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2019
ANNUAL
REPORT
Year ended 31 August 2019
1
Annual Report 2019
CONTENTS
Message from the Chairmen
5
Introduction to the Managing Director & CEO 7
10
15
58
59
87
90
91
92
93
97
98
170
171
181
184
185
186
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 to the Members
Shareholding Details
Shareholder Information
5 Year Financial Summary
Glossary
Bank of Queensland Limited
ABN 32 009 656 740
AFSL NO. 244616
ABOUT THIS REPORT
This 2019 Annual Report (Report) incorporates the Group’s audited financial statements and
other statutory disclosures. The Report is lodged with the Australian Securities Exchange
(ASX). Bank of Queensland (BOQ) is publicly listed in Australia. The 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.
Unless otherwise stated, the Report encompasses all BOQ activities for the financial year
commenced 1 September 2018 and ended 31 August 2019. All monetary values in this
document are presented in Australian dollars, which is the Bank’s functional currency.
OUR 2019 REPORTING SUITE
BOQ produces a range of reports designed to meet the evolving
expectations of a wide range of stakeholders. Our 2019 reporting
suite consists of the following additional documents:
2019
ANNUAL
REVIEW
2019
SUSTAINABILITY
REPORT
Year ended 31 August 2019
Year ended 31 August 2019
2019
CORPORATE
GOVERNANCE
STATEMENT
ANNUAL REVIEW
BOQ’s 2019 Annual Review (Review) provides an overview
CORPORATE GOVERNANCE STATEMENT
Our 2019 Corporate Governance Statement discloses
of BOQ’s operations across the Group and outlines our
how we have complied with the ASX Corporate
commitment to, and strategies for creating long-term
Governance Council’s Corporate Governance Principles
value for shareholders, customers, suppliers, employees,
& Recommendations (3rd edition) and is available on the
and the community. It can be found on the Annual Reports
Corporate Governance page of our website.
page of our website.
SUSTAINABILITY REPORT
Our 2019 Sustainability Report outlines information about
our performance against social, environmental and economic
opportunities and challenges. This report is available on the
Annual Reports page of our website and is supported by
supplementary information available on the Sustainability
section of our website.
We are always looking for ways to evolve and improve
our reporting. Please send your questions, comments
or suggestions to our Investor Relations team at
InvestorRelations@boq.com.au.
3
Annual Report 2019 OUR 2019
PERFORMANCE
PROFIT RESULTS
($m)
EARNINGS & DIVIDENDS
(¢ per ordinary share)
8
360 338
378
352
372
336
320 298
95.6
74
97.6
76
94.7
76
79.6
65
2016
2017
2018
2019
2016
2017
2018
2019
Cash Earnings after Tax
Statutory Net Profit after Tax
Cash Basic Earnings per Ordinary Share
Dividends per Ordinary Share
2019 CASH EARNINGS
AFTER TAX
STATUTORY NET PROFIT
AFTER TAX
$320m
14%
from FY18
$298m
11%
from FY18
Special Dividend per Ordinary Share
CASH BASIC EARNINGS
PER ORDINARY SHARE
(¢ per share)
79.6¢
16%
from FY18
DIVIDENDS
PER ORDINARY SHARE
(¢ per share)
65¢
14%
from FY18
NET INTEREST
MARGIN
CASH COST TO
INCOME RATIO
CASH RETURN
ON EQUITY
1.93% 50.5% 8.3%
Up 300bps from FY18
Down 160bps from FY18
Down 5bps from FY18
LOAN IMPAIRMENT EXPENSE ($m)
67
48
41
74
$74m
16bps of gross loans
2016
2017
2018
2019
4
Bank of Queensland Limited and its Controlled Entities
EARNINGS & DIVIDENDS
(¢ per ordinary share)
Dear Shareholder
2019 has been a year of significant change for the banking industry
and for BOQ. As we reported at our first half results, the Royal
Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry (Royal Commission) will have long
lasting effects on the Australian financial services landscape.
We have already started to see the impact of higher costs as a
result of the increase in expectations from regulators and the
community. Meanwhile, the sector has also faced challenges of
an uncertain outlook for housing prices and credit growth and the
lower for longer interest rate environment, including the recent
move to a record low cash rate of 0.75%.
At BOQ, we have also seen changes in leadership throughout
the year. Our former Managing Director & CEO Jon Sutton
announced his resignation for health reasons in December 2018.
We finalised plans for the Chairman succession in May 2019 with
the announcement of Patrick Allaway as BOQ’s next Chairman
effective 18 October 2019, and announced the appointment of our
new Managing Director & CEO, George Frazis in June 2019.
During this period of change, the business has continued to
execute on a strategy of growing our niche business segments,
while enhancing our technology platforms and processes to make
it easier for our customers to deal with us through their channel
of choice. We have also maintained our prudent risk settings and
sought to further enhance our risk and compliance capability to
meet rising stakeholder expectations.
A major achievement for the year has been the development and
refinement of our purpose and values. Our purpose is to deliver
more human, empathetic experiences that help customers and
communities prosper. Our values are: we show we care; we act
with integrity; we achieve together; and we make a difference.
We believe that by living our purpose and values and helping
customers and communities prosper, we will deliver on our financial
performance objectives and deliver returns for shareholders.
In terms of our 2019 financial performance, our results have
been below expectations and reflective of the difficult operating
environment. Cash earnings after tax decreased 14 per cent from
2018 to $320 million and cash basic earnings per share decreased
16 per cent to 79.6 cents per share. Return on equity also
decreased 160 basis points to 8.3 per cent. These reductions were
driven by lower income, higher operating expenses and a large
increase in loan impairment expense.
A two per cent contraction in income was the result of subdued
asset growth, a five basis point reduction in net interest margin
and a 12 per cent reduction in non-interest income. We achieved
growth in lending balances of two per cent across the Group.
This included strong growth of 15 per cent or $667 million in
the asset finance and leasing businesses of BOQ Finance. The
growth momentum continued in Virgin Money Australia and
BOQ Specialist housing loans, with growth of $914 million and
$626 million respectively. Our core BOQ housing loan portfolio,
however, contracted during the year. This is attributable to a
number of factors including a reduced distribution footprint, more
onerous lending processes and digital customer offerings which
lag our peers. We have plans in place to address these issues and
anticipate improved performance from our Retail Bank in 2020.
The contraction in net interest margin was most pronounced in
the first half of the year, due in part to the higher bank bill swap
rate which normalised later in the year, as well as ongoing price
competition for new business. The reduction in non-interest
income was driven by ongoing downward pressure on fees and
insurance income.
CHAIRMAN’S REVIEW
Operating expenses increased by four per cent which took our
cost to income ratio to 50.5 per cent. We have continued to invest
for the future by improving our technology, risk and compliance
capability. As we flagged at the 2018 results and in the first
half this year, the increased capitalised investment expenditure
we have been incurring will lead to an increase in amortisation
as these important foundational projects are completed. We
continue to explore opportunities to offset this increase through
digitation and automation of processes to improve efficiency.
Our underlying asset quality remains sound. Despite this, impaired
assets increased 20 per cent from a very low level to $197 million.
This represents 43 basis points of our total loan balances. Our
loan impairment expense also increased substantially during the
year, reflecting the move to a new collective provisioning model to
align with new accounting standards, as well as the deterioration
in a number of forward looking economic indicators and a small
number of larger exposures. Arrears trends have increased slightly
but remain at relatively low levels. We remain comfortable with the
overall performance of the loan portfolio, with no systemic issues
emerging and support from the recent stabilisation of house prices,
low interest rates and low levels of unemployment.
BOQ’s capital position remains appropriate with a Common
Equity Tier 1 ratio (CET1) of 9.04 per cent. CET1 has reduced in
recent years as we have reinvested in the future of the business
and continued growth in higher capital-consumptive commercial
lending segments.
Given the challenging outlook, the dividend was reduced by 14 per
cent, in line with the reduction in cash earnings, to 65 cents per
share. We have taken a prudent approach which keeps the payout
ratio consistent with the level of the first half.
An important milestone in 2019 has been the decision to proceed
with additional investment in Virgin Money Australia to build a
new digital bank. We are very excited about the prospects for this
business given the recent success the brand has demonstrated in
attracting customers across its other product lines. You will hear
more about how this will contribute to BOQ’s future through 2020.
We have also made considerable progress in the modernisation
of our technology infrastructure, which has involved shifting
our data centres to a cloud-based environment. This will deliver
benefits in the future as we have better capacity to scale up,
reduce cost, implement change and partner with external
providers to deliver better solutions for our customers. We are
also on track to rollout a more contemporary mobile banking
offering to our customers in 2020. These are critical investments
that will support our transformation and future aspirations.
Many challenges remain for BOQ, including changes in regulation,
technology and customer behaviour, as well as the broader
economic challenges facing the sector. However, there are good
opportunities available for BOQ to capitalise on and again return
to growth with a clear and focused strategy. I am confident that
under Patrick and George’s leadership, I am leaving the Bank in
very good hands to do just this.
It has been a privilege to serve on the BOQ Board and as your
Chairman. I would like to thank my colleagues on the Board, the
management team and everyone at BOQ, our customers and you,
our shareholders, for your ongoing support.
Roger Davis
Retiring Chairman
5
Annual Report 2019 Dear Shareholder
I take on the role as Chair of BOQ effective from 18 October with
appreciation of the considerable responsibility for the Board and
management to deliver better outcomes for our stakeholders.
Our FY19 cash earnings after tax of $320 million represents
a 14 per cent decline on last year. We are operating in a low
growth environment with rising investment needs, regulatory
costs and community expectations. Irrespective of the
challenging operating environment, we are not satisfied with our
performance. We recognise that BOQ needs to take decisive
action to transform to a more sustainable business model with
a clear strategy to return to growth whilst continuing to deliver
our purpose of helping customers and communities prosper. We
are confident that in transforming BOQ we can grow long term
sustainable shareholder value.
At the half year we foreshadowed providing our strategy update
later this calendar year. Whilst we are well into the process of our
strategic review, we are now of the view that it would be prudent to
defer this market update to February 2020. This will enable our new
Chief Executive Officer, George Frazis, to optimise the strategy and
conduct a productivity review to ensure we have a fit for purpose
operating model aligned with our niche growth strategy.
In the interim, George, a seasoned banker with considerable
leadership experience in transformation and digital innovation,
has settled into his new role well. We are excited about the change
he will lead at BOQ. The foreshadowed transformation strategy
will focus on five high level priorities for BOQ:
1. Return to profitable and sustainable growth. We will continue
to focus on niche growth segments, lift the performance of
our Retail Bank and seek to optimise risk adjusted returns.
2. Embed our purpose led, customer culture. To achieve this we
need to attract, develop and retain the right talent. We will
invest in developing our people and building an inclusive and
diversified workforce that respects and endorses BOQ as a
great place to work.
3. Simplify our business, improve productivity and
address costs. We will address our rising cost to
income ratio through a structural productivity and
operating model review, aimed at reducing complexity
and adopting technology to drive efficiency.
4. Close the digital and data gap, delivering our mobile and
Virgin Money Australia investments. We are committed to
delighting our customers by providing a seamless end to end
experience across all channels, including new internet and
mobile banking platforms.
5. Continue to strengthen the Bank through strong governance,
compliance and prudent risk management. We have more
work to do in improving our non-financial risk governance and
are investing in continuous improvement.
6
CHAIRMAN’S WELCOME
Looking ahead, the environment in banking and the broader
global and local economy remains challenged. We anticipate that
industry disruption will accelerate, requiring BOQ to transform
to an agile challenger bank with a refocus of our retail strategy on
targeted segments, as we have successfully achieved through our
niche segment strategy in BOQ Business. This includes the rollout
of Virgin Money Australia as a digital bank of the future in FY20,
following a successful proof of concept earlier this year.
We recognise that our transformation will take time. The
investments being made to make BOQ stronger will mean FY20
will be a difficult year. We anticipate a decline in year on year
cash earnings in FY20, largely driven by low revenue growth,
higher regulatory compliance costs and increased amortisation
and operating expenses related to our increased investment
in technology. Following the finalisation of our strategic and
productivity review we will provide a further update to the
market in relation to the impact of these initiatives on our FY20
performance. We will be transparent about our transformation
when we outline our plans to the market in February 2020,
providing clear benchmarks to monitor progress.
We recognise that many of our shareholders rely on dividends to
support their income. We have paid a full year divided for FY19 of 65
cents per share, representing a payout ratio of 82 per cent. We will
continue to factor the importance of dividends for shareholders
into our future capital management plans as we invest in the
business to return to profitable and sustainable growth.
We have announced that our outgoing Chair, Roger Davis, will
be stepping down from the Board in October. In addition, David
Willis will be stepping down at the AGM, providing for an orderly
succession plan. I would like to thank Roger and David for their
significant contribution to BOQ. During their tenure, BOQ has
made a number of niche investments that have delivered strong
growth for shareholders in specialty sectors providing a good
foundation for our strategy to return the Group to growth. We will
take this opportunity to both refresh and reduce the size of the
Board. I would also like to thank Anthony Rose, our interim CEO,
and Matt Baxby, our outgoing CFO, for their contribution to BOQ
and wish them all the best in their future careers.
It is a great honour to be appointed Chair of BOQ and I relish the
opportunity to be a change agent and harness the collective
strength of the Board and the organisation to transform BOQ and
to grow long term sustainable value uplift for all stakeholders.
Thank you for your continued support,
Patrick Allaway
Chairman Elect
Bank of Queensland Limited and its Controlled Entities INTRODUCTION TO
THE MANAGING
DIRECTOR & CEO
Dear Shareholder
I am delighted to join Bank of Queensland as CEO, at a time of evolution and change for BOQ
and the banking sector as a whole. I have been in banking for 18 years and am passionate
about the important role it plays in our society.
What excites me most about leading BOQ is the genuine love our people have for BOQ and
our customers, along with the opportunity to build an organisation that is innovative and
makes banking easy for our customers. My experience has taught me that building strong
relationships with our customers begins with our people – our purpose, values, culture and
the way we go about our business.
In the recent past BOQ has not lived up to its full potential and has underperformed for its
key stakeholders, including our shareholders. However, let me assure you, I am very focused
on delivering sustainable and profitable growth and improved shareholder returns.
Our success will come from a clear vision for growth coupled with inclusive leadership that
harnesses the diverse skills of all of our team. But achieving this will take time – 2020 will
be another tough year of transition. There are challenges ahead, however, fundamentally,
BOQ is a good business. Our capital is well positioned for unquestionably strong, we have
a good funding position and our underlying asset quality is sound. A strong balance sheet
will be a focus.
We have good opportunities to differentiate and profitably grow. This is evidenced by the
success of Virgin Money Australia and our niche business segments which have developed
clear customer propositions that are differentiated in the market.
My high level priorities are:
1. return to profitable and sustainable growth;
2. embed our purpose led, customer culture;
3. simplify our business, improve productivity and address costs;
4. close the digital and data gap, delivering our mobile and Virgin Money Australia investments;
and
5. continue to strengthen the Bank.
I would like to thank our outgoing Chairman Roger Davis and congratulate our incoming
Chairman Patrick Allaway. I will be working closely with the Board on my strategic review of
the business and look forward to updating you on the outcomes early in the coming year.
Thank you for your support.
George Frazis
Managing Director and CEO
Annual Report 2019
7
2019
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 the Group), being the Bank and its controlled entities, for the year ended 31 August 2019 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
Retiring Chairman
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Davis was appointed Chair of BOQ on 28 May 2013 and has been a Non-Executive Director since
August 2008. He has over 30 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 Chair of AIG Australia Limited and Charter Hall Retail Management Limited, a
Non-Executive Director of Argo Investments Limited and was formerly a Non-Executive Director of
Aristocrat Leisure Ltd, Ardent Leisure Group, Ardent Leisure Management Ltd and Ardent Leisure Ltd.
Mr Davis has a Bachelor of Economics (Hons) degree from the University of Sydney and a Master of
Philosophy degree from Oxford.
Mr Davis is Chair of the Investment Committee and Nomination & Governance Committee, a member
of each of the Audit and Risk Committees, and an attendee at all other Board Committees.
PATRICK ALLAWAY
BA/LLB
Chairman Elect
Non-Executive
Independent Director
(commencing as Chairman
on 18 October 2019)
Mr Allaway was appointed as a Non-Executive Director of the Bank in May 2019.
Mr Allaway has extensive senior executive, non-executive, and corporate advisory experience across the
financial services, property, media and retail sectors.
Mr. Allaway’s executive career was in financial services with Citibank and Swiss Bank Corporation (now
UBS) working in Sydney, New York, Zurich and London. Mr. Allaway was Managing Director SBC Capital
Markets & Treasury with direct responsibility for a global business operating in 16 countries.
Mr Allaway brings over 30 years’ experience in financial services across financial markets, capital markets,
and corporate advisory. This included an advisory role in the media sector, responding to considerable
digital disruption.
Mr Allaway has over 15 years’ Non-Executive Director experience and was formerly a Non-Executive
Director of Macquarie Goodman Industrial Trust, Metcash Limited, Fairfax Media, Woolworths South
Africa, David Jones, and Country Road Group. Mr Allaway Chaired the Audit & Risk Committees for
Metcash, David Jones, and Country Road Group.
Mr Allaway is currently a non-executive Director of Nine Entertainment Co and Domain Limited. He
is also a member of the Information Technology Committee and Human Resources & Remuneration
Committee at BOQ.
Mr Carter was appointed as a Non-Executive Director of BOQ 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, Deputy Chair of SkyCity
Entertainment Group Limited and a Non-Executive Director of Eudunda Farmers Ltd and Genesee &
Wyoming Inc.
Mr Carter is Chair of the Risk Committee and a member of the Audit Committee, Information
Technology Committee, Investment Committee and the Nomination & Governance Committee.
BRUCE CARTER
B Econ, MBA, FAICD, FICA
Non-Executive
Independent Director
10
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT Name, qualifications and
independence status
RICHARD HAIRE
B.Ec, FAICD
Non-Executive
Independent Director
JOHN LORIMER
B Com
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Haire was appointed as a Non-Executive Director of BOQ on 18 April 2012.
Mr Haire has more than 29 years’ experience in the international cotton and agribusiness industry,
including 27 years in agricultural commodity trading and banking. He is Chair of the Cotton Research and
Development Corporation, Reef Corporate Services Limited and Endeavour Foundation. He also serves
as a Non-Executive Director of BEC Stockfeed Solutions Pty Ltd. Mr Haire was formerly a Director of
Open Country Dairy (NZ) and New Zealand Farming Systems Uruguay.
Mr Haire is a member of each of the Risk, Human Resources & Remuneration and Information Technology
Committees.
Mr Lorimer was appointed as a Non-Executive Director of BOQ on 29 January 2016.
Mr Lorimer has spent more than 30 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 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 Chair of Bupa Asia Ltd (HK) Ltd, and a Non-Executive Director of Bupa Australia Pty Ltd, Bupa Aged
Care Holdings Pty Ltd and Aberdeen New Dawn Investment Trust plc.
Mr Lorimer is a member of the Information Technology and Risk Committees.
WARWICK NEGUS
B Bus, M Com, SF Fin
Non-Executive
Independent Director
Mr Negus was appointed as a Non-Executive Director of BOQ on 22 September 2016.
Mr Negus brings more than 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 a Director of the
University of NSW (UNSW) Foundation and FINSIA.
KAREN PENROSE
B Com, CPA, FAICD
Non-Executive
Independent Director
MICHELLE TREDENICK
B Sc, FAICD, F Fin
Non-Executive
Independent Director
Mr Negus is Chair of Pengana Capital Group and URB Investments Limited and a Non-Executive Director
of Washington H Soul Pattinson & Co Ltd, Virgin Australia Holdings Limited and Terrace Tower Group. He
is a member of the Council of UNSW and Chair of UNSW Global Limited.
Mr Negus is a member of the Audit Committee, Human Resources & Remuneration Committee and
Investment Committee.
Ms Penrose was appointed as a Non-Executive Director of BOQ on 26 November 2015.
Ms Penrose has been a full-time director since 2014. Her executive career was in leadership and CFO
roles, mainly in financial services. She is passionate about customer outcomes, financial management
and well-versed in operating in a rapidly changing regulatory environment, which stems from her 20 years
in banking with Commonwealth Bank of Australia and HSBC and eight years to early 2014 as a listed-
company CFO and COO.
Ms Penrose is a Non-Executive Director of Vicinity Centres Limited, Spark Infrastructure Group and Estia
Health Limited. Ms Penrose was formerly a Non-Executive Director of AWE Limited, Landcom and Future
Generation Global Investment Company Limited. She is a member of Chief Executive Women.
Ms Penrose is Chair of the Audit Committee and is a member of each of the Human Resources &
Remuneration, Risk and Investment Committees.
Ms Tredenick was appointed a Non-Executive Director of BOQ in February 2011.
Ms Tredenick is an experienced company director and corporate advisor with over 30 years’
experience in leading Australian businesses. Ms Tredenick is currently a Non-Executive Director of
Insurance Australia Group Limited (IAG), Cricket Australia and Urbis Pty Ltd. She is a member of the
Senate of the University of Queensland (UQ) as well as sitting on the board 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. 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 is Chair of the Information Technology Committee, and is a member of each of the
Human Resources & Remuneration, Risk and Nomination & Governance Committees.
11
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT Name, qualifications and
independence status
DAVID WILLIS
B Com, ACA, ICA
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Willis was appointed as a Non-Executive Director of BOQ in February 2010.
Mr Willis has over 35 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 26 years’ experience working with
Australian and foreign banks. Mr Willis is the founder of Sydney-based Charity “The Horizons Program”.
Mr Willis is Chair of the Human Resources & Remuneration Committee, and is a member of each of the
Audit and the Nomination & Governance Committees. He is also a Non-Executive Director of BOQ’s
insurance subsidiaries, St Andrew’s Australia Services Pty Ltd, St Andrew’s Life Insurance Pty Ltd and
St Andrew’s Insurance (Australia) Pty Ltd.
KATHLEEN BAILEY-LORD
BA (Hons), MAMP, FAICD
Non-Executive
Independent Director
Ms Bailey-Lord was appointed as a Non-Executive Director of BOQ in May 2019.
Ms Bailey-Lord is an experienced company director and corporate advisor. Ms Bailey-Lord is
currently a Non-Executive Director of QBE Insurance (AUSPAC), Melbourne Water and Monash
College.
GEORGE FRAZIS
B. Eng (Hons), MBA
Managing Director & CEO
Executive Director
JON SUTTON
Managing Director & CEO
Executive Director
(resigned 5 December
2018)
Ms Bailey-Lord has 20 years of senior executive experience across Australia, New Zealand and Asia.
Ms Bailey-Lord has led businesses through complex and transformational change, often leveraging
digital solutions to enable new business models. Ms Bailey-Lord’s experience spans the technology
industry at IBM, financial services at ANZ Bank, professional services and marketing/media. Ms
Bailey-Lord sits on the AICD Victorian Council and the AICD Technology, Governance and Innovation
Panel (pro bono roles). She is a member of Chief Executive Women.
Ms Bailey-Lord is a member of the Information Technology Committee and Human Resources &
Remuneration Committee.
Mr Frazis was appointed as Managing Director & CEO of the Bank on 5 September 2019.
Mr Frazis has 26 years’ corporate experience, the past 17 years in Banking and Finance. Most recently,
he was Chief Executive of Westpac Group’s Consumer Bank responsible for managing the end to
end relationship with consumer customers. Prior to that Mr Frazis was Chief Executive Officer, St.
George Banking Group and Chief Executive, Westpac New Zealand Limited and has also been Group
Executive General Manager at National Australia Bank. Mr Frazis has held senior executive roles in
Commonwealth Bank of Australia’s Institutional and Business Banking Divisions as well as Air New
Zealand. He has also been a partner with the Boston Consulting Group and an officer in the Royal
Australian Air Force.
Mr Sutton was appointed Managing Director & CEO in January 2015 following four months as our
Acting Chief Executive Officer. Mr Sutton originally joined BOQ in July 2012 as our 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), he was central to the establishment of 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.
12
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT COMPANY SECRETARIES
VICKI CLARKSON
BA/LLB (Hons), FGIA, FCIS, GAICD
Ms Clarkson joined BOQ 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 her role as BOQ’s GM Corporate Governance & Head of Secretariat, 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.
FIONA DALY
LLB, LLM, AGIA, ACIS, MAICD
Ms Daly joined BOQ in October 2018 and was appointed joint company secretary on 30 April 2019. Ms Daly commenced her career as a
corporate lawyer at Phillips Fox (now DLA Piper) before joining Allens. Prior to working for BOQ, Ms Daly held senior legal and regulatory
roles including as senior legal counsel, global regulatory affairs manager and joint company secretary at Energy Developments, an
international energy company.
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
A
12
2
13
13
13
13
13
13
13
4
4
B
13
2
13
13
13
13
13
13
13
4
4
A
-
3
-
-
-
-
-
-
7
-
-
B
-
3
-
-
-
-
-
-
7
-
-
A
7
-
-
7
7
7
5
7
2
-
-
B
7
-
-
7
7
7
5
7
2
-
-
A
6
-
7
8
3
-
8
-
5
-
-
B
8
-
8
8
3
-
8
-
5
-
-
A
2
-
-
2
-
-
-
2
2
-
-
B
2
-
-
2
-
-
-
2
2
-
-
Human
Resources &
Remuneration
Committee
- BOQ
& St Andrews
Information
Technology
Committee
Investment
Committee
A
-
-
7
-
7
-
6
6
7
1
-
B
-
-
7
-
7
-
7
7
7
1
-
A
-
-
-
6
6
6
-
6
-
1
3
B
-
-
-
6
6
6
-
6
-
1
3
A
2
-
2
2
-
-
1
-
-
-
-
B
2
1
2
2
-
-
1
-
-
-
-
13
7
7
8
2
7
6
2
Roger Davis (1)
Jon Sutton (2)
Warwick Negus
Bruce Carter
Richard Haire
John Lorimer
Karen Penrose
Michelle Tredenick
David Willis (3)
Patrick Allaway (4)
Kathleen
Bailey-Lord (5)
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.
(1)
Roger Davis is Chair of the Nomination & Governance Committee, a member of each of the Audit Committee and Risk Committees, and an attendee at all other Board Committees,
(2) Jon Sutton was also a member of St Andrew’s Audit Committee and Risk Committee. Additionally, Mr Sutton was invited by the Board to attend the Risk Committee, Audit
Committee, Human Resources & Remuneration Committee, Investment Committee and Information Technology Committee meetings (or part thereof).
Mr Sutton resigned on 5 December 2018.
(3) David Willis is also a member of the St Andrew’s Audit Committee and Risk Committee.
(4) Patrick Allaway joined the Board on 1 May 2019 and the Information Technology Committee and Human Resources & Remuneration Committee on 1 July 2019.
(5) Kathleen Bailey-Lord joined the Board and Information Technology Committee on 1 May 2019.
2019 Corporate Governance Statement
BOQ’s governance arrangements and practices are set out in our Corporate Governance Statement. BOQ must also comply with its
constitution, the Corporations Act 2001 (Cth), the ASX Listing Rules, the ASX Corporate Governance Council’s Corporate Governance
Principles and Recommendations (3rd Edition) (ASX Principles), the Banking Act 1959 (Cth), including Part IIAA of the Banking Executive
Accountability Regime (BEAR) amongst other laws, and, as an Authorised Deposit-taking Institution, with 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 2019 Corporate Governance Statement available at:
http://www.boq.com.au/aboutus_corporate_governance.htm
13
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT CONTENTS - OPERATING AND FINANCIAL REVIEW
Page
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 expenditure
Lending
Business settings
Asset quality
Funding and liquidity
Capital management
Tax expense
Divisional performance
Retail income statement, key metrics and financial performance review
BOQ Business income statement, key metrics and financial performance review
Other segment income statement and financial performance review
Appendices
Reconciliation of statutory profit to cash earnings
Operating cash expenses
Property, plant & equipment (consolidated)
Cash EPS calculations
Issued capital
Average balance sheet and margin analysis
Distribution footprint
Credit rating
Regulatory disclosures
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
5
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
14
15
15
16
18
19
27
27
29
30
30
31
31
32
35
35
40
43
44
45
45
47
49
50
50
51
52
53
53
54
56
57
57
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ 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, 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.
Note on statutory profit and cash earnings
Statutory profit is prepared in accordance with the Corporations
Act 2001 (cth) 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 5.1 Reconciliation
of statutory profit to cash earnings of the Appendices for a
reconciliation of cash earnings to statutory net profit after tax.
Refer to the Reconciliation of statutory profit to cash earnings
chart below. The main exclusions relate to:
• Regulatory/compliance costs including external costs and
other related costs associated with the Royal Commission
into Misconduct in the Banking, Superannuation and Financial
Services Industry (Royal Commission), The Banking Executive
Accountability Regime (BEAR), Code of Banking Practice,
Comprehensive Credit Reporting, Anti-Money Laundering
(AML) compliance and regulatory matters of an extraordinary
nature consistent with prior periods;
• Amortisation of acquisition fair value adjustments arising from
the historical acquisition of subsidiaries; and
• Hedge ineffectiveness representing earnings volatility
from hedges that are not fully effective and create a
timing difference in reported profit. These hedges remain
economically effective.
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 (1H19), current half (2H19) and the prior year (FY18).
These non-statutory measures have not been subject to
review or audit.
Reconciliation of statutory profit to cash earnings ($m)
8
1
6
1
320
6
298
Statutory Net
Profit after Tax
Amortisation
of fair value
adjustments
Hedge
ineffectiveness
Integration/
transaction
costs
Regulatory/
compliance
Legacy
Cash Earnings
after Tax
15
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 1.2 GROUP HIGHLIGHTS
Cash earnings after tax ($m)
203
16
372
DOWN
14%
320
Statutory profit after tax ($m)
191
16
336
DOWN
11%
298
187
182
190
167
153
175
174
162
156
142
2H17
1H18
2H18
1H19
2H19
2H17
1H18
2H18
1H19
2H19
Impact of disposal of vendor finance entity
Impact of disposal of vendor finance entity
Cash basic earnings per share (EPS) (cents)
Dividends per ordinary share (cents)
52.1
4.1
94.7
DOWN
16%
79.6
48.0
46.5
48.2
41.8
37.8
8
38
76
DOWN
14%
65
38
38
34
31
2H17
1H18
2H18
1H19
2H19
2H17
1H18
2H18
1H19
2H19
Impact of disposal of vendor finance entity
Special dividend
Cash net interest margin (NIM) (%)
Cash cost to income (CTI) (%)
1.98
DOWN
5bps
1.93
47.2
1.3
47.5
UP
300bps
50.5
1.96
1.97
1.98
1.94
1.92
45.9
47.6
47.3
49.5
51.5
2H17
1H18
2H18
1H19
2H19
2H17
1H18
2H18
1H19
2H19
Impact of disposal of vendor finance entity
Cash return on average equity (ROE) (%)
Cash return on average tangible equity (ROTE) (%)
10.9
0.8
9.9
DOWN
160bps
8.3
14.3
1.1
12.9
DOWN
210bps
10.8
10.1
9.9
10.0
8.8
7.8
13.2
12.9
13.0
11.4
10.2
2H17
1H18
2H18
1H19
2H19
2H17
1H18
2H18
1H19
2H19
Impact of disposal of vendor finance entity
Impact of disposal of vendor finance entity
16
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 1.2 GROUP HIGHLIGHTS (CONTINUED)
CASH EARNINGS AFTER TAX
CASH NET INTEREST MARGIN
$320m
Decreased by 14 per cent on FY18.
1.93%
Down five basis points from FY18
driven by elevated basis levels and the
impact of the lower rate environment.
LOAN IMPAIRMENT EXPENSE
COMMON EQUITY TIER 1
$74m
Up seven basis points to 16 basis points
of lending and an 80 per cent uplift on
FY18 following the implementation of
the new AASB 9 Financial Instruments
(AASB 9) standard.
9.04%
Decrease of 27 basis points for
FY19 reflecting higher growth in
capital intensive lending, higher
capitalised investment, reduced
earnings and lower dividend
reinvestment plan participation.
OPERATING EXPENSES
$550m
Four per cent increase on FY18.
DIVIDENDS
FINAL & INTERIM
$0.65
Decreased 14 per cent on FY18.
BOQ’s cash earnings after tax for FY19 was $320 million, a
14 per cent decrease from FY18. Statutory net profit after
tax decreased 11 per cent to $298 million. The reduction in
earnings was driven by a combination of lower income, higher
operating expenses and higher loan impairment expense.
increase in capitalised investment. This contributed to an
increase in IT expenses in FY19 and will lead to a higher level
of amortisation in future periods as new functionality is
deployed. Opportunities to improve efficiency continue to be
explored to minimise the impact of these expense headwinds.
Asset quality remains sound with impaired assets of $197
million or 43 basis points of gross loans, while arrears remain at
relatively low levels. Despite this, there has been an increase in
provisions, as a result of the implementation of a new forward
looking collective provisioning model under AASB 9 and
following impairment of a small number of larger commercial
exposures. This has in turn led to a $33 million increase in
loan impairment expense to $74 million, or 16 basis points of
gross loans. Despite this increase, BOQ’s portfolio remains
well provisioned with no systemic areas of stress emerging.
BOQ remains appropriately capitalised with a common equity
tier one ratio of 9.04 per cent. This is lower than the 9.31 per cent
reported at the end of FY18, due primarily to higher growth in
more capital-intensive commercial lending and leasing as well
as higher capitalised investment. There was also a reduction
in dividend reinvestment plan participation for the 2018 final
dividend and 2019 interim dividend, which combined with
lower earnings, has reduced organic capital generation.
Total income reduced two per cent compared to FY18, with
net interest income down $4 million and non interest income
down $17 million or 12 per cent. While lending growth of $937
million or two per cent was achieved over the year, this was
offset by a five basis point reduction in net interest margin
to 1.93 per cent. There were strong levels of lending growth in
BOQ Finance ($667 million), Virgin Money Australia (VMA, $914
million) and BOQ Specialist ($756 million), but a contraction
in branch network lending balances as the impact of lower
borrower demand and a smaller branch footprint continued to
reduce new business volumes. The five basis point reduction
in NIM was driven primarily by competition and discounting
for new business as well as the higher bank bill swap rate and
associated increase in hedging costs in 1H19. Non-interest
income was lower due to a combination of reduced banking
fees, the transition of the BOQ Business merchant offering
to a third party arrangement, and lower insurance income.
Operating expenses increased by four per cent on FY18.
Following the Final Report from the Royal Commission,
costs associated with addressing regulatory and compliance
requirements have increased for BOQ and across the
industry to meet heightened regulatory and compliance
expectations. As announced as part of the FY18 results,
BOQ has embarked on a transformation program to
improve technology platforms, meet new regulatory and
compliance requirements and deliver digital offerings that
improve the BOQ customer experience, supported by an
17
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 1.3 STRATEGY
BOQ is a 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).
BOQ was established in 1874 and was the first Permanent Building
Society in Queensland. It has evolved into a national institution
with a network of retail branches and brokers across Australia.
BOQ’s primary business segments are Retail Banking and BOQ
Business and the Group operates a number of brands including
BOQ, BOQ Specialist, BOQ Finance, Virgin Money (Australia) and
St Andrew’s Insurance, which are covered in more detail below.
BOQ’s corporate purpose is to deliver more human, empathetic
experiences that help customers and communities prosper. This
is achieved through the values of: We Show We Care; We Act
With Integrity; We Achieve Together; and We Make a Difference.
Given the changing operating environment, in 2019 BOQ has
commenced a strategic review, recognising the need to take
decisive action to transform to a more sustainable business model
with a clear strategy to return to growth. An update on BOQ’s
strategy is planned for February 2020.
During FY19, BOQ has been aiming to build a differentiated
position in the Australian financial services sector by focusing
on niche customer segments that value a more intimate banking
relationship. This strategy has been delivered through 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. Many of BOQ’s retail 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 specialisation and deep industry knowledge in niche
commercial segments, including medical & dental, corporate
healthcare & retirement living, hospitality & tourism and
agribusiness, BOQ also provides a level of support to business
banking customers unique to that offered by other banks.
BOQ’s home loan products, including VMA home loans, are
distributed by more than 7,500 accredited brokers, making
BOQ more accessible to customers who prefer to use brokers.
BOQ has also been working to streamline customer experience
across channels through the consolidation of customer
touchpoints. A number of projects are also underway to
improve the digital experience for BOQ customers, including
upgrades to internet and mobile banking platforms.
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. BOQ has continued its
prudent approach to lending, maintaining a high quality lending
portfolio. BOQ adheres to APRA’s serviceability and validation
guidelines and the delivery of a lending transformation program
will deliver an improved customer experience. BOQ has also
been selective in the commercial industry segments it lends
to, has clearly defined risk appetite statements which take into
account geographic, industry and a number of other risk factors.
There’s Always a Better Way is about BOQ’s commitment
to making its systems and processes simpler, faster and
smarter. The aim is to improve efficiency, reduce costs, deliver
better customer service and establish a nimble organisation
positioned to take advantage of a rapidly changing landscape.
BOQ is continuing to make improvements to retail, commercial
and lease management lending systems. Ongoing focus on
efficiency across the Group to minimise expense growth,
whilst investing in new technology aligned to a simplified
target architecture will enable BOQ to respond more quickly to
emerging opportunities than has been possible in the past.
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. In recent years, BOQ has
reinforced its commitment to ethical conduct and supporting
its customers. It has also introduced a range of initiatives
that bring BOQ’s purpose and values to life and drive a
customer centric culture. BOQ continues to demonstrate its
commitment to a diverse and inclusive workforce through a
number of diversity initiatives and its reconciliation journey.
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. More
information on BOQ’s approach to sustainability is available in the
sustainability section of the BOQ website
(https://www.boq.com.au/Shareholder-centre/sustainability).
Information on BOQ’s corporate governance practices can be
located in BOQ’s Corporate Governance Statement available on
the corporate governance page of the BOQ website
(https://www.boq.com.au/About-us/corporate-governance).
Portfolio of businesses
As noted above, the Group’s subsidiaries and brands
include BOQ Specialist, BOQ Finance, Virgin Money
Australia and St Andrew’s which are described below.
BOQ Specialist delivers distinctive banking solutions to
niche market segments including medical, dental and
veterinary professionals. BOQ acquired the business
(previously Investec Professional Finance) as part of
Investec Bank (Australia) Limited in 2014. BOQ Specialist
operates as a separate division of BOQ’s Business Bank.
BOQ Finance is a wholly owned subsidiary of BOQ specialising
in asset, cash flow and structured finance solutions. BOQF is
a mid-market financier providing deep industry and product
skills to its partner base. BOQF has been operating in the
Australian and New Zealand markets for more than 45 years.
Virgin Money Australia is a retail financial services company,
which provides a wide range of financial products that are easy
to understand as well as being a compelling alternative to the
big banks. BOQ acquired Virgin Money Australia in 2013 and it
operates as a standalone business within the BOQ Group.
St Andrew’s is a provider of consumer insurance and life
insurance products in Australia. In response to a change
in industry dynamics, St Andrew’s has made the decision
to cease distribution of consumer credit insurance.
Existing customers will continue to be served and the
interests of existing policyholders will remain a priority.
18
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 1.4 RISK AND REGULATORY DEVELOPMENTS
The financial services industry continues to face heavy scrutiny
from the Federal Government, regulators, investors and
consumers. In recent years, a significant number of regulatory
consultations, inquiries and industry reviews led to a number of
changes that could impact BOQ. A summary of the key areas of
reform and areas of increased risk focus are outlined below.
REGULATORY DEVELOPMENTS
Anti-Money Laundering and Counter Terrorism
Financing Act 2006 Compliance
Since the emergence of industry issues with Anti-Money
Laundering (AML) / Counter Terrorism Financing (CTF)
compliance in 2017, the Bank has continued to enhance and
strengthen its AML/CTF systems and controls. During this
period the Bank has been working in close consultation with
Australian Transaction Reports and Analysis Centre (AUSTRAC)
in relation to the Bank’s AML/CTF program. AUSTRAC
conducted a scheduled on-site review of the Bank’s AML/
CTF systems and controls in July 2018 to assess progress and
compliance with AML/CTF legislation.
As noted in the Directors Report for the half year ended 28
February 2019, following this scheduled on-site review, the Bank
received a Compliance Assessment Report from AUSTRAC on
21 December 2018 (Report). The Report identified potential
compliance contraventions of the Anti-Money Laundering and
Counter Terrorism Financing Act 2006 (Cth). Since receipt of the
Report, the Bank has continued to consult and update AUSTRAC
about the significant progress that has been made to investigate
and address the issues identified in the Report. In addition, the
Bank has continued to strengthen its AML/CTF Program. This
work involves additional investment in prevention mechanisms,
ensuring an effective and efficient control environment, and
uplifting compliance capability.
The Bank has a long history of working co-operatively with
regulators and law enforcement agencies to prevent money
laundering and terrorism financing. The Bank is committed
to fully meeting regulatory requirements and will continue to
monitor and improve compliance with AML/CTF legislation in
conjunction with AUSTRAC.
Unfair contracts
In November 2016, the Bank implemented new terms and
conditions for its small business customers in response to the
introduction of unfair contract terms legislation by the Federal
government. Notwithstanding the measures taken by the Bank,
on 4 September 2019, the Australian Securities and Investments
Commission (ASIC) commenced proceedings alleging that certain
terms in the Bank’s small business contracts were nevertheless
unfair contract terms in breach of the ASIC Act.
Both prior to and following the issue of proceedings, the Bank has
sought to engage with ASIC at all times in a constructive manner
to achieve a resolution of this issue. As part of that process, the
Bank has pro-actively volunteered to carry out a review of all small
business lending contracts entered into on or after November
2016 with a view to identifying if there are any instances where
the Bank has relied upon or enforced one or more of the terms
(alleged by ASIC to be unfair) in a manner which is adverse to
the customer’s interests. While the Bank’s review is ongoing, it
currently believes that very few, if any, customers have been
adversely affected by the alleged unfair contract terms.
While any question of liability for compensation for any affected
customer would turn, in part, on whether ASIC is correct in any of
its assertions made in the proceedings, on any likely scenario the
potential total compensation payable to customers will be very
limited, if not zero, even if any terms are determined to be unfair
contract terms within the meaning of the Act. The Bank continues
to communicate with ASIC regarding the proceedings.
In the meantime, the Bank has also commenced a further
review of its small business contract terms and conditions.
This project involves additional investment in reviewing
various suites of standard terms applicable to relevant Bank
contracts. Consistent with the Bank’s long history of working
co-operatively with regulators and law enforcement agencies,
the Bank will continue to monitor compliance with the ASIC Act
and its unfair contract terms provisions, and seek to continue to
work constructively with ASIC.
Meeting revised regulatory reporting requirements
The economic and financial statistics (EFS) collection – previously
the Domestic Books collection – is a series of reporting
requirements administered on behalf of the Australian Bureau
of Statistics (ABS) and the Reserve Bank of Australia (RBA)
(collectively, the Agencies) by APRA. The collection focuses on
the Australian (domestic) operations and activities of authorised
deposit-taking institutions (ADIs) and Registered Financial
Corporations (RFCs).
The EFS collection is being introduced in three phases
progressively over late FY19 and FY20.
The EFS collection materially increased the quantity of data
required from ADIs and RFCs, and has resulted in heightened
scrutiny regarding the quality and governance supporting the
relevant data.
The Bank is committed to meeting its regulatory reporting
requirements. In relation to EFS, this has created challenges
given data requirements, complexity of origination systems and
the need for additional controls. A material program of work has
been prioritised to raise the standards of data quality and data
governance to support the Bank’s ability to provide timely and
accurate EFS data to APRA on behalf of the Agencies. The Bank
acknowledges the priority of this work and will continue to work
closely with APRA and other Agencies.
Consumer Credit Insurance
Regulatory and community expectations continue to impact
the insurance sector, particularly consumer credit insurance.
In response to the release of ASIC’s Report 622 relating to
consumer credit insurance, St Andrew’s has made the decision to
cease sale of consumer credit insurance.
Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry
The Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry was established
on 14 December 2017 and conducted through 2018 and 2019.
The Commissioner, the Honourable Kenneth Madison Hayne AC
QC, submitted an Interim Report to the Governor-General on 28
September 2018 which was tabled in Parliament on 28 September
2018. The final report was submitted to the Governor-General on
1 February 2019 and it tabled in Parliament on 4 February 2019. In
response, the Government announced that it was taking action on
all 76 recommendations contained within the Commission’s Final
Report and in a number of important areas is going further.
19
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
1.4
The Government said its response would address the issues
identified by the Royal Commission and substantially build on the
Government’s existing agenda by:
• strengthening protections for consumers, small
businesses and rural and regional communities;
• enhancing accountability;
• ensuring strong and effective financial system regulators; and
•
further improving consumer and small
business access to redress.
In undertaking these reforms, the Government stated it would
ensure that the financial system continued to provide consumers
and small businesses with access to credit and other affordable
financial services that they need, and that the financial system
remains competitive, efficient and resilient.
To ensure these reforms are implemented efficiently and
effectively, the Government stated that the Treasury Royal
Commission Taskforce will continue as a Financial Services
Reform Implementation Taskforce. To ensure ongoing coordinated
delivery of reforms, a Financial Services Reform Implementation
Committee was also established consisting of the Treasury,
ASIC, APRA, the Office of the Parliamentary Counsel and other
agencies as required.
Starting in three years, the Government will establish an
independent inquiry to review and assess whether industry
practices have changed following the Royal Commission and
have led to better consumer outcomes. The Government will
also require a similar assessment of the regulators in three years
by a new regulator oversight body that the Government has
agreed to establish.
A number of the recommendations made by the Royal
Commission, and the subsequent response from the Government
and regulators, have and will impact BOQ as reforms continue to
be implemented in the years ahead. BOQ is committed to meeting
its regulatory and compliance obligations and will implement
changes as required to comply with regulatory changes emanating
from the Royal Commission and the Government’s response.
APRA self-assessments
In June 2018, APRA wrote to the boards of 36 authorised deposit-
taking institutions, insurers and superannuation licensees,
including Bank of Queensland, requesting a written self-
assessment of the effectiveness of governance, accountability
and culture in their institution. The request followed the release of
the Final Report of the Prudential Inquiry into the Commonwealth
Bank of Australia.
Across the industries, four themes emerged:
• non-financial risk management requires improvement;
• accountabilities are not always clear,
cascaded and effectively enforced;
• acknowledged weaknesses are well-known and
•
some have been long-standing; and
risk culture is not well understood, and therefore
may not be reinforcing the desired behaviours.
BOQ continues to evolve and mature its capability to manage
non-financial risks in order to deliver sustainable improvement in
risk management practices. BOQ will be undertaking an on-site
review with APRA in the near term.
Banking Executive Accountability Regime
As part of the 2017-18 Budget, the Federal Government
announced that it would 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 Treasury Laws Amendment (Banking Executive
Accountability and Related Measures) Bill 2017 (Cth) passed
through Federal Parliament on 7 February 2018 and received
its Royal Assent on 20 February 2018. Large financial
institutions needed to comply with the regime on 1 July 2018,
with a deferral period for commencement of the variable
remuneration requirements to 1 January 2019. Small and
medium sized ADIs (which includes BOQ) needed to comply
with BEAR from 1 July 2019.
Parliamentary Joint Committee on Corporations and
Financial Services – Operation and effectiveness of
the Franchising Code of Conduct
On 22 March 2018, the Senate referred an inquiry into the
operation and effectiveness of the Franchising Code of
Conduct to the Parliamentary Joint Committee for report by
30 September 2018. The Committee’s report was released in
March 2019 and, in response, the Government has established
an inter-agency Franchising Taskforce to examine the feasibility
and implementation of recommendations in the report. The
Taskforce will provide advice to the Minister for Employment,
Skills, Small and Family Business and the Assistant Treasurer
in the second half of 2019, which will inform the Government’s
response to the Committee’s report. The response will provide
an achievable plan for the reform of the franchising framework
that is fair, effective and accountable for franchisors and
franchisees while avoiding unnecessary regulatory burden. BOQ
will continue to engage cooperatively with the Government
when the response is released.
Australian Financial Complaints Authority (AFCA)
On 1 May 2018, the Government announced the authorisation of
Australian Financial Complaints Limited to operate AFCA, and
members of the inaugural AFCA Board. AFCA has become the
one-stop shop external dispute resolution (EDR) body for disputes
arising in the financial sector. The objective of AFCA is to provide
free, fast and binding dispute resolution for consumers and small
businesses and to increase transparency of dispute resolution
practices by enabling ASIC to publish banks’ internal dispute
resolution data. AFCA commenced accepting complaints from 1
November 2018. Any existing FOS disputes continued to be dealt
with under the previous FOS terms of reference until resolved.
Earlier this year, the Government approved amendments to the
AFCA Rules which allows AFCA to accept eligible complaints about
conduct that occurred on or after 1 January 2008. This change
took effect from 1 July 2019, and customers will be able to raise
these complaints with AFCA until 30 June 2020.
20
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 1.4
RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
New Banking Code of Practice
The new Banking Code of Practice took effect from 1 July 2019.
The Banking Code is enforceable as part of a customer’s contract
with their bank. This is a strong commitment to ethical and
transparent behaviour, responsible lending and greater financial
protections for customers.
New additions to the Banking Code include:
• More information about changes to customers’ accounts and
greater assistance to vulnerable customers;
• Simplified small business loan contracts with fewer conditions
for more than 92 per cent of businesses;
• New cooling off periods for guarantors; and
• An independent compliance committee with specific small
business and agribusiness expertise to investigate breaches of
the Banking Code.
The recommendations from the Royal Commission include six
proposed further changes to the Banking Code. Amendments to
the Code covering five of these changes have been drafted and
submitted to the regulators for approval. These changes are due
to be implemented by March 2020.
Consumer Data Right Bill and Open Banking
From 2017 to 2018, the Government consulted on exposure
draft legislation to implement the Consumer Data Right (CDR).
The CDR will provide individuals and businesses with a right to
efficiently and conveniently access specified data in relation to
them held by business; and authorise secure access to this data
by trusted and accredited third parties. The CDR will also require
businesses (like BOQ) to provide public access to information on
specified products they have on offer.
CDR is designed to give customers more control over their
information, leading to more choice in where they take their
business, or more convenience in managing their money. The
Government has committed to applying the CDR in the banking,
energy and telecommunications sector. For the banking sector,
this is referred to as “Open Banking” and will be the first sector to
apply the CDR.
The CDR is intended to reduce the barriers that currently prevent
customers from switching between banks. Banks will be required
to provide open access to data on product terms and conditions,
transaction use, and will have the ability to direct that their data
be shared with other service providers (banks and non-banks).
On 9 May 2018, the Government agreed to the recommendations
of the Review into Open Banking, both for the framework of the
overarching CDR and for the application of the right to Open
Banking. The CDR bill passed Parliament on 1 August 2019. The
CDR rules for banking (or Open Banking) were published by
the ACCC on 2 September 2019, providing increased detail on
the rules for Open Banking and a refined approach to phasing.
The first important compliance milestone for major banks is 1
February 2020, where they will need to be able to share consumer
data with accredited persons on transactional accounts, with
loan account data required by 1 July 2020. All remaining banks
(including BOQ) will be required to comply with CDR rules with a
12-month delay from when majors must comply.
Introduction of the Modern Slavery Act
On 28 June 2018, the Government introduced the Modern
Slavery Bill 2018. This Bill requires certain organisations based
in, or operating in Australia, which have an annual consolidated
revenue of more than $100 million (defined as ‘reporting
entities’), to annually report on the risks of modern slavery in their
operations and supply chains, and to address those risks. The
annual statements will need to address mandatory criteria set
out in the Bill, including the entity’s key modern slavery risks and
describing their actions to address those risks. These criteria will
provide certainty for business about how to report and ensure
statements can be easily compared.
The Modern Slavery Act was passed by Parliament on 29
November 2018 and the reporting requirement entered into
force on 1 January 2019. BOQ will submit its first Modern Slavery
Statement to the Minister of Home Affairs within six months
after the end of BOQ’s FY20 reporting period (by the end of
February 2021).
APRA’s proposed revisions to the capital framework
for ADIs
On 14 February 2018, APRA released two discussion papers for
consultation with ADIs on proposed revisions to the capital
framework. The papers include proposed revisions to the capital
framework resulting from the Basel Committee finalising the
Basel III reforms in December 2017, as well as other changes
to better align the framework to risks, including in relation
to housing lending. APRA also released a discussion paper
on implementation of a leverage ratio requirement. APRA
stated that it is not seeking to increase capital requirements
beyond what was already announced in July 2017 as part of the
‘unquestionably strong’ benchmarks. The key proposed changes
to the capital framework include:
•
lower risk weights for low LVR mortgage loans, and higher
risk weights for interest-only loans and loans for investment
purposes, than apply under APRA’s current framework;
• amendments to the treatment of exposures to small-to
medium-sized enterprises (SME), including those secured
by residential property under the standardised and IRB
approaches;
• constraints on IRB ADIs’ use of their own parameter estimates
for particular exposures, and an overall floor on risk weighted
assets relative to the standardised approach; and
• a single replacement methodology for the current advanced
and standardised approaches to operational risk.
On 7 June 2019, APRA released its response to the first round
of consultation on proposed changes to the capital framework
for ADIs. APRA is proposing to revise some of its initial
proposals, including:
•
for residential mortgages, some narrowing in the capital
difference that applies to lower risk owner-occupied, principal-
and-interest mortgages and all other mortgages;
• more granular risk weight buckets and the recognition of
additional types of collateral for SME lending, as recommended
by the Productivity Commission in its report on Competition in
the Financial System; and
•
lower risk weights for credit cards and personal loans secured
by vehicles.
21
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
1.4
APRA’s consultation on the revisions to the ADI capital
framework is a multi-year project. APRA expects to conduct one
further round of consultation on the draft prudential standards
for credit risk prior to their finalisation. It is intended that they
will come into effect from 1 January 2022, in line with the Basel
Committee on Banking Supervision’s internationally agreed
implementation date. An exception is the operational risk capital
proposals for ADIs that currently use advanced models: APRA
is proposing these new requirements be implemented from the
earlier date of 1 January 2021.
APRA’s consultation on increasing the loss-absorbing
capacity of authorised deposit-taking institutions
On 8 November 2018, APRA released a discussion paper outlining
its proposed changes to the application of the capital adequacy
framework for authorised deposit-taking institutions (ADIs) to
support orderly resolution in the unlikely event of failure. On 8
July 2019, APRA released its response to submissions on proposed
changes. For small to medium ADIs, APRA stated that extra loss-
absorbing capacity would be considered on a case-by-case basis
as part of the resolution planning process.
APRA’s amendments to guidance on residential
mortgage lending
On 4 July 2019, APRA announced that it would proceed
with proposed changes to its guidance on the serviceability
assessments that ADIs perform on residential mortgage
applications. APRA confirmed its updated guidance on residential
mortgage lending would no longer expect ADIs to assess home
loan applications using a minimum interest rate of at least 7
per cent. Instead, ADIs will be able to review and set their own
minimum interest rate floor for use in serviceability assessments
and utilise a revised interest rate buffer of at least 2.5 per cent
over the loan’s interest rate.
KEY BUSINESS RISKS AND AREAS OF INCREASED
RISK FOCUS
The following business risks are considered to be key risks to
BOQ’s performance and growth and identified under BOQ’s Risk
Management Framework.
Compliance Risk
The risk to earnings and capital arising from violations of or
non-compliance with laws, rules, regulations, prescribed
practices or ethical standards. It also includes overseeing
the establishment and maintenance of risk-based controls
to mitigate the risks associated with money laundering and
terrorism financing. The policies adopted to manage Compliance
Risk include a Conflicts of Interest Policy, Whistleblower Policy
and Breach & Incident Management Process. BOQ employees
also undertake a range of compliance training to manage
Compliance Risk, including in relation to Consumer Credit
Insurance, Consumer Protection, Code of Banking Practice,
National Consumer Credit Protection, Privacy and Anti-money
Laundering & Counter Terrorism Financing. BOQ continues to
enhance and develop policies, frameworks and training to meet
ongoing and new compliance obligations.
Regulatory Risk
The risk that new or changes in legislation and regulations will
materially impact a security, business, sector, or market. A change
in legislation, regulations or made by government, regulatory and/
or industry bodies may increase the costs of operating a business,
reduce the attractiveness of an investment, or change the
competitive landscape.
BOQ manages Regulatory Risk through monitoring changes to
legislation, regulations and/or industry codes, understanding
and assessing the potential impacts to BOQ’s products, services,
businesses and operations and developing programs that
support the implementation of any changes impacting BOQ or
its customers.
Credit Risk
The risk that a debtor or transactional counterparty will default
and/or fail to meet their contractual obligations, and includes
the risk of loss of value of assets due to deterioration in credit
quality and credit concentration risk. This risk primarily arises
from BOQ’s lending activities and the holding of various financial
instruments for investment or liquidity purposes. BOQ has a set of
well documented credit risk policies to manage these risks within
the limits set by the Board. They include the Treasury Credit Policy,
Large Exposures Policy, Sector Risk Concentration Policy, the
Delegated Approval Authority Policy, and specific credit policies for
each customer segment and their respective lending products.
Insurance Risk
The risk that BOQ incorrectly assesses its risk of exposure to
financial loss and inability to meet its liabilities due to inadequate
or inappropriate insurance product design, claims management or
reinsurance management.
Liquidity and Funding Risk
The risk that BOQ cannot meet or generate sufficient cash
resources to meet its payment obligations in full as they fall due,
or can only do so at materially disadvantageous terms. BOQ’s
Liquidity and Funding Policy and Contingency Funding Plan are
used to manage this risk.
Market Risk
This includes Traded Market Risk (the risk that the value of an
investment will decrease due to moves in market factors such as
foreign exchange rates, interest rates, equity prices, commodity
price and credit spreads) and Non Traded Market Risk (the risks
arising from the various structural dimensions of the balance
sheet including Interest Rate Risk in the Banking Book, Liquidity,
Funding, Securitisation and Capital Risk). BOQ has adopted a
number of Treasury Risk Policies to manage Market Risk.
Operational Risk
The risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events.
Operational risk management covers a wide variety of risks
including legal risk, franchise risk, environmental sustainability,
Enterprise Continuity Management (comprising business
continuity management, crisis management and disaster
recovery, IT Security and technology/system risk) and human
resources risk management. BOQ has implemented a number
of systems and policies to address operational risks including a
Code of Conduct, Outsourcing Policy (including off-shoring of
services), Product Development Policy, Information Security
Policy and IT risk management policies, Workplace Health & Safety
Policy, Workplace Rehabilitation Standard and Harassment,
Discrimination & Bullying Standard.
22
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 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;
• Dedicated Ethics & Security Committee made of Senior
Executive and Management who both review and make
decisions on actual or alleged misconduct issues in addition to
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 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 and 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 of 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 actively 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 reflect
international and industry standards and best practices;
• Relationships with strategic partners, including the
assessment of their systems and processes, to ensure they
continue to maintain the 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.
RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
1.4
Contagion Risk
The risk that problems arising in BOQ’s subsidiary companies
may compromise the financial and operational position of BOQ
as an ADI.
Reputation Risk
The risk to earnings and capital arising from negative public
opinion resulting from the loss of reputation, public trust or
standing, and is considered to be a risk derived from business
activities and is considered in conjunction with the underlying
risks resulting from those activities.
Securitisation Risk
The risk to earnings in the event of a major disruption in market
demand for asset backed securities thereby increasing BOQ’s
funding costs as the BOQ Group seeks alternative, more
expensive, funding sources. This may have an impact on net
interest margin, profitability and may limit securitisation as a
funding and capital management tool.
Strategic Risk
The potential for financial loss associated with the vulnerability of
business earnings to changes in the strategic environment.
Talent Risk
The risk arising from the inability to attract or retain the quality
of talent required to deliver for customers, shareholders and the
communities in which the Bank operates.
Cyber Security Risk
The risk arising from failure to secure and protect computers,
networks, programs and data from unintended or unauthorised
access.
Conduct Risk
The risk of inappropriate, unethical or unlawful behaviour
by Management or employees, which could have significant
ramifications for our customers, shareholders, clients,
counterparties and the markets in which the Bank operates.
Sustainability and Climate Change Risk
Climate change is becoming increasingly relevant to businesses in
the Australian economy. The ongoing effects of climate change
risks may impact the long-term prosperity of Australia’s economy,
environment and society.
In addition to the above, there are a number of areas of increased
risk focus, driven largely by external developments such as
changes in community expectations, technology and regulatory
activity. These include:
Ethics and 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.
23
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 1.4
RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
Climate change
The risks and opportunities of climate change are becoming
increasingly relevant to most businesses in the Australian
economy. Through the Paris Agreement of 2015, governments
around the world agreed to take action to limit global warming
to less than 2 degrees Celsius above pre-industrial levels and as
close to 1.5 degree Celsius as possible and to transition to net zero
emissions by 2050. As a result, the Australian Government has set
a target to reduce emissions by 26-28 per cent below 2005 levels
by 2030. The transition to a low carbon economy and the ongoing
effects of climate change will impact the long-term prosperity
of Australia’s economy, environment and society. Therefore
businesses are increasing the level of disclosure around how the
risks and opportunities of climate change are relevant to their
particular business.
In 2017, the Financial Stability Board’s Taskforce on Climate-
related Financial Disclosures (TCFD) published its final report
which set out its recommendations for helping businesses
disclose climate-related financial information. The TCFD
report establishes recommendations for disclosing clear,
comparable and consistent information about the risks and
opportunities presented by climate change, and provide decision-
useful information to lenders, insurers, and investors. The
recommendations are structured around four thematic areas
that represent core elements of how organisations operate:
governance, strategy, risk management, and metrics and targets.
An overview of the information relevant to BOQ across these
themes is provided below.
Governance
Management of risk is ultimately overseen by the BOQ Board
and Risk Committee. BOQ has an integrated Risk Management
Framework in place to identify, assess, manage and report risks
on a consistent and reliable basis. This framework has been
developed to accord with the tolerance levels set out in the BOQ
Risk Appetite Statement. A number of risks have been identified
as material business risks for BOQ under this Risk Management
Framework, including credit risk, operational risk, reputation risk
and strategic risk.
The Board delegates day to day management of the business
to the management team. This includes identification of
opportunities for the business as well as management of risk
within the risk appetite that has been approved by the Board. The
management team utilises the Executive Committee, Business
Performance Committee and Executive Credit Committee as well
as various policies to assess and manage risks.
Strategy
Risks
The following tables outline the potential climate-related
risks which are currently considered to be most relevant to
BOQ in the context of its future strategies. The physical risks
identified are more likely to manifest over the medium to long
term (5-30 years+). The timing and magnitude of transition
risks are less certain but have the potential to arise sooner (3-5
years), depending on actions taken by governments, regulators,
businesses and consumers to expedite a transition to a low
carbon economy.
Transition risks
Climate-related risks
Potential financial impacts for BOQ
Potential actions for BOQ to mitigate
Reduced income for businesses or
individuals currently reliant on income from
unsustainable sources, or increased climate-
related transition expenses
Increased loan impairment expense (due to
reduced capacity for customers to repay)
Changing customer behaviour, including
reduced demand for certain products
Decreased income (if BOQ product/service
offerings do not meet customer needs/
expectations)
Increased expenses
Costs to offset emissions or transition to
lower emissions energy/fuel sources;
Regulatory change;
Enhanced reporting obligations;
Increased stakeholder concern;
Exposure to litigation;
Increased insurance premiums
Identify existing customers most at risk and
assist with transition;
Consider sustainability of income in any new
lending.
Monitor community attitudes and customer
behaviour;
Operate in a way that aligns with customer
and community expectations;
Design and distribute products and
services that meet customer needs and
expectations.
Identify opportunities to reduce exposure to
higher emission energy/fuel sources;
Monitor community and stakeholder views
and expectations;
Continue to enhance disclosures to meet
stakeholder expectations.
BOQ will continue to monitor and assess external developments which may lead to increased transition risk, in order to better understand
the likely risks that may arise for BOQ over the short, medium and long term. In its commercial lending and BOQ Finance portfolios, BOQ
has limited direct lending exposure to the sectors at highest risk from a more rapid transition.
24
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 1.4
RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
Physical risks
Climate-related risks
Potential financial impacts for BOQ
Potential actions for BOQ to mitigate
Decline in value of assets due to:
Increase in impact of climate-related
extreme weather events;
Rising sea levels;
Rising temperatures;
Rise in insurance premiums or inability to
obtain insurance.
Increased loan impairment expense
Identify existing customers and assets most
at risk;
Assist customers to understand risks and
mitigate where possible;
Assess climate-related risk of new lending.
Business disruption due to climate-related
extreme weather events, rising sea levels or
rising temperatures
Decreased income;
Increased expenses.
Prepare for business disruption scenarios
As part of its annual portfolio stress testing simulation, in 2018
BOQ included a weather-related event as a scenario to be tested.
This involved a severe flood scenario in South-East Queensland,
with inundation to a level of seven metres (compared to the 2011
Brisbane flood level of four metres). The financial impact of this
scenario was immaterial in terms of direct physical impact on
BOQ’s lending portfolio.
BOQ’s 2019 stress testing scenarios include a severe long term
drought scenario and a long term sea-level rise analysis (based
on data from the Intergovernmental Panel on Climate Change’s
(IPCC) RCP8.5 high emissions scenario). The final results of these
scenarios are expected to be available later in the 2019 calendar
year and will be included in BOQ’s Internal Capital Adequacy
Assessment Process (ICAAP) Report.
Opportunities
The following are the key climate-related opportunities which are
most relevant to BOQ:
• Funding investment in renewable energy.
• Developing finance solutions to meet the needs of businesses
and consumers in a lower-carbon economy.
These opportunities would primarily impact BOQ through
increased revenues. There may also be opportunities to achieve
lower costs through pursuit of more resource and energy
efficient operations.
An example of this is that in FY19, BOQ Finance established a new
Energy Efficient Equipment Finance Program, by joining the Clean
Energy Finance Corporation (CEFC) co-financing program. The
CEFC is a government entity established to facilitate increased
flows of finance into Australian based renewable energy, energy
efficiency and low emissions technology. This program will allow
BOQ to provide small business owners with competitive finance
for eligible equipment.
Risk management
BOQ’s process for identifying, assessing and managing risks is
integrated into its overall Risk Management Framework. Climate
risk can emerge in the assessment of credit risk, operational risk,
reputation risk, and strategic risk, which have been identified as
material risks under BOQ’s Risk Management Framework. The
management team utilises the Executive Credit Committee
and credit policies such as the Ecological Care and Sustainability
Lending Policy to assess potential implications to credit risk.
Credit risk is assessed at a portfolio level as well as at an individual
credit exposure level on a case-by-case basis. On an individual
exposure level this would include consideration of future cash
flows available to service debt as well as valuations of assets
taken as security. Property valuations take into account factors
such as flooding and environmental risk in estimating the value
of properties, which BOQ uses as a basis for determining an
appropriate level of lending to be extended relative to that
property value. In addition, BOQ’s loan agreements require
customers to maintain comprehensive insurance for any
property provided as security for a loan. Where flood is identified
as a potential risk in the valuation, flood cover is required to be
included in the insurance policy. This provides a level of protection
to the value of security in the event that there is damage or
destruction caused by extreme weather events.
Reputation risk is managed in line with BOQ’s Conduct and
Reputational Risk Framework, through monitoring of both the
internal and external environment and regular stakeholder
engagement with customers, investors, suppliers, employees,
government, media, regulators and community partners. This
includes a combination of structured engagement through
surveys, regular reporting and industry forums as well as direct
feedback from customers and staff or indirect information
gathering and monitoring of issues that may be or may become
relevant to BOQ.
BOQ’s Risk team is conducting a review of its current approach
to managing climate-related risk with a view to making
recommendations which will be considered for implementation
in 2020, to better embed climate-related risk in BOQ’s policies
and processes.
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Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 1.4
RISK AND REGULATORY DEVELOPMENTS (CONTINUED)
Metrics and targets
BOQ is reviewing metrics that would be most relevant to
monitor specific climate-related risks for the business.
A metric that is currently reported is the dollar value and
proportion of the loan portfolio that has been extended to
businesses who are directly involved in fossil fuel mining ($30
million or <0.1 per cent of BOQ’s total loan portfolio as at 31
August 2019). This is a metric that will reduce to zero by 2023
as BOQ has committed to no further financing of equipment
directly involved in the extraction of fossil fuels. BOQ has no
direct exposure to coal-fired power generators and has no
appetite for lending to this sector. For BOQ’s housing loan
portfolio, lending identified in mining- dependent regions are
subject to specific policy considerations. Monthly internal
reporting on exposures and arrears levels is used to monitor
risk in these locations. Given the size and nature of its business,
BOQ’s greenhouse gas (GHG) emissions are not significant,
with purchased electricity for its support centres and branches
being the biggest contributor to emissions. Electricity
consumption and other environmental impact metrics are
published in the Non-financial performance measures section
of BOQ’s Sustainability Report.
26
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT
2. GROUP PERFORMANCE ANALYSIS
INCOME STATEMENT AND KEY METRICS
2.1
$ 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-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
961
128
1,089
(550)
539
(74)
465
(145)
320
965
145
1,110
(527)
583
(41)
542
(170)
372
-
(12%)
(2%)
4%
(8%)
80%
(14%)
(15%)
(14%)
485
63
548
476
65
541
(282)
(268)
266
(44)
222
(69)
153
273
(30)
243
(76)
167
2%
(3%)
1%
5%
(3%)
47%
(9%)
(9%)
(8%)
Statutory net profit after tax (1)
298
336
(11%)
142
156
(9%)
(1)
Refer to Section 5.1 Reconciliation of statutory profit to cash earnings of the Appendices for a reconciliation of cash earnings to statutory net profit after tax.
Key Metrics
SHAREHOLDER RETURNS
Share price
Market capitalisation
Dividends per ordinary share
(fully franked)
CASH EARNINGS BASIS
Basic Earnings per Share (EPS)
Diluted EPS
Dividend payout ratio
STATUTORY BASIS
Basic EPS
Diluted EPS
Dividend payout ratio
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
($)
($ million)
(cents)
(cents)
(cents)
(%)
(cents)
(cents)
(%)
9.17
3,721
65
79.6
74.0
82.4
74.2
69.2
88.5
11.49
4,565
(20%)
(18%)
76
(14%)
94.7
89.3
80.7
85.5
81.2
89.3
(16%)
(17%)
170bps
(13%)
(15%)
(80bps)
9.17
3,721
31
37.8
35.3
82.2
35.3
33.0
88.6
9.01
3,620
2%
3%
34
(9%)
41.8
39.0
81.8
39.0
36.4
87.6
(10%)
(9%)
40bps
(9%)
(9%)
100bps
27
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT
2.1
INCOME STATEMENT AND KEY METRICS (CONTINUED)
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
320
539
1.93
50.5
16
8.3
10.8
298
509
1.93
53.5
16
7.7
10.1
499
312
197
43.3
0.48
372
583
1.98
47.5
9
9.9
12.9
336
534
1.98
52.4
9
8.9
11.6
469
260
164
52.4
0.39
(14%)
(8%)
(5bps)
300bps
7bps
(160bps)
(210bps)
(11%)
(5%)
(5bps)
110bps
7bps
(120bps)
(150bps)
6%
20%
20%
(910bps)
9bps
153
266
1.92
51.5
19
7.8
10.2
142
252
1.92
54.3
19
7.3
9.5
499
312
197
43.3
0.48
167
273
1.94
49.5
13
8.8
11.4
156
257
1.94
52.8
13
8.2
(8%)
(3%)
(2bps)
200bps
6bps
(100bps)
(120bps)
(9%)
(2%)
(2bps)
150bps
6bps
(90bps)
10.7
(120bps)
505
287
152
(1%)
9%
30%
50.4
(710bps)
0.46
2bps
Key Metrics
PROFITABILITY AND EFFICIENCY MEASURES
CASH EARNINGS BASIS
Net profit after tax
Underlying profit (1)
NIM (2)
CTI
Loan impairment expense to gross loans
and advances (GLA)
ROE
ROTE (3)
STATUTORY BASIS
Net profit after tax
Underlying profit (1)
NIM (2)
CTI
Loan impairment expense to GLA
ROE
ROTE (3)
ASSET QUALITY
30 days past due (dpd) arrears
90dpd arrears
Impaired assets
Specific provisions to impaired assets
Collective provisions to risk weighted assets
(RWA)
CAPITAL
Common equity tier 1 (CET1) ratio
Total capital adequacy ratio
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
($ million)
(%)
(%)
(%)
(%)
RWA
($ million)
30,533
29,669
3%
30,533
29,978
9.04
12.40
9.31
12.76
(27bps)
(36bps)
9.04
12.40
9.26
12.68
(22bps)
(28bps)
2%
(1) Profit before loan impairment expense and tax.
(2) NIM net of offset accounts.
(3)
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).
28
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 2.2 NET INTEREST INCOME
$ million
Net interest income
Average interest earning assets
NIM
Year End Performance
Half Year Performance
Aug-19
Aug-18
961
965
49,842
48,818
Aug-19
vs Aug-18
-
2%
Aug-19
Feb-19
485
476
50,220
49,441
Aug-19
vs Feb-19
2%
2%
1.93
1.98
(5bps)
1.92
1.94
(2bps)
Net interest income decreased $4 million from FY18. This was
driven by a five basis point decrease in NIM, partially offset by a
two percent increase in average interest earning assets. The five
basis points reduction in NIM was primarily due to increased basis
costs, though this moderated in 2H19, and the impact of lower
interest rates on the Bank’s capital and low cost deposit portfolio.
2H19 performance saw net interest income increase by $9 million
or two per cent. The increase in net interest income was a result
of a two per cent increase in average interest earning assets in
2H19 and a higher day count in 2H19 compared to 1H19. This was
partially offset by a reduction in NIM.
Asset margins improved in 2H19 as asset pricing benefits offset
continued pressure from competition for new lending and the
impact of discounting on the existing portfolio. Hedging costs
also improved in 2H19 from 1H19, driven by a reduced spread
between the bank bill swap rate and overnight index swap rate.
Funding costs rose as deposit pricing lagged the rapid changes
in the movement in short term interest rates, both cash rate
and bank bill swap rate, over 2H19. The net result was a two basis
point decrease in NIM in 2H19.
Net interest margin - February 2019 to August 2019
2.28%
0.34% (1)
1.94%
0.02%
(0.05%)
0.03%
(0.02%)
NIL
2.26%
0.34% (1)
1.92%
1H19
Asset pricing
and mix
Funding costs
and mix
Hedging costs
Capital and low
cost deposits
Third party
costs
2H19
NIM
Third party costs (1)
(1) Third party costs largely represent commissions to Owner Managers and brokers.
Underlying movements in NIM between 2H19 and 1H19 included
the following:
Asset pricing and mix: Asset pricing and mix improved by two
basis points over 2H19. Loan repricing actions contributed
positively to NIM by six basis points. This benefit was partially
offset by continued margin pressure from competition for new
housing loans, and retention discounting. This was responsible
for a four basis points reduction in NIM.
Funding costs and mix: Funding costs (excluding the impact of
basis) reduced NIM by five basis points. Retail and middle market
term deposit costs increased in 2H19 as industry pricing lagged a
reduction in short term rates. Wholesale funding costs also rose
in line with a lengthening of portfolio duration strengthening the
Bank’s Net Stable Funding Ratio.
Hedging costs: The impact of hedging costs improved NIM by
three basis points in 2H19, driven by reductions in basis and other
hedging costs. Half of the improvement was due to the basis
portfolio spreads reducing from an average of 46 basis points to
39 basis points. The remainder was from favourable positioning of
other hedging over the period.
Capital and low cost deposits: The return on BOQ’s $4.4 billion
replicating portfolio declined in 2H19, as the lower interest rate
environment impacted the portfolio reinvestment rates. This
drove a two basis point reduction in NIM over 2H19.
29
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 2.3 NON-INTEREST INCOME
$ million
Banking income
Insurance income
Other income (1)
Trading income
Total non-interest income (2)
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19 vs
Aug-18
Aug-19
Feb-19
Aug-19 vs
Feb-19
82
11
30
5
128
93
19
32
1
145
(12%)
(42%)
(6%)
400%
(12%)
39
4
15
5
63
43
7
15
-
65
(9%)
(43%)
-
-
(3%)
(1)
VMA third party income and costs are included in other income as a net result.
(2)
Refer to Section 5.1 (B) Non-cash earnings reconciling items of the Appendices for a reconciliation of cash non-interest income to statutory non-interest income.
Trading income of $5 million was supported by improved
credit spreads as investors chased yield in a low interest rate
environment, improved short end funding conditions, basis
performance and heightened volatility.
Declining St Andrew’s insurance income is discussed in detail in
Section 2.4 below.
Non-interest income of $128 million reduced $17 million or 12
per cent from FY18.
Banking income was $11 million or 12 per cent lower than in
FY18. The reduction in banking income was largely due to the
transition of the BOQ Business merchant terminal offering
to a new third party arrangement, combined with continuing
customer trends towards lower or no fee products and the
impact from the implementation of AASB 15 Revenue from
Contracts with Customers (AASB 15).
Other income decreased $2 million or six per cent during
FY19 and was flat half on half. The decrease is partly due to a
reduction in the vendor program end of term income in the
BOQ Finance business as a result of improving contract terms
for customers. Included in other income was $8 million of
VMA third party product distribution income, which was up 34
per cent on FY18.
2.4
INSURANCE OVERVIEW
Year End Performance
Half Year Performance
$ million
Aug-19
Aug-18
Gross written premium (net of refunds)
Net earned premium
Underwriting result
Other insurance income
Total income
Consolidation adjustment
Group insurance result
60
55
8
3
11
-
11
72
66
15
3
18
1
19
Aug-19 vs
Aug-18
(17%)
(17%)
(47%)
-
(39%)
(100%)
(42%)
Aug-19
Feb-19
Aug-19 vs
Feb-19
29
26
2
2
4
-
4
31
29
6
1
7
-
7
(6%)
(10%)
(67%)
100%
(43%)
-
(43%)
St Andrew’s contributed $11 million or nine per cent to non-
interest income in FY19, an $8 million reduction compared to
FY18 due to a lower underwriting result. This was impacted by
contracting net earned premium reflecting fewer premiums,
partly offset by reduced commissions paid. Claims costs were flat
on FY18, reflecting higher loss ratios on a smaller portfolio.
Regulatory and community expectations continue to impact
the insurance sector, particularly consumer credit insurance.
A number of St Andrew’s corporate partners (including BOQ)
have made the decision to cease distribution of consumer
credit insurance, following release of ASIC’s Report 622. Existing
customers will continue to be served and the interests of
policyholders will remain a priority.
30
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 2.5 OPERATING EXPENSES
$ million
Employee expenses
Occupancy expenses
General expenses
IT expenses
Other expenses
Total operating expenses (1) (2)
CTI
Number of employees (FTE) (1)
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19 vs
Aug-18
Aug-19
Feb-19
Aug-19 vs
Feb-19
264
42
91
125
28
550
263
44
81
119
20
527
-
(5%)
12%
5%
40%
4%
50.5%
2,098
47.5%
2,039
300bps
3%
132
21
47
65
17
282
51.5%
2,098
132
21
44
60
11
268
49.5%
2,073
-
-
7%
8%
55%
5%
200bps
1%
(1) FTE numbers and operating expenses exclude VMA third party costs as the net result is included in non-interest income. Expenses relating to the VMA mortgage offering
have been included in the above table.
(2)
Refer to Section 5.1 (B) Non-cash earnings reconciling items of the Appendices for a reconciliation of cash operating expenses to statutory operating expenses.
Operating expenses increased $23 million or four per cent on FY18. Flat employee expenses were driven by lower short term incentives
paid, including no Key Management Personnel receiving an award under the Short Term Incentive plan. This was offset by higher FTE to
support regulatory and compliance programs and targeted growth in BOQ Business.
General and Other expenses increased 12 per cent and 40 per cent respectively. This was largely due to addressing regulatory and
compliance requirements, additional non-lending losses and higher industry levies. Also included are higher telecommunication costs
incurred during the transition between data centre locations as part of the Bank’s infrastructure modernisation program.
IT costs increased due to data collection activities addressing compliance requirements and new technology services resulting from the
Bank’s technology transformation programs.
2.6 CAPITALISED INVESTMENT EXPENDITURE
The Bank’s transformation program continues to drive an increase in the assets under construction balance, with a number of significant
multi-year foundational investment programs underway. These include the functionality required to support the industry’s New Payment
Platform, a treasury and market risk system upgrade, developing capability for digital offerings for retail, business and financial markets
customers, as well as a program of work to modernise the Bank’s technology infrastructure.
A number of investments delivered new functionality during 2H19, driving an increase in the software intangible asset balance.
Carrying value of IT intangible assets ($m)
Assets under construction
Software intangible asset balance
172
44
128
180
69
111
193
93
100
232
117
115
Feb 18
Aug 18
Feb 19
Aug 19
31
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 2.7 LENDING
Lending growth of two per cent was achieved during the year, in an environment characterised by slowing credit growth, strong
competition and a shifting regulatory landscape. Strong new business acquisition was achieved through the different brand
channels in BOQ Specialist and BOQ Finance. Virgin Money continued to deliver strong growth, with its home loan portfolio growing
by $0.9 billion in FY19 to over $2.5 billion while the branch network experienced a contraction in balances, a result of a smaller
distribution footprint.
$ million
Housing lending
Housing lending – APS 120 qualifying securitisation (2)
Commercial lending
BOQ Finance
Consumer
Gross loans and advances
Provision for impairment
Net loans and advances
As at
Feb-19
Aug-18
28,330
28,007
2,215
30,545
10,040
4,898
296
2,499
30,506
9,881
4,595
297
45,779
45,279
(214)
(201)
45,565
45,078
Aug-19
27,702
2,945
30,647
10,008
5,262
299
46,216
(233)
45,983
Aug-19
vs Feb-19(1)
Aug-19
vs Aug-18
(4%)
65%
1%
(1%)
15%
2%
2%
18%
2%
(1%)
18%
-
1%
15%
1%
2%
16%
2%
(1) Growth rates have been annualised.
(2) Securitised loans subject to capital relief under APRA Prudential Standard APS 120 Securitisation (APS 120).
32
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 2.7 LENDING (CONTINUED)
Growth in gross loans & advances
Growth in housing ($m)
FY18
2.2% Growth
0.4x System (1)
FY19
0.5% Growth
0.2x System (1)
653
932
644
(923)
141
914
626
(1,399)
VMA Home Loans
BOQ Specialist
BOQ
(1) Source: Based on latest available APRA
system growth statistics as at August 2019
Housing lending
While housing loan growth was constrained in FY19 by a
slowing mortgage market and an increasing competitive
landscape, BOQ has maintained prudent credit settings
with rigorous servicing, validation and responsible lending
practices. The Bank has increased investment in its lending
capability, in an effort to deliver improved customer
outcomes and operational efficiencies.
Housing growth improved over 2H19 with continued strong
customer acquisition across the Virgin Money and BOQ
Specialist channels, whilst runoff moderated across the BOQ
branded portfolio. The overall housing loan portfolio has further
diversified geographically with more than half of new business
flows originated outside of Queensland. Distribution through
third party channels represented 29 per cent of new business
fundings, though this remains under-represented relative to the
industry average of nearly 60 per cent.
Virgin Money originated over $1.1 billion in new business
fundings during FY19 taking the portfolio to more than $2.5
billion. The ‘Reward Me’ mortgage product has resonated
with a new customer base aligned to the Virgin Money
brand, predominantly younger and largely based outside of
Queensland. Virgin Money continues to expand its broker
presence and in 2019 introduced a direct online capability
further leveraging its enhanced digital offering.
BOQ Specialist housing loan balances grew by 14 per cent
in FY19, including 16 per cent growth in its core medical
segment. BOQ Specialist continues to deliver strong, above
system growth on a maturing portfolio by focusing on building
relationships with professionals in the early stages of their
careers or at university. The diversity offered through this
portfolio in geography, profession and age, improves the overall
risk profile of the housing loan portfolio. The mortgage offering
also creates future opportunities to meet the commercial
lending needs of the targeted health professional market
segments well into the future stages of their career progression.
Customer growth of five per cent was achieved including 15 per
cent growth in medical graduates highlighting the success of
this part of the niche strategy.
BOQ’s branch network improved its housing performance
in 2H19, particularly across the Owner Manager channel,
through improved retention rates. A new revenue share
remuneration structure is on track to be introduced early in
the new financial year which will further align outcomes for
the Bank and Owner Managers.
BOQ’s growth through the mortgage broker channel improved in
2H19 as retention rates improved. The broker support team has
continued to work closely with key aggregator partners to further
improve turnaround times and enhance the customer experience.
33
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT 2.7 LENDING (CONTINUED)
Growth in commercial & BOQ Finance ($m)
FY18
FY19
569
108
461
250
250
127
130
(3)
667
667
BOQ
BOQ Specialist
BOQ Finance
Commercial
BOQ Finance
Commercial
BOQ Finance
Growth rate
System growth (1)
Growth vs System
FY18
FY19
Commercial
BOQ Finance
Commercial
BOQ Finance
6.1%
5.1%
1.2x
5.8%
4.8%
1.2x
1.3%
3.4%
0.4x
14.5%
3.2%
4.5x
(1) Based on latest available APRA and AFIA system growth statistics as at August 2019.
Commercial & BOQ Finance lending
The commercial lending portfolio grew one per cent in FY19, with
higher run-off due to large client exposure pay downs in 1H19 and
a number of large customer asset sales in 2H19. The portfolio
remains geographically diverse, with Queensland concentration at
42 per cent.
The BOQ branded commercial portfolio was relatively flat year
on year, however the Bank’s niche segment strategy continues
to deliver with the corporate healthcare and retirement living
segment delivering growth of 11 per cent. This was offset by run
off in the property finance portfolio. The agribusiness niche
segment had modest growth due to unfavourable weather
conditions and BOQ’s focus on supporting existing customers for
long term financial stability. Small business growth was flat as new
business volumes were offset by run off in the mature portfolio.
BOQ Specialist grew strongly at five per cent with solid
performance in the core medical segment. Offering 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 medical graduate market resulting in customer growth
of 15 per cent, five per cent increase in total customer numbers
and an estimated 25 per cent of market share in the core
medical segment.
BOQ Finance provided strong asset growth of over $660 million
or 15 per cent to take the portfolio to $5.2 billion. Investment
in systems has supported growth in the equipment finance
business, novated lease business and new strategic partnerships
in the wholesale business. Diversification of exposure has
continued with growth in structured finance solutions, cashflow
finance, equipment finance and dealer wholesale solutions. New
green energy solutions have recently been developed to support
future growth.
34
Highlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT 3. BUSINESS SETTINGS
3.1 ASSET QUALITY
Loan impairment expense increased $33 million year on year to $74 million, or 16 basis points of gross loans and advances. Impaired
asset balances of $197 million were $33 million higher than FY18. On transition to AASB 9 from 1 September 2018, a $10 million
increase in the collective provision was recognised as an adjustment to retained profits. To align with requirements of AASB 9, BOQ
has implemented a new collective provisioning model (CP model) which is a forward-looking, expected credit loss model. Whilst
underlying portfolio trends remain sound, the Group’s new collective provisioning was impacted by a less certain economic outlook
and an increase in arrears which were significant drivers for the increase in loan impairment expense.
Loan impairment expense
Loan impairment expense / GLA
Impaired assets
30dpd arrears
90dpd arrears
Collective provision & general reserve for
credit losses (GRCL) / RWA
($ million)
bps
($ million)
($ million)
($ million)
bps
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
74
16
197
499
312
78
41
9
164
469
260
67
80%
7bps
20%
6%
20%
11bps
44
19
197
499
312
78
30
13
152
505
287
74
47%
6bps
30%
(1%)
9%
4bps
The table above summarises BOQ’s key credit indicators
and shows:
•
•
Loan impairment expense increased by $33 million (80
per cent) year on year to $74 million. Of the $33 million
increase in loan impairment expense the collective
provision contributed $22 million. This result included the
implementation of a new CP model, which was impacted
by increases in arrears rates and a less certain economic
outlook. Excluding the impact of the collective provision, loan
impairment expense / GLA in FY19 was 11 basis points, which
is two basis points higher than FY18.
Impaired assets of $197 million increased by $33 million (20
per cent) against FY18 and $45 million (30 per cent) against
2H19. The increase was driven by the Commercial and BOQ
Finance portfolios and more particularly, a large well secured
agribusiness exposure. The Group now holds two impaired
exposures greater than $10 million and three exposures
greater than $5 million. The impaired balances of these five
connections were $57 million in total. At FY18, the Group held
three exposures greater than $5 million in impaired status,
totalling $25 million.
• 30 day and 90 day arrears have increased $30 million and
$52 million respectively year on year. The increase was
driven by the Retail and BOQ Finance portfolios. Retail was
impacted by new industry expectations surrounding
hardships and recovery processes, while BOQ Finance was
impacted by two large connections totalling $6 million
moving into 90 days arrears.
• Collective provisioning and GRCL coverage against RWA
increased by 11 basis points in FY19 and four basis points in
2H19. This increase is due to a higher collective provision and
includes a transitional adjustment upon implementation of
a new CP model under AASB 9. In addition, less certain
economic conditions and increases in arrears impacted the
forward looking assumptions underlying the expected credit
loss model.
35
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50
3.1 ASSET QUALITY (CONTINUED)
Loan impairment expense
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
Feb-19
Expense
($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
Total loan impairment expense
18
24
32
74
6
24
61
16
15
11
15
41
5
11
33
9
7
20
17
44
5
40
65
19
11
4
15
30
7
8
61
13
Higher loan impairment expense of $74 million during the year
included $22 million attributable to higher collective provision
impairment expense based on the new CP model under AASB 9.
Specific provision impairment expense for FY19 was $52 million, a
$5 million increase from FY18.
Retail impairment expense increased by $3 million on FY18 and
was mainly driven by higher specific provisioning activity in the
housing portfolio. Continuing low levels of retail loan impairment
expense in 2H19 reflects robust underwriting standards and
collection practices.
Commercial lending and BOQ Finance loan impairment expense
increased by $13 million and $17 million respectively. Impacting
both portfolios was the forward looking CP model. The CP model
included model adjustments of $4 million in the Commercial
portfolio to provide additional coverage across the agribusiness
portfolio affected by the drought conditions in New South
Wales and Queensland, and $6 million in BOQ Finance to better
reflect observed loss given default metrics in the vendor finance
portfolio. There was also an $8 million increase in specific
provisions in 2H19, driven by a small number of connections
greater than $1 million.
Impaired assets
$ million
Retail lending
Commercial lending
BOQ Finance
Total impaired assets
Impaired assets / GLA
As at
Aug-19
Feb-19
Aug-18
Aug-19
vs Feb-19
Aug-19
vs Aug-18
73
98
26
197
60
69
23
152
67
81
16
164
22%
42%
13%
30%
43bps
33bps
36bps
10bps
9%
21%
63%
20%
7bps
Total impaired assets increased by $33 million, up 20 per cent on
FY18.
The increase in retail impaired assets over 2H19 was driven by
four new exposures greater than $1 million for a total of $9 million,
reversing the previous halves’ downward trend.
Commercial lending increase of $17 million during FY19 was driven
by the impairment of two new large exposures totalling $40
million. Partially offsetting this was the realisation and clearing of
one large exposure of $7 million.
BOQ Finance impaired assets increased by $10 million during
FY19, with $3 million in 2H19. This uplift was in line with historical
provisioning levels and included a single name exposure raised
in 2H19, underlying performance in this portfolio has been
satisfactory.
The Group now holds five impaired exposures greater than
$5 million with a combined total of $57 million, with two of
these exposures greater than $10 million. The Group held three
exposures greater than $5 million at 1H19 and FY18 for a combined
total of $18 million and $25 million respectively.
36
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50
3.1 ASSET QUALITY (CONTINUED)
Impaired assets ($m)
33
8
14
11
(45)
(1)
(21)
(23)
164
16
67
81
(45)
(12)
(13)
(20)
90
15
26
49
Retail $13m or 22%
Commercial $29m or 42%
20%
197
26
73
98
152
23
60
69
Aug 18
New impaired
Realisations
Feb 19
New impaired
Realisations
Aug 19
Commercial
Retail
BOQ Finance
Provision coverage
Total provisions increased by $32 million or 16 per cent to $233
million during FY19. The increase was due to an increase in the
collective provision as a result of the implementation of a new CP
model under AASB 9. Specific provision coverage of 43 per cent
was down 900 basis points from FY18. This is reflective of the low
specific provisioning activity in FY19 and indicative of adequate
security backing the impaired assets.
Total provision coverage reduced 11 per cent over FY19, while the
GRCL increased by $3 million (five per cent). Total provisions and
GRCL to RWA has remained stable from 1H19 and FY18 and BOQ
remains satisfactorily provisioned compared to industry peers.
$ million
Specific provision
Collective provision
Total provisions
GRCL
Specific provisions to impaired assets
Total provisions and GRCL coverage / impaired assets (1)
Total provisions and GRCL / RWA (1)
(1) GRCL gross of tax effect.
As at
Aug-19
Feb-19
Aug-18
Aug-19
vs Feb-19
Aug-19
vs Aug-18
85
148
233
62
43%
163%
1.1%
77
137
214
60
51%
197%
1.0%
86
115
201
59
10%
8%
9%
(1%)
29%
16%
3%
5%
52%
(800bps)
(900bps)
174%
(3400bps)
(1100bps)
1.0%
5bps
5bps
37
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50
3.1 ASSET QUALITY (CONTINUED)
Specific provisions ($m)
17
5
5
7
(26)
(3)
(7)
(16)
86
13
27
46
77
15
25
37
30
11
7
12
(22)
(6)
(6)
(10)
85
20
26
39
Aug 18
New specifics
Realisations
Feb 19
New specifics
Realisations
Aug 19
Commercial
Retail
BOQ Finance
Collective provision and GRCL/RWA vs peers
The graph below provides BOQ’s level of collective provisions and
GRCL to RWA against the current levels of its peers, as published
in their most recent financial reports. BOQ’s coverage increased
11 basis points over FY19 (four basis points increase from 1H19),
driven by the forward looking collective provision to adequately
provide for future events. BOQ continues to be adequately
provisioned in comparison to industry peers.
Standardised banks
Advanced banks (1)
BOQ
0.74%
0.28%
0.78%
0.78%
0.71%
0.69%
0.29%
0.45%
0.29%
1.02%
0.16%
0.85%
0.75%
0.69%
0.86%
0.75%
0.85%
0.46%
0.49%
0.33%
0.42%
Feb 19
FY19
SUN
BEN
ANZ
CBA
NAB
WBC
Collective provision to RWA
GRCL to RWA
(1)
Advanced accredited approach to risk weightings causes coverage to appear higher on a relative basis to the standardised banks.
38
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 3.1 ASSET QUALITY (CONTINUED)
Arrears
Portfolio
Balance
($m)
Key Metrics
Aug-19
Aug-19
Feb-19
Aug-18
Aug-19
vs Feb-19
Aug-19
vs Aug-18
Total lending - portfolio balance ($ million)
30 days past due ($ million)
90 days past due ($ million)
30 days past due: GLAs
90 days past due: GLAs
By product
46,216
45,779
45,279
499
312
505
287
469
260
Proportion of portfolio
1.08%
0.68%
1.10%
0.63%
1.04%
0.57%
30 days past due: GLAs (housing)
29,042
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)
1,605
299
30 days past due: GLAs (commercial)
10,008
90 days past due: GLAs (commercial)
1.02%
0.62%
2.80%
1.99%
1.00%
0.67%
1.19%
0.90%
30 days past due: GLAs (BOQ Finance)
5,262
0.68%
90 days past due: GLAs (BOQ Finance)
0.17%
1.00%
0.51%
2.19%
1.79%
1.01%
0.68%
1.29%
1.02%
0.90%
0.13%
0.92%
0.44%
2.33%
1.17%
1.35%
0.67%
1.38%
1.08%
0.47%
0.07%
1%
(1%)
9%
(2bps)
5bps
2bps
11bps
61bps
20bps
(1bps)
(1bps)
2%
6%
20%
4bps
11bps
10bps
18bps
47bps
82bps
(35bps)
-
(10bps)
(19bps)
(12bps)
(18bps)
(22bps)
4bps
21bps
10bps
Retail Arrears
Retail arrears increased in both 30 and 90 day categories. This
reflected a slower transition back to a performing status that
is aligned to new industry expectations driving longer workout
times in support of the customer. Line of credit (LOC) arrears
have historically trended higher than the other portfolios due to
the revolving nature of the credit facilities and the smaller LOC
portfolio exacerbating the arrears ratios.
BOQ Business Arrears
Commercial arrears have decreased in both 30 and 90 day
categories by 10 basis points and 12 basis points respectively from
1H19. This is driven by the clearance of one large connection which
equated to 18 basis points across the 30 and 90 days categories.
In addition, there have been a number of commercial loan
facilities that, while being serviced and considered performing,
were expired and the full balance was considered to be in arrears
at 1H19. Since 1H19, these were reviewed and no longer considered
to be in arrears.
BOQ Finance arrears have decreased by 22 basis points in 30 days
arrears but increased 4 basis points in the 90 days arrears since
1H19. The combination of seasonality and the settlement of one
large exposure early in 2H19 contributed to the improvement in
the 30 days arrears. The increase in 90 days arrears was driven by
one large exposure equating to 8 basis points. Overall movement
in FY19 shows a return to more normal levels following the
historical lows seen in FY18.
39
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50
3.2 FUNDING AND LIQUIDITY
BOQ’s liquidity strategy and risk appetite are designed to ensure
it has the ability to meet financial obligations as they fall due
in all market conditions. BOQ has developed a robust liquidity
risk management framework including Board approved liquidity
risk tolerances, detailed strategy and policy governing the
management of liquidity and funding, together with annual Board
approved funding and contingency funding plans. Management
of liquidity risk at BOQ includes a focus on developing a stable
customer deposit base, access to diversified wholesale funding
markets and disciplined management of maturity profiles. The
Bank also maintains a portfolio of unencumbered, high quality
liquid assets, giving BOQ a buffer to withstand a range of stress
events, including those involving the loss or impairment of both
unsecured and secured funding sources. BOQ regularly stress
tests it’s liquidity risk framework to identify vulnerabilities under a
diverse range of market scenarios.
Liquidity Coverage Ratio (LCR)
APRA requires LCR ADIs to maintain a minimum 100 per cent LCR.
The LCR requires sufficient tier 1 high quality liquid assets (HQLA1)
and alternative liquid assets, covered by the Committed Liquidity
Facility (CLF), 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 and actively maintains a buffer above the
regulatory minimum in line with BOQ’s prescribed risk appetite
and management ranges.
The Bank’s LCR at 31 August 2019 was 145 per cent, which is 18
per cent higher than 31 August 2018 (127 per cent) and also higher
than the LCR as at 1H19 of 124 per cent. BOQ’s average LCR for
2H19 was 140 per cent, which is eight per cent higher than the
average for 1H19 of 132 per cent.
Net Stable Funding Ratio (NSFR)
APRA’s stated objective in implementing the NSFR was to
strengthen funding and liquidity resilience. The NSFR encourages
ADIs to fund their lending activities with more stable sources of
funding, and thereby promoting greater balance sheet resilience.
The NSFR establishes a minimum stable funding requirement
based on the liquidity characteristics of the ADI’s assets and
off-balance sheet activities over a one year time horizon. The
NSFR is defined as the ratio of the amount of Available Stable
Funding (ASF) to the amount of Required Stable Funding
(RSF). APRA requires ADIs to maintain an NSFR of at least 100
per cent. BOQ manages its NSFR on a daily basis and actively
maintains a buffer above the regulatory minimum in line with
BOQ’s prescribed risk appetite and management ranges.
BOQ’s NSFR as at 31 August 2019 was 112 per cent, up from 110 per
cent at 28 February 2019. The primary drivers of the increase in
NSFR have been an increase in customer deposits and long-term
wholesale funding, partially offset by an increase in other assets
and residential mortgages that are subject to or would qualify
for a 35 per cent risk weight under APS 112 Capital Adequacy:
Standardised Approach to Credit Risk (APS 112). The average
NSFR for 2H19 was 110.8 per cent.
LCR - August 2019 (145%)
$7.9 BILLION
OTHER ALA(1)
INTERNAL
RMBS
HQLA1
$5.4 BILLION
OTHER
WHOLESALE
FUNDING
CUSTOMER
DEPOSITS
Liquid assets
Net cash outflows
(1) Alternative liquid assets (ALA) qualifying as collateral for the CLF,
excluding internal RMBS, within the CLF limit.
NSFR - August 2019 (112%)
$37.7 BILLION
WHOLESALE
FUNDING &
OTHER LIABILITIES
CUSTOMER DEPOSITS
CAPITAL
ASF
$33.5 BILLION
OTHER LOANS
RESIDENTIAL
MORTGAGES
≤ 35% RISK
WEIGHT
LIQUIDS & OTHER
ASSETS
RSF
40
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50
3.2 FUNDING AND LIQUIDITY (CONTINUED)
NSFR waterfall 28 February 2019 - 31 August 2019
2.3%
(0.3%)
(0.9%)
2.6%
110%
(0.5%)
(1.2%)
112%
Feb 2019
Customer
deposits
Wholesale
funding
& other
liabilities
Liquid assets
Residential
mortgages
≤ 35%
Other loans
Other assets
Aug 2019
Liquid assets
BOQ maintains a portfolio of high quality, diversified liquid
assets to facilitate balance sheet liquidity and meet internal
and regulatory requirements. Liquid assets are comprised of
HQLA1 (cash, Australian Semi-Government and Commonwealth
Government securities) and alternative liquid assets covered
under the CLF provided by the Reserve Bank of Australia (RBA).
CLF assets include senior unsecured bank debt, covered bonds,
asset backed securities (ABS) and residential mortgage backed
securities (RMBS) that are eligible for repurchase with the RBA.
BOQ was granted a $3.5 billion RBA CLF for the 2019 calendar
year, enabling the Bank to meet its minimum regulatory
requirement of greater than 100 per cent LCR. BOQ increased
its contingent liquidity through its internal RMBS, in line with the
increase in CLF to ensure it maintains a sufficient buffer to its
physical liquidity.
41
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 3.2 FUNDING AND LIQUIDITY (CONTINUED)
Funding
The Bank’s funding strategy and risk appetite reflects the
Group’s business strategy, adjusted for the current economic
environment. Funding is managed to allow for various scenarios
that may impact BOQ’s funding position.
Funding mix ($billion)
48.1
10.0
6.8
48.2
10.4
6.8
50.3
12.0
5.9
31.3
31.0
32.4
Long term wholesale ($billion)
10.0
3.6
0.8
4.8
0.8
10.4
3.9
0.8
4.9
0.8
12.0
4.6
1.6
5.0
0.8
Aug 18
Feb 19
Aug 19
Additional tier 1 notes /
subordinated debt
Securitisation
Senior unsecured
Covered bond
Customer deposits ($billion)
31.3
2.0
2.6
10.2
31.0
2.2
2.6
10.0
32.4
2.3
2.7
11.2
16.5
16.2
16.2
Aug 18
Customer
deposits (1)
Feb 19
Aug 19
Aug 18
Feb 19
Aug 19
Short term
wholesale
Long term
wholesale (2)
Term deposits
Transaction accounts
Savings & investment
Mortgage offsets
(1) The classification of customer deposits is defined as all deposits excluding those from financial institutions as defined under APS 210 Liquidity.
(2) Foreign currency balances have been translated at end of day spot rates.
Wholesale funding
BOQ focuses on three main strategic elements in delivering its
wholesale funding 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. The Bank continues to focus on increasing longer dated,
stable funding sources whilst tactically reducing reliance on short
dated wholesale funding.
In FY19, customer deposit growth coupled with long term
wholesale funding growth supported both lending growth and
targeted runoff of short term wholesale funding, whilst also
strengthening the Bank’s liquidity position. The Bank’s deposit to
loan ratio of 70 per cent was one per cent up from FY18 (69 per
cent), driven by strong customer deposit growth in the Bank’s
retail channels.
42
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 3.2 FUNDING AND LIQUIDITY (CONTINUED)
Term funding issuance
During FY19, BOQ issued a combination of secured and unsecured
debt transactions in both domestic and offshore markets via
benchmark and non-benchmark deals to increase the long
term wholesale funding portfolio. The Bank’s benchmark sized
transactions included a $500 million senior unsecured deal for
three years, a €500 million (~AUD $811 million) covered bond for
five years, a $779 million REDS EHP (ABS) deal and a $1 billion
REDS (RMBS) capital relief transaction.
Major maturities ($m) (1) (2) (3) (4)
These transactions highlight BOQ’s ability to use a range of debt
programmes to access long term wholesale funding markets,
which provides diversification benefits whilst also allowing for
manageable refinancing towers over the next five years.
1,200
1,000
800
600
400
200
0
150
150
600
600
600
700
600
744
500
600
200
350
811
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
2020
2021
2022
2023
2024
2025
Additional Tier 1
Senior unsecured
Subordinated debt
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 notes at the scheduled call date is at BOQ’s option and is subject to obtaining prior written approval from APRA.
(4) Quarters are reflected in line with the Bank’s financial reporting year.
3.3 CAPITAL MANAGEMENT
Capital adequacy
$ million
CET1
Additional tier 1 capital
Total tier 2
Total capital base
Total RWA
CET1 ratio
Total capital adequacy ratio
As at
Aug-19
Feb-19
Aug-18
Aug-19
vs Feb-19
Aug-19
vs Aug-18
2,761
500
525
3,786
2,776
500
524
2,762
500
524
3,800
3,786
(1%)
-
-
-
-
-
-
-
30,533
29,978
29,669
2%
3%
9.04%
12.40%
9.26%
9.31%
(22bps)
(27bps)
12.68%
12.76%
(28bps)
(36bps)
43
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 3.3 CAPITAL MANAGEMENT (CONTINUED)
The Group’s CET1 ratio decreased by 22 basis points during 2H19
from 9.26 per cent to 9.04 per cent.
There was seven basis points of underlying capital consumption
in 2H19. Reduced earnings and a decline in the dividend
reinvestment plan participation, resulted in a higher net capital
outflow from the 2019 interim dividend payment.
Software expenditure utilised 12 basis points of capital during
2H19. This spend is consistent with the accelerated investment
spend in 2H19 that was flagged at the 1H19 results.
Fair value through other comprehensive income (FVOCI) reserves
were impacted by movements in credit spreads and the effects of
hedging on the underlying book during 2H19.
BOQ completed a $1 billion capital efficient RMBS transaction
during 2H19, which generated seven basis points of capital benefit.
Other items reduced CET1 ratio by three basis points primarily due
to an increase in deferred tax assets and non-cash items. Further
details on the non-cash items can be found in Section 5.1 (B) Non-
cash earnings reconciling items.
Common Equity Tier 1 2H19 vs 1H19
Underlying capital consumption of
7bps
0.50%
(0.23%)
(0.34%)
0.07%
(0.12%)
(0.07%)
(0.03%)
9.26%
9.04%
1H19
Cash
earnings
RWA growth
Dividend net
of DRP
Securitisation
Software
expenditure
FVOCI reserve
movements
Other
items
2H19
3.4 TAX EXPENSE
Tax expense arising on cash earnings for FY19 amounted to $145 million. This represented an effective tax rate of 31.2 per cent, which is
above the corporate tax rate of 30 per cent primarily due to the non-deductibility of interest payable on WCN and Capital Notes.
44
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 4. DIVISIONAL PERFORMANCE
4.1 RETAIL INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW
Retail Banking provides solutions to personal customers who may
choose to do their banking across multiple channels including
the Owner Managed and corporate branch network; third party
intermediaries and VMA distribution channels; online via digital,
social media, mobile banking; or on the phone.
The Retail bank had a challenging year in terms of growth, with
assets contracting in an environment of slowing credit growth,
intense competition and shifting customer preferences. While
the Bank has maintained prudent credit settings with stringent
serviceability requirements, changes have been made to manual
lending processes late in FY19 to improve customer experience
and reduce turnaround times. The investment in the Bank’s
lending capability is also delivering improved customer outcomes
and operational efficiencies.
The VMA ‘Reward Me’ mortgage offering continues to be well
received by customers and brokers, with the mortgage portfolio
now exceeding $2.5 billion. These home loan customers provide
geographic diversification from the Group’s traditional markets
in addition to broadening the customer profile to a younger
demographic.
Retail Banking continues to invest in its digital enablement
strategy with upgrades to both mobile banking and internet
banking platforms underway. Investment has also been
made in better understanding the needs of our customers
to ensure that future strategies are aligned to delivering on
customer expectations.
$ 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-19
Aug-18
Aug-19 vs
Aug-18
Aug-19
Feb-19
Aug-19 vs
Feb-19
432
63
495
(287)
208
(14)
194
(61)
133
458
67
525
(281)
244
(15)
229
(72)
157
(6%)
(6%)
(6%)
2%
(15%)
(7%)
(15%)
(15%)
(15%)
217
31
248
(146)
102
(4)
98
(31)
67
215
32
247
(141)
106
(10)
96
(30)
66
1%
(3%)
-
4%
(4%)
(60%)
2%
3%
2%
Cash earnings after tax of $133 million for FY19 was down 15 per
cent on FY18 in an environment of slowing credit growth, intense
competition, rising funding costs and shifting regulatory and
community expectations.
Net interest income of $432 million decreased $26 million or six
per cent over FY19. This was a reflection of lower asset balances
and margin compression driven by competition and increased
basis costs, whilst deposit margins were managed through growth
in the new fast track saver product which enabled less reliance on
the more expensive term deposit portfolio.
Non-interest income of $63 million for FY19 was $4 million or six
per cent lower than FY18. This reflects lower banking income as
customers continue to trend toward low or no fee products, as
well as the impact from the implementation of AASB 15.
Operating expenses of $287 million increased $6 million or
two per cent on FY18, reflecting an increase in business activity
to address risk and compliance requirements, the expansion
of the VMA digital channel and additional investment in the
customer experience.
Impairment expense of $14 million reduced $1 million or seven
per cent from FY18. This equates to six basis points of gross
loans and reflects the Bank’s robust underwriting standards and
collection practices.
45
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 4.1 RETAIL INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW (CONTINUED)
Key metrics
CASH EARNINGS BASIS
CTI
ASSET QUALITY
90dpd arrears
Impaired assets
Loan impairment expense / GLA
BALANCE SHEET
GLA
Housing
Other retail
CREDIT RWA
CUSTOMER DEPOSITS (1)
Term deposits
Mortgage offsets
Savings & investment
Transaction accounts
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
(%)
58.0
53.5
450bps
58.9
57.1
180bps
($ million)
($ million)
(bps)
210
67
6
148
59
6
($ million)
24,783
25,252
($ million)
24,717
25,170
42%
14%
-
(2%)
(2%)
($ million)
66
82
(21%)
210
67
3
177
54
8
19%
24%
(5bps)
24,783
24,717
66
24,996
24,922
(1%)
(1%)
74
(12%)
($ million)
8,664
8,841
(2%)
8,664
8,775
(1%)
($ million)
15,742
($ million)
($ million)
($ million)
($ million)
6,295
1,511
6,426
1,510
15,192
6,650
1,329
5,762
1,451
4%
(5%)
14%
12%
4%
15,742
6,295
1,511
6,426
1,510
15,312
6,711
1,455
5,712
1,434
3%
(6%)
4%
13%
5%
DEPOSIT TO LOAN RATIO
(%)
64
60
400bps
64
61
300bps
(1) Treasury managed deposits are included in the Bank’s Other operating segment.
46
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 4.2 BOQ BUSINESS INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW
customer acquisition with housing loans growing above system
at an annual rate of 14 per cent. This provides a good pipeline
of customers with potential commercial lending needs in the
future. BOQ Specialist focuses on very clearly defined niches
and has developed a distinct competitive advantage through
tailored consumer and commercial products and services to
assist professionals through their practicing life cycles.
BOQ Finance lending grew strongly in the period, with $667 million
or 15 per cent balance growth during the year. BOQ Finance
remained focused on its existing market proposition and grew
across multiple portfolios increasing diversification of product
mix. This business continues to grow year on year through
targeted broker relationships in the equipment finance business
and new structured programs.
BOQ Business includes BOQ branded commercial lending
activity, BOQ Finance and BOQ Specialist businesses. The division
provides tailored business banking solutions including commercial
lending, equipment finance and leasing, cashflow finance, foreign
exchange, interest rate hedging, transaction banking and deposit
solutions for commercial and specialist customers.
The BOQ Business division continued to deliver on its strategy
to grow in niche target segments in FY19, by providing a tailored
relationship offering to customers. Overall loan growth was
$1.4 billion in FY19. Queensland concentration for BOQ Business
lending was 42 per cent.
BOQ branded commercial loan growth was underpinned by
an ongoing focus on quality and appropriate return for risk.
Focus on the Bank’s niche segments of corporate healthcare
and retirement living, hospitality and tourism and agribusiness
continues to contribute to the diversification of the loan portfolio
by geography, industry and asset class.
BOQ Specialist achieved higher fundings compared to FY18, with
solid growth despite both the commercial and home lending
books maturing. Aggregate asset growth was $756 million.
The BOQ Specialist’s mortgage offering delivered strong new
$ 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-19
Aug-18
Aug-19 vs
Aug-18
Aug-19
Feb-19
Aug-19 vs
Feb-19
527
50
577
514
59
573
(242)
(228)
335
(60)
275
(86)
189
345
(26)
319
(100)
219
3%
(15%)
1%
6%
(3%)
131%
(14%)
(14%)
(14%)
266
24
290
(124)
166
(40)
126
(39)
87
261
26
287
(118)
169
(20)
149
(47)
102
2%
(8%)
1%
5%
(2%)
100%
(15%)
(17%)
(15%)
Cash earnings after tax of $189 million was $30 million lower than
FY18 due largely to higher loan impairment expense driven by
increased collective provisions.
operating expenses from the business. Non-interest income
generated by asset sales in equipment finance and financial
markets also reduced.
Net Interest Income of $527 million was $13 million or three per
cent higher than FY18. This was driven by lending growth of seven
per cent with the BOQ Specialist and BOQ Finance businesses
both performing strongly. Net interest margin reduced 13 basis
points over the year due to the changing mix of the portfolio,
higher costs and increased competition.
Non-interest income of $50 million was $9 million or 15 per cent
lower than FY18. The BOQ merchant offering was migrated to
a third party in return for a revenue share of new and ongoing
merchant income. This provides customers with improved
technology and ongoing investment whilst removing risk and
Operating expenses of $242 million increased by $14 million or
six per cent on FY18 due to increased technology services
resulting from the Bank’s transformation program and rising
compliance and employee costs associated with managing the
growing portfolio.
Impairment expense of $60 million increased $34 million on
FY18. The increase was attributable to the forward looking CP
model and support of the growth in the asset finance portfolio,
along with specific provisions related to a small number of large
exposures raised in 2H19.
47
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 4.2 BOQ BUSINESS INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW (CONTINUED)
Key metrics
CASH EARNINGS BASIS
CTI
ASSET QUALITY
90dpd arrears
Impaired assets
Loan impairment expense / GLA
BALANCE SHEET
GLA
Housing
Commercial and other
BOQ Finance
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
(%)
41.9
39.8
210bps
42.8
41.1
170bps
($ million)
($ million)
(bps)
102
130
28
113
104
13
(10%)
25%
15bps
102
130
38
110
98
19
(7%)
33%
19bps
($ million)
21,433
20,027
($ million)
($ million)
($ million)
5,930
10,241
5,262
5,336
10,096
4,595
7%
11%
1%
15%
21,433
20,783
5,930
10,241
5,262
5,623
10,262
4,898
CREDIT RWA
($ million)
17,291
16,317
6%
17,291
16,873
CUSTOMER DEPOSITS (1)
Term deposits
Mortgage offsets
Savings & investment
Transaction accounts
($ million)
8,293
8,004
($ million)
($ million)
($ million)
($ million)
1,512
838
4,755
1,188
1,739
671
4,453
1,141
4%
(13%)
25%
7%
4%
8,259
1,512
838
4,755
1,188
7,745
1,609
781
4,266
1,089
3%
5%
-
7%
2%
7%
(6%)
7%
11%
9%
DEPOSIT TO LOAN RATIO
(%)
39
40
(100bps)
39
37
200bps
(1) Treasury managed deposits are included in the Bank’s Other operating segment.
48
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 4.3 OTHER SEGMENT INCOME STATEMENT AND FINANCIAL PERFORMANCE REVIEW
Other includes Group Treasury, St Andrew’s Insurance and Group Head Office.
$ million
Net interest income
Non-interest income
Total income
Operating expenses
Underlying profit
Loan impairment expense
Profit before tax
Income tax expense
Cash loss after tax
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19 vs
Aug-18
Aug-19
Feb-19
Aug-19 vs
Aug-18
2
15
17
(21)
(4)
-
(4)
2
(2)
(7)
19
12
(18)
(6)
-
(6)
2
(4)
129%
(21%)
42%
17%
(33%)
-
(33%)
-
(50%)
2
8
10
(12)
(2)
-
(2)
1
(1)
-
7
7
(9)
(2)
-
(2)
1
(1)
-
14%
43%
33%
-
-
-
-
-
Other segment cash loss after tax was $2 million, driven
predominantly by lower non-interest income compared to FY18.
Non-interest income includes St Andrew’s insurance and trading
income. Contributing to this was St Andrew’s insurance income
deterioration (further information at Section 2.4 Insurance
overview), partly offset by higher trading income.
Operating expenses of $21 million increased by $3 million or 17
per cent on FY18, largely as a result of addressing regulatory and
compliance requirements for the St Andrew’s insurance business
in 2H19.
49
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5. APPENDICES
5.1 RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS
Cash earnings is used to present a clear view of BOQ’s underlying operating results. This excludes a number of items that introduce
volatility or one off distortions of the current year performance, and allows for a more effective comparison of BOQ’s performance
across reporting periods.
The main exclusions relate to:
• Regulatory/compliance costs ($6 million after tax) which include external costs and other related costs associated with the Royal
Commission, BEAR, Code of Banking Practice ,Comprehensive Credit Reporting, AML and other regulatory matters;
• Amortisation of acquisition fair value adjustments ($6 million after tax) arising from the historical acquisition of subsidiaries; and
• Hedge ineffectiveness ($8 million after tax) which represents earnings volatility from hedges that are not fully effective and create a
timing difference in reported profit. These hedges remain economically effective.
(A) RECONCILIATION OF CASH EARNINGS TO STATUTORY NET PROFIT AFTER TAX
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
$ million
Cash earnings after tax
Amortisation of acquisition fair value adjustments
Hedge ineffectiveness
Integration/transaction costs
Regulatory/compliance
Software changes
Legacy items
Statutory net profit after tax
(B) NON-CASH EARNINGS RECONCILING ITEMS
320
(6)
(8)
(1)
(6)
-
(1)
298
372
(7)
(3)
(1)
(9)
(11)
(5)
336
(14%)
(14%)
167%
-
(33%)
(100%)
(80%)
(11%)
153
(2)
(5)
(1)
(3)
-
-
142
Aug-19
vs Feb-19
(8%)
(50%)
67%
-
-
-
(100%)
167
(4)
(3)
-
(3)
-
(1)
156
(9%)
$ 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
Cash
earnings
Aug-19
961
128
1,089
(550)
539
(74)
465
(145)
320
VMA
-
16
16
(16)
-
-
-
-
-
Amortisation
of acquisition
fair value
adjustments
Hedge
ineffectiveness
Integration/
transaction
costs
Regulatory/
compliance
Legacy
items
Statutory
net profit
Aug-19
-
-
-
(7)
(7)
-
(7)
1
(6)
-
(11)
(11)
-
(11)
-
(11)
3
(8)
-
-
-
(1)
(1)
-
(1)
-
(1)
-
-
-
(9)
(9)
-
(9)
3
(6)
-
2
2
(4)
(2)
-
(2)
1
(1)
961
135
1,096
(587)
509
(74)
435
(137)
298
50
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.2 OPERATING CASH EXPENSES
Year End Performance
Half Year Performance
Aug-19
Aug-18
Aug-19
vs Aug-18
Aug-19
Feb-19
Aug-19
vs Feb-19
EMPLOYEE EXPENSES
Salaries
Superannuation contributions
Payroll tax
Employee share programs
Other
OCCUPANCY EXPENSES
Lease expense
Depreciation - fixed assets
Other
GENERAL EXPENSES
Marketing
Commissions to Owner Managed branches (OMB)
Communications and postage
Printing and stationery
Impairment
Processing costs
Other operating expenses
IT EXPENSES
Data processing
Amortisation - intangible assets
Depreciation - fixed assets
OTHER EXPENSES
Professional fees
Directors’ fees
Other
217
20
13
8
6
264
30
10
2
42
16
5
19
3
4
15
29
91
84
40
1
125
18
2
8
28
214
20
13
10
6
263
32
9
3
44
15
5
17
3
2
15
24
81
75
43
1
119
13
2
5
20
1%
-
-
(20%)
-
-
(6%)
11%
(33%)
(5%)
7%
-
12%
-
100%
-
21%
12%
12%
(7%)
-
5%
38%
-
60%
40%
109
10
6
4
3
132
15
5
1
21
9
3
10
1
2
7
15
47
44
21
-
65
12
1
4
17
108
10
7
4
3
132
15
5
1
21
7
2
9
2
2
8
14
44
40
19
1
60
6
1
4
11
1%
-
(14%)
-
-
-
-
-
-
-
29%
50%
11%
(50%)
-
(13%)
7%
7%
10%
11%
(100%)
8%
100%
-
-
55%
Total operating expenses
550
527
4%
282
268
5%
51
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.2 OPERATING CASH EXPENSES (CONTINUED)
Employee expenses
Employee expenses of $264 million increased by $1 million on
FY18. Flat employee expenses were driven by lower short term
incentives paid, including no Key Management Personnel receiving
an award under the Short Term Incentive plan. This was offset by
higher FTE to support regulatory and compliance programs and
targeted growth in BOQ Business.
Occupancy expenses
Occupancy expenses of $42 million decreased by $2 million or
five per cent on FY18, due to consolidation of office space which
offset increased depreciation on leasehold assets.
General expenses
General expenses of $91 million increased by $10 million or 12 per
cent on FY18 due to higher non-lending losses reflecting improved
remediation processes, and higher industry levies. In addition,
there were higher telecommunication costs during the transition
between data centre locations as part of the Bank’s infrastructure
modernisation program.
5.3 PROPERTY, PLANT & EQUIPMENT (CONSOLIDATED)
IT expenses
IT expenses of $125 million increased by $6 million or five per
cent on FY18. Data processing expenses increased by $9 million
driven by new technology services associated with the Bank’s
transformation programs, along with consultancy costs for data
collection to support compliance activity. This was offset by a $3
million reduction in amortisation as a result of accelerated
amortisation recognised in FY18.
Other expenses
Other expenses of $28 million increased by $8 million or 40
per cent on FY18. Professional fees increased by $5 million as
a result of activity to address compliance requirements and
support for divisional business strategy development. The
Bank’s insurance costs also increased by $2 million, in line with
a general trend of higher premiums across the industry.
$ million
COST
Balance as at 31 August 2018
Additions
Disposals
Transfers between categories
Balance as at 31 August 2019
DEPRECIATION AND LOSS ON DISPOSAL / IMPAIRMENT
Balance as at 31 August 2018
Depreciation for the year
Disposals
Balance as at 31 August 2019
Carrying amount as at 31 August 2018
Carrying amount as at 31 August 2019
Leasehold
improvements
$m
Plant
furniture and
equipment
$m
IT equipment
$m
Capital works
in progress
$m
Assets under
operating
lease
$m
82
3
(4)
1
82
43
8
(2)
49
39
33
33
1
(1)
-
33
24
2
-
26
9
7
34
-
-
-
34
30
1
-
31
4
3
1
4
-
(1)
4
-
-
-
-
1
4
16
5
(7)
-
14
12
5
(8)
9
4
5
Total
$m
166
13
(12)
-
167
109
16
(10)
115
57
52
52
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.4 CASH EPS CALCULATIONS
Basic EPS
Diluted EPS
Year End Performance
Half Year Performance
(cents)
(cents)
Aug-19
Aug-18
79.6
74.0
94.7
89.3
Aug-19
vs Aug-18
(16%)
(17%)
Aug-19
Feb-19
37.8
35.3
41.8
39.0
Aug-19
vs Feb-19
(10%)
(9%)
Reconciliation of cash earnings for EPS
Cash earnings available for ordinary
shareholders
Add: Convertible Preference Shares
dividend
Add: WCN
Add: Capital Notes
Cash diluted earnings available for ordinary
shareholders
Weighted average number of shares
(WANOS)
Basic WANOS
Add: Effect of award rights
Add: Effect of CPS
Add: Effect of WCN
Add: Effect of Capital Notes
Diluted WANOS for cash earnings EPS
($ million)
($ million)
($ million)
($ million)
($ million)
(million)
(million)
(million)
(million)
(million)
(million)
5.5
ISSUED CAPITAL
Ordinary shares
320
-
7
14
341
402
1
-
17
39
372
(14%)
153
167
(8%)
7
7
9
(100%)
-
56%
-
4
7
-
3
7
395
(14%)
164
177
393
2%
2
12
14
21
(50%)
(100%)
21%
86%
4%
404
1
-
17
39
461
399
2
-
16
38
455
459
442
-
33%
-
(7%)
1%
(50%)
-
6%
3%
1%
Movements during the year
Balance at the beginning of the year – fully paid
Dividend reinvestment plan (1)
Balance at the end of the year – fully paid
(1) Amounts taken up by shareholders as part of the dividend reinvestment plan:
•
•
28 per cent of the dividend paid on 14 November 2018, equating to $43 million; and
26 per cent of the dividend paid on 22 May 2019, equating to $35 million.
Consolidated
2019
Number
397,311,850
8,472,959
405,784,809
53
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.6 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS
$ 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
NIM - on average interest
earning assets
August 2019 (Full Year)
August 2018 (Full Year)
Average
balance
$m
Interest
$m
Average
rate
%
Interest
$m
Average
rate
%
Average
Rate
%
43,616
6,226
1,913
145
49,842
2,058
4.39
2.33
4.13
54
1,594
(215)
1,433
51,275
29,236
17,303
576
521
46,539
1,097
1.97
3.01
2.36
876
47,415
3,860
51,275
42,763
6,055
48,818
59
1,555
(220)
1,394
50,212
28,729
16,928
45,657
755
46,412
3,800
50,212
1,927
142
2,069
4.52
2.35
4.25
578
526
1,104
2.02
3.12
2.42
49,842
46,539
2,058
1,097
49,842
961
4.13
2.36
1.77
0.16
1.93
48,818
45,657
2,069
1,104
48,818
965
4.25
2.42
1.83
0.15
1.98
54
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.6 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS (CONTINUED)
$ 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
NIM - on average interest
earning assets
August 2019 (six month period)
February 2019 (six month period)
Average
balance
$m
Interest
$m
Average
rate
%
Interest
$m
Average
rate
%
Average
Rate
%
43,781
6,439
952
71
50,220
1,023
4.31
2.19
4.04
52
1,625
(224)
1,453
51,673
29,485
17,328
46,813
1,000
47,813
3,860
51,673
285
253
538
1.92
2.90
2.28
961
74
1,035
4.46
2.49
4.22
291
268
559
2.03
3.12
2.44
43,455
5,986
49,441
56
1,535
(207)
1,384
50,825
28,927
17,305
46,232
734
46,966
3,859
50,825
50,220
46,813
1,023
538
50,220
485
4.04
2.28
1.76
0.16
1.92
49,441
46,232
1,035
559
49,441
476
4.22
2.44
1.78
0.16
1.94
55
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.7 DISTRIBUTION FOOTPRINT
BOQ has evolved its Customer in Charge strategic pillar to support customers in engaging through the channel of their choice. This could
be directly through BOQ’s Owner Managed and corporate branches, a preferred broker (aligned to BOQ or VMA), via online channels such
as digital, social media and mobile banking, or on the phone.
Branch numbers reduced by 16 during 2019 as closures, conversions and portfolio mergers occurred. The franchise network remains
a key differentiator for BOQ and is pivotal to the Bank’s deposit raising capabilities. A new revenue share remuneration structure is on
track to be introduced early in the new financial year. This will better align outcomes for the Bank and Owner Managers, whilst being more
attractive to potential new franchisees.
In a market where many customers prefer using third party channels, BOQ has continued to build its broker presence during 2019 with 29
per cent of housing settlements being originated through the VMA and BOQ branded accredited brokers. The majority of these brokers
are domiciled outside of Queensland, which continues to accelerate the geographic diversification of the portfolio and provide deeper
access to the Sydney and Melbourne markets where BOQ has traditionally been under represented.
WA
12
6
583
554
89
47
NT
1
1
15
16
4
SA
145
266
201
AS AT 31 AUGUST 2019
QLD
34
58
688
791
240
296
7
NSW & ACT
10
18
1119
1458
124
372
VIC
9
10
633
65
95
CORPORATE
BRANCHES
572 BOQ BRANDED ATM’S
1311
104
78
OWNER MANAGED
BRANCHES
1033 REDI ATM’s
3201
BROKERS ACCREDITED
WITH BOQ
4446
BROKERS ACCREDITED
WITH VMA
56
7
TRANSACTION CENTRES
TAS
17
14
2
51
35
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 5.7 DISTRIBUTION FOOTPRINT (CONTINUED)
As at Aug-19
QLD
NSW / ACT
VIC
WA
NT
TAS
SA
Total
Corporate branches
OMB
Transaction centres
34
58
7
99
10
18
-
28
As at Aug-18
QLD
NSW / ACT
Corporate branches
OMB
Transaction centres
42
62
7
111
11
18
-
29
9
10
-
19
VIC
10
10
-
20
12
6
-
18
-
1
-
1
-
2
-
2
-
-
-
-
65
95
7
167
WA
NT
TAS
SA
Total
13
6
-
19
-
1
-
1
-
2
-
2
1
-
-
1
77
99
7
183
Corporate, Owner Managed Branches (OMB) & Transaction Centres
106
(3)
(6)
5
102
99
7
FY18
OMB
closures/
mergers
OMBs
converted
to corporate
branches
Corporate
branches
converted
to OMB
95
7
FY19
(13)
6
(5)
77
FY18
Corporate
closures
OMBs
converted
to corporate
branches
Corporate
branches
converted
to OMB
65
FY19
OMBs
Transaction centres
Corporate branches
5.8 CREDIT RATING
The Bank monitors rating agency developments closely. Entities in the Group are rated by Standard & Poor’s (S&P), Moody’s Investor
Service and Fitch Ratings. BOQ’s current debt ratings are shown below. There have been no changes to the credit ratings from FY18.
Rating Agency
S&P
Fitch
Moody’s
Short Term
Long Term
Outlook
A2
F2
P2
BBB+
A-
A3
Stable
Stable
Stable
5.9 REGULATORY DISCLOSURES
The APS 330 Public Disclosure capital disclosure template, regulatory capital reconciliation, LCR, NSFR (included in the relevant Pillar 3
disclosures document) and capital instrument disclosures are available at the regulatory disclosures section of the Bank’s website at the
following address: https://www.boq.com.au/regulatory_disclosures
57
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORTHighlights and strategy 15 | Group performance analysis 27 | Business settings 35 | Divisional performance 45 | Appendices 50 CONTENTS
59
62
63
Section 1
Remuneration Summary
Section 2
Key Management Personnel (KMP)
Section 3
Remuneration Outcomes
Dear Shareholder,
67
Section 4
Remuneration Strategy
& Structure
73
Section 6
Non-Executive Director
Remuneration
70
Section 5
Remuneration Governance
74
Section 7
Statutory Tables
Introduction
On behalf of the Board I have pleasure in presenting the 2019
Remuneration Report.
This Report is provided in an environment of some uncertainty
and considerable change for the sector as a whole. Regulatory,
Statutory and other industry requirements include the Sedgwick
Recommendations, BEAR, APRA’s draft Prudential Standard
CPS 511 Remuneration (CPS 511) and outcomes from the Hayne
Royal Commission. These are challenging our thinking about
fundamental remuneration structure and policy as we seek to
balance the interests of customers, shareholders, the community
and employees.
Over the past year we have again consulted widely with regulators,
customers, shareholders and their representatives, employees
and the community. Additionally we have met with regulators,
banks and their advisors outside of Australia. The feedback from
stakeholders and others continues to influence our remuneration
structure and policy.
In 2018 whilst we made some changes consistent with the BEAR
requirements, our remuneration structure was retained. In 2019
we refined and clarified several parts of the remuneration
framework but have refrained from any significant changes until
the latest regulatory requirements are better understood.
2019 Outcomes
Fixed increases across BOQ will on average be no greater than
inflation. This includes a 3% increase for employees covered by
our collective agreement. No KMP will receive an increase in
fixed remuneration as a result of the 2019 review.
The BOQ Short Term Incentive (STI) Plan has financial and
behavioural gateways and for 2019 the financial gateways have
not been met. The Board has not awarded any STI to KMP and
the most senior leaders of BOQ. The Board has also considered
the importance of our customer facing and support employees
to the continued systems, risk and control work being
undertaken by a number of our people. Having regard for this,
the Board has determined to use its discretion as provided under
the plan, and make an incentive pool available for select
employees. On average, individual awards will reduce by more
than 40% relative to the prior year.
The BOQ Long Term Incentive (LTI) Plans are awarded on the
basis of potential and retention. These have 3 and 4 year vesting
periods, are issued at face value, are hurdled for senior
executives and are subject to malus and clawback. The Board will
award KMP LTI in accordance with plan guidelines at 100% of
fixed remuneration with a 4 year vesting period.
The Board has explicitly considered risk events, behaviours and
outcomes with input from the Chief Risk Officer and Chair of the
Risk Committee. On balance, taking into account both positive
and negative outcomes together with cancellations and
forfeitures which occurred during the year, the Board has
determined no further adjustments will be made at this time.
Finally the Board will not be seeking any increase to the directors’
fee pool and is not proposing to increase individual directors’ fees.
Separately the Board has considered the external and internal
challenges facing BOQ over the next three years and the
importance of key senior employees to the significant
transformation required over this period. In this context the Board
has determined to offer conditional equity to select senior
employees with 50% vesting after eighteen months and the
remainder after three years. These awards will be subject to
continued employment and earnings growth or specific
transformation projects. The pool for this is capped at $5 million
and will not be offered to KMP including the Managing Director
and Chief Executive Officer (MD & CEO).
Governance
The principles by which remuneration is governed have not
changed in the 2019 year and are included in the body of the
report. We have been considering the impact of the APRA
proposed Prudential Standard CPS 511 on our remuneration
structures and believe if these remain in the final standard
changes will be necessary to our existing structure. Any
changes will be disclosed in future Remuneration Reports.
Conclusion
The BOQ Board remains committed to designing remuneration
structures which balance stakeholders’ interests in the short and
long term. In doing so we will ensure compliance with the
regulatory and legal obligations under which we operate.
In the current climate the Board has been very conscious of the
environment, stakeholders and regulators in determining
appropriate outcomes for the 2019 year. It is the Board’s view that
the remuneration outcomes for the 2019 year are appropriate.
This is my final report presented to you as Chair of the Human
Resources and Remuneration Committee (HRRC). I retire at the
2019 AGM after three terms and nearly 10 years with BOQ. It has
been a privilege to fulfill this role as a director and Chair of the
HRRC, and I have been very appreciative of the level of
shareholder advice and support for our remuneration process.
Thank you.
Yours sincerely,
David Willis
Chairman, BOQ HRRC
58
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT This Remuneration Report has been prepared for consideration by the Bank’s shareholders at the 2019 AGM. It outlines the overall
remuneration strategy, framework and practices adopted by the Consolidated Entity for the period 1 September 2018 to 31 August 2019
(FY19). It has been prepared in accordance with Section 300A of the Corporations Act 2001 and has been audited in accordance with
section 308(3C).
This report comprises the following sections:
• Section One: A summary of FY19 remuneration highlights and changes for FY20.
• Section Two: A list of the FY19 KMP including changes.
• Section Three: FY19 Remuneration Outcomes.
• Section Four: Remuneration Strategy and Structure.
• Section Five: Remuneration Governance policies and principles.
• Section Six: Non-Executive Directors’ remuneration.
• Section Seven: Statutory tables required by the Corporations Act.
SECTION 1. REMUNERATION SUMMARY
This section provides a summary of how remuneration worked at BOQ for the FY19 year covering both the structure in place and the
associated outcomes. Changes made during FY19 are highlighted.
1.1 REMUNERATION STRUCTURE IN PLACE FOR FY19 (SEE SECTION 4)
Remuneration at BOQ comprises three components being: Fixed Remuneration, STI and LTI. The STI and LTI together constitute Variable
Remuneration. Together Fixed and Variable components comprise Total Remuneration.
Figure 1 below illustrates the components of remuneration at the target/performing level and are expressed as a percentage of
Total Remuneration:
Figure 1 - Remuneration Mix (at Performing level)
Managing Director & CEO
Group Executive (Line)
34%
36%
16%
16%
14%
14%
34%
36%
Group Executive (Functional)
40%
10%
10%
40%
Fixed Remuneration
STI - Cash
STI - Deferred
LTI
In Figure 1 the LTI value has been presented at 100% of Fixed Remuneration. LTI grants are made within the range of 80% to 120%
of Fixed Remuneration.
Remuneration is awarded by way of cash and equity. Fixed Remuneration and a portion of the STI is delivered as cash with the
remaining STI and the full LTI awarded in equity and deferred to a future period.
Figure 2 below illustrates the delivery profile of the different components of KMP remuneration. It shows the time period over which
performance is measured, when each component is awarded and when the deferred elements vest. The deferred STI and LTI awards
for FY19 will not fully vest until after year end results are announced in October 2022 (FY23).
59
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT Figure 2 - Remuneration Components Delivery
Financial Year 19
Nov-19
Dec-19
Dec-20
Dec-21
Dec-22
Fixed Remuneration (Cash
and Superannuation)
STI Performance Year
50% paid in cash
LTI Granted December 2018
50% deferred
into equity
20% vests
15% vests
15% vests
LTI vests subject to
relative TSR & EPS
Performance
STI performance is assessed by way of financial and non-financial measures separately at the group and individual level under
four distinct pillars. These are set at the beginning of the financial year with KMP sharing the same group scorecard and individual
scorecards tailored to each KMP’s role. LTI vests subject to comparative financial measures, Total Shareholder Return (TSR) and
Earnings Per Share (EPS).
STI is subject to financial, risk and behaviour gateways. The financial gateway requires basic cash EPS to be above 90% of budget.
Where awarded, STI is paid 50% in cash and 50% in equity deferred over three years. 20% vests after one year, 15% after two years, and
15% after three years, subject to specified employment conditions.
Figure 3 below illustrates the four STI pillars, each of which contains a number of measures. Outcomes are calculated by scoring the
measures and multiplying the group and individual scores. Final awards are subject to Board discretion.
Figure 3 - KMP STI Pillars
Culture
25%
Customer
25%
Pillar
Culture
Examples of Measures
Employee engagement, diversity and risk management
Shareholder
25%
Strategy
25%
Shareholder
Financial measures e.g. NPAT, divisional expenditure
Customer
Customer Advocacy and Net Promoter Score (NPS)
Strategy
Implementation of Board approved strategy including divisional projects
LTI consists of annual equity grants, which vest at the end of four years subject to relative TSR (80%), relative EPS (20%) and continued
employment.
1.2 ACTUAL OUTCOMES FOR FY19 (SEE SECTION 3)
1.2.1 Fixed Remuneration
During FY19, Anthony Rose and Doug Snell were appointed to interim roles as Chief Executive Officer (CEO) and Group Executive, BOQ
Business respectively. For the period they held these roles, they received temporary increases in remuneration. In addition, Adam
McAnalen was appointed to the role of Chief Risk Officer. All three received fixed remuneration increases which were below that of their
predecessors. Permanent replacements have been subsequently appointed for both of the interim roles.
1.2.2 STI
EPS performance did not meet the financial gateway under the STI plan and the Board chose not to exercise its discretion to pay
incentives to KMP. As a result no KMP received an STI for FY19.
1.2.3 LTI
The 2015 grant of LTI was subject to relative TSR and EPS and was tested in FY19 with 16% of the grant vesting.
The Board has approved LTI grants to be made to KMP in FY20 at 100% of fixed remuneration with unchanged performance conditions.
The MD & CEO grant of 100% of fixed remuneration will be subject to shareholder approval at the 2019 AGM.
60
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 1.3 CHANGES MADE IN FY19 AND THOSE APPLYING FOR FY20
During 2019 the following changes were made to BOQ’s remuneration structure and policy:
1. Changes were made to STI plan measures to better align with BOQ’s strategic pillars (customer, shareholder, strategy and culture).
These changes were made bearing in mind the plan’s overarching financial gateway.
2. Grants of LTI made from FY19 onwards have a performance/vesting period of four years (previous grants were based on
performance/vesting periods of three years) which aligns with the BEAR legislation.
3. As part of the implementation of the BEAR legislation during FY19, the Board reviewed and updated the BOQ Executive Service
4.
Agreement (ESA).
BOQ is in the process of changing KMP notice periods, excluding the MD & CEO. These are being increased to six months (from three
months) following an assessment of market practice.
5. The LTI plan Good Leaver policies were updated to provide further clarity.
6. Implementation of a Non-Executive Director (NEDs) Fee Sacrificed Rights Plan (NED Plan) allowing NEDs to sacrifice a portion of
their Board fees to acquire BOQ shares. The equity under this plan is not subject to any conditions apart from a disposal restriction for
a minimum of three years.
7. The Bank has made continued progress towards implementing the Sedgwick Recommendations within its business. In addition, the
outcomes of the Banking Royal Commission and APRA’s draft Prudential Standard CPS 511 are being actively contemplated.
For the FY20 year the following changes are being implemented or considered:
1. George Frazis commenced with BOQ on 5 September 2019 as MD & CEO. The Board received independently sourced benchmarking,
and his remuneration package is consistent with that of the previous MD & CEO. This information was disclosed to the ASX on 6 June
2019 and is presented in Figure 4 below:
Figure 4 - MD & CEO Remuneration: FY20 Potential
4,550
1,300
975
975
$
S
D
N
A
S
U
O
H
T
3,770
1,300
585
585
1,300
1,300
LTI - Performance Award Rights (PARs)
STI - Deferred Shares
STI - Cash
Fixed Remuneration
1,300
1,300
Minimum
Performing
Maximum
2. Remuneration for KMP is independently benchmarked against both the external market and internal relativities. No KMP will receive an
increase in fixed remuneration as a result of the FY19 review. KMP have not received an increase to fixed remuneration since 2016.
3. The Board has considered the criticality of key senior employees to the changing operating environment and the transformation
challenge for the Bank over the next three years. In light of these factors the Board has determined to offer a Transformation
Incentive with the objective of retaining, aligning and rewarding select employees for achieving BOQ’s transformation strategy.
Grants will be subject to conditions including continued employment and earnings growth or specific transformation projects, with
vesting occurring after 18 months and three years. This plan will be capped at $5 million and offered to those senior employees below
KMP level who are considered critical talent and core to the implementation of the strategy. The MD & CEO and other KMP will not be
eligible to participate in the Transformation Incentive.
4. Following the Hayne Royal Commission and the release of draft CPS 511, the Board has consulted with advisers and regulators. Subject
to finalisation of the prudential standard it is the Board’s view that there are a number of changes which should be considered as part of
a redesign of BOQ variable remuneration. These changes will focus on both the STI and LTI plans as well as the overarching framework.
Further details of any changes will be provided in future Remuneration Reports.
61
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT
Remuneration Summary 59
| Key Management Personnel 62
| Remuneration Outcomes 63
| Remuneration Strategy & Structure 67
SECTION 2. KMP
This section outlines those directors and executives who are the focus of this report.
There were several changes to KMP over FY19. The table below identifies Directors and Group Executives who are KMP and sets out the
changes that have occurred in FY19 and up until the date of this report.
TABLE 1 - DIRECTORS AND GROUP EXECUTIVES
Directors (Executive and Non-Executive)
Senior Executives
Roger Davis
Patrick Allaway
Chairman (Non-executive)
Ceased as Chairman 17 October 2019
Will retire as a Director on 31 October
2019
Director (Non-executive)
Chair-Elect (Chair from 18 October 2019)
Appointed effective from 1 May 2019
Kathleen Bailey-Lord
Director (Non-executive)
Appointed effective from 1 May 2019
Bruce Carter
Director (Non-executive)
George Frazis
MD & CEO
Appointed effective from 5 September
2019
Richard Haire
Director (Non-executive)
John Lorimer
Director (Non-executive)
Warwick Negus
Director (Non-executive)
Karen Penrose
Director (Non-executive)
Anthony Rose
Chief Operating Officer from 1
September to 5 December 2018
Interim CEO from 6 December 2018 to 4
September 2019
Matthew Baxby
Chief Financial Officer
Peter Deans
Debra Eckersley
Adam McAnalen
Chief Risk Officer
Retired effective 31 May 2019
Group Executive, People and Culture
from 3 September 2018
Chief Risk Officer
from 1 June 2019
Lyn McGrath
Group Executive, Retail Banking
Peter Sarantzouklis
Group Executive, BOQ Business
from 12 August 2019
Doug Snell
Interim Group Executive, BOQ Business
from 21 December 2018 to 11 August 2019
Donna-Maree Vinci
Chief Digital and Information Officer
Group Executive, BOQ Business
Resigned 6 December and ceased in role
on 20 December 2018
Jon Sutton
MD & CEO
Resigned effective 5 December 2018
Brendan White
Michelle Tredenick
Director (Non-executive)
David Willis
Director (Non-executive)
In addition to the above table the following is relevant to KMP changes:
• Anthony Rose was not a BOQ director in the period that he was Interim CEO. Consistent with the previous permanent MD & CEO,
George Frazis is a director of BOQ. Upon his commencement, Anthony ceased being KMP and will leave BOQ on 31 December 2019.
• Adam McAnalen was not a KMP in his previous role as CEO of BOQ Finance prior to his permanent appointment as Chief Risk Officer.
• Doug Snell was not a KMP in his previous role of General Manager, BOQ Business prior to his appointment as Interim Group Executive,
BOQ Business. Upon the appointment of Peter Sarantzouklis, Doug moved back into his previous role and ceased to be KMP.
• Brendan White resigned on 6 December 2018 and ceased in the role of Group Executive, BOQ Business on 20 December 2018. His
notice period lasted until 6 March 2019.
• Peter Deans’ retirement was notified to the ASX on 8 March 2019 and he entered into a consultancy agreement effective from
his retirement on 31 May 2019 for a period of seven months to ensure continuity, provide transitional support and access to
organisational knowledge with respect to risk at BOQ.
• The Chief Operating Officer role was held vacant while Anthony Rose was Interim CEO.
• Matthew Baxby’s resignation as Chief Financial Officer was notified to the ASX on 20 June 2019 and he will remain with BOQ until
the end of October 2019.
• Roger Davis’ retirement as Chairman was announced on 29 May 2019 and is effective 17 October 2019. Patrick Allaway will assume
the chair role from 18 October 2019. Roger will retire from the Board on 31 October 2019.
• David Willis announced his retirement as a director and Chair of the HRRC on 8 August 2019 with effect from the 2019 AGM
on 10 December 2019. He will retain his role as a director of St Andrews Insurance Group.
• On 10 October 2019 it was announced that Ewen Stafford will be appointed to the role of Chief Financial Officer and Chief Operating
Officer. Ewen will commence with BOQ later in FY20.
62
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT SECTION 3. REMUNERATION OUTCOMES
This section provides further information concerning remuneration outcomes for the FY19 year.
3.1 LINKING PERFORMANCE & REWARD OUTCOMES – VARIABLE REMUNERATION
The Consolidated Entity’s financial performance is summarised in Table 2 below together with its relationship to the aggregate amount of
Short Term Incentive paid to KMP.
TABLE 2 - BOQ CONSOLIDATED ENTITY PERFORMANCE
5 Year Company Performance
Statutory net profit/(loss) after tax
Cash net profit after tax (NPAT) (1)
Cash Basic earnings per share (EPS) (1)
Cash cost to income ratio (CTI) (1)
Share price at balance sheet date
Total Shareholder Return (TSR) (1)
Value of Dividends paid
KMP STI Awarded ($m)
(1) Non-statutory measures are not subject to audit
2019
2018
2017
2016
2015
$298m
$320m
79.6c
50.5%
$9.17
-13.9%
$288m
-
$336m
$352m
$338m
$318m
$372m
$378m
$360m
$357m
94.7c
47.5%
$11.49
97.6c
95.6c
97.3c
46.6%
46.8%
46.0%
$12.59
$10.55
$12.67
-2.70%
26.5%
-10.7%
6.3%
$341m
$308m
$300m
$272m
$2.73
$4.02
$3.55
$3.73
Figure 5 - KMP STI Awarded in Comparison to NPAT
The below graph compares the total STI awarded to KMP with BOQ’s Cash NPAT over the past 5 years:
$
S
N
O
L
L
M
I
I
390
380
370
360
350
340
330
320
310
300
6
5
4
3
2
1
0
FY15
FY16
FY17
FY18
FY19
$
S
N
O
L
L
M
I
I
Cash NPAT
KMP STI Awarded
63
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT
3.2 FY19 STI OUTCOMES
Cash Basic EPS achieved for FY19 did not meet the financial gateway at 90% of budget. As a result no KMP were eligible to receive an
award under the STI Plan and the Board elected not to exercise its discretion in the award of STI for FY19.
Whilst no FY19 STI is payable, the Board reviewed each KMP’s performance in accordance with their STI measures. This included a review
of risk behaviours as well as performance against group and individual scorecards.
The table below provides outcomes against the group scorecard measures. Each measure is assessed individually and overall performance
is determined by the averaged outcome. For FY19 the overall performance against the Group Scorecard was below expectations.
TABLE 3 - SUMMARY OF GROUP PERFORMANCE OUTCOMES
Pillar
Weighting Measure
Outcome
NPS Ranking
Customer
25%
Customer Advocacy
Main Financial Institution (MFI) Ranking Improvement
Strategy
25%
Implementation of Board approved strategy
Shareholder 25%
NPAT
ROE
CTI
Loan Impairment Expense / Gross Loans & Advances (GLA)
Employee Engagement & Enablement
Culture
25%
Diversity & Inclusion
Risk Management
Scorecard outcomes for individual KMP were no higher than performing.
3.3 FY19 LTI OUTCOMES
3.3.1 FY19 LTI Awards Vesting
ACTUAL
MAX
TARGET
ACTUAL
MAX
TARGET
ACTUAL
MAX
TARGET
ACTUAL
MAX
TARGET
PARs awarded to KMP in 2015 were tested after year end results were announced in October 2018 consistent with plan terms.
The 2015 LTI grant had two performance hurdles being relative TSR with an 80% weighting and relative EPS with a 20% weighting. At the
date of vesting, qualifying KMP had to be employed, not serving out a notice period or subject to performance review due to any adverse
risk behaviours.
The statutory tables in Section 7 set out the detail of LTI awards vesting to individual qualifying KMP. The results of the testing is
presented in Table 4 below.
Vesting outcomes for the 2015 PARs grant are as follows:
TABLE 4 - LTI VESTING OUTCOMES
LTI VESTING OUTCOMES – 2015 Grant
Grant Date
Performance Period
Vesting Hurdle
Performance Outcome
15/12/2015
8 October 2015 to 4 October 2018
TSR ranking of at least
50th percentile
BOQ TSR achieved ranking of 34th percentile, which was
below the threshold level of performance, resulting in none of
the TSR tranche vesting
Relative EPS ranking of
at least 60th Percentile
BOQ EPS achieved ranking of 77th percentile resulting in
78%of the EPS tranche vesting
Overall 16% of the PARs granted in 2015 vested in 2018.
64
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 3.3 FY19 LTI OUTCOMES (CONTINUED)
Figure 6 shows the proportion of LTI which has vested over the past 5 years:
Figure 6 - Percentage of LTI vesting over the last five years
100%
100%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
65%
55%
16%
FY15
FY16
FY17
FY18
FY19
3.3.2 FY20 LTI (Granted December 2019)
Grants are made on the basis of potential and retention, following the FY19 Remuneration Review. The Board has determined that FY20
LTI grants will be awarded in December 2019.
Grants are subject to unchanged performance conditions, a four year vesting period and are made at face value. FY20 grants have been
made within guidance at 100% of Fixed Remuneration. Table 5 below summarises KMP LTI grants (PARs) proposed for FY20:
TABLE 5 - LTI GRANTS PROPOSED FOR FY20
Name
Position Title
George Frazis
Managing Director & CEO
Debra Eckersley
Group Executive, People & Culture
Adam McAnalen
Chief Risk Officer
Lyn McGrath
Group Executive, Retail Banking
Peter Sarantzouklis
Group Executive, BOQ Business
Donna-Maree Vinci
Chief Digital & Information Officer
FY20 Fixed
Remuneration
LTI% of Fixed
Remuneration
$1,300,000
$525,000
$600,000
$635,000
$690,000
$580,000
100%
100%
100%
100%
100%
100%
LTI Grant at
Face Value $
$1,300,000
$525,000
$600,000
$635,000
$690,000
$580,000
Awards for the MD & CEO are subject to shareholder approval at the 2019 AGM.
3.4 KMP TOTAL REWARD OUTCOMES FOR FY19 (NON-STATUTORY DISCLOSURE)
This section provides a summary of the total benefit earned by KMP with respect to performance over the FY19 period. As with previous
years this non-statutory table is provided to show what KMP actually received in FY19 including the value of any other benefits plus
deferred STI and LTI which has vested. It excludes unvested STI and LTI.
The table below includes a breakdown of the following components of KMP remuneration:
• FY19 fixed remuneration which includes base salary plus superannuation;
• The value of non-monetary and other short-term benefits provided in FY19; and
• Variable remuneration which comprises:
- The value of the cash component of the STI relating to performance in FY19 (Nil in FY19); and
- The value of previously granted deferred STI and LTI which vested. In addition we have provided the value of deferred STI or LTI
which lapsed or forfeited during the period.
65
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT Remuneration Summary 59
| Key Management Personnel 62
| Remuneration Outcomes 63
| Remuneration Strategy & Structure 67
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66
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT
3.5 TREATMENT FOR DEPARTING KMP
Departing KMP are subject to plan rules and Board policy in relation to any unvested equity.
Payments provided for all departing KMP were within the termination benefit limit under the Corporations Act and are made in
accordance with their individual employment agreements. Any restricted shares or PARs from previous years retained by departing KMP
are held on foot and remain subject to the clawback and malus provisions of the associated plan rules.
Upon his resignation Jon Sutton received a payment of 9 months fixed remuneration in lieu of notice and was not eligible for either the
FY19 STI award or LTI grant. He retained his restricted shares granted under the FY17 and FY18 STI and a portion of his PARs for testing at
future dates, with the remainder of his PARs being forfeited.
Brendan White was on leave for his three month notice period and was not eligible for either the FY19 STI award or LTI grant. Brendan
retained his restricted shares from the deferred FY17 STI and forfeited any entitlement to FY18 restricted shares along with all PARs.
Peter Deans forfeited his previously granted PARs but retained his FY17 and FY18 restricted shares for future vesting. Peter did not receive
any FY19 STI award or LTI grant.
SECTION 4. REMUNERATION STRATEGY & STRUCTURE
This section provides an overview of the remuneration strategy and framework covering employees within BOQ.
The Board’s remuneration strategy is supported by objectives that are common to all employees and are consistent with prior years,
these include:
• Attraction and retention of appropriately skilled and experienced employees through the provision of market competitive
remuneration;
• No distinction or difference in pay between genders for those that are performing the same role, other than where this is a
difference as a result of performance, skill and experience;
• Provide opportunities for executives and employees to earn incentives linked to achievement of BOQ’s objectives and performance,
performance of their business unit and their individual contribution within an appropriate risk control framework;
• Align executive and employee interests with those of the Bank’s stakeholders;
• Ensure that remuneration structures and their operation encourage behaviours that are consistent with the Bank’s values and
deliver good customer outcomes; and
• Provide remuneration structures that remain current and keep pace with the prevailing remuneration trends, practice
and governance frameworks.
4.1 FIXED REMUNERATION
Fixed remuneration, which comprises salary, superannuation and other benefits is determined based upon the following factors:
1. Benchmarking using companies exhibiting similar characteristics and dynamics as BOQ.
2. Comparative fixed remuneration within BOQ for roles at a similar level.
3. The competitive dynamics of the hire.
4. The candidate’s existing or most recent remuneration.
5. Any regulatory considerations concerning quantum.
6. Changing market trends and expectations.
67
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT 4.2 BOQ STI PLAN
Purpose
The STI Plan aims to reward KMP’s contribution to specific annual BOQ Group and individual performance
objectives.
Performance Period
BOQ’s financial year, i.e. the 12 months from 1 September to 31 August.
Award Opportunity -
expressed as a % of Fixed
Remuneration (FR)
Target/Performing: MD & CEO – 90%; Line KMP – 75%; Functional KMP – 53%
Exceptional/Maximum: MD & CEO – 150%; Line KMP – 140%; Functional KMP – 100%
Gateway
To be eligible for an STI award two gateway hurdles must be satisfied:
1. 90% of budgeted cash basic EPS
2. Behavioural and risk measures
If either gateway is not achieved the KMP will not be eligible for a STI regardless of performance under the
Group or Individual scorecards.
Pillars/Measures
The Group and individual KPI Score is based upon four equally weighted pillars aligned to BOQ’s strategy.
The same pillars are used for all participants with the exception of the Chief Risk Officer (CRO), these are:
• Customer (measures cover customer satisfaction and advocacy) – 25%
• Strategy (measures progress towards the Board’s yearly strategy) - 25%
• Shareholder (covers financial performance including NPAT, ROE, CTI and Loan Impairment Expense /
GLA) - 25%
• Culture (including both people and risk measures) – 25%
The Board approves financial and non-financial measures for the year. The Customer, Strategy and Culture
measures are designed to provide a focus on non-financial performance and to achieve the BOQ’s long
term objectives in areas such as customer satisfaction and advocacy, employee engagement and risk
management. The financial measures are designed to provide a direct link with shareholders, to encourage
prudent cost management and to ensure asset quality. The financial measures are supplemented by the
STI Plan’s financial gateway.
Individual scorecards include financial and non-financial measures specific to the participant’s division. For
the revenue generating divisions (Retail and BOQ Business) measures include divisional NPAT, CTI and Loan
Impairment Expense / GLA along with divisional customer satisfaction, strategic, employee engagement
and risk measures. For the functional division heads, scorecards include reporting, project, strategic, cost
management, and stakeholder specific measures. All scorecards include cultural, risk and compliance
measures.
For the CRO, objectives are set by the Board Risk Committee, due to the need to maintain the
independence of Adam McAnalen’s role. His Individual Scorecard does not include profitability or financial
measures.
Award Determination
Performance intervals are provided across a range of outcomes with Performing/Target being aligned
to the yearly budget. STI may be earned across the performance range up to a capped maximum at the
exceptional level of performance. HRRC and the Board approve KMP scorecard outcomes.
The amount of an STI award which a participant may receive is calculated by multiplying the Group KPI and
Individual KPI score for each KMP by using the following formula:
Participant’s Fixed Remuneration x STI Target Opportunity % x Group KPI Score % x Individual KPI Score %
= STI Award
The multiplicative design results in the Individual KPI score serving as a modifier on the Group KPI score and
can result in the STI award being scaled up to the maximum opportunity or down to zero.
The Board approves all KMP STI awards and retains overarching discretion to pay or withhold any
STI award. When reviewing STI awards the Board is able to view performance retrospectively having regard
for factors which may not have been foreseen when the measures were set at the beginning
of the financial year.
STI Awards are paid in cash where the value is $100,000 or less. Where the value of the STI award is above
$100,000, 50% is paid in cash and the remaining 50% is deferred over three years in the form of Restricted
Shares. The cash component of any STI award is generally paid in November following release of the full
year results. The Restricted Shares are subject to forfeiture under certain conditions and vest 40% after 1
year, 30% after 2 years and 30% after 3 years subject to specified employment conditions.
Board Discretion/Overlay
Delivery
68
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 4.3 BOQ LTI PLAN
Purpose
Instrument
The LTI Plan’s purpose is to align executive’s interests with stakeholders over the medium to long term.
LTI is granted to executives on the basis of retention and potential.
LTI is provided to KMP under the BOQ Group Award Rights Plan, which includes ability to grant:
• Deferred Award Rights (DARs), subject to service related vesting conditions (not currently offered to
KMP); and
• PARs, subject to both performance and service related vesting conditions.
Each PAR confers the right to one ordinary share in BOQ upon vesting. Shares delivered upon vesting are
either issued or procured on market at the Board’s discretion.
Opportunity
Grants to KMP of LTI are typically made in the range of 80% to 120% of Fixed Remuneration.
The number of PARs granted is determined by dividing the Participant’s dollar denominated grant by a
Volume Weighted Average Price (VWAP) of the five trading days after the announcement of BOQ’s full year
results. Accordingly PAR grants are made at face value.
The FY20 LTI allocation for George Frazis (MD & CEO) has a performance period starting on his
commencement date of 5 September 2019, with the VWAP calculation on the five trading days immediately
prior to that date.
PARs have a four year measurement/vesting period. The measurement period generally begins in October
following the announcement of BOQ’s full year results.
A participant must remain employed during the measurement period or be considered a good leaver for
PARs to vest. Vesting is also subject to the performance conditions:
• 80% of the PARs are subject to a relative TSR condition; and
• 20% of the PARs are subject to a relative cash EPS condition.
TSR is the measurement of the entire return (including dividends) a shareholder would obtain from holding
an entity’s securities over the period. The LTI plan uses relative TSR which compares the TSR of BOQ with
the performance of a Peer Group comprising the companies in the S&P/ASX 200 excluding resources, real
estate investment trusts, telecommunications (offshore headquartered), energy and utilities. Vesting of
the TSR tranche is tested independently and is subject to the following scale:
BOQ's TSR vs ASX 200 Peer Group
% of TSR Tranche Vesting
At or above 75th Percentile
100%
Between 50th and 75th Percentile
Pro-rata on a straight-line basis between 50% and 100%
At 50th Percentile
Below 50th Percentile
50%
0%
Cash EPS is the measure of financial performance of cash flow generated by the company on a per share
basis. It is calculated by dividing cash NPAT by the total number of ordinary shares on issue. BOQ’s EPS is
measured against a Peer Group comprising five Financial Services companies: Australia & New Zealand
Banking Group, Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corporation
and Bendigo & Adelaide Bank. Vesting of the EPS tranche is tested independently and is subject to the
following scale:
BOQ's EPS vs Financial Services Peer Group
% of EPS Tranche Vesting
At or above 90th Percentile
100%
Between 60th and 90th Percentile
Pro-rata on a straight-line basis between 50% and 100%
At 60th Percentile
Below 60th Percentile
50%
0%
There is no retesting of any of the vesting conditions and any PARs which do not vest on the testing date
lapse.
The Board has discretion to reduce the vesting of any LTI award to zero where the Board feels it would
be inappropriate for the PARs to vest such as where there has been a material misstatement of financial
results or serious misconduct by an individual.
The exercise price of each PAR is nil. Once the PARs vest, participants can exercise them at any time
before the 7th anniversary of the grant.
Participants may not dispose of PARs prior to exercise.
The Board has the discretion to specify any disposal restrictions to be applied to any shares received on
exercise of PARs. Any restrictions will be included in the offer provided to Participants. Current unvested
PARs on foot do not have any specific disposal restrictions as part of their offers apart from complying
with BOQ’s Securities Trading Policy.
Measurement Period
Vesting Conditions
Total Shareholder Return
Cash Earnings per share
Retesting
Board Discretion
Exercise
Disposal Restrictions
69
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT SECTION 5. REMUNERATION GOVERNANCE
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 were described in Section 4. In accordance with the HRRC Charter,
the remuneration policy was updated during the period, and was approved by the Board. The remuneration strategy and policy will be
reviewed regularly as developments and changes in the regulatory environment become known. This includes the outcomes of APRA’s
proposed prudential standard CPS 511.
A report was provided by the CRO in assessing executive performance in FY19. The Chair of the Risk Committee attended the HRRC
meeting to discuss the CRO’s report. This is supplemented by a meeting of the HRRC to which the full Risk Committee was invited when
reviewing and finalising STI amounts for FY19 and LTI grants for FY20.
5.1 REGULATORY CHANGES/IMPLEMENTATION
During FY19 further progress was made towards implementing the Sedgwick recommendations across BOQ and in particular at replacing
commission based sales plans with balanced scorecards incorporating a mixture of financial and non-financial measures. FY19 marked
the second year of the new scorecard across BOQ’s Corporate Branch network staff. Further work was undertaken during FY19 in
incorporating the principles of the Sedgwick recommendations within the BOQ Business Division by reviewing the plans covering these
employees with the first new balanced scorecard coming into effect on 1 September 2019. Further work will be undertaken in FY20
focusing on replacing the remaining commission plans within BOQ Business as well as moving the existing scorecards to a majority
weighting on non-financial performance. BOQ is on track to meet the Sedgwick deadline of 1 September 2020.
The BEAR legislation came into effect on 1 July 2019 and BOQ’s remuneration governance framework and policies were
updated accordingly.
Work will be undertaken during FY20 with regards to APRA’s draft prudential standard CPS 511. This may require banks to implement
changes to both remuneration design and remuneration governance. The Board and the HRRC are working with all stakeholders including
APRA to determine the appropriate changes.
5.2 REMUNERATION PRINCIPLES
The below principles govern how remuneration works at BOQ:
• Total reward is linked to performance and reflects stakeholder interests;
•
Fixed and total remuneration for each KMP is periodically benchmarked to the market to ensure it remains competitive;
• Key performance measures apply to all executives, covering both financial and non-financial measures;
• The Bank’s LTI is awarded on the basis of a VWAP (face value) and not a risk adjusted value (fair value);
• Total remuneration for KMP is targeted to achieve a balanced mix between fixed, short term and long term variable at risk
remuneration;
• Variable remuneration is capped and subject to deferral and/or clawback/malus of unvested deferred STI and LTI;
• Cash payments are not made to executives joining BOQ; and
• The Board has discretion over the outcomes under both the STI and LTI plans.
5.3 HRRC CHARTER
Under the Consolidated Entity’s HRRC charter, the Committee undertakes to conduct regular reviews and provide advice to the Board
with regard to the following:
•
•
•
•
•
•
Review the Consolidated Entity’s Remuneration Policy, at least on a biennial basis, to ensure compliance with the Consolidated Entity’s
objectives including the risk management framework and to reflect changes in the regulatory environment;
Reviewing and making recommendations to the Board on the design and terms of all employee equity plans;
Provide recommendations to the Board on remuneration, recruitment, succession, retention and termination policies for Group
Executives;
An annual review of the individual remuneration arrangements for Group Executives (MD & CEO and his direct reports), any other
Accountable Persons under BEAR and all other Responsible Persons (as defined by the APRA Prudential Standard CPS 520);
Reviewing and making recommendations to the Board on diversity at all levels below the Board and overseeing execution of the
Consolidated Entity’s People & Culture strategy; and
Recommending NED remuneration, including ensuring that the structure of NED remuneration is clearly distinguished from that of
Group Executives.
70
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67 Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 5.4 SECURITIES TRADING POLICY
The Securities Trading Policy regulates dealing by Directors, Employees and Contractors in BOQ securities. Under the policy, Prescribed
Persons (those employees with the authority, responsibility or a participatory role in the planning, directing or controlling of the activities
of the Consolidated Entity) are prohibited from trading in BOQ securities during certain blackout periods:
•
•
The period commencing 1 March and ending at the close of trading on the ASX one trading day after the announcement of BOQ’s half
year results;
The period commencing 1 September and ending at the close of trading on the ASX one trading day after the announcement of BOQ’s
full year results; or
•
Any other period of time nominated from time-to-time by the Chairman, the MD & CEO or the Chief Financial Officer of BOQ.
If a Director, Employee or Contractor has inside information about the BOQ Group, they must not trade in BOQ securities at any time
whilst in possession of such information, including outside of a Blackout period.
5.5 USE OF REMUNERATION CONSULTANTS
Where necessary, the Board seeks advice from independent experts and advisors, including remuneration consultants. The remuneration
consultants are engaged by the Chairman of 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 HRRC Chairman in accordance with the requirements of the Corporations Act.
During FY19 the HRRC engaged independent advisors from PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Egan Associates
to assist with the decision making process. None of the advisors provided a remuneration recommendation as defined under the
Corporations Act.
5.6 BOARD DISCRETION
Group Executives’ remuneration is determined by the remuneration strategy, policy and plans 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 are specific to the current and forward years and these 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 (as well as those employees classified as Responsible
Persons) that may impact their remuneration negatively or positively. Through this process, remuneration outcomes have been adjusted
both positively and negatively in previous 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 can impact 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;
• Whether the operating environment during the financial year was materially different than forecast;
• Comparison with the performance of the Consolidated Entity relative to its competitors;
• The emergence of any major positive or negative risk or reputational issues;
• The quality of the financial result as shown by its composition and consistency;
• Whether leadership behaviours and BOQ values have been consistently demonstrated throughout the year; and
• Any other matters that the Board and the HRRC deem to be relevant and which are not outlined above.
5.7 CLAWBACK AND MALUS
Clawback and malus provisions are set out in plan rules. In circumstances where it becomes evident 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 (malus) a pro-rated amount or the full value of any unvested awards or compel the participant to pay back
any award or vested equity (clawback).
The Board has reviewed the clawback and malus provisions of the incentive plan rules as part of its overarching review into risk and
consequence management and intends to broaden these policies in part to better align with BEAR and APRA’s CPS 511 standard.
71
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT 5.8 GOOD LEAVER AND CHANGE OF CONTROL PROVISIONS
Group Executives are not eligible to receive an STI or LTI if they resign or are terminated for misconduct or poor performance. However
the Board has discretion to consider a pro-rated retention based on circumstances where they meet the “good leaver” definition.
Commonly good leaver status is granted in the case of redundancy, retirement, Total and Permanent Disablement, death in service or the
divestment of a portion of BOQ. Under the STI Plan rules if a participant is deemed a good leaver, their award for the year will be pro-rated
and subject to the same performance testing as if their employment had not ended. Restricted Shares granted as deferred STI will be
forfeited if the employee ceases employment to work for a competitor or if they are terminated for misconduct. PARs granted under the
LTI Plan will be pro-rated based on the number of days elapsed in the vesting period with the remaining PARs being retained for testing at
the end of the original performance period. The Board retains the discretion to classify an employee as a Good Leaver and to determine
the treatment of their award including forfeiture in full in accordance with plan rules.
The Board retains discretion to determine the treatment of an STI award in the case of a Change of Control including the early payment
for the whole or part of a performance period. This covers both the cash STI award and the removal of the restrictions on deferred STI.
With respect to the LTI the Board’s policy is that a pro-rata number of PARs will vest depending on the proportion of the vesting period
elapsed and the likelihood (at the Board’s discretion) that the performance conditions would have been satisfied.
5.9 MINIMUM SHAREHOLDING REQUIREMENTS
NEDs are currently required to hold shares equal in value to one times their base fee within three years of their appointment to the Board
or within 12 months of the adoption of the policy (whichever is the latter).
There is currently no holding policy in place for executives as they receive equity under the deferred STI and LTI plans.
5.10 EXECUTIVE CONTRACTS
The remuneration and terms of Group Executives are formalised in their ESA. Each of these agreements provide for the payment of fixed
and performance-based variable remuneration, superannuation and other benefits such as statutory leave entitlements. During FY19
the Board updated the BOQ ESA to bring it in line with the BEAR legislation. As part of this the notice period for executives other than
the MD & CEO are being increased to 6 months. This change is being implemented for all current Group Executives and will be used for all
future contracts. Employment terms being implemented are governed by employment contracts as set out in the table below
TABLE 7 - EXECUTIVE CONTRACT TERMS
Name
Position Title
George Frazis
Donna-Maree Vinci
Managing Director & Chief
Executive Officer
Chief Digital & Information
Officer
Notice Period
by Executive
Employer Notice
Period
Termination Payments (includes Notice Periods)
6 months
9 months
9 months fixed remuneration in lieu of notice
3 months
3 months
6 months fixed remuneration
Lyn McGrath
Group Executive Retail Banking
3 months
3 months
3 months fixed remuneration in lieu of notice
Debra Eckersley
Group Executive People &
Culture
6 months
6 months
6 months fixed remuneration in lieu of notice
Adam McAnalen
Chief Risk Officer
6 months
6 months
6 months fixed remuneration in lieu of notice
Peter Sarantzouklis
Group Executive BOQ Business
6 months
6 months
6 months fixed remuneration in lieu of notice
Doug Snell
Interim Group Executive BOQ
Business
3 months
3 months
3 months fixed remuneration
Anthony Rose
Interim Chief Executive Officer
3 months
3 months
6 months fixed remuneration
Matthew Baxby
Chief Financial Officer
3 months
3 months
6 months fixed remuneration
Jon Sutton
Managing Director & Chief
Executive Officer
9 months
9 months
No benefit in addition to notice
Brendan White
Group Executive BOQ Business
3 months
3 months
6 months fixed remuneration
Peter Deans
Chief Risk Officer
3 months
3 months
3 months fixed remuneration
72
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67 Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT Remuneration Governance 70
|
Non-Executive Director Remuneration 73
|
Statutory Tables 74
REMUNERATION REPORT
SECTION 6. NON-EXECUTIVE DIRECTOR REMUNERATION
6.1 FEE POOL
NED 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. The Board will not be seeking any increase to the fee pool at the 2019 AGM.
6.2 REMUNERATION FRAMEWORK
Non-Executive Director fees are set to attract and retain individuals of appropriate calibre to the BOQ Board and Committees. Fees are
reviewed annually by the HRRC having regard to external benchmarking information provided by independent remuneration consultants,
principally to ensure market comparability.
The Chairman’s fees are determined independently to the fees of other Directors and are also based upon information provided
periodically by independent remuneration consultants. The Chairman is not present at any discussions relating to the determination of
their own remuneration.
In order to maintain independence and impartiality, NEDs do not receive any performance-related remuneration including share options
or rights subject to a performance condition in addition to their prescribed fees. NEDs are not provided with retirement benefits apart
from statutory superannuation.
6.3 NED FEES
In FY19 the Board implemented a new NEDs Fee Sacrifice Rights Plan, the details of which are provided in the table below:
Purpose
Value
Vesting Period
The plan’s purpose is to provide an opportunity for NEDs to increase their shareholding in a tax
effective manner. The Plan meets regulatory and tax requirements.
Directors can nominate at the beginning of the participation period, a percentage of their pre-tax fees
(up to 100%) to receive in rights to shares in BOQ.
Rights vest and convert to shares following the completion of the participation period. For FY19 the
participation period was the six months from 1 March to 31 August 2019. The rights do not have any
performance conditions in order to preserve the directors’ independence.
Disposal Restrictions
Shares received on exercise will be subject to a disposal restriction of at least three years or longer as
nominated by the director (up to a maximum of 15 years).
Cessation of Employment
If a participant ceases to be a NED prior to the rights vesting, they will retain a number of their rights
based on the period they were a NED. If employment ceases during the restriction period, any disposal
restrictions on the shares will be lifted subject to a minimum trading restriction of 12 months.
73
For the year ended 31 August 2019Annual Report 2019 6.3 NED FEES (CONTINUED)
The table below sets out the current Board and Committee membership fee structure (exclusive of superannuation). There are no
planned changes to fees for FY20.
TABLE 8 - DIRECTORS’ ANNUAL FEES (1)
Directors’ Annual Fees
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) (5)
Audit Committee
Risk Committee
Nomination & Governance Committee
Human Resources & Remuneration Committee
Investment Committee (6)
Due Diligence Committee (6)
Information Technology Committee
01/09/18 - 31/08/19
Chairman/Committee Chair $
01/09/18 - 31/08/19
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) Fees remain unchanged since FY14.
(2) Directors receive one fee for serving on Bank and subsidiary Committees. A separate fee is received for serving on St Andrew’s Board.
(3) The Chairman receives no additional remuneration for involvement with Committees.
(4) David Willis is also a member of the St Andrew’s Board of Directors.
(5) This fee is payable to St Andrews’ directors who are also BOQ directors. Different fees are payable to other St Andrews’ NEDs.
(6) Per meeting.
SECTION 7. STATUTORY TABLES
7.1 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.
74
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT s
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(
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT
7.2 EQUITY HELD BY GROUP EXECUTIVES
The movement during FY19 in the number of rights over ordinary shares held by each Group Executive as part of their remuneration, are as follows:
TABLE 11 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019
Movements during the 2019
Financial Year
Share
Price at
Grant
Date
$
Balance
at 1 Sep
2018
Other (2) Granted (3) Exercised
Lapsed
Balance at
31 Aug
2019 (3) (4)
Vested
during the
Year (5)
(%)
Group (1)
Executive
Current
Type
Grant Date
6,931
37,263
-
Matthew Baxby
2015 PARs
15/12/2015
13.02
44,194
2016 PARs
23/12/2016
11.95
54,399
Restricted Shares 23/12/2016
11.95
10,653
2017 PARs
13/12/2017
12.71
50,002
Restricted Shares
13/12/2017
12.71
19,085
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
Debra Eckersley
2018 PARs
11/12/2018
Adam McAnalen
2016 PARs
23/12/2016
2016 DARs
23/12/2016
2017 PARs
13/12/2017
2017 DARs
2018 PARs
13/12/2017
11/12/2018
2018 DARs
11/12/2018
9.74
9.74
9.74
11.95
11.95
12.71
12.71
9.74
9.74
Lyn McGrath
Restricted Shares
17/10/2018
10.56
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
9.74
9.74
-
-
-
-
-
-
-
-
-
-
-
-
Anthony Rose
2015 PARs
15/12/2015
13.02
50,843
Donna-Maree
Vinci
2016 PARs
23/12/2016
11.95
58,932
Restricted Shares 23/12/2016
11.95
8,500
2017 PARs
13/12/2017
12.71
54,200
Restricted Shares
13/12/2017
12.71
15,649
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
9.74
9.74
-
-
2015 PARs
15/12/2015
13.02
44,585
2016 PARs
29/02/2016
10.55
52,076
2016 PARs
23/12/2016
Restricted Shares 23/12/2016
11.95
11.95
51,679
7,707
2017 PARs
13/12/2017
12.71
44,276
Restricted Shares
13/12/2017
12.71
13,932
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
9.74
9.74
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
61,695
17,897
49,450
9,067
1,814
7,634
3,054
10,361
3,768
-
-
-
-
-
-
-
10,653
-
9,542
-
-
-
-
-
-
-
-
-
56,068
51,460
59,811
14,129
-
-
-
-
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-
-
-
-
-
-
-
-
-
-
-
-
54,399
-
50,002
9,543
61,695
17,897
49,450
9,067
1,814
7,634
3,054
10,361
3,768
4,608
59,811
14,129
-
-
-
-
-
66,876
15,542
-
-
-
-
-
-
57,362
14,129
7,974
42,869
-
-
8,500
-
7,824
-
-
-
-
-
-
-
-
6,993
37,592
8,168
43,908
-
7,707
-
6,966
-
-
-
-
-
-
-
-
58,932
-
54,200
7,825
66,876
15,542
-
-
51,679
-
44,276
6,966
57,362
14,129
-
-
-
-
-
-
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-
-
-
-
-
-
-
-
-
-
16%
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50%
0%
50%
0%
0%
0%
0%
0%
0%
0%
0%
0%
92%
0%
0%
16%
0%
50%
0%
50%
0%
0%
16%
16%
0%
50%
0%
50%
0%
0%
(1) Group Executives with nil shareholding movements while KMP have been excluded from the table above.
(2) Other is the balance at the date an executive became KMP. Adam McAnalen was appointed as an executive on 1 June 2019.
(3) This represents the maximum number of award rights that may vest to each Executive.
(4) Balance amounts as at 31 August 2019 are unvested and not yet exercisable.
(5) Percentage of initial rights granted.
77
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT
7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 11 - MOVEMENT IN RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019 (CONTINUED)
Group Executive (1) Type
Grant Date
Movements during the 2019
Financial Year
Share
Price at
Grant
Date
$
Balance
at 1 Sep
2018
Opening
Balance (2) Granted (3) Exercised
Lapsed
Balance
at
31 Aug
2019 (3) (4)
Vested
during the
Year (5)
(%)
16%
0%
50%
0%
50%
0%
16%
0%
50%
0%
50%
0%
0%
16%
0%
50%
0%
50%
Former
Jon Sutton
2015 PARs
2016 PARs
15/12/2015
13.02
97,774
23/12/2016
11.95
117,865
Restricted shares 23/12/2016
2017 PARs
13/12/2017
Restricted shares
13/12/2017
Restricted shares 05/12/2018
11.95
12.71
12.71
9.74
22,667
99,239
45,803
-
-
-
-
-
-
-
-
-
-
15,335
82,439
-
117,865
22,667
-
-
-
-
-
77,547
21,692
22,901
-
-
22,902
44,741
-
-
44,741
-
Peter Deans
2015 PARs
15/12/2015
13.02
52,798
2016 PARs
23/12/2016
Restricted shares 23/12/2016
2017 PARs
13/12/2017
Restricted shares
13/12/2017
2018 PARs
11/12/2018
Restricted shares
11/12/2018
11.95
11.95
12.71
12.71
9.74
9.74
61,199
8,500
51,528
16,031
-
-
Brendan White
2015 PARs
15/12/2015
13.02
50,061
2016 PARs
23/12/2016
11.95
58,026
Restricted shares 23/12/2016
11.95
10,767
2017 PARs
13/12/2017
12.71
52,673
Restricted shares
13/12/2017
12.71
20,611
-
-
-
-
-
-
-
-
-
-
8,281
44,517
-
61,199
8,500
-
-
51,528
-
-
-
-
8,015
-
8,016
-
-
60,400
15,542
-
-
60,400
-
-
15,542
-
-
-
-
-
-
-
-
-
-
7,852
42,209
-
58,026
10,767
-
-
52,673
-
-
-
-
10,305
-
10,306
(1) Group Executives with nil shareholding movements while KMP have been excluded from the table above.
(2) Opening balance is the balance at the date an executive became KMP. Adam McAnalen was appointed as an executive on 1 June 2019.
(3) This represents the maximum number of award rights that may vest to each Executive.
(4) Balance amounts as at 31 August 2019 are unvested and not yet exercisable.
(5) Percentage of initial rights granted.
78
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 7.2 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 12 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant
Date (1)
$
Exercise Date
Share Price
at Exercise
Date (2)
$
Value at
Exercise
Date (3)
$
Expiry /
Lapsing
Date
Group
Executive
Current
Matthew Baxby
2013 PARs
2013 DARs
16/12/2013
16/12/2013
7.63
10.38
344,433
24/10/2016
52,720
30/12/2014
31/12/2015
27/01/2017
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
6.13
11.70
267,041
29/10/2017
266,982
16/12/2015
2015 PARs
15/12/2015
7.67
338,968
16/04/2019
Restricted Shares
15/12/2015
13.02
239,334
15/12/2016
16/12/2016
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
2017 PARs
13/12/2017
Restricted Shares
13/12/2017
2018 PARs
11/12/2018
6.80
11.95
7.14
13.10
4.91
Restricted Shares
11/12/2018
10.62
190,066
250,014
30/04/2019
8.89
84,828
16/12/2027
15/12/2017
369,913
-
254,607
15/12/2017
30/04/2019
357,014
-
302,922
242,800
-
-
-
53,997
16/01/2019
27,483
22/12/2016
19/12/2017
13/12/2018
61,656
-
41,529
19/12/2017
13/12/2018
54,507
-
42,178
13/12/2018
50,873
30,935
-
-
611,702
30/04/2019
15/08/2019
293,672
150,050
-
-
410,036
21/10/2016
62,757
8/01/2015
26/02/2016
9/01/2017
Debra Eckersley
2018 PARs
Adam McAnalen 2015 PARs
2015 DARs
11/12/2018
15/12/2015
15/12/2015
2016 PARs
2016 DARs
2017 PARs
2017 DARs
2018 PARs
2018 DARs
23/12/2016
23/12/2016
13/12/2017
13/12/2017
11/12/2018
11/12/2018
Lyn McGrath
Restricted Shares
17/10/2018
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
Anthony Rose
2013 PARs
2013 DARs
16/12/2013
16/12/2013
4.91
7.67
11.71
6.80
11.45
7.14
11.05
4.91
8.21
10.91
4.91
10.62
7.63
10.38
(1) Represents rights held at 1 September 2018 or granted during FY19.
(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.
11.20
12.20
13.94
12.21
13.47
13.31
11.50
8.99
11.50
12.61
-
12.61
8.89
-
326,603
16/12/2018
12,383
16/12/2018
21,231
16/12/2018
31,026
16/12/2018
322,741
16/12/2019
151,854
16/12/2024
131,215
16/12/2024
62,310
16/12/2020
105,697
16/12/2025
115,899
16/12/2025
-
16/12/2021
134,334
16/12/2026
94,705
16/12/2026
-
13/12/2022
-
-
-
10.34
12.00
12.66
9.56
-
12.66
9.56
-
9.56
-
-
8.89
8.85
-
-
11.14
11.94
10.55
12.40
-
-
-
11/12/2025
11/12/2028
11/12/2025
11,426
16/12/2020
5,640
16/12/2020
8,913
16/12/2020
11,214
16/12/2020
-
16/12/2021
9,179
23/12/2021
10,401
23/12/2021
-
13/12/2022
7,294
13/12/2022
-
-
11/12/2025
11/12/2025
348,746
17/10/2028
108,244
17/10/2028
-
-
11/12/2025
11/12/2028
386,736
16/12/2018
14,435
16/12/2018
19,127
16/12/2018
37,498
16/12/2018
79
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT 7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 12 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant
Date (1)
$
Exercise Date
Share Price
at Exercise
Date (2)
$
Value at
Exercise
Date (3)
$
Expiry /
Lapsing
Date
2014 PARs
16/12/2014
6.13
317,902
27/10/2017
13.31
379,641
16/12/2019
Group
Executive
Current
Anthony Rose
(continued)
Restricted Shares
16/12/2014
11.70
249,982
16/12/2015
2015 PARs
15/12/2015
Restricted Shares
15/12/2015
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
2017 PARs
13/12/2017
Restricted Shares
13/12/2017
2018 PARs
11/12/2018
7.67
13.02
6.80
11.95
7.14
13.10
4.91
Restricted Shares
11/12/2018
10.62
165,056
Doug Snell
2015 PARs
2015 DARs
15/12/2015
15/12/2015
7.67
11.71
65,993
24/04/2019
54,955
22/12/2016
16/12/2016
389,966
30/04/2019
239,334
15/12/2016
15/12/2017
400,738
-
203,150
15/12/2017
30/04/2019
386,988
-
205,002
30/04/2019
328,361
-
-
21/12/2017
20/12/2018
67,816
-
62,288
21/12/2017
20/12/2018
65,410
-
59,051
20/12/2018
50,873
54,137
-
-
27/07/2017
399,423
1/05/2019
351,417
-
184,185
15/12/2017
30/04/2019
316,131
-
182,509
30/04/2019
281,647
-
-
13.31
11.50
8.89
11.50
12.61
-
12.61
8.89
-
8.89
-
-
9.42
12.00
12.67
9.42
-
12.67
9.42
-
9.42
-
-
142,191
16/12/2024
122,855
16/12/2024
70,889
16/12/2020
105,697
16/12/2025
115,899
16/12/2025
-
16/12/2021
107,185
16/12/2026
75,565
16/12/2026
-
13/12/2022
69,555
16/12/2027
-
-
11/12/2025
11/12/2028
12,708
16/12/2020
11,280
16/12/2020
17,827
16/12/2020
22,099
16/12/2020
-
16/12/2021
13,785
23/12/2021
15,373
23/12/2021
-
13/12/2022
10,070
13/12/2022
-
-
11/12/2025
11/12/2025
11.33
12.20
8.88
-
12.61
8.89
-
8.89
-
-
71,345
16/12/2025
76,811
16/12/2025
72,532
16/12/2020
-
16/12/2021
97,173
16/12/2026
68,515
16/12/2026
-
13/12/2022
61,928
16/12/2027
-
-
11/12/2025
11/12/2028
2016 PARs
2016 DARs
2017 PARs
2017 DARs
2018 PARs
2018 DARs
2015 PARs
23/12/2016
23/12/2016
13/12/2017
13/12/2017
11/12/2018
11/12/2018
15/12/2015
6.80
11.45
7.14
11.05
4.91
8.21
7.67
Donna-Maree
Vinci
2016 PARs
2016 PARs
29/02/2016
23/12/2016
Restricted Shares
23/12/2016
2017 PARs
13/12/2017
Restricted Shares
13/12/2017
2018 PARs
11/12/2018
7.67
6.80
11.95
7.14
13.10
4.91
Restricted Shares
11/12/2018
10.62
150,050
(1) Represents rights held at 1 September 2018 or granted during FY19.
(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.
80
Restricted Shares
15/12/2015
13.02
163,961
6/12/2016
341,967
1/05/2019
8.88
62,098
16/12/2020
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 12 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date (1)
$
Exercise Date
Share Price
at Exercise
Date (2)
$
Value at
Exercise
Date (3)
$
Expiry /
Lapsing
Date
Group
Executive
Former
Jon Sutton
2013 PARs
16/12/2013
7.63
459,242
24/10/2016
2013 DARs
16/12/2013
10.38
93,711
02/01/2015
18/12/2015
22/12/2016
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
6.13
11.70
635,810
27/10/2017
388,335
16/12/2015
16/12/2016
2015 PARs
15/12/2015
7.67
749,927
31/01/2019
Restricted Shares
15/12/2015
13.02
611,055
15/12/2016
15/12/2017
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
6.80
11.95
801,482
-
541,729
15/12/2017
2017 PARs
13/12/2017
7.14
708,566
-
31/01/2019
11.20
12.20
13.55
12.00
13.31
13.31
11.50
10.17
11.50
12.61
-
12.61
10.17
-
435,478
16/12/2018
22,021
16/12/2018
36,693
16/12/2018
54,180
16/12/2018
759,282
16/12/2019
220,879
16/12/2024
190,854
16/12/2024
155,957
16/12/2020
269,859
16/12/2025
295,906
16/12/2025
-
16/12/2021
285,818
16/12/2026
230,523
16/12/2026
-
13/12/2022
600,019
31/01/2019
10.17
232,903
16/12/2027
Restricted Shares
13/12/2017
Restricted Shares 05/12/2018
Peter Deans
2013 PARs
2013 DARs
16/12/2013
16/12/2013
13.10
10.62
7.63
10.38
475,149
-
393,639
24/10/2016
60,246
28/01/2015
18/12/2015
27/12/2016
15/12/2017
416,153
-
203,150
15/12/2017
10/12/2018
367,910
-
210,006
10/12/2018
296,564
-
-
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
6.13
11.70
330,622
28/10/2017
242,705
16/12/2015
2015 PARs
15/12/2015
7.67
404,961
14/01/2019
Restricted Shares
15/12/2015
13.02
239,334
15/12/2016
16/12/2016
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
2017 PARs
13/12/2017
Restricted Shares
13/12/2017
2018 PARs
11/12/2018
6.80
11.95
7.14
13.10
4.91
Restricted Shares
11/12/2018
10.62
165,056
(1) Represents rights held at 1 September 2018 or granted during FY19.
(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.
-
11.20
12.37
13.55
11.95
13.31
13.31
11.50
10.27
11.50
12.61
-
12.61
9.56
-
9.56
-
-
-
05/12/2028
373,262
16/12/2018
14,349
16/12/2018
23,591
16/12/2018
34,691
16/12/2018
394,828
16/12/2019
138,051
16/12/2024
119,278
16/12/2024
85,046
16/12/2020
105,697
16/12/2025
115,899
16/12/2025
-
16/12/2021
107,185
16/12/2026
81,260
16/12/2026
-
13/12/2022
76,623
16/12/2027
-
-
11/12/2025
11/12/2028
81
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT 7.2 EQUITY HELD BY GROUP EXECUTIVES (CONTINUED)
TABLE 12 - VALUE OF RIGHTS HELD BY GROUP EXECUTIVES DURING THE FINANCIAL YEAR 2019 (CONTINUED)
Grant
Grant Date
Fair Value
per Right at
Grant Date
$
Value at
Grant Date (1)
$
Exercise Date
Share Price
at Exercise
Date (2)
$
Value at
Exercise
Date (3)
$
Expiry /
Lapsing
Date
Group
Executive
Former
Brendan White
2013 PARs
2013 DARs
16/12/2013
16/12/2013
7.63
10.38
393,639
24/10/2016
60,246
23/12/2014
18/12/2015
05/04/2017
2014 PARs
16/12/2014
Restricted Shares
16/12/2014
6.13
11.70
305,188
02/11/2017
330,080
16/12/2015
2015 PARs
15/12/2015
7.67
383,968
08/01/2019
Restricted Shares
15/12/2015
13.02
310,618
15/12/2016
16/12/2016
2016 PARs
23/12/2016
Restricted Shares
23/12/2016
2017 PARs
13/12/2017
Restricted Shares
13/12/2017
15/12/2017
394,577
-
257,319
15/12/2017
30/04/2019
376,085
-
270,004
30/04/2019
6.80
11.95
7.14
13.10
(1) Represents rights held at 1 September 2018 or granted during FY19.
(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.
11.20
12.08
13.55
12.12
12.49
13.31
11.50
9.97
11.50
12.61
-
12.61
8.89
-
8.89
373,262
16/12/2018
14,013
16/12/2018
23,591
16/12/2018
35,184
16/12/2018
341,864
16/12/2019
187,751
16/12/2024
162,219
16/12/2024
78,284
16/12/2020
137,184
16/12/2025
150,412
16/12/2025
-
16/12/2021
135,759
16/12/2026
95,719
16/12/2026
-
13/12/2022
91,611
16/12/2027
82
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 7.3 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)
Directors - Current
Roger Davis
Patrick Allaway
Kathleen Bailey-Lord
Bruce Carter
Richard Haire
John Lorimer
Warwick Negus
Karen Penrose
Michelle Tredenick
David Willis
Executive Director - Former
Jon Sutton
Executives - Current
Matthew Baxby
Adam McAnalen (3)
Lyn McGrath
Anthony Rose
Donna-Maree Vinci
Executives - Former
Peter Deans
Brendan White
Held at
1 September
2018
Purchases /
(Sales)
Received on
Exercise of
Award Rights
/ Restricted
Shares
Held at
31 August
2019
18,043
-
-
-
17,503
16,603
17,000
15,000
13,591
15,635
11,932
177,616
30,000
3,132
14,909 (2)
-
-
-
-
-
88
-
-
-
-
-
-
-
-
-
-
-
-
105,310
(72,582)
27,126
39,901
-
-
20,299
-
-
-
-
34,026
3,330
(30,281)
-
-
51,460
24,298
29,834
24,796
7,852
18,043
30,000
3,132
32,412
16,603
17,000
15,000
13,591
15,635
12,020
n/a
59,854
39,901
51,460
24,298
50,133
n/a
n/a
(1) Directors and Group executives with nil shareholding balances as at 31 August 2019 have been excluded from the table above.
(2) Rights granted under Non-Executive Director Fee Sacrifice Rights Plan and vest on 2 September 2019.
(3) Opening balance as at 1 June 2019.
83
Remuneration Governance 70 | Non-Executive Director Remuneration 73 | Statutory Tables 74Annual Report 2019For the year ended 31 August 2019REMUNERATION REPORT 7.4 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 FY19.
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
Debra Eckersley (1)
Doug Snell (2)
Executive - Former
Brendan White
Other Related Parties
Richard Haire related parties
Other Related Parties - Former
Balance at
1 September 2018
$
Interest charged
during the year
$
Balance at
31 August 2019
$
Highest balance during
the year
$
1,106,608
-
-
45,720
4,869
6,683
789,747
19,230
1,179,029
350,000
n/a
n/a
1,833,252
351,304
283,717
793,295
191,000
8,428
186,543
191,728
Jon Sutton related parties
1,269,422
12,534
n/a
1,269,992
(1) Debra Eckersley’s account was opened during the financial year on 11 April 2019.
(2) Doug Snell was appointed Interim Group Executive, BOQ Business on 21 December 2018.
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
Executives - Former
Other Related Parties
Other Related Parties - Former
Balance at
1 September 2018
$
Interest charged
during the year
$
Balance at
31 August 2019
$
Number in group at 31
August 2019
#
1,139,156
789,747
191,000
1,269,422
59,594
19,230
8,428
12,534
1,536,789
n/a
186,543
n/a
3
-
1
-
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.
On 28 December 2017, the Bank issued 3,500,000 million Capital Notes (1) at a price of $100 per note.
Details of those notes issued to BOQ Directors are set out below:
Roger Davis
David Willis
Roger Davis
Roger Davis related parties
Total
(1)
Capital notes are classified as non-current.
84
Wholesale Capital Notes
Wholesale Capital Notes
Capital Notes
Capital Notes
Balance at
31 August 2019
$
Interest earned
for the year
$
200,000
70,000
50,000
50,000
370,000
8,785
3,075
1,537
1,537
14,934
Remuneration Summary 59 | Key Management Personnel 62 | Remuneration Outcomes 63 | Remuneration Strategy & Structure 67Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019REMUNERATION REPORT 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 are compatible with, and did not compromise, the
auditor’s independence requirements of the Corporations Act
2001 (Cth) 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.
Indemnification of officers
The Bank’s Constitution supported by a Deed of Indemnity,
Insurance and Access provides an indemnity in favour of all
directors and officers of the Bank against liabilities incurred by
them in the capacity as officer to the maximum extent permitted
by law.
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 officer (as defined in the Corporations
Act 2001 (Cth)) 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:
Roger Davis
Patrick Allaway
Kathleen Bailey-Lord
Bruce Carter
Richard Haire
John Lorimer
Warwick Negus
Karen Penrose
Michelle Tredenick
David Willis
Ordinary
shares
18,043
30,000
3,132
32,412
16,603
17,000
15,000
13,591
15,635
12,020
Capital
Notes
1,000
Wholesale
Capital
Notes
20
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7
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 and in the Note 6.7 Auditor Remuneration:
KPMG AUSTRALIA
Audit services
- Statutory audits and reviews of the financial reports
- Regulatory audits and reviews as required by regulatory authorities
Total audit services
Audit related services
- Other assurance services
- Regulatory assurance services
Total audit related services
Non-audit services
- Taxation services
- Other
Total non-audit services
Consolidated
Bank
2019
$000
1,773
462
2,235
534
94
628
169
333
502
2018
$000
1,737
346
2,083
532
235
767
171
103
274
2019
$000
2018
$000
1,324
325
1,649
397
-
397
169
263
432
1,279
244
1,523
399
235
634
171
103
274
85
Annual Report 2019For the year ended 31 August 2019DIRECTORS’ REPORT Lead Auditor’s Independence Declaration
The lead auditor’s independence declaration is set out on page
87 and forms part of the Directors’ report for the year ended
31 August 2019.
Director and management changes
Director changes during the year:
• On 5 December 2018, Jon Sutton resigned from his role as
Managing Director & CEO.
• Non-Executive Directors, Patrick Allaway and Kathleen Bailey-
Lord, were appointed to the BOQ board on 1 May 2019.
• On 29 May 2019, Roger Davis announced his retirement as
Chairman on 17 October 2019 and from the Board on 31
October 2019. Mr Allaway will move into the Chairman role
from 18 October 2019.
• On 8 August 2019, David Willis announced his retirement as a
Director and Chair of the Human Resources & Remuneration
Committee, with effect from the 2019 AGM on 10 December
2019. He will retain his role as a Director of St Andrew’s
Australia Services Pty Ltd, St Andrew’s Insurance (Australia)
Pty Ltd and St Andrew’s Life Insurance Pty Ltd.
Management changes during the year:
• On 6 December 2018, Brendan White resigned from his role as
Group Executive, BOQ Business with his notice period ending
6 March 2019.
• Doug Snell moved from General Manager BOQ Business to
Interim Group Executive, BOQ Business from 21 December
2018 to 12 August 2019.
• Anthony Rose moved from Chief Operating Officer to Interim
CEO from 6 December 2018 to 4 September 2019. Mr Rose
was not a Director in the period that he was Interim CEO and
the role of Chief Operating Officer was held vacant while Mr
Rose was Interim CEO. He will remain with BOQ until the end of
December 2019.
• On 8 March 2019, Peter Deans announced his retirement from
his role as Chief Risk Officer on 31 May 2019.
• Adam McAnalen was appointed to the role of Chief Risk
Officer from 1 June 2019. Mr McAnalen was previously CEO of
BOQ Finance.
Management attestation
The Board has been provided with a written statement from the
Group’s Managing Director & CEO, former Interim CEO and
Chief Financial Officer, confirming the accompanying financial
statements and notes are in accordance with the Corporations
Act 2001 (Cth) and they present a true and fair view in all
material respects of the Consolidated Entity’s financial position
and performance as at and for the year ended 31 August 2019.
The Directors’ Declaration can be found on page 170 of the
financial statements.
Environmental regulation
The Consolidated Entity’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.
Subsequent events
Dividends have been determined after 31 August 2019. The
financial effect of the dividends has not been brought to account
in the financial statements for the year ended 31 August 2019.
Further details with respect to the dividend amounts per share,
payment date and dividend reinvestment plan can be obtained
from Note 2.4 Dividends of the consolidated financial statements.
Other than as disclosed below, no matters or circumstances have
arisen since the end of the financial year and up until the date of
this report which significantly affect the operations of the Bank,
the results of those operations, or the state of affairs of the Bank
in subsequent years.
On 11 October 2019, the Bank entered into a Subscription
Agreement in relation to a debt for equity swap for the purchase
of 8,128 fully paid ordinary shares issued by its subsidiary, St
Andrew’s Australia Services Pty Ltd, for the value of $30,000,000.
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.
• On 20 June 2019, Matt Baxby announced his resignation as
Signed in accordance with a resolution of the Directors:
Chief Financial Officer. He will remain with BOQ until the end
of October 2019.
• Peter Sarantzouklis was appointed Group Executive, BOQ
Business from 12 August 2019.
• On 5 September 2019, George Frazis was appointed Managing
Director & CEO.
• On 10 October 2019 it was announced that Ewen Stafford
will be appointed to the role of Chief Financial Officer and
Chief Operating Officer. Ewen will commence with BOQ
later in FY20.
Roger Davis
Chairman
16 October 2019
86
George Frazis
Managing Director & CEO
16 October 2019
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. 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 2019 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. KPM_INI_01 KPMG Robert Warren Partner Sydney 16 October 2019 Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019DIRECTORS’ REPORT LEAD AUDITOR’S INDEPENDENCE
DECLARATION UNDER SECTION 307C
OF THE CORPORATIONS ACT 2001
87
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. 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 2019 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. KPM_INI_01 KPMG Robert Warren Partner Sydney 16 October 2019 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. 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 2019 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. KPM_INI_01 KPMG Robert Warren Partner Sydney 16 October 2019 Annual Report 2019 2019
FINANCIAL
STATEMENTS
Interest income:
Effective interest income
Other
Interest expense
Net interest income
Other operating income
Net banking operating income
Net insurance operating income
Total operating income before impairment
and operating expenses
Expenses
Impairment on loans and advances
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Equity holders of the parent
Earnings per share (EPS)
Basic EPS - Ordinary shares (cents)
Diluted EPS - Ordinary shares (cents)
Consolidated
Bank
2019 (1)
$m
1,913
145
( 1,097)
961
126
1,087
9
1,096
(587)
(74)
435
(137)
298
2018
$m
2019 (1)
$m
2018
$m
1,927
142
(1,104)
965
137
1,102
19
1,121
(587)
(41)
493
(157)
336
1,884
165
(1,319)
730
227
957
-
957
(566)
(37)
354
(109)
245
1,760
289
(1,311)
738
228
966
-
966
(545)
(23)
398
(121)
277
298
336
245
277
74.2
69.2
85.5
81.2
Note
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.2
2.3
2.6
2.6
(1) The August 2019 financial results reflect the adoption of AASB 9 Financial Instruments (AASB 9) and AASB 15 Revenue from contracts with customers (AASB 15) on 1
September 2018. As permitted by AASB 9 and AASB 15, the Consolidated Entity and the Bank have not restated previously reported financial periods. Refer to Note 1.5 for
the impact from the initial adoption of AASB 9 and AASB 15.
The Income Statements should be read in conjunction with the accompanying notes.
90
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019INCOME STATEMENTS 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 movement taken to equity
Net movement transferred to profit or loss
Debt instruments at fair value through other comprehensive income
(FVOCI):
Net change in fair value
Net movement transferred to profit or loss
Financial assets available-for-sale:
Net change in fair value
Net movement transferred to profit or loss
Items that will not be reclassified subsequently to profit or loss
Equity instruments at FVOCI:
Net change in fair value
Other comprehensive income, net of income tax
Total comprehensive income for the year
Consolidated
Bank
2019 (1)
$m
298
2018
$m
336
2019 (1)
$m
245
2018
$m
277
(79)
20
(3)
(13)
-
-
(1)
(76)
222
(11)
22
-
-
6
(14)
-
3
339
(74)
20
(3)
(13)
-
-
(1)
(71)
174
(12)
22
-
-
6
(14)
-
2
279
Total comprehensive income attributable to:
Equity holders of the parent
222
339
174
279
(1) The August 2019 financial results reflect the adoption of AASB 9 and AASB 15 on 1 September 2018. As permitted by AASB 9 and AASB 15, the Consolidated Entity and the
Bank have not restated previously reported financial periods. Refer to Note 1.5 for the impact from the initial adoption of AASB 9 and AASB 15.
The Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
91
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019STATEMENTS OF COMPREHENSIVE INCOME ASSETS
Cash and cash equivalents
Due from other financial institutions
Derivative financial assets
Financial assets at fair value through profit or loss (FVTPL)
Financial assets held for trading
Debt instruments at FVOCI
Equity instruments at FVOCI
Financial assets available-for-sale
Debt instruments at amortised cost (3)
Loans and advances
Other assets
Current tax assets
Property, plant and equipment
Assets held for sale (2)
Shares in controlled entities
Deferred tax assets
Intangible assets
Investments in joint arrangements and associates
Total assets
LIABILITIES
Due to other financial institutions - accounts payable at call
Deposits
Derivative financial liabilities
Accounts payable and other liabilities
Current tax liabilities
Liabilities held for sale (2)
Provisions
Amounts due to controlled entities (3)
Insurance policy liabilities
Borrowings
Total liabilities
Net assets
EQUITY
Issued capital
Reserves
Retained profits
Total equity
Note
3.1
3.8
3.2
3.2
3.2
3.2
3.2
3.2
3.3
6.5
6.5
2.3
4.1
6.6
3.4
3.8
6.5
4.2
5.1
3.5
Consolidated
Bank
2019 (1)
$m
1,274
708
229
2,586
-
3,569
6
-
-
45,983
158
7
52
-
-
85
924
16
2018
$m
2019 (1)
$m
2018
$m
1,212
6
135
-
1,385
-
-
3,946
-
45,078
169
-
57
57
-
45
875
15
685
668
145
2,586
-
3,569
6
-
5,468
40,836
1,541
8
46
-
522
79
848
3
840
6
80
-
1,385
-
-
3,975
4,867
40,571
940
-
51
-
522
46
798
-
55,597
52,980
57,010
54,081
285
38,337
687
394
-
-
40
-
9
11,986
51,738
3,859
3,497
213
149
3,859
315
38,017
294
360
5
22
34
-
-
10,077
49,124
3,856
3,418
38
400
3,856
285
38,528
687
302
-
-
26
6,086
-
7,372
53,286
3,724
3,503
222
(1)
3,724
315
38,266
293
304
5
-
30
4,595
-
6,503
50,311
3,770
3,425
42
303
3,770
(1) The August 2019 financial position reflects the adoption of AASB 9 and AASB 15 on 1 September 2018. As permitted by AASB 9 and AASB 15, the Consolidated Entity and the
Bank have not restated previously reported financial periods. Refer to Note 1.5 for the impact from the initial adoption of AASB 9 and AASB 15.
(2) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Refer to Note 6.5(d) for presentation
of the comparatives.
(3) The Bank’s 2018 balances have been reclassified for comparison purposes. Refer to Note 3.2 for further details.
The Balance Sheets should be read in conjunction with the accompanying notes.
92
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesAs at 31 August 2019BALANCE SHEETS Consolidated
YEAR ENDED 31 AUGUST 2019
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash flow
hedge
reserve
$m
FVOCI
reserve (1)
$m
Profit
reserve (2)
$m
Retained
profits
$m
Total
equity
$m
Balance at beginning of the year
Change on adoption of new accounting
standards (3)
3,418
-
Restated balance at beginning of the year
3,418
26
-
26
59
-
59
(106)
-
(106)
Total comprehensive income for the year
Profit for the year
Transfers to profit reserve
Other comprehensive income,
net of income tax:
Cash flow hedges:
Net movement to equity
Net movement transferred to profit or loss
Debt instruments at FVOCI:
Net change in fair value
Net movement transferred to profit or loss
Equity instruments at FVOCI
Net change in fair value
Transfer to equity reserve for credit losses
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
Treasury shares (4)
Dividend reinvestment plan
Dividends to shareholders
Total contributions by and distributions to
owners
-
-
-
-
-
-
-
-
-
-
1
78
-
79
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
3
-
-
-
-
-
-
(79)
20
-
-
-
-
(59)
(59)
-
-
-
-
59
3
62
-
-
-
-
(3)
(13)
(1)
-
(17)
(17)
-
-
-
-
-
-
-
400
3,856
(13)
(10)
387
3,846
-
298
298
245
(245)
-
-
-
-
-
-
-
-
245
-
-
-
-
-
-
-
-
-
-
(3)
(3)
50
-
-
(79)
20
(3)
(13)
(1)
-
(76)
222
1
78
(288)
(288)
(288)
(209)
Balance at the end of the year
3,497
26
62
(165)
45
245
149
3,859
(1) On initial application of AASB 9 from 1 September 2018, the available-for-sale assets including the corresponding reserve have been reclassified to debt and equity
securities measured at FVOCI with a corresponding FVOCI reserve. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
(2) Profit reserve was established during the current financial year.
(3) The August 2019 financial results reflect the adoption of AASB 9 and AASB 15 on 1 September 2018. The carrying amounts of assets and liabilities impacted by the adoption
were adjusted through opening retained profits and reserves on 1 September 2018 as if the Consolidated Entity and the Bank had always applied the new requirements. As
permitted by AASB 9 and AASB 15, the Consolidated Entity and the Bank have not restated previously reported financial periods. Refer to Note 1.5 for the impact from the
initial adoption of AASB 9 and AASB 15.
(4) 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.
93
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019STATEMENTS OF CHANGES IN EQUITY Consolidated
YEAR ENDED 31 AUGUST 2018
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash flow
hedge
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
Balance at beginning of the year
3,360
26
81
(117)
67
371
3,788
Total comprehensive income for the year
Profit for the year
Other comprehensive income, net of income tax:
Cash flow hedges:
Net movement to equity
Net movement transferred to profit or loss
Financial assets available-for-sale:
Net change in fair value
Net movement transferred to profit or loss
Transfer from equity reserve for credit losses
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
Total contributions by and distributions to owners
-
-
-
-
-
-
-
-
11
47
-
58
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(22)
(22)
(22)
-
-
-
-
-
(11)
22
-
-
-
11
11
-
-
-
-
-
-
-
6
(14)
-
(8)
(8)
-
-
-
-
Balance at the end of the year
3,418
26
59
(106)
59
336
336
-
-
-
-
22
22
(11)
22
6
(14)
-
3
358
339
-
-
(329)
(329)
400
11
47
(329)
(271)
3,856
(1)
On 26 October 2017, 850,000 ordinary shares were issued at $13.28 and on 17 May 2018, 2,809 ordinary shares were issued at $10.02 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.
94
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019STATEMENTS OF CHANGES IN EQUITY Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash flow
hedge
reserve
$m
FVOCI
reserve (1)
$m
Profit
reserve (2)
$m
Retained
profits
$m
Total
equity
$m
Bank
YEAR ENDED 31 AUGUST 2019
Balance at beginning of the year
Change on adoption of new accounting
standards (3)
3,425
-
Restated balance at beginning of the year
3,425
Total comprehensive income for the year
Profit for the year
Transfers to profit reserve
Other comprehensive income net of income
tax:
Cash flow hedges:
Net movement to equity
Net movement transferred to profit or loss
Debt instruments at FVOCI:
Net change in fair value
Net movement transferred to profit or loss
Equity instruments at FVOCI
Net change in fair value
Transfer to equity reserve for credit losses
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
Dividend reinvestment plan
Dividends to shareholders
Total contributions by and distributions to
owners
-
-
-
-
-
-
-
-
-
-
78
-
78
26
-
26
60
-
60
(103)
-
(103)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
3
3
-
-
-
-
-
(74)
20
-
-
-
-
(54)
(54)
-
-
-
59
3
62
-
-
-
-
(3)
(13)
(1)
-
(17)
(17)
-
-
-
-
-
-
303
3,770
(13)
(10)
290
3,760
-
245
245
245
(245)
-
-
-
-
-
-
-
-
245
-
-
-
-
-
(3)
(3)
(3)
(74)
20
(3)
(13)
(1)
-
(71)
174
-
-
-
-
78
(288)
(288)
(288)
(210)
Balance at the end of the year
3,503
26
63
(157)
45
245
(1)
3,724
(1) On initial application of AASB 9 from 1 September 2018, the available-for-sale assets including the corresponding reserve have been reclassified to debt and equity
securities measured at FVOCI with a corresponding FVOCI reserve. Refer to Note 1.5 for the impact from the initial adoption of AASB 9
(2) Profit reserve was established during the current financial year.
(3) The August 2019 financial results reflect the adoption of AASB 9 and AASB 15 on 1 September 2018. The carrying amounts of assets and liabilities impacted by the adoption
were adjusted through opening retained profits and reserves on 1 September 2018 as if the Consolidated Entity and the Bank had always applied the new requirements. As
permitted by AASB 9 and AASB 15, the Consolidated Entity and the Bank have not restated previously reported financial periods. Refer to Note 1.5 for the impact from the
initial adoption of AASB 9 and AASB 15.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
95
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019STATEMENTS OF CHANGES IN EQUITY Bank
YEAR ENDED 31 AUGUST 2018
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 movement to equity
Net movement transferred to profit or loss
Financial assets available-for-sale:
Net change in fair value
Net movement transferred to profit or loss
Transfer from equity reserve for credit losses
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
Total contributions by and distributions to owners
Ordinary
shares
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash flow
hedge
reserve
$m
Available-
for-sale
reserve
$m
Retained
profits
$m
Total
equity
$m
3,367
26
68
(113)
67
347
3,762
-
-
-
-
-
-
-
-
11
47
-
58
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(8)
(8)
(8)
-
-
-
-
-
(12)
22
-
-
-
10
10
-
-
-
-
-
-
-
6
(14)
-
(8)
(8)
-
-
-
-
277
277
-
-
-
-
8
8
(12)
22
6
(14)
-
2
285
279
-
-
(329)
(329)
303
11
47
(329)
(271)
3,770
Balance at the end of the year
3,425
26
60
(103)
59
(1)
On 26 October 2017, 850,000 ordinary shares were issued at $13.28 and on 17 May 2018, 2,809 ordinary shares were issued at $10.02 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.
96
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019STATEMENTS OF CHANGES IN EQUITY Consolidated
Bank
Note
2019
$m
2018
$m
2019
$m
2018
$m
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Fees and other income received
Interest paid
Cash paid to suppliers and employees
Income tax paid
Increase in operating assets:
Loans and advances
Other financial assets
Increase / (decrease) in operating liabilities:
Deposits
Net cash inflow / (outflow) from operating activities
3.1
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangible assets
Proceeds / (payments) for investments in joint arrangements
and associates
Dividends received from controlled entities
Net cash inflow / (outflow) from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
2,064
131
(1,083)
(473)
(153)
486
(996)
(1,263)
294
(1,479)
(13)
4
(98)
(3)
-
(110)
2,085
160
(1,102)
(500)
(147)
496
(1,529)
449
901
317
(14)
8
(73)
-
-
(79)
3.5
3.5
4,021
(2,159)
3,308
(2,959)
Proceeds from borrowings
Repayments of borrowings
Proceeds for foreign exchange instruments
Net movement in other financing activities
Proceeds from issue of ordinary shares
Payments for treasury shares
Dividends paid
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year (1)
Cash and cash equivalents at end of year
3.1
Cash and cash equivalents included in assets held for sale (1)
Cash and cash equivalents as presented in the Balance Sheets
-
-
-
(7)
(210)
1,645
56
1,218
1,274
-
1,274
(1)
-
11
(11)
(282)
66
304
914
1,218
(6)
1,212
1,948
193
(1,309)
(469)
(150)
213
(261)
(1,274)
236
(1,086)
(6)
-
(96)
(4)
12
(94)
1,757
(937)
-
422
-
(7)
(210)
1,025
(155)
840
685
-
685
1,958
192
(1,311)
(453)
(143)
243
(1,235)
499
808
315
(10)
1
(71)
-
22
(58)
2,022
(1,824)
(1)
131
11
(11)
(282)
46
303
537
840
-
840
(1) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Refer to Note 6.5(d) for presentation
of the comparatives.
The Statements of Cash Flows should be read in conjunction with the accompanying notes.
97
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019STATEMENTS OF CASH FLOWS Note 1
Basis of preparation
1.1
1.2
1.3
1.4
1.5
Reporting entity
Basis of preparation
Use of estimates and judgements
New Australian accounting standards
Implementation of new Australian accounting standards
Note 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
Note 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 cash equivalents
Financial assets and liabilities
Loans and advances
Deposits
Borrowings
Risk management
Fair value of financial instruments
Derivative financial instruments and hedge accounting
Capital management
3.10
Capital and reserves
Note 4
Other assets and liabilities
4.1
4.2
Intangible assets
Provisions
Note 5
Insurance business
5.1
Insurance business
Note 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
Investments in joint arrangements and associates
Auditor’s remuneration
Events subsequent to balance date
Significant accounting policies
98
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Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS NOTE 1. BASIS OF PREPARATION
1.1 REPORTING ENTITY
The Bank is a for-profit 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 2019 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 PREPARATION
(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 (Cth). 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 16 October 2019.
(b) Basis of measurement
The consolidated financial statements are prepared on a historical
cost basis, with the exception of the following assets and liabilities
which are stated at their fair value:
• Derivative financial instruments;
• Financial assets at fair value through other comprehensive
income; and
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 accounting 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.
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:
• Loans and advances - Expected credit losses – Note 3.3(a);
• Financial instruments – Notes 3.2 and 3.7;
• Carrying value of goodwill and other intangible assets –
Note 4.1.
1.4 NEW AUSTRALIAN ACCOUNTING STANDARDS
(a) New accounting standards applicable this
• Financial assets at fair value through profit or loss.
financial year
(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.
The Consolidated Entity has adopted the following new standards
and amendments to standards, including any consequential
amendments to other standards, with a date of initial application
of 1 September 2018.
• AASB 2016-5 Amendments to Australian Accounting
Standards – Classification and Measurement of Share-based
Payment Transactions;
• AASB 2016-6 Amendments to Australian Accounting
Standards – Applying AASB 9 Financial Instruments with
AASB 4 Insurance Contracts;
• AASB 2017-1 Amendments to Australian Accounting
Standards – Transfers of Investment Property, Annual
Improvements 2014–2016 Cycle and Other Amendments;
• AASB 2017-3 Amendments to Australia Accounting Standards
– Clarifications to AASB 4;
• AASB Interpretation 22 Foreign Currency Transactions and
Advance Consideration;
• AASB 9 Financial Instruments - The impact of implementing
this new standard is disclosed in Note 1.5; and
• AASB 15 Revenue from Contracts with Customers - The impact
of implementing this new standard is disclosed in Note 1.5.
The Consolidated Entity has reviewed the impact of the
aforementioned standards and, apart from AASB 9 and AASB 15,
determined there to be no material impact.
99
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 1.4 NEW AUSTRALIAN ACCOUNTING STANDARDS (CONTINUED)
(b) New accounting standards applicable in future financial years
The following standards and amendments have been identified as those which may impact the Consolidated Entity in future
financial years:
AASB 16 Leases (AASB 16)
AASB 16 introduces a single on-Balance Sheet accounting model for lessees for recognising and measuring lease arrangements and will
replace AASB 117 Leases (AASB 117). The standard will become mandatory for the Group for the financial year commencing 1 September
2019. Lessor accounting under AASB 16 remains largely unchanged from AASB 117.
On transition, the standard requires identification of leases that provide the right to control the use of an identified asset for a period
of time. For these leases, the Group is required to recognise on Balance Sheet a right-of-use (ROU) asset, representing the right to use
the underlying asset, and a lease liability, representing the future lease payment obligations. Exemptions exist for leases of less than 12
months or of low value. Operating lease obligations which were previously recognised as a straight line operating expense will be replaced
by interest expense on the lease liability and depreciation expense on the ROU asset. This will result in higher interest expenses weighted
to the earlier periods of each lease term.
The Group has performed an assessment of the impact of AASB 16 which has included a review of the Group’s contracts to identify all
leases which are applicable under AASB 16 and calculation of the ROU asset and lease liability for each lease. The most significant impacts
identified relate to property, vehicle and equipment leases held by the Group.
The Group has elected to apply the modified retrospective approach on transition. The calculation has been made using the Group’s
incremental borrowing rate and by making judgements as to whether extension and termination options will be taken up.
The Group expects to recognise a lease liability of approximately $190 million and ROU assets of approximately $130 million in the Group’s
2020 Annual Report. After adjusting for lease liabilities currently recorded on balance sheet and recognising finance lease receivables for
subleases, this results in a retained earnings reduction of approximately $10 million following relevant tax adjustments.
AASB 17 Insurance Contracts (AASB 17)
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 Consolidated Entity in the financial year commencing 1 September 2022. 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.
100
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 1.5
IMPLEMENTATION OF NEW AUSTRALIAN
ACCOUNTING STANDARDS
AASB 9 Financial Instruments (AASB 9)
The standard became mandatory for the Consolidated Entity in
this financial year commenced 1 September 2018 and replaces
the guidance under AASB 139 Financial Instruments: Recognition
and Measurement (AASB 139). AASB 9 introduces changes in the
classification and measurement of financial assets and liabilities,
in addition to a new Expected Credit Loss (ECL) model for
impairment and requirements with respect to hedge accounting.
The Consolidated Entity has elected, as a policy choice permitted
under AASB 9, to continue to apply hedge accounting in
accordance with AASB 139.
Classification and measurement
AASB 9 introduced new requirements, which determine how
financial assets are classified and measured. Financial assets,
except equity instruments and derivatives, are classified
according to their contractual cash flow characteristics and the
business model in place for managing the financial asset.
The AASB 139 measurement categories of financial assets (fair
value through profit or loss, available-for-sale, held-to-maturity
and loans & receivables) have been replaced by:
• Amortised cost - From 1 September 2018, the Consolidated
Entity only classifies amounts due from other financial
institutions and loans and advances when both of the following
conditions are met:
• The financial asset is held within a business model where
the objective is to hold them in order to collect contractual
cash flows; and
• The contractual terms of the financial asset give rise
to cash flows that are solely payments of principal and
interest (SPPI).
• Fair value through other comprehensive income (FVOCI) – a
financial asset is classified at FVOCI when both of the following
conditions are met:
• The financial asset is held within a business model where
the objective is achieved by holding them in order to collect
contractual cash flows and selling the financial assets; and
• The contractual terms of the financial asset give rise to
cash flows that meet the SPPI test. These instruments
largely comprise assets that had previously been classified
as financial assets available-for-sale under AASB 139.
Debt instruments at FVOCI are subsequently measured
at fair value with gains and losses arising from changes
in fair value recognised in other comprehensive income.
Interest income and foreign exchange gains and losses
are recognised in profit or loss in the Income Statement.
On derecognition, cumulative gains or losses previously
recognised in other comprehensive income are reclassified
to profit or loss in the Income Statement.
AASB 9 requires equity financial assets to be classified
and measured at FVTPL, but there is an option to make
an irrevocable election to designate non-traded equity
investments as FVOCI.
This election is made on an instrument by instrument basis
and the Consolidated Entity has made this election for its
equity instruments. Gains or losses cannot be reclassified to
profit or loss in the Income Statement, but can be reclassified
to retained profits.
• Fair value through profit or loss (FVTPL) - Financial assets
in this category are those that are held for trading and have
been designated by management upon initial recognition or
are mandatorily required to be measured at fair value under
AASB 9. These instruments largely comprise assets that had
previously been classified as financial assets held for trading
under AASB 139.
Financial liabilities
Financial liabilities continue to be measured at amortised cost,
except for derivative financial liabilities that are designated at
FVTPL.
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 per cent
thresholds. Adoption of the hedge accounting requirements
under AASB 9 is currently optional. The Consolidated Entity has
elected to continue applying the hedge accounting requirements
under AASB 139.
Impairment
The adoption of AASB 9 has resulted in a change in the
Consolidated Entity’s impairment methodology by replacing
AASB 139’s incurred loss approach with a forward-looking ECL
approach. The impairment requirements have been adopted from
1 September 2018 and an allowance for ECL has been recorded for
all loans, advances and debt financial assets not held at FVTPL.
Equity instruments are not subject to impairment under AASB 9.
Refer to Note 3.3 for further information on the ECL methodology
and the reconciliation of ECL on transition to AASB 9 on 1
September 2018.
Transition
As permitted by AASB 9, the Consolidated Entity has not
restated its comparative financial statements and has recorded
a transition adjustment to its opening Balance Sheet, retained
profits and OCI at 1 September 2018 for the impact of the
adoption of AASB 9’s classification and measurement and
impairment accounting requirements.
The following table summarises the impact on classification and
measurement to the Consolidated Entity’s financial assets on 1
September 2018. There are no changes in the classification and
measurement of financial liabilities of the Consolidated Entity.
101
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 1.5
IMPLEMENTATION OF NEW AUSTRALIAN ACCOUNTING STANDARDS (CONTINUED)
Consolidated
As at 31 August 2018
As at 1 September 2018
AASB 139
measurement category
AASB 9 measurement
category
Carrying amount under
AASB 139
Carrying amount under
AASB 9 (1) (2)
Cash and cash equivalents
Loans and receivables
Amortised cost
Due from other financial institutions
Loans and receivables
Amortised cost
Derivative financial assets
(trading derivatives)
Derivative financial assets
(hedging derivatives)
FVTPL
FVTPL
Hedging derivatives
Hedging derivatives
Financial assets held for trading
FVTPL
Financial assets available-for-sale
(debt instruments)
Financial assets available-for-sale
(equity instruments)
Available-for-sale
FVTPL
FVOCI (3)
Available-for-sale
FVOCI option (4)
Loans and advances (5)
Loans and receivables
Amortised cost
Other assets
Loans and receivables
Amortised cost
$m
1,212
6
25
110
1,385
3,943
3
45,078
169
$m
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256
25
110
1,385
3,693
7
45,068
169
(1) The carrying amount does not reflect AASB 15 changes.
(2) The impact on the Bank is not materially different from the impact on the Consolidated Entity, except for the REDS EHP Securitisation notes held by the Bank. $30 million
(3)
of opening balance financial assets available-for-sale relating to the REDS EHP Securitisation notes were reclassified to debt instruments at amortised cost on transition to
AASB 9. There was no re-measurement impact associated with this reclassification.
As of 1 September 2018, the Consolidated Entity has assessed its liquidity portfolio which had previously been classified as financial assets available-for-sale (debt
instruments). The Consolidated Entity concluded that these instruments are managed within a business model of collecting contractual cash flows and selling the financial
assets. Accordingly, the Consolidated Entity has classified these investments as debt instruments measured at FVOCI.
(4) The Consolidated Entity has elected the option to irrevocably designate some of its previous financial assets available-for-sale (equity instruments) as equity instruments
at FVOCI with no subsequent recycling of realised gains or losses permitted.
(5) As part of transition to AASB 9, all products offered by the Group were reviewed to determine if they are loans within the scope of AASB 9 or finance leases within the scope
of AASB 117. The current year finance lease receivables disclosure in Note 3.3 has been updated to reflect finance lease receivables within the scope of AASB 117.
Refer to Transition impacts of adopting AASB 9 and AASB 15 for the Consolidated Entity’s quantitative impact arising from the adoption
of AASB 9 and AASB 15 on 1 September 2018.
102
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS • Trail commissions: Trail commission income on distribution of
general insurance products that was previously recognised by
the Consolidated Entity over time, is now recognised at a point
in time when the Consolidated Entity’s performance obligation
in respect of this income is considered to be met. This has
resulted in the Consolidated Entity recognising the net present
value of expected future trail commission income on sale of
these products. The receivable in respect of the Consolidated
Entity’s entitlement to future payments of trail commission is
recognised in “Other assets”.
The amount of trail commission revenue is dependent on
assumptions about the behavioural life of the underlying
transaction generating the commission. Trail commission income
is only recognised to the extent it is highly probable it will not
reverse in future periods.
Refer to Transition impacts of adopting AASB 9
and AASB 15 on the next page for the Consolidated
Entity’s quantitative impact arising from the adoption
of AASB 9 and AASB 15 on 1 September 2018.
1.5
IMPLEMENTATION OF NEW AUSTRALIAN
ACCOUNTING STANDARDS (CONTINUED)
AASB 15 Revenue from Contracts with Customers (AASB 15)
AASB 15 was adopted by the Consolidated Entity on 1 September
2018, replacing the previous guidance under AASB 118 Revenue,
AASB 111 Construction Contracts and related interpretations.
Revenue arising from items such as financial instruments,
insurance contracts and leases is outside the scope of AASB
15 and continues to be accounted for in accordance with the
relevant applicable standard.
AASB 15 establishes a five step revenue recognition
and measurement model to account for revenue
arising from contracts with customers. The
five steps of the revenue model include:
1.
Identification of the contract with a customer;
2.
Identification of the separate performance obligations
in the contract;
3. Determination of the transaction price under the contract;
4.
5.
Allocation of the transaction price to each performance
obligation identified in Step 2; and
Recognition of revenue when a performance obligation
is satisfied.
Where there is variable consideration in calculating a transaction
price, revenue will only be recognised if it is highly probable that a
significant revenue reversal will not occur in future periods.
Transition
The Consolidated Entity has applied the modified retrospective
transition approach in adopting AASB 15 which recognises the
cumulative effect of initial application through adjustment
to opening retained profits as at 1 September 2018, with no
restatement of comparatives. Under this transition method,
the Consolidated Entity applied AASB 15 retrospectively only to
contracts that are not completed contracts at the date of initial
application of 1 September 2018.
The significant changes to the Consolidated Entity as a result of
adopting AASB 15 are:
•
Annual and upfront fees: Annual fees in relation to housing
and business lending packages, as well as annual fees on credit
card products, are no longer recognised upfront but over the
annual period in line with the performance obligation delivered
to the customers. Annual fees will be deferred on the Balance
Sheet in “Accounts payable and other liabilities” when received
and recognised in “Customer fees and charges” on a straight-
line basis throughout the year. Similarly, certain upfront fees
in relation to loan contracts are no longer recognised upfront
but when the performance obligation to the customers is
delivered, which is over the life of these contracts.
103
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS s
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T
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
NOTE 2. FINANCIAL PERFORMANCE
2.1 OPERATING INCOME
Consolidated
Bank
INTEREST INCOME
Effective interest income
Other: 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
Customer fees and charges (1)
Share of fee revenue paid to Owner Managed branches
Commissions
Foreign exchange income – customer based
Net profit / (loss) on sale of property, plant and equipment
Net income / (loss) from financial instruments and derivatives
at fair value
Securitisation income
Dividend income
Management fee – controlled entities
Other income
Total income from operating activities
INCOME FROM INSURANCE ACTIVITIES
Premiums from insurance contracts
Investment revenue
Claims and policyholder liability expense from insurance contracts
Net insurance operating income
Total operating income
(1) Customer charges on lending, banking and leasing products.
2019
$m
1,913
145
2,058
(576)
(521)
(1,097)
961
72
(7)
36
12
5
2
-
-
-
6
126
55
2
(48)
9
1,096
2018
$m
1,927
142
2,069
(578)
(526)
(1,104)
965
85
(7)
34
12
7
(4)
-
-
-
10
137
66
2
(49)
19
1,121
2019
$m
1,884
165
2,049
(575)
(744)
(1,319)
730
73
(7)
13
12
(1)
1
95
12
26
3
227
-
-
-
-
2018
$m
1,760
289
2,049
(580)
(731)
(1,311)
738
110
(7)
14
12
-
(4)
56
22
23
2
228
-
-
-
-
957
966
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.
Interest income on finance lease receivables is recognised progressively over the life of the lease, reflecting a constant periodic rate of
return on the net investment.
Other operating income
Other operating income and expenses that are considered an integral part of the effective interest rate on a financial instrument are
included in the measurement of the effective interest rate.
Non-yield related application and activation lending fee revenue is recognised over the contract period in line with the performance
obligation delivered to the customers. Customer service fees that represent the recoupment of the costs of providing the service are
recognised on an accrual basis when the service is provided. Commissions are recognised as income when performance obligations in
respect of those commissions have been satisfied.
Dividends are recognised when control of a right to receive consideration is established.
105
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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
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
Bank
Note
2019
$m
2018
$m
2019
$m
15
5
18
3
15
60 (1)
116
20
2
12
34
80
38
1
119
27
10
3
40
224
12
7
9
252
5
566
2018
$m
14
5
17
3
15
26
80
27
2
9
38
72
57
1
130
31
9
3
43
219
12
8
9
248
6
545
26
5
19
3
15
36
104
23
2
7
32
85
41
1
127
30
10
4
44
244
13
8
10
275
5
587
22
5
17
3
15
24
86
30
2
5
37
77
60
1
138
32
9
4
45
240
13
10
10
273
8
587
(1) Other operating expenses include impairment of the intercompany loan from the Bank to St Andrew’s Australia Services Pty Ltd of $24 million.
106
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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
Bank
2019
$m
2018
$m
2019
$m
2018
$m
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
Retained profits (1)
Other
NUMERICAL RECONCILIATIONS BETWEEN TAX EXPENSE
AND PRE-TAX PROFIT
Profit before tax
Income tax using the domestic corporate tax rate of 30% (2018: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Non-assessable income
Other (2)
Income tax expense on pre-tax net profit
139
1
140
(3)
137
(25)
(6)
(6)
(37)
435
131
7
-
(1)
137
147
(1)
146
11
157
1
-
(3)
(2)
493
148
9
-
-
157
106
1
107
2
109
(23)
(6)
(6)
(35)
354
106
7
-
(4)
109
113
(1)
112
9
121
1
-
(3)
(2)
398
119
9
-
(7)
121
(1)
The August 2019 financial results reflect the adoption of AASB 9 and AASB 15 on 1 September 2018. The carrying amounts of assets and liabilities impacted by the adoption
were adjusted through opening retained profits and reserves on 1 September 2018 as if the Consolidated Entity and the Bank had always applied the new requirements. As
permitted by AASB 9 and AASB 15, the Consolidated Entity and the Bank have not restated previously reported financial periods. Refer to Note 1.5 for the impact from the
initial adoption of AASB 9 and AASB 15.
(2) In the Bank, this includes the impact of dividends received from subsidiary members in the tax consolidated group which are eliminated at a group level, and the dilutionary
impact to prima-facie tax expense relating to franking credits on external dividends received on investments.
107
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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:
CONSOLIDATED
Accruals
Capitalised expenditure
Provisions for impairment
Other provisions
Equity reserves
Leasing
Other
Total tax assets / (liabilities) (1)
BANK
Accruals
Capitalised expenditure
Provisions for impairment
Other provisions
Equity reserves
Leasing
Other
Total tax assets / (liabilities)
Assets
Liabilities
Net
2019
$m
2018
$m
3
-
70
15
37
-
7
132
2
-
49
13
33
-
7
104
3
-
60
16
6
-
7
92
1
-
46
16
4
-
7
74
2019
$m
-
(6)
-
-
-
(36)
(5)
(47)
-
(2)
-
-
-
(19)
(4)
(25)
2018
$m
-
(8)
-
-
-
(34)
(5)
(47)
-
(5)
-
-
-
(21)
(2)
(28)
2019
$m
3
(6)
70
15
37
(36)
2
85
2
(2)
49
13
33
(19)
3
79
2018
$m
3
(8)
60
16
6
(34)
2
45
1
(5)
46
16
4
(21)
5
46
(1) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Net deferred tax assets of $1 million were
classified as held for sale and excluded in the above table as at 31 August 2018. Refer to Note 6.5(d) for presentation of the comparatives.
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.
2019
$m
25
51
2018
$m
26
51
108
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 are 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 Agreement (TFA) 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.
Nature of tax funding and tax sharing arrangements
The Bank, in conjunction with other members of the tax-
consolidated group, has entered into a TFA which sets out the
funding obligations of members of the tax-consolidated group in
respect of tax amounts. The TFA 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 TFA 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.
109
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 2.4 DIVIDENDS
ORDINARY SHARES
Special 2017 dividend paid 23 November 2017
Final 2018 dividend paid 14 November 2018 (2017: 23 November 2017)
Interim 2019 dividend paid 22 May 2019 (2018: 17 May 2018)
CONVERTIBLE PREFERENCE SHARES (CPS)
Second half 2017 CPS dividend paid on 16 October 2017
Pro-rata CPS dividend paid on 28 December 2017
Final 2018 CPS dividend paid on 16 April 2018 (1)
2019
Cents per
share
-
38
34
-
-
-
Bank
$m
-
151
137
288
-
-
-
-
2018
Cents per
share
8
38
38
245
98
244
$m
31
149
149
329
7
2
3
12
(1)
In accordance with the ASX announcement dated 5 March 2018, BOQ confirmed the redemption of all outstanding CPS on the optional conversion/redemption date of 16
April 2018 with the redemption price of $102.44 per CPS, comprising the face value of $100 per CPS and a final dividend of $2.44 per CPS for the period from (and including)
16 October 2017 to (but excluding) the redemption date of 16 April 2018. The ASX announcement on 16 April 2018 confirmed the removal of CPS from official quotation at
close of trading on 16 April 2018.
All dividends paid on ordinary and preference shares have been fully franked. Since the end of the financial year, the Directors have
determined the following dividends:
Final ordinary share dividend
Cents per
share
31
$m
126
The final dividend payment will be fully franked and paid on 27 November 2019 to owners of ordinary shares at the close of business on 7
November 2019 (record date). Shares will be quoted ex-dividend on 6 November 2019.
30% franking credits available to shareholders of the Bank for subsequent financial years
Bank
2019
$m
177
2018
$m
172
The ability to utilise the franking credits is dependent upon there
being sufficient available profits to declare dividends. The profits
accumulated in the profit reserve are available for dividend
payments in future years. All franked dividends paid or declared by
the Bank since the end of the previous financial year were franked
at the tax rate of 30 per cent.
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 proposed dividends relating
to the year ended 31 August 2019, is $120 million calculated at the
30 per cent tax rate (2018: $105 million). 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 dividend reinvestment plan (DRP) provides ordinary
shareholders with the opportunity to reinvest all or part of their
entitlement to a dividend into new ordinary shares. The price for
shares issued or transferred under the DRP is an amount 1.5 per cent
(2018: 1.5 per cent) 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.
Shares issued or transferred under the DRP will be fully-paid and
rank equally in all respects with existing shares.
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.
The last date for election to participate in the DRP for the 2019
final dividend is 8 November 2019.
110
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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, 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’s operating segments comprise the
following:
Retail Banking - retail banking solutions to customers managed
through our Owner Managed and Corporate branch network,
third party intermediaries’ and Virgin Money distribution channels;
BOQ Business - includes the BOQ branded commercial lending
activity, BOQ Finance and BOQ Specialist businesses. The division
provides tailored business banking solutions including commercial
lending, equipment finance and leasing, Cashflow finance, foreign
exchange, interest rate hedging, transaction banking and deposit
solutions for commercial customers; and
Other - Treasury, St Andrew’s Insurance and Group
Head Office.
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, reflecting the Bank’s external cost of funds, in a
manner similar to transactions with third parties.
Major customers
No revenue from transactions with a single external customer
or counter party amounted to 10 per cent or more of the
Consolidated Entity’s total revenue in 2019 or 2018.
Geographic information
While the Consolidated Entity does have some operations in
New Zealand, the business segments operate principally
in Australia.
Goodwill
For goodwill allocation between segments, refer to Note 4.1.
Presentation
The following table presents income, profit and certain asset
and liability information regarding the Consolidated Entity’s
operating segments.
Inter-segment revenue and expenses and transfer pricing
adjustments are reflected in the performance of each
operating segment.
All inter-segment profits are eliminated on consolidation.
111
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 2.5 OPERATING SEGMENTS (CONTINUED)
INCOME
Net interest income (1)
Non interest income
Total income
Operating expenses
Underlying profit / (loss)
Loan impairment expense
Cash profit / (loss) before tax
Income tax expense
Segment cash profit / (loss) after tax (2)
Statutory basis adjustments:
Amortisation of acquisition of fair value
adjustments
Hedge ineffectiveness
Integration / transaction costs
Regulatory / compliance
Software changes (3)
Legacy items
Statutory net profit / (loss) after tax
INCLUDED IN THE RESULTS:
Depreciation and amortisation
Loan impairment expense
Segment assets
Segment liabilities
Retail Banking
BOQ Business
Other
Segment Total
2019
$m
432
63
495
(287)
208
(14)
194
(61)
133
-
-
-
-
-
-
133
(34)
(14)
2018
$m
458
67
525
(281)
244
(15)
229
(72)
157
-
-
-
-
(7)
-
150
(49)
(15)
2019
$m
2018
$m
2019
$m
2018
$m
2019
$m
527
50
577
514
59
573
(242)
(228)
335
(60)
275
(86)
189
-
-
-
-
-
-
189
(17)
(60)
345
(26)
319
(100)
219
-
-
-
-
(4)
-
215
(26)
(26)
2
15
17
(21)
(4)
-
(4)
2
(2)
(6)
(8)
(1)
(6)
-
(1)
(24)
(1)
-
(7)
19
12
(18)
(6)
-
(6)
2
(4)
(7)
(3)
(1)
(9)
-
(5)
(29)
(2)
-
961
128
1,089
(550)
539
(74)
465
(145)
320
(6)
(8)
(1)
(6)
-
(1)
298
(52)
(74)
2018
$m
965
145
1,110
(527)
583
(41)
542
(170)
372
(7)
(3)
(1)
(9)
(11)
(5)
336
(77)
(41)
25,820
15,779
25,826
15,226
22,329
8,410
20,588
8,105
7,448
27,549
6,566
25,793
55,597
51,738
52,980
49,124
(1)
Interest income and interest expenses are disclosed in this note on a net interest income basis. This is in line with the information provided internally to the Managing
Director & CEO.
(2) This excludes a number of items that introduce volatility and / or one-off distortions of the Group’s performance.
(3) Software changes include a non-recurring adjustment due to a prior year reassessment of the useful lives of existing assets relative to the Bank’s investment roadmap and a
change to the capitalisation policy.
112
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 2.6 EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing the relevant earnings attributable to ordinary shareholders 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
Profit for the year
Basic earnings
Effect of CPS
Effect of wholesale capital notes
Effect of capital notes
Diluted earnings
Consolidated
2019
$m
298
298
-
7
14
319
2018
$m
336
336
7
7
9
359
Weighted average number of shares used as the denominator
2019 Number
2018 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 wholesale capital notes
Effect of capital notes
EARNINGS PER SHARE
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
401,554,707
393,417,739
401,554,707
393,417,739
1,454,170
1,523,277
-
12,129,338
17,020,105
13,750,181
39,350,887
21,408,589
459,379,869
442,229,124
74.2
69.2
85.5
81.2
113
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS NOTE 3. CAPITAL AND BALANCE SHEET MANAGEMENT
3.1 CASH AND CASH EQUIVALENTS
Components of cash and cash equivalents
Cash and cash equivalents 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 and withdrawals from deposit accounts; and
• Loan drawdowns and repayments.
Consolidated
Bank
Notes, coins and cash at bank
Remittances in transit
Reverse repurchase agreements maturing in less than three months
Cash and cash equivalents as presented in the Balance Sheets
Cash and cash equivalents included in assets held for sale (1)
Total
2019
$m
1,051
223
-
1,274
-
1,274
2018
$m
815
297
100
1,212
6
1,218
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
298
336
Add / (less) non-cash items or items classified as investing / financing:
Depreciation
Amortisation
Software amortisation and impairment
(Profit) / loss on sale of property, plant and equipment
Impairment of intercompany loan (2)
Equity settled transactions
Dividends received from controlled entities
Add / (less) changes in operating assets and liabilities:
(Increase) / decrease in due from other financial institutions
(Increase) / decrease in financial assets
(Increase) in loans and advances
Increase / (decrease) in provision for impairment
Decrease in derivatives
Decrease in deferred tax asset
Decrease in amounts due to / from controlled entities
(Increase) / decrease in other assets
(Increase) in current tax assets
Increase / (decrease) in due to other financial institutions
Increase in deposits
Increase / (decrease) in accounts payable and other liabilities
(Decrease) in current tax liabilities
Increase / (decrease) in provisions
Increase / (decrease) in deferred tax liabilities
(Decrease) in insurance policy liabilities
11
5
45
1
-
8
-
(656)
(608)
(943)
22
19
-
-
16
(7)
(30)
314
39
(5)
(5)
(2)
(1)
Net cash (inflow) / outflow from operating activities
(1,479)
11
6
62
(1)
-
10
-
6
443
(1,461)
(26)
35
9
-
41
-
54
824
(29)
(1)
3
1
(6)
317
2019
$m
463
222
-
685
-
685
245
11
5
42
1
24
7
(12)
(662)
(608)
(223)
-
18
6
455
(601)
(8)
(30)
252
5
(5)
(4)
(4)
-
(1,086)
2018
$m
443
297
100
840
-
840
277
11
5
59
-
-
8
(22)
2
506
(1,195)
(28)
26
9
322
(426)
-
54
740
(27)
(1)
(2)
(3)
-
315
(1) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Refer to Note 6.5(d) for presentation of
the comparatives.
(2) This includes the impairment of the intercompany loan from the Bank to St Andrew’s Australia Services Pty Ltd of $24 million.
114
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.2 FINANCIAL ASSETS AND LIABILITIES
Financial instruments measured at amortised cost
Financial assets that are held to collect the contractual cash flows and that contain contractual terms that give rise on specified
dates to cash flows that are solely payments of principal and interest, are measured at amortised cost. In addition, most financial
liabilities are measured at amortised cost. Financial assets or financial liabilities are initially recognised at fair value, inclusive of any
directly attributable costs. They are subsequently measured at each reporting date at amortised cost using the effective interest
method. Included in this category is loans and advances at amortised cost included in Loans and advances – refer to Note 3.3 for
further information.
The Bank invests in debt securities at amortised cost that are issued by 100 per cent owned securitisation vehicles within the
Consolidated Group. During the year, the Bank reviewed the treatment of the securitisation notes issued under the REDS Securitisation
and Impala Securitisation programs and purchased by the Bank. The programs’ underlying pool of financial instruments are recorded
within the Bank’s Loans and advances. In prior years, the balances relating to these internally held securitisation notes were netted off
within the financial statements. The balances are now disclosed separately within financial assets and the associated liability on the
Bank’s Balance Sheet. For comparison purposes, the prior year balances have been reclassified throughout the Bank’s 2019 financial
statements. There is no effect on net assets or total comprehensive income at 31 August 2018. There is no change to the Consolidated
Entity Balance Sheet.
Also included in this category are loans and advances at amortised cost (refer to Note 3.3 Loans and advances) and receivables due from
other financial institutions recognised and measured at amortised cost.
For financial liabilities at amortised cost: refer to Note 3.4 for further information on Deposits and Note 3.5 for further information
on Borrowings.
Financial assets measured at fair value through other comprehensive income (FVOCI)
Financial assets held in a business model that is achieved by both collecting and selling contractual cash flows that contain contractual
terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at FVOCI. Gains
or losses arising from changes in the fair value of these financial instruments are recognised in other comprehensive income. Interest
income and foreign exchange gains and losses are recognised in profit or loss in the Income Statement, as are cumulative gains or losses
previously recognised in other comprehensive income upon derecognition of the financial instruments.
Equity instruments that are not held for trading are measured at FVOCI, where an irrevocable election has been made by management.
Amounts presented in other comprehensive income are not subsequently transferred to profit or loss, but can be reclassified to retained
profits. Dividends on such investments are recognised in profit or loss unless the dividend clearly represents a recovery of part of the
cost of the investment.
Financial instruments at fair value through profit or loss (FVTPL)
Financial assets that do not meet the criteria to be measured at amortised cost or FVOCI are measured at FVTPL, with all changes in fair
value recognised in the Income Statement. Financial assets in this category are those that are held for trading and have been designated
by management upon initial recognition or are mandatorily required to be measured at fair value under AASB 9.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value are recognised in profit or loss in the
Income Statement.
Modification of financial instruments
A financial instrument is modified when its original contractual cash flows are modified. A financial instrument that is modified is
derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms or if the existing terms
of the financial instrument are substantially modified. Where the modification results in derecognition of the original financial instrument,
a new financial instrument is recorded initially at fair value and the difference is recorded in profit or loss in the Income Statement.
When the modification does not result in derecognition, the difference between the financial instrument’s original contractual cash flows
and the modified cash flows, discounted at the original effective interest rate, are recognised as a gain or loss in the Income Statement.
Reclassification of financial instruments
The Consolidated Entity reclassifies financial assets when, and only when, it changes its business model for managing those assets.
Reclassified financial assets are subsequently measured based on the new measurement category.
The Consolidated Entity does not reclassify financial liabilities.
Derecognition of financial instruments
Financial assets are derecognised when, and only when, the contractual rights to receive cash flows from the assets have expired, or
where the Consolidated Entity has transferred its contractual rights to receive the cash flows of the financial assets or 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.
115
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.2 FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
Financial assets recognised and measured at fair value are listed below. For other financial assets and liabilities refer to Note 3.1 for Cash
and cash equivalents, Note 3.3 for Loans and advances, Note 3.4 for Deposits, Note 3.5 for Borrowings and Note 3.8 for Derivative
financial instruments and hedge accounting.
Consolidated
Bank
Derivative financial assets
Current
Non-current
Total derivative financial assets
Financial assets at FVTPL
Floating rate notes and bonds
Negotiable certificates of deposit
Reverse repurchase agreements
Total financial assets at FVTPL
Current
Financial assets held for trading
Floating rate notes and bonds
Negotiable certificates of deposit
Total held for trading
Current
Financial assets at FVOCI
Debt instruments
Equity instruments
Total financial assets at FVOCI
Current
Non-current
Financial assets available-for-sale
Debt instruments
Unlisted equity instruments
Total available-for-sale
Current
Non-current
Debt instruments at amortised cost (1)
Current
Non-current
2019
$m
47
182
229
954
619
1,013
2,586
2,586
-
-
-
-
3,569
6
3,575
192
3,383
-
-
-
-
-
-
-
-
2018
$m
48
87
135
-
-
-
-
-
430
955
1,385
1,385
-
-
-
-
-
3,943
3
3,946
817
3,129
2019
$m
47
98
145
954
619
1,013
2,586
2,586
-
-
-
-
3,569
6
3,575
192
3,383
-
-
-
-
-
-
-
-
216
5,252
5,468
2018
$m
49
31
80
-
-
-
-
-
430
955
1,385
1,385
-
-
-
-
-
3,972
3
3,975
846
3,129
187
4,680
4,867
(1) During the year, the Bank reviewed the treatment of the securitisation notes issued under the REDS Securitisation and Impala Securitisation programs and purchased by the
Bank. The balances were previously netted off within the Bank’s Balance Sheet, and thus disclosed as nil in the Bank’s 2018 Balance Sheet. The balances are now disclosed
separately within financial assets and the associated liability (Amounts due to controlled entities) on the Bank’s Balance Sheet. For comparison purposes, the prior year
balances have been reclassified throughout the Bank’s 2019 financial statements.
116
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
3.3 LOANS AND ADVANCES
Loans and advances at amortised cost
Loans and advances are originated by the Consolidated Entity 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.
Finance lease receivables
Loans and advances include finance lease receivables. Finance lease receivables, accounted for under AASB 117, are also originated
by the Consolidated Entity and are recognised upon cash being advanced to the borrower. Finance leases are those products where
substantially all the risks and rewards of the leased asset have been transferred to the lessee.
Finance lease receivables are initially recognised at amounts equal to the lower of fair value of the leased asset or the present value of
the minimum lease repayments. Subsequently, lease repayments are apportioned between the finance charge and the reduction of the
finance lease liability.
Consolidated
Bank
Residential property loans – secured by mortgages
Personal loans
Overdrafts
Commercial loans
Credit cards
Asset finance and leasing
Gross loans and advances
Less:
Unearned finance lease income
Specific provision for impairment
Collective provision for impairment
Total loans and advances
2019
$m
30,647
223
228
9,816
76
5,332
46,322
(106)
(85)
(148)
2018
$m
30,506
222
223
9,626
75
5,020
45,672
(393)
(86)
(115)
2019
$m
30,647
223
228
9,626
76
222
2018
$m
30,506
222
223
9,466
75
263
41,022
40,755
(22)
(65)
(99)
(28)
(74)
(82)
45,983
45,078
40,836
40,571
(a) Loans and advances - Expected credit losses (ECL)
The adoption of AASB 9 from 1 September 2018 has resulted in a change in the Consolidated Entity’s impairment methodology by
replacing AASB 139’s incurred loss approach with a forward-looking ECL approach. The ECL allowance is based on the credit losses
expected to arise over the next 12 months of the financial asset, unless there has been a significant increase in credit risk (SICR) since
origination. In this case, the allowance is based on the ECL for the life of the financial asset. The 12 months ECL is the portion of lifetime
ECLs that represent the ECLs that result from default events on a financial asset that are possible within the 12 months after the
reporting date.
At the end of each reporting period, the Consolidated Entity performs an assessment of whether a financial asset’s credit risk has
increased significantly since initial recognition. This is done by considering the change in the risk of default occurring over the remaining
life of the financial asset.
The Consolidated Entity applies a three stage approach to measuring the ECL, as described below:
•
•
Stage 1 – For financial assets where there has not been a SICR since initial recognition and that are not credit impaired upon origination,
the portion of the lifetime ECL associated with the probability of default (PD) occurring within the next 12 months is recognised as the
12 month ECL, adjusted for forward-looking information. Stage 1 includes facilities where the credit risk has improved and the loan has
been reclassified from Stage 2 or Stage 3.
Stage 2 – When there has been a SICR, the lifetime ECL is determined with reference to the financial asset’s lifetime PD and the
lifetime losses associated with that PD, adjusted for forward-looking information. The Consolidated Entity assesses whether there has
been a SICR since initial recognition based on qualitative, quantitative, and reasonable and supportable forward-looking information
that includes significant management judgement. Use of alternative criteria could result in significant changes to the timing and
amount of ECL to be recognised. Lifetime ECL is generally determined based on the behavioural maturity of the financial asset , which
is generally less than or equal to the contractual maturity. Stage 2 also includes facilities where the credit risk has improved and the
loan has been reclassified from Stage 3.
117
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
(a) Loans and advances - Expected credit losses (ECL) (continued)
•
Stage 3 - This includes financial assets that are deemed to be credit impaired, which generally correspond to the APRA definition
of default, and include exposures that are at least 90 days past due. The provision is also equivalent to the lifetime ECL. Financial
assets in Stage 3 will have a collective provision determined by the ECL model, although some loans are individually covered by a
specific provision. A specific provision is calculated based on estimated future cash flows discounted to their present value, net of any
collateral held against that financial asset.
Transition impact
On transition to AASB 9 on 1 September 2018 the Consolidated Entity’s total credit impairment allowances increased by $10 million
as a result of the following principle differences between AASB 139’s incurred credit loss requirements and AASB 9’s ECL impairment
requirements:
•
Forward looking information (FLI): AASB 9 requires the calculation of the ECL to include FLI, which incorporates macro-economic
information. Previously AASB 139 required the consideration of historical information that was updated to reflect current conditions
at the reporting date.
•
A 12-month minimum ECL requirement (stage 1): AASB 9 requires a 12-month ECL impairment allowance to be held on all exposures,
unless the contractual period is shorter.
•
SICR (stage 2): AASB 9 requires the Consolidated Entity to determine whether there has been a SICR since initial recognition, and in
such instances, to classify the exposure as stage 2 and recognise a lifetime expected credit loss.
•
Off balance sheet exposures: AASB 9’s scope includes certain off balance sheet exposures such as undrawn credit commitments,
financial guarantee contracts and letters of credit for which an ECL is required to be recognised. No impairment allowance was
specifically required to be recognised under AASB 139.
Write-offs
Financial assets are written off, either partially or in full, against the related provision when the Consolidated Entity concludes that there
is no reasonable expectation of recovery and all possible collateral has been realised. Recoveries of financial assets previously written off
are recognised in profit or loss based on the cash received.
Significant increase in credit risk
SICR for financial assets are assessed by comparing the risk of a default occurring over the expected life of a financial asset at the
reporting date compared to the corresponding risk of default at origination. In determining what constitutes a significant increase in
credit risk, the Consolidated Entity considers qualitative and quantitative information. For the majority of the Consolidated Entity’s Retail
portfolio, a statistical model has been developed to identify where a facility’s recent behaviour has deteriorated significantly from its
origination behaviour. For most of the Consolidated Entity’s Commercial portfolio the primary indicator of a significant increase in credit
risk is a change in the internal customer risk rating between origination and reporting date. For all loan portfolios, the primary indicator is
in addition to the secondary SICR indicator, which is based on 30 days past due arrears information.
Calculation of ECL
Both 12 months ECLs and lifetime ECLs are calculated on either an individual basis or a collective basis, depending on the nature of the
underlying portfolio of financial assets. When calculating the ECL, portfolios of financial assets are grouped as follows:
•
•
Retail lending: Home loans model, Personal loans model and BOQ Specialist model,
Commercial lending: Commercial risk rated model and Equipment Finance model.
Where ECL is modelled collectively for portfolios of exposures, it is modelled primarily as the product of the PD, the loss given default
(LGD) and the exposure at default (EAD).
These parameters are generally derived from internally developed statistical models combined with historical, current and forward-
looking information, including macro-economic data:
•
The 12-months and lifetime PD, for accounting purposes, represent the estimation of the point-in-time probability of a default over
the next 12 months and remaining lifetime of the financial instrument, respectively, based on conditions existing at the balance
sheet date and future economic conditions that affect credit risk;
•
The EAD represents the expected exposure at default, taking into account the repayment of principal and interest from the balance
sheet date to the default event together with any expected drawdown of a facility; and
•
The LGD represents the expected loss conditional on default, taking into account the mitigating effect of collateral, its expected
value when realised, and the time value of money.
118
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
Incorporation of forward-looking information
The credit risk factors described above are at a point in time estimates based on the probability weighted forward-looking economic
scenarios. The inclusion of a forward-looking component in the model anticipates changes in the economic outlook, which will likely
increase the volatility of the provision. The Consolidated Entity considers four forward-looking macro-economic scenarios (boom,
recovery, slow down and recession) over time horizons ranging from one year to over four years to ensure a sufficient unbiased
representative sample is included in estimating the forward-looking ECL. Sensitivity analysis is also performed on each of the macro-
economic scenarios and if conditions warrant, this could result in a management overlay for economic uncertainty which is included in
the ECL.
The scenarios, including its underlying indicators, are developed using a combination of publicly available data, internal forecasts and third
party information to form the initial baseline. The scenarios are refined through consultation with internal specialists and benchmarking
to external data from reputable sources, which includes forecasts published from a range of market economists and official data sources,
including major central banks.
Economic outlook factors that are taken into consideration include, but are not limited to, unemployment, interest rates, gross domestic
product, inflation, commercial and residential property price indexes, and require an evaluation of both the current and forecast direction
of the macro-economic cycle.
Incorporating forward looking information, including macro-economic forecasts, increases the degree of judgement required to assess
how changes in these data points will affect ECLs. The methodologies and assumptions, including any forecasts of future economic
conditions, are reviewed regularly.
Governance
The Executive Credit Committee has the delegation for reviewing and approving the methodology, including any judgements and
assumptions. The Consolidated Entity holds a semi-annual Economic Forum to discuss and approve future economic forecasts, and
the associated probability weights and economic scenarios. Where applicable, management adjustments or overlays may be made
to account for situations where known or expected risks and information have not been considered in the modelling process. The
Consolidated Entity’s provision for impairment on loans and advances, and key areas of judgement are reported to the Group’s Audit
Committee and Board at each reporting period.
119
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
The following table discloses the reconciliation of the ECL model of the Consolidated Entity for the year ended 31 August 2019.
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Specific
provision
$m
Collective
provision
$m
-
69
69
8
(4)
(1)
41
(32)
-
-
81
-
38
38
(7)
4
(5)
29
(15)
-
-
44
-
18
18
(1)
-
3
13
(10)
-
-
23
-
86
86
-
-
3
44
(1)
(44)
(3)
85
86
(86)
-
-
-
-
-
-
-
-
-
115
(115)
-
-
-
-
-
-
-
-
-
Consolidated
Balance as at 31 August 2018
Change on adoption of AASB 9
Balance as at 1 September 2018
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New/increased provisions
Write-back of provisions no longer
required
Amounts written off, previously
provided for
Unwind discount
Balance as at 31 August 2019
Total
$m
201
10
211
-
-
-
127
(58)
(44)
(3)
233
The table below discloses the effect of movements in the gross carrying value of loans and advances in the different stages of the ECL
model of the Consolidated Entity during the year ended 31 August 2019.
Consolidated
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Total (1)
$m
Gross carrying amount as at 1 September 2018
42,337
2,500
274
168
45,279
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or purchased
Loans and advances derecognised during the year
including write-offs
Balance as at 31 August 2019
Provision for impairment
Net carrying amount as at 31 August 2019
636
(1,220)
(169)
11,055
(9,406)
43,233
(81)
43,152
(625)
1,236
(128)
72
(630)
2,425
(44)
2,381
(6)
(14)
193
6
(102)
351
(23)
328
(5)
(2)
104
6
(64)
207
(85)
122
-
-
-
11,139
(10,202)
46,216
(233)
45,983
(1) The amounts presented above are inclusive of unearned finance lease income.
120
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
The following table discloses the reconciliation of the new ECL model of the Bank for the year ended 31 August 2019.
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Specific
provision
$m
Collective
provision
$m
-
44
44
6
(1)
-
14
(16)
-
-
47
-
31
31
(5)
2
(5)
21
(11)
-
-
33
-
17
17
-
(1)
3
9
(9)
-
-
19
-
74
74
(1)
-
2
28
(7)
(28)
(3)
65
74
(74)
-
-
-
-
-
-
-
-
-
82
(82)
-
-
-
-
-
-
-
-
-
Bank
Balance as at 31 August 2018
Change on adoption of AASB 9
Balance as at 1 September 2018
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New/increased provisions
Write-back of provisions no longer
required
Amounts written off, previously
provided for
Unwind discount
Balance as at 31 August 2019
Total
$m
156
10
166
-
-
-
72
(43)
(28)
(3)
164
The table below discloses the effect of movements in the gross carrying value of loans and advances in the different stages of the ECL
model of the Bank during the year ended 31 August 2019.
Bank
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Total (1)
$m
Gross carrying amount as at 1 September 2018
37,983
2,313
271
160
40,727
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or purchased
Loans and advances derecognised during the year
including write-offs
Balance as at 31 August 2019
Provision for impairment
Net carrying amount as at 31 August 2019
593
(1,052)
(147)
8,509
(7,620)
38,266
(47)
38,219
(582)
1,068
(123)
63
(527)
2,212
(33)
2,179
(6)
(14)
186
4
(100)
341
(19)
322
(5)
(2)
84
1
(57)
181
(65)
116
-
-
-
8,577
(8,304)
41,000
(164)
40,836
(1) The amounts presented above are inclusive of unearned finance lease income.
121
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
As stated in Note 1.5, comparatives have not been restated and are shown below.
Consolidated
Bank
2018
$m
2018
$m
Specific provision:
Balance at the beginning of the year
Add: Expensed during the year
Less: Bad debts written off
Unwind of discount
Balance at the end of the year
Collective provision:
Balance at the beginning of the year
Add: Released during the year
Balance at the end of the year
Total provisions for impairment
106
44
(61)
(3)
86
121
(6)
115
201
(b) Lease receivables
Asset finance and leasing include the following finance lease receivables for leases 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 finance lease income
Net investment in finance leases
The net investment in finance leases:
Less than one year
Between one and five years
More than five years
2019 (1)
$m
373
725
61
1,159
(106)
1,053
333
667
53
1,053
2018
$m
1,909
3,015
96
5,020
(393)
4,627
1,740
2,805
82
4,627
2019
$m
24
161
37
222
(22)
200
24
145
31
200
90
31
(44)
(3)
74
92
(10)
82
156
2018
$m
23
192
48
263
(28)
235
22
173
40
235
(1) As part of transition to AASB 9, all products offered by the Group were reviewed to determine if they are loans within the scope of AASB 9 or finance leases within the scope
of AASB 117. The current year finance lease receivables disclosure has been updated to reflect finance lease receivables within the scope of AASB 117.
122
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.3 LOANS AND ADVANCES (CONTINUED)
(c) Transfer of financial assets
Securitisation program
Through its REDS Securitisation (RMBS Trusts), REDS EHP Securitisation (REDS EHP Trusts) and Impala Securitisation programs, the
Consolidated Entity packages loans and advances through a series of securitisation vehicles from which debt securities are issued to
investors. The Consolidated Entity is entitled to any residual income from the vehicles after all payments to investors and costs of the
programs have been met. The securitised loans and advances are included in Loans and advances and the securitisation liabilities are
included in Borrowings on the Bank’s Balance Sheet. The note holders have recourse only to the loan pool of assets. Refer to Note 6.9 (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 9 and typically result in the transferred assets continuing to be recognised in full.
TRANSFERRED FINANCIAL ASSETS
Securitisation - Loans and advances (1)
Covered Bonds - Loans and advances
ASSOCIATED FINANCIAL LIABILITIES
Securitisation Liabilities - External investors
Covered Bonds - External investors
Amounts due to controlled entities (1)
FOR THOSE LIABILITIES THAT HAVE RECOURSE
ONLY TO TRANSFERRED ASSETS (2)
Fair value of transferred assets
Fair value of associated liabilities
Net position
Consolidated
Bank
2019
$m
4,532
2,776
7,308
4,623
1,652
-
6,275
2018
$m
3,400
1,382
4,782
3,580
806
-
4,386
2019
$m
8,906
2,776
11,682
-
1,652
8,900
10,552
7,341
(6,275)
1,066
4,785
(4,386)
399
11,716
(10,552)
1,164
2018
$m
8,158
1,382
9,540
-
806
8,326
9,132
9,543
(9,132)
411
(1) During the year, the Bank reviewed the treatment of the securitisation notes issued under the REDS Securitisation and Impala Securitisation programs and purchased by the
Bank. The balances were previously netted off within the Bank’s Balance Sheet. The balances are now disclosed separately within financial assets and the associated liability
on the Bank’s Balance Sheet. For comparison purposes, the prior year balances have been reclassified throughout the Bank’s 2019 financial statements.
(2) 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 cash flow model.
123
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.4 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
Consolidated
Bank
2019
$m
16,343
18,061
3,933
38,337
32,428
5,909
38,337
2018
$m
14,786
18,747
4,484
38,017
31,325
6,692
38,017
2019
$m
16,488
18,107
3,933
38,528
32,573
5,955
38,528
2018
$m
14,991
18,791
4,484
38,266
31,530
6,736
38,266
3.5 BORROWINGS
Borrowings 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.
The Consolidated Entity recorded the following movements on borrowings:
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities (2)
$m
EMTN
ECP
Subordinated
unsecured
program
program
$m
$m
notes
$m
notes
$m
Capital
Notes (3)
$m
Total
$m
Senior
YEAR ENDED 31 AUGUST 2019
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs (4)
Foreign exchange translation (4)
3,576
2,264
(1,222)
(3)
2
-
804
811
-
(2)
1
35
Balance at end of the year
4,617
1,649
276
20
(46)
-
-
13
263
93
-
(90)
-
-
(3)
-
349
4,486
493
10,077
-
-
-
-
-
926
(801)
-
2
-
-
-
-
2
-
4,021
(2,159)
(5)
7
45
349
4,613
495
11,986
124
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.5 BORROWINGS (CONTINUED)
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities (2)
$m
EMTN
ECP
Subordinated
unsecured
program
program
$m
$m
notes
$m
notes
$m
Senior
CPS and
Capital
Notes (3)
$m
Total
$m
YEAR ENDED 31 AUGUST 2018
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs (4)
Foreign exchange translation (4)
Balance at end of the year
3,424
1,288
(1,135)
(2)
1
-
3,576
749
-
-
-
1
54
804
172
93
-
-
-
11
276
321
88
(322)
-
-
6
93
200
200
(50)
(1)
-
-
4,338
1,459
(1,311)
(1)
1
-
447
191
9,651
3,319
(141)
(2,959)
(7)
3
-
(11)
6
71
349
4,486
493
10,077
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.
(1)
(2) Covered bonds liabilities are secured by a charge over a pool of loans and advances and guaranteed by the covered bond guarantor.
(3) Wholesale Capital Notes
On 26 May 2015, the Bank issued 15,000 Wholesale Capital Notes (WCN) at a price of $10,000 per note. WCN are non-cumulative, fully paid and are issued by the Bank on a
perpetual and subordinated basis. They are not guaranteed or secured. As at 31 August 2019, 15,000 WCN were outstanding with accrued distributions of $2 million. WCN
must convert to ordinary shares on a mandatory conversion date of 26 May 2022 if certain mandatory conversion conditions are satisfied. Upon conversion, WCN holders
will receive a number of ordinary shares based on the value weighted average price during a specified period. The WCN must also convert to ordinary shares of the Bank with
the occurrence of a non-viability event, a capital trigger event or an acquisition event. BOQ may elect to redeem or resell the WCN on 26 May 2020 or following a regulatory
or tax event. These options are subject to APRA’s prior written approval and certain conditions being satisfied. In a winding up of the Bank, if the WCN have not been
converted or written off on account of a non-viability trigger event or capital trigger event, the 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.
Capital Notes
On 28 December 2017, the Bank issued 3,500,000 Capital Notes at a price of $100 per note. Capital Notes are perpetual and convertible notes issued by BOQ, with
preferred, discretionary, non-cumulative distributions. They are not guaranteed or secured. As at 31 August 2019, 3,500,000 Capital Notes were outstanding with accrued
distributions of $1 million. Capital Notes must convert into ordinary shares on 15 August 2026 if certain mandatory conversion conditions are satisfied, unless they are
converted or redeemed earlier. Where the mandatory conversion conditions are satisfied, a holder will receive a number of ordinary shares per Capital Note based on the
value weighted average price of ordinary shares during a specified period. The Capital Notes must also convert to ordinary shares of the Bank with the occurrence of a loss
absorption event or an acquisition event. BOQ may elect to convert, redeem or resell Capital Notes on 15 August 2024 or following a regulatory or tax event. BOQ may also
elect to convert all Capital Notes following a potential acquisition event. These options are subject to APRA’s prior written approval and certain conditions being satisfied. In
a winding up of the Bank, Capital Notes will rank for payment of capital ahead of ordinary shares, equally with CPS, WCN and other equal ranking instruments, but behind the
claims of all senior ranking creditors, including depositors and unsubordinated and subordinated creditors.
CPS
On 24 December 2012, the Bank issued 3,000,000 CPS. CPS were fully paid, perpetual and convertible preference shares with preferred, discretionary, non-cumulative
dividends. They were not guaranteed or secured. In accordance with the ASX announcement dated 5 March 2018, BOQ confirmed the redemption of all outstanding CPS
on the optional conversion/redemption date of 16 April 2018 with the redemption price of $102.44 per CPS, comprising the face value of $100 per CPS and a final dividend
of $2.44 per CPS for the period from (and including) 16 October 2017 to (but excluding) the redemption date of 16 April 2018. The ASX announcement on 16 April 2018
confirmed the removal of CPS from official quotation at close of trading on 16 April 2018.
(4) Amortisation of deferred costs and foreign exchange translation are non-cash movements. Foreign exchange translation movements are 100 per cent hedged.
125
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
3.5 BORROWINGS (CONTINUED)
The Bank recorded the following movements on borrowings:
YEAR ENDED 31 AUGUST 2019
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs (3)
Foreign exchange translation (3)
Balance at end of the year
YEAR ENDED 31 AUGUST 2018
Balance at beginning of year
Proceeds from issues
Repayments
Deferred establishment costs
Amortisation of deferred costs (3)
Foreign exchange translation (3)
Balance at end of the year
Covered
bonds
liabilities(1)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Capital
Notes (2)
$m
Total
$m
806
811
-
-
-
35
1,652
276
20
(46)
-
-
13
263
93
-
(90)
-
-
(3)
-
349
4,486
493
6,503
-
-
-
-
-
926
(801)
-
2
-
-
-
-
2
-
1,757
(937)
-
4
45
349
4,613
495
7,372
Covered
bonds
liabilities(1)
$m
EMTN
program
$m
ECP
program
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
CPS and
Capital
Notes (2)
$m
752
-
-
-
-
54
806
172
93
-
-
-
11
276
321
88
(322)
-
-
6
93
Total
$m
6,230
2,031
(1,824)
(9)
4
71
200
200
(50)
(1)
-
-
4,338
1,459
(1,311)
(1)
1
-
447
191
(141)
(7)
3
-
349
4,486
493
6,503
(1) Covered bonds liabilities are secured by a charge over covered pool of loans and advances and guaranteed by the covered bond guarantor.
(2) Wholesale Capital Notes
On 26 May 2015, the Bank issued 15,000 WCN at a price of $10,000 per note. WCN are non-cumulative, fully paid and are issued by the Bank on a perpetual and subordinated
basis. They are not guaranteed or secured. As at 31 August 2019, 15,000 WCN were outstanding with accrued distributions of $2 million. WCN must convert to ordinary
shares on a mandatory conversion date of 26 May 2022 if certain mandatory conversion conditions are satisfied. Upon conversion, WCN holders will receive a number of
ordinary shares based on the value weighted average price during a specified period. The WCN must also convert to ordinary shares of the Bank with the occurrence of a
non-viability event, a capital trigger event or an acquisition event. BOQ may elect to redeem or resell the WCN on 26 May 2020 or following a regulatory or tax event. These
options are subject to APRA’s prior written approval and certain conditions being satisfied. In a winding up of the Bank, if the WCN have not been converted or written off
on account of a non-viability trigger event or capital trigger event, the 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.
Capital Notes
On 28 December 2017, the Bank issued 3,500,000 Capital Notes at a price of $100 per note. Capital Notes are perpetual and convertible notes issued by BOQ, with
preferred, discretionary, non-cumulative distributions. They are not guaranteed or secured. As at 31 August 2019, 3,500,000 Capital Notes were outstanding with accrued
distributions of $1 million. Capital Notes must convert into ordinary shares on 15 August 2026 if certain mandatory conversion conditions are satisfied, unless they are
converted or redeemed earlier. Where the mandatory conversion conditions are satisfied, a holder will receive a number of ordinary shares per Capital Note based on the
value weighted average price of ordinary shares during a specified period. The Capital Notes must also convert to ordinary shares of the Bank with the occurrence of a loss
absorption event or an acquisition event. BOQ may elect to convert, redeem or resell Capital Notes on 15 August 2024 or following a regulatory or tax event. BOQ may also
elect to convert all Capital Notes following a potential acquisition event. These options are subject to APRA’s prior written approval and certain conditions being satisfied. In
a winding up of the Bank, Capital Notes will rank for payment of capital ahead of ordinary shares, equally with CPS, WCN and other equal ranking instruments, but behind the
claims of all senior ranking creditors, including depositors and unsubordinated and subordinated creditors.
CPS
On 24 December 2012, the Bank issued 3,000,000 CPS. CPS were fully paid, perpetual and convertible preference shares with preferred, discretionary, non-cumulative
dividends. They were not guaranteed or secured. In accordance with the ASX announcement dated 5 March 2018, BOQ confirmed the redemption of all outstanding CPS
on the optional conversion/redemption date of 16 April 2018 with the redemption price of $102.44 per CPS, comprising the face value of $100 per CPS and a final dividend
of $2.44 per CPS for the period from (and including) 16 October 2017 to (but excluding) the redemption date of 16 April 2018. The ASX announcement on 16 April 2018
confirmed the removal of CPS from official quotation at close of trading on 16 April 2018.
(3) Amortisation of deferred costs and foreign exchange translation are non-cash movements. Foreign exchange translation movements are 100 per cent hedged.
126
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
3.6 RISK MANAGEMENT
The Consolidated Entity adopts a “managed risk” approach to its banking and insurance activities in which the articulation of a risk aware
culture is prevalent throughout the Consolidated Entity’s credit, market, liquidity, insurance, operational 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.
2.
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;
providing management and the Board with risk reporting that contributes to the further development of sound corporate
governance standards;
3. maintaining regulatory compliance in line with regulators’ expectations;
4.
providing a sound basis from which the Bank can progress to the required compliance level under the Basel II accord; and
5. contributing 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; and
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 Consolidated Entity. 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
per cent parallel shock increase to the yield curve.
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
2019
$m
(12)
(1)
5
(12)
2018
$m
15
2
15
(8)
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.
127
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 per cent 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 analysis 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
(b) Credit risk
2019
$m
0.19
0.31
0.12
2018
$m
0.21
0.82
0.10
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 counter parties fail to meet contractual payment obligations to the Consolidated Entity 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 which may include reassessment of the assigned risk grade;
an automated scorecard approval model for the Bank’s retail portfolio inclusive of home loans, home equity lines of credit and
personal loans. This model is supported by experienced risk assessment managers; and
a series of management reports detailing industry concentrations, counter party 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 counter parties
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.
128
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 Entity
Cash and cash equivalents
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
Total financial assets
Customer commitments (2)
Total potential exposure to credit risk
2019
2018 (1)
Stage 1
$m
1,274
708
6,220
229
8,431
43,339
51,770
1,799
53,569
Stage 2
$m
Stage 3
$m
-
-
-
-
-
2,425
2,425
-
2,425
-
-
-
-
-
558
558
-
558
Total
$m
1,274
708
6,220
229
8,431
46,322
54,753
1,799
56,552
Total
$m
1,212
6
5,395
135
6,748
45,672
52,420
1,753
54,173
(1) As permitted by AASB 9, previously reported financial periods have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
(2) Refer to Note 6.2 for details of customer commitments.
Bank
Cash and cash equivalents
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
Total financial assets
Customer commitments (2)
Total potential exposure to credit risk
2019
2018 (1)
Stage 1
$m
685
668
11,683
145
13,181
38,288
51,469
952
52,421
Stage 2
$m
Stage 3
$m
-
-
-
-
-
2,212
2,212
-
2,212
-
-
-
-
-
522
522
-
522
Total
$m
685
668
11,683
145
13,181
41,022
54,203
952
55,155
Total
$m
840
6
10,287
80
11,213
40,755
51,968
995
52,963
As permitted by AASB 9, previously reported financial periods have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
(1)
(2) Refer to Note 6.2 for details of customer commitments.
129
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
(i) Maximum exposure to credit risk (continued)
The distribution of financial assets by credit quality at the reporting date was:
Consolidated
Neither past due or impaired
Gross loans and advances
Financial assets other than loans and advances
Past due but not impaired
Gross loans and advances
Impaired
Gross loans and advances
Total financial assets
2019
$m
45,061
43,142
1,828
91
8,431
8,431
-
-
1,064
197
597
270
197
-
-
197
54,753
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
2018 (1)
$m
44,653
-
-
-
6,748
-
-
-
855
-
-
-
164
-
-
-
Bank
2019
$m
39,934
38,175
1,670
89
13,181
13,181
-
-
917
113
542
262
171
-
-
171
2018 (1)
$m
39,851
-
-
-
11,213
-
-
-
756
-
-
-
148
-
-
-
52,420
54,203
51,968
(1) As permitted by AASB 9, previously reported financial periods have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
There is no individual exposure included in impaired assets which exceeds 5% of shareholders’ equity (2018: nil).
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 collateral
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 where
it is a requirement of a scheduled review or 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.
Held against past due but not impaired assets
Held against impaired assets
Consolidated
Bank
2019
$m
1,921
192
1,073
656
146
-
-
146
2018 (1)
$m
1,397
-
-
-
105
-
-
-
2019
$m
1,775
113
1,015
647
133
-
-
133
2018 (1)
$m
1,335
-
-
-
98
-
-
-
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
(1) As permitted by AASB 9, previously reported financial years have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
130
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
(ii) Credit quality
The credit quality categories of financial assets have been determined based on Standard & Poor’s credit ratings, APRA risk
weightings and the Bank’s standard risk grading. The categories are classified as below:
• High grade - generally corresponds to Standard & Poor’s credit ratings AAA+ to BBB-.
• Satisfactory - generally corresponds to Standard & Poor’s credit rating BB+ to B.
• Weak - generally corresponds to Standard & Poor’s credit ratings up to B.
• Unrated - Loans and advances which have been classified as unrated are not secured, however these are not deemed to be weak.
The table below presents an analysis of the credit quality of financial assets:
Consolidated
2019
$m
2018 (1)
$m
Gross loans & advances
Gross loans & advances
Retail Commercial
Gross
loans &
advances
Other
financial
assets
Retail
Commercial
Gross
loans &
advances
Other
financial
assets
High Grade
Stage 1
Stage 2
Stage 3
Satisfactory
Stage 1
Stage 2
Stage 3
Weak
Stage 1
Stage 2
Stage 3
Unrated
Stage 1
Stage 2
Stage 3
25,610
24,538
981
91
4,970
4,800
139
31
313
160
43
110
53
53
-
-
4,571
4,083
438
50
9,688
8,872
620
196
902
629
200
73
215
203
5
7
30,181
28,621
1,419
141
14,658
13,672
759
227
1,215
789
243
183
268
256
5
7
8,425
8,425
-
-
-
-
-
-
6
6
-
-
-
-
-
-
25,294
4,388
29,682
6,745
-
-
-
-
-
-
-
-
-
5,114
8,967
14,081
-
-
-
-
-
-
-
-
-
330
1,327
1,657
-
-
-
65
-
-
-
-
-
-
-
-
-
187
252
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
-
-
-
-
-
-
30,946
15,376
46,322
8,431
30,803
14,869
45,672
6,748
(1) As permitted by AASB 9, previously reported financial years have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
131
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
2019
$m
Bank
2018 (1)
$m
Gross loans & advances
Gross loans & advances
Retail Commercial
25,610
24,538
981
91
4,970
4,800
139
31
313
160
43
110
53
53
-
-
3,865
3,377
438
50
5,853
5,088
571
194
143
58
40
45
215
214
-
1
Gross
loans &
advances
29,475
27,915
1,419
141
10,823
9,888
710
225
456
218
83
155
268
267
-
1
Other
financial
assets
12,149
12,149
-
-
66
66
-
-
6
6
-
-
960
960
-
-
Retail
Commercial
Gross
loans &
advances
Other
financial
assets
25,294
3,640
28,934
11,180
-
-
-
-
-
-
-
-
-
5,114
5,637
10,751
-
-
-
-
-
-
-
-
-
330
488
818
-
-
-
65
-
-
-
-
-
-
-
-
-
187
252
-
-
-
-
-
-
-
-
-
19
-
-
-
14
-
-
-
-
-
-
-
High Grade
Stage 1
Stage 2
Stage 3
Satisfactory
Weak
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Unrated
Stage 1
Stage 2
Stage 3
30,946
10,076
41,022
13,181
30,803
9,952
40,755
11,213
(1) As permitted by AASB 9, previously reported financial years have not been restated. Refer to Note 1.5 for the impact from the initial adoption of AASB 9.
(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.
Consolidated
Less than 30 days
- Retail
- Commercial
30 to 89 days
- Retail
- Commercial
90 days or more
- Retail
- Commercial
Consolidated
Bank
2019
$m
303
262
132
56
213
98
1,064
2018
$m
224
162
161
48
150
110
855
2019
$m
303
150
132
29
213
90
917
2018
$m
224
85
161
30
150
106
756
132
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(b) Credit risk (continued)
(iv) Concentration of exposure for gross loans and advances
Concentration of credit risk exists when a number of counter parties 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 Consolidated Entity 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
(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
2019
$m
19,963
13,105
6,900
272
341
2018
$m
20,221
12,026
7,044
287
323
2019
$m
18,170
11,729
5,728
256
310
4,333
4,463
3,981
802
229
377
771
230
307
645
203
-
2018
$m
18,526
10,687
6,012
277
300
4,143
611
199
-
46,322
45,672
41,022
40,755
133
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk
Liquidity risk arises from the possibility that the Consolidated Entity 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 sufficient cash balances and liquid assets, continuously monitoring forecast
and actual cash flows, matching maturity profiles of financial assets and liabilities and monitoring liquidity scenario analysis.
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
Policy
holder
$m
Total
contractual
cash flows
$m
-
-
-
-
-
-
9
9
-
-
-
-
-
-
285
38,629
44
394
4,978
7,741
9
52,080
3,986
(3,427)
559
301
1,498
1,799
Consolidated
2019
FINANCIAL LIABILITIES
Due to other financial
institutions
Deposits
Derivative financial
instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings
Insurance policy liabilities
285
285
-
-
38,337
16,343
13,614
7,702
49
394
4,617
7,369
9
-
-
-
-
-
11
394
465
640
-
11
-
973
969
-
-
969
20
-
2,397
6,132
-
-
1
2
-
1,143
-
-
Total financial liabilities
51,060
16,628
15,124
9,655
9,518
1,146
DERIVATIVE FINANCIAL
INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and
letters of credit
Customer funding commitments
-
-
-
837
(817)
20
401
2,596
(302)
(2,245)
99
351
461
301
1,498
1,799
-
-
-
-
-
-
-
-
-
152
(63)
89
-
-
-
Derivative financial instruments other than those designated in hedge relationships.
(1)
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
134
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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
Policy
holder
$m
Total
contractual
cash flows
$m
3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Consolidated
2018
FINANCIAL LIABILITIES
Due to other financial
institutions
Deposits
Derivative financial
instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities(2)
Borrowings
Liabilities held for sale (3)
315
315
-
-
38,017
14,786
13,340
9,389
8
360
3,576
6,501
22
-
-
-
-
-
2
360
260
66
-
2
-
611
1,055
-
-
893
6
-
2,117
5,901
-
-
-
1
-
659
-
-
Total financial liabilities
48,799
15,101
14,028
11,057
8,917
660
DERIVATIVE FINANCIAL
INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and
letters of credit
Customer funding commitments
176
-
-
-
304
1,449
1,753
853
(846)
7
-
-
-
452
(404)
48
1,664
(1,457)
207
-
-
-
-
-
-
211
(118)
93
-
-
-
-
-
-
-
-
-
22
22
-
-
-
-
-
-
315
38,408
11
360
3,647
7,022
22
49,785
3,180
(2,825)
355
304
1,449
1,753
Derivative financial instruments other than those designated in hedge relationships.
(1)
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
(3) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Refer to Note 6.5(d) for presentation
of the comparatives.
135
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Bank
2019
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
-
1
2
-
-
-
3
152
(63)
89
-
-
-
285
38,820
44
302
7,741
6,086
53,278
2,317
(1,832)
485
301
651
952
Due to other financial institutions
285
285
-
-
Deposits
38,528
16,488
13,660
7,702
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings
49
302
7,372
-
-
-
11
302
640
-
969
20
-
11
-
969
6,132
Amounts due to controlled entities
6,086
6,086
-
-
-
Total financial liabilities
52,622
22,859
14,613
8,682
7,121
DERIVATIVE FINANCIAL INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and letters of credit
Customer funding commitments
546
-
-
-
301
651
952
834
(827)
7
-
-
-
397
(326)
71
934
(616)
318
-
-
-
-
-
-
(1)
Derivative financial instruments other than those designated in hedge relationships.
136
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
(c) Liquidity risk (continued)
Bank
2018
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
315
315
-
-
Deposits
38,266
14,991
13,384
9,389
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings
8
304
6,503
-
-
-
2
304
66
2
-
1,055
Total financial liabilities
45,396
15,306
13,756
10,446
DERIVATIVE FINANCIAL INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and letters of credit
Customer funding commitments
230
-
-
-
304
691
995
849
(848)
1
-
-
-
433
(399)
34
-
-
-
-
893
6
-
5,901
6,800
852
(640)
212
-
-
-
-
-
1
-
-
1
211
(118)
93
-
-
-
315
38,657
11
304
7,022
46,309
2,345
(2,005)
340
304
691
995
(1)
Derivative financial instruments other than those designated in hedge relationships.
(d) Insurance risk
(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
During the financial year, the Bank’s insurance subsidiaries
issued a range of consumer credit insurance, life and
general insurance products. 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.
Risk strategy
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 requirements to which the
Consolidated Entity is subject.
Prudential capital requirements
Prudential capital requirements established by 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.
137
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.6 RISK MANAGEMENT (CONTINUED)
3.7 FAIR VALUE OF FINANCIAL INSTRUMENTS
(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
subsidiaries’ 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 invest accordingly.
Market risk is managed through investing in cash, deposits
and bank issued commercial bills. No more than 35 per cent
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 Consolidated Entity aims to maintain a diversified profile
of ages, genders, health statuses and geographic locations
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.
(a) 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:
• Derivatives;
• Financial instruments designated at FVTPL; and
• Financial instruments designated at FVOCI.
The fair value estimates for instruments carried at amortised
cost are based on the following methodologies and
assumptions:
Cash and cash equivalents, 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.
138
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.7 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(b) Comparison of fair value to carrying amounts
The tables below disclose the fair value of financial instruments where their carrying value is not a reasonable approximation of their
fair value:
ASSETS CARRIED AT AMORTISED COST
Loans and advances
LIABILITIES CARRIED AT AMORTISED COST
Deposits
Borrowings
ASSETS CARRIED AT AMORTISED COST
Loans and advances
Debt instruments at amortised cost
LIABILITIES CARRIED AT AMORTISED COST
Deposits
Borrowings
Note
3.3
3.4
3.5
Note
3.3
3.2
3.4
3.5
Consolidated Entity
Carrying value
Fair value
2019
$m
2018
$m
2019
$m
2018
$m
45,105
45,105
45,983
45,983
(38,337)
(11,986)
(50,323)
45,078
45,078
46,225
46,225
(38,017)
(38,372)
(10,077)
(48,094)
(11,981)
(50,353)
(38,020)
(10,074)
(48,094)
Bank
Carrying value
Fair value
2019
$m
2018
$m
2019
$m
2018
$m
40,836
5,468
46,304
40,571
4,867
45,438
40,958
5,469
46,427
40,585
4,868
45,453
(38,528)
(38,266)
(38,563)
(38,269)
(7,372)
(45,900)
(6,503)
(44,769)
(7,372)
(45,935)
(6,504)
(44,773)
The estimated fair values disclosed do not include the assets and liabilities that are not financial instruments.
139
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.7 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(c) 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 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.
• 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.
• Level 3: This category includes assets and liabilities for which the valuation includes inputs that are not based on observable market data.
This includes equity instruments where there are no quoted market prices.
The fair value hierarchy classification of instruments in Note 3.7 (b):
• Loans and advances - Level 3
• Deposits and borrowings - Level 2
• Debt Instruments at amortised cost - Level 2
The table below analyses financial instruments carried at fair value, by valuation method:
Consolidated Entity
Financial instruments measured at fair value
Derivative financial assets
Financial assets at FVTPL
Debt instruments at FVOCI
Equity instruments at FVOCI
Derivative financial liabilities
Consolidated Entity
Instruments carried at fair value
Derivative financial assets
Financial assets available-for-sale (1)
Financial assets at fair value through profit or loss (1)
Derivative financial liabilities
2019
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
-
1,013
3,097
-
4,110
-
4,110
229
1,573
472
-
2,274
(687)
1,587
-
-
-
6
6
-
6
2018
Level 1
$m
Level 2
$m
Level 3
$m
-
2,580
-
2,580
-
2,580
135
1,363
1,385
2,883
(294)
2,589
-
3
-
3
-
3
229
2,586
3,569
6
6,390
(687)
5,703
Total
$m
135
3,946
1,385
5,466
(294)
5,172
(1) Due to the adoption of AASB 9 from 1 September 2019, there have been changes in the classifications of financial instruments. See Note 1.5 for more information on the
Implementation of AASB 9.
There were no transfers between level 1 and 2 during the period. Level 3 movements from the prior period include:
• $4 million fair value increase on adoption of AASB 9. Refer to Note 1.5 for further information; and
• $1 million current period fair value loss in other comprehensive income.
140
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.7 FINANCIAL INSTRUMENTS (CONTINUED)
(c) Fair value hierarchy (continued)
Bank
Financial instruments measured at fair value
Derivative financial assets
Financial assets at FVTPL
Debt instruments at FVOCI
Equity instruments at FVOCI
Derivative financial liabilities
Bank
Instruments carried at fair value
Derivative financial assets
Financial assets available-for-sale (1)
Financial assets at fair value through profit or loss (1)
Derivative financial liabilities
2019
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
-
1,013
3,097
-
4,110
-
4,110
145
1,573
472
-
2,190
(687)
1,503
2018
-
-
-
6
6
-
6
145
2,586
3,569
6
6,306
(687)
5,619
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
-
2,580
-
2,580
-
2,580
80
1,392
1,385
2,857
(293)
2,564
-
3
-
3
-
3
80
3,975
1,385
5,440
(293)
5,147
(1) Due to the adoption of AASB 9 from 1 September 2019, there have been changes in the classifications of financial instruments. See Note 1.5 for more information on the
Implementation of AASB 9.
141
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
(a) Fair value of derivatives
The following tables summarise 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 set out the fair values of the derivative financial instruments.
Consolidated
2019
2018
Notional
Amount
$m
Fair Value
Asset
$m
Liability
$m
Notional
Amount
$m
Fair Value
Asset
$m
Liability
$m
DERIVATIVES AT FAIR VALUE THROUGH PROFIT OR LOSS
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
11,500
139
2,308
13,947
26,636
2,183
687
29,506
2,637
26
50
2
-
52
41
125
11
177
-
-
(48)
14,729
(1)
-
(49)
120
2,364
17,213
(159)
29,731
(8)
(1)
1,163
730
(168)
31,624
(470)
2,267
-
23
21
1
3
25
32
65
13
110
-
-
(7)
(1)
-
(8)
(33)
(2)
(1)
(36)
(250)
-
46,116
229
(687)
51,127
135
(294)
142
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(a) Fair value of derivatives (continued)
Bank
2019
2018
Notional
Amount
$m
Fair Value
Asset
$m
Liability
$m
Notional
Amount
$m
Fair Value
Asset
$m
Liability
$m
11,500
165
2,308
13,973
27,596
463
687
28,746
50
3
-
53
59
22
11
92
(48)
14,729
(1)
-
(49)
144
2,364
17,237
(159)
29,864
(8)
(1)
357
730
(168)
30,951
21
1
3
25
33
9
13
55
(7)
(1)
-
(8)
(32)
(2)
(1)
(35)
DERIVATIVES AT FAIR VALUE THROUGH PROFIT OR LOSS
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
2,637
-
(470)
2,267
-
(250)
45,356
145
(687)
50,455
80
(293)
(b) Hedging strategy
The Consolidated Entity and Bank used derivative financial instruments for both hedging and trading purposes in the current year and
prior year. Refer to Note 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.
The Consolidated Entity’s hedging strategy is to protect Net Interest Income (NII) from variability in interest rates in Australian dollars.
This requires the Consolidated Entity to enter into interest rate swaps allowing for the reduction in interest rate risk.
Foreign currency exposures are swapped to Australian dollars using cross-currency interest rate swaps. These cross currency swaps will
be matched to the underlying interest rate exposure of fixed or floating, respectively.
The majority of exposures are managed under the above strategy. Where a risk is within agreed limits, the Consolidated Entity may
decide not to apply hedge accounting to that risk. Instead, the Consolidated Entity will manage its exposure under broader risk
management processes.
(c) Accounting for derivatives
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 initially measured at fair value. Subsequent to initial recognition, gains or losses on derivatives are
recognised in the Income Statement, unless they are entered into for hedging purposes.
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 counter parties.
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.
143
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(c) Accounting for derivatives (continued)
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.
The following table shows the maturity profile of hedging derivatives based on their notional amounts.
2019
2018
Consolidated Entity
0 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
0 to 12
months
$m
1 to 5
years
$m
Over
5 years
$m
Total
$m
Interest rate swaps
29,908
8,999
1,866
40,773
35,620
9,090
2,017
46,727
Foreign exchange forwards
Futures
852
2,308
-
-
Cross currency swaps
132
2,049
-
-
2
852
2,308
2,183
873
2,364
45
-
-
1,116
-
-
2
873
2,364
1,163
(d) Hedging relationships
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, and 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 in profit or loss in the Income Statement 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.
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. To the extent the hedge is
ineffective, a portion is recognised immediately in the Income Statement within other income or other expenses.
144
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(d) Hedging relationships (continued)
The following table shows the executed rates for the most significant hedging instruments that have been designated in cash flow hedges
and net investment hedges that are in place at the balance date.
Hedging Instruments
Currency
2019
2018
Consolidated entity
Cash flow hedges
Interest rate swaps
AUD
0.863% - 4.145%
1.500% - 6.093%
Cash flow hedges
Cross currency swaps
AUD/USD
AUD/JPY
AUD/HKD
AUD/EUR
NZD/AUD
0.761 - 0.793
0.761- 0.793
83.100 - 83.178
83.100 - 83.178
5.940 - 5.940
5.940 - 5.940
0.617 - 0.672
0.641 - 0.672
0.984 - 0.885
0.984 - 0.885
Net Investment hedges
Foreign exchange forwards
AUD/NZD
1.049
1.098
Fair value hedges
Fair value hedges are used by the Consolidated Entity to manage exposure to changes in the fair value of an asset. Changes in fair values
arise from fluctuations in interest rates. The Consolidated Entity principally uses interest rate swaps to protect against such fluctuations.
Changes in the value of fair value hedges are recognised in the Income Statement, together with changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk.
All gains and losses associated with the ineffective portion of fair value hedge relationships are recognised immediately in the
Income Statement.
If the hedge relationship no longer meets the criteria for hedge accounting, it is discontinued. The fair value adjustment to the hedged
item is amortised to the Income Statement from the date of discontinuation over the period to maturity of the previously designated
hedge relationship using the effective interest method. If the hedged item is sold or repaid, the unamortised fair value adjustment is
recognised immediately in the Income Statement.
145
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(d) Hedging relationships (continued)
The following table shows the carrying value of hedged items designated in fair value hedge accounting relationships and the cumulative
fair value hedge accounting adjustment that has been recognised as part of that carrying value. These balances are being amortised
to the Income Statement on an effective yield basis. The Consolidated Entity does not hedge its entire exposure to a class of financial
instruments, nor does it apply hedge accounting in all instances, therefore the carrying amounts below will not equal the total carrying
amounts disclosed in other notes to these financial statements. As noted in the Consolidated Entity’s accounting policies, since the
hedged item is adjusted only for the hedged risk, the hedged item’s carrying value disclosed in the table will not be equivalent to its fair
value as disclosed in other notes to these financial statements. The accumulated amount of fair value hedge adjustments remaining in the
Balance Sheet for hedged items that have ceased to be adjusted for hedging gains and losses is a nil balance (2018: nil) for the Consolidated
Entity. This amount will be amortised to the income statement as a gain on an effective interest rate basis.
Consolidated Entity
2019
2018
Carrying value(1)
$m
Fair value hedge
adjustments
Debit/(Credit)
$m
Carrying value(1)
$m
Fair value hedge
adjustments
Debit/(Credit)
$m
ASSETS
Debt instruments at FVOCI
3,085
(297)
2,529
(75)
(1)
The carrying amounts in the table above exclude accrued interest from the carrying amount of hedged items.
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.
(e) Hedging ineffectiveness
Hedge ineffectiveness, in the case of a fair value hedge, is the extent to which the changes in the fair value of the hedging instrument differ
to that of the hedged item, and in the case of cash flow and net investment hedge relationships, the extent to which the change in the
hedging instrument exceeds that of the hedged item. Sources of hedge ineffectiveness primarily arise from basis and timing differences
between the hedged items and hedging instruments.
The following table contains the hedge ineffectiveness associated with cash flow hedge and fair value hedge relationships during the period,
as reported in Other operating income in the Income Statement:
Consolidated
2019
2018
Gains/(losses)
on hedge
instruments
$m
Gains/(losses)
on hedge items
$m
Hedge
Ineffectiveness
$m
Gains/(losses)
on hedge
instruments
$m
Gains/(losses)
on hedge items
$m
Hedge
Ineffectiveness
$m
INTEREST RATE RISK
Fair value hedges
Interest rate swaps
Cash flow hedges
(231)
230
Interest rate swaps
(114)
111
INTEREST RATE AND FOREIGN
EXCHANGE RISK
Fair value and cash flow hedges
(1)
(3)
(23)
(7)
23
11
Cross currency swaps
49
(49)
-
63
(63)
-
4
-
146
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(f) 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 counter party 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.
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
2019
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of recognised
assets and liabilities
available for offset
$m
229
(687)
(82)
82
2018
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of recognised
assets and liabilities available
for offset
$m
135
(294)
(39)
39
2019
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of recognised
assets and liabilities
available for offset
$m
145
(687)
(82)
82
2018
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of recognised
assets and liabilities
available for offset
$m
80
(293)
(39)
39
Cash
collateral
$m
-
609
Cash
collateral
$m
(8)
250
Cash
collateral
$m
-
609
Cash
collateral
$m
(8)
250
Net amounts if
offsetting applied in
the Balance Sheet
$m
147
4
Net amounts if
offsetting applied in
the Balance Sheet
$m
88
(5)
Net amounts if
offsetting applied in
the Balance Sheet
$m
63
4
Net amounts if
offsetting applied in
the Balance Sheet
$m
33
(4)
147
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 CET1 capital target range to be between 8.25 per cent and 9.5 per cent of risk weighted assets and the total capital
range to be between 11.75 per cent and 13.5 per cent of risk weighted assets.
Qualifying capital for Level 2 entities(1)
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
Common Equity Tier 1 Capital
Net Tier 1 Capital ratio
Total Capital Adequacy Ratio
2019
$m
3,497
171
132
3,800
(923)
(183)
67
2018
$m
3,418
4
394
3,816
(875)
(178)
(1)
(1,039)
(1,054)
2,761
500
3,261
350
175
525
3,786
30,533
9.04%
10.68%
12.40%
2,762
500
3,262
350
174
524
3,786
29,669
9.31%
10.99%
12.76%
(1) APRA Prudential Standard APS 001 Definitions 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:
• Bank of Queensland Limited Employee Share Plans Trust;
• 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 2012-1E REDS Trust;
• Series 2013-1 REDS Trust;
• Series 2015-1 REDS Trust;
• Series 2017-1 REDS Trust;
• Series 2018-1 REDS Trust; and
• Series 2019-1 REDS Trust.
148
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 controlled entity of the Bank, pursuant to the Awards Right,
Restricted Share and Employee Share Plans. 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
2019
No of shares
2018
No of shares
2019
No of shares
2018
No of shares
MOVEMENTS DURING THE YEAR
Balance at the beginning of the year – fully paid
397,311,850
391,739,729
397,311,850
391,739,729
Dividend reinvestment plan
Issues of ordinary shares (1)
8,472,959
-
4,719,312
852,809
8,472,959
-
4,719,312
852,809
Balance at the end of the year – fully paid
405,784,809
397,311,850
405,784,809
397,311,850
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
587,515
56,519
644,034
565,308
22,207
587,515
-
-
-
-
-
-
(1) On 26 October 2017, 850,000 ordinary shares were issued at $13.28 and on 17 May 2018, 2,809 ordinary shares were issued at $10.02 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
Note 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. Consistent with the requirements of APRA
Prudential Standard APS 220 Credit Quality, the equity reserve for
credit losses represents the difference between the accounting
collective provisions for impairment and the estimate of credit
losses across the credit cycle. 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.
Profit reserve
The profit reserve represents accumulated profits available for
distribution as a dividend.
Other reserves
FVOCI - Changes in the fair value of financial assets classified as
debt and equity instruments at FVOCI are recognised in other
comprehensive income as described in Note 3.2 and accumulated
in a separate reserve within equity. For debt instruments at
FVOCI, amounts are reclassified to Other operating income in
the Income Statement when the associated assets are sold or
impaired. For equity instruments at FVOCI, amounts are not
subsequently transferred to the Income Statement when the
associated assets are sold or impaired, but can be reclassified to
retained profits.
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 Note 3.8 (d). Amounts are reclassified to Other operating
income in the Income Statement when the associated hedged
transaction affects the Income Statement. There is $34 million
(2018: $33 million) remaining in the hedging reserve from hedging
relationships for which hedge accounting is no longer applied.
149
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS NOTE 4. OTHER ASSETS AND LIABILITIES
4.1
INTANGIBLE ASSETS
Consolidated
Bank
Customer
related
intangibles
and brands
$m
Computer
software (1)
$m
Goodwill
$m
Other
$m
Total
$m
Goodwill
$m
Customer
contracts
$m
Computer
software
$m
Other
$m
Total
$m
COST
Balance as at
1 September 2017
Additions
Disposals
Reclassified to held
for sale (2)
Balance as at
31 August 2018
Balance as at
1 September 2018
Additions
Impairment
Reclassified from
held for sale (2)
Balance as at
31 August 2019
682
130
-
-
-
682
682
-
-
-
-
-
(32)
98
98
-
-
32
411
71
(1)
-
481
481
95
(2)
-
22
1,245
619
3
-
-
25
25
3
-
-
74
(1)
(32)
1,286
1,286
98
(2)
32
-
-
-
619
619
-
-
-
89
-
-
-
89
89
-
-
-
389
68
(1)
-
17
3
-
-
1,114
71
(1)
-
456
20
1,184
456
93
(2)
-
20
1,184
3
-
-
96
(2)
-
682
130
574
28
1,414
619
89
547
23
1,278
AMORTISATION AND IMPAIRMENT LOSSES
Balance as at
1 September 2017
Amortisation for
the year
Impairment
Reclassified to held
for sale (2)
Balance as at
31 August 2018
Balance as at
1 September 2018
Amortisation for
the year
Impairment
Reclassified from
held for sale (2)
Balance as at
31 August 2019
CARRYING AMOUNTS
Carrying amount as
at 1 September 2017
Carrying amount as
at 31 August 2018
Carrying amount as
at 31 August 2019
-
-
-
-
-
-
-
-
-
-
114
238
21
373
6
-
(32)
88
88
1
-
32
60
2
-
300
300
41
1
-
2
-
-
23
23
4
-
-
68
2
(32)
411
411
46
1
32
121
342
27
490
-
-
-
-
-
-
-
-
-
-
75
229
5
-
-
80
80
1
-
-
57
2
-
288
288
38
1
-
17
1
-
-
18
18
4
-
-
321
63
2
-
386
386
43
1
-
81
327
22
430
682
682
682
16
10
9
173
181
232
1
2
1
872
619
875
924
619
619
14
9
8
160
168
220
-
2
1
793
798
848
(1)
Included within the Computer software cost is $117 million of Assets under construction (2018: $69 million). Assets under construction are not amortised, amortisation only
commences once the software is complete and is ready for use.
(2) The St Andrew’s Group was classified as held for sale as at 31 August 2018 but has ceased to be held for sale as at 31 August 2019. Refer to Note 6.5(d) for presentation of the
comparatives.
150
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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.
Amortisation
Except for goodwill, amortisation is charged to profit or 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:
Computer software
Customer related intangibles and brands
Years
3-15
3-12
Impairment testing of the cash generating units containing goodwill
For the purpose of the annual impairment test, goodwill is allocated to groups of cash-generating units (CGUs) which represent the
Controlled Entity’s operating segments - Retail Banking and BOQ Business (refer Note 2.5). The carrying amount of each CGU is
compared to its recoverable amount. The recoverable amount is based on the CGU’s value in use.
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 and business 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 Group’s Board approved budget (2018: three year projections);
• Subsequent cash flows were extrapolated for a further nine years beyond the Board approved budget incorporating key growth rate
assumptions;
• A terminal growth rate of 2.7 per cent (2018: 2.7 per cent) was used to extrapolate long-term growth; and
• A post-tax discount rate of 9.7 per cent (2018: 10.0 per cent) and a pre-tax discount rate of 13.6 per cent (2018: 14.3per cent) was used.
The key assumptions described above may change as economic and market conditions change. The Group estimates that reasonably
possible changes in these assumptions would not cause the recoverable amount of either CGU to decline below the carrying amount.
The aggregate carrying amounts of goodwill for each CGU are:
Retail Banking
BOQ Business
Total
2019
$m
288
394
682
2018
$m
288
394
682
151
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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
Provision for non-lending loss
Other
Total provisions
Consolidated
Bank
2019
$m
27
2
3
8
40
2018
$m
24
1
7
2
34
2019
$m
24
2
-
-
26
2018
$m
22
1
6
1
30
(1)
Employee benefits provision 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 Consolidated Entity 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 and is discounted using the rates attached to Australian 10 year corporate bonds at reporting date which most closely match the terms of maturity of the
related liabilities. $22 million (2018: $ 20 million) of this provision balance is classified as current.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
2019
Carrying amount at beginning of year
Additional provision recognised
Amounts utilised during the year
Release of provision
Reclassification from liabilities held for sale
Carrying amount at end of year
Current
Non-current
Consolidated
Leases
$m
Non-
lending loss
$m
Other
$m
Leases
$m
Bank
Non-
lending loss
$m
Other
$m
1
3
(2)
-
-
2
2
-
2
7
4
(2)
(6)
-
3
3
-
3
2
2
(1)
(1)
6
8
8
-
8
1
3
(2)
-
-
2
2
-
2
6
1
(1)
(6)
-
-
-
-
-
1
1
(2)
-
-
-
-
-
-
152
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
NOTE 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 2019.
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 per cent 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.
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.
Variable
Impact of movement in underlying variable
Mortality rates
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.
Morbidity rates
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.
153
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 5.1
INSURANCE BUSINESS (CONTINUED)
(b) Processes used to determine actuarial assumptions (continued)
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 2019 varied from 0.681 to 0.908 per cent.
(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 2019, 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.
(d) Reconciliation of movements
2019
$m
2018
$m
RECONCILIATION OF MOVEMENTS IN INSURANCE POLICY LIABILITIES
Life insurance contract policy liabilities
Gross life insurance contract liabilities at the beginning of the financial year
Increase / (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
Increase 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 profit for the year
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
6
3
9
(2)
(2)
(4)
5
1
23
(18)
5
3
1
4
9
11
(5)
6
(1)
(1)
(2)
4
(6)
28
(24)
4
4
1
5
9 (1)
(1) Total insurance policy liabilities were disclosed in Liabilities held for sale as at 31 August 2018.
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.
154
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
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 basis for determining the capital base and regulatory capital requirements are in accordance with relevant
prudential requirements.
2019
2018
Statutory
Fund No. 1
$m
Shareholders’
Fund
$m
Statutory
Fund No. 1
$m
Shareholders’
Fund
$m
CAPITAL BASE
Net assets
Add / (subtract) regulatory adjustments to net assets
Total capital base
Asset risk charge
Insurance risk charge
Operational risk charge
Aggregation benefit
Total prescribed capital amount
Assets in excess of prescribed capital amount
Capital adequacy multiple
30
(11)
19
1
2
2
(1)
4
15
5
1
-
1
-
-
-
-
-
1
73
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
34
(15)
19
1
-
2
-
3
16
7
2019
$m
31
(11)
20
4
6
10
10
2
1
-
1
-
-
-
-
-
1
72
2018
$m
35
(15)
20
3
7
10
10
2
155
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
2019
$m
2018
$m
44
1
45
39
9
48
(3)
1
(2)
3
(6)
1
42
5
47
5
11
16
31
31
52
1
53
37
7
44
9
(3)
6
7
(2)
1
50
4
54
4
14
18
36
36
5.1
INSURANCE BUSINESS (CONTINUED)
(e) Life insurance regulatory capital requirements (continued)
Disaggregated information on life insurance (before consolidation adjustments) is as follows:
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 / (loss) before income tax
Income tax expense / (income)
Profit / (loss) 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.
(f) Accounting policy
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).
156
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.
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.
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 5.1
INSURANCE BUSINESS (CONTINUED)
(f) Accounting policy (continued)
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 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.
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.
Investment income is recognised on an accruals basis. Realised
and unrealised gains and losses are included in the Income
Statement as investment income.
In addition, factors such as regulation, competition, interest
rates, taxes, securities market conditions and general economic
conditions affect the level of these liabilities.
157
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS NOTE 6. OTHER NOTES
6.1 EMPLOYEE BENEFITS
(a) Superannuation commitments
Superannuation plan
The Bank contributes to a number of 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 relevant 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 first introduced and approved
by shareholders on 11 December 2008, the current Award
Rights Plan was approved by shareholders on 30 November
2017. 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 Total Shareholder Return
(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 per
cent of the peer group. All of the PARs vest if the Bank’s TSR
performance is in the top 25 per cent. For TSR performance
between those targets, a relative proportion of the PARs
between 50 per cent and 100 per cent would vest. If the
Bank’s TSR performance is below 50 per cent of the Peer
Group, no PARs vest.
For issues granted from December 2015, the vesting
framework will also contain an EPS component, with 80 per
cent 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 per cent of PARs vest based on
the Bank’s EPS performance, measured against a financial
services peer group over a three year period.
For issues granted from December 2018, the performance
testing and vesting period for both the TSR and the EPS
tranches was extended to four years.
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 over three years in the ratio of 20 per
cent at the end of year one, 30 per cent at the end of year
two and 50 per cent 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.
158
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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
2019
’000
999
665
(108)
(304)
1,252
2018
’000
1,045
480
(159)
(367)
999
2019
’000
2,278
811
(1,203)
(99)
1,787
2018
’000
2,377
822
(610)
(311)
2,278
2019
’000
234
178
-
(210)
202
2018
’000
228
156
-
(150)
234
Balance at beginning of the year
Granted
Forfeited / expired
Exercised
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 5 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
2019
8.21
9.61
19.0
2.0
7.8
2018
11.05
12.63
22.5
1.9
6.6
2019
4.91
9.64
19.0
2.0
7.8
2018
7.14
12.66
22.5
1.9
6.6
2019
10.71
9.96
20.1
2.0
7.4
2018
13.03
12.68
22.5
1.9
6.6
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
2019
$m
2018
$m
Bank
2019
$m
2018
$m
38
85
72
195
301
1,498
1,799
39
118
43
200
304
1,449
1,753
38
85
72
195
301
651
952
39
118
43
200
304
691
995
In the normal course of business the Consolidated Entity 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 Consolidated Entity 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.
159
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.3 CONTINGENT LIABILITIES
As at 31 August 2019, the Consolidated Entity does not have any contingent liabilities.
6.4 RELATED PARTIES INFORMATION
(a) Controlled entities
Details of interests in material controlled entities are set out in Note 6.5.
During the year there have been transactions between the Bank and 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 Virgin Money (Australia) Pty Limited, Virgin Money Financial Services Pty Ltd, BOQ Specialist Pty Ltd,
BOQ Home Pty Limited, Home Credit Management Pty Ltd and dormant entities as set out in Note 6.5(a).
The Bank receives management fees from its operating controlled entities except Virgin Money Financial Services Pty Ltd, BOQ Specialist
Pty Ltd, BOQ Home Pty Limited, Home Credit Management Pty Ltd and dormant entities as set out in Note 6.5(a).
The Bank has a related party relationship with equity accounted joint ventures and associates, refer to Note 6.6.
(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 Group Executives.
KMP compensation included in ‘administrative expenses’ and ‘employee expenses’ (refer to Note 2.2) is as follows:
Short term employee benefits
Long term employee benefits
Post employment benefits
Share based employment benefits
Termination benefits
Consolidated and Bank
2019
$
6,958,085
156,398
316,392
1,719,578
975,000
10,125,453
2018
$
8,893,945
86,018
311,532
4,754,422
-
14,045,917
Individual Directors and Group Executives compensation disclosures
Information regarding individual Directors and Group Executives compensation and some equity instruments disclosures as permitted
by Regulation 2M.3.03 of the Corporations Regulations 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’ interests existing at year end.
160
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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 (2018: nil).
The transactions undertaken between the Consolidated Entity and KMP or their related parties up to 31 August 2019 are:
Term products (loans / advances)
KMP
Other related parties
Total
Balance as at
For the period (1)
1 September
2018
$
31 August
2019
$
Total loan
drawdowns /
(repayments)
$
Total loan /
overdraft
interest
$
Total fees
on loans /
overdraft
$
1,928,903
1,536,789
314,022
1,460,422
186,543
(33,809)
3,389,325
1,723,333
280,213
78,824
20,962
99,786
240
60
300
(1)
Amounts are included only for the period that the Director/Executive is classified as a member of KMP. Jon Sutton resigned effective 5 December 2018 and Brendan White
ceased employment 6 March 2019. On this basis, loans and advances between the Consolidated Entity and Mr Sutton and Mr White are not included in the closing balance as
at 31 August 2019.
Term products (loans / advances)
KMP
Other related parties
Total
Balance as at
For the period (2)
1 September
2017
$
31 August
2018
$
Total loan
drawdowns /
(repayments)
$
Total loan /
overdraft
interest
$
Total fees
on loans /
overdraft
$
1,788,768
1,928,903
2,004,249
140,768
1,487,199
1,460,422
(84,727)
57,711
3,275,967
3,389,325
1,919,522
198,479
600
240
840
(2)
Amounts are included only for the period that the Director/Executive is classified as a member of KMP. Michelle Thomsen resigned as an Executive on 29 June 2018.
On this basis, loans and advances between the Consolidated Entity and Ms Thomsen are not included in the closing balance as at 31 August 2018.
161
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.4 RELATED PARTIES INFORMATION (CONTINUED)
(c) Other financial instrument transactions with key management personnel and personally-related entities
(continued)
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 at a price of $10,000 per note. Details of those notes issued to Directors
are set out below:
Roger Davis
David Willis
Total
2019
2018
Balance
$
200,000
70,000
270,000
Interest
earned
$
8,785
3,075
11,860
Balance
$
200,000
70,000
270,000
Interest
earned
$
8,798
3,079
11,877
On 28 December 2017, the Bank issued 3,500,000 Capital Notes at a price of $100 per note. Details of those notes issued to Directors are
set out below:
Roger Davis
Roger Davis’s related parties
Total
2019
2018
Balance
$
50,000
50,000
100,000
Interest
earned
$
1,537
1,537
3,074
Balance
$
50,000
50,000
100,000
Interest
earned
$
1,317
1,317
2,634
162
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.5 CONTROLLED ENTITIES
(a) Particulars in relation to material controlled entities
The Group’s controlled entities at 31 August 2019 are set out below. Unless otherwise stated, they have share capital consisting solely
of ordinary shares that are held directly by the Group. 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
New Zealand
Bank of Queensland Limited
Employee Share Plans Trust
Australia
BOQ Asset Finance and Leasing Pty Ltd
Australia
BOQ Covered Bond Trust
BOQ Credit Pty Limited
BOQ Equipment Finance Limited
BOQF Cashflow Finance Pty Ltd
BOQ Finance (Aust) Limited
Australia
Australia
Australia
Australia
Australia
BOQ Finance (NZ) Limited
New Zealand
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
Home Credit Management Pty Ltd
Home Financial Planning Pty Ltd
Impala Trust No. 1 - Sub-Series 2
Pioneer Permanent Pty Ltd
Series 2008-1 REDS Trust
Series 2009-1 REDS Trust
Series 2010-1 REDS Trust
Series 2010-2 REDS Trust
Series 2012-1E REDS Trust
Series 2013-1 REDS Trust
Series 2015-1 REDS Trust
Series 2015-1 REDS EHP Trust
Series 2017-1 REDS Trust
Series 2018-1 REDS Trust
Series 2018-1 REDS EHP Trust
Series 2019-1 REDS Trust
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2019
%
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%
2018
%
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%
-
-
Amount of investment
Principal activities
2019
$m
2018
$m
-
-
-
-
-
15
-
230
22
-
157
-
13
-
-
-
-
-
-
-
-
-
-
-
15
-
Dormant
Trust
Asset finance & leasing
Issue of covered bonds
Asset finance & leasing
Asset finance & leasing
Professional finance
230
Asset finance & leasing
22
-
Asset finance & leasing
Dormant
157
Investment holding entity
-
13
-
-
-
-
-
-
Dormant
Professional finance and
asset finance & leasing
Professional finance
Trust management
Dormant
Investment holding entity
Dormant
Securitisation
32
32
Dormant
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
163
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 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:
St Andrew’s Australia Services Pty Ltd
Australia
St Andrew’s Insurance (Australia) Pty Ltd
Australia
St Andrew’s Life Insurance Pty Ltd
Statewest Financial Planning Pty Ltd
Virgin Money (Australia) Pty Limited
Australia
Australia
Australia
Virgin Money Financial Services Pty Ltd
Australia
Virgin Money Home Loans Pty Limited
Australia
2019
%
100%
100%
100%
100%
100%
100%
100%
2018
%
100%
100%
100%
100%
100%
100%
100%
Amount of investment
Principal activities
2019
$m
2018
$m
-
-
-
-
53
-
-
522
Insurance holding entity
General insurance
Life insurance
Dormant
Financial services
Financial services
Dormant
-
-
-
-
53
-
-
522
(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
All business combinations occurring on or after 1 July 2009
are accounted for by applying the acquisition method. 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
Transactions 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.
(ii) Entities established during the year
The following entities were established during the
financial year:
• Series 2018-1 REDS EHP Trust was opened on 13 November
2018; and
• Series 2019-1 REDS Trust was opened on 29 August 2019.
164
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.5 CONTROLLED ENTITIES (CONTINUED)
(d) Operations classified as held for sale
On 17 April 2018, the Bank announced it had entered into an agreement to sell the Group’s controlled entities, St Andrew’s Australia
Services Pty Ltd, St Andrew’s Insurance (Australia) Pty Ltd and St Andrew’s Life Insurance Pty Ltd (St Andrew’s Group). As at 31 August
2019, this agreement is no longer in place and the St Andrew’s Group has ceased to be held for sale on the Consolidated Balance Sheet.
The St Andrew’s Group was classified as held for sale as at 31 August 2018. The assets and liabilities held for sale were measured at the
lower of their carrying amount and fair value less costs of disposal, except for assets such as deferred tax assets, financial assets and
contractual rights under insurance contracts, which are specifically exempt from this requirement. The comparative period balances are
shown below.
Cash and cash equivalents
Due from other financial institutions - term deposits
Other assets
Total assets
Insurance policy liabilities (1)
Other liabilities
Total liabilities
(1) Refer to Note 5 for further information on insurance business disclosures.
(e) Disposal of controlled entities
The following entities were closed during the financial year:
2018 (1)
$m
6
46
5
57
9
13
22
• Series 2015-1 REDS EHP Trust was closed on 24 May 2019.
BQL Nominees Pty Ltd was deregistered during the year, effective 21 February 2019 (2018: 5 entities were deregistered).
165
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.6
INVESTMENTS IN JOINT ARRANGEMENTS AND ASSOCIATES
The Consolidated Entity holds interests in a number of collectively
and individually immaterial joint ventures and investments in
associates that are accounted for using the equity method.
(a) Accounting for joint arrangements and associates
The Consolidated Entity’s investments in joint venture entities
and associates are accounted for under the equity method
of accounting in the consolidated financial statements.
Joint ventures are entities in which the Consolidated
Entity has joint control over all operational decisions and
activities. Associates are entities in which the Consolidated
Entity has significant influence over, but not control.
(b) Details of joint venture and associates
Set out below are the joint ventures and associates of the
Consolidated Entity as at 31 August 2019 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 and associates.
Joint arrangements (1)
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)
Associates
MiFund Pty Ltd (2)
Total equity accounted investments
Ownership Interest
Carrying amount
2019
(%)
2018
(%)
2019
$m
2018
$m
9.31
17.08
25.00
5.81
25.00
9.31
17.08
25.00
5.81
25.00
35.00
-
6
7
-
-
-
3
16
6
8
1
-
-
-
15
(1) The principal activity of the joint venture entities is land subdivision, development and sale. These investments were acquired as part of the Home Building Society
acquisition in 2007.
(2) The investment in MiFund Pty Ltd is held by the Bank.
Summary financial information for equity accounted joint ventures and associates, adjusted for the share of ownership held by the
Consolidated Entity and the Bank, is contained below:
Loss from continuing operations
Total comprehensive loss
2019
$m
(1)
(1)
2018
$m
-
-
166
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS
6.7 AUDITOR’S REMUNERATION
KPMG AUSTRALIA
Audit services
- Statutory audits and reviews of the financial reports
- Regulatory audits and reviews as required by regulatory authorities
Total audit services
Audit related services
- Other assurance services
- Regulatory assurance services
Total audit related services
Non-audit services
- Taxation services
- Other
Total non-audit services
Consolidated
Bank
2019
$000
1,773
462
2,235
534
94
628
169
333
502
2018
$000
1,737
346
2,083
532
235
767
171
103
274
2019
$000
1,324
325
1,649
397
-
397
169
263
432
2018
$000
1,279
244
1,523
399
235
634
171
103
274
6.8 EVENTS SUBSEQUENT TO BALANCE DATE
Other than as disclosed below, the Directors are not aware of any matters or circumstances 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.
On 11 October 2019, the Bank entered into a Subscription Agreement in relation to a debt for equity swap for the purchase of 8,128 fully
paid ordinary shares issued by its subsidiary, St Andrew’s Australia Services Pty Ltd, for the value of $30,000,000.
167
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS The transferred assets are equitably assigned to the Trusts.
The investors in the securities issued by the Trusts have full
recourse to the assets transferred to the Trusts.
Bank
Interest rate risk from the Trusts is transferred back to the
Bank by way of interest rate and basis swaps. Accordingly,
under AASB 9 the original transfer of the mortgages from
the Bank to the Trusts does not meet the derecognition
criteria set out in AASB 9. The Bank continues to reflect
the securitised loans in their entirety and also recognises a
financial liability to the 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.
(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 or 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 Note 3.8.
(ii) Foreign operations
The Consolidated Entity carries out its foreign operations in
New Zealand through the wholly controlled subsidiary, BOQ
Finance (NZ) Limited, and through the non-incorporated
branch of BOQ Equipment Finance Limited.
6.9 SIGNIFICANT ACCOUNTING POLICIES
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 Consolidated Entity conducts a loan securitisation
program whereby mortgage loans are packaged and sold to
the RMBS Trusts. The Consolidated Entity also securitises hire
purchase, chattel mortgages and finance leases which are
packaged and sold to the REDS EHP Trusts. The Bank acquired
Impala Trust No. 1 - Sub-Series 2 (Impala Trust) through
the acquisition of Investec Bank (Australia) Limited. Assets
securitised to the Impala Trust are financed by the Bank
through the BOQ Specialist channel and consist of medical
finance equipment.
Consolidated Entity
The Consolidated Entity receives the residual income
distributed by the RMBS and Impala Trust (Trusts) after
all payments due to investors and associated costs of the
program have been met. As a result, the Consolidated Entity
is considered to retain the risks and rewards of the Trusts and
they do not meet the derecognition criteria of AASB 9.
The Trusts fund their purchase of the loans by issuing
floating-rate debt securities. The securities are issued by
the 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 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 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 provides 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.
168
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS 6.9 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(iv) Depreciation
(c) 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. This 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.
(d) 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.
(e) Property, plant and 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.
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 useful lives are reassessed annually.
Years
3-10
3-20
6-12
(f) 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 at the same time each year.
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 – a 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.
(ii) Subsequent costs
(i) Calculation of recoverable amount
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 Consolidated Entity 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 Consolidated Entity 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.
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.
169
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019For the year ended 31 August 2019NOTES TO THE FINANCIAL STATEMENTS DIRECTORS’ DECLARATION
1.
In the opinion of the Directors of Bank of Queensland Limited:
(a) the consolidated financial statements and notes and the remuneration report included within the Directors’ Report set out on
pages 58 to 169 , 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 2019 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 & CEO and Chief Financial Officer for the financial year ended 31 August 2019.
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
16 October 2019
George Frazis
Managing Director & CEO
16 October 2019
170
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled Entities
171
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. 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: giving a true and fair view of the Consolidated Entity’s and of the Bank’s financial position as at 31 August 2019 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The respective Financial Reports of the Consolidated Entity and Bank comprise: Balance Sheets as at 31 August 2019 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 Directors’ Declaration. The Consolidated Entity consists of the Bank of Queensland Limited (the Bank) and the entities it controlled at the year-end or from time to time during the financial year. 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. 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. 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: giving a true and fair view of the Consolidated Entity’s and of the Bank’s financial position as at 31 August 2019 and of its financial performance for the year ended on that date; and complying with Australian Accounting Standards and the Corporations Regulations 2001. The respective Financial Reports of the Consolidated Entity and Bank comprise: Balance Sheets as at 31 August 2019 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 Directors’ Declaration. The Consolidated Entity consists of the Bank of Queensland Limited (the Bank) and the entities it controlled at the year-end or from time to time during the financial year. 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. Annual Report 2019INDEPENDENT AUDITOR’S REPORT 172
Key Audit Matters The Key Audit Matters we identified for the Consolidated Entity and Bank are: Expected Credit Loss (ECL) for loans and advances at amortised cost Valuation of goodwill Valuation of intangible computer software Valuation of financial instruments at fair value Information technology (IT) systems controls Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audits of the Financial Reports of the current period. These matters were addressed in the context of our audits of the Financial Reports as a whole, and in forming our opinions thereon, and we do not provide a separate opinion on these matters. Expected credit loss (ECL) for loans and advances at amortised cost- Consolidated Entity and Bank Refer to Note 3.3(a) to the Financial Reports The key audit matter How the matter was addressed in our audits On 1 September 2018, the Consolidated Entity and Bank adopted AASB 9 Financial Instruments (AASB 9). The accounting standards require ECLs to incorporate forward–looking assumptions, reflecting the Consolidated Entity’s and Bank’s view of future economic scenarios. ECL (collective provision for impairment) for loans and advances at amortised cost is a key audit matter due to the significance of loans and advances balances and judgement applied by the Consolidated Entity and Bank in determining the ECL, and the resulting judgement required by us in challenging these estimates. The Consolidated Entity and Bank has exercised judgement in developing ECL models and also in determining assumptions such as defining a significant increase in credit risk (SICR). This estimation is inherently challenging and uses complex models based on the Consolidated Entity’s and Bank’s ability to predict probability of default and loss given default. The ECL staging requirements in the models incorporate estimates of default on both a 12 month and Our procedures for ECL (collective provision for impairment) included: Understanding the key controls on the Consolidated Entity’s and Bank’s estimate of the ECL, including: review and approval by Management of key forward-looking assumptions used in the model; review and approval by Management of key data elements used in the ECL models; monitoring mechanisms to identify loans with a SICR or default event; and review and approval mechanisms in place to assess the ECL output and out of model adjustments. With the assistance of our credit risk specialists, our further procedures included: Assessing the appropriateness of the Consolidated Entity’s and Bank’s provisioning methodology against the requirements of the accounting standards and industry practice lifetime basis. We applied significant judgement to assess the impact of the forward-looking macroeconomic assumptions and factors outside of the control of the Consolidated Entity and Bank on their ECL models. Significant judgement is applied by the Consolidated Entity and Bank in determining the nature and level of out of model adjustments. It is the Consolidated Entity’s and Bank’s policy to use out of model adjustments where the underlying models may not represent emerging risks or trends in the loan portfolios. For credit–impaired loans, it is the Consolidated Entity’s and Bank’s policy to determine specific provision for impairment in addition to the collective provision based on their judgement. This focuses on estimating when an impairment event has occurred and the present value of expected future cash flows, which have high estimation uncertainty. We focused on the high degree of estimation uncertainty related to the business and agribusiness loans, as the forecast cash flows are dependent on future and uncertain events, for example, the timing and proceeds from the future sale of collateral. including estimates of default on both a 12 month and lifetime basis. Testing the completeness and accuracy of relevant data elements used within ECL models for a sample of customers, such as checking year end balances to the general ledger, and repayment history and risk ratings to source systems. Re-performing the ECL calculation for loan portfolios using the Consolidated Entity’s and Bank’s provisioning methodology and relevant data used within the ECL models, as tested above. We compared our results to the amount recorded by the Consolidated Entity and Bank. Determining key assumptions within the ECL models including SICR and assessed the Consolidated Entity’s and Bank’s analysis over these assumptions including whether the methodology used in developing the assumption was appropriate and in line with accounting standards requirements. Assessing the ECL assumptions against forward-looking publicly available macro-economic information, such as forecasts for Real-GDP, residential house price index and unemployment rates. Assessing the out of model adjustments applied by the Consolidated Entity and Bank to the ECL estimates. We compared the loan portfolios’ underlying performance and characteristics to current market conditions, emerging risks and trends, using our knowledge of the industry and public views of commentators. Our procedures for specific provision for impairment for credit-impaired loans included: Testing key credit risk monitoring controls, including controls for loan risk ratings, annual assessments of loans and security valuations. Performing credit assessment, on a sample of loans and advances including business and agribusiness loans for which specific impairment provisions are held. This included: Considering the latest developments in relation to the borrower by inspecting the Consolidated Entity’s and Bank’s latest loan strategy papers Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 173
lifetime basis. We applied significant judgement to assess the impact of the forward-looking macroeconomic assumptions and factors outside of the control of the Consolidated Entity and Bank on their ECL models. Significant judgement is applied by the Consolidated Entity and Bank in determining the nature and level of out of model adjustments. It is the Consolidated Entity’s and Bank’s policy to use out of model adjustments where the underlying models may not represent emerging risks or trends in the loan portfolios. For credit–impaired loans, it is the Consolidated Entity’s and Bank’s policy to determine specific provision for impairment in addition to the collective provision based on their judgement. This focuses on estimating when an impairment event has occurred and the present value of expected future cash flows, which have high estimation uncertainty. We focused on the high degree of estimation uncertainty related to the business and agribusiness loans, as the forecast cash flows are dependent on future and uncertain events, for example, the timing and proceeds from the future sale of collateral. including estimates of default on both a 12 month and lifetime basis. Testing the completeness and accuracy of relevant data elements used within ECL models for a sample of customers, such as checking year end balances to the general ledger, and repayment history and risk ratings to source systems. Re-performing the ECL calculation for loan portfolios using the Consolidated Entity’s and Bank’s provisioning methodology and relevant data used within the ECL models, as tested above. We compared our results to the amount recorded by the Consolidated Entity and Bank. Determining key assumptions within the ECL models including SICR and assessed the Consolidated Entity’s and Bank’s analysis over these assumptions including whether the methodology used in developing the assumption was appropriate and in line with accounting standards requirements. Assessing the ECL assumptions against forward-looking publicly available macro-economic information, such as forecasts for Real-GDP, residential house price index and unemployment rates. Assessing the out of model adjustments applied by the Consolidated Entity and Bank to the ECL estimates. We compared the loan portfolios’ underlying performance and characteristics to current market conditions, emerging risks and trends, using our knowledge of the industry and public views of commentators. Our procedures for specific provision for impairment for credit-impaired loans included: Testing key credit risk monitoring controls, including controls for loan risk ratings, annual assessments of loans and security valuations. Performing credit assessment, on a sample of loans and advances including business and agribusiness loans for which specific impairment provisions are held. This included: Considering the latest developments in relation to the borrower by inspecting the Consolidated Entity’s and Bank’s latest loan strategy papers Annual Report 2019INDEPENDENT AUDITOR’S REPORT 174
for evidence of occurrence of impairment events and inquiries with Management; Examining the forecasts of future cash flows prepared by the Consolidated Entity and Bank, including key assumptions in relation to the amount and timing of recoveries, by: I. Checking the collateral valuation and other sources of repayment underlying the Consolidated Entity’s and Bank’s determination of the impairment to external evidence where available, including the Consolidated Entity’s and Bank’s external valuation expert reports; and II. Checking the consistency of methods applied by the Consolidated Entity and Bank in estimating the expected future cash flows, including timing, from the estimated sale proceeds from the collateral in calculating the recoveries. Challenging the Consolidated Entity’s and Bank’s judgement with respect to estimated recoverable values by considering current economic conditions and specific areas of credit risk concentration (industries and geographies), which may impact security values. Assessing the appropriateness of the Consolidated Entity’s and Bank’s disclosures in the financial reports using our understanding obtained from our testing against the requirements of the accounting standards. Valuation of goodwill – Consolidated Entity and Bank Refer to Note 4.1 to the Financial Reports The key audit matter How the matter was addressed in our audits The assessment of the valuation of goodwill is considered a key audit matter due to the significant forward-looking assumptions used in the Consolidated Entity’s and Bank’s value-in-use (VIU) model. We focused on the significant forward-looking assumptions applied in the VIU model, including: • Forecast operating cash flows, forecast growth rates and the terminal growth rates. Estimating the projected cash flow forecast is inherently uncertain. The sector in which the Consolidated Entity and Bank operates in is highly competitive and experiencing slower growth and regulatory change, which increases the risk of inaccurate forecasting; and • Discount rate – this is judgemental in nature and varies according to the specific conditions and environment of the relevant cash-generating unit (CGU). We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Our procedures included: Considering the appropriateness of the VIU 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 integrity of the VIU model used, including the accuracy of the underlying calculations. Assessing the historical accuracy of the Consolidated Entity’s and Bank’s forecast operating cash flows by comparing to actual past performance, to inform our evaluation of forecasts incorporated in the VIU model. Challenging the key forecast cash flow assumptions used in the VIU model using our knowledge of the Consolidated Entity and Bank, their past performance, and our inquiries with Management. We also compared key assumptions to the Consolidated Entity’s and Bank’s Board approved FY20 Budget. Using our industry knowledge and published studies of industry trends and expectations, assessing the impact of the regulatory change and increased competition on the Consolidated Entity’s and Bank’s key assumptions, specifically growth rates and terminal growth rates, for indicators of bias and inconsistent application. Working with our valuation specialists, using our knowledge of the Consolidated Entity and Bank and its industry, to independently develop a discount rate range considered comparable using publicly available market data for comparable entities adjusted by risk factors specific to the Consolidated Entity and the industry it operates in. Performing sensitivity analysis by varying key assumptions, in particular discount rates, forecast growth rates and terminal growth rates, within a reasonably possible range, to identify those assumptions at a higher risk of bias or inconsistency in application and to focus our further procedures. Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 175
Valuation of goodwill – Consolidated Entity and Bank Refer to Note 4.1 to the Financial Reports The key audit matter How the matter was addressed in our audits The assessment of the valuation of goodwill is considered a key audit matter due to the significant forward-looking assumptions used in the Consolidated Entity’s and Bank’s value-in-use (VIU) model. We focused on the significant forward-looking assumptions applied in the VIU model, including: • Forecast operating cash flows, forecast growth rates and the terminal growth rates. Estimating the projected cash flow forecast is inherently uncertain. The sector in which the Consolidated Entity and Bank operates in is highly competitive and experiencing slower growth and regulatory change, which increases the risk of inaccurate forecasting; and • Discount rate – this is judgemental in nature and varies according to the specific conditions and environment of the relevant cash-generating unit (CGU). We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Our procedures included: Considering the appropriateness of the VIU 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 integrity of the VIU model used, including the accuracy of the underlying calculations. Assessing the historical accuracy of the Consolidated Entity’s and Bank’s forecast operating cash flows by comparing to actual past performance, to inform our evaluation of forecasts incorporated in the VIU model. Challenging the key forecast cash flow assumptions used in the VIU model using our knowledge of the Consolidated Entity and Bank, their past performance, and our inquiries with Management. We also compared key assumptions to the Consolidated Entity’s and Bank’s Board approved FY20 Budget. Using our industry knowledge and published studies of industry trends and expectations, assessing the impact of the regulatory change and increased competition on the Consolidated Entity’s and Bank’s key assumptions, specifically growth rates and terminal growth rates, for indicators of bias and inconsistent application. Working with our valuation specialists, using our knowledge of the Consolidated Entity and Bank and its industry, to independently develop a discount rate range considered comparable using publicly available market data for comparable entities adjusted by risk factors specific to the Consolidated Entity and the industry it operates in. Performing sensitivity analysis by varying key assumptions, in particular discount rates, forecast growth rates and terminal growth rates, within a reasonably possible range, to identify those assumptions at a higher risk of bias or inconsistency in application and to focus our further procedures. Annual Report 2019INDEPENDENT AUDITOR’S REPORT 176
Assessing the disclosures in the financial report using our understanding of the information obtained from our testing and against the requirements of the accounting standards. Valuation of intangible computer software – Consolidated Entity and Bank Refer to Note 4.1 to the Financial Reports The key audit matter How the matter was addressed in our audits The assessment of the valuation of intangible computer software is considered a key audit matter due to the significant: amount of costs capitalised during the year. judgement applied by us to assess the Consolidated Entity’s and Bank’s determination of: capitalised costs – the nature and amount of costs to be capitalised in accordance with the requirements of the accounting standards. This can be inherently subjective for internally generated computer software projects. expected useful life – on completion of internally generated computer software, the accounting standards require the Consolidated Entity and Bank to 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, thereby increasing the complexity in estimating useful life. We also focused on the analysis of impairment indicators performed by the Consolidated Entity and Bank. Our procedures included: Evaluating the Consolidated Entity’s and Bank’s intangible computer software capitalisation policy against the capitalisation criteria and guidance 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. Specifically, we challenged: the nature of project costs capitalised by testing a sample of capitalised costs to the project scope of work and underlying invoices and timesheets, as well as inquiries with Management; and the Consolidated Entity’s and Bank’s assessment of projects not yet classified as ‘ready for-use’ for indicators of being in use, such as checking the phase of implementation with Project Managers, and hence being subject to amortisation. For a sample of internally generated computer software classified as ‘in-use’, challenging the Consolidated Entity’s and Bank’s estimated period of economic benefit from the use of the software compared to the original project plan. We also specifically focused on the continuation of the original project feasibility for those projects behind schedule, considering emerging technology. Considering the Consolidated Entity’s and Bank’s assessment of intangible computer software impairment indicators by using our knowledge of the Consolidated Entity and Bank, results of our testing and inquiring with Project Managers. Valuation of financial instruments at fair value – Consolidated Entity and Bank Refer to Note 3.7 and 3.8 to the Financial Reports The key audit matter How the matter was addressed in our audits The valuation of financial instruments measured at fair value is considered a key audit matter as determining the fair value of financial instruments involves a significant level of judgement by the Consolidated Entity and Bank. The level of judgement increases where key inputs to the valuation are not readily available in the market and require additional judgement. This increases the risk of error and adds complexity to our audit. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Working with our valuation specialists, our procedures included: Checking the Consolidated Entity’s and the Bank’s valuation of a sample of financial instruments (asset and liabilities), by comparing the observable inputs, including quoted prices, to independently sourced market data. Using independent models, reperforming the valuation for a sample of derivative assets and liabilities where fair value was determined using observable inputs. This included comparing a sample of observable inputs in the Consolidated Entity’s and Bank’s valuations to independently sourced market data, such as interest rates, foreign exchange rates and volatilities. Where the fair value of derivatives and other financial assets were determined using unobservable inputs (‘level 3’ instruments), challenging the Consolidated Entity’s and Bank’s valuation by testing the key inputs used to comparable data in the market, including the use of proxy instruments and available alternatives. We also checked the Consolidated Entity’s and Bank’s valuation methodology to industry practice and the criteria in the accounting standards. Assessing the appropriateness of the Consolidated Entity’s and Bank’s disclosures in the financial reports using our understanding obtained from our testing against the requirements of the accounting standards. Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 177
Bank, results of our testing and inquiring with Project Managers. Valuation of financial instruments at fair value – Consolidated Entity and Bank Refer to Note 3.7 and 3.8 to the Financial Reports The key audit matter How the matter was addressed in our audits The valuation of financial instruments measured at fair value is considered a key audit matter as determining the fair value of financial instruments involves a significant level of judgement by the Consolidated Entity and Bank. The level of judgement increases where key inputs to the valuation are not readily available in the market and require additional judgement. This increases the risk of error and adds complexity to our audit. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. Working with our valuation specialists, our procedures included: Checking the Consolidated Entity’s and the Bank’s valuation of a sample of financial instruments (asset and liabilities), by comparing the observable inputs, including quoted prices, to independently sourced market data. Using independent models, reperforming the valuation for a sample of derivative assets and liabilities where fair value was determined using observable inputs. This included comparing a sample of observable inputs in the Consolidated Entity’s and Bank’s valuations to independently sourced market data, such as interest rates, foreign exchange rates and volatilities. Where the fair value of derivatives and other financial assets were determined using unobservable inputs (‘level 3’ instruments), challenging the Consolidated Entity’s and Bank’s valuation by testing the key inputs used to comparable data in the market, including the use of proxy instruments and available alternatives. We also checked the Consolidated Entity’s and Bank’s valuation methodology to industry practice and the criteria in the accounting standards. Assessing the appropriateness of the Consolidated Entity’s and Bank’s disclosures in the financial reports using our understanding obtained from our testing against the requirements of the accounting standards. Annual Report 2019INDEPENDENT AUDITOR’S REPORT 178
Information Technology (IT) systems and controls – Consolidated Entity and Bank Refer to Basis of Preparation in Note 1 to the Financial Reports The key audit matter How the matter was addressed in our audits The Consolidated Entity’s and Bank’s business utilises a number of complex, interdependent Information Technology (IT) systems to process and record a high volume of transactions. Controls over user access, change management, program development and other operational controls in IT systems are critical to the recording of financial information and the preparation of financial reports. The IT systems and controls, as they impact the financial recording and reporting of transactions, is a key audit matter, and significantly affect our audit approach. Our IT specialists were used throughout the engagement as a core part of our audit team. We tested the general controls over key IT applications (systems) used in processing significant transactions and recording balances in the general ledger. We also tested automated controls embedded within these systems. Working with our IT specialists, our procedures included: Testing the governance controls used by the Consolidated Entity’s and Bank’s IT team to monitor system integrity, by checking matters impacting the operational integrity of core systems for escalation and action in accordance with the Consolidated Entity’s and Bank’s policies. Testing the access rights (including privileged users) given to staff by checking them to approved records and inspecting the reports for granting and removal of access rights. Testing preventative controls designed to enforce segregation of duties between users within particular IT systems. Testing the change management controls related to code development and workflows approval. Testing the automated controls, principally relating to the automated calculation of certain transactions and the generation of certain reports. For a sample of automated calculations, we tested the inputs used within the calculations to source data and also tested the accuracy of the calculations. 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 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’s and Bank’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. 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 Reports. 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_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 179
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’s and Bank’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. 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 Reports. 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_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Annual Report 2019INDEPENDENT AUDITOR’S REPORT 180
Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Bank of Queensland Limited for the year ended 31 August 2019, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities 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. Our responsibilities We have audited the Remuneration Report included in pages 58 - 84 of the Directors’ report for the year ended 31 August 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Robert Warren Partner Sydney 16 October 2019 Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT SHAREHOLDING DETAILS
As at Thursday 26 September 2019, the following shareholding details applied:
1. TWENTY LARGEST ORDINARY SHAREHOLDERS
SHAREHOLDER
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
NATIONAL NOMINEES LIMITED
AMP LIFE LIMITED
CITICORP NOMINEES PTY LIMITED
CS THIRD NOMINEES PTY LIMITED
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CARLTON HOTEL LIMITED
PRUDENTIAL NOMINEES PTY LTD
KARATAL HOLDINGS PTY LTD
THE MANLY HOTELS PTY LIMITED
PACIFIC CUSTODIANS PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
No. of ordinary
shares
68,742,849
33,021,389
18,537,408
14,890,010
7,306,078
3,245,708
2,528,756
1,500,189
1,119,548
1,062,511
1,051,790
1,018,524
949,885
886,042
767,873
750,000
692,344
655,540
622,840
559,232
%
16.94
8.14
4.57
3.67
1.80
0.80
0.62
0.37
0.28
0.26
0.26
0.25
0.23
0.22
0.19
0.18
0.17
0.16
0.15
0.14
Total
159,908,516
39.41
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.
181
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019 SHAREHOLDING DETAILS
As at Thursday 26 September 2019, the following shareholding details applied:
2. TWENTY LARGEST CAPITAL NOTES SHAREHOLDERS
SHAREHOLDER
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP
DIOCESE DEVELOPMENT FUND - CATHOLIC DIOCESE OF PARAMATTA
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
JOHN E GILL TRADING PTY LTD
NATIONAL NOMINEES LIMITED
DOMER MINING CO PTY LTD
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
FEDERATION UNIVERSITY AUSTRALIA
INVIA CUSTODIAN PTY LIMITED
HAVENFLASH PTY LTD
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
CITICORP NOMINEES PTY LIMITED
NAVIGATOR AUSTRALIA LTD
PACIFIC DEVELOPMENT CORPORATION PTY LTD
NETWEALTH INVESTMENTS LIMITED
SIMPLY BRILLIANT PTY LTD
NAVIGATOR AUSTRALIA LTD
SEYMOUR GROUP PTY LTD
Total
No. of capital
notes
154,365
88,304
65,000
57,123
54,593
52,040
32,200
27,499
21,935
21,310
21,000
20,726
18,058
17,179
16,097
15,500
15,154
15,000
14,161
14,000
%
4.41
2.52
1.86
1.63
1.56
1.49
0.92
0.79
0.63
0.61
0.60
0.59
0.52
0.49
0.46
0.44
0.43
0.43
0.40
0.40
741,244
21.18
The above table includes shareholders that may hold shares for the benefit of third parties.
Voting rights
Capital Notes 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
Ordinary Shares
Capital Notes
2019
57,361
31,527
6,764
4,017
93
99,762
2018
58,232
31,460
6,240
3,406
77
99,415
2019
5,148
403
30
26
1
2018
5,078
420
28
23
2
5,608
5,551
The number of ordinary shareholders holding less than a marketable parcel is 3,177.
The number of capital notes holders holding less than a marketable parcel is 19.
182
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled Entities SHAREHOLDING DETAILS
4. PARTLY PAID SHARES
There are no partly paid shares.
5. SUBSTANTIAL SHAREHOLDERS
The names of substantial shareholders in the Bank, per the meaning within the Corporations Act 2001 (Cth), and the number of shares
in which each has an interest as disclosed in substantial shareholder notices given to the Bank were:
SUBSTANTIAL SHAREHOLDER
The Vanguard Group Inc.
BlackRock Group
6. SECURITIES EXCHANGE LISTING
No. of ordinary shares in which
interest is held (at date of
notification)
19,929,774
23,980,966
Date of notification
9 July 2018
2 November 2018
The shares of Bank of Queensland Limited (BOQ) and Capital Notes (BOQPE) are quoted on the Australian Stock Exchange.
BOQ’s medium-term notes and covered bonds are listed on the London Stock Exchange.
7. OPTIONS
At 31 August 2019, 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.
183
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019
CUSTOMER SERVICE
Australia: 1300 55 72 72
International: +61 7 3336 2420
Postal address:
GPO Box 898
Brisbane Qld 4001
SHAREHOLDER INFORMATION
SHARE REGISTRY
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane Qld 4000
Australia: 1800 779 639
International: +61 1800 779 639
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
KEY SHAREHOLDER DATES
Dividend dates for ordinary shares only are:
2019
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
31 August 2019
17 October 2019
6 November 2019
7 November 2019
27 November 2019
10 December 2019
184
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Bank of Queensland Limited and its Controlled Entities 5 YEAR FINANCIAL SUMMARY
$ millions (unless otherwise stated)
FINANCIAL PERFORMANCE (1)
Net interest income
Non interest income
Total income
Operating expenses
Underlying profit before tax (2)
Loan impairment expense
Cash earnings before tax
Cash earnings after tax attributable to ordinary shareholders (3)
Statutory net profit after tax
FINANCIAL POSITION
Gross loans and advances (4)
Total assets
Customer deposits
Total liabilities
Total equity
SHAREHOLDER PERFORMANCE
Market capitalisation at balance date
Share price at balance date ($)
Cash basic earnings per share (cents)
Cash diluted earnings per share (cents)
Fully franked dividend per ordinary share (cents)
Fully franked special dividend per ordinary share (cents)
Cash dividend payout ratio to ordinary shareholders
CASH EARNINGS RATIOS (6)
Net interest margin (7)
Cost-to-income ratio
Return on average ordinary equity
CAPITAL ADEQUACY
Common Equity Tier 1 ratio
Total Capital Adequacy ratio
2019
$m
961
128
1,089
(550)
539
(74)
465
320
298
46,216
55,597
32,428
51,738
3,859
3,721
9.17
79.6
74.0
65
-
82%
1.93%
50.5%
8.3%
9.04%
12.40%
2018
$m
965
145
1,110
(527)
583
(41)
542
372
336
2017
$m
926
175
1,101
(513)
588
(48)
540
378
352
2016
$m
937
173
1,110
(520)
590
(67)
523
360
338
2015
$m
907
180
1,087
(500)
587
(74)
513
357
318
45,279
43,817
43,152
40,975
52,980
51,658
50,853
48,018
31,325
49,124
3,856
4,565
11.49
94.7
89.3
76
-
81%
1.98%
47.5%
9.9%
30,190
47,869
3,788
4,932
12.59
97.6
93.9
76
8
29,122
26,914
47,266
44,549
3,587
3,469
4,020
10.55
95.6
90.7
76
-
4,698
12.67
97.3
92.2
74
-
77%
78% (5)
80%
1.87%
46.6%
10.4%
1.94%
1.97%
46.8%
46.0%
10.3%
10.7%
9.31%
9.39%
9.00%
8.91%
12.76%
12.37%
12.29%
12.72%
Cash earnings after tax exclude significant items (tax effected).
All amounts disclosed are on cash basis except statutory net profit after tax.
(1)
(2) Underlying profit before tax is profit before impairment on loans and advances, significant items and tax.
(3)
(4) Before specific and collective provisions.
(5) This ratio was 87 per cent including special dividend.
(6) Excludes impact of significant items.
(7) 2019 and 2018 NIM is net of offset accounts.
185
Financial Statements 90 | Signed Reports 170 | Shareholding Details 181 | 5 Year Summary 185Annual Report 2019 GLOSSARY
TERM
DESCRIPTION
APRA Prudential Standard (APS)
Australian Accounting Standards Board
(AASB)
Australian Finance Industry Association
(AFIA)
Australian Prudential Regulation Authority
(APRA)
Australian Securities Exchange (ASX)
Authorised deposit-taking institution (ADI)
Available stable funding (ASF)
Prudential standards issued by APRA which are applicable to ADIs.
The AASB produces 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.
AFIA is the national association for the equipment leasing and financing industry.
Formerly Australian Equipment Lessors Association.
APRA is the prudential regulator of the Australian financial services industry. APRA is an
independent statutory authority that supervises institutions across banking, insurance
and superannuation and promotes financial system stability in Australia.
Australian Securities Exchange or ASX Limited (ABN 98 008 624 691) and the market
activities operated by ASX Limited.
A corporation which is authorised under the Banking Act 1959 and includes banks, building
societies and credit unions.
ASF is the portion of capital and liabilities expected to be reliable over the time horizon
considered by the NSFR, which extends to one year.
Average interest earning assets
Average balance over the period for a bank’s assets that accrue interest income.
Bank of Queensland Limited (the Bank or
BOQ)
Basel II and III
Basis points (bps)
Capital Notes (BOQPE)
Cash earnings
Committed liquidity facility (CLF)
Common equity tier 1 (CET1)
Common equity tier 1 ratio (CET1 ratio)
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 per cent).
Capital Notes are perpetual, convertible, unguaranteed and unsecured notes issued
by BOQ, with preferred, discretionary, non-cumulative distributions. Capital Notes
may convert into common shares in certain circumstances as described in the offer
documentation of the notes.
Cash Earnings is a non-accounting standards measure commonly used in the banking
industry to assist in presenting a clear view of underlying earnings.
The RBA provides a CLF to certain ADIs as part of Australia’s implementation of the Basel III
liquidity standards. The facility 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.
Capital that is recognised as the highest quality component of capital under APS.
CET1 capital divided by total RWA calculated in accordance with relevant APS.
Consolidated Entity (the Group)
BOQ and its subsidiaries
Cost to income ratio (CTI)
Corporations Act 2001
Covered bond guarantor
Days past due (dpd)
Dividend payout ratio
Dividend reinvestment plan (DRP)
Dividend yield
Earnings per share (EPS)
Effective tax rate
Equipment hire purchase trust (EHP trust)
Euro-Commercial Paper (ECP)
Euro Medium Term Note (EMTN)
Full time equivalent (FTE)
Operating expenses divided by net operating income.
The Corporations Act 2001 (Cth)
Perpetual Corporate Trust Limited ABN 99 000 341 533, incorporated with limited liability
in the Commonwealth of Australia and having its registered office at Level 18, 123 Pitt
Street, Sydney, NSW 2000, as trustee of the BOQ Covered Bond Trust (the Trustee).
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.
A plan which 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.
Measure of earnings attributed to each equivalent ordinary share over a twelve month
period. This is calculated by dividing the company’s earnings by the weighted average
number of shares on issue in accordance with AASB 133 Earnings per share.
Income tax expense divided by profit before tax.
EHP trust under the REDS securitisation program, issuing asset backed securities to the
term market.
ECP is an offshore short term commercial paper program.
EMTN is an offshore medium term note program.
A calculation based on number of hours worked by full and part time employees as part of
their normal duties.
186
Bank of Queensland Limited and its Controlled Entities GLOSSARY
TERM
DESCRIPTION
General reserve for credit losses (GRCL)
Gross loans and advances (GLA)
High Quality Liquid Asset (HQLA1)
Impaired assets
Interest bearing liabilities
International Financial Reporting Standards
(IFRS)
Issued capital
Line of credit (LOC)
Liquid assets
Liquidity Coverage Ratio (LCR)
Net interest margin (NIM)
Net stable funding ratio (NSFR)
Net tangible assets (NTA)
Non-interest earning assets
Owner Managed branch (OMB)
REDS
Reserve Bank of Australia (RBA)
Residential mortgage backed securities
(RMBS)
Return on average equity (ROE)
Return on average tangible equity (ROTE)
Required stable funding (RSF)
Risk weighted assets (RWA)
Total capital adequacy ratio
Treasury shares
Virgin Money Australia
(VMA or Virgin Money)
Weighted average number of shares
(WANOS)
Wholesale Capital Notes (WCN)
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.
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.
IFRS and interpretations issued by the International Accounting Standards Board.
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 HQLA1 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.
Net interest income divided by average interest-earning assets.
The NSFR is defined as the amount of ASF relative to the amount of required stable
funding. This ratio should be equal to at least 100% on an on-going basis. ASF 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 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.
The Bank’s assets that do not accrue interest income.
A branch which is run by a franchisee.
Term to describe the BOQ securitisation programmes.
The RBA is Australia’s central bank and derives its functions and powers from the Reserve
Bank Act 1959 (Cth). Its stated duty is to contribute to the stability of the currency, full
employment, and the economic prosperity and welfare of the Australian people.
BOQ’s securitisation program which enables the trustee to issue debt securities backed
by assets originated by the Group such as mortgages and equipment finance receivables.
Net profit attributable to the owners of the Bank divided by average ordinary equity.
Net profit attributable to the owners of the Bank divided by average ordinary equity less
goodwill and identifiable intangible assets.
RSF is an input to the calculation of the NSFR for bank prudential management purposes.
A bank’s RSF is calculated from its assets, weighted according to their maturity,
credit quality and liquidity, together with an amount in relation to off balance sheet
commitments.
A quantitative measure of various risks including credit, operational, market and
securitisation as defined by APS.
Total capital divided by total RWA calculated in accordance with relevant APS.
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.
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.
Calculated in accordance with AASB 133 Earnings per share.
WCNs are notes that may convert into common shares in certain circumstances as
described in the offer documentation of the notes.
187
Annual Report 2019 Bank of Queensland Limited
ABN 32 009 656 740