602
450
469
Aug-17
2,690
450
402
Aug-16
2,524
450
474
3,542
3,521
3,448
28,644
28,014
28,054
9.39%
9.29%
9.00%
12.37%
12.57%
12.29%
Aug-17
vs Feb-17
Aug-17
vs Aug-16
3%
-
7%
-
(14%)
(15%)
1%
2%
10bps
(20bps)
3%
2%
39bps
8bps
The Group’s CET1 ratio increased by 39 basis points during the year to 9.39 per
cent. Underlying capital generation of 45 basis points is shown on the following
graph. This is a very strong level of capital generation, however, reflects the
lower asset growth over the year. Reserve movements, reduced second half
securitisation activity, the acquisition of BOQF Cashflow Finance and expenditure
on capitalised software drove the remaining capital utilisation during the year.
35
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28Appendices 37 3.3 Capital Management (continued)
Common Equity Tier 1 FY17 V FY16
Underlying Capital Generation of
45bps
0.16%
0.65%
1.26%
0.02%
0.07%
0.09%
0.02%
0.05%
0.01%
9.00%
9.39%
FY16
Cash Earnings (1)
RWA Growth (1)
Dividend net
of DRP
Securitisation
BOQF Cashflow
Finance Acquisition
Vendor Finance
Entity Disposal
Capitalised
Software
AFS Reserves
Other (2)
FY17
(1) Excludes impact of vendor finance entity disposal.
(2) Other items include the positive impact of reduced deferred tax balances, reduced securitisation deductions and dividends received from entities outside the capital group.
Common Equity Tier 1 2H17 V 1H17
Underlying Capital Generation of
14bps
0.18%
0.65%
0.33%
0.06%
0.09%
0.02%
0.06%
0.01%
9.29%
9.39%
1H17
Cash Earnings (1)
RWA Growth (1)
Dividend net of
DRP
Securitisation
Vendor Finance
Entity Disposal
Capitalised
Software
AFS Reserves
Other (2)
FY17
(1) Excludes impact of vendor finance entity disposal.
(2) Other items include the positive impact of reduced deferred tax balances and securitisation reductions. Offsetting these benefits were non-recurring expenses and deferred acquisition costs.
3.4 Tax Expense
Tax expense arising on cash earnings for the year amounted to $162 million.
This represented an effective tax rate of 30.0 per cent. The non-deductible
interest payable on convertible preference shares issued in FY2013 and
Wholesale Capital Notes issued in FY2015, together with non-deductible
accounting amortisation would typically lead to the inherent effective tax rate
36
being higher than 31 per cent (31.2 per cent in the prior year). In the current
year, this rate has been offset by the utilisation of previously unrecognised
capital losses against the profit on the disposal of a vendor finance entity.
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4. Appendices
4.1 Reconciliation of Statutory Profit to Cash Earnings
The cash earnings provided is used by management to present a clear view of
BOQ’s underlying operating results. This excludes a number of items that introduce
volatility and/or one-off distortions of the current year performance, and allows for
a more effective comparison of BOQ’s performance across reporting periods.
(A) RECONCILIATION OF CASH EARNINGS TO STATUTORY NET PROFIT AFTER TAX
The main exclusions relate to the continued amortisation of acquisition fair value
adjustments.
Year End Performance
Half Year Performance
$ million
Cash Earnings after Tax
Amortisation of acquisition fair value adjustments
Hedge ineffectiveness
Integration / transaction costs
Legacy items
Statutory Net Profit after Tax
(B) NON-CASH EARNINGS RECONCILING ITEMS
$ million
Net Interest Income
Non-Interest Income
Total Income
Operating Expenses
Underlying Profit
Loan Impairment Expense
Profit before Tax
Income Tax Expense
Profit after Tax
378
(13)
(9)
(1)
(3)
352
Virgin
Money
-
15
15
(15)
-
-
-
-
-
Cash
Earnings
Aug-17
926
175
1,101
(513)
588
(48)
540
(162)
378
Aug-17
Aug-16
Aug-17
vs Aug-16
360
(16)
(4)
(2)
-
338
5%
(19%)
125%
(50%)
-
4%
Aug-17
Feb-17
203
175
(7)
(4)
-
(1)
(6)
(5)
(1)
(2)
191
161
Aug-17
vs Feb-17
16%
(17%)
(20%)
(100%)
(50%)
19%
Amortisation
of customer
contracts
(acquisition)
Hedge
ineffectiveness
Integration/
transaction
costs
Legacy
items
Statutory
Net Profit
Aug-17
-
-
-
(15)
(15)
-
(15)
2
(13)
-
(12)
(12)
-
(12)
-
(12)
3
(9)
-
-
-
(1)
(1)
-
(1)
-
(1)
-
(1)
(1)
(4)
(5)
-
(5)
2
(3)
926
177
1,103
(548)
555
(48)
507
(155)
352
37
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.2 Operating Cash Expenses
Employee expenses
Salaries
Superannuation contributions
Payroll tax
Employee Share Programs
Other
Occupancy expenses
Lease expense
Depreciation of Fixed Assets
Other
General expenses
Marketing
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
Impairment
Processing costs
Other operating expenses
IT expenses
Data processing
Amortisation of Intangible Assets
Depreciation of Fixed Assets
Other expenses
Professional fees
Directors’ fees
Other
Restructuring expenses (1)
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Aug-17
Feb-17
Aug-17
vs Feb-17
208
20
12
11
6
257
30
9
3
42
16
6
20
4
1
10
28
85
70
37
1
108
13
2
6
21
-
200
20
13
11
9
253
31
9
3
43
17
7
21
4
1
20
28
98
64
27
1
92
12
2
5
19
15
4%
-
(8%)
-
(33%)
2%
(3%)
-
-
(2%)
(6%)
(14%)
(5%)
-
-
(50%)
17%
(13%)
9%
37%
-
17%
8%
-
20%
11%
100%
107
10
5
6
3
101
10
7
5
3
131
126
14
5
2
21
11
3
10
2
-
6
14
46
33
19
1
53
6
1
3
10
-
16
4
1
21
5
3
10
2
1
4
14
39
37
18
-
55
7
1
3
11
-
6%
-
(29%)
20%
-
4%
(13%)
25%
100%
-
120%
-
-
-
(100%)
50%
-
18%
(11%)
6%
-
(4%)
(14%)
-
-
(9%)
-
4%
Total Operating Expenses
513
520
1%
261
252
(1) The 2016 restructuring expenses mainly consist of employee costs.
38
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.2 Operating Cash Expenses (continued)
Employee Expenses
Employee costs grew two per cent on FY16. The benefits from reshaping the
operating model and organisation structure through a number of productivity
initiatives, which began in 2016, has enabled the group to expand the Virgin
Money mortgage offering, invest in technology programs and reconfigure the
branch network within a low cost growth profile.
Occupancy Expenses
Occupancy costs remained relatively flat compared to the prior period.
4.3 Property, Plant & Equipment (Consolidated)
General Expenses
Contract outcomes led to a permanent reduction in processing costs compared
to prior periods. More marketing campaign activity is usually carried out in the
second half which results in a higher second half cost profile.
IT Expenses
A number of key initiatives were implemented in prior years which has led to in an
increase in the amortisation profile of $10 million this year.
$ million
Cost
Balance as at 31 August 2016
Additions
Disposals
Transfers between categories
Balance as at 31 August 2017
Depreciation and loss on disposal / impairment
Balance as at 31 August 2016
Depreciation for the year
Disposals
Balance as at 31 August 2017
Carrying amount as at 31 August 2016
Carrying amount as at 31 August 2017
Leasehold
improvements
$m
Plant furniture
and equipment
$m
IT equipment
$m
Capital works
in progress
$m
Assets under
Operating
Lease
$m
71
5
(3)
1
74
33
8
(3)
38
38
36
33
1
(1)
-
33
23
1
(1)
23
10
10
31
3
(1)
-
33
29
1
(1)
29
2
4
1
4
-
(1)
4
-
-
-
-
1
4
24
5
(11)
-
18
15
6
(9)
12
9
6
Total
$m
160
18
(16)
-
162
100
16
(14)
102
60
60
39
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.4 Cash EPS Calculations
Year End Performance
Half Year Performance
Aug-17
Aug-16
Aug-17
vs Aug-16
Basic EPS
Diluted EPS
(cents)
(cents)
97.6
93.9
Reconciliation of Cash Earnings for EPS
Cash Earnings available for ordinary shareholders
($ million)
Add: CPS Dividend
Add: Wholesale Capital Notes
Cash Diluted Earnings available
for ordinary shareholders
Weighted Average Number of Shares (‘WANOS’)
Basic WANOS
Add: Effect of award rights
Add: Effect of CPS
Add: Effect of Wholesale Capital Notes
Diluted WANOS for Cash Earnings EPS
($ million)
($ million)
($ million)
(million)
(million)
(million)
(million)
(million)
378
15
7
400
387
2
25
12
426
95.6
90.7
360
16
7
383
376
1
30
15
422
2%
4%
5%
(6%)
-
4%
3%
100%
(17%)
(20%)
1%
Aug-17
Feb-17
52.1
49.9
45.5
43.7
Aug-17
vs Feb-17
15%
14%
203
175
7
4
8
3
16%
(13%)
33%
214
186
15%
389
2
25
12
428
384
1
27
13
425
1%
100%
(7%)
(8%)
1%
4.5 Issued Capital
Ordinary shares
Movements during the year
Balance at the beginning of the year – fully paid
Issue of ordinary shares – 21 October 2016 (1)
Dividend reinvestment plan – 22 November 2016 (2)
Dividend reinvestment plan – 17 May 2017 (2)
Balance at the end of the year – fully paid
Consolidated
2017
Number
2017
$m
380,995,702
3,279
1,050,000
5,278,750
4,415,277
12
53
52
391,739,729
3,396
(1) On 21 October 2016, 1,050,000 ordinary shares were issued at $11.15 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights
Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
(2) 37 per cent was taken up by shareholders on 22 November 2016 and 35 per cent on 17 May 2017 as part of the Dividend Reinvestment Plan.
40
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.6 Average Balance Sheet and Margin Analysis
August 2017 (Full Year)
August 2016 (Full Year)
$ million
Interest earning assets
Gross loans & advances at amortised cost
Investments & other securities
Total interest earning assets
Non-interest earning assets
Property, plant & equipment
Other assets
Provision for impairment
Total non-interest earning assets
Total Assets
Interest bearing liabilities
Retail deposits
Wholesale deposits & Borrowings
Total Interest bearing liabilities
Non-interest bearing liabilities
Total Liabilities
Shareholders’ funds
Total Liabilities & Shareholders’ Funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
Benefit of net interest-free assets, liabilities and equity
Net Interest Margin - on average interest
earning assets
Average
Balance
$m
43,208
6,189
49,397
58
1,525
(253)
1,330
50,727
29,841
16,427
46,268
783
47,051
3,676
50,727
Average
Rate
%
Average
Balance
$m
Interest
$m
1,899
147
2,046
4.40
2.37
4.14
611
509
1,120
2.05
3.10
2.42
Interest
$m
2,001
155
2,156
Average
Rate
%
4.70
2.65
4.45
661
558
1,219
2.34
3.26
2.68
42,571
5,850
48,421
61
1,558
(268)
1,351
49,772
28,255
17,124
45,379
869
46,248
3,524
49,772
49,397
46,268
2,046
1,120
49,397
926
4.14
2.42
1.72
0.15
1.87
48,421
45,379
2,156
1,219
48,421
937
4.45
2.68
1.77
0.17
1.94
41
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.6 Average Balance Sheet and Margin Analysis (Continued)
August 2017 (Six month period)
February 2017 (Six month period)
Interest
$m
939
72
1,011
Average
Rate
%
4.40
2.33
4.14
313
246
559
2.13
3.01
2.45
Average
Balance
$m
Interest
$m
Average Rate
%
960
75
1,035
4.39
2.39
4.14
298
263
561
1.96
3.19
2.39
43,376
6,231
49,607
57
1,535
(250)
1,342
50,949
30,134
16,344
46,478
749
47,227
3,722
50,949
Average
Balance
$m
43,011
6,226
49,237
59
1,500
(255)
1,304
50,541
29,625
16,463
46,088
817
46,905
3,636
50,541
49,607
46,478
1,035
561
49,607
474
4.14
2.39
1.75
0.15
1.90
49,237
46,088
1,011
559
49,237
452
4.14
2.45
1.69
0.16
1.85
$ million
Interest earning assets
Gross loans & advances at amortised cost
Investments & other securities
Total interest earning assets
Non-interest earning assets
Property, plant & equipment
Other assets
Provision for impairment
Total non-interest earning assets
Total Assets
Interest bearing liabilities
Retail deposits
Wholesale deposits & Borrowings
Total Interest bearing liabilities
Non-interest bearing liabilities
Total Liabilities
Shareholders’ funds
Total Liabilities & Shareholders’ Funds
Interest margin & interest spread
Interest earning assets
Interest bearing liabilities
Net interest spread
Benefit of net interest-free assets, liabilities and equity
Net Interest Margin - on average interest
earning assets
42
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.7 Distribution Footprint
BOQ has continued to develop its ‘Customer in Charge’ strategic pillar to allow
customers to engage through their channel of choice. This could be through a
preferred broker (aligned to BOQ or Virgin Money), directly with BOQ through its
Owner Managed and Corporate branches, online via digital, social media, mobile
banking, or on the phone to BOQ’s Customer Contact Centres.
Branch numbers reduced by 21 over the year as BOQ continues to optimise its
points of presence. The majority of BOQ’s Owner Managers (74 per cent) have
transitioned to the new franchise proposition which better aligns the network with
the strategic objectives of the Bank and has delivered significant performance
improvements. A further seven ICON branches have been delivered this year
bringing the total to 19.
The broker strategy expansion continued to accelerate during the year, with
28 per cent of settlements in the second half originated through accredited
brokers across the BOQ and Virgin Money brands. Most accredited brokers are
located outside of Queensland, which will continue to accelerate the geographic
diversification of the portfolio and provide deeper access to the Sydney and
Melbourne markets, where the Group has traditionally been under represented.
NT
25
1
SA
1
1
39
16
157
1
225
237
WA
703
13
8
86
280
534
QLD
649
41
7
68
759
286
720
NSW & ACT
11
18
1348
1061
137
962
VIC
8
1044
103
923
12
631
AS AT 31 AUGUST 2017
74
109
CORPORATE
BRANCHES
OWNER MANAGED
BRANCHES
4059 BROKERS
3447
VIRGIN MONEY
BROKERS
628
BOQ BRANDED
ATM’S
2948 REDI ATM’s
7
TRANSACTION
CENTRES
TAS
2
14
23
79
39
43
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.7 Distribution Footprint (Continued)
As at Aug-17
Corporate Branches
Owner Managed Branches
Transaction Centres
As at Aug-16
Corporate Branches
Owner Managed Branches
Transaction Centres
QLD
NSW / ACT
41
68
7
116
11
18
-
29
QLD
NSW / ACT
43
77
8
128
11
23
-
34
VIC
8
12
-
20
VIC
8
13
-
21
WA
13
8
-
21
WA
14
9
-
23
NT
-
1
-
1
NT
-
2
-
2
TAS
-
2
-
2
TAS
-
2
-
2
SA
1
-
-
1
SA
1
-
-
1
Total
74
109
7
190
Total
77
126
8
211
Corporate, Owner Managed Branches (‘OMB’) & Transaction Centres
211
11
9
126
77
8
Aug-16
8
2
1
OMB Closures /
Mergers
Corporate Closures
OMBs converted to
Corporate Branches
Corporate Branches
converted to OMB
Transaction Centre
closure
OMBs
Corporate
Transaction Centres
190
109
74
7
Aug-17
4.8 Credit Rating
The Bank monitors rating agency developments closely. Entities in the Group are rated by S&P, Moody’s Investor Service and Fitch Ratings.
BOQ’s current long term debt ratings are shown below.
Rating Agency
S&P
Fitch
Moody’s
44
Short Term
Long Term
A2
F2
P2
BBB+
A-
A3
Outlook
Stable
Stable
Stable
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.9 Regulatory Disclosures
The APS 330 Capital Disclosure Template and Regulatory Capital reconciliation
(included in the relevant Pillar 3 Disclosures document) and the Capital
Instruments Disclosures are available at the Regulatory Disclosures section of
the Bank’s website at the following address:
http://www.boq.com.au/regulatory_disclosures.htm
4.10 Liquidity Coverage Ratio
APRA requires ADIs to maintain a minimum 100 per cent LCR. The LCR
requires sufficient HQLA1 to meet net cash outflows over a 30 day period, under
a regulator defined liquidity stress scenario. BOQ manages its LCR on a daily
basis with a buffer above the regulatory minimum in line with the BOQ prescribed
risk appetite and management ranges. BOQ’s average LCR was slightly elevated
over the August quarter at 136 per cent (31 May 2017 quarter: 133 per cent)
due to the settlement of the covered bond. The following table presents detailed
information on the average LCR composition for the two quarters.
BOQ maintains a portfolio of high quality, diversified liquid assets to facilitate
balance sheet liquidity and meet internal and regulatory requirements. Liquid assets
comprise HQLA1 (cash, Australian Semi-Government and Commonwealth
Government securities) and alternate liquid assets covered by the CLF from the
Reserve Bank of Australia. Assets eligible for the CLF include senior unsecured
bank debt, covered bonds and RMBS that are eligible for repurchase with the
Reserve Bank of Australia.
BOQ has a stable, diversified and resilient deposit and funding base that mitigates
the chance of a liquidity stress event across various funding market conditions.
BOQ uses a range of funding tools including customer deposits, securitisation,
short term and long term wholesale debt instruments. The Group increased
customer funding during the period as part of its overall funding strategy. Bank
lending is predominantly funded from stable funding sources; short term
wholesale funding is primarily used to manage timing mismatches and fund liquid
assets.
The liquid assets composition has changed over the combined quarters with
the allocation to HQLA1 increasing, now making up 81 per cent of net cash
outflows (28 February 2017: 79 per cent). Across the combined quarters net
cash outflows have increased in line with balance sheet growth.
BOQ does not have significant derivative or currency exposures that could
adversely affect its LCR.
45
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Directors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37 4.10 Liquidity Coverage Ratio (continued)
$ million
Liquid Assets, of which
High quality liquid assets
Alternative liquid assets
Total Liquid Assets
Cash Outflows
Customer deposits and deposits from small branch customers, of which
stable deposits
less stable deposits
Unsecured wholesale funding, of which
non-operational deposits
unsecured debt
Secured wholesale funding
Additional requirements, of which
outflows related to derivatives exposures and other collateral requirements
credit and liquidity facilities
Other contractual funding obligations
Other contingent funding obligations
Total Cash Outflows
Cash Inflows
Inflows from fully performing exposures
Other cash inflows
Total Cash Inflows
Total Net Cash Outflows
Total Liquid Assets
Total Net Cash Outflows
Liquidity Coverage Ratio (%)
46
Average Quarterly Performance
August Quarter
May Quarter
Total
Unweighted
Value
$m
Total
Weighted
Value
$m
Total
Unweighted
Value
$m
Total
Weighted
Value
$m
n/a
n/a
14,201
7,073
7,128
4,110
3,170
940
n/a
613
538
75
634
10,719
30,277
881
708
1,589
28,688
n/a
n/a
n/a
3,311
2,236
5,547
1,337
354
983
2,462
1,522
940
37
542
538
4
303
670
5,351
550
708
1,258
4,093
5,547
4,093
136%
n/a
n/a
13,683
6,867
6,816
4,156
3,207
949
n/a
439
375
64
548
10,553
29,379
673
607
1,280
28,099
n/a
n/a
n/a
3,234
2,281
5,515
1,281
343
938
2,515
1,566
949
34
378
375
3
220
681
5,109
345
607
952
4,157
5,515
4,157
133%
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ ReportDirectors’ ReportHighlights and Strategy 13 Group Performance Analysis 19 Business Settings 28 Appendices 37
Contents
Dear Shareholder,
50
51
Section 1
Summary of Key Management Personnel
Section 2
Remuneration Strategy & Framework
53
60
Section 3
Remuneration Outcomes
Section 4
Remuneration Governance
62
62
Section 5
Non-Executive Director Remuneration
Section 6
Statutory Tables
On behalf of the BOQ Board I am pleased to present the FY17 Remuneration
Report to shareholders.
Following discussion with a number of shareholders and proxy advisors, we
have changed the format in order to make this year’s report easier to read
and understand. We also sought to strengthen the link between remuneration
outcomes and BOQ’s performance. The key remuneration information for FY17
is included in the first part of the report and the second part contains further
detail and information required by the regulators and legislation under which we
operate.
There have been no material changes to the remuneration processes or schemes
in the year ended August 2017. Following a number of changes to various
elements of remuneration over the past 5 years and broad shareholder support
for our process, your Board believes it is working well.
It is timely to acknowledge the several external reviews into the financial services
industry which will impact our employee and executive remuneration. These
include the ASIC review into Mortgage Broker Fees, the Sedgwick Review
into incentives in Retail Banking and most recently the Banking Executive
Accountability Regime (‘BEAR’) announced in the Federal Budget.
BOQ supports and will implement changes to remuneration structures and
practices as required by these reviews. Sales incentive schemes have been
reviewed to ensure they comply with the Sedgwick recommendations and we
anticipate changes consistent with this to balance financial based incentives
with a heightened focus on the Bank’s customers and culture. For our Group
Executives, BOQ will also comply with any BEAR changes including the
adjustment of the Short Term Incentive (‘STI’) and Long Term Incentive (‘LTI’)
deferral periods. There may be other changes required to comply with the
regulatory environment and BOQ will address these in next year’s Remuneration
Report.
Our remuneration philosophy is to provide fair and equitable reward which
attracts and retains high calibre talent as a core input to maximising value for
shareholders. Through application of the remuneration structure, BOQ seeks to
align executive remuneration with the medium and long-term benefit generated
for shareholders through a mix of short, medium and long-term remuneration
elements.
The core principles upon which remuneration is based have again remained
unchanged in FY17:
• As a guide, BOQ targets a balance between fixed and variable (at risk) reward
weighted approximately one third fixed remuneration, one third STI and one
third LTI.
• We do not make cash payments to executives on commencement of
employment with BOQ.
• Key performance measures are agreed for all executives covering financial
(approximately 70%) and non-financial (approximately 30% measures.
• Remuneration outcomes are benchmarked against independently sourced
market data.
47
• STIs are capped as a percentage of fixed remuneration and a portion is
deferred over two years.
• Allocations of LTIs are granted at face value, are capped and, for Group
Executives, are awarded by way of Performance Award Rights (‘PARs’). These
vest subject to relative Total Shareholder Return (‘TSR’) and Earnings per
Share (‘EPS’) hurdles over three years.
• For Group Executives departing BOQ, deferred equity (Performance Award
Rights) and deferred STI (Restricted Shares) remain on foot for the full vesting
period and are subject to satisfying conditions and performance testing at the
vesting date.
• The Board has discretion on all remuneration outcomes.
In considering FY17 outcomes, no Group Executives have been granted fixed
remuneration increases for FY18 and our Directors will not receive any increase
in fees. Further, BOQ will not be requesting shareholder approval for any increase
to the Non-Executive Director fee pool at the 2017 Annual General Meeting.
STIs have come under increased scrutiny in recent years. To improve
transparency this year we have included more detail on the Board’s approach to
assessing our Group Executive STI outcomes. In summary:
• Performance of Group Executives is assessed and discussed at the half and
full year against Key Performance Indicators (‘KPIs’), set in line with BOQ’s
strategic objectives and the development of each individual.
• Year-end performance reviews and associated outcomes have been
recommended by the Managing Director & CEO for the Group Executives and
by the Board Chair for the Managing Director & CEO.
• The Human Resources and Remuneration Committee (‘HRRC’) and the BOQ
Board review these outcomes and makes adjustments both positively and
negatively to ensure these are aligned with shareholder’s interests and BOQ
remains competitive in attracting and retaining talent. Other factors, including
gender equity, are also considered.
• Remuneration outcomes are discussed with the Board Risk Committee and
the Bank’s Chief Risk Officer with adjustments made for behaviours which
add to, or detract from, long term shareholder value.
• Outcomes for all Group Executives are independently reviewed for market
reasonableness.
Within the operation of the BOQ STI scheme, the Board considered several items
which may be regarded as one-off items, noting that in previous years it has
made both inclusions and exclusions in determining remuneration outcomes
under profit related KPIs. The overarching principle which guides the Board’s
treatment of one-off items, to the extent that they effect remuneration outcomes,
is the degree to which the Executive contributed to the item and the benefit or
cost delivered to shareholders from it. It is the Board’s intention that Executives
are not unfairly penalised and do not receive a windfall gain as a result. In FY17,
the Board discounted the published cash earning number for the purposes of
calculating awards under the Bank’s STI scheme formula.
While the STI scheme operates to provide a rating and an award, the Board
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 retains discretionary overlay to derived STI pool outcomes. This allows the HRRC
and the Board to consider the performance for the year, including consideration
of factors which could not have been contemplated when the KPIs were set at
the beginning of FY17. Additionally, and in order to ensure alignment between the
benefit to shareholders and employees, the HRRC considers BOQ’s TSR for the
financial year as compared to other banks, both major and regional.
In considering the STI pool for FY17 the Board has reviewed the outcomes from
the STI scheme and moderated these. A number of factors have been considered
as part of the moderation process. Of particular note, in FY17:
• BOQ’s annual relative TSR at 26.5% leads the listed bank sector;
• our strong balance sheet position has benefited our shareholders and has
underpinned the provision of a special dividend in addition to the final year
end dividend; and
•
in consideration of the changing environment in which BOQ operates, the
Board has considered work the Group Executive team has done to further
strengthen BOQ’s market conduct, risk systems and culture during FY17. This
is important in ensuring financial performance is achieved in the right way.
The outcome of this moderation process has been to increase the Group
Executive pool above the amount calculated via the STI scheme formula using the
Board’s discretionary overlay.
The Board does not exercise its discretion lightly. This year, in assessing
outcomes, it has also had regard for declining total STI pool levels over the past
two years. In this respect, while the Bank wide pool is greater than FY16, it
remains below that of FY15.
LTI awards are made to align Group Executive’s interests with shareholders
over the longer term and to act as a retention tool. It is worth noting that our
LTI awards are made on a face value basis and have not vested every year due
to relative performance. In FY17 these have been granted at 100% of fixed
remuneration.
The aggregate total reward for Group Executives including fixed, short and long
term incentives has increased by less than 1% over the prior corresponding
period.
The Board has seen FY17 as a solid year for BOQ in a challenging and changing
environment. It has been pleased with the performance of its Group Executives
and the outcomes they have produced. In this context increases to total
remuneration are, in the Board’s view, appropriate.
Yours sincerely
David Willis
Chairman, BOQ HRRC
48
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportFor the year ended 31 August 2017Summary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Executive Summary
This Remuneration Report is prepared for consideration by shareholders of BOQ at the 2017 Annual General Meeting (‘AGM’). It outlines the overall remuneration
strategy, framework and practices adopted by the Consolidated Entity for the reporting period and has been prepared in accordance with Section 300A of the
Corporations Act 2001. The following table captures key highlights for FY17.
BOQ Strategic Pillars
CUSTOMER IN CHARGE
GROW THE RIGHT WAY
How we performed
against Strategic
Pillars
What did Group
Executives deliver?
How do Group
Executives’
interests align
with shareholders’
interests?
Placing the customer in charge
of their banking and delivering
exceptional customer outcomes
Achieving the right balance
between risk and return and
delivering shareholder value
A conservative lending
approach targeting a high
quality asset portfolio for
resilience through the
economic cycle.
Continued to expand mortgage
broker distribution channels
including through the Virgin Money
brand. Investments made in
digitisation to improve customer
experience.
Commenced organisation-wide
customer service program.
THERE’S ALWAYS
A BETTER WAY
Pursuit of operational efficiency
Costs managed to plan.
Forecast productivity initiatives
continue to deliver savings.
Transformation initiatives
commenced are expected
to deliver ongoing efficiency
improvements into FY18
and beyond.
LOVED LIKE NO OTHER
Developing a culture of passion and
excellence, fairness, equity and a
safe working environment
BOQ values continued
to be embedded.
Staff engagement results indicated
the majority of employees are
engaged with BOQ.
Significant improvements realised
in diversity, safety and risk
management outcomes.
Group Executive KPIs at the Group and individual level are aligned with delivery of the BOQ strategy.
Performance against Group metrics is discussed in more detail at Section 3.3. The cash net profit after tax (‘NPAT’) performance was
Superior and risk metrics measuring Impairment Expense and Deposit to Lending ratio were at the Exceptional level. Return on Equity
performance was at the Performing level while Cost to Income ratio was in the Threshold range.
Individual performance ratings were generally within the Performing range and reflected delivery of key strategic, financial and operational
outcomes.
Group metrics within the STI plan and achievement against these are aligned to shareholder interests. Specifically Cash NPAT and Return on
Equity are key financial measures that deliver growth while prudent management of risk is a key contributor to sustaining a well-managed
asset portfolio.
Group Executives are rewarded through STIs for short term performance and achievement of outcomes. Shareholders benefit from the
underlying sustainability of the business and returns generated. Fifty per cent (50%) of all STI is deferred over 2 years, in the form of
restricted shares once the $100,000 hurdle is met. Claw back provisions apply to restricted shares, refer Section 4.4. The deferred STI
ensures that Group Executives are accountable for the quality of results and that their behaviours remain consistent with BOQ values.
Over the longer term, use of EPS and relative TSR as performance metrics within the LTI plan requires delivery of superior comparative
returns to shareholders.
LTI grants made in 2013 were due for testing and achieved a vesting rate of 64.6% based on relative TSR performance over the three year
performance cycle. LTI grants to be made in December 2017, following the AGM, are in line with the prior year grant levels.
How we remain
competitive in
attracting and
retaining management
talent?
Stable KMP group during the period following changes implemented over 2015-2016.
Clear strategy that has been refreshed and remains focused on enhancing customer experience, prudent risk management,
realising efficiencies and developing digital capability.
Executive remuneration is set at levels to attract, reward and retain talent from across the financial services sector, including the major
banks. Company size, while a consideration, is not the single determining factor for setting remuneration. BOQ seeks to set and review
remuneration at levels determined to maximise returns to shareholders.
Provision of executive development and leadership programs which enhance management capability.
Developing succession strategy and plans to ensure depth in the senior executive and management teams.
Key themes and
Emerging Trends
Affecting Executive
Remuneration in FY18
No change to Group Executive fixed remuneration for FY18.
Stable STI and LTI plans after FY16 changes.
Impact of external regulatory review outcomes and BEAR will potentially affect the design of the Bank’s incentive plans.
49
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 1. Key Management Personnel (‘KMP’)
The table below identifies Executive and Non-Executive Directors (‘NED’) and Group Executives identified as KMP.
TABLE 1 - DIRECTORS AND GROUP EXECUTIVES
Directors (Executive and Non-Executive)
Current
Group Executives
Current
Roger Davis
Chairman (Non-Executive)
Matthew Baxby
Group Executive Retail Banking
Jon Sutton
Managing Director & Chief Executive Officer
Peter Deans
Chief Risk Officer
Bruce Carter
Director (Non-Executive)
Belinda Jefferys
Group Executive People & Culture
Richard Haire
Director (Non-Executive)
Vimpi Juneja (2)
Group Executive Product & Strategy
John Lorimer
Director (Non-Executive)
Anthony Rose
Chief Financial Officer
Warwick Negus (1)
Director (Non-Executive)
Michelle Thomsen
General Counsel & Company Secretary
Karen Penrose
Director (Non-Executive)
Donna-Maree Vinci
Group Executive Enterprise Solutions
Margaret Seale
Director (Non-Executive)
Brendan White
Group Executive BOQ Business
Michelle Tredenick
Director (Non-Executive)
David Willis
Director (Non-Executive)
(1) Warwick Negus was appointed to the Board effective 22 September 2016.
(2) Vimpi Juneja ceased to be a Group Executives as at 31 August 2017. His role of Group Executive Product & Strategy was made redundant due to re-organisation of the business.
Section 2. Remuneration Strategy & Framework Summary
This section provides shareholders with a view of the remuneration strategy, principles and framework covering BOQ employees and the remuneration framework
specifically applicable to Group Executives.
The remuneration strategy endorsed by the Board is supported by objectives and principles that are common to all employees. The key elements of these are set out
below:
• Attraction and retention of appropriately skilled and experienced executives and employees through the provision of market competitive remuneration;
• No distinction or difference in pay between genders for people that are performing the same role, other than where this is a difference as a result of performance,
skill or experience;
• Pay for performance by providing opportunities for executives and employees to earn incentives linked to achievement of the following, within an appropriate risk
framework:
1. BOQ’s objectives and performance;
2. the performance of their business unit; and
3. their individual contribution over the short and long term.
• Align executive and employee interests with those of the BOQ’s shareholders;
• Ensure that remuneration structures and their operation encourage behaviours that are consistent with the Bank’s values, promote customer service and deliver
good customer outcomes; and
• Provide remuneration structures that remain current and keep pace with the prevailing remuneration trends, practice and governance frameworks.
50
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportFor the year ended 31 August 2017Summary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 2. Remuneration Strategy & Framework Summary (continued)
2.1 Remuneration Framework Summary - KMP
The remuneration structure in place for the Group Executives and Responsible Persons (‘RPs’) is consistent with the Group’s Remuneration Policy and is based on a total
remuneration approach, comprising an appropriate mix of fixed (salary and benefits) and variable (at-risk) pay in the form of cash and equity-based incentives.
The components of the executive remuneration structure, as applied in FY17 are set out within this section.
TABLE 2 - REMUNERATION FRAMEWORK
Component
Performance Measure
At Risk Weighting
Performance to Reward Link
Fixed Remuneration (‘FR’)
Salary & other benefits
including superannuation.
Role Profile defines expectations with regard
to key deliverables, skill, experience and
behaviours for the role.
Short Term Incentives
Annual at risk remuneration
Deferral of amounts above
$100,000 consisting of 50%
cash and 50% deferred to
equity. Vesting over 2 years.
STI plan gateway tests:
Earnings per Share: 90% of budgeted
basic EPS; and
Behavioural and risk metrics.
Group Measures & Weighting:
Cash NPAT – 20%
Return on Equity – 20%
Cost to Income Ratio – 20%
Customer Satisfaction – 20%
Risk – 20%
Individual Performance Measures:
Combination of financial and non-financial
metrics relevant to each division.
Shared risk, culture, safety and diversity
metrics are included in individual scorecards.
At Performing - % of FR
MD & CEO: 90%
Line Roles: 75%
Functional Roles: 53%
At Maximum - % of FR
MD & CEO: 150%
Line Roles: 140%
Functional Roles: 100%
The Individual Performance
Measures act as a
moderator in the plan
design. The overall score
moderates the Group score
to allow scaling between
Below Threshold and
Exceptional outcomes. They
can also result in the overall
STI amount being scaled
down to zero.
• Fixed remuneration is determined by role
and responsibility. These are periodically
benchmarked to internal relativities, external
market comparisons, competency and
capability.
•
•
Reward performance at Group level. Individual
performance score acts as a moderator on
Group performance result.
Financial performance measures align
to strategy and prudent cost and risk
management.
• Aligned with value created for shareholders.
• Division specific financial and non-financial
targets aligned to delivery of business strategy.
•
Promotes leadership behaviours consistent
with achieving the Group’s long term objectives
in areas including customer experience,
workplace health and safety, diversity, and
employee engagement.
• Deferred STI is subject to clawback.
STI is calculated on the following basis: Fixed Remuneration x STI Target% Opportunity x Group Score x Individual Score = STI Outcome
Long Term Incentive
Annual grant of equity
delivered as PARs on
a face value basis.
Vesting period of three years.
80% weighted to relative TSR
Comparator Group drawn from ASX 200;
Reviewed annually.
20% weighted to relative EPS
EPS performance assessed on a relative basis
against comparator group comprised of majors
and regional banks.
All Group Executives:
Total grants up to 100%
of FR subject to Board
discretion.
• Ensures alignment to creation of long term
shareholder value. Metrics chosen as they
provide a relative test of performance against
market peers over a three year vesting period.
•
•
For the TSR tranche, minimum 50th percentile
performance required to vest and vests 100%
once 75th percentile is achieved.
For the EPS tranche, minimum 60th percentile
performance is required to vest. Awards vest
100% once 90th percentile is achieved.
•
Subject to clawback.
Total Remuneration
Market competitive remuneration, with appropriately weighted “at risk”
variable components aligned to shareholder interests.
51
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 2. Remuneration Strategy & Framework Summary (continued)
2.2 Remuneration Mix
The distribution of remuneration elements for executives is designed to provide a balanced weighting between fixed, short term and long term variable at risk
remuneration. The remuneration mix for the Managing Director & CEO and the Group Executives (Line and Function) in Figure 2.2.1 below are illustrations only and
are modelled based on an example using a targeted remuneration mix. This illustrates the various elements of fixed and variable remuneration and is expressed as a
percentage of total reward. The distribution between components is assessed by the Board annually against the targeted remuneration mix. The current remuneration
mix is deemed appropriately weighted but will be reassessed during the coming period to ensure it is consistent with changes arising from BEAR and any other
regulatory requirements.
The targeted remuneration mix at the Performing level for the Group Executive are provided in the illustration below.
Figure 2.2.1 - Remuneration Mix (at Performing level)
Managing Director & CEO
Group Executive Line
34%
36%
16%
16%
14%
14%
34%
36%
Group Executive Function
40%
10%
10%
40%
Fixed Remuneration
STI - Cash
STI - Deferred
LTI
Figure 2.2.2 below illustrates the remuneration mix for the Managing Director & CEO. It identifies the remuneration at minimum, being fixed remuneration with no
variable incentives, the level at Performing, or on-target performance, and at maximum, the level at which various remuneration elements are capped. The FY17 actual
remuneration is included in the chart for reference. The STI deferred shares and LTI PARs are represented at face value and are subject to the completion of vesting
periods and performance hurdles.
Figure 2.2.2 - CEO Remuneration: FY17 Potential vs Actuals
3,770
3,800
1,300
1,300
585
585
600
600
1,300
4,550
1,300
975
975
1,300
1,300
1,300
1,300
Minimum
Performing
FY17
Actual
Maximum
LTI - PARs
STI - Deferred Shares
STI - Cash
Fixed Remuneration
$
S
D
N
A
S
U
O
H
T
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Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53
Section 3. Remuneration Outcomes
This section outlines how the remuneration outcomes for FY17, including those that are cash and equity based, operate in alignment with company performance and
shareholder value.
3.1 Fixed Remuneration Changes
Fixed remuneration for Group Executives was reviewed and considered market competitive in the current environment, following changes made in FY16. Changes to
fixed remuneration were disclosed in the FY16 remuneration report and remained unchanged during FY17. No increase to fixed remuneration for Group Executives was
made for FY18.
3.2 Linking Performance & Reward Outcomes – Variable Remuneration
Performance at the Group level is a key determinant of the variable reward components and the measures set out below have been selected as they reflect shareholder
value creation. The table below provides a summary of key business performance metrics over the past 5 years.
TABLE 3 - CONSOLIDATED ENTITY PERFORMANCE
2015
2014
5 Year Consolidated Entity Performance
Statutory net profit after tax
Cash net profit after tax (1)
Cash basic earnings per share (‘EPS’) (1)
Cash cost to income ratio (‘CTI’) (1)
Share price at balance sheet date
Total Shareholder Return (1)
Value of Dividends paid
Group Executive STI Awarded ($m)
KMP STI Awarded as % of Cash NPAT
(1) Non-statutory measures are not subject to audit
2017
$352m
$378m
97.6c
46.6%
$12.59
+26.5%
$308m
$4.02
1.0%
2016
$338m
$360m
95.6c
46.8%
$10.55
-10.7%
$300m
$3.55
1.0%
$318m
$357m
97.3c
46.0%
$12.67
+6.3%
$272m
$3.73
1.0%
2013
$186m
$251m
78.1c
44.3%
$9.60
$261m
$301m
89.5c
43.9%
$12.58
+39.2%
+34.3%
$216m
$180m
$3.94
1.3%
$3.19
1.3%
53
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 3. Remuneration Outcomes (continued)
The following charts have been provided to illustrate Managing Director & CEO STI payments relative to key business performance metrics over the past 3 years, which
is the period that Mr Jon Sutton has held the position.
Figure 3.2.1 - CEO STI compared to Cash NPAT (1)
Figure 3.2.2 - CEO STI compared to Cash ROE (1)
$
S
N
O
L
L
M
I
I
400
350
300
250
200
150
100
50
0
1,400
1,200
1,000
800
600
400
200
0
$
S
D
N
A
S
U
O
H
T
%
E
G
A
T
N
E
C
R
E
P
12
10
8
6
4
2
0
1,400
1,200
1,000
800
600
400
200
0
$
S
D
N
A
S
U
O
H
T
2015
2016
2017
NPAT
CEO STI
2015
2016
2017
ROE
CEO STI
Figure 3.2.3 - CEO STI compared to Cash CTI (1)
Figure 3.2.4 - CEO STI compared to Cash EPS (1)
%
E
G
A
T
N
E
C
R
E
P
49
47
45
43
41
39
37
35
1,400
1,200
1,000
800
600
400
200
0
$
S
D
N
A
S
U
O
H
T
S
T
N
E
C
100
80
60
40
20
0
2015
2016
2017
CTI
CEO STI
2015
2016
2017
EPS
CEO STI
(1) Non-statutory measures are not subject to audit
1,400
1,200
1,000
800
600
400
200
0
$
S
D
N
A
S
U
O
H
T
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Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53
Section 3. Remuneration Outcomes (continued)
3.3 Group Executive Performance Assessment and STI – How Performance is linked to STI Outcomes
The HRRC and Board have reviewed the Group’s performance and the performance of each Group Executive against Group and individual performance measures
identified for the FY17 STI Plan.
The key financial and non-financial objectives for Group Executives in FY17 are identified in the table below. Note that all Group Executives share common Group
performance metrics and were present for the full year.
Group Executives STI is calculated on the following basis:
Assess Gateway
Test Performance
Fixed Rem
X
STI target %
opportunity
Group Performance
Score (moderator)
Individual Performance
Score (moderator)
STI Outcome (subject
to Board overlay and
discretion)
STI Gateway Test
The STI plan gateway tests were met for all Group Executives in FY17. The test requires achievement of at least 90% of budgeted basic cash EPS. Basic cash EPS
achieved for FY17 was 97.6c, which was above the 90 per cent of budgeted EPS hurdle. An additional gateway requires demonstration of appropriate risk behaviours
and values. The Group Executives were assessed by the Managing Director & CEO and were reviewed by the HRRC in conjunction with the Risk Committee and no
issues were identified.
Group Scorecard Outcomes
The weighting of Group metrics are designed to achieve a balance between financial performance, enhancing customer satisfaction and prudent risk management.
Performance intervals are developed across a range of outcomes with Performing being aligned to the FY17 budget. Performance metrics are approved by the Board.
Each metric is assessed individually and overall performance is determined by the averaged outcome. STI is not awarded where overall performance is Below
Threshold. STI may be earned across the performance range up to a capped maximum at an Exceptional rating. Performance against Group metrics, as assessed and
approved by the Board, is set out in the table below.
Summary of Group Performance Outcomes
TABLE 4 - GROUP PERFORMANCE OUTCOMES (1)
Group Performance Metric
Cash NPAT ($m)
Cash Return on Equity
Cash Cost to Income
Customer Satisfaction – NPS Ranking Position in group
Customer Satisfaction – NPS Relative Improvement in Score
Risk – Impairment Expense to GLA (bps)
Risk – Retail Deposit to Lending Funding Ratio
(1) Non-statutory measures are not subject to audit
Cash Net Profit after Tax: FY17 Result $378m (1)
Group Scorecard Outcomes FY17
Weighting
Below
Threshold
Threshold
Performing
Superior
Exceptional
20%
20%
20%
10%
10%
10%
10%
The $378m result includes several one off items. The Cash NPAT result used to determine performance against this Group metric was adjusted for these one-off items
and was lower than the Cash NPAT reported. Subsequently, the result was assessed at the Performing level.
55
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62
Section 3. Remuneration Outcomes (continued)
Cash Return on Equity: FY17 Result 10.4% (1)
The Return on Equity result achieved for FY17 was assessed as being at the Performing level.
Cash Cost to Income Ratio: FY17 Result 46.6% (1)
The Cost to Income ratio was impacted by the challenging environment for revenue growth. However general operating costs were managed within the projected
budget and the result was assessed as being at the Threshold level.
Customer Satisfaction Position Ranking: FY17 Result 4th (1)
Overall ranking against the comparator group improved over the year and resulted in a Superior level result. Net Promoter Scores for the Bank are measured in terms
of ranking against the comparator group that consists of the major and regional Banks. Performance is assessed by independent survey firm RFI.
Customer Satisfaction Relative Improvement in NPS: FY17 Result 9th (1)
Overall rating in terms of the change in NPS relative to other Banks was assessed at the Threshold level.
Impairment Expense to GLA (bps): FY17 Result 11bps (1)
The asset portfolio remained sound due to prudent risk settings and quality of assets being funded. As a result the impairment expense to GLA result was delivered
at an Exceptional level and better than budget expectations.
Retail Deposit to Lending Funding Ratio: FY17 Result 69% (1)
Customer deposit growth fully funded lending growth for the year. An improvement in the mix of deposits was also evident. This had a positive effect on the cost
of funding BOQ’s lending portfolio with a reduced reliance on funding via wholesale markets. The result exceeded expectations and an Exceptional level was achieved.
(1) Non-statutory measures are not subject to audit
Individual Scorecard Outcomes
Individual performance metrics for each Group Executive are aligned to the BOQ strategy with a focus on the Divisional strategy including a mix of financial and non-
financial metrics. There is an additional shared risk metric that reflects performance against audit and compliance outcomes and a culture metric that includes
assessment of performance against employee engagement, diversity and safety metrics and BOQ values.
With respect to the Managing Director & CEO, the Board’s assessment of individual performance was at the high end of Performing. This assessment was based on
demonstrated leadership, application of banking process, support for and demonstration of a strong risk culture and delivery of key elements of strategy during the year.
Group Executive performance is assessed for each individual metric and reviewed by the Board. The overall rating is determined by the average across all rating outcomes.
This scorecard outcome is then applied as a moderator to the weighted average Group result within the STI calculation to determine individual Group Executive STI.
For the Line Divisions, metrics consist of contribution to Cash NPAT, growth in deposits, customer metrics and delivery of strategic initiatives such as digital solutions,
implementation of improved systems such as the Mortgage Hub, product enhancements and development of customer contact channels.
For the Functional Divisions the main focus is on developing and enhancing enabling frameworks that support business improvement, improving risk management
frameworks, efficient cost management and enhancing leadership and management capability.
All Group Executives also share a common risk metric, related to audits of their Divisions, completion of audit actions and sharing people metrics that cover employee
engagement, enhancing alignment to BOQ values, improving diversity through gender representation at senior levels as well as work health and safety reporting and
incident management.
In addition to the assessment of Group Performance outcomes, the Board considered the following positive outcomes as part of its overlay discretion:
• BOQ’s annual relative TSR at 26.5% leads the listed bank sector;
• The strong balance sheet position has benefited our shareholders and is a key contributor to the payment of a special dividend in FY17; and
•
In consideration of the changing environment in which BOQ operates, the Board has considered the work BOQ’s Group Executive team has done to further
strengthen regulatory and risk systems and culture during FY17.
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Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 3. Remuneration Outcomes (continued)
FY17 STI Outcomes
Where individual performance is assessed as Below Threshold, no STI is paid even where the Group performance result triggered a positive outcome.
Based on Group performance results and the level of individual performance, the Board approved Group Executive STI payments are between 17% and 63% of their
maximum STI opportunity.
As noted previously in the summary, Group Executive STI amounts were calculated applying the STI model after making adjustments for certain one off factors that
lowered the result relative to reported Cash NPAT, and were then subject to a discretionary overlay by the Board. The Board discretionary overlay added 9.7% of the
calculated STI to the KMP pool.
For STI amounts of $100,000 or greater, 50 per cent of the STI amount is subject to deferral to Restricted Shares, vests over two years and is subject to forfeiture and
claw back.
The table below includes STI amounts awarded in FY16 and FY17 for comparative purposes.
TABLE 5 – COMPARISON OF STI FY16 TO FY17
Name
Position Title
FY17 Fixed
Remuneration
STI % FR at
Maximum
Jon Sutton
Managing Director & CEO
1,300,000
Anthony Rose
Chief Financial Officer
Peter Deans
Chief Risk Officer
Matthew Baxby
Group Executive Retail Banking
Brendan White
Group Executive BOQ Business
Donna Vinci
Group Executive Enterprise Solutions
Belinda Jefferys (1)
Group Executive People & Culture
Vimpi Juneja
Group Executive Product & Strategy
Michelle Thomsen
General Counsel & Company Secretary
710,000
675,000
655,000
690,000
580,000
525,000
505,000
403,000
(1) Ms Jefferys FY16 STI represents a partial year amount as employment commenced on 27 January 2016.
150%
100%
100%
140%
140%
100%
100%
100%
100%
2017 STI
Awarded
1,200,000
410,000
420,000
500,000
540,000
365,000
295,000
85,000
205,000
2017 STI
as % of
Maximum
62%
58%
62%
55%
56%
63%
56%
17%
51%
2016 STI
Awarded
1,000,000
375,000
375,000
470,000
475,000
340,000
145,000
200,000
170,000
2016 STI
as % of
Maximum
51%
53%
56%
51%
49%
59%
28%
40%
42%
3.4 LTI Outcomes
LTI awarded to Group Executives in 2013 was due for testing in the current period. The results of this testing resulted in vested awards as set out in the tables below.
Awards Vesting in FY17
A description of the LTI plan for awards vested during FY17, is summarised in the table below.
The 2013 LTI grant had one performance hurdle being relative TSR. At the date of performance testing and at the vesting date, qualifying Group Executives were
employed, not serving out a notice period and were not subject to performance review due to any adverse risk behaviours.
The statutory tables in Section 6 set out the detail of LTI awards that vested to individual qualifying Group Executives during the period.
LTI TESTING OUTCOMES
Grant Date
Performance Period
Vesting Hurdle
Performance Outcome
16 December 2013
9 October 2013 to
6 October 2016
TSR ranking of at least
50th percentile.
BOQ TSR achieved a ranking of 57th
percentile resulting in the awards vesting.
Percentage of
Award Vested
64.6%
57
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62
Section 3. Remuneration Outcomes (continued)
The chart below demonstrates three-year rolling TSR performance for BOQ compared to the ASX200 Accumulation Index. (Note: TSRs for 2017 are as at 31 August)
FIGURE 3.4.1 - 3YR ROLLING TSR: BOQ vs ASX200 (unaudited)
26%
25%
10%
5%
14%
11%
10%
7%
6%
5%
2013
2014
2015
2016
2017
BOQ 3YR TSR
ASX200 3YR TSR
LTI Grants Awarded for FY17
The Board determined that, in accordance with the remuneration policy, an LTI grant will be awarded for the current period, noting that awards for the Managing Director
& CEO are subject to shareholder approval at the 2017 AGM.
TABLE 6 - LTI GRANTS FOR FY17
Name
Jon Sutton
Anthony Rose
Peter Deans
Position Title
Managing Director & Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Matthew Baxby
Group Executive Retail Banking
Brendan White
Group Executive BOQ Business
Donna Vinci
Group Executive Enterprise Solutions
Belinda Jefferys
Group Executive People & Culture
Vimpi Juneja
Group Executive Product & Strategy
Michelle Thomsen
General Counsel & Company Secretary
2017 Fixed
Remuneration
$
1,300,000
Performance Award
Rights Granted FY17
$
1,300,000
710,000
675,000
655,000
690,000
580,000
525,000
505,000
403,000
710,000
675,000
655,000
690,000
580,000
525,000
-
403,000
% of
Fixed Rem
100%
100%
100%
100%
100%
100%
100%
-
100%
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Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 3. Remuneration Outcomes (continued)
PARs are granted at face value with the number of rights determined by applying a five day volume weighted average share price (‘VWAP’) with that period commencing
on the day following announcement of full year results. The table below sets out the dates, performance period and tranche weighting for the grant. The actual grant
date allows for the completion of the offer period and acceptance following approval at the AGM.
Proposed Grant Date
Performance Period
13 December 2017
3 years
Tranche %
TSR 80%
EPS 20%
Performance Hurdle Description
BOQ relative TSR ranking at or above 50th percentile triggers 50% vesting
of the award tranche up to BOQ relative TSR ranking at or above the 75th
percentile triggering 100% vesting of the award tranche.
BOQ relative EPS ranking at or above the 60th percentile triggers 50% vesting
of the award tranche up to BOQ relative EPS ranking at or above the 90th
percentile triggering 100% vesting of the award tranche.
3.5 Summary of Group Executive Total Reward (Non-Statutory Remuneration) Outcomes for FY17
The table below provides shareholders with an overall summary of remuneration earned and paid to Group Executives over the period up to 31 August 2017. It
consolidates the information referenced earlier in the report and provides a breakdown of the following components of Group Executives remuneration:
•
•
•
fixed remuneration (base plus super);
value of benefits; and
variable remuneration which includes:
› short term incentives comprising the cash component paid and cash value of deferred STI awarded as equity; and
›
value of LTI awarded in 2013 that vested in 2017.
This is a non-statutory table and is provided for shareholders information. It does not contain detail of FY17 LTI equity grants.
TABLE 7 - GROUP EXECUTIVE NON-STATUTORY REMUNERATION
Position Title
Managing Director & Chief Executive
Officer
2017
Base plus
Super (1) $
Value of
Benefits (2) $
FY17 STI
Cash (3) $
FY17 STI
Deferred (4) $
Total Value
STI $
Value of
Deferred
Equity
Vested in
Period (6) $
FY17
Total Cash
Payments (5)
Value of LTI
Vested in
Period (7) $
Total Reward
Value in
Period $
1,296,191
69,190
600,000
600,000
1,200,000
1,896,191
514,893
433,145
2,844,229
Chief Financial Officer
Chief Risk Officer
Group Executive Retail Banking
Group Executive BOQ Business
708,681
673,585
653,873
688,719
-
205,000
205,000
410,000
913,681
264,839
386,736
1,565,256
49,808
210,000
210,000
420,000
883,585
259,811
371,263
1,514,659
-
250,000
250,000
500,000
903,873
267,404
324,854
1,496,130
19,382
270,000
270,000
540,000
958,719
334,239
371,263
1,664,221
Group Executive Enterprise Solutions
578,988
Group Executive People & Culture
524,160
Group Executive Product & Strategy
504,371
47,598
20,800
6,600
182,500
182,500
365,000
761,488
148,156
147,500
147,500
295,000
671,660
130,240
85,000
-
85,000
589,371
5,904
General Counsel & Company
Secretary
402,658
-
102,500
102,500
205,000
505,158
41,607
-
-
-
-
909,644
801,900
595,275
546,765
Additional Information – Non-Statutory Remuneration Methodology
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Base remuneration and superannuation make up a Group Executive’s fixed remuneration.
Relates to parking and accommodation benefits.
This is 50% of the 2017 STI for performance during FY17 (payable November 2017).
This represents 50% of the 2017 STI award that is deferred until 1 October 2018 (50%) and 1 October 2019 (50%). The deferred awards are subject to Board review at the time of payment and are deferred into restricted
shares subject to vesting conditions.
This is the total $ value of cash STI, base and superannuation relating to 2017.
The value of all deferred cash and /or equity awards (closing share price on vesting date) that vested during FY17. This excludes deferred equity awards granted in previous years which have not vested in FY17.
This relates to PARs that vested during the financial year (closing share price on vesting date).
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Remuneration is governed by principles, policy and oversight of the HRRC in accordance with its charter and on behalf of the Board. The HRRC and Board may exercise
discretion in accordance with parameters described below.
The remuneration strategy and the principles adopted to support this are described in Section 2 on page 51. In accordance with the HRRC Charter, the remuneration
policy was updated during the period and was reviewed for regulatory compliance by external legal experts prior to approval by the Board. The remuneration strategy
and policy will be reviewed as developments and changes in the regulatory environment become known.
As noted in the Chairman’s letter, the HRRC continues to monitor developments arising from the remuneration reform program within the Financial Services industry
as it affects executive and employee remuneration at BOQ. These changes will be reflected in updates to the remuneration governance framework.
4.1 Remuneration Principles
• Total reward is linked to performance and aligns to shareholder interests;
• Fixed and total remuneration for each Group Executive is periodically benchmarked to the market to ensure it remains competitive;
• Key performance measures apply to all executives, covering both financial and non-financial targets;
• The Bank’s LTI is awarded on the basis of a VWAP at face value and not a risk adjusted value (fair value);
• Total remuneration for KMP is targeted to achieve a balance between fixed, short term and long term variable at risk remuneration;
• Variable remuneration is capped and subject to deferral and/or claw back of unvested short term incentive deferred and LTI;
• Cash payments are not made to executives joining BOQ; and
• The Board has discretion on all remuneration outcomes.
4.2 HRRC Charter
Under the Consolidated Entity’s HRRC charter, the Committee undertakes to conduct regular reviews and provide advice to the Board on the following:
• Review the Consolidated Entity’s remuneration policy, at least on a biennial basis, to ensure compliance with the Consolidated Entity’s objectives and risk management
framework and to reflect changes in the regulatory environment;
• Provide recommendations to the Board on remuneration, recruitment, succession, retention and termination policies for Group Executives;
• Undertake an annual review of the individual remuneration arrangements for Group Executives and all other Responsible Persons (as defined by the Australian
Prudential Regulation Authority Prudential Standard CPS 520) and provide annual recommendations to the Board;
• Review and provide annual recommendations to the Board on the remuneration principles for employees in Group Risk, Finance and Legal and recommendations
on the remuneration for all remaining groups of employees not otherwise specified; and
• Consider and recommend NED remuneration, including ensuring that the structure of NED remuneration is clearly distinguished from that of Group Executives.
Where necessary, the Board seeks advice from independent experts and advisors, including remuneration consultants. The remuneration consultants are engaged by the
HRRC which ensures, upon engagement, that the appropriate level of independence exists from the Consolidated Entity’s Management. Reports provided by independent
consultants are submitted directly to the Chairman of the HRRC. Where the consultant’s engagement requires a recommendation, the recommendation is provided to,
and discussed directly with the Chairman in accordance with the requirements as set out under the Corporations Act 2001.
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4.3 Board Discretion
Group Executives’ remuneration is determined by the remuneration strategy, policy and schemes such as STI and LTI. Remuneration outcomes are assessed against a
range of performance measures and awarded in accordance with the plan design and plan rules.
The Board and HRRC recognise that there are a number of factors which may be taken into account when considering the overall remuneration outcomes for each
year. To account for these factors, the HRRC and Board may make discretionary adjustments to the outcomes for Group Executives that may impact their remuneration
negatively or positively. Through this process, remuneration outcomes have been adjusted both positively and negatively in the past three years.
Criteria used by the HRRC to apply discretionary adjustments include:
• Factors either not known or relevant at the beginning of a financial year, which impacted performance positively or negatively during the course of the financial year;
• The degree of ‘stretch’ implicit in the measures and targets and the environment and market context in which the targets were set;
• Comparison with the performance of the Group relative to its competitors;
• The emergence of any major positive or negative risk, conduct or reputational issues and behaviours;
• The quality of the financial result as shown by its composition and consistency; and
• Any other matters that the Board and the HRRC deem to be relevant and which are not outlined above.
4.4 Clawback of Deferred STI and LTI
Each of the variable remuneration programs including STI, STI deferral and LTI are governed by plan rules that are reviewed and approved each year. Within these there
is specific reference to circumstances where Board discretion may be exercised and clawback of awards applied.
Group Executives are not eligible to receive STI if they are terminated for misconduct or poor performance, however the Board has discretion to consider a pro-rated STI
in circumstances where they meet the “good leaver” definition, usually in the case of redundancy, retirement or death in service.
The Board’s ability to clawback unvested equity awards, either deferred STI or LTI is set out in plan rules. In circumstances where it becomes evident that there was
a material misstatement of financial results or serious misconduct by an individual where this may result in reputational damage to the Bank, the Board can exercise
discretion to reduce or forfeit (clawback) a pro-rated amount or the full value of any unvested awards.
4.5 Executive Contracts
The remuneration and terms of Group Executives are formalised in their employment agreements. Each of these employment agreements provide for the payment
of fixed and performance-based variable remuneration, superannuation and other benefits such as statutory leave entitlements. Employment terms are governed by
employment contracts as set out in the table below.
TABLE 8 - GROUP EXECUTIVE NOTICE PERIODS
Position Title
Notice Period by Executive
Employer Notice Period
Additional No-Fault Termination Benefit (1)
Managing Director & Chief Executive Officer
Chief Financial Officer
Chief Risk Officer
Group Executive Retail Banking
Group Executive BOQ Business
Group Executive Enterprise Solutions
Group Executive People & Culture
Group Executive Product & Strategy
Group General Counsel & Company Secretary
9 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
9 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
(1)
Termination benefit payable by employer under ‘No-Fault’ employer initiated circumstances in addition to notice period.
No additional benefit
6 months fixed remuneration
3 months fixed remuneration
6 months fixed remuneration
6 months fixed remuneration
6 months fixed remuneration
6 months fixed remuneration
6 months fixed remuneration
6 months fixed remuneration
61
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 5. Non-Executive Director (‘NED’) Remuneration
5.1 Fee Pool
Non-Executive Director fees are determined within an aggregate fee pool limit. The pool currently stands at $2,800,000 (inclusive of superannuation) and was
approved by shareholders on 30 November 2016. The fee pool allows the Board flexibility in dealing with changes to its size and composition as a means of ensuring
that an appropriate mix of skills and experience is maintained and to be market competitive. There is no increase to the fee pool being sought in FY18.
5.2 Remuneration Framework
NED fees are set to attract and retain individuals of appropriate calibre to the BOQ Board and Committees. Fees are reviewed by the HRRC having regard to advice
provided periodically by independent remuneration consultants to ensure market comparability. There are no fee increases being sought in FY18.
The Chairman’s fees are determined independently to the fees of other Directors and are also based upon information provided by independent remuneration
consultants. The Chairman is not present at any discussions relating to the determination of their remuneration.
In order to maintain independence and impartiality, NEDs do not receive any performance-related remuneration including shares, award rights or share options.
NEDs are not provided with retirement benefits apart from statutory superannuation.
The table below sets out the current Board and Committee membership fee structure.
TABLE 9 - DIRECTORS’ ANNUAL FEES (1)
Directors’ Annual Fees (excluding statutory superannuation)
Fixed component of remuneration for Directors (2)
Chairman (3)
Additional remuneration is paid to Non-Executive Directors for Committee work:
St Andrews’ Board of Directors (4)
Audit Committee
Risk Committee
Nomination & Governance Committee
Human Resources & Remuneration Committee
Investment Committee (5)
Due Diligence Committee (5)
Information Technology Committee
01/09/16-31/08/17
Chairman/Committee Chair
01/09/16-31/08/17
Directors/Committee Members
-
400,000
-
45,000
45,000
15,000
35,000
2,250
2,250
35,000
150,000
-
45,000
22,500
22,500
10,000
17,500
1,500
1,500
17,500
(1)
(2)
(3)
(4)
(5)
Fees remain unchanged since FY16
Directors receive one fee for serving on Bank and subsidiary entity Committees. A separate fee is received for serving on the St Andrews Board.
The Chairman receives no additional remuneration for involvement with Committees.
David Willis is also a member of the St Andrew’s Board of Directors.
Per meeting.
Section 6. Statutory Tables
6.1 Statutory Disclosures
The following tables include details of the nature and amount, as required by the Corporations Act 2001, of each major element of the remuneration of each Director
and Group Executive of the Group, calculated in accordance with accounting standards.
62
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 f
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63
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62
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(
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53
Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives
The movement during FY17 in the number of rights over ordinary shares held by each Group Executive as part of their remuneration, are as follows:
TABLE 12 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2017
Movements during the 2017 Financial
Year
Group Executive
Type
Grant Date
Share Price at
Grant Date
$
Balance
at 1 Sep
2016
Granted (1)
Exercised
Lapsed
Balance at
31 August
2017 (1) (2)
Vested during
the
Year (3)
(%)
Current
Jon Sutton
2013 PARs
2013 DARs
2014 PARs
16/12/2013
16/12/2013
16/12/2014
Restricted Shares
16/12/2014
2015 PARs
Restricted Shares
2016 PARs
15/12/2015
15/12/2015
23/12/2016
Restricted Shares
23/12/2016
Matthew Baxby
2013 PARs
2013 DARs
2014 PARs
16/12/2013
16/12/2013
16/12/2014
Peter Deans
Restricted Shares
16/12/2014
2015 PARs
Restricted Shares
2016 PARs
15/12/2015
15/12/2015
23/12/2016
Restricted Shares
23/12/2016
2013 PARs
2013 DARs
2014 PARs
16/12/2013
16/12/2013
16/12/2014
Restricted Shares
16/12/2014
2015 PARs
15/12/2015
Restricted Shares
15/12/2015
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
Belinda Jefferys
2016 PARs
29/02/2016
Restricted Shares
29/02/2016
2016 PARs
Restricted Shares
Vimpi Juneja (4)
2015 PARs
2015 DARs
2016 PARs
23/12/2016
23/12/2016
15/12/2015
15/12/2015
23/12/2016
Restricted Shares
23/12/2016
11.43
11.43
11.70
11.70
13.02
13.02
11.95
11,95
11.43
11.43
11.70
11.70
13.02
13.02
11.95
11.95
11.43
11.43
11.70
11.70
13.02
13.02
11.95
11.95
10.55
10.55
11.95
11.95
13.02
13.02
11.95
11.95
60,189
4,515
103,721
16,596
97,774
46,932
-
-
-
-
-
-
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-
117,865
45,333
45,142
2,541
43,563
11,410
44,194
18,382
-
-
-
-
-
-
-
-
54,399
21,306
51,591
2,903
53,935
10,372
52,798
18,382
-
-
-
-
-
-
-
-
61,199
17,000
45,681
10,963
-
-
23,466
2,460
-
-
-
-
47,599
6,573
-
-
42,613
9,067
(1) This represents the maximum number of award rights that may vest to each Executive.
(2) Balance amounts as at 31 August 2017 are unvested and not yet exercisable.
(3) Percentage of initial rights granted.
(4) Vimpi Juneja ceased to be a Group Executive as at 31 August 2017.
38,882
4,515
-
16,596
-
23,466
-
-
29,161
2,541
-
11,410
-
9,191
-
-
33,327
2,903
-
10,372
-
9,191
-
-
-
10,963
-
-
-
492
-
-
21,307
-
-
-
-
-
-
-
15,981
-
-
-
-
-
-
-
18,264
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
103,721
-
97,774
23,466
117,865
45,333
-
-
43,563
-
44,194
9,191
54,399
21,306
-
-
53,935
-
52,798
9,191
61,199
17,000
45,681
65%
50%
-
50%
-
50%
-
-
65%
50%
-
50%
-
50%
-
-
65%
50%
-
50%
-
50%
-
-
-
-
100%
47,599
6,573
23,466
1,968
42,613
9,067
-
-
-
20%
-
-
65
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62
Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives (continued)
TABLE 12 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2017 (CONTINUED)
Movements during the 2017 Financial
Year
Group Executive
Type
Grant Date
Share Price at
Grant
Date
$
Balance
at 1 Sep 2016
Granted (1)
Exercised
Lapsed
Balance at
31 August
2017 (1) (2)
Vested during
the
Year (3)
(%)
Current
Anthony Rose
2013 PARs
2013 DARs
2014 PARs
16/12/2013
16/12/2013
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
2016 PARs
23/12/2016
Restricted shares
23/12/2016
Michelle Thomsen
2015 PARs
15/12/2015
Restricted shares
15/12/2015
2016 PARs
23/12/2016
Restricted shares
23/12/2016
Donna-Maree Vinci
2015 PARs
15/12/2015
Brendan White
Restricted shares
15/12/2015
2016 PARs
2016 PARs
29/02/2016
23/12/2016
Restricted shares
23/12/2016
2013 PARs
2013 DARs
2014 PARs
16/12/2013
16/12/2013
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
2016 PARs
23/12/2016
Restricted shares
23/12/2016
(1) This represents the maximum number of award rights that may vest to each Executive.
(2) Balance amounts as at 31 August 2017 are unvested and not yet exercisable.
(3) Percentage of initial rights granted.
11.43
11.43
11.70
11.70
13.02
13.02
11,95
11,95
13.02
13.02
11.95
11.95
13.02
13.02
10.55
11.95
11.95
11.43
11.43
11.70
11.70
13.02
13.02
11.95
11.95
53,740
3,024
51,860
10,683
50,843
18,382
-
-
30,897
7,235
-
-
44,585
12,593
52,076
-
-
-
-
-
-
58,932
17,000
-
-
35,813
7,707
-
-
-
-
-
51,679
15,413
51,591
2,903
49,786
14,106
50,061
23,857
-
-
-
-
-
-
-
-
58,026
21,533
34,716
3,024
-
10,683
-
9,191
-
-
-
3,618
-
-
-
12,593
-
-
-
33,327
2,903
-
14,106
-
11,929
-
-
19,024
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18,264
-
-
-
-
-
-
-
-
-
51,860
-
50,843
9,191
58,932
17,000
30,897
3,617
35,813
7,707
44,585
65%
50%
-
50%
-
50%
-
-
-
50%
-
-
-
-
100%
52,076
51,679
15,413
-
-
49,786
-
50,061
11,928
58,026
21,533
-
-
-
65%
50%
-
50%
-
50%
-
-
66
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives (continued)
The table below shows the total value of any rights that were granted, exercised or lapsed to Group Executives.
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2017
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date
$ (1)
Share Price at
Exercise Date
$ (2)
Value at Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Exercise Date
Group
Executive
Current
Jon Sutton
2012 DARs
26/02/2012
6.60
413,734
01/05/2013
2012 PARs
2012 DARs
26/02/2012
18/12/2012
5.18
6.20
386,568
27/10/2015
43,456
05/02/2014
07/05/2014
2012 PARs
2013 PARs
2013 DARs
18/12/2012
16/12/2013
16/12/2013
1.74 (4)
7.63
10.38
97,571
27/10/2015
459,242
24/10/2016
93,711
02/01/2015
02/01/2015
18/12/2015
2014 PARs
Restricted shares
16/12/2014
16/12/2014
15/12/2015
15/12/2015
23/12/2016
23/12/2016
01/02/2012
01/02/2012
18/12/2012
2015 PARs
Restricted shares
2016 PARs
Restricted Shares
Matthew Baxby
2012 DARs
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
6.13
11.70
7.67
13.02
6.80
11.95
6.60
5.18
6.20
18/12/2015
22/12/2016
635,810
-
388,335
16/12/2015
16/12/2016
749,927
-
611,055
15/12/2016
801,482
541,729
-
-
244,081
30/10/2013
09/07/2014
383,134
27/10/2015
32,593
09/07/2014
30/12/2014
31/12/2015
18/12/2012
16/12/2013
16/12/2013
1.74 (4)
7.63
10.38
73,177
27/10/2015
344,433
24/10/2016
52,720
30/12/2014
31/12/2015
27/01/2017
9.93
11.95
13.76
10.84
12.20
13.55
13.76
11.20
12.20
13.55
12.00
-
13.31
11.50
-
11.50
-
-
11.96
12.15
13.76
12.15
12.20
13.94
13.76
11.20
12.20
13.94
12.21
311,246
05/05/2017
374,549
05/05/2017
1,026,868
16/12/2017
15.187
25,657
47,493
18/12/2017
18/12/2017
18/12/2017
771,592
18/12/2017
435,478
16/12/2018
22,021
36,693
54,180
16/12/2018
16/12/2018
16/12/2018
-
16/12/2019
220,879
16/12/2024
190,854
16/12/2024
-
16/12/2020
269,859
16/12/2025
-
-
16/12/2021
16/12/2026
221,152
05/05/2017
224,666
05/05/2017
1,017,745
18/12/2017
12,770
19,239
36,648
18/12/2017
18/12/2017
18/12/2017
578,691
18/12/2017
326,603
16/12/2018
12,383
21,231
31,026
16/12/2018
16/12/2018
16/12/2018
(1)
(2)
(3)
(4)
Represents rights held at 1 September 2016 or granted during FY17.
Closing share price on exercise date of rights that have a nil exercise price.
Closing share price on exercise date multiplied by the number of rights exercised during the year.
The fair value as based on a valuation period from 18 October 2012 to grant date. The Bank’s total shareholder return over this period was below the peer group, decreasing the vesting probability and reducing the fair value
calculation.
67
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives (continued)
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2017 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date
$ (1)
Share Price at
Exercise Date
$ (2)
Exercise Date
Value at
Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Group
Executive
Current
Matthew Baxby
(continued)
Peter Deans
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
Restricted shares
2016 PARs
Restricted Shares
2012 PARs
2012 DARs
15/12/2015
15/12/2015
23/12/2016
23/12/2016
10/05/2012
18/12/2012
6.13
11.70
7.67
13.02
6.80
11.95
3.70
6.20
267,041
-
266,982
16/12/2015
16/12/2016
338,968
-
239,334
15/12/2016
369,913
254,607
-
-
255,526
27/10/2015
38,273
30/10/2014
28/01/2015
18/12/2015
2012 PARs
2013 PARs
2013 DARs
18/12/2012
16/12/2013
16/12/2013
1.74 (4)
7.63
10.38
83,631
27/10/2015
393,639
24/10/2016
60,246
28/01/2015
-
13.31
11.50
-
11.50
-
-
13.76
12.66
12.37
13.55
13.76
11.20
12.37
13.55
11.95
-
13.31
11.50
-
-
16/12/2019
151,854
16/12/2024
131,215
16/12/2024
-
16/12/2020
105,697
16/12/2025
-
-
16/12/2021
16/12/2026
950,279
16/12/2017
15,622
22,909
41,829
18/12/2017
18/12/2017
18/12/2017
661,361
18/12/2017
373,262
16/12/2018
14,349
23,591
34,691
16/12/2018
16/12/2018
16/12/2018
-
16/12/2019
138,051
16/12/2024
119,278
16/12/2024
-
16/12/2020
18/12/2015
27/12/2016
330,622
-
242,705
16/12/2015
16/12/2016
404,961
-
239,334
15/12/2016
11.50
105,697
16/12/2025
416,153
203,150
350,373
142,738
323,673
78,547
28,807
179,984
289,768
108,351
-
-
-
6/12/2016
4/4/2017
27/07/2017
-
-
-
-
-
11.33
12.11
12.20
-
-
-
-
-
41,411
44,250
16/12/2021
16/12/2026
16/12/2020
16/12/2025
16/12/2025
44,579
16/12/2025
-
-
16/12/2021
16/12/2026
23/12/2016
11.95
5,879
16/12/2020
-
-
-
-
-
-
-
-
-
16/12/2025
16/12/2021
16/12/2026
2014 PARs
16/12/2014
Restricted shares
16/12/2014
2015 PARs
15/12/2015
Restricted shares
15/12/2015
2016 PARs
Restricted Shares
Belinda Jefferys
2016 PARs
23/12/2016
23/12/2016
29/02/2016
Restricted shares
29/02/2016
Vimpi Juneja (5)
2016 PARs
Restricted Shares
2015 DARs
2015 PARs
2016 PARs
23/12/2016
23/12/2016
15/12/2015
15/12/2015
23/12/2016
Restricted Shares
23/12/2016
6.13
11.70
7.67
13.02
6.80
11.95
7.67
13.02
6.80
11.95
11.71
7.67
6.80
11.95
(1) Represents rights held at 1 September 2016 or granted during FY17.
(2) Closing share price on exercise date of rights that have a nil exercise price.
(3) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(4) The fair value as based on a valuation period from 18 October 2012 to grant date. The Bank’s total shareholder return over this period was below the peer group, decreasing the vesting probability and reducing the fair value calculation.
(5) Vimpi Juneja ceased to be a Group Executive as at 31 August 2017.
68
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives (continued)
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2017 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date
$ (1)
Share Price at
Exercise Date
$ (2)
Value at Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Exercise Date
Group
Executive
Current
Anthony Rose
2012 DARs
29/02/2012
6.60
198,198
30/10/2013
2012 PARs
2012 DARs
29/02/2012
18/12/2012
5.18
6.20
388,888
27/10/2015
38,800
15/01/2014
25/07/2014
2012 PARs
2013 PARs
2013 DARs
18/12/2012
16/12/2013
16/12/2013
1.74 (4)
7.63
10.38
87,117
28/10/2015
410,036
21/10/2016
62,757
08/01/2015
08/01/2015
26/02/2016
11.96
12.57
13.76
11.89
11.94
10.55
13.51
11.14
11.94
10.55
12.40
-
13.31
11.50
-
11.50
-
-
-
179,579
05/05/2017
188,739
05/05/2017
1,033,032
16/12/2017
14,874
22,423
33,011
676,405
386,736
14,435
19,127
37,498
18/12/2017
18/12/2017
18/12/2017
18/12/2017
16/12/2018
16/12/2018
16/12/2018
16/12/2018
-
16/12/2019
142,191
16/12/2024
122,855
16/12/2024
-
16/12/2020
105,697
16/12/2025
-
-
-
16/12/2021
16/12/2026
16/12/2020
26/02/2016
09/01/2017
317,902
-
249,982
16/12/2015
389,966
239,334
400,738
203,150
236,980
16/12/2016
-
15/12/2016
-
-
-
94,200
15/12/2016
11.50
41,607
16/12/2025
243,528
92,099
341,967
163,961
399,423
351,417
184,185
-
-
-
6/12/2016
27/07/2017
-
-
-
-
-
-
11.33
12.20
-
-
-
-
-
-
71,345
76,811
-
-
-
16/12/2021
16/12/2026
16/12/2020
16/12/2025
16/12/2025
16/12/2020
16/12/2021
16/12/2026
2014 PARs
Restricted shares
16/12/2014
16/12/2014
2015 PARs
Restricted shares
2016 PARs
Restricted shares
Michelle Thomsen
2015 PARs
15/12/2015
15/12/2015
23/12/2016
23/12/2016
15/12/2015
Restricted shares
15/12/2015
2016 PARs
Restricted shares
Donna-Maree Vinci
2015 PARs
Restricted shares
2016 PARs
2016 PARs
Restricted shares
23/12/2016
23/12/2016
15/12/2015
15/12/2015
29/02/2016
23/12/2016
23/12/2016
6.13
11.70
7.67
13.02
6.80
11.95
7.67
13.02
6.80
11.95
7.67
13.02
7.67
6.80
11.95
(1) Represents rights held at 1 September 2016 or granted during FY17.
(2) Closing share price on exercise date of rights that have a nil exercise price.
(3) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(4) The fair value as based on a valuation period from 18 October 2012 to grant date. The Bank’s total shareholder return over this period was below the peer group, decreasing the vesting probability and reducing the fair value calculation.
69
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 6. Statutory Tables (continued)
6.2 Equity held by Group Executives (continued)
TABLE 13 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING FY 2017 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date
$ (1)
Share Price at
Exercise Date
$ (2)
Value at Exercise
Date
$ (3)
Expiry /
Lapsing
Date
Exercise Date
Group
Executive
Current
Brendan White
2012 DARs
10/02/2012
6.60
498,788
01/05/2013
2012 PARs
2012 DARs
2012 PARs
2013 PARs
2013 DARs
2014 PARs
Restricted shares
2015 PARs
Restricted shares
2016 PARs
Restricted shares
10/02/2012
18/12/2012
18/12/2012
16/12/2013
16/12/2013
16/12/2014
16/12/2014
15/12/2015
15/12/2015
23/12/2016
23/12/2016
5.18
6.20
1.74 (4)
7.63
10.38
6.13
11.70
7.67
13.02
6.80
11.95
03/06/2014
349,526
27/10/2015
38,800
23/12/2014
18/12/2015
87,117
27/10/2015
393,639
24/10/2016
60,246
23/12/2014
18/12/2015
05/04/2017
305,188
-
330,080
16/12/2015
16/12/2016
383,968
-
310,618
15/12/2016
394,577
257,319
-
-
9.93
12.00
13.76
12.08
13.55
13.76
11.20
12.08
13.55
12.12
-
13.31
11.50
-
11.50
-
-
375,225
05/05/2017
453,444
05/05/2017
928,470
16/12/2017
37,798
42,398
18/12/2017
18/12/2017
688,922
18/12/2017
373,262
16/12/2018
14,013
23,591
35,184
16/12/2018
16/12/2018
16/12/2018
-
16/12/2019
187,751
16/12/2024
162,219
16/12/2024
-
16/12/2020
137,184
16/12/2025
-
-
16/12/2021
16/12/2026
(1) Represents rights held at 1 September 2016 or granted during FY17.
(2) Closing share price on exercise date of rights that have a nil exercise price.
(3) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(4) The fair value as based on a valuation period from 18 October 2012 to grant date. The Bank’s total shareholder return over this period was below the peer group, decreasing the vesting probability and reducing the fair value calculation.
70
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Section 6. Statutory Tables (continued)
6.3 Equity Instruments - Holdings and Movements
Movement in shares
The number of shares held directly, indirectly or beneficially by each Director, Group Executive or related party is as follows:
Ordinary shares (1)
Executive Director
Jon Sutton
Directors - Current
Roger Davis
Bruce Carter
Richard Haire
John Lorimer
Karen Penrose
Margaret Seale
Michelle Tredenick
David Willis
Executives - Current
Matthew Baxby (2)
Peter Deans (2)
Belinda Jefferys
Anthony Rose
Donna-Maree Vinci
Brendan White
Held at
1 September
2016
110,979
18,043
16,337
7,347
-
8,500
11,043
10,635
1,990
106,221
89,677
-
4,942
-
3,330
Received on
Exercise of Award
Rights / Restricted
Shares
Purchases /
(Sales)
Held at
31 August
2017
-
-
1,166
-
12,000
1,000
-
-
142
(99,718)
(78,327)
-
(59,532)
-
(62,265)
83,459
194,438
-
-
-
-
-
-
-
-
52,303
55,793
10,963
57,614
12,593
62,265
18,043
17,503
7,347
12,000
9,500
11,043
10,635
2,132
58,806
67,143
10,963
3,024
12,593
3,330
(1) Directors and Group Executives with nil shareholding balances as at 31 August 2017 have been excluded from the table above.
(2) Opening balances have been updated to reflect shares held indirectly or beneficially by Group Executives as at 1 September 2016 (Matthew Baxby: 58,806 shares, Peter Deans: 69,441 shares)
71
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2017Remuneration ReportRemuneration Governance 60 Non-Executive Director Remuneration 62 Statutory Tables 62 Section 6. Statutory Tables (continued)
6.4 Transactions with Key Management Personnel (Directors and Group Executives)
Loan transactions
Loans to KMP and their related parties (including close family members of the KMP and entities over which the KMP and/or their close family members have control,
joint control or significant influence) are provided in the ordinary course of business. Normal commercial terms and conditions are applied to all loans. Any discounts
provided to KMP are the same as those available to all employees of the Consolidated Entity. There have been no write downs or amounts recorded as provisions during
FY17.
Details of loans held by KMP and their related parties during the financial year, where the individual’s aggregate loan balance exceeded $100,000 at any time in this
period, are as follows:
Executives
Matthew Baxby
Michelle Thomsen
Brendan White
Other Related Parties
Richard Haire related parties
Jon Sutton related parties
Warwick Negus related parties (1)
Balance at
1 September 2016
$
Interest charged
during the year
$
Balance at
31 August
2017
$
Highest
balance during
the year
$
1,052,990
352,876
251,009
191,000
762,899
-
46,575
18,034
12,330
8,194
36,681
76,189
1,105,970
1,349,504
323,140
341,326
352,876
341,465
191,000
1,296,199
-
191,696
1,459,792
2,809,063
(1) Warwick Negus was appointed as a Director of the Bank on 22 September 2016
Details regarding the aggregate of loans made, guaranteed or secured by any entity in the economic entity to all Group Executives and their related parties,
and the number of individuals in each group are as follows:
Executives
Other Related Parties
Balance at
1 September 2016
$
Interest charged
during the year
$
1,690,202
953,899
78,414
121,065
Balance at
31 August
2017
$
1,788,768
1,487,199
Number in
group at
31 August
2017
#
4
3
Other transactions
Transactions with KMP and their related parties (other than loans and shares) during the financial year were related to personal banking, investment, finance leasing,
insurance policy and deposit transactions. These transactions are on normal commercial terms and conditions, in the ordinary course of business and are considered
trivial or domestic in nature.
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (1) at a price of $10,000 per note. Details of those notes issued to BOQ Directors are set out below:
Roger Davis
David Willis
Total
(1) Capital notes are classified as non-current.
72
Balance at
31 August
2017
$
200,000
70,000
270,000
Interest
earned
for the year
$
8,884
3,109
11,993
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Remuneration ReportSummary of Key Management Personnel 50Remuneration Strategy & Framework 50 Remuneration Outcomes 53 Indemnification of officers
The Bank’s Constitution provides that all officers of the Bank are indemnified by
the Bank against liabilities incurred by them in the capacity of officer to the full
extent permitted by the Corporations Act 2001.
Insurance of officers
Since the end of the previous financial year the Bank has paid insurance
premiums in respect of a Directors’ and Officers’ liability insurance contract. The
contract insures each person who is or has been a Director or Executive officer
(as defined in the Corporations Act 2001) of the Bank against certain liabilities
arising in the course of their duties to the Bank and its controlled entities. The
Directors have not included details of the nature of the liabilities covered or
the amount of the premium paid in respect of the insurance contract as such
disclosure is prohibited under the terms of the contract.
Directors’ interests
Directors’ interests as at the date of this report were as follows:
Audit and Non-audit services
During the year, KPMG, the Bank’s auditor, has performed certain other services
in addition to their statutory duties. The Board has considered the non-audit
services provided during the year by the auditor is compatible with, and did not
compromise, the auditor’s independence requirements of the Corporations Act
2001 for the following reasons:
•
•
all non-audit services were subject to the corporate governance procedures
adopted by the Bank and have been reviewed by the Audit Committee to
ensure they do not impact the integrity and objectivity of the auditor; and
the non-audit services provided do not undermine the general principles
relating to auditor’s independence as set out in APES 110 Code of Ethics for
Professional Accountants, as they did not involve reviewing or auditing the
auditor’s own work, acting in a management or decision making capacity for
the Bank or acting as an advocate for the Bank or jointly sharing risks and
rewards.
Roger Davis
Jon Sutton
Warwick Negus
Bruce Carter
Richard Haire
John Lorimer
Karen Penrose
Margaret Seale
Michelle Tredenick
David Willis
18,043
194,438
-
17,503
7,347
12,000
9,500
11,043
10,635
2,132
Details of the amounts paid to the auditor of the Bank, KPMG and its related practices for audit and non-audit services provided during the year are set out below:
KPMG Australia
Audit services
- Audit and review of the financial reports
- Other regulatory and audit services
Audit-related services
- Other assurance services
- Regulatory assurance services
Non-audit services
- Taxation services
- Other
Consolidated
Bank
2017
$000
1,561
250
1,811
744
191
935
189
215
404
2016
$000
1,215
277
1,492
716
144
860
120
70
190
2017
$000
1,029
162
1,191
533
191
724
189
215
404
2016
$000
860
160
1,020
619
144
763
120
70
190
73
For the year ended 31 August 2017Directors’ ReportBank of Queensland Limited and its Controlled Entities Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page 75 and forms part
of the Directors’ report for the year ended 31 August 2017.
Director and Management changes
Warwick Negus was appointed as a Non-Executive Director on 22 September
2016.
Vimpi Juneja (Group Executive Product & Strategy) ceased employment on 31
August 2017.
Management attestation
The Board has been provided with a written statement from the Group’s
Managing Director and CEO and Chief Financial Officer, confirming the
accompanying financial statements and notes are in accordance with the
Corporations Act 2001 and they present a true and fair view in all material
respects of the Group’s financial position and performance as at and for the year
ended 31 August 2017.
Subsequent events
Dividends have been determined after 31 August 2017. The financial effect of
the dividends has not been brought to account in the financial statements for
the year ended 31 August 2017, other than accrued interest on the Convertible
Preference Shares. Further details with respect to the dividend amounts per
share, payment date and dividend reinvestment plan can be obtained from Section
2.4 Dividends of the consolidated financial statements.
No matters or circumstances have arisen since the end of the financial year
and up until the date of this report which significantly affects the operations of
the Bank, the results of those operations, or the state of affairs of the Bank in
subsequent years.
Rounding of amounts
The Bank is a company of a kind referred to in ASIC Corporations Instrument
2016/191 dated 24 March 2016 and in accordance with that Instrument,
amounts in this financial report and Directors’ report have been rounded off
to the nearest million dollars, unless otherwise stated.
The Directors’ declaration can be found on page 143 of the financial statements.
Signed in accordance with a resolution of the Directors:
Environmental regulation
The Group’s operations are not subject to any significant environmental
regulations under either Commonwealth or State legislation. The Board confirms
that the Group is not aware of any breach of environmental requirements.
Roger Davis
Chairman
11 October 2017
Jon Sutton
Managing Director and CEO
11 October 2017
74
Annual Report 2017 BOQ.com.auFor the year ended 31 August 2017Directors’ Report Lead Auditor’s Independence Declaration
Under Section 307C of the Corporations Act 2001
To the Directors of Bank of Queensland Limited
I declare that, to the best of my knowledge and belief, in relation to the audit of Bank of Queensland Limited for the financial year ended 31 August 2017 there
have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
(ii) no contraventions of any applicable code of professional conduct in relation to the audit.
KPMG
Robert Warren
Partner
Sydney
11 October 2017
KPMG, an Australian partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
75
Bank of Queensland Limited and its Controlled Entities 2017
Financial Statements
Income Statements
For the year ended 31 August 2017
Interest income
Less: Interest expense
Net interest income
Other operating income
Net banking operating income
Premiums from insurance contracts
Investment revenue
Less: Claims and policyholder liability expense from insurance contracts
Net insurance operating income
Total operating income before impairment and operating expenses
Less: Expenses
Less: Impairment on loans and advances
Profit before income tax
Less: Income tax expense
Profit for the year
Profit attributable to:
Equity holders of the parent
Earnings per share
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
The Income Statements should be read in conjunction with the accompanying notes.
Consolidated
Bank
2017
$m
2,046
1,120
926
156
1,082
68
2
49
21
2016
$m
2,157
1,221
936
155
1,091
70
3
47
26
2017
$m
2,015
1,280
735
347
1,082
-
-
-
-
2016
$m
2,147
1,370
777
295
1,072
-
-
-
-
1,103
1,117
1,082
1,072
548
48
507
155
352
554
67
496
158
338
508
32
542
126
416
510
37
525
146
379
352
338
416
379
90.9
87.8
89.8
85.5
Section
2.1
2.1
2.1
2.1
2.1
2.1
2.2
3.4
2.3
2.6
2.6
78
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Statements of Comprehensive Income
For the year ended 31 August 2017
Profit for the year
Other comprehensive income, net of income tax
Items that may be reclassified subsequently to profit or loss
Cash flow hedges:
Net gains / (losses) taken to equity
Net losses transferred to profit and loss
Foreign currency translation differences on foreign operations
Net change in fair value of financial assets available-for-sale
Net gains transferred to profit and loss for financial assets available-for-sale
Other comprehensive expense, net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the parent
The Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
Consolidated
Bank
2017
$m
352
13
23
-
3
(14)
25
377
2016
$m
338
(75)
12
(1)
24
(10)
(50)
288
2017
$m
416
19
23
-
3
(14)
31
447
2016
$m
379
(76)
12
-
24
(10)
(50)
329
377
288
447
329
79
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Balance Sheets
As at 31 August 2017
Assets
Cash and liquid assets
Due from other financial institutions - term deposits
Financial assets available-for-sale
Financial assets held for trading
Derivative financial assets
Loans and advances at amortised cost
Other assets
Shares in controlled entities
Property, plant and equipment
Deferred tax assets
Intangible assets
Investments in joint arrangements
Amounts due from controlled entities
Total assets
Liabilities
Due to other financial institutions - accounts payable at call
Deposits
Derivative financial liabilities
Accounts payable and other liabilities
Current tax liabilities
Provisions
Insurance policy liabilities
Borrowings
Total liabilities
Net Assets
Equity
Issued capital
Reserves
Retained profits
Total Equity
The Balance Sheets should be read in conjunction with the accompanying notes.
80
Consolidated
2017
$m
2016
$m
Bank
2017
$m
Section
3.1
3.3
3.3
3.8
3.4
6.5
2.3
4.1
6.7
3.2
3.8
4.2
5.1
3.5
914
58
3,934
1,837
109
43,590
214
-
60
55
872
15
-
1,228
68
3,739
1,591
180
42,896
127
-
60
80
869
15
-
2016
$m
703
10
3,930
1,591
180
537
8
4,027
1,837
107
39,348
38,881
501
867
53
52
793
-
324
229
872
51
81
802
-
24
51,658
50,853
48,454
47,354
262
37,169
333
390
7
42
16
9,651
47,870
209
36,720
498
355
14
47
25
9,398
47,266
262
37,501
333
327
6
33
-
6,230
44,692
209
37,523
490
311
14
35
-
5,281
43,863
3,788
3,587
3,762
3,491
3,360
57
371
3,788
3,243
33
311
3,587
3,367
48
347
3,762
3,250
18
223
3,491
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Statements of Changes in Equity
For the year ended 31 August 2017
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity reserve
for credit
losses
$m
Cashflow
hedge reserve
$m
Available-for-
sale reserve
$m
Retained
profits
$m
Total
equity
$m
Consolidated
Year ended 31 August 2017
Balance at beginning of the year
Total comprehensive income for the year
Profit for the year
3,243
27
81
(153)
-
-
-
-
Other comprehensive income, net of income tax
Cash flow hedges:
Net gains taken to equity
Net losses transferred to profit and loss
Net change in fair value of financial assets available-for-sale
Net gains transferred to profit and loss for financial assets
available-for-sale
Total other comprehensive income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
-
-
-
-
-
-
12
105
-
-
117
3,360
-
-
-
-
-
-
-
-
-
(1)
(1)
26
-
-
-
-
-
-
-
-
-
-
-
13
23
-
-
36
36
-
-
-
-
-
78
-
-
-
3
(14)
(11)
(11)
-
-
-
-
-
311
3,587
352
352
-
-
-
-
-
352
-
-
(292)
-
(292)
371
13
23
3
(14)
25
377
12
105
(292)
(1)
(176)
3,788
81
(117)
67
(1) On 21 October 2016, 1,050,000 ordinary shares were issued at $11.15 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights
Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
81
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Statements of Changes in Equity
For the Year Ended 31 August 2017
Consolidated
Year ended 31 August 2016
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit losses
$m
Cashflow
hedge
reserve
$m
Translation
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
Balance at beginning of the year
3,122
34
81
(90)
Total comprehensive income for the year
Profit for the year
-
-
-
-
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net losses transferred to profit and loss
Foreign currency translation difference
on foreign operations
Change in fair value of financial assets available-
for-sale
Net gains transferred to profit and loss for financial
assets available-for-sale
Total other comprehensive income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Transfer to cash settled transactions
Treasury shares (2)
Total contributions by and distributions to owners
Balance at the end of the year
-
-
-
-
-
-
-
20
104
-
-
(2)
(1)
121
3,243
-
-
-
-
-
-
-
-
-
-
(9)
2
-
(7)
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(75)
12
-
-
-
(63)
(63)
-
-
-
-
-
-
-
81
(153)
1
-
-
-
(1)
-
-
(1)
(1)
-
-
-
-
-
-
-
-
64
257
3,469
-
-
-
-
24
(10)
14
14
-
-
-
-
-
-
-
78
338
338
-
-
-
-
-
-
338
-
-
(284)
-
-
-
(284)
311
(75)
12
(1)
24
(10)
(50)
288
20
104
(284)
(9)
-
(1)
(170)
3,587
(1) On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the
exercise of award rights and issue of shares under the Award Rights Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
(2) Treasury shares represent the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. No gain or loss is recognised in profit or loss on the purchase, sale, issue or
cancellation of the Bank’s own equity instruments.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
82
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Statements of Changes in Equity
For the year ended 31 August 2017
Bank
Year ended 31 August 2017
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit losses
$m
Cashflow
hedge
reserve
$m
Available-for-
sale reserve
$m
Retained
profits
$m
Total
equity
$m
Balance at beginning of the year
3,250
27
68
(155)
78
223
3,491
Total comprehensive income for the year
Profit for the year
Other comprehensive income, net of income tax
Cash flow hedges:
Net gains taken to equity
Net losses transferred to profit and loss
Net change in fair value of financial assets available-for-sale
Net gains transferred to profit and loss for financial assets
available-for-sale
Total other comprehensive income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
-
-
-
-
-
-
-
12
105
-
-
117
3,367
-
-
-
-
-
-
-
-
-
-
(1)
(1)
26
-
-
-
-
-
-
-
-
-
-
-
-
-
19
23
-
-
42
42
-
-
-
-
-
-
-
-
3
(14)
(11)
(11)
-
-
-
-
-
68
(113)
67
416
416
-
-
-
-
-
416
-
-
(292)
-
(292)
347
19
23
3
(14)
31
447
12
105
(292)
(1)
(176)
3,762
(1) On 21 October 2016, 1,050,000 ordinary shares were issued at $11.15 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights Plan
and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
83
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Statements of Changes in Equity
For the Year Ended 31 August 2017
Bank
Year ended 31 August 2016
Balance at beginning of the year
Total comprehensive income for the year
Profit for the year
Other comprehensive income, net of income tax
Cash flow hedges:
Net losses taken to equity
Net losses transferred to profit and loss
Net change in fair value of financial assets available-for-sale
Net gains transferred to profit and loss for financial assets
available-for-sale
Total other comprehensive income / (expense)
Total comprehensive income / (expense) for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issues of ordinary shares (1)
Dividend reinvestment plan
Dividends to shareholders
Equity settled transactions
Transfer to cash settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve for
credit losses
$m
Cashflow
hedge
reserve
$m
Available-for-
sale reserve
$m
Retained
profits
$m
Total
equity
$m
3,128
34
68
(91)
64
128
3,331
-
-
-
-
-
-
-
20
104
-
-
(2)
122
3,250
-
-
-
-
-
-
-
-
-
-
(9)
2
(7)
27
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(76)
12
-
-
(64)
(64)
-
-
-
-
-
-
-
-
-
24
(10)
14
14
-
-
-
-
-
-
68
(155)
78
379
379
-
-
-
-
-
379
-
-
(284)
-
-
(284)
223
(76)
12
24
(10)
(50)
329
20
104
(284)
(9)
-
(169)
3,491
(1) On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the
exercise of award rights and issue of shares under the Award Rights Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
84
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Statements of Cash Flows
For the year ended 31 August 2017
Cash flows from operating activities
Interest received
Fees and other income received
Dividends received
Interest paid
Cash paid to suppliers and employees
Income tax paid
Increase in operating assets:
Loans and advances at amortised cost
Other financial assets
Increase / (decrease) in operating liabilities:
Deposits
Net cash outflow from operating activities
Cash flows from investing activities
Acquisition of BOQF Cashflow Finance Pty Ltd (1)
Disposal of vendor finance entity, net of cash
Receipt of third party loan repayment
Payments for property, plant and equipment
Payments for intangible assets
Cash distribution received from equity accounted investments
Capital injection into controlled entities
Proceeds from sale of property, plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Proceeds from borrowings
Proceeds from foreign exchange instruments
Repayment of other financing activities
Repayments of borrowings
Payments for treasury shares
Dividends paid
Dividends received
Net cash inflow from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and liquid assets at beginning of year
Cash and liquid assets at end of year
(1) Entity was formerly known as Centerpoint Alliance Premium Funding Pty Ltd.
The statements of cash flows should be read in conjunction with the accompanying notes.
Section
3.1
6.5
Consolidated
2017
$m
1,990
137
1
(1,066)
(478)
(143)
441
(699)
(484)
440
(302)
(14)
19
95
(18)
(46)
-
-
13
49
12
3.5
4,090
-
-
2016
$m
2,156
130
1
(1,263)
(502)
(174)
348
(2,259)
(395)
1,925
(381)
-
-
-
(16)
(67)
3
-
12
(68)
20
3,515
57
-
Bank
2017
$m
1,846
176
1
(1,225)
(440)
(141)
217
(485)
(390)
(217)
(875)
-
-
-
(17)
(40)
-
-
1
(56)
11
2,734
10
(57)
3.5
(3,963)
(2,818)
(1,788)
(12)
(188)
-
(61)
(314)
1,228
914
(20)
(180)
-
574
125
1,103
1,228
(12)
(188)
55
765
(166)
703
537
3.1
2016
$m
2,024
172
1
(1,403)
(482)
(172)
140
(2,147)
(416)
2,088
(335)
-
-
-
(8)
(72)
-
(10)
-
(90)
20
2,392
-
(703)
(1,003)
(20)
(180)
69
575
150
553
703
85
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Notes to the Financial Statements
For the Year Ended 31 August 2017
Section 1
Basis of preparation
1.1
1.2
1.3
Reporting entity
Basis of accounting
Use of estimates and judgements
Section 2
Financial performance
2.1
2.2
2.3
2.4
2.5
2.6
Operating income
Expenses
Income tax expense and deferred tax
Dividends
Operating segments
Earnings per share (‘EPS’)
Section 3
Capital and Balance Sheet management
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Cash and liquid assets
Deposits
Financial assets
Loans and advances at amortised cost
Borrowings
Risk management
Financial instruments
Derivative financial instruments
Capital management
3.10
Capital and reserves
Section 4
Other assets and liabilities
4.1
4.2
Intangible assets
Provisions
Section 5
Insurance Business
5.1
Insurance business
Section 6
Other notes
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
Employee benefits
Commitments
Contingent liabilities
Related parties information
Controlled entities
Deed of cross guarantee
Investments in joint arrangements
Auditor’s remuneration
Events subsequent to balance date
6.10
Significant accounting policies & new accounting standards
86
Page
87
87
87
87
88
88
89
90
93
94
95
96
96
97
97
98
101
103
112
116
119
120
121
121
123
124
124
129
129
130
131
131
133
136
137
138
138
139
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimates are revised if the revision only affects that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
Information about significant areas of estimation uncertainty and critical judgements
in applying accounting policies that have the most significant effect on the
amounts recognised in the financial statements are described below:
• Provision for impairment – Section 3.4;
•
Financial instruments – Section 3.7;
• Carrying value of goodwill and other intangible assets – Section 4.1;
• Provisions – Section 4.2; and
• Contingent liabilities – Section 6.3.
Section 1. Basis of preparation
1.1 Reporting entity
The Bank is a company domiciled in Australia. The address of the Bank’s registered
office is Level 6, 100 Skyring Terrace, Newstead QLD 4006.
The consolidated financial statements of the Bank for the financial year ended 31
August 2017 comprise the Consolidated Entity and the Consolidated Entity’s
interest in equity accounted investments. The principal activity of the Bank is the
provision of financial services to the community.
1.2 Basis of accounting
(a) Statement of compliance
These general purpose financial statements have been prepared in accordance
with Australian Accounting Standards and interpretations issued by the Australian
Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The
consolidated financial statements and notes thereto also comply with International
Financial Reporting Standards (‘IFRS’) as issued by the International Accounting
Standards Board (‘IASB’). The consolidated financial statements were authorised
for issue by the Directors on 11 October 2017.
(b) Basis of measurement
The consolidated financial statements are prepared on the historical cost basis
with the exception of the following assets and liabilities which are stated at their
fair value:
•
•
•
•
derivative financial instruments;
financial assets held for trading;
financial assets available-for-sale; and
assets and liabilities acquired through business combinations.
(c) Functional and presentation currency
The consolidated financial statements are presented in Australian dollars, which is
the Bank’s functional currency.
(d) Rounding
The Consolidated Entity is of a kind referred to in ASIC Corporations Instrument
2016/191 dated 24 March 2016 and in accordance with that Instrument, amounts
in this financial report and Directors’ report have been rounded off to the nearest
million dollars, unless otherwise stated.
1.3. Use of estimates and judgements
The preparation of a financial report in conformity with Australian Accounting
Standards requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets, liabilities,
income and expenses. These estimates and associated assumptions are based on
historical experience and various other factors that are believed to be reasonable
under the circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates.
These accounting policies have been consistently applied throughout the
Consolidated Entity.
87
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Section 2. Financial performance
2.1 Operating income
Interest income
Loans and advances
Securities at fair value
Total interest income
Interest expense
Retail deposits
Wholesale deposits and borrowings
Total interest expense
Net interest income
Income from operating activities
Other customer fees and charges
Share of fee revenue paid to Owner Managed Branches
Securitisation income
Net income/(expense) from financial instruments and derivatives at fair value
Commissions
Management fee – controlled entities
Foreign exchange income – customer based
Net profit / (loss) on sale of property, plant and equipment
Other income
Total income from operating activities
Consolidated
2017
$m
1,900
146
2,046
611
509
1,120
926
90
(8)
-
(4)
31
-
11
12
24
2016
$m
2,002
155
2,157
662
559
1,221
936
98
(10)
-
13
26
-
9
11
8
156
155
Bank
2017
$m
1,738
277
2,015
612
668
1,280
735
118
(8)
42
(3)
13
19
11
-
155
347
2016
$m
1,729
418
2,147
656
714
1,370
777
122
(10)
50
12
12
27
9
(1)
74
295
Net insurance operating income
Total operating income
21
1,103
26
1,117
-
1,082
-
1,072
Interest income and expense
Interest income and expense for all interest bearing financial instruments are recognised in the profit or loss using the effective interest rates of the financial assets or
financial liabilities to which they relate.
Other operating income
Other operating income and expense that are considered an integral part of the effective interest rate on a financial asset or liability are included in the measurement of
the effective interest rate. Non-yield related application and activation lending fee revenue is recognised when the loan is disbursed or the commitment to lend
expires. Service fees that represent the recoupment of the costs of providing the service are recognised on an accrual basis when the service is provided.
Dividends are recognised when control of a right to receive consideration is established.
88
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.2 Expenses
Operating expenses
Advertising
Commissions to Owner Managed Branches
Communications and postage
Printing and stationery
Processing costs
Other
Administrative expenses
Professional fees
Directors fees
Other
IT expenses
Data processing
Amortisation – computer software (intangible)
4.1
Depreciation – IT equipment
Occupancy expenses
Lease rentals
Depreciation – plant, furniture, equipment and leasehold improvements
Other
Employee expenses
Salaries, wages and superannuation contributions
Payroll tax
Equity settled transactions
Other
Other
Amortisation – acquired intangibles
4.1
Total expenses
Consolidated
2017
$m
2016
$m
Bank
2017
$m
2016
$m
Section
23
6
20
4
10
31
94
13
2
6
21
71
38
1
110
33
9
3
45
232
12
11
9
264
14
548
23
7
21
4
20
24
99
12
2
5
19
67
28
1
96
34
9
3
46
241
14
12
11
278
16
554
16
6
19
4
10
33
88
12
2
9
23
67
36
1
104
30
8
3
41
209
11
10
9
239
13
508
17
6
20
4
20
21
88
9
2
8
19
62
27
1
90
32
9
2
43
220
13
10
11
254
16
510
89
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.3 Income tax expense and deferred tax
Income tax expense
The major components of income tax expense along with a reconciliation between pre-tax profit and tax expense are detailed below:
Consolidated
Current tax expense
Current year
Adjustments for prior years
Deferred tax expense
Origination and reversal of temporary differences
Total income tax expense
Deferred tax recognised in equity
Cash flow hedge reserve
Other
Numerical reconciliations between tax expense and pre-tax profit
Profit before tax – continuing operations
Profit before tax
Income tax using the domestic corporate tax rate of 30% (2016: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Non-assessable income
Other (1)
Income tax expense on pre-tax net profit
2017
$m
136
-
136
19
155
18
(5)
13
507
507
152
10
(5)
(2)
155
155
2016
$m
138
(4)
134
24
158
(23)
6
(17)
496
496
149
10
-
(1)
158
158
Bank
2017
$m
112
1
113
13
2016
$m
127
(2)
125
21
126
146
20
(5)
15
542
542
163
10
-
(47)
126
126
(23)
6
(17)
525
525
158
9
-
(21)
146
146
(1) In the Bank, this includes the impact of dividends received from subsidiary Group members which are eliminated at a Group level, and the dilutionary impact to pro-forma tax expense relating to franking credits on external dividends
received on investments.
90
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.3 Income tax expense and deferred tax (continued)
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
Consolidated
Accruals
Capitalised expenditure
Provisions for impairment
Other provisions
Equity reserves
Other
2017
$m
2
-
68
19
4
8
2016
$m
4
-
77
19
17
3
Total tax assets / (liabilities)
101
120
Bank
Accruals
Capitalised expenditure
Provisions for impairment
Other provisions
Equity reserves
Other
Total tax assets / (liabilities)
1
-
55
17
2
8
83
1
-
62
18
17
3
101
2017
$m
-
(6)
-
-
-
(40)
(46)
-
(3)
-
-
-
(28)
(31)
2016
$m
-
(7)
-
-
-
(33)
(40)
-
(4)
-
-
-
(16)
(20)
Unrecognised deferred tax assets
Deferred tax assets have not been brought to account for the following items as realisation of the benefit is not regarded as probable:
Gross income tax losses (1)
Gross capital gains tax losses
(1) Income tax losses are subject to utilisation over an expected 10-15 year period.
2017
$m
2
(6)
68
19
4
(32)
55
1
(3)
55
17
2
(20)
52
2016
$m
4
(7)
77
19
17
(30)
80
1
(4)
62
18
17
(13)
81
2017
$m
28
51
2016
$m
29
92
91
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Nature of tax funding and tax sharing arrangements
The Bank, in conjunction with other members of the tax-consolidated group, has
entered into a tax funding agreement which sets out the funding obligations of
members of the tax-consolidated group in respect of tax amounts. The tax funding
agreement requires payments to (from) the head entity equal to the current tax
liability (asset) assumed by the head entity and any tax-loss deferred tax asset
assumed by the head entity, resulting in the Bank recognising an inter-entity
payable (receivable) equal in amount to the tax liability (asset) assumed.
Contributions to fund the current tax liabilities are payable as per the Tax Funding
Arrangement and reflect the timing of the head entity’s obligation to make payments
for tax liabilities to the relevant tax authorities.
The Bank, in conjunction with other members of the tax-consolidated group,
has also entered into a Tax Sharing Agreement (‘TSA’). The TSA provides for the
determination of the allocation of income tax liabilities between the entities should
the head entity default on its tax payment obligations. No amounts have been
recognised in the financial statements in respect of this agreement as payment
of any amounts under the TSA is considered remote.
2.3 Income tax expense and deferred tax (continued)
Accounting for income tax
Income tax expense comprises current and deferred tax. Income tax is recognised
in profit or loss in the Income Statement except to the extent that it relates to items
recognised directly in equity, or other comprehensive income.
Current tax is the expected tax payable / receivable on the taxable income /
loss for the year and any adjustment to the tax payable / receivable in respect
of previous years. It is measured using tax rates enacted or substantially
enacted at the reporting date.
Deferred tax is recognised in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes.
Deferred tax assets are recognised for unused tax losses and deductible temporary
differences to the extent that it is probable that future taxable profits will be
available against which they can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, using tax rates enacted or substantially
enacted at the reporting date. The measurement of deferred tax reflects the tax
consequences that would follow the manner in which the Consolidated Entity
expects, at the reporting date, to recover or settle the carrying amount of its
assets and liabilities.
Tax Consolidation
The Bank is the head entity in the tax-consolidated group comprising all the
Australian wholly-owned subsidiaries. The implementation date for the tax-
consolidated group was 1 September 2003.
Current tax expense / income, deferred tax liabilities and deferred tax assets
arising from temporary differences of the members of the tax-consolidated group
are recognised in the separate financial statements of the members of the
tax-consolidated group using a ‘group allocation’ approach by reference to the
carrying amounts in the separate financial statements of each entity and the tax
values applying under tax consolidation.
Any current tax liabilities (or assets) and deferred tax assets arising from
unused tax losses of the subsidiaries is assumed by the head entity in the
tax-consolidated group and are recognised as amounts payable (receivable)
to (from) other entities in the tax-consolidated group in conjunction with any
Tax Funding Arrangement amounts. Any difference between these amounts
is recognised by the Bank as an equity contribution, or distribution from the
subsidiary.
Any subsequent period amendments to deferred tax assets arising from unused
tax losses as a result of a revised assessment of the probability of recoverability is
recognised by the head entity only.
92
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.4 Dividends
Ordinary shares
Final 2016 dividend paid 22 November 2016 (2015: 24 November 2015)
Interim 2017 dividend paid 17 May 2017 (2016: 19 May 2016)
Convertible Preference Shares (‘CPS’)
Second half CPS dividend paid on 17 October 2016 (2015: 15 October 2015)
First half CPS dividend paid on 18 April 2017 (2016: 15 April 2016)
Bank
2017
2016
Cents per share
$m
Cents per share
38
38
268
249
145
147
292
8
8
16
38
38
258
257
$m
141
143
284
8
8
16
All dividends paid on ordinary and preference shares have been fully franked at 100%. Since the end of the financial year, the Directors have determined the following
dividends:
Final ordinary share dividend
Special ordinary share dividend
Second half CPS dividend
Cents per share
38
8
245
$m
149
31
7
The final and special ordinary share dividend payments will be fully franked and paid on 23 November 2017 to owners of ordinary shares at the close of business on 3
November 2017 (record date). Shares will be quoted ex-dividend on 2 November 2017. The second half CPS dividend will be fully franked and paid on 16 October 2017
to owners of the CPS at the close of business on 28 September 2017 (record date). CPS will be quoted ex-dividend on 27 September 2017.
30% franking credits available to shareholders of the Bank for subsequent financial years
Bank
2017
$m
101
2016
$m
118
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. All the franked dividends paid or declared by the
Bank since the end of the previous financial year were franked at the tax rate of 30%.
The balance of the Bank’s dividend franking account at the date of this report, after adjusting for franking credits and debits that will arise on payment of income tax and
dividends relating to the year ended 31 August 2017, is $101 million credit calculated at the 30% tax rate (2016: $118 million credit). It is anticipated, based on these
franking account balances that the Bank will continue to pay fully franked dividends in the foreseeable future.
Dividend reinvestment plan
The Bank of Queensland Dividend Reinvestment Plan (‘DRP’) has been suspended for the 2017 final and special ordinary share dividend payments. The Board has
resolved to reactivate the DRP on the next trading day following the payment of the final and special ordinary dividends.
The DRP provides shareholders with the opportunity to reinvest all or part of their entitlement to a dividend into new shares. The price for shares issued or transferred
under the DRP is an amount 1.5% (2016: 1.5%) less than the arithmetic average, rounded to four decimal places, of the daily volume weighted average price of:
•
all shares sold in the ordinary course of trading on the ASX automated trading system; and
• where shares are sold on trading platforms of Australian licensed financial markets operated by persons other than ASX, all shares sold in the ordinary course of
trading on such of those trading platforms determined by the Board from time to time,
during the 10 trading day period commencing on the second trading day after the Record Date in respect of the relevant dividend.
The calculation of the daily volume weighted average price shall not include certain transactions, as outlined in the DRP terms and conditions.
If, after this calculation there is a residual balance, that balance will be carried forward (without interest) and added to the next dividend for the purpose of calculating
the number of shares secured under the DRP at that time.
Shares issued or transferred under the DRP will be fully-paid and rank equally in all respects with existing shares.
93
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.5 Operating segments
Segment information
The Consolidated Entity determines and presents operating segments based on
the information that is provided internally to the Managing Director & CEO, who
is the Bank’s chief operating decision maker.
An operating segment is a component of the Consolidated Entity that engages
in business activities from which it may earn revenues and incur expenses,
including revenues and expenses that relate to transactions with any of the
Consolidated Entity’s other components. All operating segments’ operating results
are regularly reviewed by the Consolidated Entity’s Managing Director & CEO to
make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available.
Segment results that are reported to the Managing Director & CEO include items
directly attributable to a segment as well as those that can be allocated on a
reasonable basis. The Consolidated Entity has determined and presented the
following two segments based on information provided to the chief operating
decision maker.
Banking
Retail banking, commercial, personal, small business loans, equipment, debtor
finance, treasury, savings and transaction accounts.
Insurance
Customer credit insurance, life insurance, accidental death insurance, funeral
insurance and motor vehicle gap insurance.
Management monitors the operating results of its business units separately for
the purpose of making decisions about resource allocation and performance
assessment. Segment performance is evaluated based on operating profit or loss
which in certain respects is measured differently from operating profit or loss in
the consolidated financial statements. Income taxes are managed within the
individual operating segments and thus disclosed this way.
Transfer prices between operating segments are on an arm’s length basis in a
manner similar to transactions with third parties.
No revenue from transactions with a single external customer or counterparty
amounted to 10% or more of the Consolidated Entity’s total revenue in 2017 or
2016.
While the Consolidated Entity does have some operations in New Zealand, the
business segments operate principally in Australia.
The following table presents income, profit and certain asset and liability
information regarding the Consolidated Entity’s operating segments.
Banking
Insurance
Segment Total
2017
$m
1,082
3
1,085
495
151
344
2,046
1,120
48
48
51,624
47,881
2016
$m
1,091
2
1,093
479
153
326
2,157
1,221
38
67
50,807
47,262
2017
$m
2016
$m
21
(1)
20
12
4
8
-
-
-
-
79
32
26
(1)
25
17
5
12
-
-
-
-
92
47
2017
$m
1,103
2
1,105
507
155
352
2,046
1,120
48
48
51,703
47,913
2016
$m
1,117
1
1,118
496
158
338
2,157
1,221
38
67
50,899
47,309
Income
External
Inter-segment
Total operating income
Segment profit before income tax
Income tax expense
Segment profit after income tax
Results
Interest income
Interest expense
Depreciation and amortisation
Impairment losses on loans and advances
Segment assets
Segment liabilities
94
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 2.5 Operating segments (continued)
The following table sets out the reconciliation between the operating segments and the Consolidated Entity:
Segment total
Elimination of inter-segment revenue
Consolidated total
Segment total
Elimination of inter-segment bank accounts
Adjustment for other consolidation eliminations
Consolidated total
2.6 Earnings per share
2017
$m
Revenue
1,105
(2)
1,103
2016
$m
1,118
(1)
1,117
2017
$m
2016
$m
Segment profit before tax
507
-
507
496
-
496
Assets
Liabilities
51,703
50,899
47,913
47,309
(45)
-
(46)
-
(45)
2
(46)
3
51,658
50,853
47,870
47,266
Basic earnings per share (‘EPS’) is calculated by dividing the relevant earnings by the average weighted number of shares on issue. Diluted EPS takes into account the
dilutive effect of all outstanding share rights vesting as ordinary shares.
Earnings reconciliation
Net profit
Basic earnings
Effect of distributions on CPS
Effect of capital notes
Diluted earnings
Consolidated
2017
$m
352
352
15
7
374
2016
$m
338
338
16
7
361
Weighted average number of shares used as the denominator
2017 Number
2016 Number
Number for basic earnings per share
Ordinary shares
Number for diluted earnings per share
Ordinary shares
Effect of award rights
Effect of CPS
Effect of capital notes
Earnings per share
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
386,861,957
376,043,290
386,861,957
376,043,290
1,797,630
24,505,955
12,169,313
1,270,402
29,553,372
14,661,251
425,334,855
421,528,315
90.9
87.8
89.8
85.5
95
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Section 3. Capital and Balance Sheet management
3.1 Cash and liquid assets
Components of cash and liquid assets
Cash and liquid assets comprise cash at branches, cash on deposit and balances with the Reserve Bank of Australia. Cash flows from the following activities are
presented on a net basis in the statements of cash flows:
• Sales and purchases of trading securities;
• Customer deposits in and withdrawals from deposit accounts; and
•
Loan drawdowns and repayments.
Consolidated
Bank
Notes, coins and cash at bank
Remittances in transit
Total
2017
$m
705
209
914
2016
$m
957
271
1,228
Notes to the statements of cash flows
Reconciliation of profit for the year to net cash provided by operating activities.
Profit from ordinary activities after income tax
352
338
Add / (less) items classified as investing / financing activities or non-cash items
Depreciation
Amortisation
Dividends received from subsidiaries
Software amortisation and impairment
Equity settled transactions
Investments equity accounted
(Profit) / loss on sale of property, plant and equipment
Profit on disposal of vendor finance entity
Decrease in due from other financial institutions
Increase in financial assets
Increase in loans and advances at amortised cost
Increase / (decrease) in derivatives
Decrease in provision for impairment
Decrease in deferred tax asset
(Increase) / decrease in other assets
Increase in amounts due from controlled entities
Increase / (decrease) in due to other financial institutions
Increase / (decrease) in deposits
Increase / (decrease) in accounts payable and other liabilities
Decrease in current tax liabilities
Decrease in provisions
Increase / (decrease) in deferred tax liabilities
Decrease in insurance policy liabilities
Net cash outflow from operating activities
96
9
14
-
38
11
7
(4)
(16)
10
(495)
(624)
4
(28)
11
(88)
-
53
449
6
(7)
(5)
9
(8)
(302)
10
16
-
29
12
3
(5)
-
23
(418)
(2,175)
(46)
(16)
28
(12)
-
(50)
1,989
(32)
(42)
(15)
(2)
(16)
(381)
2017
$m
328
209
537
416
9
13
(55)
37
11
7
5
-
2
(396)
(442)
4
(23)
8
(286)
(226)
53
(22)
16
(8)
(3)
5
-
(875)
2016
$m
432
271
703
379
10
16
(70)
28
10
-
2
-
9
(440)
(2,038)
(40)
(14)
14
6
(222)
(50)
2,146
(21)
(41)
(15)
(4)
-
(335)
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.2 Deposits
Deposits are initially recognised at fair value, net of any directly attributable transaction costs. Subsequent to initial measurement, they are measured at amortised cost
using the effective interest method.
Deposits at call
Term deposits
Certificates of deposit
Total deposits
Concentration of deposits:
Customer deposits
Wholesale deposits
Total deposits
3.3 Financial assets
Refer to section 3.7 for the accounting policy on financial assets.
Available-for-sale
Debt instruments
Unlisted equity instruments
Total available-for-sale
Held for trading
Floating rate notes and bonds
Negotiable certificates of deposit
Total held for trading
Consolidated
Bank
2017
$m
13,512
18,646
5,011
37,169
30,190
6,979
37,169
2016
$m
12,797
18,589
5,334
36,720
29,122
7,598
36,720
2017
$m
13,802
18,688
5,011
37,501
30,480
7,021
37,501
Consolidated
Bank
2017
$m
3,931
3
3,934
720
1,117
1,837
2016
$m
3,730
9
3,739
688
903
1,591
2017
$m
4,024
3
4,027
720
1,117
1,837
2016
$m
13,557
18,632
5,334
37,523
29,881
7,642
37,523
2016
$m
3,921
9
3,930
688
903
1,591
97
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.4 Loans and advances at amortised cost
Loans and advances at amortised cost
Loans and advances are originated by the Bank and are recognised upon cash being advanced to the borrower. Loans and advances are initially recognised at fair value,
plus incremental directly attributable transaction costs. They are subsequently measured at each reporting date at amortised cost using the effective interest method.
Residential property loans – secured by mortgages
Personal loans
Overdrafts
Commercial loans
Credit cards
Leasing finance
Gross loans and advances at amortised cost
Less:
Unearned lease finance income
Specific provision for impairment
Collective provision for impairment
Consolidated
Bank
2017
$m
29,853
232
248
9,001
75
4,780
44,189
(372)
(106)
(121)
2016
$m
29,888
233
255
8,355
71
4,745
43,547
(395)
(116)
(140)
2017
$m
29,853
232
248
8,856
75
299
2016
$m
29,888
233
255
8,356
71
323
39,563
39,126
(33)
(90)
(92)
(38)
(96)
(111)
Total loans and advances at amortised cost
43,590
42,896
39,348
38,881
Loans and advances and other assets at amortised cost
If there is evidence of impairment for any of the Consolidated Entity’s financial assets carried at amortised cost, the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses that have not been incurred. The cash flows are
discounted at the financial asset’s original effective interest rate. The loss is recognised in profit or loss in the Income Statement.
(i) Specific impairment provisions
Impairment losses on individually assessed loans and advances are assessed on a case-by-case basis. If there is objective evidence that an individual loan or
advance is impaired, a specific provision for impairment is raised. The amount of the specific provision is based on the carrying amount of the loan or advance,
including the security held against the loan or advance and the present value of expected future cash flows. Any subsequent write-offs for bad debts are then
made against the specific provision for impairment.
(ii) Collective impairment provisions
Where no evidence of impairment has been identified for loans and advances, these loans and advances are grouped together on the basis of similar credit
characteristics for the purpose of calculating a collective impairment loss. Collective impairment provisions are based on historical loss experience applied to current
observable data. The amount required to bring the collective provision for impairment to its required level is charged to profit or loss in the Income Statement.
98
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.4 Loans and advances at amortised cost (continued)
Provision for impairment
Specific provision:
Balance at the beginning of the year
Add: Expensed during the year
Less: Bad debts written off
Transfers from / (to) collective provision
Unwind of discount
Balance at the end of the year
Collective provision:
Balance at the beginning of the year
Add: Released during the year
Transfers (to) / from specific provision
Balance at the end of the year
Total provisions for impairment
Consolidated
2017
$m
116
67
(74)
2
(5)
106
140
(17)
(2)
121
227
2016
$m
126
73
(79)
2
(6)
116
146
(4)
(2)
140
256
Bank
2017
$m
96
45
(49)
2
(4)
90
111
(17)
(2)
92
182
2016
$m
106
43
(46)
(1)
(6)
96
114
(4)
1
111
207
Lease receivables
Loans and advances at amortised cost include the following finance lease receivables for leases of certain property and equipment where the Consolidated Entity is the
lessor.
Consolidated
Bank
Gross investment in finance lease receivables:
Less than one year
Between one and five years
More than five years
Unearned lease finance income
Net investment in finance leases
The net investment in finance leases comprise:
Less than one year
Between one and five years
More than five years
2017
$m
1,807
2,858
115
4,780
(372)
4,408
1,647
2,661
100
4,408
2016
$m
1,744
2,879
122
4,745
(395)
4,350
1,575
2,669
106
4,350
2017
$m
24
220
55
299
(33)
266
23
197
46
266
2016
$m
17
256
50
323
(38)
285
16
228
41
285
99
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.4 Loans and advances at amortised cost (continued)
Transfer of financial assets
Securitisation program
Through its REDS Securitisation and Warehouse Trusts (‘RMBS Trusts’), REDS EHP Securitisation Trusts (‘REDS EHP Trusts’) and Impala Securitisation programs, the
Bank packages loans and advances through a series of securitisation vehicles from which debt securities are issued to investors. The Bank is entitled to any residual
income from the vehicles after all payments to investors and costs of the programs have been met. The securitisation vehicles are consolidated and included in the
‘Loans and advances’ section of the Bank’s Balance Sheet. The note holders have recourse only to the loan pool of assets. Refer to Section 6.10 (a)(ii) for further
information.
Covered bond program
The Bank issues covered bonds for funding and liquidity purposes. The bonds are issued to external investors and are secured against a pool of the Bank’s housing
loans. Housing loans are assigned to a bankruptcy remote structured entity to provide security for all obligations payable on the covered bonds issued by the Bank. The
covered bond holders have dual recourse to the Bank and the cover pool of assets. The Bank is required to maintain the cover pool at a level sufficient to cover the
obligations of the bonds. The Bank is entitled to any residual income of the covered bond structured entity after all payments due to the covered bond holders and any
costs related to the program have been met. The housing loans are included in ‘Loans and advances’ and the covered bonds issued are included in ‘Borrowings’ on the
Bank’s Balance Sheet.
The following table sets out the transferred financial assets and associated liabilities of the securitisation and covered bond programs that did not qualify for
derecognition under AASB 139 Financial Instruments: Recognition and Measurement.
Consolidated
Bank
Transferred financial assets
Securitisation - loans and advances at amortised cost
Covered bonds - loans and advances at amortised cost
Securistation - lease receivables
Associated financial liabilities
Securitisation liabilities - external investors
Covered bonds liabilities - external investors
Amounts due to controlled entities
For those liabilities that have recourse only to transferred assets (1)
Fair value of transferred assets
Fair value of associated liabilities
Net position
2017
$m
2,836
926
425
4,187
3,429
752
-
4,181
4,201
(4,181)
20
2016
$m
2,859
-
858
3,717
4,122
-
-
4,122
3,746
(4,122)
(376)
2017
$m
2,921
926
-
3,847
-
752
3,055
3,807
3,855
(3,807)
48
2016
$m
3,005
-
-
3,005
-
-
3,350
3,350
3,021
(3,350)
(329)
(1) The fair values of transferred assets and liabilities that reprice within 6 months are assumed to equate to the amortised cost. All other fair values are calculated using a discounted cashflow model.
100
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.5 Borrowings
The Consolidated Entity recorded the following movements on borrowings:
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities (2)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Convertible
Preference
Shares (3)
$m
Capital
notes (4)
$m
Total
$m
Year ended 31 August
2017
Balance at beginning of year
4,117
Acquired during the year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred
costs
Foreign exchange translation
-
1,356
(2,050)
(3)
4
-
-
-
743
-
(3)
-
9
Balance at end of the year
3,424
749
160
-
48
(33)
-
-
(3)
172
341
-
512
(529)
-
-
(3)
321
252
-
-
4,083
125
1,431
(50)
(1,301)
-
(2)
-
(1)
1
-
296
149
-
-
-
-
1
-
-
-
-
-
1
-
9,398
125
4,090
(3,963)
(7)
5
3
200
4,338
297
150
9,651
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities (2)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Convertible
Preference
Shares (3)
$m
Capital
notes (4)
$m
Total
$m
Year ended 31 August
2016
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred
costs
Foreign exchange translation
4,812
1,123
(1,815)
(3)
5
(5)
Balance at end of the year
4,117
-
-
-
-
-
-
-
81
80
-
-
-
(1)
160
94
473
(216)
-
-
(10)
341
325
149
(220)
-
(2)
-
2,958
1,690
(567)
-
2
-
295
148
-
-
-
1
-
-
-
-
1
-
8,713
3,515
(2,818)
(3)
7
(16)
252
4,083
296
149
9,398
(1) Securitisation liabilities are secured by a floating charge over securitised assets for amounts owing to note holders and any other secured creditors of the securitisation vehicles.
(2) Covered bonds liabilities are secured by a charge over a pool of loans and advances and guaranteed by the Covered Bond Guarantor.
(3) 3,000,000 CPS were issued on 24 December 2012. CPS are fully-paid, perpetual, convertible, unguaranteed and unsecured preference shares with preferred, discretionary, non-cumulative dividends. CPS will mandatorily convert into
ordinary shares on 15 April 2020. The Bank is entitled to convert, redeem or transfer some or all of the CPS on the optional conversion / redemption date of 15 April 2018 subject to the prior written approval from APRA. The Bank is
also entitled to convert, redeem or transfer some or all of the CPS on the occurrence of a regulatory event or tax event and in addition, conversion of the CPS into ordinary shares must occur immediately following the occurrence of a
capital trigger event or a non-viability trigger event. CPS rank for payment of capital ahead of ordinary shareholders, equally with other securities or instruments ranking equally with CPS, but behind all other securities or instruments
ranking ahead of CPS, and behind all depositors and other creditors.
(4) On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (‘WCN’) at a price of $10,000 per note. As at 31 August 2017, 15,000 WCN were outstanding with capital distributions payable of $2 million. WCN are non-cumulative
and fully paid and are issued by the Bank on a perpetual, subordinated and unsecured basis. They are not guaranteed or secured. Upon conversion, WCN holders will receive a number of ordinary shares based on the value weighted
average price during a specified period. In a winding up of the Bank, if capital notes have not been converted or written-off on account of a non-viability trigger event or capital trigger event, WCN will rank for payment of capital ahead of
ordinary shareholders, equally with other securities or instruments ranking equally with WCN, but behind all other securities or instruments ranking ahead of WCN, and behind all senior creditors. The WCN may covert to ordinary shares
of the Bank in certain circumstances, which include the occurrence of a non-viability event or a capital trigger event.
101
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.5 Borrowings (continued)
The Bank recorded the following movements on borrowings:
Covered
bonds
liabilities(1)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Convertible
Preference
Shares (2)
$m
Capital
notes (3)
$m
Year ended 31 August 2017
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establisment costs
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
Year ended 31 August 2016
Balance at beginning of year
Proceeds from issues
Repayments
Amortisation of deferred costs
Foreign exchange translation
Balance at end of the year
-
743
-
-
-
9
752
160
48
(33)
-
-
(3)
172
341
512
(529)
-
-
(3)
321
252
-
(50)
-
(2)
-
4,083
1,431
(1,176)
(1)
1
-
296
149
-
-
-
1
-
-
-
-
1
-
200
4,338
297
150
6,230
Covered
bonds
liabilities (1)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Convertible
Preference
Shares (2)
$m
Capital
notes (3)
$m
-
-
-
-
-
-
81
80
-
-
(1)
160
94
473
(216)
-
(10)
341
324
149
(220)
(1)
-
252
2,958
1,690
(567)
2
-
295
148
-
-
1
-
-
-
1
-
4,083
296
149
5,281
Total
$m
5,281
2,734
(1,788)
(1)
1
3
Total
$m
3,900
2,392
(1,003)
3
(11)
(1) Covered bonds liabilities are secured by a charge over covered pool of loans and advances and guaranteed by the Covered Bond Guarantor.
(2) 3,000,000 CPS were issued on 24 December 2012. CPS are fully-paid, perpetual, convertible, unguaranteed and unsecured preference shares with preferred, discretionary, non-cumulative dividends. CPS will mandatorily convert into
ordinary shares on 15 April 2020. The Bank is entitled to convert, redeem or transfer some or all of the CPS on the optional conversion / redemption date of 15 April 2018 subject to the prior written approval from APRA. The Bank is also
entitled to convert, redeem or transfer some or all of the CPS on the occurrence of a regulatory event or tax event and in addition, conversion of the CPS into ordinary shares must occur immediately following the occurrence of a capital
trigger event or a non-viability trigger event. CPS rank for payment of capital ahead of ordinary shareholders, equally with other securities or instruments ranking equally with CPS, but behind all other securities or instruments ranking
ahead of CPS, and behind all depositors and other creditors.
(3) On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (‘WCN’) at a price of $10,000 per note. As at 31 August 2017, 15,000 WCN were outstanding with capital distributions payable of $2 million. WCN are non-cumulative
and fully paid and are issued by the Bank on a perpetual, subordinated and unsecured basis. They are not guaranteed or secured. Upon conversion, WCN holders will receive a number of ordinary shares based on the value weighted
average price during a specified period. In a winding up of the Bank, if capital notes have not been converted or written-off on account of a non-viability trigger event or capital trigger event, WCN will rank for payment of capital ahead of
ordinary shareholders, equally with other securities or instruments ranking equally with WCN, but behind all other securities or instruments ranking ahead of WCN, and behind all senior creditors. The WCN may covert to ordinary shares
of the Bank in certain circumstances, which include the occurrence of a non-viability event or a capital trigger event.
102
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management
The Consolidated Entity adopts a “managed risk” approach to its banking and
insurance activities. As such, the articulation of a risk aware culture is prevalent
throughout the Consolidated Entity’s credit, market, liquidity, insurance, operational,
insurance risk and compliance policies and procedures. The Board has adopted
policies in relation to the assessment, management and monitoring of these
risks and ownership of the frameworks within which these risks are managed
reside with the Chief Risk Officer.
The Chief Risk Officer contributes towards the achievement of the Consolidated
Entity’s corporate objectives through the operationalisation and progressive
development of the Consolidated Entity’s risk management function. The continued
improvement of the Consolidated Entity’s risk management function focuses on a
number of key areas, with particular emphasis on:
1. the efficiency and effectiveness of the Consolidated Entity’s credit, market,
liquidity, operational risk and compliance management process controls
and policies to support the Bank’s customer proposition in line with its risk
appetite;
2. to provide management and the Board with risk reporting that contributes to
the further development of sound corporate governance standards;
3. to maintain regulatory compliance in line with regulators’ expectations;
4. to provide a sound basis from which the Bank can progress to the required
compliance level under the Basel II accord; and
5. to contribute to the Consolidated Entity achieving risk based
performance management.
Group Risk is an independent function and is responsible for providing the
framework, policies and procedures needed for managing credit, liquidity, market,
operational risk and compliance throughout the Group. Policies are set in line
with the governing strategy and risk guidelines set by the Board.
Monitoring
The Consolidated Entity’s enterprise risk management framework incorporates
active management and monitoring of a range of risks including (but not limited
to):
1. Market
2. Credit
3. Liquidity
4. Insurance.
(a) Market risk
Market risk is the risk that movements in market rates and prices will result in
profits or losses to the Bank. The objective of market risk management is to
manage and control market risk and to minimise its impact on the Consolidated
Entity.
(i) Interest rate risk management
The operations of the Consolidated Entity are subject to the risk of interest
rate fluctuations as a result of mismatches in the timing of the repricing of
interest rates on the Consolidated Entity’s assets and liabilities.
The figures in the table below indicate the potential increase / (decrease) in
net interest income for an ensuing 12 month period of a 1% parallel shock
increase to the yield curve. A 1% decrease in the yield curve has a materially
equal but opposite impact.
Consolidated
Exposure at the end of the year
Average monthly exposure during the year
High month exposure during the year
Low month exposure during the year
(ii) Foreign exchange risk
It is the Bank’s policy not to carry material foreign exchange rate exposures,
net of associated hedging instruments. At balance date, there are no net
material foreign exchange rate exposures.
The Bank uses cross currency swaps and foreign exchange forwards to hedge
its exchange rate exposures arising from borrowing off-shore in foreign
currencies. The Bank uses forward foreign exchange contracts to hedge
potential exchange rate exposures created by customer-originated foreign
currency transactions.
The Bank’s investment in its New Zealand subsidiary is hedged by forward
foreign exchange contracts which mitigate the currency risk arising from the
subsidiary’s net assets.
2017
$m
5
1
12
(15)
2016
$m
7
3
12
(12)
103
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(a) Market risk (continued)
(iii) Traded market risk
Market risks attributable to trading activities are primarily measured using a parametric Value-at-Risk (‘VaR’) model based on historical data. VaR is a statistical
technique used to quantify the potential loss in earnings from adverse market movements and is calculated over a 1-day time horizon to a 99% confidence level
using 2 years of historical data. As an additional overlay to VaR, the individual market risks of interest rate, foreign exchange, credit and equity are managed using a
framework that includes stress testing, scenario analysis, sensitivity and stop losses. Risks are monitored and measured against limits delegated by the Asset-
Liability Committee (‘ALCO’) and approved by the Board’s Risk Committee.
The portfolio (interest rate, foreign exchange, credit and equity) VaR for the Bank’s trading portfolio for the year was as follows:
Trading VaR
Average
Maximum
Minimum
2017
$m
0.43
1.03
0.15
2016
$m
0.53
1.79
0.20
(b) Credit risk
Credit risk arises in the business from lending activities, the provision of guarantees including letters of credit and commitments to lend, investment in bonds and notes,
financial market transactions and other associated activities. Credit risk is the potential loss arising from the possibility that customers or counterparties fail to meet
contractual payment obligations to the Bank as they fall due.
The Board have implemented a structured framework of systems and controls to monitor and manage credit risk comprising:
•
•
•
•
•
documented credit risk management principles which are disseminated to all staff involved with the lending process;
documented policies;
a process for approving risk, based on tiered delegated approval authorities, whereby the largest exposures are assessed by the Executive Credit Committee
consisting of Group Executives and senior risk managers, chaired by the Chief Risk Officer;
risk grading the Bank’s commercial exposures for facilities greater than $100,000 based on items inclusive of financial performance and stability, organisational
structure, industry segment and security support. Exposures within this segment of the portfolio are generally subject to annual review including reassessment of
the assigned risk grade;
an automated scorecard approval model for the Bank’s retail portfolio inclusive of home loans, personal loans, and lines of credit. This model is supported by
experienced risk assessment managers; and
•
a series of management reports detailing industry concentrations, counterparty concentrations, loan grades and security strength ratings.
The Consolidated Entity uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and
investing activities. In accordance with its treasury risk policies, the Consolidated Entity can hold derivative financial instruments for trading purposes. Credit risk on
derivative contracts used for these purposes is minimised as counterparties are recognised financial intermediaries with acceptable credit ratings determined by a
recognised rating agency.
(i) Maximum exposure to credit risk
The amounts disclosed are the maximum exposure to credit risk, before taking account of any collateral held or other credit enhancements. For financial assets
recognised on the Balance Sheet, the exposure to credit risk equals their carrying amount. For customer commitments, the maximum exposure to credit risk is the
full amount of the committed facilities as at reporting date.
104
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(b) Credit risk (continued)
(i) Maximum exposure to credit risk (continued)
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
Consolidated
Bank
Cash and liquid assets
Due from other financial institutions
Other financial assets (including accrued interest)
Derivative financial instruments
Financial assets other than loans and advances
Gross loans and advances at amortised cost
Total financial assets
Customer commitments (1)
Total potential exposure to credit risk
(1) Refer to Section 6.2 for details of customer commitments.
The distribution of financial assets by credit quality at the reporting date was:
Neither past due or impaired
Gross loans and advances at amortised cost
Financial assets other than loans and advances
Past due but not impaired
Gross loans and advances at amortised cost
Impaired
Gross loans and advances at amortised cost
Total financial assets
2017
$m
914
58
5,829
109
6,910
44,189
51,099
1,733
52,832
Consolidated
2017
$m
43,068
6,910
2016
$m
1,228
68
5,389
180
6,865
43,547
50,412
1,476
51,888
2016
$m
42,267
6,865
2017
$m
537
8
5,920
107
6,572
39,563
46,135
959
47,094
Bank
2017
$m
38,567
6,572
2016
$m
703
10
5,579
180
6,472
39,126
45,598
888
46,486
2016
$m
37,992
6,472
929
1,048
826
935
192
51,099
232
50,412
170
46,135
199
45,598
There is no individual exposure included in impaired assets which exceeds 5% of shareholders’ equity (2016: 5%).
The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property, other registered securities over assets and
guarantees and mortgage insurance. To mitigate credit risk, the Bank can take possession of the security held against the loans and advances as a result of customer
default. To ensure reduced exposure to losses, the collateral held by the Bank as mortgagee in possession is realised promptly.
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as
impaired. An estimate of the collateral held against past due but not impaired and impaired loans and advances at amortised cost is outlined below. It is not practical
to determine the fair value of collateral held against performing loans.
Held against past due but not impaired assets
Held against impaired assets
Consolidated
Bank
2017
$m
1,436
116
2016
$m
1,522
156
2017
$m
1,384
107
2016
$m
1,442
139
105
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(b) Credit risk (continued)
(ii) Credit quality
The credit quality categories of financial assets (High Grade, Satisfactory, Weak and Unrated) have been determined based on Standard & Poor’s credit ratings, APRA
risk weightings and the Bank’s standard risk grading. The table below presents an analysis of the credit quality of financial assets:
2017
$m
2016
$m
Gross loans & advances
Gross loans & advances
Consolidated
Retail
Commercial
24,643
5,128
313
76
4,257
8,299
1,277
196
Total
loans &
advances
28,900
13,427
1,590
272
Financial
assets other
than loans
& advances
6,907
-
3
-
Retail
Commercial
24,611
4,987
506
88
3,919
7,998
1,235
203
Total
loans &
advances
28,530
12,985
1,741
291
Financial
assets other
than loans
& advances
6,856
-
9
-
30,160
14,029
44,189
6,910
30,192
13,355
43,547
6,865
2017
$m
2016
$m
Gross loans & advances
Gross loans & advances
Bank
Retail
Commercial
24,643
5,128
313
76
3,370
5,285
552
196
Total
loans &
advances
28,013
10,413
865
272
Financial
assets other
than loans
& advances
6,476
60
36
-
Retail
Commercial
24,611
4,987
506
88
3,050
5,141
540
203
8,934
Total
loans &
advances
27,661
10,128
1,046
291
39,126
Financial
assets other
than loans
& advances
6,272
122
78
-
6,472
30,160
9,403
39,563
6,572
30,192
High Grade
Satisfactory
Weak
Unrated (1)
High Grade
Satisfactory
Weak
Unrated (1)
(1) Loans and advances which have been classified as unrated are not secured, however these are not deemed to be weak. All other loans and advances have been included in the appropriate category.
106
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(b) Credit risk (continued)
(iii) Loans and advances which were past due but not impaired
Loans which are 90 or more days past due are not classified as impaired assets where the estimated net realisable value of the security is sufficient to cover the
repayment of all principal and interest amounts due.
Less than 30 days
31 to 90 days
More than 90 days
- Retail
- Commercial
- Retail
- Commercial
- Retail
- Commercial
Consolidated
Bank
2017
$m
276
183
164
49
170
87
929
2016
$m
359
228
163
64
156
78
1,048
2017
$m
276
101
164
34
170
81
826
2016
$m
359
146
163
38
156
73
935
(iv) Concentration of exposure for gross loans and advances at amortised cost
Concentration of credit risk exists when a number of counterparties are engaged in similar activities, operate in the same geographical areas or industry sectors and
have similar economic characteristics, so that their ability to meet contractual obligations is similarly affected by changes in economic, political or other conditions. The
Bank monitors concentrations of credit risk by geographical location for loans and advances. An analysis of these concentrations of credit risk at the reporting date
is shown below:
Geographical concentration of credit risk for loans and advances
at amortised cost (before provisions and unearned income):
Queensland
New South Wales
Victoria
Northern Territory
Australian Capital Territory
Western Australia
South Australia
Tasmania
International (New Zealand)
Consolidated
Bank
2017
$m
20,613
10,412
6,867
302
311
4,510
705
215
254
2016
$m
20,992
9,531
6,950
318
319
4,359
613
203
262
2017
$m
19,029
9,143
5,909
294
293
4,155
548
192
-
2016
$m
19,429
8,331
6,012
312
294
4,079
481
188
-
44,189
43,547
39,563
39,126
107
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(c) Liquidity risk
Liquidity risk arises from the possibility that the Bank is unable to meet its
financial obligations as they fall due. Liquidity risk is managed through a series
of detailed policies. This includes the management of cash flow mismatches,
the maintenance of a stable, core retail deposits base, the diversification of the
funding base and the retention of adequate levels of high quality liquid assets.
The Consolidated Entity manages liquidity risk by maintaining adequate reserves
and facilities by continuously monitoring forecast and actual cash flows, matching
maturity profiles of financial assets and liabilities and monitoring liquidity scenario
analysis.
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Policy
holder
$m
Total
contractual
cash flows
$m
Consolidated
2017
Financial liabilities
Due to other financial institutions
Deposits
Derivative financial instruments (1)
Accounts payable and other liabilities
Securitisation liabilities (2)
Borrowings
Insurance policy liabilities
Total financial liabilities
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters
of credit
Customer funding commitments
Carrying
amount
$m
262
37,169
13
390
3,424
6,227
16
At Call
$m
262
13,152
-
-
-
-
-
-
-
11,952
11,498
6
390
261
221
-
-
-
609
1,917
-
-
971
2
-
2,077
4,474
-
-
-
1
-
659
-
-
47,501
13,414
12,830
14,024
7,524
660
-
-
239
-
-
-
-
-
-
784
(757)
27
525
(467)
58
1,683
(1,375)
308
321
1,412
1,733
-
-
-
-
-
-
-
-
-
220
(95)
125
-
-
-
-
-
-
-
-
-
16
16
-
-
-
-
-
-
262
37,573
9
390
3,606
6,612
16
48,468
3,212
(2,694)
518
321
1,412
1,733
(1) Derivative financial instruments other than those designated in hedge relationships.
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
108
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Policy
holder
$m
Total
contractual
cash flows
$m
Carrying
amount
$m
209
36,720
19
355
4,117
5,281
25
3.6 Risk management (continued)
(c) Liquidity risk (continued)
Consolidated
2016
Financial liabilities
Due to other financial institutions
Deposits
Derivative financial instruments 1)
Accounts payable and other liabilities
Securitisation liabilities (2)
Borrowings
Insurance policy liabilities
Total financial liabilities
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters
of credit
Customer funding commitments
209
14,926
-
-
11,463
9,847
-
-
-
-
-
6
355
336
856
-
4
-
1,283
955
-
-
842
4
-
2,223
3,119
-
-
48
1
-
558
796
-
46,726
15,135
13,016
12,089
6,188
1,403
-
-
-
-
-
-
-
-
-
1,082
(1,100)
(18)
436
(405)
31
771
(593)
178
229
(105)
124
293
1,183
1,476
-
-
-
-
-
-
-
-
-
-
-
-
(1) Derivative financial instruments other than those designated in hedge relationships.
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
-
-
-
-
-
-
25
25
-
-
-
-
-
-
209
37,126
15
355
4,400
5,726
25
47,856
2,518
(2,203)
315
293
1,183
1,476
109
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(c) Liquidity risk (continued)
Bank
2017
Financial liabilities
Carrying amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Due to other financial institutions
262
262
-
-
Deposits
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings
Total financial liabilities
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
37,501
13,802
11,634
11,498
13
327
6,230
44,333
-
-
-
6
327
221
14,064
12,188
-
-
1,917
13,415
-
-
242
-
-
-
-
-
-
321
638
959
784
(763)
21
-
-
-
516
(472)
44
-
-
-
(1) Derivative financial instruments other than those designated in a hedge relationships.
-
971
2
-
4,474
5,447
859
(613)
246
-
-
-
-
-
1
-
-
1
220
(95)
125
-
-
-
Total
contractual
cash flows
$m
262
37,905
9
327
6,612
45,115
2,379
(1,943)
436
321
638
959
110
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(c) Liquidity risk (continued)
Bank
2016
Financial liabilities
Carrying
amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
1 to 5
years
$m
Over 5
years
$m
Total
contractual
cash flows
$m
Due to other financial institutions
209
209
-
Deposits
37,523
15,729
11,463
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings
Total financial liabilities
Derivative financial instruments (hedging
relationship)
Contractual amounts payable
Contractual amounts receivable
Off balance sheet positions
Guarantees, indemnities and letters of credit
Customer funding commitments
19
311
5,281
43,343
-
-
-
-
-
-
-
9,847
4
-
955
-
-
-
6
311
856
15,938
12,636
10,806
-
-
-
293
595
888
1,077
(1,095)
(18)
-
-
-
371
(349)
22
-
-
-
-
842
4
-
3,119
3,965
769
(592)
177
-
-
-
-
48
1
-
796
845
229
(105)
124
-
-
-
209
37,929
15
311
5,726
44,190
2,446
(2,141)
305
293
595
888
(1) Derivative financial instruments other than those designated in hedge relationships.
(d) Insurance risk
Risk strategy
(i) Risk management objectives and policies for risk mitigation
Insurance risks are controlled through the use of underwriting procedures,
adequate premium rates and policy charges and sufficient reinsurance
arrangements, all of which are approved through a Board approved governance
structure. Controls are also maintained over claims management practices to
assure the correct and timely payment of insurance claims.
(ii) Strategy for managing insurance risk
Portfolio of risks
The Bank’s insurance subsidiaries issue consumer credit insurance, term life
insurance, funeral insurance, accidental death insurance and motor vehicle
gap insurance contracts. The performance of the Bank’s insurance subsidiaries
and its continuing ability to write business depends on its ability to pre-empt
and control risks. The Bank’s insurance subsidiaries have a risk management
strategy which has been approved by their respective Boards. It summarises
the approach to risk and risk management.
In compliance with contractual and regulatory requirements, a strategy is in
place to ensure that the risks underwritten satisfy objectives whilst not adversely
affecting the Consolidated Entity’s ability to pay benefits and claims when due.
The strategy involves the identification of risks by type, impact and likelihood, the
implementation of processes and controls to mitigate the risks, and continuous
monitoring and improvement of the procedures in place to minimise the
chance of an adverse compliance or operational risk event occurring. Included
in this strategy is the process for underwriting and product pricing to ensure
products are appropriately priced. Capital management is also a key aspect of
the Consolidated Entity’s risk management strategy. Capital requirements
take account of all of the various regulatory reporting requirements to which
the Consolidated Entity is subject.
Prudential capital requirements
Prudential capital requirements established by the APRA are in place to safeguard
policyholders’ interests, which are primarily the ability to meet future claim
payments to policyholders. These require the Consolidated Entity’s capital base
to exceed the Prudential Capital Requirement throughout the year, not just
at year end. The level of capital requirements also take into account specific
risks faced by the Bank’s insurance subsidiaries.
111
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.6 Risk management (continued)
(d) Insurance risk (continued)
(iii) Methods to limit or transfer insurance risk exposures
Reinsurance
The insurance subsidiaries use reinsurance arrangements to pass on or cede
to reinsurers risks that are outside of the subsidiary’s risk appetite.
Underwriting procedures
Strategic underwriting decisions are put into effect using the underwriting
procedures detailed in the Bank’s insurance subsidiaries Underwriting Policy.
Such procedures include limits to delegated authorities and signing powers.
Claims management
Strict claims management procedures ensure timely and correct payment of
claims in accordance with policy conditions.
Asset and liability management techniques
Assets are allocated to different classes of business using a risk based
approach. The Bank’s insurance subsidiaries have a mix of short and long term
business and invests accordingly. Market risk is managed through investing
in cash, deposits and bank issued commercial bills. No more than 35%
of shareholder funds and funds backing insurance policy liabilities can be
invested with any one counterparty subject to counterparty credit ratings.
(e) Concentration of insurance risk
(i) Insurance risks associated with human life events
The Bank aims to maintain a diversified profile of ages, genders, health
statuses and geographic location within its portfolio of policyholders. This
policy maintains a balance between the current and future profitability
of the life business, and exposure to any significant external events. The
distribution channels and subsequent demographic mix of the population of
policyholders is sufficiently spread so that the risk concentration in relation
to any particular group is small. Specific processes for monitoring identified
key concentrations include monitoring sales by product type, cover type and
corporate partner type.
3.7 Financial instruments
(a) Financial instrument classifications
In addition to Loans and advances and financial liabilities at amortised cost, the
Bank classifies its financial instruments into one of the following four categories
upon initial recognition:
(i) Financial assets held for trading
Financial assets that are held as part of the Bank’s trading book (refer
Section 3.3) are designated at fair value through the profit and loss. The
Bank manages such financial assets and makes purchase and sale decisions
based on their fair value in accordance with the Bank’s documented risk
management or investment strategy. Upon initial recognition, attributable
transaction costs are recognised in profit or loss in the Income Statement
when incurred. Financial instruments at fair value through the profit and loss
are measured at fair value, and changes therein are recognised in profit or
loss in the Income Statement.
112
(ii) Financial assets available-for-sale
Financial assets that are intended to be held for an indefinite period of time
but which may be sold in response to changes in interest rates, exchange
rates and liquidity needs are classified as available-for-sale (refer Section 3.3).
These assets are initially measured at fair value, plus any directly attributable
transaction costs. Any changes in fair value other than impairment losses
are recognised in other comprehensive income and accumulated in reserves
in equity until the asset is sold. Interest income received on these assets is
recorded as net interest income and any realised gains or losses recorded in
other income in the Income Statement.
(iii) Receivables due from other financial institutions
Receivables due from other financial institutions are recognised and measured
at amortised cost and include settlement account balances and nostro
balances (an account held with a foreign bank usually in a foreign currency).
(iv) Derivative financial instruments
The Consolidated Entity uses derivative financial instruments to hedge its
exposure to foreign exchange and interest rate risks arising from operating,
financing and investing activities. Refer to Section 3.8 for further information
on derivative financial instruments.
(b) Fair value of financial instruments
The financial assets and liabilities listed below are recognised and measured at
fair value and therefore their carrying value equates to their fair value:
• Financial assets available-for-sale;
• Financial assets and liabilities designated at fair value through the profit and
loss; and
• Derivatives.
The fair value estimates for instruments carried at amortised cost are based on
the following methodologies and assumptions:
Cash and liquid assets, due from and to other financial institutions, accounts
payable and other liabilities
The fair value approximates their carrying value as they are short term in nature
or are receivable or payable on demand.
Loans and advances
Loans and advances are net of specific and collective provisions for impairment and
unearned income. The fair values of loans and advances that reprice within six
months of year end are assumed to equate to the carrying value. The fair values of
all other loans and advances are calculated using discounted cash flow models
based on the maturity of the loans and advances. The discount rates applied are
based on the current interest rates at the reporting date for similar types of loans
and advances, if the loans and advances were performing at the reporting date.
The differences between estimated fair values and carrying values reflect changes
in interest rates and creditworthiness of borrowers since loan or advance
origination.
Deposits
The fair value of non-interest bearing, at call and variable rate deposits and
fixed rate deposits repricing within six months is the carrying value. The fair
value of other term deposits is calculated using discounted cash flow models
based on the deposit type and its related maturity.
Borrowings
The fair values are calculated based on a discounted cash flow model using a yield
curve appropriate to the remaining maturity of the instruments.
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.7 Financial instruments (continued)
(c) Comparison of fair value to carrying amounts
The tables below discloses the fair value of financial instruments where their carrying value is not a reasonable approximation of their fair value:
Consolidated Entity
Assets carried at amortised cost
Loans and advances at amortised cost
Liabilities carried at amortised cost
Deposits
Borrowings
Assets carried at amortised cost
Loans and advances at amortised cost
Liabilities carried at amortised cost
Deposits
Borrowings
Section
3.4
3.2
3.5
Section
3.4
3.2
3.5
Carrying value
2017
$m
43,590
43,590
(37,169)
(9,651)
(46,820)
Carrying value
2017
$m
39,348
39,348
(37,501)
(6,230)
(43,731)
2016
$m
42,896
42,896
(36,720)
(9,398)
(46,118)
Bank
2016
$m
38,881
38,881
(37,523)
(5,281)
(42,804)
Fair value
2017
$m
43,623
43,623
(37,174)
(9,650)
(46,824)
Fair value
2017
$m
39,369
39,369
(37,506)
(6,231)
(43,737)
2016
$m
43,069
43,069
(36,760)
(9,400)
(46,160)
2016
$m
38,983
38,983
(37,563)
(5,284)
(42,847)
The estimated fair values disclosed do not include the assets and liabilities that are not financial instruments.
113
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.7 Financial instruments (continued)
(d) Fair value hierarchy
The Consolidated Entity measures fair values using the following fair value hierarchy
and valuation techniques, which reflect the significance of the inputs used in
making the measurements:
• Level 3: This category includes assets and liabilities for which the valuation
includes inputs that are not based on observable market data.
The fair value hierarchy classification of instruments in Section 3.7 (c).
• Level 1: This category includes assets and liabilities for which the valuation is
determined from inputs based on unadjusted quoted market prices in active
markets for identical instruments.
• Loans and advances - Level 3
• Deposits and Borrowings notes - Level 2
• Level 2: This category includes assets and liabilities for which the valuation
is determined from inputs other than quoted prices included within level
1, which are observable either directly or indirectly. This includes the use
of discounted cash flow analysis, option pricing models and other market
accepted valuation models.
There were no material movements in Level 3 during the year.
The table below analyses financial instruments carried at fair value, by valuation
method:
Consolidated Entity
Instruments carried at fair value
Financial assets available-for-sale
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
(1) In the current year, shares in an investment with a value of $6 million were sold and a gain of $0.7 million was recognised.
Consolidated Entity
Instruments carried at fair value
Financial assets available-for-sale
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
Bank
Instruments carried at fair value
Financial assets available-for-sale
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
(1) In the current year, shares in an investment with a value of $6 million were sold and a gain of $0.7 million was recognised.
114
2017
Level 1
$m
Level 2
$m
Level 3 (1)
$m
2,261
53
-
2,314
-
2,314
Level 1
$m
1,863
-
-
1,863
-
1,863
1,670
1,784
109
3,563
(333)
3,230
3
-
-
3
-
3
2016
Level 2
$m
Level 3
$m
1,867
1,591
180
3,638
(498)
3,140
9
-
-
9
-
9
2017
Level 1
$m
Level 2
$m
Level 3(1)
$m
2,261
53
-
2,314
-
2,314
1,763
1,784
107
3,654
(333)
3,321
3
-
-
3
-
3
Total
$m
3,934
1,837
109
5,880
(333)
5,547
Total
$m
3,739
1,591
180
5,510
(498)
5,012
Total
$m
4,027
1,837
107
5,971
(333)
5,638
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
3.7 Financial instruments (continued)
(d) Fair value hierarchy (continued)
Bank
Instruments carried at fair value
Financial assets available-for-sale
Financial assets designated at fair value through profit and loss
Derivative financial assets
Derivative financial liabilities
Level 1
$m
1,863
-
-
1,863
-
1,863
2016
Level 2
$m
Level 3
$m
2,058
1,591
180
3,829
(490)
3,339
9
-
-
9
-
9
Total
$m
3,930
1,591
180
5,701
(490)
5,211
(e) Master netting or similar arrangements
There have been no financial assets or financial liabilities offset in the Balance
Sheets. The Consolidated Entity has netting arrangements in place with
counterparties on derivative financial instruments and the effects of these netting
arrangements if they were to be applied in the Balance Sheets has been disclosed at
Section 3.8 (c).
(f) Impairment of financial instruments policy
Financial assets other than loans and advances at amortised cost
The Consolidated Entity assesses at the end of each reporting period whether
there is objective evidence that a financial asset or group of financial assets,
not carried at fair value through profit and loss, is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has occurred after the
initial recognition of the asset and the loss event had a negative effect on the
estimated future cash flow of that asset that can be estimated reliably.
In the case of equity securities classified as available-for-sale, a significant or
prolonged decline in the fair value of a security below its cost is considered as an
indicator that the securities are impaired. If any such evidence exists for financial
assets available-for-sale the cumulative loss (measured as the difference between
the acquisition cost and the current fair value, less any impairment loss on that
financial asset previously recognised in profit or loss in the Income Statement) is
reclassified from equity and recognised in profit or loss in the Income Statement as
a reclassification adjustment. Impairment losses recognised in profit or loss in the
Income Statement on equity instruments classified as available-for-sale are not
reversed through the profit or loss in the Income Statement. For available-for-sale
debt securities, if any increase in the fair value can be related objectively to an
event occurring after the impairment loss was recognised, then the impairment loss
is reversed through profit of loss in the Income Statement.
115
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.8 Derivative financial instruments
(a) Fair value of derivatives
The following tables summarises the notional and fair value of the Consolidated Entity’s and Bank’s commitments to derivative financial instruments at reporting
date. Fair value in relation to derivative financial instruments is estimated using net present value techniques. The tables below sets out the fair values of the derivative
financial instruments.
Derivatives at fair value through
Income Statement
Interest rate swaps
Foreign exchange forwards
Futures
Derivatives held as cash flow hedges
Interest rate swaps
Cross currency swaps
Foreign exchange forwards
Derivatives designated
as fair value hedges
Interest rate swaps
Derivatives designated as
net investment hedges
Foreign exchange forwards
Consolidated
2017
2016
Notional
Amount
Fair Value
Notional
Amount
Fair Value
$m
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
22,744
139
8,775
31,658
31,196
993
683
32,872
1,937
22
18
2
8
28
71
8
1
80
-
1
(12)
(1)
-
(13)
(50)
(5)
(17)
(72)
19,899
113
6,726
26,738
36,859
279
829
37,967
(248)
700
-
21
25
1
9
35
136
4
5
145
-
-
(17)
(2)
-
(19)
(293)
(20)
(8)
(321)
(157)
(1)
66,489
109
(333)
65,426
180
(498)
116
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
3.8 Derivative financial instruments (continued)
(a) Fair value of derivatives (continued)
Derivatives at fair value through
Income Statement
Interest rate swaps
Foreign exchange forwards
Futures
Derivatives held as cash flow hedges
Interest rate swaps
Cross currency swaps
Foreign exchange forwards
Derivatives designated
as fair value hedges
Interest rate swaps
Bank
Notional
Amount
2017
Fair Value
Notional
Amount
2016
Fair Value
$m
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
22,744
161
8,775
31,680
31,136
241
683
32,060
1,937
18
3
8
29
73
4
1
78
-
(12)
(1)
-
(13)
(50)
(5)
(17)
(72)
19,899
133
6,726
26,758
36,667
211
829
37,707
(248)
700
65,677
107
(333)
65,165
25
1
9
35
136
4
5
145
-
180
(17)
(3)
-
(20)
(293)
(12)
(8)
(313)
(157)
(490)
(b) Accounting for derivatives
The Consolidated Entity and Bank used derivative financial instruments for both
hedging and trading purposes in the current year. Refer to Section 3.6 (a) for an
explanation of the Consolidated Entity’s and Bank’s risk management framework.
The Consolidated Entity uses derivative financial instruments to hedge its exposure
to foreign exchange and interest rate risks arising from operating, financing and
investing activities. In accordance with its treasury risk policies, the Consolidated
Entity can hold derivative financial instruments for trading purposes. Derivatives
that do not qualify for hedge accounting are accounted for as trading instruments.
Derivative financial instruments are recognised initially at trade date fair value
and are subsequently measured at fair value at the reporting date. The gain or
loss on remeasurement is recognised immediately in profit or loss in the Income
Statement. However, when derivatives qualify for hedge accounting, recognition of
any resultant gain or loss depends on the nature of the hedge relationship.
The fair value of interest rate swaps is the estimated amount that the Consolidated
Entity would receive or pay to terminate the swap at the reporting date, taking
into account current interest rates and current creditworthiness of the swap
counterparties. The fair value of forward exchange contracts is their quoted market
price at the reporting date, being the present value of the quoted forward price.
The fair value of futures contracts is their quoted market price.
Cash flow hedges
Where a derivative financial instrument is designated as a hedge of the variability
of the cash flows of a recognised asset or liability, or a highly probable forecasted
transaction, the effective part of any gain or loss on the derivative financial
instrument is recognised directly in other comprehensive income and accumulated
in reserves in equity. The ineffective portion of any gain or loss is recognised
immediately in profit or loss in the Income Statement. If a hedge of a forecast
transaction subsequently results in the recognition of a financial asset or a
financial liability, then the associated gains and losses previously recognised
directly in other comprehensive income are reclassified to profit or loss in the
Income Statement in the same period or periods in which the asset acquired or
liability assumed affects the Income Statement (i.e. when interest income or
expense is recognised).
When a hedging instrument expires or is sold, terminated or exercised, or the
Consolidated Entity revokes designation of the hedge relationship but if the hedged
forecast transaction is still expected to occur, the cumulative gain or loss at that
point remains in other comprehensive income and is recognised when the
transaction occurs. If the hedged transaction is no longer expected to take place,
then the cumulative unrealised gain or loss is recognised immediately in profit or
loss in the Income Statement.
Fair value hedges
Where an effective hedge relationship is established, fair value gains or losses on
the hedging instrument are recognised in profit or loss. The hedged item attributable
to the hedged risk is carried at fair value with the gain or loss recognised in profit
or loss in the Income Statement. When a hedge relationship no longer meets the
criteria for hedge accounting, the hedged item is accounted for under the effective
interest method from that point. Any accumulated adjustment to the carrying
value of the hedged item from when it was effective is released to profit or loss
over the period to when the hedged item will mature.
117
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.8 Derivative Financial Instruments (continued)
(b) Accounting for derivatives (continued)
Net investment hedge
Hedges of net investments in foreign operations are accounted for similarly to
cash flow hedges. Any foreign currency gain or loss on the hedging instrument
relating to the effective portion of the hedge is recognised in other comprehensive
income and accumulated in reserves in equity. To the extent the hedge is ineffective,
a portion is recognised immediately in the Income Statement within other income
or other expenses.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in the
fair value of any derivative instrument that does not qualify for hedge accounting
are recognised immediately in the Income Statement and are included in other
income.
(c) Master netting or similar arrangements
The Consolidated Entity enters into derivative transactions under International
Swaps and Derivatives Association (‘ISDA’) master netting agreements. Amounts
owed by each counterparty are aggregated into a single net amount that is payable
by one party to another. The Consolidated Entity receives and gives collateral in
the form of cash in respect of derivatives and such collateral is subject to standard
industry terms. The Consolidated Entity has not offset these amounts in the
Balance Sheet as their ISDA agreements do not meet the criteria to do so. The
Consolidated Entity has no current legally enforceable right to offset recognised
amounts as the right to offset is only enforceable on the occurrence of future
events. The Consolidated Entity normally settles on a net basis or realises the
derivative assets and liabilities simultaneously.
The following tables set out the effect of netting arrangements on derivative
financial assets and derivative financial liabilities if they were to be applied.
Gross amounts as
presented in the
Balance Sheet
$m
109
(333)
2017
Net amounts of
recognised assets
and liabilities
available for offset
$m
(69)
69
2016
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of
recognised assets
and liabilities
available for offset
$m
180
(498)
Gross amounts as
presented in the
Balance Sheet
$m
107
(333)
(120)
120
2017
Net amounts of
recognised assets
and liabilities
available for offset
$m
(69)
69
2016
Cash
collateral
$m
(22)
276
Net amounts if
offsetting applied in
the Balance Sheet
$m
18
12
Cash
collateral
$m
-
349
Net amounts if
offsetting applied in
the Balance Sheet
$m
60
(29)
Cash
collateral
$m
(22)
276
Net amounts if
offsetting applied in
the Balance Sheet
$m
16
12
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of
recognised assets
and liabilities
available for offset
$m
180
(490)
(120)
120
Cash
collateral
$m
-
349
Net amounts if
offsetting applied in
the Balance Sheet
$m
60
(21)
Consolidated
Derivative financial assets
Derivative financial liabilities
Consolidated
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
Bank
Derivative financial assets
Derivative financial liabilities
118
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.9 Capital management
The Bank and Consolidated Entity’s capital management strategy aims to ensure adequate capital levels are maintained to protect deposit holders. The Bank’s capital is
measured and managed in line with Prudential Standards issued by APRA. The capital management plan is updated annually and submitted to the Board for approval. The
approval process is designed to ensure the plan is consistent with the overall business plan and for managing capital levels on an ongoing basis.
The Board has set the Common Equity Tier 1 capital target range to be between 8.0% and 9.5% of risk weighted assets and the total capital range to be between 11.5%
and 13.5% of risk weighted assets. As at 31 August 2017:
•
Common Equity Tier 1 capital was 9.4%; and
• Total capital adequacy ratio was 12.4%.
Qualifying capital
Common Equity Tier 1 Capital
Paid-up ordinary share capital
Reserves
Retained profits, including current year profits
Total Common Equity Tier 1 Capital
Regulatory adjustments
Goodwill and intangibles
Deferred expenditure
Other deductions
Total regulatory adjustments
Net Common Equity Tier 1 Capital
Additional Tier 1 Capital
Net Tier 1 Capital
Tier 2 Capital
Tier 2 Capital
General reserve for credit losses
Net Tier 2 Capital
Capital base
Risk Weighted Assets
Capital Adequacy Ratio
Level 2 entities(1)
2017
$m
3,360
1
365
3,726
(870)
(168)
2
(1,036)
2,690
450
3,140
200
202
402
3,542
28,644
12.4%
(1) APRA Prudential Standard APS 001 defines Level 2 as the ADI and all of its subsidiary entities other than non-consolidated subsidiaries. The non-consolidated subsidiaries excluded from Level 2 are:
• BOQ Share Plans Nominee Pty Ltd;
• Home Credit Management Pty Ltd;
• St Andrew’s Australia Services Pty Ltd;
• St Andrew’s Life Insurance Pty Ltd;
• St Andrew’s Insurance (Australia) Pty Limited;
• Series 2007-2 REDS Trust;
• Series 2012-1E REDS Trust;
• Series 2013-1 REDS Trust;
• Series 2015-1 REDS Trust;
• Series 2017-1 REDS Trust; and
• REDS Warehouse Trust No.3.
2016
$m
3,243
(18)
311
3,536
(869)
(158)
15
(1,012)
2,524
450
2,974
253
221
474
3,448
28,054
12.3%
119
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 3.10 Capital and reserves
(a) Ordinary shares
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share rights are recognised as a deduction from
equity, net of any tax effects.
Treasury shares
Ordinary shares of the Bank may be purchased from time to time by a subsidiary of the Bank as authorised under the Bank’s Award Rights Plan. Where these shares
remain unvested to employees they are treated as treasury shares and deducted from capital as required by AASB 132 Financial Instruments: Presentation. No profit or
loss is recorded on purchase, sale, issue or cancellation of these shares.
Consolidated
Bank
2017
Number
2016
Number
2017
Number
2016
Number
Movements during the year
Balance at the beginning of the year – fully paid
380,995,702
370,768,776
380,995,702
370,768,776
Dividend reinvestment plan
Issues of ordinary shares (1) (2)
Balance at the end of the year – fully paid
Treasury shares (included in ordinary shares above)
Balance at the beginning of the year
Net acquisitions and disposals during the year
Balance at the end of the year
9,694,027
1,050,000
8,722,926
1,504,000
9,694,027
1,050,000
8,722,926
1,504,000
391,739,729
380,995,702
391,739,729
380,995,702
537,337
27,971
565,308
489,515
47,822
537,337
-
-
-
-
-
-
(1) On 21 October 2016, 1,050,000 ordinary shares were issued at $11.15 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the exercise of award rights and issue of shares under the Award Rights
Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
(2) On 26 October 2015, 1,130,000 ordinary shares were issued at $13.79 and on 9 February 2016, 374,000 ordinary shares were issued at $12.63 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy
the exercise of award rights and issue of shares under the Award Rights Plan and issue of shares under the BOQ Restricted Share Plan and BOQ Employee Share Plan.
Terms and conditions
Holders of ordinary shares are entitled to receive dividends as determined by the Bank and are entitled to one vote per share at shareholders’ meetings.
In the event of winding up of the Bank, ordinary shareholders rank after preference shareholders, wholesale capital note holders and creditors and are fully entitled to
any residual proceeds of liquidation.
(b) Nature and purpose of reserves
Employee benefits reserve
The employee benefits reserve is used to record the value of share based
payments provided to employees, including key management personnel, as part
of their remuneration. Refer to Section 6.1 for further details of these plans.
Equity reserve for credit losses
The Bank is required by APRA to maintain a general reserve for credit losses.
As the Bank is unable to hold a general provision under current accounting
standards, the Bank has created an equity reserve for credit losses. The equity
reserve for credit losses and the eligible component of the collective provision
for impairment are aggregated for the purpose of satisfying the APRA requirement
for a general reserve for credit losses.
Available-for-sale reserve
Changes in the fair value of investments, such as bonds and floating rate notes
classified as financial assets available-for-sale, are recognised in other
comprehensive income as described in Section 3.7 (a)(ii) and accumulated in
a separate reserve within equity. Amounts are reclassified to profit or loss in the
Income Statement when the associated assets are sold or impaired.
Cash flow hedge reserve
The hedging reserve is used to record gains or losses on a hedging instrument
in a cash flow hedge that are recognised in other comprehensive income, as
described in Section 3.8 (b). Amounts are reclassified to profit or loss when the
associated hedged transaction affects profit or loss.
120
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Section 4. Other assets and liabilities
4.1 Intangible assets
Consolidated
Customer
related
intangibles and
brands
$m
Goodwill
$m
Computer
software
$m
Bank
Other
$m
Total
$m
Goodwill
$m
Customer
contracts
$m
Computer
software
$m
Other
$m
Total
$m
Cost
Balance as at
1 September 2015
Additions
Disposals
Balance as at
31 August 2016
Balance as at
1 September 2016
Additions
Balance as at
31 August 2017
675
130
-
-
675
675
7
682
Amortisation and impairment losses
Balance as at
1 September 2015
Amortisation for the year
Disposals
Impairment
Balance as at
31 August 2016
Balance as at
1 September 2016
Amortisation for the year
Impairment
Balance as at
31 August 2017
Carrying amounts
Carrying amount as at
1 September 2015
Carrying amount as at
31 August 2016
Carrying amount as
at 31 August 2017
-
-
-
-
-
-
-
-
-
675
675
682
-
-
130
130
-
130
95
10
-
-
105
105
9
-
114
35
25
16
310
60
(5)
365
365
46
411
175
28
(5)
1
199
199
38
1
238
135
166
173
13
6
-
19
19
3
22
10
6
-
-
16
16
5
-
21
3
3
1
1,128
619
66
(5)
1,189
1,189
56
1,245
280
44
(5)
1
320
320
52
1
373
848
869
872
-
-
619
619
-
619
-
-
-
-
-
-
-
-
-
619
619
619
89
-
-
89
89
-
89
57
10
-
-
67
67
8
-
75
32
22
14
292
60
-
352
352
37
389
165
27
-
1
193
193
36
-
229
127
159
160
8
6
-
14
14
3
17
6
6
-
-
12
12
5
-
17
2
2
-
1,008
66
-
1.074
1,074
40
1,114
228
43
-
1
272
272
49
-
321
780
802
793
121
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 4.1 Intangible assets (continued)
Initial recognition and measurement
Intangible assets are stated at cost less any accumulated amortisation and any
impairment losses. Expenditure on internally generated goodwill, research costs
and brands is recognised in the Income Statement as an expense as incurred.
Subsequent expenditure
Subsequent expenditure on intangible assets is capitalised only when it increases
the future economic benefits embodied in the specific asset to which it relates. All
other expenditure is expensed as incurred.
Computer software
Customer related intangibles and brands
Amortisation
Except for goodwill, amortisation is charged to profit and loss in the Income
Statement on a straight-line basis over the estimated useful life of the intangible
asset unless the life of the intangible asset is indefinite. Where applicable,
intangible assets are amortised from the date they are available for use.
The amortisation period and method are reviewed on an annual basis. The
amortisation rates used in the current and comparative periods are as follows:
Years
5-15
3-12
Impairment
As part of the Bank’s periodic assessment of the carrying value of intangible
assets, no material impairment indicators were identified.
Goodwill
Goodwill is the excess of the cost of acquisition over the fair value of the Bank’s or
the relevant entity’s share of the identifiable net assets of the acquired subsidiary.
Any goodwill is tested annually for impairment, with any impairment taken directly
to the profit or loss in the Income Statement.
Consideration transferred included the fair values of the assets transferred,
liabilities incurred by the Consolidated Entity to the previous owners of the
acquired entity, and equity interests issued by the Consolidated Entity. The
aggregate carrying amounts of goodwill are:
Consolidated
Bank
2017
$m
13
8
24
400
43
187
7
682
2016
$m
13
8
24
400
43
187
-
675
2017
$m
-
8
24
400
-
187
-
619
2016
$m
-
8
24
400
-
187
-
619
• Subsequent cash flows were extrapolated beyond the 3 year projections
at a medium term growth rate of 5% (2016: 5%);
• An exit value has been calculated at the end of year 10 based on an
implied terminal value earnings multiple of 11.5 (2016: 11.5) and a long
term growth rate of 3% (2016: 3%); and
• A post-tax discount rate of 10.0% (2016: 10.0%) and a pre-tax discount
rate of 14.3% (2016: 14.3%) was used.
BOQ Equipment Finance Limited
Orix debtor finance division
Pioneer Permanent Pty Ltd
BOQ Home Limited
Virgin Money (Australia) Pty Limited
BOQ Specialist (Aust) Limited
BOQF Cashflow Finance Pty Ltd
Total
Impairment testing of the cash generating units containing goodwill
Goodwill on acquisition of all of the above entities has been allocated to the
banking cash generating unit (‘CGU’). The impairment test for goodwill is
performed by comparing the CGU’s carrying amount with its recoverable amount.
The recoverable amount is based on the CGU’s value in use. The excess of the
recoverable amount over the carrying amount was $942 million (2016: $903
million).
Value in use was determined by discounting the future cash flows generated
from the continued use of the CGU. The values assigned to the key assumptions
represent management’s assessments of future trends in retail banking and are
based on both external and internal sources. Below are the key assumptions used
in determining value in use:
• Cash flows were initially based on the banking segment’s 3 year
projections (2016: 3 years);
122
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 4.2 Provisions
A provision is recognised in the Balance Sheet when the Consolidated Entity has a
present legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation. If the
effect is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, when appropriate, the risks specific to the liability.
The carrying amounts of the provisions recognised are:
Employee benefits (1)
Leases (2)
Provision for non-lending loss (3)
Other (4)
Total provisions
Consolidated
Bank
2017
$m
2016
$m
24
1
10
7
42
24
3
8
12
47
2017
$m
21
1
9
2
33
2016
$m
21
1
8
5
35
(1) Employee benefits provisions consist of annual leave (represents present obligations resulting from employees’ services provided up to the reporting date, calculated at discounted amounts based on remuneration wage and salary
rates that the Bank expects to pay as at reporting date including related on-costs) and long service leave entitlements for employees (represents the present value of the estimated future cash outflows to be made resulting from
employees’ services provided to reporting date. The provision is calculated using expected future increases in wage and salary rates including related on-costs, and expected settlement dates based on turnover history. The liability is
discounted using the rates attached to national corporate bonds at reporting date which most closely match the terms of maturity of the related liabilities). $20 million of this balance is classified as current.
(2) Lease provisions are classified as current.
(3) Included within the non-lending loss provision is $6 million (2016: $6 million) in respect of the Storm Financial settlement, which is classified as non-current. The remaining balance is classified as current.
(4) Other provisions relate to insurance claims reserves and restructuring costs which are classified as current.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
2017
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Carrying amount at end of year
Consolidated
Bank
Leases
$m
Non-lending loss
$m
Other
$m
Leases
$m
Non-lending loss
$m
3
-
(2)
1
8
3
(1)
10
12
1
(6)
7
1
-
-
1
8
3
(2)
9
Other
$m
5
-
(3)
2
123
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Section 5. Insurance business
5.1 Insurance business
(a) Basis of preparation
The effective date of the actuarial report on life insurance policy liabilities and
regulatory capital requirements is 31 August 2017. The actuarial report was
prepared by Mr Stephen Jones, Fellow of the Institute of Actuaries of Australia.
This report indicates that Mr Jones is satisfied as to the accuracy of the data
upon which life insurance policy liabilities have been determined.
The amount of life insurance and general insurance policy liabilities have been
determined in accordance with methods and assumptions disclosed in this
financial report and the requirements of applicable accounting standards.
Specifically, policy liabilities for life insurance contracts and general insurance
contracts are determined in accordance with AASB 1038 Life Insurance
Contracts and AASB 1023 General Insurance Contracts respectively, and LPS:
340 Valuation of Policy Liabilities. These require policy liabilities to be calculated in
a way which allows for the systematic release of planned margins as services are
provided to policyholders and premiums are received.
At the reporting date, the projection method was used to determine the life
insurance policy liabilities of the level premium funeral cover business. Policy
liabilities for all other business were determined using the accumulation method.
The accumulation method values policy liabilities as the provision for unearned
premium reserve less a deferred acquisition cost component.
The projection method values life insurance policy liabilities as the net present
value of projected policy cash flows (premiums, benefits, expenses and profit
margins to be released in future periods), using best estimate assumptions about
the future. Future cash flows are discounted at a risk-free discount rate derived
from Government bond yields at the reporting date.
Outstanding claims liabilities and Incurred But Not Reported (‘IBNR’) liabilities are
included in provisions.
(b) Processes used to determine actuarial assumptions
Premium earning pattern
For single premium products, the Unearned Premium Reserve (‘UPR’) is based on
a premium earning pattern that is similar to the pattern of expected future claim
payments. The future claim payments are based on an assessment of the future
sum insured (e.g. outstanding loan balances for mortgage and loan protection)
and future claims frequencies. Past experience is used to set these assumptions.
This earning pattern is also used to recognise commissions incurred. For regular
premium products, the UPR is based on the unearned proportion of premium for
the given premium payment frequency.
Mortality and morbidity
Mortality and morbidity assumptions have been based on recent St Andrew’s
Life Insurance Pty Ltd (‘Insurance company’) experience, or where data was
limited, on the experience of similar products issued by the Insurance company.
The disputed claims provision is based on individual claim estimates and an
assumed 50% probability of disputed claims being incurred.
Future maintenance expenses
For life insurance contracts valued using the projection method, maintenance
unit costs are based on budgeted expenses in the year following the reporting
date. For future years, the Insurance company’s expense base is increased for
inflation at a rate of 1.5% pa.
Voluntary discontinuances
For life insurance contracts valued using the projection method, voluntary
discontinuance assumptions have been based on recent Insurance company
experience. These rates are derived from the overall discontinuance rate for the
individual product group and then further adjusted for duration and premium
structure.
Risk-free discount rates
For life insurance contracts valued using the projection method, a risk-free
discount rate based on Government bond yields at the reporting date is used.
Risk-free rates are term-dependent and as at 31 August 2017 varied from
1.7% to 4.1%.
(c) Sensitivity analysis
Under Margin on Services (‘MoS’) reporting, changes in assumptions for life
insurance contracts valued using the projection method are generally
recognised by adjusting the value of future profit margins in the life insurance
policy liabilities. Therefore, where a change in assumptions does not result in
loss recognition, there is no impact on the policy liabilities in the current period.
As at 31 August 2017, no related product groups were in loss recognition.
Changes in assumptions will however give rise to a difference in the emergence
of profit margins in future periods. Changes in assumptions will not affect policy
liabilities determined using the accumulation method, however, claims
provisions would be affected in the current period.
Variable
Mortality rates
Morbidity rates
Impact of movement in underlying variable
For contracts providing death benefits, greater mortality rates would lead to higher levels of claims occurring sooner than anticipated, increasing
associated claims cost and therefore reducing profit and shareholder’s equity.
The cost of disability related claims depends on both the incidence of policyholders becoming disabled and the duration which they remain so.
Higher than expected incidence and duration would be likely to increase claim costs, reducing profit and shareholder equity.
Discontinuance rates
Higher than expected policy discontinuance rates reduces future premium income, however this is offset by reduced future claims costs,
commissions and maintenance expenses. The likely impact would be to reduce future profit and shareholder equity.
Maintenance expenses Higher than expected maintenance expenses would reduce future profit and shareholder equity.
Risk-free discount rate
For life insurance contracts valued using the projection method, changes in the risk-free discount rate, such as changes in market yields caused
by changes in investment markets and economic conditions, impact both life insurance policy liabilities and asset values at the reporting date.
124
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 5.1 Insurance business (continued)
(d) Reconciliation of movements
Reconciliation of movements in insurance policy liabilities
Life insurance contract policy liabilities
Gross life insurance contract liabilities at the beginning of the financial year
Decrease in life insurance contract policy liabilities (i)
Gross life insurance contract liabilities at the end of the financial year
Liabilities ceded under reinsurance
Opening balance at the beginning of the financial year
Decrease in life reinsurance assets (ii)
Closing balance at the end of the financial year
Net life policy liabilities at the end of the financial year
(i) plus (ii) = change in life insurance contract liabilities reflected in the Income Statement
Components of net life insurance contract liabilities
Future policy benefits
Future charges for acquisition costs
Total net life insurance contract policy liabilities
Components of general insurance liabilities
Unearned premium liability
Outstanding claims liability
Total Insurance Policy Liabilities
2017
$m
2016
$m
17
(6)
11
(1)
-
(1)
10
(6)
34
(24)
10
5
1
6
16
32
(15)
17
(1)
-
(1)
16
(15)
41
(25)
16
7
2
9
25
Future policy benefits include the unearned premium components of the liability. The accumulation method has been used to calculate policy liabilities and components relating to expenses and profits are not separately calculated.
125
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 5.1 Insurance business (continued)
(e) Life insurance regulatory capital requirements
The regulatory capital requirement of each fund and for the subsidiary in total is the amount required to be held in accordance with LPS 110: Capital Adequacy.
These are amounts required to meet the prudential standards prescribed by the Life Insurance Act 1995 to provide protection against the impact of fluctuations and
unexpected adverse circumstances on the Insurance company.
The methodology and bases for determining the capital base and regulatory capital requirements are in accordance with relevant prudential requirements.
2017
2016
Statutory
Fund No. 1
$m
Shareholders’
Fund
$m
Statutory
Fund No. 1
$m
Shareholders’
Fund
$m
33
(16)
17
1
2
3
14
6
1
-
1
-
-
-
1
58
29
(13)
16
1
2
3
13
6
2017
$m
34
(16)
18
3
7
10
8
2
1
-
1
-
-
-
1
57
2016
$m
30
(13)
17
3
7
10
7
2
Capital base
Net Assets
Add / (subtract) regulatory adjustments to Net Assets
Total capital base
Asset risk charge
Operational risk charge
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
Composition of capital base
Common equity tier 1 capital
Subtract regulatory adjustments to common equity tier 1 capital
Total capital base
Prescribed Capital Amount
Statutory Fund No. 1
Additional amount to meet Insurance company minimum
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
126
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
5.1 Insurance business (continued)
(e) Life insurance regulatory capital requirements (continued)
Disaggregated information life insurance (before consolidation adjustments)
Summarised Income Statement
Revenue
Life insurance premium revenue
Investment income
Net life insurance revenue
Expenses
Net claims and other liability expense from insurance contracts
Other expenses
Profit before income tax
Income tax expense
Profit after income tax
Statement of sources of profit for statutory funds
Operating profit after income tax arose from:
Components of profit related to movement in life insurance liabilities:
Planned margins of revenues over expenses released
Difference between actual and assumed experience
Investment earnings on assets in excess of life insurance policy liabilities and provision
Summarised Balance Sheet
Assets
Investment assets
Other assets
Liabilities
Net life insurance liabilities
Liabilities other than life insurance liabilities
Issued capital, reserves and retained profits
Directly attributable to shareholders
The life insurance business has no life investment contracts.
(e) Accounting policy
2017
$m
2016
$m
51
1
52
35
7
42
10
(3)
7
9
(3)
1
54
4
58
9
15
24
34
34
46
2
48
25
7
32
16
(5)
11
11
(1)
1
64
3
67
15
22
37
30
30
The life insurance operations of the Consolidated Entity are conducted within
separate funds as required by the Life Insurance Act 1995 and is reported in
aggregate with the shareholders’ fund in the Income Statement, Balance Sheet
and Statement of Cash Flows of the Consolidated Entity. The life insurance
operations of the Consolidated Entity comprise the selling and administration of
life insurance contracts.
Life insurance contracts involve the acceptance of significant insurance risk.
Insurance risk is defined as significant if, and only if, an insured event could
cause an insurer to pay significant additional benefits in any scenario, excluding
scenarios that lack commercial substance (i.e. have no discernible effect on the
economics of the transaction).
Insurance contracts include those where the insured benefit is payable on the
occurrence of a specified event such as death, injury or disability caused by
accident or illness.
127
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 5.1 Insurance business (continued)
(f) Accounting policy (continued)
The insured benefit is either not linked or only partly linked to the market
value of the investments held by the Consolidated Entity. Financial risks are
substantially borne by the Consolidated Entity.
Monies held in the statutory fund are subject to distribution and transfer
restrictions and other requirements of the Life Insurance Act 1995.
Under AASB 1038 Life Insurance Contracts, the financial statements must
include all assets, liabilities, revenues, expenses and equity, irrespective of
whether they are designated as relating to shareholders or policy owners.
Therefore, the Consolidated Entity’s financial statements comprise the total
of all statutory funds and the shareholders’ fund.
Insurance contract liability
Profits of the insurance contract business are brought to account on a
MoS basis in accordance with guidance provided by LPS 340: Valuation of
Policy Liabilities as determined by APRA. Under MoS, profit is recognised
as fees are received and services are provided to policyholders. When fees
are received but the service has not been provided, the profit is deferred.
Losses are expensed when identified.
Consistent with the principle of deferring unearned profit is the requirement
to defer expenditure associated with the deferred profit. MoS permits costs
associated with the acquisition of policies to be charged to profit or loss in
the Income Statement over the period that the policy will generate profits.
Costs may only be deferred to the extent that a policy is expected to be
profitable.
Profit arising from life insurance is based on actuarial assumptions, and
calculated as the excess of premiums and investment earnings less claims,
operating expenses and the amortisation of acquisition costs that will be
incurred over the estimated life of the policies. The profit is systematically
recognised over the estimated time period the policy will remain in force.
Under MoS, insurance contract liabilities may be valued using a projection
approach or an accumulation approach where this does not result in a
material difference to the projection approach. The Insurance Company’s
Directors and the appointed actuary have deemed the projection approach
appropriate for the level premium funeral cover portion of the business, and
the accumulation approach appropriate for the remainder of the business.
Under the accumulation approach, premiums received are deferred and
earned in accordance with the underlying incidence of risk. Costs of
acquiring insurance contracts, both direct and indirect, are deferred to the
extent that related product groups are expected to be profitable. Under the
projection approach, insurance contract liabilities are valued as the net
present value of projected policy cash flows (premiums, benefits, expenses
and profit margins to be released in future periods), using best estimate
assumptions about the future. Future cash flows are discounted at a risk-
free discount rate.
Where a related product group is not expected to be profitable, the
insurance contract liability is increased by the excess of the present value
of future expenses over future revenues.
Revenue Recognition
Premiums in respect of life insurance contracts are recognised as revenue in
the Income Statement from the date of attachment of risk. Premiums with no
due date are recognised as revenue on a cash basis. Premiums with a regular
128
due date are recognised as revenue on an accruals basis. Unpaid premiums are
only recognised as revenue during the days of grace or where secured by the
surrender value of the policy and are included in the intergroup balance in the
Balance Sheet.
Investment income is recognised on an accruals basis. Realised and unrealised
gains and losses are included in the Income Statement as investment income.
Claims expense – insurance contracts
Claims incurred all relate to the provision of services, including the bearing of
risks, and are treated as expenses.
Claims are recognised when the liability to the policyholder under the policy
contract has been established. Claims recognition is based upon:
•
cost estimates for losses reported to the close of the financial year; and
• estimated incurred but not reported losses, based upon past experience.
Deferred acquisition costs - life insurance contracts
The fixed and variable costs of acquiring new life insurance business are deferred
to the extent that such costs are deemed recoverable from future premiums or
policy charges. These costs include commission, policy issue and underwriting
costs, certain advertising costs and other sales costs. Acquisition costs deferred
are limited to the lesser of the actual costs incurred and the allowance for the
recovery of such costs in the premium or policy charges. The actual acquisition
costs incurred are recorded in profit or loss in the Income Statement. The value
and future recovery of these costs are assessed in determining policy liabilities.
This has the effect that acquisition costs are deferred within the policy liability
balance and amortised over the period that they will be recovered from premiums
or policy charges.
Critical accounting judgements and estimates
The Consolidated Entity’s insurance subsidiaries make estimates and
assumptions that affect the reported amounts of assets and liabilities within the
next financial year. Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. The areas
where critical accounting judgements and estimates are applied are noted as:
Policy liabilities
Policy liabilities for life insurance contracts are computed using statistical or
mathematical methods, which are expected to give approximately the same
results as if an individual liability was calculated for each contract. The
computations are made by suitably qualified personnel on the basis of
recognised actuarial methods, with due regard to relevant actuarial principles.
The methodology takes into account the risks and uncertainties of the particular
classes of life insurance business written. The key factors that affect the
estimation of these liabilities and related assets are:
• The cost of providing benefits and administering these insurance contracts;
• Mortality and morbidity experience on life insurance products, including
enhancements to policyholder benefits; and
• Discontinuance experience, which affects the Bank’s ability to recover the
cost of acquiring new business over the lives of the contracts.
In addition, factors such as regulation, competition, interest rates, taxes,
securities market conditions and general economic conditions affect the level of
these liabilities.
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Section 6. Other notes
6.1 Employee benefits
(a) Superannuation commitments
Superannuation plan
The Bank contributes to a number of defined contribution superannuation plans which
comply with the Superannuation Industry (Supervision) Act 1993. Contributions
are charged to profit or loss in the Income Statement as they are made.
Basis of contributions
Employee superannuation contributions are based on various percentages of
employees’ gross salaries. The Consolidated Entity’s contributions are also based
on various percentages of employees’ gross salaries.
The Consolidated Entity is under no legal obligation to make superannuation
contributions except for the minimum contributions required under the
Superannuation Guarantee Legislation.
(b) Share based payments
The Consolidated Entity currently operates an Award Rights Plan for equity-settled
compensation. The plan allows the Consolidated Entity’s employees to acquire
shares in the Bank. The fair value of rights granted is recognised as an employee
expense with a corresponding increase to the Employee Benefits Reserve. The
fair value is measured at grant date and spread over the period during which
the employees become unconditionally entitled to the rights. The fair value of the
rights granted is measured using industry accepted pricing methodologies, taking
into account the terms and conditions upon which the rights are granted. The fair
value of the rights is expensed over the vesting period. Where rights do not vest
due to failure to meet a non market condition (e.g. employee service period) the
expense is reversed. Where rights do not vest due to failure to meet a market
condition (e.g. Total shareholder return test) the expense is not reversed.
(i) Description of share based payments
Long-term incentives - Award Rights
The Award Rights Plan was approved by shareholders on 11 December 2008.
It is an equity based program under which Award Rights are granted as long-
term incentives. The two types of award rights currently granted to employees
under the plan are Performance Award Rights (‘PARs’) and Deferred Award
Rights (‘DARs’). No amount is payable by employees for the grant or exercise
of these award rights.
PARs
The vesting framework for PARs will depend upon when the issue has been
granted. For PARs granted prior to December 2015 the vesting framework
will be based on the TSR of the Bank measured against a peer group over
a 2 to 3 year period. That peer group consists of the S&P / ASX 200 from
time to time, excluding selected entities in resources, real estate investment
trusts, telecommunications (offshore headquartered), energy and utilities and
such other inclusions and exclusions the Board considers appropriate. TSR
is a measure of the entire return a shareholder would obtain from holding an
entity’s securities over a period, taking into account factors such as changes in
the market value of the securities and dividends paid over the period.
One half of an employee’s PARs will vest if the Bank’s TSR performance over
the three year period is in the top 50% of the peer group. All of the PARs
vest if the Bank’s TSR performance is in the top 25%. For TSR performance
between those targets, a relative proportion of the PARs between 50% and
100% would vest. If the Bank’s TSR performance is below 50% of the Peer
Group, no PARs vest.
For issues granted from December 2015, the vesting framework will also
contain an EPS component, with 80% of the employee’s PARs to vest based
on the Bank’s TSR performance measured against a peer group over a three
year period. The remaining 20% of PARs vest based on the Bank’s EPS
performance, measured against a financial services peer group over a three
year period.
PARs may be exercised by the employee once they have vested.
DARs
There are no market performance hurdles or vesting conditions for DARs but
the holder must remain an employee of the Bank. DARs vest proportionately
over three years in the ratio of 20% at the end of year one, 30% at the end
of year two and 50% at the end of year three. DARs may be exercised by the
employee once they have vested.
Restricted shares
The Consolidated Entity has used shares with restrictions on disposal
as a non-cash, share based component of both short term and long term
incentive awards.
129
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.1 Employee benefits (continued)
(b) Share based payments (continued)
(ii) Award rights on issue
The number of award rights and restricted shares on issue for the Bank is as follows:
Deferred Award Rights
Performance Award Rights
Restricted shares
2017
’000
1,034
568
(164)
(393)
1,045
2016
’000
1,086
553
(184)
(421)
1,034
2017
’000
2,061
1,046
(335)
(395)
2,377
2016
’000
2,513
954
(538)
(868)
2,061
2017
’000
239
160
-
(171)
228
2016
’000
262
157
-
(180)
239
Balance at beginning of the year
Granted during the year
Forfeited / expired during the year
Exercised during the year
Outstanding at the end of the year
(iii) Measurement of fair values
The fair value of the PARs and DARs has been measured using the trinomial pricing methodology.
Restricted shares have been valued based on the volume weighted average price of ordinary shares in the Bank sold on the ASX during a 10 day trading period. The
shares vest on the respective expiry dates and meeting certain service conditions.
The weighted average of the inputs used in the measurement of the long term incentive award rights grants during the year were as follows:
Deferred award rights
Performance award rights
Restricted shares
2017
$11.45
$11.94
22.9%
2.0%
6.3%
2016
$10.96
$12.17
25.3%
2.5%
5.8%
2017
$6.80
$11.94
22.9%
2.0%
6.3%
2016
$7.04
$12.09
22.6%
2.5%
5.2%
2017
$11.03
$11.95
22.9%
2.0%
6.3%
Fair value at grant date
Share price at grant date
Expected volatility
Risk free interest rate
Dividend yield
6.2 Commitments
(a) Lease commitments
Future rentals in respect of operating leases (principally in respect of premises)
not provided for in these financial statements comprise amounts payable:
Within 1 year
Between 1 year and 5 years
Later than 5 years
(b) Customer funding commitments
Guarantees, indemnities and letters of credit
Customer funding commitments
Consolidated
2017
$m
2016
$m
Bank
2017
$m
34
104
60
198
321
1,412
1,733
28
85
73
186
293
1,183
1,476
34
104
60
198
321
638
959
2016
$12.35
$12.45
21.3%
2.4%
5.3%
2016
$m
28
85
73
186
293
595
888
In the normal course of business the Bank makes commitments to extend credit to its customers. Most commitments either expire if not taken up within a specified
time or can be cancelled by the Bank within one year. Credit risk is significantly less than the notional amount and does not crystallise until a commitment is funded.
Guarantees are provided to third parties on behalf of customers. The credit risks of such facilities are similar to the credit risks of loans and advances.
130
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.3 Contingent liabilities
6.4 Related parties information
As previously disclosed in the Bank’s 2016 full year and 2017 half year results,
on 11 March 2016, the Bank was served with class action proceedings
commenced in the New South Wales Registry of the Federal Court. The
proceedings have been commenced by Petersen Superannuation Fund Pty Ltd
(the Applicant) on behalf of an open class against Bank of Queensland Limited
and DDH Graham Limited and relate to the affairs of the Sherwin group of
companies, including Wickham Securities Limited (in Liquidation), Sherwin
Financial Planners Pty Ltd (in Liquidation), DIY Superannuation Services Pty Ltd
(in Liquidation) and certain of their related entities, with respect to the operation
of some of the Bank’s Money Market Deposit Accounts. It is the Bank’s intention
to continue to defend the proceedings and the Bank has filed a defence and
cross-claim. It is currently not practicable for the Bank to provide an estimate of
any liability in relation to the proceedings. The trial in the case is listed for 12
March 2018 (for 3 weeks). The court has ordered the parties to attend a
mediation prior to 31 January 2018, and set 14 December 2017 as the date for
class members to opt out of the class action and to register details of their
claims.
(a) Controlled entities
Details of interests in material controlled entities are set out in Section 6.5.
During the year there have been transactions between the Bank and all of its
controlled entities. The Bank conducted normal banking business with its operating
controlled entities. Amounts owing to or from controlled entities generally
attract interest on normal terms and conditions, except in respect of B.Q.L.
Management Pty Ltd, BOQ Specialist Pty Ltd, BOQ Share Plans Nominee Pty Ltd,
BOQ Home Pty Limited and dormant entities as set out in section 6.5(a).
The Bank receives management fees from its operating controlled entities except
BOQ Home Pty Limited, BOQ Share Plans Nominee Pty Ltd and dormant entities
as set out in section 6.5(a).
The Bank has a related party relationship with equity accounted joint ventures,
refer to section 6.7.
(b) Key management personnel compensation
KMP have authority and responsibility for planning, directing and controlling the
activities of the Bank and the Consolidated Entity, including Directors and other
Executives.
KMP compensation included in ‘administrative expenses’ and ‘employee
expenses’ (refer to section 2.2) is as follows:
Consolidated and Bank
2017
$
2016
$
Short term employee benefits
10,201,793
9,501,005
Post employment benefits
Long term employee benefits
Termination benefits
353,928
106,201
381,167
318,687
54,137
-
Share based employment benefits
4,853,858
4,302,538
15,896,947
14,176,367
Individual Directors and Executives compensation disclosures
Information regarding individual Directors and Executives compensation and
some equity instruments disclosures as permitted by Regulation 2M.3.03 of the
Corporations Regulation 2001 is provided in the Remuneration Report section of
the Directors’ Report.
Apart from the details disclosed in the Remuneration Report, no Director has
entered into a material contract with the Bank since the end of the previous
financial year and there were no material contracts involving Directors’ interest
existing at year end.
131
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.4 Related parties information (continued)
(c) Other financial instrument transactions with key management personnel and personally-related entities
A number of the KMP and their close family members hold positions in other entities that result in them having control or significant influence over the financial or
operating policies of those entities. These entities, as well as the KMP and their close family members, are related parties to the Consolidated Entity. Financial instrument
transactions with KMP and their related parties during the financial year arise out of the provision of banking services, the acceptance of funds on deposit, the granting
of loans and other associated financial activities. The terms and conditions of the transactions entered into with KMP and their related parties were no more favourable
than those available, or which might reasonably be expected to be available on similar transactions to non-related entities, on an arm’s length basis. No amounts have
been written down or recorded as impaired during the year (2016: nil).
The transactions undertaken between the Consolidated Entity and KMP or their related parties up to 31 August 2017 are:
Term products (loans / advances)
Executives
Other related parties (1)
Total
Balance as at
For the period (1)
1 September
2016
$
31 August
2017
$
Total Loan
Drawdowns /
(Repayments)
$
Total Loan /
Overdraft
interest
$
Total Fees
on Loans /
Overdraft
$
1,690,202
1,788,768
19,791
953,899
1,487,199
(2,371,886)
2,644,101
3,275,967
(2,352,095)
78,415
121,065
199,480
360
2,761
3,121
(1) Warwick Negus was appointed a Director of the Bank on 22 September 2016. On this basis, existing loans and advances between the Consolidated Entity and related parties of Mr Negus were not included in the opening balances
as at 1 September 2016. Related parties of Mr Negus repaid all loans and advances with the Consolidated Entity during the year and these repayments are reflected in the Total Loan Drawdowns / (Repayments) column in the table
above.
Term products (loans / advances)
Executives
Other related parties
Total
Balance as at
For the period (2)
1 September
2015
$
31 August
2016
$
2,535,149
1,690,202
338,448
953,899
2,873,597
2,644,101
Total Loan
Redraws /
Further
Advances
$
(932,893)
581,869
(351,024)
Total Loan /
Overdraft
interest
$
87,386
32,846
120,232
Total Fees
on Loans /
Overdraft
$
560
736
1,296
(2) Amounts are included only for the period that the Director / Executive is classified as a member of KMP.
Other transactions
Transactions with KMP and their related parties (other than loans and shares) during the financial year were related to personal banking, investment, finance leasing,
insurance policy and deposit transactions. These transactions are on normal commercial terms and conditions, in the oridinary course of business and are considered
trivial or domestic in nature.
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes at a price of $10,000 per note. Details of those notes issued to BOQ Directors are set out below:
2017
2016
Balance
$
200,000
70,000
270,000
Interest earned
$
Balance
$
Interest earned
$
8,884
3,109
11,993
200,000
70,000
270,000
2,405
842
3,247
Roger Davis
David Willis
Total
132
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.5 Controlled Entities
(a) Particulars in relation to material controlled entities
The Group’s controlled entities at 31 August 2017 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are
held directly by the Group. The Bank owns 100% of all controlled entities with nil ownership interest held by non-controlling interests. The country of incorporation or
registration is also their principal place of business.
Place of
business/country
of incorporation
Parent entity’s
interest
Controlled entities:
Alliance Premium Funding Pty Ltd (1)
Bank of Queensland Limited
Employee Share Plans Trust
BOQ Asset Finance and Leasing Pty Ltd
BOQ Covered Bond Trust
BOQ Credit Pty Limited
BOQ Equipment Finance Limited
BOQF Cashflow Finance Pty Ltd (2)
BOQ Finance (Aust) Limited
BOQ Finance (NZ) Limited
BOQ Funding Pty Limited
BOQ Home Pty Ltd
BOQ Share Plans Nominee Pty Ltd
BOQ Specialist (Aust) Limited
BOQ Specialist Pty Ltd
B.Q.L. Management Pty. Ltd.
B.Q.L. Nominees Pty. Ltd.
B.Q.L. Properties Pty Ltd
Dell Financial Services Pty Ltd
Home Credit Management Pty Ltd
Home Financial Planning Pty Ltd
Hunter Leasing Pty Ltd
Impala Trust No. 1
Newcourt Financial (Australia) Pty Limited
Nyala Funding Trust CMBS 2013-1
Pioneer Permanent Pty Ltd
Queensland Electronic Switching Pty Ltd
REDS Warehouse Trust No.3
Series 2007-1E REDS Trust
Series 2007-2 REDS Trust
Series 2008-1 REDS Trust
Series 2008-2 REDS Trust
Series 2009-1 REDS Trust
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2017
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
-
100%
100%
-
-
100%
100%
100%
100%
2016
%
-
100%
100%
-
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100% wholly owned subsidiary of BOQF Cashflow Finance Pty Ltd
(1)
(2) Entity was formerly known as Centerpoint Alliance Premium Funding Pty Ltd. 100% wholly owned subsidiary of BOQ Finance (Aust) Limited
Amount of investment
Principal activities
2017
$m
2016
$m
-
-
-
-
-
15
-
230
22
-
157
-
358
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
15
-
230
22
-
157
-
358
-
-
5
-
-
-
-
-
-
-
-
32
32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Dormant
Trust management
Asset finance & leasing
Issue of covered bonds
Asset finance & leasing
Asset finance & leasing
Professional finance
Asset finance & leasing
Asset finance & leasing
Asset finance & leasing
Investment holding entity
Trust management
Professional finance and asset
finance & leasing
Professional finance
Trust management
Dormant
Dormant
Asset finance & leasing
Investment holding entity
Dormant
Dormant
Securitisation
Dormant
Securitisation
Dormant
Dormant
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
133
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.5 Controlled Entities (continued)
(a) Particulars in relation to material controlled entities (continued)
Place of
business/
country of
incorporation
Parent entity’s
interest
Controlled entities:
Series 2010-1 REDS Trust
Series 2010-2 REDS Trust
Series 2012-1E REDS Trust
Series 2013-1 EHP REDS Trust
Series 2013-1 REDS Trust
Series 2014-1 EHP REDS Trust
Series 2015-1 REDS Trust
Series 2015-1 EHP REDS Trust
Series 2017-1 REDS Trust
St Andrew’s Australia Services Pty Ltd
St Andrew’s Insurance (Australia) Pty Ltd
St Andrew’s Life Insurance Pty Ltd
Statewest Financial Planning Pty Ltd
Statewest Financial Services Pty Ltd
Virgin Money (Australia) Pty Limited
Virgin Money Financial Services Pty Ltd
Virgin Money Home Loans Pty Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2017
%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2016
%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
100%
Amount of investment
Principal activities
2017
$m
2016
$m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53
-
-
867
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53
-
-
872
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Insurance
General insurance
Life insurance
Dormant
Dormant
Financial services
Financial services
Dormant
(b) Significant restrictions
In accordance with APS 222 Associations with related entities, the Bank and
its subsidiaries that form part of the Extended Licensed Entity have various
restrictions. This includes not having unlimited exposures to related entities,
including general guarantees.
(c) Acquisition of controlled entities
(i) Accounting for business combinations
Acquisitions on or after 1 July 2009
The Consolidated Entity has adopted revised AASB 3 Business Combinations
for business combinations occurring in the financial year starting 1 July 2009.
All business combinations occurring on or after 1 July 2009 are accounted for
by applying the acquisition method. The Consolidated Entity has also adopted
AASB 10 Consolidated Financial Statements which has superseded AASB 127
Consolidated and Separate Financial Statements (as amended in 2008). For every
business combination, the Group identifies the acquirer, which is the combining
entity that obtains control of the other combining entities or businesses. The
Group controls an entity if it is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those returns through
its power over the investee.
Contingent Liabilities
A contingent liability of the acquiree is assumed in a business combination only if
such a liability represents a present obligation and arises from a past event, and
its fair value can be measured reliably.
Transactions Costs
Transaction costs that the Group incurs in connection with a business
combination, such as a finders fee, legal fees, due diligence fees and other
professional and consulting fees are expensed as incurred.
134
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.5 Controlled Entities (continued)
(c) Acquisition of controlled entities (continued)
(ii) Entities acquired during the year
On 30 December 2016, the Consolidated Entity acquired 100% of BOQF
Cashflow Finance Pty Ltd (formerly known as Centrepoint Alliance Premium
Funding Pty Ltd) for consideration of $21.4 million.
BOQF Cashflow Finance Pty Ltd (‘BOQF Cashflow Finance’) focuses on
short term loan products in the insurance premium funding industry for
predominantly small to medium sized enterprises. The Consolidated Entity
purchased BOQF Cashflow Finance as an extension to the BOQ Finance
business and aligned to the Bank’s strategy to target profitable niche business
segments. Alliance Premium Funding Limited (New Zealand entity) was also
acquired as a 100% wholly owned subsidiary of BOQF Cashflow Finance.
In the seven month period from 31 December 2016 to 31 August 2017, BOQF
Cashflow Finance contributed revenues of $7 million and a profit after tax of $2
million (excluding integration costs of $0.5 million) to the Consolidated Entity.
The provisional acquisition accounting had the following effect on the
consolidated entity’s assets and liabilities:
Assets
Cash and liquid assets
Loans and advances at amortised cost
Other assets
Total assets
Liabilities
Accounts payable and other liabilities
Borrowings
Total liabilities
Net identifiable tangible assets and liabilities
Goodwill and other identifiable intangible assets on acquisition
Total Consideration
Consideration paid, satisfied in cash
Cash acquired
Net cash outflow
In addition, the following entities were established during the financial year:
• Series 2017-1 REDS Trust was opened on 9 February 2017.
• BOQ Covered Bond Trust was opened on 10 May 2017.
(d) Disposal of controlled entities
The following entities were disposed during the financial year:
• Nyala Funding Trust CMBS 2013-1 was closed on 15 September 2016.
• Series 2013-1 EHP REDS Trust was closed on 19 September 2016.
• REDS Warehouse Trust No.3 was closed on 13 March 2017.
• Series 2007-1E REDS Trust was closed on 14 June 2017.
• Dell Financial Services Pty Ltd was disposed on 30 June 2017.
Recognised values
on acquisition
$m
Pre-acquisition
carrying amounts
$m
7
144
5
156
16
125
141
15
7
143
5
155
16
125
141
14
7
21
21
7
(14)
135
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.6 Deed of Cross Guarantee
The Bank and certain subsidiaries are party to a Deed of Cross Guarantee (‘the Deed’), which was a condition under the recently superseded ASIC Class Order 98/1418
for wholly-owned entities to be eligible for relief from certain of financial reporting obligations in Part 2M.3 of the Corporations Act 2001.
The subsidiaries who are party to the Deed of Cross Guarantee are:
• BOQ Credit Pty Limited;
• BOQ Equipment Finance Limited;
• BOQ Finance (Aust) Limited; and
• BOQ Funding Pty Ltd.
On 28 September 2016, ASIC replaced ASIC Class Order 98/1418 with ASIC Corporations (Wholly-owned Companies) Instrument 2016/785, which applies in relation to
financial years ending on or after 1 January 2017. The financial reporting relief provided under the new ASIC Instrument is not available where an APRA-regulated entity
is party to the Deed of Cross Guarantee.
The Bank is currently in the process of revoking the Deed to remove the Bank as a party, however there is a 6 month period before the revocation will become
effective. Although the Deed is currently still operative, none of the subsidiaries that are party to the Deed relied on the financial reporting relief available under the ASIC
Instrument for the financial year ended 31 August 2017 and each separately is preparing and lodging a financial report, directors’ report and auditor’s report.
The following subsidiaries who are party to the Deed of Cross Guarantee are preparing financial reports for the financial year ended 31 August 2017:
• BOQ Credit Pty Limited;
• BOQ Equipment Finance Limited; and
• BOQ Finance (Aust) Limited.
BOQ Funding Pty Ltd is a small proprietary company and is not required to prepare financial reports.
The effect of the Deed (for so long as it remains operative) is that the Bank guarantees to each creditor payment in full of any debt in the event of winding up of any of
the subsidiaries to the Deed under certain provisions of the Corporations Act 2001. If a winding up occurs, the Bank will only be liable in the event any creditor has not
been paid in full. The subsidiaries have also given cross-guarantees in the event that the Bank is wound up.
136
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.7 Investments in joint arrangements
The Consolidated Entity holds interests in a number of collectively and individually
immaterial joint ventures that are accounted for using the equity method. The principal
activity of the joint venture entities is land subdivision, development and sale.
(a) Accounting for joint arrangements
The Consolidated Entity’s investments in joint venture entities are accounted for
under the equity method of accounting in the consolidated financial statements.
These are entities in which the Consolidated Entity has joint control over all
operational decisions and activities.
Under the equity method, the investments in joint ventures are recognised at
the cost of acquisition and the carrying value is subsequently adjusted by the
Consolidated Entity’s share of the joint venture entity’s profit or loss and movement
in post-acquisition reserves, after adjusting to align the accounting policies with
that of the Consolidated Entity’s.
The Consolidated Entity’s share of the joint venture entity’s net profit or loss
is calculated based on the sale of land, together with any tax expense, and is
brought to account based on the proportion of settled land sales contracts.
(b) Joint venture details
Set out below are the joint ventures of the Consolidated Entity as at 31 August
2017 which, in the opinion of the directors, are immaterial to the Consolidated
Entity. Australia is the place of business and also the country of incorporation
for all joint ventures. The proportion of ownership interest is the same as the
proportion of voting rights held.
Ownership Interest
Carrying amount
Ocean Springs Pty Ltd (Brighton)
Dalyellup Beach Pty Ltd (Dalyellup)
East Busselton Estate Pty Ltd (Provence)
Coastview Nominees Pty Ltd (Margaret River)
Provence 2 Pty Ltd (Provence 2)
Total equity accounted investments
2017
(%)
9.31
17.08
25.00
5.81
25.00
2016
(%)
9.31
17.08
25.00
5.81
25.00
6
8
1
-
-
15
2017
$m
2016
$m
Summary financial information for equity accounted joint ventures, not adjusted for the percentage of ownership held by the Consolidated Entity and fair value
adjustments on acquisition, is contained below:
Profit from continuing operations
Post-tax profit from discontinued operations
Other comprehensive income
Total comprehensive income
2017
$m
5
-
-
5
6
8
1
-
-
15
2016
$m
12
-
-
12
137
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.8 Auditor’s remuneration
KPMG Australia
Audit services
- Audit and review of the financial reports
- Other regulatory and audit services
Audit related services
- Other assurance services
- Regulatory assurance services
Non-audit services
- Taxation services
- Other
Consolidated
2017
$000
1,561
250
1,811
744
191
935
189
215
404
2016
$000
1,215
277
1,492
716
144
860
120
70
190
Bank
2017
$000
1,029
162
1,191
533
191
724
189
215
404
2016
$000
860
160
1,020
619
144
763
120
70
190
6.9 Events subsequent to balance date
The Directors are not aware of any matters or circumstance that have arisen in the interval between the end of the financial year and the date of this report, or any item,
event or transaction which significantly affects, or may significantly affect the operations of the consolidated entity in future financial years.
138
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.10 Significant accounting policies & new accounting standards
The accounting policies set out below have been applied consistently to all periods
presented in the consolidated financial statements, and have been applied
consistently across the Consolidated Entity.
(a) Basis of consolidation
(i) Subsidiaries
Subsidiaries are entities controlled by the Bank. Control exists when the Bank
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to benefit from its activities. In assessing control,
potential voting rights that presently are exercisable or convertible are taken
into account. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until
the date that control ceases. In the Bank’s financial statements, investments
in subsidiaries are carried at cost.
(ii) Securitisation
The Bank conducts a loan securitisation program whereby mortgage loans
are packaged and sold to the REDS Securitisation and Warehouse Trusts
(‘RMBS Trusts’) and the Nyala and Impala Trusts. The Bank also securitises hire
purchase, chattel mortgages and finance leases which are packaged and sold
to REDS EHP Securitisation Trusts (‘REDS EHP Trusts’).
Consolidated Entity
The Consolidated Entity receives the residual income distributed by the RMBS
and REDS EHP Trusts after all payments due to investors and associated costs
of the program have been met and as a result the Consolidated Entity is
considered to retain the risks and rewards of the RMBS Trusts and as a result
do not meet the de-recognition criteria of AASB 139 Financial Instruments:
Recognition and Measurement (‘AASB 139’).
The RMBS Trusts fund their purchase of the loans by issuing floating-rate debt
securities. The securities are issued by the RMBS Trusts. These are represented
as borrowings of the Consolidated Entity however the Consolidated Entity
does not stand behind the capital value or the performance of the securities
or the assets of the RMBS Trusts. The Consolidated Entity does not guarantee
the payment of interest or the repayment of principal due on the securities.
The loans subject to the securitisation program have been pledged as security
for the securities issued by the RMBS Trusts. The Consolidated Entity is not
obliged to support any losses that may be suffered by investors and does not
intend to provide such support.
The Bank does provide the securitisation programs with arm’s length services
and facilities, including the management and servicing of the leases
securitised. The Bank has no right to repurchase any of the securitised assets
and no obligation to do so, other than in certain circumstances where there
is a breach of warranty within 120 days of the sale or when certain criteria are
met under the clean up provision per the Trust Deed Supplement.
The transferred assets are equitably assigned to the securitisation trusts.
The investors in the securities issued by the trusts have full recourse to
the assets transferred to the trusts. The Bank receives the residual income
distributed by the trusts after all payments due to investors and associated
costs of the program have been met and as a result the Bank is considered
to retain the risks and rewards of the trusts.
Bank
Interest rate risk from the RMBS and REDS EHP Trusts is transferred back to
the Bank by way of interest rate and basis swaps. Accordingly, under AASB 139
the original sale of the mortgages from the Bank to the RMBS Trusts does not
meet the de-recognition criteria set out in AASB 139. The Bank continues to
reflect the securitised loans in their entirety and also recognises a financial
liability to the RMBS Trusts. The interest payable on the intercompany financial
asset / liability represents the return on an imputed loan between the Bank
and the trusts and is based on the interest income under the mortgages, the
fees payable by the trusts and the interest income or expense not separately
recognised under the interest rate and basis swaps transactions between
the Bank and the trusts.
All transactions between the Bank and the trusts are eliminated on
consolidation.
(iii) Transactions eliminated on consolidation
Intra-group balances, and any unrealised gains and losses or income and
expenses arising from intra-group transactions, are eliminated in preparing
the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised gains, but
only to the extent that there is no evidence of impairment.
(iv) Derecognition of financial assets and liabilities
Financial assets are derecognised when the contractual rights to receive cash
flows from the assets have expired, or where the Bank has transferred its
contractual rights to receive the cash flows of the financial assets and
substantially all the risks and rewards of ownership. Financial liabilities are
derecognised when they are extinguished, i.e. when the obligation is
discharged, cancelled or expired.
(b) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated into Australian dollars
at the foreign exchange rate ruling at that date. Non-monetary items in a
foreign currency that are measured at historical cost are translated using the
exchange rate at the date of the transaction. Foreign exchange differences
arising on translation are recognised in the profit and loss. Where a foreign
currency transaction is part of a hedge relationship it is accounted for as
above, subject to the hedge accounting rules set out in section 3.8.
(ii) Foreign operations
The Consolidated Entity has no foreign operations, all overseas activities are
carried out through non-incorporated branches.
139
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.10 Significant accounting policies & new accounting standards (continued)
(c) New accounting standards
The following, are the amendments to standards and interpretations applicable for
the first time to the current year:
• AASB 2015-5 Amendments to Australian Accounting Standards – Investment
Entities - These changes relate to the application of the Consolidation
Exception under which:
›
›
›
An investment entity parent is required to fair value a subsidiary providing
investment-related services that is itself an investment entity;
An intermediate parent owned by an investment entity group is exempt
from preparing consolidated financial statements; and
When a non-investment entity investor applies the equity method, it is
permitted to retain the fair value accounting applied by its investment
entity associate or joint venture.
•
• AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure
Initiative - The amendments do not require any significant change to current
practice, but should facilitate improved reporting, including an emphasis
on only including material disclosures, clarity on the aggregation and
disaggregation of line items, the presentation of subtotals, the ordering of
notes and the identification of significant accounting policies.
AASB 2014-9 Amendments to Australian Accounting Standards – Equity
method in Separate Financial Statements - The standard allows the use of
the equity method in separate financial statements in the accounting for
associates, joint ventures and subsidiaries.
AASB 2014-4 Amendments to Australian Accounting Standards – Clarification
of Acceptable Methods of Depreciation and Amortisation - A rebuttable
presumption was introduced that the use of revenue-based amortisation
methods for intangible assets is inappropriate. There is limited opportunity for
presumption to be overcome. For property, plant and equipment, the revenue-
based depreciation cannot be used.
AASB 2014-3 Amendments to Australian Accounting Standards – Accounting
for Acquisitions of Interests in Joint Operations - The effect of this amendment
is that business combination accounting is required to be applied to
acquisitions of interests in a joint operation that meets the definition of a
‘business’ under AASB 3 Business Combinations.
•
•
• AASB 2015-1 Amendments to Australian Accounting Standards – Annual
Improvements to Australian Accounting Standards 2012–2014 Cycle - This
standard sets out amendments to various Australian Accounting Standards in
order to address the following items:
› AASB 5 Non-current Assets Held for Sale and Discontinued Operations -
Changes in methods of disposal - where an entity reclassifies an asset (or
disposal group) directly from being held for distribution to being held for
sale (or visa versa), an entity shall not follow the guidance in paragraphs
27–29 to account for this change.
AASB 7 Financial Instruments: Disclosures - Clarifies how an entity should
apply the guidance regarding servicing contracts and the applicability of
offsetting financial assets and financial liabilities.
AASB 119 Employee Benefits - Clarifies that the high quality corporate
bonds used to estimate the discount rate for post-employment benefit
obligations should be denominated in the same currency as the liability.
›
›
140
›
AASB 134 Interim Financial Reporting - Amends AASB 134 to clarify the
meaning of disclosure of information ‘elsewhere in the interim financial
report’ and to require the inclusion of a cross-reference from the interim
financial statements to the location of this information.
The Consolidated Entity has reviewed the impact of the following and determined
there to be no material impact.
The following standards and amendments have been identified as those which
may impact the Consolidated Entity and the majority were available for early
adoption at 31 August 2017 but have not been applied in these financial
statements.
• AASB 9 Financial Instruments (‘AASB 9’) - This standard introduces
changes in the classification and measurement of financial assets and
liabilities, including a new expected loss model for impairment and
simplifications to hedge accounting. This standard will become mandatory
for the Group in the financial year beginning 1 September 2018 and a
program for AASB 9 implementation has commenced.
Impairment
Under AASB 9 an expected credit loss (ECL) model replaces the existing AASB
139 Financial Instruments: Recognition and Measurement incurred loss. The
change in standard will require entities to recognise expected credit losses
based on unbiased forward looking information, instead of only recognising
losses on the occurrence of the loss event.
The Consolidated Entity will apply a three-stage approach to measuring the
ECL based on credit transitioning between the three stages. The Group will
estimate ECL through modelling the probability of default, loss given default,
exposure at default and further incorporate a present value adjustment.
› Stage 1 - Performing - This includes all financial instruments that have
seen no significant increase in credit risk, since their origination or
purchase. For these financial instruments an allowance of the first 12
month ECL should be provided.
› Stage 2 - Under-performing - This includes all financial instruments that
have experienced significant increase in credit risk from origination or
purchase, and given the subsequent level of credit risk is not considered
low. For these financial instruments an allowance for full lifetime expected
credit losses should be provided.
› Stage 3 - Non-performing (impaired) - This is for financial instruments that
are credit impaired and show objective evidence of impairment (default).
The proportion of these that have not been individually assessed are to be
included in the collective provision.
Hedging
The new accounting standard requirements allow for broader application
of hedge accounting and to align it more closely with risk management.
While the new model does not fundamentally change the types of hedging
relationships, it simplifies the effectiveness testing by removing the 80% -
125% thresholds.
As the Group is currently assessing the AASB 9 impacts and the
implementation program is still in progress, a reliable estimate of the potential
financial statement impacts is yet to be determined.
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.10 Significant accounting policies & new accounting standards (continued)
(c) New accounting standards (continued)
• AASB 15 Revenue from contracts with customers (‘AASB 15’)- This standard
introduces a single model for revenue recognition and will replace current
guidance on revenue recognition from contracts with customers. It will
become mandatory for the Group in the financial year beginning 1 September
2018.
The core principle of AASB 15 is that an entity is to recognise revenue to
depict the transfer of promised goods or services to customers in amounts
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. To achieve this, the model features a
contract based five-step analysis of transactions to determine the revenue
recognition elements. The potential effects of this standard are yet to be
determined.
• AASB 16 Leases (‘AASB 16’) - This makes changes to the accounting for
leases and will replace AASB 117 Leases. It will become mandatory for the
Group in the financial year beginning 1 September 2019.
Lessees are required to recognise a right-of-use (ROU) asset and lease liability
for all leases with a term of more than 12 months, unless the underlying asset
is of low value. A lessee measures ROU assets similarly to other non-financial
assets and lease liabilities similarly to other financial liabilities. Assets and
liabilities arising from a lease are initially measured on a present value basis.
The measurement includes non-cancellable lease payments, including
inflation-linked payments. It also includes payments to be made in optional
periods if the lessee is reasonably certain to exercise an option to extend
the lease, or not to exercise an option to terminate the lease. A depreciation
charge will be recognised on ROU assets, while interest expense will be
recognised on lease liabilities.
AASB 16 substantially carries forward the lessor accounting requirements
in AASB 117. Accordingly, a lessor continues to classify leases as operating
leases or finance leases, accounting for the two types of leases differently.
Initial assessment activities and discussions have occurred in order to identify
the operating leases currently held and the system requirements. The Group is
yet to evaluate the transition methods and the quantitative impact of AASB 16.
Further review of leasing contracts, process and control changes, and future
disclosure requirements will be undertaken. The Group’s current operating
lease commitments are disclosed in Section 6.2.
• AASB 17 Insurance Contracts - This standard will replace AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts and AASB 1038
Life Insurance Contracts. It will become mandatory for the Group in the
financial year beginning 1 September 2021. This standard introduces new
measurement approaches to be used in valuing insurance contract liabilities.
Under the new model, insurance contract liabilities will represent the present
value of future cash flows including a provision for risk. The potential effects of
this standard are yet to be determined.
(d) Impairment of non-financial assets
Non-financial assets, other than deferred tax assets, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. For goodwill, and intangible assets with an indefinite life,
the recoverable amount is estimated each year at the same time.
The Bank conducts an annual internal review of non-financial asset values to
assess for any indicators of impairment. If any indication of impairment exists, an
estimate of the asset’s recoverable amount is calculated.
For the purposes of assessing impairment, assets are grouped at the lowest levels
for which there are separately identifiable cash inflows that are largely independent
of the cash inflows from other assets or groups of assets – CGU. An impairment
loss is recognised in profit or loss in the Income Statement for the amount by
which the asset’s carrying amount exceeds its recoverable amount. Impairment
losses recognised in respect of CGUs are allocated first to reduce the carrying
amount of goodwill allocated to the units, and then to reduce the carrying
amounts of the other assets in the unit on a pro-rata basis.
This grouping is subject to an operating segment ceiling test. Non-financial assets,
other than goodwill, that suffered impairment are tested for possible reversal of
the impairment whenever events or changes in circumstances indicate that the
impairment may have reversed. An impairment loss in respect of goodwill is not
reversed.
(i) Calculation of recoverable amount
The recoverable amount of a non-financial asset or CGU is the greater of
their fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
e) Leases
(i) Finance leases
Finance leases in which the Consolidated Entity is the lessor, are recorded
in the Balance Sheet as loans and advances at amortised cost. They are
recorded on the commencement of the lease as the net investment in the
lease, being the present value of the minimum lease payments.
(ii) Operating leases
Operating leases, in which the Consolidated Entity is the lessor, are
measured at cost less accumulated depreciation and accumulated
impairment losses. Depreciation is calculated to write off the cost of
operating lease assets less their estimated residual values using the
straight-line basis over the term of the lease, and is generally recognised
in profit or loss. Depreciation methods, useful lives and residual values are
reviewed at each reporting date and adjusted if appropriate.
Operating leases in which the Consolidated Entity is the lessee, are
expensed on a straight-line basis over the term of the lease, except where an
alternative basis is more representative of the pattern of benefits to be derived
from the leased property. When an operating lease terminates before the
lease period expires, any payment required to be made to the lessor by way of
penalty is recognised as an expense in the period in which termination takes
place.
141
For the Year Ended 31 August 2017Notes to the Financial StatementsBank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 6.10 Significant accounting policies & new accounting standards (continued)
(f) Goods and services tax
Revenues, expenses and assets are recognised net of the amount of goods and
services tax (‘GST’), except where the amount of GST incurred is not recoverable
from the Australian Tax Office (‘ATO’). In these circumstances the GST is recognised
as part of the cost of acquisition of the asset or as part of the expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from or payable to the ATO is included as a
current asset or current liability in the Balance Sheet.
Cash flows are included in the Statements of Cash Flows on a gross basis. The
GST components of cash flows arising from investing and financing activities
which are recoverable from or payable to the ATO are classified as operating cash
flows.
(g) Property, plant & equipment
(i) Recognition and initial measurement
Items of property, plant and equipment are stated at cost or deemed cost less
accumulated depreciation and accumulated impairment losses. The cost of
self-constructed assets includes the cost of materials, direct labour and an
appropriate proportion of production overheads.
(ii) Subsequent costs
Subsequent additional costs are only capitalised when it is probable that
future economic benefits in excess of the originally assessed performance of
the assets will flow to the Bank in future years. Where these costs represent
separate components, they are accounted for as separate assets and are
separately depreciated over their useful lives. Costs that do not meet the
criteria for subsequent capitalisation are expensed as incurred.
(iii) Subsequent measurement
The Bank has elected to use the cost model to measure property, plant
and equipment after recognition. The carrying value is the initial cost less
accumulated depreciation and any accumulated impairment losses.
(iv) Depreciation
Depreciation is charged to the profit or loss in the Income Statement on a
straight-line basis over the estimated useful lives of each part of an item of
property, plant and equipment.
The estimated useful lives are as follows:
IT equipment
Plant, furniture and equipment
Leasehold improvements (1)
(1) Or term of lease if less.
The residual value if significant is reassessed annually.
Years
3-10
3-20
6-12
142
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 For the Year Ended 31 August 2017Notes to the Financial StatementsFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Directors’ Declaration
1.
In the opinion of the Directors of Bank of Queensland Limited (the ‘Bank’):
(a) the consolidated financial statements and notes and the Remuneration Report included within the Directors’ Report set out on pages 47 to 142,
are in accordance with the Corporations Act 2001 (Cth), including:
(i) giving a true and fair view of the financial position of the Bank and Consolidated Entity as at 31 August 2017 and of their performance,
for the year ended on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and
(b) there are reasonable grounds to believe that the Bank and Consolidated Entity will be able to pay its debts as and when they become due and payable.
The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 (Cth) from the Managing Director and CEO and
Chief Financial Officer for the financial year ended 31 August 2017.
The Directors draw attention to Section 1.2 (a) to the financial statements, which includes a statement of compliance with International
Financial Reporting Standards.
2.
3.
Signed in accordance with a resolution of the Directors:
Roger Davis
Chairman
11 October 2017
Jon Sutton
Managing Director and CEO
11 October 2017
143
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Independent Auditor’s Report
To the shareholders of Bank of Queensland Limited
Report on the audits of the Financial Reports
Opinions
We have audited the consolidated Financial Report of Bank of Queensland
Limited (the Consolidated Entity Financial Report). We have also audited the
Financial Report of Bank of Queensland Limited (the Bank Financial Report).
In our opinion, each of the accompanying Consolidated Entity Financial Report
and Bank Financial Report are in accordance with the Corporations Act 2001,
including:
The respective Financial Reports of the Consolidated Entity and the Bank
comprise:
•
•
the Balance Sheets as at 31 August 2017
Income Statements, Statements of Comprehensive Income, Statements of
Changes in Equity, and Statements of Cash Flows for the year then ended
• Notes including a summary of significant accounting policies
• giving a true and fair view of the Consolidated Entity’s and of the Bank’s
• Directors’ Declaration.
financial position as at 31 August 2017 and of its financial performance for
the year ended on that date; and
• complying with Australian Accounting Standards and the Corporations
The Consolidated Entity consists of Bank of Queensland Limited (the Bank) and
the entities it controlled at the year-end or from time to time during the financial
year.
Regulations 2001.
Basis for opinions
We conducted our audits in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinions.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audits of the Financial Reports section of our report.
We are independent of the Consolidated Entity and Bank in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and
Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audits of the Financial Reports in Australia. We have
fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matters we identified for the Consolidated Entity and Bank are:
• Specific and collective impairment provisions for loans and advances at
amortised cost
• Value of goodwill
• Value of intangible computer software
• Fair value measurement of financial instruments.
Key Audit Matters are those matters that, in our professional judgment, were of
most significance in our respective audits of the Financial Reports of the current
period.
These matters were addressed in the context of our audits of each of the
Financial Reports as a whole, and in forming our opinions thereon, and we do not
provide a separate opinion on these matters.
Specific and collective provisions for impairment of loan and advances at amortised cost (Consolidated Entity: AUD 227m and Bank: AUD 182m)
Refer to Section 3.4 Loans and advances at amortised cost and Section 3.6 Risk management to the Financial Reports
The Key Audit Matter
The Consolidated Entity and Bank hold both specific and collective provisions for
impairment against loans and advances. We consider this a Key Audit Matter
given that the assessment of the specific and collective impairment provisions is
complex and we are required to exercise a high level of judgement in considering
the adequacy of the provisions. In addition, the collective provision includes a
model adjustment to allow for model and economic uncertainties.
How the matter was addressed in our audits
Our audit procedures included:
• Testing a sample of key credit risk monitoring controls, including controls
over loan risk ratings, annual assessments of loans, security valuations,
and probability of default and loss given default calculations for significant
portfolios.
• Testing a sample of IT system controls, including certain controls over the
integrity of the IT systems that are relevant to loans and advances and the
calculation inputs into the specific and collective provisions.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
144
Annual Report 2017 BOQ.com.au
Independent Auditor’s Report
To the shareholders of Bank of Queensland Limited
Specific and collective provisions for impairment of loan and advances at amortised cost (Consolidated Entity: AUD 227m and Bank: AUD 182m) (continued)
Refer to Section 3.4 Loans and advances at amortised cost and Section 3.6 Risk management to the Financial Reports
The Key Audit Matter (continued)
How the matter was addressed in our audits (continued)
We focused on the significant assumptions the Consolidated Entity and Bank
applied in estimating specific and collective provisions, being:
• Testing, on a sample basis, specific impairment provisions held against
individual loans and advances. This included:
• Expected future cash flows – the Consolidated Entity and Bank forecast
future cash flows based on the assessment of an impaired loan and advance
specific circumstances. This assessment is complex and will vary according
to the individual circumstances of the underlying loan and advance.
• Estimated recoverable amount of assets held as security –in estimating the
specific provision, the Consolidated Entity and Bank will estimate the value
of the security through use of using external valuation experts and/or various
valuation techniques.
• Key assumptions used in estimating the collective provision – these include
whether default is likely (probability of default) and if a default were to occur,
what the loss would be (loss given default). The Consolidated Entity and
Bank determine these assumptions based on historical experience and the
expert knowledge of the risk characteristics of their portfolios of loans and
advances.
We involved our senior team members with the assessment of key assumptions
applied in the collective provision models given their highly specialised nature.
›
inspection of the latest correspondence with the borrower;
› comparing the security values used in the calculation of impairment
provisions to reports from external valuation experts used by the
Consolidated Entity and Bank;
› comparing the consistency of methods applied in estimating the expected
future cash flows and estimated sale proceeds;
› evaluating the accuracy of previous impairment provision estimates; and
considering current economic conditions and specific areas of credit risk
concentration, such as industries and geographies, which may impact
on security values, and challenging the Consolidated Entity’s and Bank’s
judgement with respect to estimated recoverable values.
• We tested the governance and control over the application of the collective
provision model adjustments. This included assessing the components
of model adjustments, trends in the credit risk concentration of specific
portfolios, and our understanding of economic conditions in higher-risk
geographies.
Value of goodwill (Consolidated Entity: AUD 682m and Bank: AUD 619m)
Refer to Section 4.1 Intangible assets to the Financial Reports
The Key Audit Matter
How the matter was addressed in our audits
The assessment of the value of goodwill is considered a Key Audit Matter due to
the subjectivity of forward-looking assumptions used in the value-in-use model
and the significance of goodwill to the financial positions of the Consolidated
Entity and Bank. We focused on the significant forward-looking assumptions
applied in their value-in-use model, including:
• Forecast operating cash-flows, forecast growth rates and the terminal value
earnings multiple – the sector in which the Consolidated Entity and Bank
operates is highly competitive and experiencing slower growth and regulatory
change and therefore difficult to forecast. As the model is sensitive to
changes in these assumptions, this drives additional audit effort specific to
their feasibility and consistency of the application to the Consolidated Entity
and Bank’s strategy.
• Discount rate – this is complicated in nature and varies according to the
conditions and environment the relevant cash generating unit (CGU) is
subject to from time to time. The Consolidated Entity and Bank’s modelling is
sensitive to changes in the discount rate.
We involved our valuation specialists and senior team members with the
assessment of this Key Audit Matter.
Working with our valuation specialists, our audit procedures included:
• Considering the appropriateness of the value-in-use method applied by
the Consolidated Entity and Bank to perform the annual test of goodwill for
impairment against the requirements of the accounting standards.
• Assessing the historical accuracy of forecast operating cash flows and
earnings estimates by comparing actual past performance against previous
forecasts and growth rates. Given the inherent uncertainty involved in
estimating forecast operating cash flows and growth rates, this informed our
areas of focus in current year cash flow forecasts.
• Based on our expertise and industry knowledge, comparing the discount rate,
growth rate and terminal value earnings multiples with external data to form
our own assessments of the feasibility of key assumptions used in the model.
• Performing a sensitivity analysis of the model by varying key inputs and
estimates such as forecast operating cash-flows, growth rates and discount
rate, within a reasonably possible range, to inform our procedures and to
identify bias.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
145
Bank of Queensland Limited and its Controlled Entities
Independent Auditor’s Report
To the shareholders of Bank of Queensland Limited
Value of intangible computer software (Consolidated Entity: AUD 173m and Bank: AUD 160m)
Refer to Section 4.1 Intangible assets to the Financial Reports
The Key Audit Matter
How the matter was addressed in our audits
The assessment of value of intangible computer software is considered a Key
Audit Matter due to the complexity of the methodology applied in estimating the
value of internally generated computer software.
We focused on the significant assumptions the Consolidated Entity and Bank
applied in estimating the value of internally generated computer software,
including:
• Capitalisation of costs – The Consolidated Entity’s and Bank’s estimation of
the value of intangible computer software is based on actual costs incurred
with external developers and internal staff salary costs. In capitalising these
costs, the Consolidated Entity and Bank have performed an analysis to
determine that the computer software meets the definition of an intangible
asset in accordance with the accounting standards. This assessment is
subjective in nature. We specifically focused on the realisation and timing
of future economic benefits and the allocation of costs incurred to specific
phases of a project, including the assumptions and methodologies used in
recording and capitalising of staff salaries.
• Expected useful life – Once internally generated computer software is
‘in-use’, the Consolidated Entity and Bank estimate the useful life of the
computer software and amortise the asset over this period. This assessment
is based on the intended use of the asset. This can be judgemental and
dependent upon future events, including advances in technology. We focused
on the consistency of the application of the useful life period, the utilisation of
the computer software, and the analysis of impairment indicators performed
by the Consolidated Entity and Bank.
Our audit procedures included:
• Evaluating the Consolidated Entity’s and Bank’s capitalisation policy against
the capitalisation criteria and guidance set out in the relevant accounting
standards.
• For a sample of internally generated computer software projects currently
under development, challenging the Consolidated Entity’s and Bank’s
application of the capitalisation policy. We challenged:
›
›
›
the selection of assumptions and methodologies used in the estimation of
future economic benefits and capitalising project related costs, including
looking for evidence of management bias;
the nature of project costs capitalised by testing a sample of capitalised
costs to the project scope of work and the capitalisation criteria of the
accounting standards; and
the Consolidated Entity and Bank assessment of projects not yet classified
as ‘in-use’ for any projects with indicators of ‘ready for use’ and should
therefore begin to be amortised over a defined useful life.
For a sample of internally generated computer software classified as ‘in-use’,
we compared the useful life adopted to the expected period of economic benefit
forecast to be realised through the use of the software. In assessing the forecast
period of economic benefit, we considered the completeness of impairment
triggers evaluated by the Consolidated Entity and Bank, including challenging
assumptions with respect to intended use and the remaining useful life of
computer software.
Fair value measurement of financial instruments
•
•
Financial assets available for sale (Consolidated Entity: AUD 3,934m and Bank: AUD 4,027m)
Financial assets held for trading (Consolidated Entity and Bank: AUD 1,837m)
• Derivative financial assets (Consolidated Entity: AUD 109m and Bank: AUD 107m)
• Derivative financial liabilities (Consolidated Entity and Bank: AUD 333m)
Refer to Sections 3.3 Financial assets, 3.6 Risk management, 3.7 Financial instruments and 3.8 Derivative financial instruments to the Financial Reports
The Key Audit Matter
How the matter was addressed in our audits
This is considered a Key Audit Matter due to the judgement we exercised when
considering assumptions and techniques used by the Consolidated Entity and
Bank to determine the fair value of financial instruments.
The level of judgement increased where internal models were used to determine
fair value, as opposed to quoted market prices.
Due to the judgmental nature in the application of valuation techniques, this
necessitated additional audit focus, including the use of valuation specialists
to assess the suitability and consistency with generally accepted valuation
principles.
Our audit procedures included:
• Assessing the design and operating effectiveness of certain controls relating
to financial instruments measured at fair value, including controls over the
trade confirmation and market risk monitoring processes.
• For financial instruments where the Consolidated Entity and Bank use
valuation models to estimate fair value, for a sample of instruments, we
worked with our valuations specialists to recalculate the valuations using
KPMG’s independent models. This involved researching and quality checking
external data, conducting independent mark-to-market analysis, developing
thresholds and assessing deviations.
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under Professional Standards Legislation.
146
Annual Report 2017 BOQ.com.au
Independent Auditor’s Report
To the shareholders of Bank of Queensland Limited
Other Information
Other Information is financial and non-financial information in Bank of Queensland Limited’s annual reporting which is provided in addition to the Financial Reports and
the Auditor’s Report. The Directors are responsible for the Other Information.
Our opinions on the Financial Reports do not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance
conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audits of the Financial Reports, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is
materially inconsistent with the Financial Reports or our knowledge obtained in the audits, or otherwise appears to be materially misstated.
We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other
Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.
Responsibilities of the Directors for the Financial Reports
The Directors are responsible for:
• preparing the Financial Reports that give a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001
•
implementing necessary internal controls to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement,
whether due to fraud or error
• assessing the Consolidated Entity and Bank’s ability to continue as a going concern. This includes disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless they either intend to liquidate the Consolidated Entity or Bank or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audits of the Financial Reports
Our objective is:
•
•
to obtain reasonable assurance about whether each of the Financial Reports as a whole are free from material misstatement, whether due to fraud or error; and
to issue an Auditor’s Report that includes our opinions.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the Financial Report.
A further description of our responsibilities for the audits of the Financial Reports is located at the Auditing and Assurance Standards Board
website at: http://www.auasb.gov.au/auditors_files/ar2pdf. This description forms part of our Auditor’s Report.
Report on the Remuneration Report
Opinion
Directors’ responsibilities
In our opinion, the Remuneration Report of Bank of Queensland Limited for the
year ended 31 August 2017, complies with Section 300A of the Corporations Act
2001.
The Directors of the Bank are responsible for the preparation and presentation of
the Remuneration Report in accordance with Section 300A of the Corporations
Act 2001.
KPMG
Robert Warren
Partner
Sydney
11 October 2017
Our responsibilities
We have audited the Remuneration Report included in pages 47 to 72 of the
Directors’ report for the year ended 31 August 2017.
Our responsibility is to express an opinion on the Remuneration Report, based on
our audit conducted in accordance with Australian Auditing Standards.
147
Bank of Queensland Limited and its Controlled Entities Shareholding Details
As at Monday 25 September 2017, the following shareholding details applied:
1. Twenty largest ordinary shareholders
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
MILTON CORPORATION LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
NAVIGATOR AUSTRALIA LTD
BKI INVESTMENT COMPANY LIMITED
CARLTON HOTEL LIMITED
KARATAL HOLDINGS PTY LTD
THE MANLY HOTELS PTY LIMITED
PRUDENTIAL NOMINEES PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
BOQ SHARE PLANS NOMINEE PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
AMP LIFE LIMITED
Total
No. of ordinary
shares
89,317,510
35,659,316
22,243,529
18,390,154
7,306,078
4,855,360
4,410,813
3,085,401
2,445,624
1,069,347
1,068,190
810,000
767,873
692,344
655,540
650,000
647,450
565,260
562,419
511,220
%
22.80
9.10
5.68
4.69
1.87
1.24
1.13
0.79
0.62
0.27
0.27
0.21
0.20
0.18
0.17
0.17
0.17
0.14
0.14
0.13
195,713,428
49.96
The above table includes shareholders that may hold shares for the benefit of third parties.
Voting rights
On a show of hands every person present who is a holder of ordinary shares or a duly appointed representative of a holder of ordinary shares has one vote, and on a poll
each member present in person or by proxy or attorney has one vote for each share that person holds.
148
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Shareholding Details
As at Monday 25 September 2017, the following shareholding details applied:
2. Twenty largest CPS shareholders
Shareholder
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
BNP PARIBAS NOMS PTY LTD
MILTON CORPORATION LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
NAVIGATOR AUSTRALIA LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
DOMER MINING CO PTY LTD
HAVENFLASH PTY LTD
JVSF PTY LIMITED
JILLIBY PTY LTD
MKD HOLDINGS PTY LTD
CAVILLWOOD INVESTMENTS PTY LTD
BCITF (QLD)
EASTCOTE PTY LTD
F & B INVESTMENTS PTY LTD
SOUTHERN METROPOLITAN CEMETERIES
JILRIFT NO 2 PTY LTD
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
Total
No. of ordinary
shares
84,573
80,972
58,793
50,077
50,000
43,365
34,208
32,756
32,200
21,000
19,500
17,800
12,780
12,070
10,000
10,000
10,000
10,000
9,482
9,289
%
2.82
2.70
1.96
1.67
1.67
1.45
1.14
1.09
1.07
0.70
0.65
0.59
0.43
0.40
0.33
0.33
0.33
0.33
0.32
0.31
608,865
20.30
The above table includes shareholders that may hold shares for the benefit of third parties.
Voting rights
The CPS do not give the holders any voting rights at any general shareholders meetings, except in certain circumstances.
3. Distribution of equity security holders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Total
The number of ordinary shareholders holding less than a marketable parcel is 2,523.
The number of convertible preference shareholders holding less than a marketable parcel is 1.
Ordinary Shares
CPS
2017
57,437
29,024
5,527
2,764
75
94,827
2016
58,885
29,088
5,336
2,713
70
96,092
2017
5,537
339
28
14
-
2016
5,850
342
27
9
1
5,918
6,229
149
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Shareholding Details
4. Partly paid shares
There are no partly paid shares.
5. The names of substantial shareholders in the Bank and the number of shares in which each has an interest as disclosed in
substantial shareholder notices given to the Bank
As at Monday 25 September 2017, there were no substantial shareholders in the Bank per the meaning within the Corporations Act 2001.
6. Securities exchange listing
The shares of Bank of Queensland Limited (‘BOQ’) and CPS (‘BOQPD’) are quoted on the ASX.
BOQ’s EMTN and covered bonds are listed on the London Stock Exchange.
7. Options
At 31 August 2017 there were no options over unissued ordinary shares.
8. On market buy-back
There is no current on market buy-back.
9. Other information
BOQ is a publicly listed company limited by shares and is incorporated and domiciled in Australia.
150
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152
Shareholder Information
Share Registry
Link Market Services Limited
Level 15, 324 Queen Street
Brisbane Qld 4000
Australia: 1800 779 639
International: +61 2 8280 7626
Email: boq@linkmarketservices.com.au
linkmarketservices.com.au
Company Details
Bank of Queensland Limited
ABN 32 009 656 740
ACN 009 656 740
Registered office:
Level 6, 100 Skyring Terrace
Newstead Qld 4006
Telephone: +61 7 3212 3333
Investor Relations: +61 7 3212 3990
boq.com.au
twitter.com/boq
facebook.com.au/BOQOnline
Customer Service
Australia: 1300 55 72 72
International: +61 7 3336 2420
Postal address:
GPO Box 898
Brisbane Qld 4001
Key Shareholder Dates
Dividend dates for ordinary shares only are:
2017
Final ex-dividend date
Final dividend record date
Final dividend payment date
Annual General Meeting
2018
Financial half year end
Interim results and dividend announcement
Interim ex-dividend date
Interim dividend record date
Interim dividend payment date
Financial full year end
Full year results and dividend announcement
Final ex-dividend date
Final dividend record date
Final dividend payment date
Annual General Meeting
2 November 2017
3 November 2017
23 November 2017
30 November 2017
28 February 2018
12 April 2018
26 April 2018
27 April 2018
16 May 2018
31 August 2018
4 October 2018
24 October 2018
25 October 2018
14 November 2018
29 November 2018
151
Bank of Queensland Limited and its Controlled EntitiesFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 5 Year Financial Summary
$ millions (unless otherwise stated)
Financial performance
Net interest income
Non interest income
Total income
Operating expenses
Underlying profit before tax (1)
Loan impairment expense
Cash earnings before tax
Cash earnings after tax attributable to ordinary shareholders (2)
Statutory net profit after tax
Financial position
Gross loans and advances (3)
Total assets
Customer deposits
Total liabilities
Total equity
Shareholder performance
Market capitalisation at balance date
Share price at balance date ($)
Basic cash earnings per share (cents) (4)
Diluted cash earnings per share (cents) (4)
Fully franked dividend per ordinary share (cents)
Fully franked special dividend per ordinary share (cents)
Dividend payout ratio to ordinary shareholders (excluding special dividend)
Dividend payout ratio to ordinary shareholders (including special dividend)
Cash earnings ratios (5)
Net Interest Margin (6)
Cost-to-income ratio
Return on average ordinary equity
Capital adequacy
Common equity tier 1 ratio
Total capital adequacy ratio
2017
$m
926
175
1,101
(513)
588
(48)
540
378
352
43,817
51,658
30,190
47,869
3,788
4,932
12.59
97.6
93.9
76
8
78%
87%
1.87%
46.6%
10.4%
9.39%
12.37%
2016
$m
937
173
1,110
(520)
590
(67)
523
360
338
43,152
50,853
29,122
47,266
3,587
4,020
10.55
95.6
90.7
76
-
80%
80%
1.94%
46.8%
10.3%
2015
$m
907
180
1,087
(500)
587
(74)
513
357
318
40,975
48,018
26,914
44,549
3,469
4,698
12.67
97.3
92.2
74
-
77%
77%
1.97%
46.0%
10.7%
2014
$m
761
169
930
(408)
522
(86)
436
301
261
38,426
46,905
26,266
43,564
3,341
4,560
12.58
89.5
87
66
-
87%
87%
1.82%
43.9%
10.4%
2013
$m
695
163
858
(380)
478
(115)
363
248
186
35,302
42,528
23,968
39,711
2,817
3,070
9.60
78.1
75.1
58
-
99%
99%
1.69%
44.3%
9.4%
9.00%
12.29%
8.91%
12.72%
8.63%
8.63%
12.02%
12.24%
(1) Underlying profit before tax is profit before impairment on loans and advances, significant items and tax.
(2) Cash earnings after tax exclude significant items (tax effected).
(3) Before specific and collective provisions.
(4) Basic and diluted earnings per share for FY13 have been adjusted for the effect of the rights issue that occurred during the financial year.
(5) Excludes impact of significant items.
(6) Excludes amortisation of fair value adjustments (acquisitions).
152
Annual Report 2017 BOQ.com.auFinancial Statements 78 Signed Reports 143 Shareholding Details 148 5 Year Summary 152 Glossary
Term
Description
APRA Prudential Standard (‘APS’)
Prudential standards issued by APRA which are applicable to ADIs.
Australian Accounting Standards (‘AASB’)
A series of technical pronouncements that set out the measurement and recognition requirements when
accounting for particular types of transactions and events, along with the preparation and presentation
requirements of an entity’s financial statements.
Australian Equipment Lessors Association (‘AELA’)
AELA is the national association for the equipment leasing and financing industry.
Australian Prudential Regulation Authority (‘APRA’)
APRA is the prudential regulator of banks, insurance companies and superannuation funds, credit unions,
building societies and friendly societies.
Australian Securities Exchange (‘ASX’)
Australian Securities Exchange or ASX Limited (ABN 98 008 624 691) and the market operated by ASX Limited.
Authorised Deposit-Taking Institution (‘ADI’)
A corporation which is authorised under the Banking Act 1959 and includes banks, building societies
and credit unions.
Available-for-Sale (‘AFS’)
Available-for-sale is an accounting term used to classify financial assets. AFS assets represent securities and
other financial investments that are neither held for trading, nor held to maturity. Under IFRS, AFS assets are
defined as being all financial assets that do not fall into one of the other IFRS financial asset classifications.
Average interest earning assets
Average balance over the period for a bank’s assets that accrue interest income.
Bank of Queensland Limited (‘the Bank’) (‘BOQ’)
Basel III
Basis points (‘bps’)
Cash Earnings
Committed Liquidity Facility (‘CLF’)
The Bank is a for-profit entity primarily involved in providing retail banking, leasing finance, and insurance
products to its customers.
A global regulatory framework to improve the regulation, supervision and risk management within the
banking system developed by the Basel Committee on Banking Supervision.
One per cent of one per cent (0.01%)
Cash Earnings is a non-accounting standards measure commonly used in the banking industry to assist
in presenting a clear view of the Bank’s underlying earnings
The Reserve Bank provides a CLF as part of Australia’s implementation of the Basel III liquidity reforms.
The facility, which is required because of the limited amount of government debt in Australia, is designed
to ensure that participating ADIs have enough access to liquidity to respond to an acute stress scenario,
as specified under the relevant APS.
Common Equity Tier 1 (‘CET1’)
Capital that is recognised as the highest quality component of capital under APRA prudential standards.
Common Equity Tier 1 ratio (‘CET1 ratio’)
CET1 capital divided by total risk-weighted assets calculated in accordance with relevant APS.
Consolidated Entity (‘the Group’)
The Bank and its subsidiaries
Convertible Preference Shares (‘CPS’)
CPS are fully paid, non-cumulative, perpetual, convertible, unguaranteed and unsecured preference shares with
preferred, discretionary dividends, issued by the Bank.
Cost to Income ratio (‘CTI’)
Operating expenses divided by net operating income.
Corporations Act 2001
Days past due (‘dpd’)
Dividend Payout ratio
Dividend reinvestment plan (‘DRP’)
Dividend Yield
Earnings per share (‘EPS’)
The Corporations Act 2001 (Cth)
A loan or lease payment that has not been made by a customer by the due date.
Dividends paid on ordinary shares divided by earnings per share.
Provides shareholders with the opportunity to convert all or part of their entitlement to a dividend into
new shares.
Dividend shown as a percentage of the share price.
Measures of earnings attributed to each equivalent ordinary share over a twelve month period.
Calculated by dividing the company's earnings by the weighted average number of shares on issue
in accordance with AASB 133 Earnings per share.
Equipment Hire Purchase (‘EHP’)
EHP trust under the REDS securitisation program, issuing asset backed securities to the term market.
Effective tax rate
Income tax expense divided by profit before tax.
Euro-Commercial Paper (‘ECP’)
ECP is an offshore short term commercial paper program.
Euro Medium Term Note (‘EMTN’)
EMTN is an offshore medium term note program.
Full Time Equivalent (‘FTE’)
A calculation based on number of hours worked by full and part time employees as part of their normal duties.
General Reserve for Credit Losses (‘GRCL’)
An estimate of the reasonable and prudent expected credit losses over the remaining life of the portfolio and on
non-defaulted assets, not covered by provisions for impairment.
153
Bank of Queensland Limited and its Controlled Entities Glossary
Term
Description
Gross Loans and Advances (‘GLA’)
High Quality Liquid Asset (‘HQLA1’)
Impaired assets
Interest bearing liabilities
International Accounting Standard (‘IAS’)
Issued capital
Line of Credit (‘LOC’)
Liquid assets
Liquidity Coverage Ratio (‘LCR’)
Margin on Services (‘MoS’)
Net Interest Margin (‘NIM’)
Net Stable Funding Ratio (‘NSFR’)
Net Tangible Assets (‘NTA’)
Initially recognised at fair value plus incremental direct transaction costs and subsequently measured at each
reporting date at amortised cost using the effective interest method.
Comprises of the Bank’s notes and coins and marketable securities representing claims on or guaranteed by the
Australian Government or Semi-Government authorities.
Exposures that have deteriorated to the point where full collection of principal and interest is in doubt.
The Bank’s liabilities that accrue interest expense.
A set of accounting standards developed by the International Accounting Standards Board stating how particular
types of transactions and other events should be reflected in financial statements. These standards are currently
being phased out and replaced by IFRS (see below)
Value of securities allotted in a company to its shareholders.
A flexible facility that allows a customer to draw down on their approved available credit at any time, as long as
the customer does not exceed the approved credit limit.
All unencumbered RBA repurchase eligible liquid assets including HQLA1 and assets able to be pledged as
collateral to the RBA under the CLF.
The ratio of high quality liquid assets that can be converted into cash easily and immediately in private markets,
to total net cash flows required to meet the Group’s liquidity needs for a 30 day calendar liquidity stress scenario
as determined in accordance with APS.
MoS is the financial reporting method used by life insurers under Australian Accounting Standards. It requires
that revenue from the provision of a life insurance contract is recognised in line with the provision of the life
insurance service to the policyholder, over the expected life of the life insurance policy.
Net interest income divided by average interest-earning assets.
The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
This ratio should be equal to at least 100% on an on-going basis. “Available stable funding” is defined as the
portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which
extends to one year. The amount of such stable funding required of a specific institution is a function of the
liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its
off-balance sheet (OBS) exposures.
Net tangible assets are calculated as the total assets of a company minus any intangible assets such as goodwill,
less all liabilities and the par value of preferred stock.
Non-interest earning assets
The Bank’s assets that do not accrue interest income.
Owner Managed Branch (‘OMB’)
A branch which is run by a franchisee.
Real Estate Debt Securities (‘REDS’)
An acronym to describe the BOQ securitisation programs.
Residential Mortgage Backed Securities (‘RMBS’)
A reference to a financial debt security that is secured by a pool of mortgages on residential property. Mortgages
with varying credit ratings are grouped together and sold in tranches to investors by issuers as a source of
funding.
Return on Average Equity (‘ROE’)
Net profit attributable to the owners of the Bank divided by average ordinary equity.
Return on Average Tangible Equity (‘ROTE’)
Net profit attributable to the owners of the Bank divided by average ordinary equity less goodwill and identifiable
intangible assets.
Risk Weighted Assets (‘RWA’)
A quantitative measure of various risks including credit, operational, market and securitisation as defined by APS.
Share capital
Consolidated Entity’s issued and paid-up capital.
Total capital adequacy ratio
Total capital divided by total RWA calculated in accordance with relevant APS.
Treasury shares
Shares that the Bank has issued but are held by a trust included within the Bank’s consolidated results. Treasury
shares are not considered shares outstanding and are not included in ‘per share’ calculations.
Unearned Premium Reserve (‘UPR’)
The UPR represents the total amount of premiums received but not yet earned or recognised as revenue.
Virgin Money (‘VMA’)
Virgin Money (Australia) Pty Ltd and its subsidiaries. The VMA entities are subsidiaries of the Group that engage
in the provision of financial services (e.g. insurance, superannuation and home lending) on behalf of business
partners, including BOQ.
Weighted Average Number of Shares (‘WANOS’)
Calculated in accordance with AASB 133 Earnings per share.
Wholesale Capital Notes (‘WCN’)
154
WCNs are similar to CPS as the notes may convert into common shares in certain circumstances as described in
the offer documentation of the notes.
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