Year ended 31 August 2021
2021
ANNUAL
REPORT
COVER STORY
A TRUE PARTNERSHIP WITH
FAMILY RUN BUSINESSES
“ We’ve been with other banks that make you feel like you’re just another asset or liability. They like to keep an eye on
what you’re doing to make sure their money is safe but at BOQ you feel like you’re part of a team. They keep an eye on
what you’re doing because they have a genuine interest and want to understand how they can help you better.”
- Tracey Hewitt, BOQ agribusiness customer
The Charvel property in Theodore, Queensland has been in the
Hewitt family since 1958 when Alan’s parents first purchased
the land. Since then, Alan and his wife Tracey have run the mixed
operation of cattle grazing and irrigated cropping with the help
of their three sons.
After many years with another bank, the Hewitts switched to
BOQ in 2013 and formed a strong bond with BOQ Agribusiness
Manager Ian Mills, who has now become part of the furniture.
It was important to Tracey and Alan that they have a real and
honest partnership with their bank and work with people who
understand their business and believe in what they’re doing.
With over 30 years’ experience working in agribusiness across
Queensland, Ian is extremely passionate about the industry and
enjoys his frequent visits to the Charvel property. Ian plays his
part by understanding who the Hewitts are as a family, what the
farm needs season to season, and how it all fits together.
BOQ Agribusiness Manager Ian said: “It’s incredibly important
to make that effort to understand the business. This is not just
a financial transaction at the bank, it’s about understanding
what’s important to them, listening where they want to get to
and workshopping your ideas together. It’s a real partnership and
that’s what we work to strive for.”
Most recently, Ian met with the Hewitts about purchasing
more property. After discussing their goals and priorities they
chose to instead finance a loan for a bulldozer and a renovation
project, which for the same investment provided a much
greater return over time.
Tracey was particularly pleased with the time, care and thought
that went into the decision from Ian and the agribusiness team
and felt as though they were part of a real partnership.
2
Bank of Queensland Limited and its Controlled Entities ABOUT THIS REPORT
CONTENTS
About this report
This year’s Annual Report includes details of BOQ’s purpose
and values, strategy, our value creation story, operations,
audited financial statements and other statutory disclosures.
The report predominantly focuses on our financial
performance, with further detail on our non-financial
performance measures contained in the 2021 Sustainability
Report. We are continuing to enhance our reporting to
explain to stakeholders how we deliver long-term value.
Unless otherwise stated, the Annual Report encompasses all
BOQ activities for the financial year commenced 1 September
2020 and ended 31 August 2021. All monetary values in this
document are presented in Australian dollars, which is the
Bank’s functional currency. Our Operating and Financial
review is contained in pages 12 - 75 of this report.
Other documents in our 2021 reporting suite
BOQ produces a range of reports designed to meet the evolving
expectations of a wide number of stakeholders. Our 2021
annual reporting suite also includes the following documents:
Sustainability Report
Our 2021 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.
Corporate Governance Statement
Our 2021 Corporate Governance Statement discloses
how we have complied with the ASX Corporate
Governance Council’s Corporate Governance Principles
& Recommendations (4th edition) and is available on the
Corporate Governance page of our website.
FY21 Investor Materials
Our FY21 Investor Materials provide a high level overview
of the Group’s performance along with a detailed result
analysis and a discussion on the outlook, which covers the
macro environment and the Group’s high level priorities.
Investor Materials are available on the Financial Results
page of our website.
Overview
FY21 Financial Results
Chairman’s Review
Managing Director and CEO’s Message
Directors’ Report
About BOQ
Responding to COVID-19
Acquisition of ME Bank
Value Creation and Strategy
Financial Performance
Governance and Risk Management
Directors’ Details
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
Glossary
4
6
8
12
12
14
15
16
20
55
71
76
105
107
108
109
110
111
115
116
183
184
195
200
201
We are always looking for ways to improve our reporting.
Please send your questions or suggestions to our Investor
Relations team at InvestorRelations@boq.com.au
Bank of Queensland Limited
ABN 32 009 656 740
AFSL No. 244616
Level 6, 100 Skyring Terrace, Newstead QLD 4006
3
2021 Annual Report FY21 FINANCIAL RESULTS
PROFIT RESULTS
($m)
EARNINGS & DIVIDENDS
(¢ per ordinary share)
372
336
320
298
225
115
412
369
91.5
76
77.0
65
49.6
74.7
39
2018
2019
2020
2021
2018
2019
2020
2021
Cash Earnings after Tax
Statutory Net Profit after Tax
Cash Basic Earnings per Ordinary Share
Dividends per Ordinary Share
12
FY21 CASH EARNINGS
after tax
STATUTORY NET PROFIT
after tax
CASH BASIC EARNINGS
PER ORDINARY SHARE
(¢ per share)
DIVIDENDS
PER ORDINARY SHARE
(¢ per share)
$412m
83%
from
FY20
$369m
221%
from
FY20
74.7¢
51%
from
FY20
39¢
225%
from
FY20
NET INTEREST MARGIN
CASH COST TO INCOME RATIO
CASH RETURN ON EQUITY
1.92%
Up 1bp from FY20
54.4%
Down 50bps from FY20
8.2%
Up 280bps from FY20
LOAN IMPAIRMENT EXPENSE
($m)
41
69
175
(21)
($21m)
Includes $71 million
reduction in the
collective provision
2018
2019
2020
2021
4
Bank of Queensland Limited and its Controlled Entities 5 YEAR FINANCIAL SUMMARY
$ millions (unless otherwise stated)
FINANCIAL PERFORMANCE(1)
Net interest income
Non interest income(2)
Total income(2)
Operating expenses(2)
Underlying profit before tax(3)
Loan impairment expense
Cash earnings before tax
Cash earnings after tax
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)(5)
Cash diluted earnings per share (cents)(5)
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
Net interest margin(6)
Cost-to-income ratio(2)
Return on average ordinary equity
CAPITAL ADEQUACY
Common Equity Tier 1 ratio
Total Capital Adequacy ratio
2021
$m
1,128
130
1,258
(684)
574
21
595
412
369
75,748
91,432
56,469
85,235
6,197
2020
$m
986
128
1,114
(612)
502
(175)
327
225
115
47,043
56,772
34,762
52,541
4,231
2019
$m
961
144
1,105
(571)
534
(69)
465
320
298
46,216
55,597
32,428
51,738
3,859
2018
$m
965
160
1,125
(542)
583
(41)
542
372
336
45,279
52,980
31,325
49,124
3,856
6,063
2,785
3,721
4,565
9.46
74.7
69.5
39
-
61%
1.92%
54.4%
8.2%
6.13
49.6
45.1
12
-
24%
1.91%
54.9%
5.4%
9.17
77.0
71.9
65
-
82%
1.93%
51.7%
8.3%
11.49
91.5
86.7
76
-
81%
1.98%
48.2%
9.9%
2017
$m
926
190
1,116
(528)
588
(48)
540
378
352
43,817
51,658
30,190
47,869
3,788
4,932
12.59
94.4
91.0
76
8
78%
1.87%
47.3%
10.4%
9.80%
12.60%
9.78%
9.04%
12.73%
12.40%
9.31%
12.76%
9.39%
12.37%
(1) All amounts disclosed are on cash basis except statutory net profit after tax.
(2) Virgin Money Australia (VMA) operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on
30 September 2021.
(3) Underlying profit before tax is profit before impairment on loans and advances, significant items and tax.
(4) Before specific and collective provisions.
(5) Comparatives for basic and diluted earnings per share have been adjusted for the effects of the Group’s capital raise in March 2021.
(6) 2021, 2020, 2019 and 2018 Net Interest Margin (NIM) is net of offset accounts.
5
2021 Annual Report CHAIRMAN’S REVIEW
Dear Fellow Shareholders
I am delighted to be able to report a strong financial and
operating performance for BOQ in FY21.
BOQ has delivered both statutory and cash earnings growth
of 221 per cent and 83 per cent respectively. We have achieved
statutory net profit after tax of $369 million and cash earnings
after tax of $412 million.
Key highlights of our transformation progress this year include
our strong financial results, achieving above system mortgage
growth whilst maintaining prudent risk settings, strengthening
our team with improved leadership and execution capability,
further embedding our values driven performance culture,
improving loan approval times for our customers, delivering
phase 1 of our digital first strategy and the successful
acquisition of Members Equity Bank Limited (ME Bank or ME).
The value accretive acquisition of ME Bank is strategically
aligned, and is expected to deliver material scale and synergies,
a diversified customer footprint, and rebalanced revenue
channels with improved return on equity. The ME Bank
integration is on track and is a key strategic deliverable over the
next 12 months.
We are making material progress in delivering our growth
strategy to uplift our financial and customer performance and
build a scalable multi-brand digital-first bold challenger bank
with a personal touch.
These pleasing results underscore our continuous improvement
journey and high ambition to delight our customers, be a great
place to work and to grow shareholder value.
Customers
Continuing to improve the customer experience and delight our
customers every day is at the heart of our strategic transformation.
During FY21 we enhanced the digital bank proposition for
Virgin Money Australia customers by offering transaction and
saving account services for the first time. This was built on a
digital platform that we will extend to form the foundation for
the Retail Bank, delivering improved digital customer offerings
and experiences for all the BOQ Group brands.
We will continue to work closely with our customers, the
government and regulators, to ensure we maintain support
for customers facing hardship or requiring help resulting
from the COVID-19 pandemic.
Shareholders & Capital Management
The transformative acquisition of ME Bank and our improved
performance this financial year have enhanced shareholder value.
We recognise the importance of dividends to our shareholders and
the Board has determined to pay a final fully franked dividend of 22
cents per share, bringing the FY21 dividend to 39 cents per share.
Barring unforeseen circumstances, we are targeting a dividend
payout ratio between 60 per cent and 75 per cent of cash earnings
going forward. We believe this payout ratio enables BOQ to balance
an attractive annual distribution to shareholders against the capital
needed to support our business transformation, growth and the
resilience of the bank.
We remain committed to prudent balance sheet and capital
management. Our CET1 ratio at financial year end was 9.80 per
cent. During this higher risk period we intend to retain our CET1
ratio above the top end of our target range of 9.0 - 9.5 per cent.(1)
We funded the ME Bank acquisition via a $1.35 billion capital
raising, and we thank shareholders for their support. Due to
unforeseen extensive delays in Australia Post some of our retail
shareholders missed the cut-off date for acceptance of the
rights issue offer. We sincerely apologise to those shareholders
that were unable to participate.
The capital raising timeline and structure was determined based
on the material size of the capital raising as a per cent of our
market capitalisation and the need to present an attractive fully
underwritten bid to provide certainty of funding and price in a
competitive tender process. We believe the accelerated timeline
and non-renounceable structure were critical to BOQ Group
achieving a timely underwritten capital raising, winning the bid,
minimising the dilution impact of the capital raising and providing
the opportunity to create value for all of our shareholders.
People & Culture
Embedding a performance driven culture through empowering
our people and holding them to account to deliver against our key
performance indicators is core to our strategic transformation.
We are encouraging our people to speak up, question the status
quo and experiment to achieve improved outcomes.
Reliability, transparency and trust are at the core of everything
we do. Living our purpose and values drive excellent conduct and
better customer and community outcomes.
Keeping our people safe and informed and maintaining continuity
of our operations have been key priorities during the pandemic.
We have adopted an agile approach to working that includes a
hybrid model of returning to the office when health directions
permit, along with remote flexible working. Our branches
remained open throughout the various pandemic restrictions
and we are proud of the dedication shown by our people who
continue to attend our workplaces to support our customers.
We recognise that quality people and strong leadership will drive
our success. We continue to enhance and develop the calibre of
the leadership team and our people, building a diverse team with
strong execution capability.
(1) BOQ intends to operate above the management target range of 9.0 - 9.5 per cent in FY22 until the final impacts of APRA’s changes to RWAs and capital
calibration are understood. Refer to page 54 in the ME Bank acquisition investor presentation for further detail.
6
Bank of Queensland Limited and its Controlled Entities “ Continuing to improve the customer
experience and delight our customers
every day is at the heart of our strategic
transformation.”
Building a sustainable business
BOQ remains committed to building a sustainable business
and recognises our social responsibility to deliver improved
outcomes for all stakeholders and the environment. We
continue our journey to being a more sustainable organisation
by achieving carbon neutral certification during FY21.
Board renewal
The BOQ Board embarked on a period of renewal and continuous
improvement in late 2019 to enhance our diversity, future fit skills
mix and intellectual curiosity. Effective from the 2021 AGM the
Board renewal program will be complete. The size of the Board will
have reduced from 11 to 8 Directors (7 non-executive).
I welcome Mickie Rosen and Deborah Kiers who joined the Board
in 2021 and look forward to the considerable contribution they
will bring across their combined skills of digital transformation,
consumer experiences, organisational design, people & culture,
strategy and ME Bank Heritage.
I would like to take this opportunity to thank Kathleen Bailey-
Lord, who retired from the Board in 2021 for her contribution
to BOQ.
Looking ahead
Under the strong leadership of George Frazis, our Managing
Director & CEO, and the Executive Committee we have
good momentum in the business and are well positioned to
continue to progress our transformation journey. We are 18
months into this journey and have a lot more to do to meet our
ambitious aspirations for BOQ to create long term value for
our customers, shareholders and our people.
Our operating environment remains uncertain with the
ongoing pandemic, high asset prices and increased leverage
at a low point in the interest rate cycle. We will continue
to support our customers with flexible policies and relief
packages, manage prudent risk settings in this higher risk
environment and refine our strategy where appropriate.
With the increased vaccine rollout across Australia we are
cautiously optimistic about the future. We encourage all of
our stakeholders to get vaccinated to support their well-
being and the lifting of lockdown restrictions enabling the
re-opening of Australia.
I express my deepest thanks to my colleagues on the Board,
our CEO, the Executive Committee and all our employees for
their material contribution to BOQ.
Thank you to our customers and shareholders for your ongoing
support of BOQ.
Patrick Allaway
Chairman
7
2021 Annual Report MANAGING DIRECTOR AND CEO’S MESSAGE
“ I believe the saying is “tough times don’t
last, tough people do,” and that has
never been more true of our people and
our customers.”
Dear Shareholder
This year we have seen economic conditions improve compared to
the previous year due to the commencement of the vaccine rollout
and related consumer and business optimism. However, recent
lockdowns and restrictions have reminded us that COVID-19 and
the associated economic consequences remain present. I believe
the saying is “tough times don’t last, tough people do,” and that has
never been more true of our people and our customers who have
shown resilience and optimism despite the challenges.
As stewards of a business with a long heritage, my team and I
have continued to focus on delivering our strategy to enhance
the experience for our customers, stakeholders and people.
Customers and Community
BOQ’s strong balance sheet and the commitment of our people
allows us to support customers in hardship as well as contribute
to meaningful community initiatives. In the past 12 months BOQ
supported hundreds of customers in hardship with personal and
business loan deferrals and in August we simplified our systems
and removed dishonour fees for overdrawn accounts. We have
maintained our retail and business Net Promoter Score ranking of
3rd during FY21 by delivering a superior customer experience.
We recognise the role BOQ plays in the communities in which it
operates. We continued our support of Aboriginal and Torres Strait
Islander peoples through our work with the STARS and Clontarf
Foundations that provide education and development of life skills
for these communities. We also continued our relationship with our
community partner Orange Sky during the year to provide laundry
and shower vans for people in need.
Progress against strategy
Our experienced executive team continues to deliver against
the strategy outlined to the market in February 2020. The ME
Bank acquisition underscores our growth agenda by significantly
expanding our Retail bank and allowing the Group to diversify its
revenue profile and geographic presence.
Significant progress has been made against the transformation
roadmap with a key achievement being the launch of savings and
transactions accounts for Virgin Money, entrenching its credentials
as a digital bank. Another important step on our digital roadmap
was the upgrade and integration of our card management system.
This has allowed us to put both BOQ and VMA cards on the same
platform which enables improved digital banking app capability.
This has also delivered the choice and convenience customers
have been requesting as the new digital wallet capability now allows
them to link their cards to Apple Pay, Samsung Pay and Google Pay.
8
Bank of Queensland Limited and its Controlled Entities The second phase of the Virgin Money Digital bank to include
home loans and additional deposit products is well progressed,
and the scalability of the API based digital platform allows this
technology to be leveraged as a strategic Group platform, with
the build of a BOQ Digital Bank substantially underway.
The multi-year roadmap incorporates the ME Bank integration
to ultimately deliver a common, cloud based Retail platform for
all BOQ brands.
Work continues on enhancing our lending process from front to
back, with the Small Business Enablement program underway
identifying efficiencies. Other key investment includes the
build of the Intelligent Data Platform foundations to enable
Open Banking capabilities, and a program to enhance the user
experience for our people.
We have delivered a further $30 million in productivity savings
across the Bank in FY21 in addition to the $30 million delivered in
FY20. These savings have enabled us to invest in new digital, risk
and regulatory programs.
The sale of St Andrew’s is expected to be completed in 1H22,
enabling BOQ to simplify its business model and focus on niche
customer segments.
People
The Executive Team and I are united in our commitment to making
BOQ Group a great place to work and pleasingly, our engagement
score increased five per cent in FY21 compared to last year’s score.
We have built a strong leadership team with the addition of
Martine Jager as our Group Executive Retail Banking and CEO
ME Bank, Danielle Keighery as the Chief Customer Officer
and Nicholas Allton in the role of Group General Counsel
and Company Secretary. We have recently announced the
appointment of Chris Screen to the role of Group Executive
Business Banking and we will welcome David Watts as BOQ’s
Group Chief Risk Officer in early 2022.
During the year we welcomed a large number of new employees
to the Group through the acquisition of ME Bank. This team
enhances our presence in Victoria and we believe our aligned
customer-focused cultures will see a successful integration of
ME Bank into the BOQ Group while continuing to maintain a
differentiated proposition through the ME brand.
We continued to focus on the wellbeing of our people during
the year and to manage for impacts from COVID-19 we
implemented flexible policies for non-front line workers and
ensured eligible employees could take advantage of special
leave for vaccinations. I am proud of our people and the key
role they continue to play in supporting customers. I thank
them for their dedication and acknowledge their hard work
over the course of another trying year.
Performance
The execution of our strategy throughout FY21 has driven our
strong business performance for the year.
Total income increased by 13 per cent as we continued to
grow our balance sheet above system while preserving our
margins. Our expenses grew 12 per cent during the year as we
supported volume growth, while investing for the future.
Impairment expenses decreased during FY21 as we reduced
the collective provision in light of changes to the economic
environment and expected future loan losses. Maintaining a
strong balance sheet continues to be important for BOQ, and
our capital remains comfortably above APRA’s benchmark, with
a CET1 ratio of 9.80 per cent.
Overall our improvement in statutory NPAT of 221 per cent
to $369 million, reflects the improved business performance,
operating conditions and a customer focused culture.
Having completed the acquisition of ME Bank on 1 July 2021,
our integration program has shown solid progress with early
momentum and focus resulting in the acceleration of synergies
and the development of a clear integration roadmap.
The future
Even as our future feels uncertain because of the ongoing
impact from the pandemic, I’ve never felt more optimistic
about the ability of our people and customers to pull through
to better times. As the vaccine rollout gathers pace and policy
settings encourage economic stability and growth, I’m hopeful
our customers, stakeholders and people will join our business in
returning to a more stable operating environment.
Looking ahead, I am very excited about the future. The
integration of ME Bank is underway and we have a clear
strategic roadmap which we are executing against. We are
committed to repaying the support of our shareholders by
delivering sustainable profitable returns.
I believe we have the right people in place to execute on our
strategy to transform BOQ into a digital bank with a personal
touch to create a compelling proposition for our shareholders,
customers, people and the community.
George Frazis
Managing Director and CEO
9
2021 Annual Report 2021
DIRECTORS’
REPORT
About BOQ 12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
ABOUT BOQ
BOQ is one of Australia’s leading regional
banks, having served customers for 147 years.
During BOQ’s long history, it has evolved from a
Queensland focused, retail branch-based bank to a
national diversified financial services business with
a focus on niche commercial lending segments,
highly specialised bankers and branches run by
small business owners who are deeply anchored
in their communities. In FY21 BOQ has been
further strengthened and diversified through the
acquisition of ME Bank.
We provide a range of products to support the
financial needs of our customers and pride
ourselves on building long term customer
relationships that are digitally enabled with a
personal touch.
Purpose and Values
Our purpose is to create prosperity for our
customers, shareholders and people through
empathy, integrity and by making a difference.
Our values are contained within the purpose
statement, ensuring our people are clear on the key
values to which BOQ subscribes.
Our purpose and values communicate a simple and
clear message for our people. We are committed
to ensuring our purpose and values are reflected
in everything we do – from the development of
our strategy to our everyday interactions with our
customers and communities.
We recognise we have more to do to ensure all our
interactions and decisions have empathy at the
core and this is an aspirational target for BOQ.
BOQ HAS A SIGNIFICANT
PRESENCE AROUND
AUSTRALIA
12
Empathy
Integrity
•
•
•
•
•
•
We seek to understand and feel what others are
experiencing, then we take action to help them. We
are curious and interested in other perspectives
We ask great questions to understand where our
customers and colleagues are coming from
We use our insights to create great experiences,
by showing care, providing and receiving feedback,
building trust and taking action
We take pride in doing what’s right, speaking up and
we do what we say we will do
We establish high and clear standards and hold
ourselves and others accountable
We have the courage to raise and own mistakes and
empower others to do the same
• We are bold and take reasonable risks to create
prosperity
Making a
difference
• We focus on delivering outcomes for our customers
and improving the way things are done
• We achieve together and celebrate the positive
impact we create
$56.5bn
Customer
deposits
$75.7bn
Gross loans
and advances
163
Branches
Customers in every
State and Territory
1.5m
Customers
Bank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
ABOUT BOQ
Distinctive brands serving attractive niche customer segments
Over time, BOQ has successfully acquired a portfolio of brands which form the basis of our multi-brand strategy.
These different and complementary business lines provide us with a competitive advantage due to our specialised
knowledge in these niche segments.
Retail Banking
Retail and SME lending,
deposits, credit cards
and insurance
Digital home loans, deposits,
credit cards, insurance and
superannuation
Home loans, personal loans,
deposits and credit cards
BOQ
BOQ is the Retail banking arm of the
BOQ Group and is comprised of 163
branches across Australia offering a
range of banking products. Our 103
Owner-Managed Branches (OMB)
are run by local Owner-Managers who
understand the importance of delivering
high quality customer service and are
deeply committed to the communities
in which they operate.
BOQ Business
Commercial lending,
deposits, financial markets
and insurance
BOQ Business
BOQ Business is a relationship led
business with specialist bankers
providing client solutions across Small
Business, Agribusiness, Corporate
Banking, Property Finance, Healthcare
& Retirement and Tourism, Leisure &
Hospitality. BOQ Business also works
closely with the Owner Manager
network to support commercial
customers who value a more intimate
business banking relationship with
passionate industry experts.
Group Functions
VMA
VMA is a digital first retail financial
services company which provides
a wide range of financial products
that are easy to understand and is a
compelling alternative to the big banks.
BOQ acquired VMA in 2013 and it
operates as a standalone brand within
the BOQ Group.
ME Bank
ME Bank is a branchless retail bank
which provides a wide range of banking
products to customers through mobile
bankers, direct channels and brokers.
ME Bank was acquired by BOQ in July
2021 and operates as a distinct brand
within the BOQ Group.
Asset finance and leasing
Finance
BOQ Finance is a wholly owned
subsidiary of BOQ Group Limited
specialising in asset finance and
leasing solutions.
BOQ Finance is a mid-market financier
providing deep industry and product
skills to its partner base. BOQ Finance
has been operating in the Australian
and New Zealand markets for more
than 45 years.
Lending, deposits, credit
cards and leasing for medical
and professional services
BOQ Specialist
BOQ Specialist delivers distinctive
banking solutions to niche market
segments including medical, dental and
veterinary professionals. BOQ acquired
the business (previously Investec
Professional Finance) from Investec
Bank (Australia) Limited in 2014. BOQ
Specialist operates as a niche brand
within BOQ’s Business Bank.
BOQ’s business lines are supported by a number of Group functions including Group Customer, Technology, Risk, Finance,
Transformation & Operations, Legal and our People & Culture teams. These key functions support our bank by managing our
operations, property, strategy, finance, treasury, technology architecture, infrastructure & operations, risk, compliance, legal, human
resources and corporate affairs.
13
2021 Annual Report About BOQ
12
|
Responding to COVID-19 14
|
Acquisition of ME Bank 15
|
Value Creation and Strategy
16
RESPONDING
TO COVID-19
The COVID-19 pandemic has had
ongoing impacts for our customers and
people throughout FY21 and we remain
committed to supporting them through
these challenging times. We recognise our
responsibility to maintain confidence in
the economy and our role is to ensure the
systems and processes we have in place
underpin the resilience of the business and
our people which in turn supports customers.
Business resilience
BOQ Group continues to develop scenario models to
identify potential risks to our business under a range of
different economic outcomes. The application of these
models ensures BOQ is able to respond quickly to either the
economy showing signs of recovery, as shown in the first half
of 2021 or the reintroduction of restrictions and lockdowns, as
we are currently experiencing in some parts of Australia.
Our strong levels of capital and liquidity positions us well
for any potential scenario and we continue to refine our risk
models as additional economic data becomes available.
Employee support
The health and wellbeing of our people has remained a key
focus throughout FY21. We have built upon lessons from 2020
to ensure the health, wellbeing and safety of our people is
protected and our actions have been continually updated based
on guidance from State and Federal authorities and the World
Health Organisation. We are supportive of the National Cabinet
reopening plan and vaccination program, and have provided our
people with paid vaccination leave.
Banking is an essential service and accordingly we have kept
our branch network open throughout this period as well as
maintaining our other operations.
Managing our credit risk
Building upon the processes implemented in 2020, BOQ is
continuing to monitor the credit quality of the portfolio to
assess economic impacts due to COVID-19, particularly in light
of the recent spike in cases causing the reintroduction of more
severe restrictions and lockdowns.
BOQ has a number of credit models designed to assist in
measuring the credit risk in the portfolio based on changing
economic and environmental conditions.
Customer Support
While the first banking relief package came to an end on
31 March 2021, our Retail and Business Bankers and BOQ
Specialist relationship managers continue to work very closely
with their customers to understand their needs during this
time and to support them in the ever changing COVID-19
environment. This includes re-introducing a relief package
in July 2021 to support customers impacted by an extended
period of lockdown.
14
Support for Personal Customers:
To help customers experiencing difficulty, BOQ’s Customer
Assistance Team provides access to a range of support
measures including:
• The ability to defer mortgage and/or loan repayments, or
make interest only repayments for a short period
• Special arrangements in relation to arrears
• Early access to Term Deposit funds with wavier of
redemption fee
• Waiver of other fees and charges related to non-payment
In addition, BOQ has supported retail customers to manage
their cash flow needs through offering competitive home loan
and deposit products with flexible features such as interest only,
offset and redraw facilities.
Support for Business Customers:
Australian businesses have also been under pressure from
restrictions and lockdowns, and we continue to offer financial
assistance to our Business Banking customers which include:
• Small business customers are able to defer repayments for
up to 3 months, with loan terms extended accordingly
• Eligible customers are able to receive refunds of merchant
terminal rental fees for up to 3 months
• Eligible customers do have early access to Term Deposit and
Farm Management Deposit funds and a waiver of redemption
fee for up to 3 months
We note that further deferrals or restructuring for businesses
facing extended disruption may not be in their best interest. In
these circumstances BOQ works closely with our customers to
find a responsible solution.
Bank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
ACQUISITION OF ME BANK
“ The acquisition of ME Bank was a defining moment for BOQ,
delivering on our transformation strategy and benefitting our
customers, shareholders and people. The addition of ME Bank
delivers material scale, broadly doubles our Retail Bank and
provides geographic diversification.”
- BOQ Managing Director and CEO, George Frazis
At BOQ, we have a strong history of servicing our customers with
a focus on niche segments through our owner managers and
specialised bankers. We have evolved from a Queensland focused,
retail branch-based bank to a national diversified financial services
business through our multi-brand strategy building relationships
with the communities we support. In February 2021, we announced
the exciting acquisition of ME Bank, adding a strong complementary
customer focused brand.
About ME Bank
ME Bank is a branchless retail bank
which provides a wide range of banking
products to customers through mobile
bankers, direct channels and brokers.
ME Bank was acquired by BOQ in July
2021 and operates as a distinct brand
within the BOQ Group.
CUSTOMER NUMBERS
~580k
$18bn
CUSTOMER DEPOSITS
EMPLOYEES (1)
~1,100
$25bn
GROSS LOANS AND ADVANCES
Strategic rationale
The ME Bank Acquisition is expected to deliver strategic and
financial benefits to the BOQ Group:
Integration
Planning for the integration commenced soon after we
announced the intended acquisition of ME Bank in February 2021.
• significantly enhanced scale, broadly doubling the retail bank and
providing geographic loan portfolio and revenue diversification
• strong complementary trusted brands with shared customer-
centric cultures and differentiated customer segments
• a clear pathway to a scaled, common cloud based digital retail
bank technology platform
• attractive financial outcomes, including improved returns
on equity and earnings per share whilst also maintaining a
strong balance sheet.
(1) Excludes contingent workers.
In order to deliver the strategic and financial benefits of the
acquisition, BOQ has developed an Integration program with
Board and Executive sponsorship and established an Integration
Management Office (IMO) to manage the overall program. The
IMO has introduced strong governance across the program,
developing risk management frameworks and program
management capabilities to support the delivery work streams.
Prior to completion there was good engagement between
the BOQ and ME Bank teams which enabled a day 1 readiness
program to be built and successfully executed. Post completion,
the integration program has been able to deliver a number of
quick wins as well as develop detailed integration plans and
validate the due diligence assumptions. The integration plan and
associated technology roadmap ensures there is a clear pathway
to deliver on BOQ’s strategic ambitions.
Further information on ME Bank and the integration is available in
the FY21 Sustainability report, pages 28 - 29.
15
2021 Annual Report About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy 16
HOW WE CREATE VALUE
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OUTP U T S
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BOQ VALUE
CUSTOMER
COMMUNITY
PEOPLE
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CLIMATE CHANGE
FINANCE
TECHNOLOGY &
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their financial goals
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community
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and ongoing support
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of the community
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and inclusive workforce with a strong sense of
and inclusive workforce with a strong sense of
purpose and ethics
purpose and ethics
Increase skills and capabilities of our people
Increase skills and capabilities of our people
•
•
• BOQ is seen as an employer of choice
• BOQ is seen as an employer of choice
View our Sustainability Report
boq.com.au/2021
View our Sustainability Report
boq.com.au/2021
View our Sustainability Report
boq.com.au/2021
16
Bank of Queensland Limited and its Controlled Entities
Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
At the core of how we create long term value for our stakeholders is our purpose led culture and the execution of
our strategy. This is underpinned by our value drivers and the associated business activities which we undertake
with the aim of delivering a set of key outcomes for our stakeholders.
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We contribute to th
This report includes details on how we
are managing the key risks associated
with our value drivers on pages 55-70 to
achieve strong financial returns.
Further information on management
of the non-financial risks is contained
within the FY21 Sustainability Report and
Corporate Governance Statement.
Commercial lending,
deposits, financial
markets, insurance
Lending, deposits, credit
cards, insurance for
doctors and dentists
Asset Finance,
Cashflow and
Structured
Finance solutions
CUSTOMER
COMMUNITY
PEOPLE
DRIVER OUTCOMES
ENVIRONMENT &
CLIMATE CHANGE
FINANCE
• Accountability of BOQ’s impact on the environment
• Attract customers, employees and shareholders
whose values and banking choices are aligned to
BOQ’s environmental goals
• Contribute to Australia’s transition to a lower
• Returns to shareholders and capital reinvested
for future growth
• Trusted to deliver sustainable returns
•
Increased market share in niche segments
TECHNOLOGY &
DATA CAPABILITIES
•
Improve customer experience through flexible
and resilient digital infrastructure
• Data insights driving customer relationships
and experience
Increase business efficiencies
•
• Data security, governance and privacy
carbon economy
Pages 61 – 69
Financial Performance pages 20 - 54
View our Sustainability Report
boq.com.au/2021
17
2021 Annual Report
About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy 16
OUR STRATEGIC PRIORITIES
AND VALUE DRIVERS
Developing and executing against our strategy
Our strategy aims to deliver an exceptional customer experience through digital channels and specialised bankers to
create long term shareholder value.
The strategy was informed by our key differentiators; unique brands with proud history, an innovative digital offering and loyalty
programme, deeply anchored in local communities with a strong customer focus and highly specialised industry expertise.
We continue to work toward a distinctive approach for our customers and people, a comprehensive digital transformation and a focus
on delivering sustainable profitable growth and attractive returns.
Our strategy is built on five clear strategic priorities focused on our customers, people and shareholders. We have set ourselves bold
targets and have made good progress towards these in FY21.
Our strategic
priorities
Target (1)
Progress
Value
driver
EMPATHETIC
CULTURE
• Top 3 NPS for personal and
SME customers
• Employee engagement from
56% to top quartile
• Clear Purpose & Values
• BOQ Retail NPS ranked 3rd at +23 (up 6ppt from FY20 and ranking
remains consistent) (2)
• VMA NPS 14th at -16 (up 4ppt from -20 in FY20) (3)
• ME Bank NPS ranked equal 7th at +17 (down from +23 in FY20) (2)
• BOQ Mortgage NPS ranked equal 4th at +4 (from 5th in FY20) (2)
• Ongoing support of customers and people impacted by COVID-19
• Executive team in place and delivering
• Employee engagement score 64% (up from 59% in FY20)
• BOQ was awarded the WGEA Employer of Choice for
Gender Equality citation
DISTINCTIVE
BRANDS
• Grow customer base to
c.1.5m customers
• Growing above system from FY20,
optimising revenue and return
• Ongoing Risk Weighted Assets
(RWA) optimisation
• Customer base of 1.5m customers
• Home lending growth of c.$2.9bn (1.7x system)
• Business lending and Asset finance growth of c.$600m
(0.8x system) (4)
• All Owner Managers on new franchise agreement
• Expanded strategic 3rd party distribution partnerships with
quality aggregators
DIGITAL
BANK
SIMPLE &
INTUITIVE
• Deliver a new Digital Bank
• Transition customers from
old to new cloud based core
services platform
•
Productivity benefits of c.$90m
annualised run rate from FY23,
containing expense growth to
<1.0% p.a. in FY21 and FY22
• Halve the products for sale
•
Within 1-day time to conditional
approval for home lending
• VMA phase 1 launched in March 2021
• Second phase of VMA digital bank incorporating home loans
and term deposits underway
• BOQ retail digital bank Phase 1 well progressed
• Implemented new Card Management System providing
customers instant card issuance, digital wallet capability & self
service convenience
• FX digital platform and currency exchange
• Products for sale reduced by from 202 to 127 since FY19
• During August we reached, time to conditional yes held of 1 day
for Proprietary and 3 days for our Broker channel , even as volume
growth occurred (5)
• Year 2 productivity benefits of $30m delivered in FY21, bringing
the total to $60m
• Lifting our capability to improve delivery
STRONG
FINANCIAL &
RISK POSITION
• Positive jaws in FY21, expanding
in FY22
• Strong risk and compliance
outcomes
• Maintain group deposit-to-loan
ratio of ≥70%
• Capital investment of c.$100m p.a.
FY20-FY22
• Positive jaws of 2% delivered in FY21
• Deposit to Loan ratio increased to 75%
• Ongoing enhancements in risk-based pricing and margin
management
• Governance risk and compliance tool implemented
(1) Targets set prior to the inclusion to ME Bank.
(2) RFi XPRT Report, August 2021.
(3) DBM Atlas Report August 2021. NPS refers to Any Financial Relationship (AFR) and businesses under $40 million turnover.
(4) Reflects the APRA definition of lending and will therefore not directly correlate to the balance sheet growth. Adjustments made to include BOQ Finance non-Authorised
deposit-taking institution (ADI) balances in overall growth result.
(5) Time to conditional yes varies during the year based on volumes and customer mix.
18
Bank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
Alignment of our value drivers and strategic priorities
In developing our strategy we have considered our core value drivers to ensure alignment of our strategic initiatives and performance
metrics to these desired outcomes. The table below provides further detail on each of BOQ’s value drivers and the key strategic
initiatives which have been developed with the aim of delivering the value driver outcomes.
Customer
Community
Customers and quality relationships sit at the heart of
BOQ. We create value by providing a range of financial
services to meet the needs of our customers. We aim to
provide exceptional customer experiences and believe in fair
outcomes. We aim to support individuals and businesses to
achieve their financial goals.
BOQ recognises the importance of contributing to the wellbeing
of the wider community. Led by the owner managers, who are
experienced bankers anchored in their local community, BOQ
has established good relationships with the communities in
which it operates. We aim to ensure ongoing access to financial
services and support and improve the financial literacy and
wellbeing of the community.
• Building a distinctive purpose-led culture with empathy
at the heart to guide fairer decisions for our customers
• Deepening our niche segment strategy leveraging
experienced specialist bankers supported by high
quality credit officers
• Seizing the potential of the OMB model to drive
relationships within communities
• Enhancing our community partnerships model to
support vulnerable Australians
• Leveraging the owner manager model to build deep
relationships through experienced bankers anchored in
the local community
• Building a distinctive purpose led culture with empathy
• Streamlining our product set, operations and processes
at the heart
to create superior customer experiences
People
Environment & climate change
Our employees are key to the success of our business. We value
diversity and inclusion and rely on their capabilities and skills to
deliver value for stakeholders. Grounded in our organisational
culture and values, we seek to build a resilient, adaptable, diverse
and empowered workforce with a strong sense of purpose and
ethics so that BOQ is viewed as an employer of choice.
Climate change is a risk to BOQ and to the Australian economy,
society and environment. Banks play a central role in supporting
customers through the transition to a lower carbon economy.
Taking accountability of BOQ’s impact on the environment will
attract customers, employees and shareholders whose values are
aligned to BOQ’s environmental goals. Further details on BOQ’s
response to climate change can be found on pages 61 - 69.
• Embed our purpose-led, empathetic culture
• Creation of exceptional employee experiences
• Grow talent and capability
• Reduce BOQ’s carbon footprint with a goal of 100
per cent renewable energy by FY25
• Support customers to transition to a lower
carbon economy
• Achieving carbon neutral certification from FY21
Finance
BOQ’s equity and debt investors provide us with an important
source of funds which are utilised through our business
activities with the aim of creating value for our stakeholders.
Investors expect generated capital to be reinvested to fund
future growth and are seeking sustainable returns on their
investment. Further details on BOQ’s financial performance can
be found on pages 20 - 54.
• Maintain group deposit-to-loan ratio of >70 per cent
• Ongoing RWA optimisation
• Streamline and simplify the business to deliver
productivity benefits
Technology & data capabilities
Continued investment in technology and data capabilities is
essential to delivering an enhanced customer experience, providing
tailored products and service for customers and simplifying how
we do business. Stakeholder expectations are changing rapidly
and the ability to harness insights to tailor our offering will create
significant value for stakeholders, while ensuring strong controls of
data security, governance and privacy are in place.
•
Deliver the next phase of the VMA digital bank and the
BOQ and ME Bank migration
Build an intelligent data platform
•
• Transition customers from old to new cloud based core
services platform
19
2021 Annual Report About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
1. FINANCIAL HIGHLIGHTS
1.1
RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS
Reported results and pro forma results
BOQ acquired 100 per cent of ME Bank on 1 July 2021. The 2021 reported result includes ME Bank for the period since ownership. Comparatives
have not been restated other than in the Pro Forma result included in section 4.4 Pro Forma Results.
In order to preserve transparency, where practical, the Financial Performance Report will separately present the full year results including
ME Bank’s contribution to the income statement. The reported result and commentary focusses on BOQ’s year-end performance to
enable a direct comparison of the underlying performance of the Bank excluding ME Bank. In order to enhance the understanding and
comparability of financial information between periods, figures and commentary disclosed in the Financial Performance Report exclude
ME Bank unless stated otherwise.
In the financial tables throughout the Financial Performance Report, ‘Large’ indicates that the absolute percentage change in the balance
was greater than 200 per cent or 200 basis points. ‘Large’ also indicates the result was a gain or positive in one period and a loss or
negative in another.
Note on statutory profit and cash earnings
Statutory profit is prepared in accordance with the Corporations Act 2001 and the Australian Accounting Standards, which comply with
International Financial Reporting Standards (IFRS). Cash earnings is a non-accounting standards measure commonly used in the banking
industry to assist in presenting a clear view of the Bank’s underlying earnings.
Figures disclosed in this report are on a cash earnings basis unless stated as being on a statutory profit basis. The non-statutory measures
have not been subject to an independent audit or review.
Cash earnings excludes a number of items that introduce volatility or one off distortions of the current period performance and allows
for a more effective comparison of performance across reporting periods. The exclusions relate to:
• Transaction costs – costs associated with the acquisition of ME Bank;
•
Integration costs – costs associated with the restructure and integration of ME Bank;
• Employee pay and entitlements review - costs associated with the remediation of employee pay and entitlements;
•
Hedge ineffectiveness - this represents earnings volatility from hedges that are not fully effective and create a timing difference in
reported profit. These hedges remain economically effective;
• Amortisation of acquisition fair value adjustments - this arises from the acquisition of subsidiaries; and
•
Intangible asset review – a non-recurring adjustment due to a change in the ME Bank minimum threshold for the capitalisation of
intangible assets to align with BOQ.
Reconciliation of statutory net profit to cash earnings after tax ($m)
6
3
1
2
3
3
2
19
9
7
412
23
389
369
17
352
Statutory net
profit after tax
Incl. ME Bank
ME Bank
Transaction
costs
Integration
costs
Employee
pay and
entitlements
review
Hedge
ineffectiveness
Amortisation
of acquisition
fair value
adjustments
Intangible
asset review
Cash earnings
after tax
Incl. ME Bank
20
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
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Governance and Risk Management 55
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Directors’ Details 71
1.1
RECONCILIATION OF STATUTORY PROFIT TO CASH EARNINGS (CONTINUED)
(a) Reconciliation of Cash Earnings to Statutory Net Profit after tax
($ million)
Cash earnings after tax
Amortisation of acquisition fair value adjustments
Hedge ineffectiveness
Transaction costs
Integration costs
Intangible asset review and restructure
Regulatory / compliance
Employee pay and entitlements review
Other legacy items
Statutory net profit after tax
(b) Non-Cash Earnings Reconciling items
BOQ Year End Performance
BOQ Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
Aug-21
389
(2)
(3)
(19)
(7)
-
-
(6)
-
352
225
(4)
(10)
-
-
73%
(50%)
(70%)
100%
100%
(80)
(100%)
(5)
(8)
(3)
115
(100%)
(25%)
(100%)
Large
224
(1)
(2)
(16)
(7)
-
-
-
-
198
165
(1)
(1)
(3)
-
-
-
(6)
-
154
36%
-
100%
Large
100%
-
-
(100%)
-
29%
412
(3)
(3)
(19)
(9)
(3)
-
(6)
-
369
($ million)
Net interest Income
Non-Interest Income
Total income
Operating expenses
Underlying profit
Loan impairment expense
Profit before tax
Income tax expense
BOQ Profit after tax
ME Bank Profit after tax
Profit after tax
Cash
earnings
Aug-21
Amortisation
of acquisition
fair value
adjustments
Hedge
ineffectiveness
Transaction
costs
Integration
costs
Employee
pay and
entitlements
review
Intangible
asset
review
Statutory
net profit
Aug-21
1,050
125
1,175
(633)
542
20
562
(173)
389
23
412
-
-
-
(3)
(3)
-
(3)
1
(2)
(1)
(3)
-
(5)
(5)
-
(5)
-
(5)
2
(3)
-
(3)
-
-
-
(20)
(20)
-
(20)
1
(19)
-
(19)
-
-
-
(12)
(12)
(12)
5
(7)
(2)
(9)
-
-
-
(10)
(10)
-
(10)
4
(6)
-
(6)
-
-
-
-
-
-
-
-
-
(3)
(3)
1,050
120
1,170
(678)
492
20
512
(160)
352
17
369
21
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
1.2 FINANCIAL SUMMARY
Cash earnings after tax ($m)
Up 203% (Excl. Me)
23
224
153
151
165
74
Statutory net profit after tax ($m)
Up 800% (Excl. ME)
17
198
142
93
154
22
2H20
1H21
2H21
2H19
1H20
2H20
1H21
2H21
2H19
1H20
Common equity tier 1 (CET1) (%)
Dividends per ordinary share (cents) (1)
Up 2bps
9.04
9.91
9.78
10.03
9.80
31
Up 29%
17
22
DEFERRED
6
6
2H19
1H20
2H20
1H21
2H21
2H19
1H20
2H20
1H21
2H21
Cash basic earnings per share (EPS) (cents) (2)
Cash net interest margin (NIM) (%) (3)
Up 146%
Up 3bps (Excl. ME)
36.6
34.3
35.5
38.8
1.92
1.89
1.92
1.95
1.95
15.8
2H19
1H20
2H20
1H21
2H21
2H19
1H20
2H20
1H21
2H21
Cash cost to income (CTI) (%) (4)
Cash return on average equity (ROE) (%)
Down 160bps (Excl. ME)
1.0
Up 540bps
52.5
55.0
54.9
54.5
53.3
7.8
7.5
7.8
8.8
3.4
2H19
1H20
2H20
1H21
2H21
2H19
1H20
2H20
1H21
2H21
ME Bank
(1) Based on the Australian Prudential Regulation Authority guidance issued on 7 April 2020, BOQ determined to defer the decision on payment of an interim dividend.
Refer to BOQ Australian Securities Exchange (ASX) Release “BOQ FY20 Interim Dividend Deferral”, 8 April 2020.
(2) The basic and diluted earnings per share for 1H21, 2H20 and 1H20 have been adjusted per ASX announcement on 20 April 2021.
(3) NIM including the two month impact of ME Bank is 1.90 per cent in 2H21 and 1.92 per cent in FY21.
(4) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
22
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
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Governance and Risk Management 55
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Directors’ Details 71
1.2 FINANCIAL SUMMARY (CONTINUED)
CASH EARNINGS AFTER TAX (1)
CASH NET INTEREST MARGIN (1)
CASH OPERATING EXPENSES (1)
$389m
Increase of 73 per cent on FY20,
driven by income growth and lower
impairment provisions.
1.95%
Increase of four basis points on FY20. Flat NIM
since 1H21 with funding cost benefits offsetting
competition price pressures.
$633m
Increase of three per cent on FY20, driven
by investments in strategic technology
projects and supporting business growth.
LOAN IMPAIRMENT EXPENSE (1)
CET1
CASH ROE
($20m)
Includes a $69 million reduction in the
collective provision.
9.80%
Increase of two basis points on FY20, driven
by cash earnings, offset by high risk weighted
asset (RWA) growth, dividends and investment.
8.2%
Increase of 280 basis points on FY20,
driven by higher earnings.
(1) Metrics relate to BOQ only and do not include ME Bank.
BOQ’s cash earnings after tax for FY21 was $389 million, 73 per cent
higher than the FY20 result. Statutory net profit after tax was $352
million, a 206 per cent increase on FY20. The increase in earnings
was the result of a credit to loan impairment expense and increased
net interest income, partly offset by higher operating expenses.
The Bank acquired 100 per cent of ME Bank on 1 July 2021. ME
Bank’s cash earnings after tax for the two months since acquisition
was $23 million. Statutory net profit after tax was $17 million.
Net interest income
Net interest income of $1,050 million increased by $64 million or
six per cent on FY20. This was driven by four per cent growth in
average interest earning assets and a four basis point increase in
net interest margin to 1.95 per cent.
Gross loans and advances growth of eight per cent was primarily
driven by home lending, which achieved growth of nine per cent.
This reflected continued strong new business volumes. The
commercial lending portfolio grew four per cent with growth
across all business areas.
NIM increased four basis points on FY20. This was primarily
driven by lower funding costs due to the benefit of deposit
repricing and improved mix together with lower hedging costs.
These were partially offset by competition in the market and
the ongoing impact of a low interest rate environment on the
returns on capital and the low cost deposit portfolio.
Non-interest income
Non-interest income of $125 million decreased by $3 million or
two per cent on FY20. This was driven by lower insurance income
with the material closure of St Andrew’s to new business in
FY20, lower trading income and lower VMA card and insurance
income that continued to be adversely impacted by the effect of
COVID-19 on the travel industry.
These were partly offset by income from a new card services
arrangement with a third party supplier, the reinstatement of
some fees paused during COVID-19 and higher financial markets
customer transactions.
Operating expenses
Total operating expenses of $633 million increased by $21 million
or three per cent on FY20. This increase was primarily driven by an
investment in employees to deliver strategic priorities including
the build out of the new Digital Bank and other technology
projects, and to support volume growth.
The focus on growth and cost discipline has resulted in positive
Jaws of two per cent and a reduction in the cost to income (CTI)
ratio of 100 basis points on FY20.
Loan impairment expense
Loan impairment expense was a credit of $20 million and
compares to an expense of $175 million in FY20. This credit was
driven by a reduction in the collective provision in FY21 of $69
million primarily due to an improved economic outlook and
improvements in data quality relating to collateral. In FY20, a
collective provision overlay of $133 million was recorded for the
potential impacts of COVID-19.
Specific provision expense of $49 million increased by $2 million or
four per cent on FY20. This was driven by one large facility in Retail
and the impact of lockdowns on some niche medical practices
in Asset finance, partly offset by a write back of one large
Agribusiness exposure that returned to performing.
Capital management
Capital management BOQ CET1 ratio of 9.80 per cent is 23 basis
points lower than 1H21. This was driven by strong growth in risk
weighted assets and continued capital investment in the digital
transformation. The acquisition of ME Bank was fully capital
funded with no impact on CET1.
Shareholder returns
BOQ has determined to pay an ordinary dividend of 22 cents
per share for 2H21. That takes the FY21 dividend to 39 cents per
share, which is 61 per cent of FY21 cash earnings. The Board has
committed to a target dividend payout ratio of 60-75 per cent of
full year cash earnings.
23
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
1.2 FINANCIAL SUMMARY (CONTINUED)
Acquisition of ME Bank
Acquisition overview and Accounting
BOQ acquired 100 per cent of the share capital of ME Bank on 1 July 2021. ME Bank operates in the retail segment of the domestic
market offering primarily home loan products and everyday transaction and online savings accounts. The acquisition provides BOQ
with significantly enhanced scale and portfolio mix, broadly doubling the Retail bank GLAs, and providing geographical and customer
segment diversification. BOQ and ME Bank have strong complementary challenger brands with a shared customer centric culture. It
also provides an opportunity to accelerate BOQ’s digital strategy providing a clear pathway to a cloud based common digital Retail bank
core banking platform.
The fair values of the ME assets and liabilities acquired have been determined on a provisional basis with resulting goodwill of $35 million
as outlined below:
($ million)
ME Bank book value of assets acquired
Fair value adjustments:
Loans and advances
Deposits and other borrowings
Intangibles
Brand
Customer relationships
Total Intangibles
Deferred tax liabilities
Total fair value adjustments of net assets acquired
Net identifiable assets and liabilities
Other equity instruments (1)
Provisional goodwill arising on acquisition
Total purchase consideration transferred
Aug-21
1,646
16
(5)
26
31
57
(46)
22
1,668
(315)
35
1,388
(1) Other equity instruments of $315 million include Additional Tier 1 (AT1) securities assumed on the acquisition of ME Bank.
The intangibles are expected to amortise over a period of between 6 and 10 years. Similar to previous acquisitions, this amortisation will
be treated as a statutory adjustment and not included in cash earnings. Further details of the acquisition are disclosed in Note 5.5 (ii)
Business combinations during the year.
Integration progress
The integration of ME Bank is well progressed. In order to reduce risk, a phased approach to integration was developed. Following the pre-
completion phase and successful completion of the transaction on 1 July 2021, a 90 day sprint was undertaken to ensure a strong start to
the integration program and to build momentum. During this period a number of key integration milestones have been achieved:
• Ensuring continuity of operations for our customers;
• Validation of integration hypotheses and development of detailed work stream integration plans finalised;
• BOQ Group operating model refreshed and communicated;
• Consolidated leadership team in place with clear accountabilities;
• Strategic sourcing consolidation commenced;
• Refinement of the BOQ Group Technology roadmap; and
• Clear pathway to ME Bank ADI license handback determined, expected to occur in early calendar 2022.
The scale phase of the integration program will include:
• Consolidation of ME Bank and BOQ on to a single ADI, which is critical to delivery of a number of synergies;
• Execution of the technology roadmap alongside the broader transformation program; and
• Consolidation of shared service functions, supply chain and property activities.
24
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
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Governance and Risk Management 55
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Directors’ Details 71
1.2 FINANCIAL SUMMARY (CONTINUED)
Acquisition of ME Bank (continued)
Integration expenses and synergies
Integration expenditure is expected to range between $130 million and $140 million (pre-tax), with the majority to be incurred in the first
two years. Due to the size and non-recurring nature of these costs, they will be treated as a statutory adjustment and not included in
cash earnings.
The amount of integration expenditure for the two months to 31 August 2021 including ME Bank was $13 million (pre-tax). Further
integration costs of between $70 million and $80 million (pre-tax) are expected to be incurred in FY22.
The acquisition is expected to realise significant pre-tax cost synergies with further potential upside from revenue benefits, funding
savings and investment net capitalised investment (CAPEX) synergies.
The cost synergies are primarily expected to be derived from having complementary businesses, alignment of operating models and
technology roadmaps, and consolidation of supply chains and shared services functions. Approximately 60 per cent of the synergies
are expected to be delivered through operating model changes with the balance from reduced project expenditure, supply chain and
other synergies.
The fast start to the integration program has accelerated the delivery of these synergies, with accelerated cost synergies of $30 to $34
million expected to be delivered in FY22. The remainder of the $70 to $80 million of cost synergies is expected to be delivered in FY23, with
potential upside for additional synergies in FY24 following completion of the technology integration initiatives.
Other benefits expected to be derived in FY22 from the acquisition include:
• CAPEX expenditure benefits of circa $15 million from the consolidated investment roadmap;
•
further NIM benefits from wholesale and retail deposits; and
• non-interest income benefits.
25
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
2. GROUP PERFORMANCE ANALYSIS
INCOME STATEMENT AND KEY METRICS
2.1
($ million)
Net interest income
Non-interest income (1)(2)
Total income (2)
Operating expenses (1)(2)
Underlying profit (2)
Loan impairment expense
Profit before tax (2)
Income tax expense (2)
Cash earnings after tax
Statutory net profit after tax (2)
Key Metrics
SHAREHOLDER RETURNS (3)
Share price
Market capitalisation (4)
Dividends per ordinary share
(fully franked) (5)
CASH EARNINGS BASIS (3)
Basic earnings per share (EPS) (5)(6)
Diluted EPS (5)(6)
Dividend payout ratio
STATUTORY BASIS (3)
Basic EPS (6)
Diluted EPS (6)
Dividend payout ratio
Year End Performance
Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
Aug-21
1,050
125
1,175
(633)
542
20
562
(173)
389
352
986
128
1,114
(612)
502
(175)
327
(102)
225
115
6%
(2%)
5%
3%
8%
Large
72%
70%
73%
Large
538
59
597
512
66
578
(318)
(315)
279
44
323
(99)
224
198
263
(24)
239
(74)
165
154
5%
(11%)
3%
1%
6%
Large
35%
34%
36%
29%
1,128
130
1,258
(684)
574
21
595
(183)
412
369
Year End Performance
Half Year Performance
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
($)
($ million)
(cents)
9.46
6,063
39
6.13
2,785
54%
118%
12
Large
9.46
6,063
22
8.79
4,004
17
(cents)
(cents)
(%)
(cents)
(cents)
(%)
74.7
69.5
60.6
67.0
62.6
67.7
49.6
45.1
24.2
25.4
24.4
47.4
51%
54%
Large
164%
157%
Large
38.8
36.2
57.1
34.0
31.8
65.6
35.5
32.8
65.9
32.9
30.5
70.6
8%
51%
29%
9%
10%
Large
3%
4%
Large
(1) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(2) Refer to Section 1.1 Reconciliation of statutory net profit to cash earnings after tax for a reconciliation of cash earnings to statutory net profit after tax.
(3) All metrics relate to BOQ including ME Bank.
(4)
(5) The basic and diluted earnings per share for all prior periods have been adjusted per ASX announcement on 20 April 2021.
(6) The sum of 1H21 and 2H21 EPS does not equal FY21 due to the impact of the capital raising and the uneven distribution of cash earnings after tax across the two halves
Includes $1.35 billion capital raise announced 22 February 2021 for ME Bank acquisition.
of the year.
26
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
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Directors’ Details 71
2.1
INCOME STATEMENT AND KEY METRICS (CONTINUED)
Key Metrics
PROFITABILITY AND EFFICIENCY MEASURES
Year End Performance
Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
Aug-21
CASH EARNINGS BASIS
Net profit after tax
Underlying profit (1)
NIM(2)
Cost to income ratio (CTI) (3)
Loan Impairment expense to GLA
Return on average equity (ROE) (4)
Return on average tangible equity
(ROTE) (4)(5)
STATUTORY BASIS
Net profit after tax
Underlying profit (1)
NIM(2)
CTI
Loan impairment expense to GLA
ROE (4)
ROTE (4)(5)
ASSET QUALITY
30 days past due (dpd) arrears (6)
90dpd arrears (6)
Impaired assets
Specific provisions to impaired assets
Total provision and general reserve for
credit losses (GRCL) coverage / GLA (6)
CAPITAL (7)
CET1 ratio
Total capital adequacy ratio
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
(%)
(%)
(bps)
(%)
(%)
($ million)
($ million)
($ million)
(%)
(bps)
389
542
1.95
53.9
(4)
8.2
10.2
352
492
1.95
57.9
(4)
7.4
9.2
516
321
209
51
76
225
502
1.91
73%
8%
4bps
54.9
(100bps)
37
5.4
6.9
115
348
1.91
68.4
37
2.8
3.6
567
433
195
48
(41bps)
Large
Large
Large
41%
4bps
Large
(41bps)
Large
Large
(9%)
(26%)
7%
Large
98
(22bps)
224
279
1.95
53.3
(17)
8.8
10.9
198
245
1.95
58.7
(17)
7.8
9.6
516
321
209
51
76
165
263
1.95
36%
6%
-
54.5
(120bps)
10
7.8
9.9
154
247
1.95
57.2
10
7.2
9.2
575
381
194
53
95
(27bps)
100bps
100bps
29%
(1%)
-
150bps
(27bps)
60bps
40bps
(10%)
(16%)
8%
(200bps)
(19bps)
412
574
1.92
54.4
(3)
8.2
10.2
369
517
1.92
58.7
(3)
7.4
9.2
941
593
243
44
63
(%)
(%)
9.80
12.60
9.78
12.73
2bps
(13bps)
9.80
12.60
10.03
(23bps)
13.83
(123bps)
9.80
12.60
Risk weighted assets
($ million)
44,229
31,576
40%
44,229
32,126
38%
44,229
(1) Profit before loan impairment expense and tax.
(2) NIM is calculated net of offset accounts.
(3) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(4) Metrics relate to BOQ Including ME Bank.
(5) Based on after tax earnings applied to average shareholders’ equity (excluding shares and treasury shares) less goodwill and identifiable intangible assets (customer related
intangibles/brands and computer software).
(6) Excludes the impact of fair value adjustments on the acquisition of ME Bank. Arrears have been presented on an unadjusted basis.
(7) All capital measures are as at 31 August 2021 and include ME Bank impacts.
27
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
2.2 NET INTEREST INCOME
$ million
Net Interest Income
Average interest earning assets
NIM
Year End Performance
Half Year Performance
Aug-21
1,050
53,810
1.95
Aug-20
986
51,763
1.91
Aug-21
vs Aug-20
6%
4%
4bps
Aug-21
Feb-21
538
512
54,667
52,952
1.95
1.95
Aug-21
vs Feb-21
5%
3%
-
Year End
Incl. ME
Aug-21
1,128
58,656
1.92
Net interest income increased by $64 million or six per cent on FY20 driven by four per cent growth in average interest earnings assets
and a four basis points increase in NIM.
2H21 net interest income also increased $26 million or five per cent on 1H21 driven by three per cent growth in average interest earnings
assets and three extra days which added $9 million. NIM was flat in 2H21 as the benefits from deposit repricing and lower wholesale
funding costs were offset by the ongoing impact of competition for new housing on front book rates, retention discounting and a switch
from variable to fixed rate lending. The low interest rate environment continued to adversely impact returns on capital and the low cost
deposit portfolio.
ME Bank net interest income in the two months since acquisition of $78 million was earned on $28.5 billion of average interest earning
assets. This includes an effective interest adjustment of $5 million, following a fair value adjustment to the loan portfolio on acquisition.
This results in a Group NIM for FY21 including ME of 1.92 per cent (2H21 of 1.90 per cent).
Net interest margin - February 2021 to August 2021
2.30%
2.31%
0.35% (1)
(0.10%)
0.13%
0.00%
(0.02%)
(0.01%)
0.36% (1)
(0.05%)
2.22%
0.32% (1)
1.95%
1.95%
1.90%
1H21
Asset pricing
and mix
Funding costs
and mix
Hedging
costs
Capital and
low cost
deposits
Liquidity
and other
2H21
Excl. ME Bank
ME Bank
2H21
Incl. ME Bank
ME Bank
NIM
Third party costs (1)
(1) Third party costs largely represent commissions to owner-managers and brokers.
NIM in 2H21 was in line with the prior half at 1.95 per cent. The key
drivers of the movement are set out below.
Hedging costs: No change as cash-bills spreads were steady at an
average of one basis point.
Asset pricing and mix: Reduced margin by 10 basis points on
1H21. This was driven by continued competition for new housing
and commercial lending through lower front book rates, retention
discounting and customers switching from variable to lower
margin fixed rate loans.
Capital and low cost deposits: Reduced margin by two basis
points as the low market rate environment continued to impact
on returns from the $4.6 billion replicating portfolio (covering
BOQ’s capital and invested low cost deposits), uninvested capital
and low cost deposits.
Funding costs and mix: Improved margin by 13 basis points.
This was primarily driven by active repricing of at-call, retail and
Treasury term deposits and money market portfolios as well as
an improvement in portfolio mix as at-call growth continued
while more expensive term deposit funding was run-off. Margin
also benefitted from a reduction in wholesale funding costs
including a one basis point benefit from utilisation of the Term
Funding Facility (TFF).
Liquidity and other: Reduced margin by one basis point due
to lower wholesale asset spreads, higher amortisation of
acquisition costs and owner manager commissions due to higher
asset growth and the conversion of branches from corporate
to owner-manager. Liquidity levels had minimal impact on NIM
during the half.
28
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
2.3 NON-INTEREST INCOME
$ million
Banking Income
Insurance Income
Other Income (1)(2)
Trading income
Total non-interest income (1)(2)
Year End Performance
Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21 vs
Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
Aug-21
69
7
48
1
125
69
11
43
5
128
-
(36%)
12%
(80%)
(2%)
34
3
23
(1)
59
35
4
25
2
66
(3%)
(25%)
(8%)
(150%)
(11%)
72
7
50
1
130
(1) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(2) Refer to Section 1.1 (B) Non-cash earnings reconciling items for a reconciliation of cash non-interest income to statutory non-interest income.
Non-interest income of $125 million decreased by $3 million or two per cent on FY20 driven by lower insurance and trading income.
Banking income was in line with FY20 and decreased $1 million or three per cent on 1H21. This reflects the ongoing shift in consumer
preference to low or no fee products and a reduction in dishonour and overdrawn account fees. This was partly offset by increased
merchant terminal income from small business customers, Financial Markets customer transactions and the reinstatement of some fees
that were paused during COVID-19 in FY20.
Other income increased $5 million or 12 per cent on FY20. The increase was mainly due to income from a new card services arrangement
with a third party supplier including a one-off benefit in 1H21 of $3 million. This was partly offset by lower VMA card and insurance income
that continued to be adversely impacted by the effect of COVID-19 on the travel industry.
Trading income of $1 million decreased by $4 million or 80 per cent on FY20 as a lack of volatility and lower interest rate environment
reduced trading income opportunities, together with reduced market exposures and widening in credit spreads in 2H21.
Insurance income is discussed in detail in Section 2.4 below.
ME Bank non-interest income in the two months since acquisition of $5 million primarily comprised banking fee income in relation to
lending and in the cards portfolio.
2.4
INSURANCE OVERVIEW
Year End Performance
Half Year Performance
$ million
Aug-21
Aug-20
Gross written premium (net of refunds)
Net earned premium
Underwriting result
Other insurance income
Total income
Consolidation adjustment
Group insurance result
46
42
6
-
6
1
7
49
50
9
1
10
1
11
Aug-21 vs
Aug-20
(6%)
(16%)
(33%)
(100%)
(40%)
-
(36%)
Aug-21
Feb-21
23
21
2
-
2
1
3
23
21
4
-
4
-
4
Aug-21 vs
Feb-21
-
-
(50%)
-
(50%)
-
(25%)
St Andrew’s contributed $7 million to non-interest income in FY21, a decrease of $4 million or 36 per cent on FY20. This reflects the
decision to materially close to new business in FY20.
Gross written premium (net of refunds) declined $3 million on FY20. The underwriting result was also $3 million lower compared to the
prior year with reduced net earned premium partly offset by reduced commission and acquisition costs. Other insurance income was
impacted by reduced yields on term deposits and no account management service fees, which ceased in 1H20. With the exception of
term deposit yields, which are market driven, these trends are consistent with the decision to close to new business.
The sale of St Andrew’s is subject to regulatory approval and is expected to complete in 1H22.
29
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
2.5 OPERATING EXPENSES
$ million
Salaries and on costs (1)
Employee share programs and other
EMPLOYEE EXPENSES (1)
Data processing (1)
Amortisation - intangible assets
Depreciation - fixed assets
TECHNOLOGY EXPENSES (1)
Marketing (1)
Commission to owner-managed branches (OMB)
Communications, print and stationery
Processing costs
Other (1)
OPERATIONAL EXPENSES (1)
Depreciation - right-of-use assets & lease expenses
Depreciation - fixed assets
Other
OCCUPANCY EXPENSES
Professional fees
Directors' fees
Other
ADMINISTRATION EXPENSES
Total operating expenses (1)(2)
CTI (1)
Number of employees (FTE) (1)
Year End Performance
Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21 vs
Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
Aug-21
305
14
319
117
39
1
157
32
4
19
14
18
87
28
9
3
40
17
2
11
30
633
53.9
2,218
274
14
288
118
39
1
158
28
5
20
13
29
95
27
10
2
39
21
2
9
32
612
11%
-
11%
(1%)
-
-
(1%)
14%
(20%)
(5%)
8%
(38%)
(8%)
4%
(10%)
50%
3%
(19%)
-
22%
(6%)
3%
54.9
(100bps)
2,052
8%
152
7
159
58
22
1
81
20
2
9
7
7
45
14
4
2
20
7
1
5
13
318
53.3
2,218
153
7
160
59
17
-
76
12
2
10
7
11
42
14
5
1
20
10
1
6
17
315
(1%)
-
(1%)
(2%)
29%
100%
7%
67%
-
(10%)
-
(36%)
7%
-
(20%)
100%
-
(30%)
-
(17%)
(24%)
1%
54.5
(120bps)
329
14
343
120
43
1
164
34
4
23
14
25
100
30
9
3
42
21
2
12
35
684
54.4
2,176
2%
3,319
(1) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
FTE has also been restated.
(2) Refer to Section 1.1 (B) Non-cash earnings reconciling items for a reconciliation of cash operating expenses to statutory operating expenses.
Technology expenses
Technology expenses of $157 million decreased by $1 million or
one per cent on FY20. The decrease was mainly driven by costs
incurred in the prior year on risk and regulatory projects, one-off
costs for the transition of data centres and productivity initiatives
including supply chain management. These were partly offset by
additional costs associated with the new Digital Bank and higher
storage and support costs driven by business volumes.
Amortisation expense of $39 million was in line with FY20.
Projects that became fully amortised were replaced by newly
amortising assets, with the newly amortising assets including
Phase 1 of the new Digital Bank being more weighted to 2H21.
Summary
Total operating expenses of $633 million increased by $21 million
or three per cent on FY20. This increase was primarily driven
by an investment in employees to deliver strategic priorities
including the build out of the new Digital Bank and to support
volume growth, particularly in the areas of operations, product
and marketing.
Employee expenses
Employee expenses of $319 million increased by $31 million or
11 per cent on FY20. This was driven by an increase of eight per
cent in full time equivalent staff.
The staff increases were primarily due to continued investment
in strategic technology projects, including the build out of the
new Digital Bank, additional resources to support volume growth,
to provide support to customers impacted by COVID-19 and for
risk and compliance activities including financial crime. It also
reflects higher annual leave expense impacted by continued
lockdowns. These were partly offset by the full year benefits from
restructures in the prior year.
30
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
2.5 OPERATING EXPENSES (CONTINUED)
Operational expenses
Operational expenses of $87 million decreased by $8 million
or eight per cent on FY20. The primary drivers were lower
discretionary expenditure including travel and entertainment,
lower non-lending losses and lower consumable costs associated
with COVID-19. These were partly offset by higher marketing
spend on the launch of the new Digital Bank and to drive increased
lending volumes.
Administration expenses
Administration expenses of $30 million decreased by $2 million
or six per cent on FY20 driven by lower external legal costs, partly
offset by an increase in group insurance costs.
ME Bank expenses
ME Bank operating expenses in the two months since acquisition
of $51 million are primarily driven by employee expenses in relation
to ME’s 1,101 FTE.
2.6 CAPITALISED INVESTMENT EXPENDITURE
BOQ’s comprehensive digital transformation continues, with Phase 1 of building a next generation core platform through VMA delivered
and providing an enhanced experience for customers using our transaction accounts, savings accounts and credit cards. Leveraging
this foundational work to ensure a similar experience is delivered to new BOQ Retail deposit customers is well progressed. Investment
continues in the digital capability of VMA and BOQ Retail Transformation, with an expanded offering to Term Deposit and Lending
customers currently in development.
In addition to these customer focused initiatives, we have completed key foundational components of Open Banking and are well
progressed in our planning and development of key workplace tools that will assist in delivering a productive and engaged workforce.
ME Bank will continue with its development of innovative consumer deposit and lending solutions whilst we look to leverage synergies
and capability across our complete digital transformation program.
Subject to the intangible asset review in 1H22, the carrying value of intangible assets is expected to increase further in FY22, with
continued investment in the digital capability of VMA, digital transformation of Retail banking (ME Bank and BOQ), Open Banking,
and BOQ’s Enterprise Data Management Platform. These foundational investments align to BOQ’s digital transformation strategy,
and will provide our customers with better access to our products and services through easy to use digital experiences that are
focused on their needs.
Carrying value of IT intangible assets ($m)
400
110
97
193
223
129
216
121
94
95
236
131
105
Feb 20
Aug 20
Feb 21
Aug 21
31
ME Bank Intangibles
Assets under construction
Software intangible assets
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
2.7 LENDING
Gross loans and advances of $50.6 billion grew by $3.6 billion or eight per cent on FY20. This was primarily achieved through above system
growth in home lending with BOQ Blue, BOQ Specialist and VMA all contributing strong lending volumes. Commercial lending growth
recovered in 2H21 at seven per cent with all business units reflecting growth.
$ million
Housing lending
Housing Lending - APS 120 qualifying securitisation (2)
Commercial lending (3)
Asset finance
Consumer (3)
Gross loans and advances (4)
Provisions for impairment
Net loans and advances
As at
Incl. ME
Aug-21
32,433
1,668
34,101
9,879
6,457
152
50,589
(313)
50,276
Feb-21
Aug-20
30,187
28,891
1,965
32,152
9,531
6,278
147
2,264
31,155
9,479
6,259
150
48,108
47,043
(374)
(369)
47,734
46,674
Aug-21
vs Feb-21 (1)
Aug-21
vs Aug-20
15%
(30%)
12%
7%
6%
7%
10%
(33%)
11%
12%
(26%)
9%
4%
3%
1%
8%
(15%)
8%
Aug-21
53,146
5,907
59,053
9,879
6,457
359
75,748
(311)
75,437
(1) Growth rates have been annualised.
(2) Securitised loans subject to capital relief under APRA Prudential Standard APS 120 Securitisation (APS 120).
(3) BOQ Specialist consumer products have been reclassified to commercial lending to align product definitions. All periods reflect this restatement and are presented on a
like-for-like basis.
(4) Gross loans and advances aligns to the Financial Statement Note 3.3 Loans and Advances, Gross loans and advances after deducting Unearned finance lease income.
32
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
2.7 LENDING (CONTINUED)
Growth in housing lending ($m)
FY20
1.7% GROWTH
0.9X SYSTEM (1)
FY21
9.5% GROWTH
1.7X SYSTEM (1)
2,946 (Excl. ME)
1,040
476
1,430
(484)
(1) Source: represents latest available
APRA Monthly Banking Statistics as
at August 2021. Reflects the APRA
definition of lending and therefore will
not directly correlate to the balance
sheet growth.
(2) BOQ Blue includes housing in both
the Retail Bank and BOQ Business
primarily from the branch network
and broker channels.
The VMA mortgage portfolio continued to deliver strong growth
in FY21. The portfolio grew by $1.0 billion or 32 per cent on FY20,
taking the portfolio to over $4.3 billion. The VMA brand is a
globally recognised brand, which tends to attract a more tech-
savvy customer base and contributes to the Bank’s geographical
diversification by targeting metropolitan-based customers
across Australia.
BOQ Specialist home lending portfolio grew by $0.5 billion or
nine per cent on FY20. Settlement volumes increased in the
second half and the focus returned to new business as clients’
exited COVID-19 relief and returned to normal payment cycles.
BOQ Specialist continues to deliver above system growth by
building relationships with health professionals in the early stages
of their careers and providing a superior service and modern
digital banking solutions, creating future opportunities for BOQ
Specialist to meet the commercial lending needs of these medical,
dental, veterinary and accounting professionals.
Housing (Incl. ME Bank)
The consolidated housing portfolio grew by $2.4 billion or four per
cent on FY20. ME Bank housing portfolio contracted $0.5 billion in
the two months since acquisition, largely due to softer application
flow in the preceding quarter, which has since improved, and an
increase in runoff.
Integration activities and mortgage process simplification work
is well underway with the objective of returning the ME housing
portfolio to growth in a sustainable way.
ME Bank
VMA Home Loans
BOQ Specialist
BOQ Blue (2)
508
714
508
(714)
Housing (Excl. ME Bank)
The housing portfolio grew by $2.9 billion or nine per cent on
FY20 representing 1.7x system growth. Positive growth was
achieved across all three channels, for the first time since FY15, as
momentum steadily accelerated over the financial year.
Settlement volumes increased 55 per cent on FY20, a function
of strong application flow in a buoyant property market and
improved conversion rates. 1H21 growth was largely driven by
owner occupied loans weighted towards fixed rate lending. 2H21
growth was characterised by growth across investor and owner
occupied loans, resulting in an improved margin outcome. The
turnaround in performance was driven by embedding the Retail
Banking strategy, which included mortgage process simplification,
improved retail banking and lending capability, an uplift in
customer experience and quality third party broker relationships.
The mortgage net promoter score (NPS) has also improved from
-2 in August 2020 to +4 in August 2021.
The BOQ Blue portfolio grew by $1.4 billion, a turnaround of $2.1
billion from the previous year and the first positive full year result
since FY15. This strong result was underpinned by a back-to-
growth performance delivered out of the branch network and a
doubling of Broker originated settlements.
The Broker channel grew by $1.1 billion or 36 per cent on FY20. This
result was achieved by a focus on building and growing quality
new and existing third party partnerships, competitive pricing and
consistent credit decisions. Broker and customer experience have
improved due to the release of new broker enabled technologies
and the delivery of consistent process efficiencies, reflected in
an improved NPS result. Focus remains on continually improving
mortgage processes.
The BOQ branch portfolio also reflected a turnaround in its
performance, of $1.1 billion, as it delivered positive growth of
$0.4 billion, the first full year of growth since FY14. The corporate
and owner-manager network both contributed to the improved
performance with a combined uplift in settlement volumes of
55 per cent.
33
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
2.7 LENDING (CONTINUED)
Growth in commercial lending ($m)
The commercial lending portfolio grew by $0.4 billion in FY21,
representing growth of four per cent on FY20 or 0.8x system
growth. BOQ Commercial lending includes both corporate and
small business lending, while BOQ Specialist has commercial
lending and Asset finance products and BOQ Finance has asset
finance products.
BOQ commercial lending grew by $0.2 billion or four per cent and
was mainly driven by growth in the corporate lending portfolio
across construction, agribusiness and property segments.
The small business lending portfolio contributed over $50
million of growth driven by more simplified credit assessments,
automation in the application process and was supported
by several small business strategic initiatives. This result
reverses over five years of contraction in this portfolio and was
underpinned by the deeper relationships established through the
COVID-19 support offered to clients. The small business strategy
continues to focus on improving branch capability, risk policy,
product features and business lending process transformation to
further grow our portfolio in this segment.
The BOQ Specialist commercial lending portfolio grew by $0.2
billion or seven per cent due to a strong second half. The growth
was mainly achieved in corporate healthcare and small business
lending as the brand offers bespoke solutions to medical, dental
and veterinary professionals. Corporate Healthcare lending
also grew, as customer relationships are built from graduation
through to retirement, increasing the diversity of both the home
lending and business lending portfolios.
Growth in Asset finance lending ($m)
The Asset finance portfolio grew by $0.2 billion or three per
cent on FY20 compared to negative system growth. The growth
was driven by continued momentum in the Equipment Finance
portfolio which grew by $0.2 billion. The main growth industries in
FY21 were transport, agriculture and healthcare. This growth was
partly offset by a contraction in BOQ Specialist asset financing,
in particular in the dentistry industry where fewer new practices
were established.
FY20
FY21
3.8% GROWTH
POSITIVE SYSTEM (1)(3)
4.2% GROWTH
0.8X SYSTEM (1)
400
151
343
106
237
249
BOQ Blue
BOQ Specialist
FY20
FY21
0.2% GROWTH
POSITIVE SYSTEM (2)(3)
3.2% GROWTH
POSITIVE SYSTEM (2)
198
273
(75)
(1) Commercial system growth represents latest available APRA Monthly Banking
Statistics as at August 2021. Reflects the APRA definition of lending adjusted
for intra period reclassifications and growth in the BOQ Finance non-ADI
Asset finance business. “Positive system” represents a growth better than
system whereas “Negative system” represents growth worse than system.
(2) Asset finance system growth represents latest available Australian Finance
Industry Association (AFIA) system growth statistics as at July 2021.
(3) FY20 commercial lending growth increased from 3.4 per cent to 3.8 per cent,
due to the following restatements:
(a) Commercial lending growth increased by $13 million to align product
definitions where BOQ Specialist working capital products have been
reclassified from consumer to commercial lending; and
(b) BOQ Specialist Asset finance products were reclassified from commercial
lending to Asset finance. This decreased commercial lending growth and
increased Asset finance growth by $7 million.
15
8
7
BOQ Finance
BOQ Specialist
34
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
2.8 CUSTOMER DEPOSITS
$ million
Term deposits
Savings and investment accounts
Transaction accounts
Sub-total
Mortgage offsets (2)
Customer deposits
Deposit to loan ratio
As at
Feb-21
14,240
14,411
4,020
Aug-20
15,013
13,337
3,596
32,671
31,946
3,152
2,816
35,823
34,762
74%
74%
Aug-21
14,678
15,643
4,409
34,730
3,302
38,032
75%
Aug-21
vs Feb-21 (1)
Aug-21
vs Aug-20
6%
17%
19%
13%
10%
12%
1%
(2%)
17%
23%
9%
17%
9%
1%
Incl. ME
Aug-21
21,991
24,293
5,377
51,661
4,808
56,469
75%
(1) Growth rates have been annualised.
(2) Mortgage offset balances are netted against home loans for the purposes of customer interest payments.
Transaction accounts and mortgage offsets
Transaction accounts and mortgage offsets grew by $0.8 billion
and $0.5 billion on FY20 respectively. The growth in transaction
accounts reflected COVID-19 government stimulus payments to
both small businesses and individuals and the impact of lockdowns
in reducing living costs including travel and entertainment. Higher
offset balances also reflected the growth in home lending.
ME Bank customer deposits
ME Bank customer deposits contributed $18.4 billion to
Group deposits at August 2021 resulting in a combined
deposit to loan ratio of 75 per cent. The customer deposit
products are similar to BOQ and the mix is comparable
with term deposits representing 40 per cent of the total
portfolio. Savings and Investment accounts achieved the
highest growth at over 30 per cent since August 2020, partly
offset by a decrease in term deposits of three per cent.
Customer deposits
Customer deposits grew by $3.3 billion or nine per cent on
FY20, consistent with the Bank’s strategy to increase stable
sources of funding while also reflecting ongoing high levels of
liquidity in the market.
The Retail Bank remains the primary source of customer
deposits with the majority generated through the branch
network. The majority of inflows in FY21 have been in transaction,
savings and investment accounts partially reducing reliance on
term deposits as the customer deposits mix rebalanced.
The Bank has continued to maintain a strong liquidity position.
As growth in customer deposits was slightly above lending growth,
the deposit to loan ratio increased by one per cent on FY20 to
75 per cent.
Term deposits
Term deposits decreased by $0.3 billion or two per cent on FY20.
This was due to pricing actions to manage liquidity and reduce
the cost of funds in the low rate environment and changes in
customer preferences towards call accounts. As a result, term
deposits have reduced from 43 per cent of the total portfolio in
August 2020 to 39 per cent in August 2021.
Savings and investment accounts
Savings and investment accounts grew by $2.3 billion or
17 per cent on FY20 with both retail and commercial accounts
growing strongly.
The Bonus Interest Savings Account (BISA) achieved growth of
over 30 per cent in FY21 and 17 per cent (annualised) in 2H21 and
accounted for the majority of the growth in retail products across
both periods. The growth is attributed to the highly accessible and
flexible product offering competitive rates during FY21.
35
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
3. BUSINESS SETTINGS
3.1 ASSET QUALITY
Full Year Performance
Half Year Performance
Year End
Incl. ME
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
Aug-21
Loan impairment expense
Loan impairment expense / GLA
Impaired assets
30dpd arrears (1)
90dpd arrears (1)
90dpd arrears / GLA (1)
Total provision and GRCL / GLA (1)(2)
($ million)
(bps)
($ million)
($ million)
($ million)
(bps)
(bps)
(20)
(4)
209
516
321
63
76
175
37
195
567
433
92
98
Large
(41bps)
7%
(9%)
(26%)
(29bps)
(22bps)
(44)
(17)
209
516
321
63
76
24
10
194
575
381
79
95
Large
(27bps)
8%
(10%)
(16%)
(16bps)
(19bps)
(21)
(3)
243
941
593
78
63
(1) Excludes the impact of the fair value adjustments on acquisition of ME Bank. Arrears have been presented on an unadjusted basis.
(2) GRCL gross of tax effect.
BOQ’s loan impairment expense was a credit of $20 million in FY21, which was driven by a reduction in the collective provision in FY21 of $69
million. This was primarily due to an improved economic outlook, with a further reduction from improvements in data quality relating to
collateral. This has resulted in a 22 basis points decrease in the BOQ’s total provision and GRCL coverage, which is 76 basis points of GLAs. The
total provision and GRCL coverage of 63 basis points, inclusive of ME Bank, is 13 basis points lower than FY20, due to a different product mix.
Impaired assets of $209 million increased by $14 million or seven per cent on FY20. This was primarily driven by the impairment of one
large facility with the underlying loan portfolio remaining strong.
Arrears in the 30 day and 90 day categories improved compared to both FY20 and 1H21. The 90 days arrears ratio to GLAs reduced by
29 basis points to 63 basis points. This was primarily driven by the Retail portfolio, which has benefitted from record low interest rates,
increased household deposits, house price growth and improved economic conditions.
Loan impairment expense
Full Year Performance
Half Year Performance
Year End Incl. ME
Aug-21
Aug-20
Aug-21
Feb-21
Aug-21
Expense
($m)
Expense/
GLA
(bps)
Expense
($m) (1)(2)
Expense/
GLA
(bps) (1)(2)
Expense
($m)
Expense/
GLA
(bps) (3)
Expense
($m) (1)(2)
Expense/
GLA
(bps) (1)(2)(3)
Expense
($m)
Expense/
GLA
(bps)
(12)
(9)
1
(20)
(4)
(9)
2
(4)
61
57
57
175
19
60
91
37
(2)
(26)
(16)
(44)
(1)
(52)
(49)
(17)
(8)
17
15
24
(4)
36
48
10
(13)
(9)
1
(21)
(2)
(9)
2
(3)
Retail lending
Commercial lending
Asset finance
Total loan impairment
expense
(1) BOQ Specialist Asset finance products were reclassified from Commercial lending to Asset finance. Prior periods have been restated.
(2) BOQ Specialist consumer products have been reclassified to commercial lending to align product definitions. All periods reflect this restatement and are presented on
a like-for-like basis.
(3) Metrics have been annualised.
The loan impairment expense was a credit of $20 million in FY21 compared to an expense of $175 million in FY20. FY20 included a $133
million collective provision overlay for the potential impacts of COVID-19. FY21 included a $69 million reduction in the collective provision
due to an improved economic outlook and improvements in data quality relating to collateral. This was partly offset by an increase in
specific provision expense from $47 million in FY20 to $49 million in FY21, driven by a provision for one large facility in Retail and the
impact of lockdowns on a small number of niche medical practices in Asset finance.
Retail loan impairment expense was a credit of $12 million in FY21. This was driven by a reduction in the collective provision in FY21 of $32
million due to an improved economic outlook, notably for the housing market driven by a rebound in expectations for residential house
prices. Underlying specific provisioning activity was largely consistent with FY20, but specific provision expense increased in FY21 driven
by a provision for one large facility.
Commercial loan impairment expense was a credit of $9 million in FY21. This was driven by a reduction in the collective provision in FY21
of $22 million due to improvements in data quality relating to collateral as well as an improved economic outlook. Specific provisioning
was also lower than FY20 driven by a write back of one large Agribusiness exposure that returned to performing following strong crop
harvests due to improved weather conditions. Underlying specific provisioning activity remained subdued, reflecting improved economic
conditions and government stimulus.
Asset finance loan impairment expense of $1 million for FY21 was driven by a reduction in the collective provision in FY21 of $15 million
due to an improved economic outlook. This was partly offset by an increase in specific provision expense as lockdowns impacted a small
number of niche medical practices.
36
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE
Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
3.1 ASSET QUALITY (CONTINUED)
Impaired assets
$ million
Retail lending
Commercial lending (1)
Asset finance (1)
Total impaired assets
Impaired assets/ GLA
As at
Incl. ME
Aug-21
Feb-21
Aug-20
Aug-21
vs Feb-21
Aug-21
vs Aug-20
94
77
38
209
41bps
84
78
32
194
70
86
39
195
40bps
41bps
12%
(1%)
19%
8%
1bp
34%
(10%)
(3%)
7%
-
Aug-21
128
77
38
243
32bps
(1) BOQ Specialist Asset finance products were reclassified from Commercial lending to Asset finance. Prior periods have been restated.
BOQ impaired assets of $209 million increased by $15 million or eight per cent on 1H21. This was primarily driven by an impairment of one
large facility in the Retail portfolio.
Retail impaired assets increased by $10 million or 12 per cent on 1H21 driven by one new impaired facility for $12 million. Excluding this,
impaired assets decreased in 2H21 as increasing house prices supported low specific provisioning activity.
Commercial impaired assets decreased by $1 million or one per cent on 1H21. This was due to low specific provisioning activity. 1H21
was impacted by one large Agribusiness exposure of $28 million returning to performing, which was partially offset by the impacts of
COVID-19 and the initial lockdowns. 2H21 reflected low specific provisioning activity as economic conditions improved.
Asset finance impaired assets increased by $6 million or 19 per cent on 1H21 but decreased $1 million or three per cent on FY20. 1H21 was
impacted by one large facility of $4 million exiting the Group. Impairment of medical equipment and fixtures and fittings among General
Practitioners contributed over $3 million towards the increase in 2H21.
The Group holds three exposures with impaired balances greater than $5 million for a combined total of $27 million. This increase from
$15 million at February 2021 was due to a new $12 million impaired balance for one large facility in the Retail portfolio. This was however a
decrease from $54 million at August 2020 as the Group returned a $28 million Agribusiness facility to performing in 1H21 following strong
crop harvests due to improved weather conditions. The Group now holds one exposure with an impaired balance greater than $10 million.
ME Bank impaired assets of $34 million represent 14 basis points of GLAs, reflecting a portfolio that is 99 per cent housing.
The following chart outlines the movements in impaired assets since August 2020.
Impaired assets ($m)
61
10
25
26
(62)
(17)
(11)
(34)
195
39
70
86
52
13
28
11
(37)
(7)
(18)
(12)
194
32
84
78
34
34
7%
209
38
94
77
243
34
38
94
77
Aug 20
New impaired
Realisations
Feb 21
New impaired
Realisations
Aug 21
Excl. ME Bank
ME Bank
Aug 21
Incl. ME Bank
ME Bank
Commercial
Retail
Asset finance
37
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
3.1 ASSET QUALITY (CONTINUED)
Provision coverage
$ million
Specific provision
Collective provision (CP)
Total provisions
GRCL ($ million)
Specific provisions to impaired assets (1)
Total provisions and GRCL coverage / impaired assets (1)(2)
CP and GRCL / Total RWA (bps) (1)(2)
Total provisions and GRCL coverage / GLA (1)(2)
(1) Excludes the impact of the fair value adjustments on acquisition of ME Bank.
(2) GRCL gross of tax effect.
As at
Incl. ME
Aug-21
Feb-21
Aug-20
Aug-21
vs Feb-21
Aug-21
vs Aug-20
107
206
313
52
51%
185%
63bps
76bps
103
271
374
58
53%
236%
111bps
95bps
94
275
369
64
48%
236%
116bps
98bps
4%
(24%)
(16%)
(10%)
200bps
Large
47bps
19bps
14%
(25%)
(15%)
(19%)
Large
Large
(53bps)
(22bps)
Aug-21
107
204
311
52
47%
198%
84bps
63bps
BOQ provisions of $313 million decreased by $56 million or 15 per cent from FY20. This was driven by a decrease in the collective provision
partly offset by an increase in specific provisions.
Specific provisions of $107 million increased by $13 million or 14 per cent from FY20. This has increased the coverage of impaired assets
from 48 per cent to 51 per cent. This increase was primarily driven by the Retail and Asset finance portfolios. The increase in the Retail
portfolio was driven by one large facility, partly offset by low specific provisioning activity supported by the low interest rate environment
and buoyant house prices. The Asset finance portfolio increased $6 million driven by a small number of niche medical practices within the
BOQ Specialist portfolio. The Commercial portfolio decreased as an Agribusiness facility returned to performing.
The collective provision of $206 million decreased $69 million or 25 per cent from FY20. This included a $75 million release in the third
quarter due to an improved economic outlook and improvements in data quality relating to collateral. Economic model assumptions and
management overlays are prudently managed to ensure sufficient provisions are held due to the ongoing uncertainty from COVID-19.
As a result of the decrease in the collective provision and growth in GLAs, total provisions and GRCL coverage of 76 basis points
decreased by 22 basis points from FY20.
The following chart outlines the movements in specific provisions since August 2020.
Specific provisions ($m)
32
8
11
13
(23)
(14)
(4)
(5)
103
25
32
46
94
31
25
38
31
16
10
5
(27)
(9)
(9)
(9)
107
32
33
42
Aug 20
New Specific
Realisations
Feb 21
New Specific
Realisations
Aug 21
Commercial
Retail
Asset finance
38
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE
Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
3.1 ASSET QUALITY (CONTINUED)
Arrears
Portfolio
Balance
($m)
Key Metrics
BOQ Group
Aug-21
Feb-21
Aug-20
Total lending - portfolio balance ($ million)
50,589
48,108
47,043
Aug-21
vs Feb-21
Aug-21
vs Aug-20
5%
(10%)
(16%)
8%
(9%)
(26%)
516
321
575
381
567
433
Proportion of portfolio
1.02%
0.63%
1.20%
0.79%
1.21%
0.92%
(18bps)
(16bps)
(19bps)
(29bps)
30 days past due ($ million) (1)
90 days past due ($ million) (1)
30 days past due: GLAs (1)
90 days past due: GLAs (1)
By portfolio
30 days past due: GLAs (Retail Excl. ME Bank)
34,253
90 days past due: GLAs (Retail Excl. ME Bank)
0.94%
0.64%
1.25%
0.88%
1.25%
0.97%
(31bps)
(31bps)
(24bps)
(33bps)
30 days past due: GLAs (ME Bank) (1)
25,232
90 days past due: GLAs (ME Bank) (1)
-
-
-
-
-
-
-
-
-
-
30 days past due: GLAs (Commercial)
9,879
90 days past due: GLAs (Commercial)
30 days past due: GLAs (Asset finance)
6,457
90 days past due: GLAs (Asset finance)
1.52%
0.93%
0.69%
0.20%
1.48%
0.91%
0.48%
0.15%
1.53%
1.25%
0.50%
0.17%
4bps
2bps
(1bp)
(32bps)
21bps
5bps
19bps
3bps
(1) Excludes the impact of the fair value adjustments on the acquisition of ME Bank. Arrears have been presented on an unadjusted basis.
Year End
Incl. ME
Aug-21
75,748
941
593
1.24%
0.78%
0.94%
0.64%
1.68%
1.08%
1.52%
0.93%
0.69%
0.20%
Retail arrears
Retail arrears decreased in both the 30 day and 90 day
categories since 1H21 and FY20. Banking Relief Package (BRP)
and government stimulus has provided support for customers
experiencing difficulty and has allowed repayments to resume in
a timely manner. Record low interest rates, strong house prices
and improved economic conditions have further supported the
decrease in arrears.
Commercial arrears
Commercial arrears increased by four basis points in the 30 day
category and by two basis points in the 90 day category since
1H21. The increase in commercial arrears since 1H21 is in line with
expectations as COVID-19 imposed lockdowns have reduced
trading and a pause has been placed on collection activity in
lockdown affected areas.
Arrears in the 90 day category have decreased by 32 basis points
since FY20 with improvements across the whole portfolio as
customers returned to performing from banking relief and
collection activity on late stage arrears recommenced following
an extended moratorium in FY20.
Asset finance arrears
Asset finance arrears increased by 21 basis points in the 30
day category and by five basis points in the 90 day category
since 1H21. While arrears have been largely stable during most
of the year, the increase reflects the negative impact of recent
lockdowns on the arrears position as well as the pause placed on
collection activity in lockdown effected areas. The increase was
mainly in customers in NSW and those in health care industries
within the BOQ Specialist portfolio.
COVID-19 Banking relief package
From July 2021, the Bank reinstated a number of support
measures to retail and business customers impacted by
COVID-19 as part of Banking Relief support initiatives. Utilisation
of this latest assistance, at less than one per cent of GLAs, is
considerably lower than during the initial BRP phase, at more than
15 per cent of GLAs.
In line with APRA’s regulatory approach, loans deferred as part of
the COVID-19 Banking Relief support measures are not included in
arrears where the loans were otherwise performing.
ME Bank arrears
Over 50 per cent of ME Bank arrears are supported by Lenders
Mortgage Insurance. The higher level of ME arrears also reflects
changes to collection practices to provide increased support to
customers impacted by lockdown.
39
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
3.2 FUNDING AND LIQUIDITY
BOQ’s liquidity and funding risk appetite strategy is designed to ensure that the Bank has the ability to meet its financial obligations as
they fall due under all market conditions. Management of liquidity risk at BOQ is focused on developing a stable customer deposit base,
maintaining access to diversified wholesale funding markets and disciplined management of maturity profiles. BOQ regularly stress tests
it’s liquidity risk profile to identify vulnerabilities under a diverse range of market scenarios.
As at 31 August, BOQ (including ME Bank) had utilised its full Term Funding Facility allowance of $3 billion, which is comprised of an
initial allowance ($1.8 billion), supplementary allowance ($1.1 billion) and additional allowance ($0.1 billion). The Term Funding Facility was
made available to ADI’s as part of a package of measures to support the Australian economy, by providing three-year funding through
repurchase transactions at the official cash rate target.
Liquidity Coverage Ratio (LCR)
APRA requires ADIs to maintain a minimum LCR of 100 per cent.
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 policy settings.
BOQ’s Level 2 LCR (including ME Bank) at 31 August 2021 was 149
per cent, which was 33 per cent lower than 1H21. ME Bank’s LCR
was 169 per cent at 31 August 2021. The average Level 2 LCR since
the settlement of ME Bank on 1 July 2021 was 151 per cent.
The decrease in LCR was primarily due to negative impacts from:
1. A $500 million reduction in the 2021 committed liquidity facility
(CLF) due to a decline in CLF available to the banking system;
2. A reduction in the available CLF due to
the final drawing of the TFF;
3. An increase to net cash outflows relating to
increased retail at-call deposits; and
4. The normalisation of contractual inflows following the
settlement of BOQ’s equity raising for the ME Bank acquisition.
These were partly offset by a higher balance of HQLA1 and uplift
from ME Bank’s strong liquidity position.
LCR waterfall 28 February 2021 - 31 August 2021
37.9%
(13.3%)
LCR - August 2021 (149%)
$14.4 BILLION
ME BANK
OTHER ALA (1)
INTERNAL
RMBS
$9.7 BILLION
ME BANK
OTHER
$9.2
BILLION
HIGH QUALITY
LIQUID ASSETS
(HQLA)
WHOLESALE FUNDING
CUSTOMER
DEPOSITS
$6.6
BILLION
Liquid assets
Net cash outflows
(14.4%)
(14.8%)
182.4%
(3.6%)
(34.5%)
ME Bank
9.5%
149.2%
Feb 21
HQLA1
Internal
RMBS
Other
ALA
Customer
deposits
Wholesale
funding
Other cash
outflows
ME Bank
Aug 21
(1) Alternative liquid assets (ALA) qualifying as collateral for the CLF, excluding internal residential mortgage backed securities (RMBS), within the CLF limit.
40
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
3.2 FUNDING AND LIQUIDITY (CONTINUED)
NSFR - August 2021 (122%)
Net stable funding ratio (NSFR)
The NSFR encourages ADIs to fund their lending activities
with more stable sources of funding, thereby promoting
greater balance sheet resilience.
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 policy settings.
BOQ’s Level 2 NSFR (including ME Bank) at 31 August 2021 was
122 per cent and ME Bank’s NSFR was 132 per cent. For BOQ,
this represents an increase of four per cent over 1H21, which
is largely reflective of the benefit received from ME Bank’s
funding profile. Retail customer deposit growth has been
particularly strong over the half, but the benefit to the NSFR
has been offset by loan growth.
$62.7 BILLION
ME BANK
$51.3 BILLION
WHOLESALE FUNDING
& OTHER LIABILITIES
ME BANK
$44.1
BILLION
CUSTOMER
DEPOSITS
OTHER LOANS
$37.2
BILLION
RESIDENTIAL
MORTGAGES ≤ 35%
RISK WEIGHT
CAPITAL
Available stable funding
LIQUIDS & OTHER
ASSETS
Required stable funding
NSFR waterfall 28 February 2021 - 31 August 2021
2.8%
0.4%
(4.9%)
ME Bank
4.6%
1.0%
117.9%
(0.6%)
(2.7%)
3.7%
122.2%
Feb 21
Capital
Customer
deposits
Wholesale
funding &
other liabilities
Liquid
assets
Residential
mortgages
≤ 35%
Other
loans
Other
assets
ME Bank
Aug 21
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 RBA. CLF assets include senior unsecured bank debt, covered bonds,
asset backed securities (ABS) and RMBS that are eligible for repurchase with the RBA.
BOQ was granted a $2.9 billion CLF commencing on 1 April 2021. APRA has confirmed that the CLF allowance for the banking system will be
reduced to zero by the end of 2022, which is in response to the increase in HQLA available to the banking system to meet LCR requirements.
41
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
3.2 FUNDING AND LIQUIDITY (CONTINUED)
Funding
BOQ’s funding strategy and risk appetite reflects the Group’s business strategy, adjusted for the current economic environment.
Funding is managed to allow for various scenarios that may impact BOQ’s funding position.
Funding mix ($billion) (1)
83.5
28.3
(34%)
11.8
(14%)
5.4
(6%)
38.0
(46%)
50.8
11.3
(22%)
4.8
(10%)
51.8
10.8
(21%)
5.2
(10%)
34.7
(68%)
35.8
(69%)
Long term wholesale ($billion) (1)
$55.2
BILLION
11.3
0.8
3.4
2.4
4.0
0.7
10.8
1.2
2.9
2.3
3.4
1.0
17.7
5.9
2.2
3.0
2.4
3.2
1.0
$11.8
BILLION
Aug 20
Feb 21
Aug 21
Aug 20
Feb 21
Aug 21
Customer deposits (1)
Long term wholesale (2)
Additional tier 1 notes / subordinated debt
Short term wholesale
ME Bank (3)
Senior unsecured
Securitisation
ME Bank (4)
Covered bond
TFF
(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.
(3) ME Bank Funding mix of $28.3 billion includes $18.4 billion customer deposits, $5.9 billion long term wholesale and $4.0 billion short term wholesale.
(4) ME Bank long term wholesale funding of $5.9 billion includes $4.6 billion securitisation, $0.9 billion TFF and $0.4 billion senior unsecured debt.
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. BOQ
continues to optimise the mix of wholesale and retail funding, whilst also increasing stable sources of funding.
In FY21 BOQ’s continued focus on growing customer deposits through a variety of channels has seen strong growth of $3.3 billion. As
a result, loan growth was fully funded by stable funding sources and the deposit to loan ratio increased from 74 per cent at 1H21 to 75
per cent at FY21 (excluding ME Bank). The remaining retail funding gap was funded through drawing down the TFF as well as accessing
wholesale funding markets, including both in secured and unsecured formats.
42
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
3.2 FUNDING AND LIQUIDITY (CONTINUED)
Term funding issuance
BOQ accessed term funding markets in FY21 using a range of long term wholesale products. The intention was to refinance existing
maturities as well as fund loan growth, complementing the drawdown of the TFF and the inflow of customer deposits. This included
the $260 million Capital Notes 2 (Additional Tier 1 Capital) issuance (BOQPF), a $250 million Subordinated Debt (Tier 2 Capital) and
a $650 million Senior Unsecured debt issuance. Both of these replaced the $150 million Subordinated Debt call and the $600 million
Senior Unsecured maturity in May 2021. BOQ also issued approximately $784 million Asset Backed Securitisation under the REDS EHP
programme, having last accessed this market in 2018.
The diverse range of term funding products utilised in FY21 highlights the range of unsecured and secured debt programmes available to
BOQ. This provides funding diversification benefits and also enables BOQ to fund future asset growth and manage term maturity towers
over the next five years, including refinancing the TFF.
Major maturities ($m) (1)(2)(3)(4)
900
600
744
200
600
H1
H2
H1
1,245
200
H2
667
100
H1
1,112
350
150
811
600
750
250
650
H2
H1
H2
H1
H2
2022
2023
2024
2025
2026
Additional tier 1
Domestic senior
Subordinated debt
Covered bond
TFF
(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 either BOQ’s or ME Bank’s option (as applicable) and is subject to obtaining
prior written approval from APRA.
(4) Halves 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
Feb-21
3,221
610
613
Aug-20
3,089
350
580
4,444
4,019
Aug-21
4,334
610
628
5,572
Aug-21
vs Feb-21
Aug-21
vs Aug-20
35%
-
2%
25%
40%
74%
8%
39%
44,229
32,126
31,576
38%
40%
9.80%
12.60%
10.03%
13.83%
9.78%
(23bps)
2bps
12.73%
(123bps)
(13bps)
43
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
3.3 CAPITAL MANAGEMENT (CONTINUED)
The Group’s CET1 ratio decreased by 23 basis points during 2H21 from 10.03 per cent to 9.80 per cent.
The ME Bank acquisition was funded by proceeds from the capital raising. This increased CET1 by 412 basis points, which was fully offset
by ME Banks’ risk weighted assets, CET1 deductions and other CET1 deductions arising from Purchase Price Allocation (PPA).
Cash NPAT including ME Bank generated 49 basis points of capital with an additional 7 basis points contribution from the collective
provision release in the half. This was partly offset by RWA growth of 31 basis points and increased loan origination costs of six basis
points, driven by above system GLA growth.
The normalisation of the dividend (net of the Dividend Reinvestment Plan (DRP)) reduced CET1 by 22 basis points. CAPEX is in line
with the strategic roadmap, net of amortisation and utilised 12 basis points of capital. Run-off in capital relief securitised housing
loans increased risk weighted assets and reduced CET1 by two basis points. Other items utilised six basis points of capital and included
statutory adjustments net of reserves and deferred tax movements.
Total capital adequacy ratio decreased by 13 basis points to 12.60 per cent in FY21. This was primarily due to a lower Tier 2 ratio as ME Bank
was lower than BOQ in this tier on a relative basis, which was partially offset by an increase in subordinated debt issuance.
2H21 CET1 Walk
0.49%
(0.31%)
(0.06%)
0.07%
(0.22%)
Underlying capital utilisation of -3bps
(0.12%)
(0.02%)
(0.06%)
10.03%
9.80%
1H21
2H21
cash earnings
after tax
RWA
growth
Loan
origination
costs
Collective
provision
release
Dividend
net of DRP
Net
CAPEX
Securitisation
impact
Other
items
2H21
3.4 TAX EXPENSE
BOQ including ME Bank tax expense arising on cash earnings for FY21 amounted to $183 million. This represented an effective tax rate
of 30.8 per cent, which is above the corporate tax rate of 30 per cent primarily due to the non-deductibility of interest payable on
Capital Notes issued in FY18 and FY21.
44
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
4. DIVISIONAL PERFORMANCE
4.1 RETAIL INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW
Overview
The Retail Bank meets the financial needs and services of personal customers. The division supports customers through owner-managed
and corporate branch networks, third party intermediaries, VMA distribution channels, more than 1,300 ATM’s, an Australian based
customer call centre, digital services and mobile mortgage specialists. BOQ acquired 100 per cent of the share capital of ME Bank on
1 July 2021. ME Bank operates in the retail segment of the domestic market primarily offering home loan products, everyday transaction
and online savings accounts.
$ million
Net interest income
Non-interest income (1)
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
Year End
Incl. ME
Aug-21
Aug-20
Aug-21 vs
Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
Aug-21
492
69
561
437
74
511
(356)
(335)
205
20
225
(70)
155
176
(56)
120
(37)
83
13%
(7%)
10%
6%
16%
Large
88%
89%
87%
256
33
289
(180)
109
14
123
(38)
85
236
36
272
(176)
96
6
102
(32)
70
8%
(8%)
6%
2%
14%
133%
21%
19%
21%
570
74
644
(407)
237
21
258
(80)
178
Year End
Incl. ME
KEY METRICS
Year End Performance
Half Year Performance
PERFORMANCE INDICATORS
CTI (1)
Net interest income / average GLA (2)
ASSET QUALITY
90dpd arrears
Impaired assets
Loan impairment expense / GLA
BALANCE SHEET
GLA
Housing
Other retail
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
Aug-21
(%)
(%)
63.5
2.01
65.6
1.87
Large
14bps
62.3
2.05
64.7
2.00
Large
5bps
($ million)
($ million)
(bps)
204
86
(7)
294
66
22
(31%)
30%
(29bps)
204
86
(10)
274
78
(5)
(26%)
10%
(5bps)
63.2
1.93
205
120
(3)
($ million)
27,724
25,253
($ million)
27,674
25,195
10%
10%
27,724
26,055
27,674
25,990
6%
6%
52,883
52,626
($ million)
50
58
(14%)
50
65
(23%)
257
Average Credit RWA
($ million)
9,934
8,720
14%
9,934
9,158
8%
11,245
Customer deposits (3)
($ million)
18,609
Term deposits
Mortgage offsets
Savings & investment
Transaction accounts
($ million)
($ million)
($ million)
($ million)
4,706
2,183
9,197
2,523
17,210
5,647
1,801
7,784
1,978
8%
18,609
(17%)
21%
18%
28%
4,706
2,183
9,197
2,523
17,424
4,833
2,030
8,398
2,163
7%
(3%)
8%
10%
17%
37,046
12,019
3,689
17,847
3,491
Deposit to loan ratio
(%)
67
68
(100bps)
67
67
-
70
(1) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(2) Calculated on a cash earnings basis and net of offset accounts.
(3) Treasury managed deposits are included in the Bank’s Other operating segment.
45
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
4.1 RETAIL INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW (CONTINUED)
Business review
The Retail Bank remains focussed on executing its strategic
initiatives and is committed to supporting our customers in the
current environment. Strong growth in cash earnings has been
driven by lower loan impairments, improved lending margins
and above system lending growth. The housing momentum
generated at the end of 2H20 has translated into positive lending
growth across all core channels in FY21. The BOQ Blue brand
has achieved positive growth for the first time since FY15 as
settlements increased 72 per cent on FY20. The successful
turnaround in the BOQ Blue brand is attributed to improvements
which have been delivered over the past two years, including
the home buying transformation program; an experienced retail
leadership team; quality third party relationships and a focus on
expanding and enabling our unique and strategically important
owner-managed network.
The BOQ branch network consists of 103 owner-managed and
53 corporate branches supported by seven transaction centres.
The first Business Relationship Centre, a lower cost branch
model, focussed on lending and deposit acquisition, was opened
in November 2020 in New Farm, Queensland. Expanding and
leveraging the unique owner-manager model, anchored in the
communities we serve, remains a strategic focus. The branch
network has delivered a turnaround in performance by reporting
positive housing growth, the first time since FY14. Settlement
volumes increased 55 per cent on FY20 whilst run-off has been
managed through proactive retention initiatives.
The broker channel recorded home lending growth of $1.1 billion,
representing growth of 36 per cent on FY20. This was driven
by building new and existing quality third party relationships,
focussed customer retention and simplified end-to-end
mortgage processes. Whilst further improvement are a continued
focus, specifically processing times, the improvements delivered
to date have enabled the settlement of more than double the
volume of broker originated loans. Customer experience has
improved through the delivery of new broker enabled technologies.
The VMA brand is a globally recognised brand which appeals to a
more tech savvy customer base and continues to contribute to
the Bank’s geographical diversification by targeting metropolitan-
based customers across Australia. VMA has a proven track record
in executing on strong customer value led propositions. This is
evidenced by a home loan portfolio which has grown to more
than $4.3 billion since the mid-2016 launch. The business has
been impacted by subdued credit card performance due to the
portfolio being largely linked to frequent flyer cards. The reduction
in non-interest income from FY20 was more than offset by a
strong uplift in interest revenue generated from VMA’s home loan
business. VMA has launched its Digital Bank offering, representing
the largest production deployment in the Group’s history. The
Digital Bank launched with transaction, savings and an integrated
credit card and loyalty offering. Leveraging this foundational
work to ensure a similar customer experience is delivered to new
BOQ Retail deposit customers is scheduled to be delivered in
1H22. Work on Phase 2 for VMA and BOQ Retail Transformation
continues, with an expanded offering to term deposits and
lending customers on track to deliver in 2022.
ME Bank acquisition
During FY21, BOQ acquired 100 per cent of the share capital of ME
Bank. The ME Bank brand is a strong complementary brand with a
shared customer centric culture which is recognised nationally, with
a notable Victorian emphasis. The target customer base is slightly
more digitally aware and therefore not reliant on face-to-face
support. The ME Bank brand has a housing portfolio of $25.0 billion,
which is supported by a broker channel and propriety network of
mobile bankers.
The housing portfolio decreased by $0.5 billion in the two months
since acquisition. This decline was in line with recent historical
trends and reflected softer application flow in the preceding
quarter, which has since improved, and an increase in run-off. ME
Bank contributed to the Group’s funding with customer deposits
in excess of $18.4 billion.
Integration activities and mortgage process simplification work
is well underway with the objective of returning the ME housing
portfolio to growth in a sustainable way.
Financial performance review
Retail Bank cash earnings after tax increased $72 million or 87
per cent on FY20. Improved margins, lending growth and lower
collective provisioning were partially offset by the increased
investment in the VMA digital transformation.
ME Bank contributed $23 million to the division’s cash earnings
after tax for the two months since acquisition.
Net interest income
Net interest income increased $55 million or 13 per cent on FY20.
This was driven by margin improvement and strong lending
balance growth.
Housing margins improved due to lower funding and hedging
costs and repricing. Front-to-back book and retention discounting
impacts continued due to ongoing competition in the market.
Deposit margins decreased due to a lower interest rate
environment, impacting transaction and saving deposit account
margins. Strong transaction and savings balances growth, a
function of high levels of liquidity in the market, has continued
throughout FY21 resulting in total deposit growth of $1.4 billion or
eight per cent. Term deposits decreased $0.9 billion or 17 per cent
to $4.7 billion in FY21 as the customer deposits mix rebalanced.
Third party cost increases were driven by higher payments to
owner-managers and brokers relative to FY20 as a result of higher
growth, whilst the increased settlement volumes have resulted in
higher amortised acquisition costs.
Non-interest income
Non-interest income decreased by $5 million or seven per cent on
FY20 as COVID-19 continued to impact several transaction fee
categories, notably those related to travel, whilst an ongoing shift
in customer preference to lower or no fee product also continued
to impact fee revenue. Lower VMA card and insurance revenue
continued to be adversely impacted by the effect of COVID-19
on the travel industry. These were partly offset by income from a
new card services arrangement with a third party supplier.
Operating expenses
Operating expenses increased $21 million or six per cent on FY20.
This was largely driven by an investment in employees to deliver
strategic priorities including the VMA digital transformation, and
to support volume growth, particularly in the areas of operations,
product, marketing.
Loan impairment expense
Loan impairment expense was a credit of $20 million in FY21
compared to an expense of $56 million in FY20. This was primarily
driven by a reduction in the collective provision in FY21 of $37
million, which reflected an improved economic outlook. In FY20,
a collective provision overlay of $44 million was recorded for the
potential impacts of COVID-19.
46
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
4.2 BOQ BUSINESS INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW
Overview
BOQ Business includes BOQ branded commercial lending, BOQ Finance, BOQ Specialist and financial markets. The division provides
tailored business banking solutions, including commercial lending, equipment finance and leasing, cashflow finance, foreign exchange
hedging and international transfers, interest rate hedging, transaction banking and deposit solutions for business customers. The division
also provides home loans and consumer banking for BOQ Specialist customers.
$ 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-21
Aug-20
Aug-21 vs
Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
555
48
603
543
40
583
(262)
(258)
341
-
341
(106)
235
325
(119)
206
(64)
142
2%
20%
3%
2%
5%
Large
66%
66%
65%
285
23
308
(130)
178
30
208
(65)
143
270
25
295
(132)
163
(30)
133
(41)
92
6%
(8%)
4%
(2%)
9%
Large
56%
59%
55%
KEY METRICS
Year End Performance
Half Year Performance
Aug-21
Aug-20
Aug-21
vs Aug-20
Aug-21
Feb-21
Aug-21
vs Feb-21
PERFORMANCE INDICATORS
CTI
Net interest income / average GLA (1)
ASSET QUALITY
90dpd arrears
Impaired assets
Loan impairment expense / GLA
BALANCE SHEET
GLA
Housing
Commercial and other
Asset finance
Term deposits
Mortgage offsets
Savings & investment
Transaction accounts
Deposit to loan ratio
(%)
(%)
($ million)
($ million)
(bps)
43.4
2.64
118
123
-
44.3
2.59
(90bps)
5bps
139
129
55
(15%)
(5%)
(55bps)
42.2
2.67
118
123
(26)
44.7
2.60
Large
7bps
107
115
27
10%
7%
(53bps)
($ million)
22,865
21,790
($ million)
($ million)
($ million)
6,427
9,981
6,457
5,960
9,571
6,259
($ million)
($ million)
($ million)
($ million)
1,393
1,119
6,443
1,883
9,726
1,543
1,015
5,550
1,618
5%
8%
4%
3%
2%
11%
(10%)
10%
16%
16%
22,865
22,053
6,427
9,981
6,457
6,162
9,613
6,278
18,147
17,553
10,838
10,339
1,393
1,119
6,443
1,883
1,349
1,122
6,011
1,857
(%)
47
45
200bps
47
47
Average Credit RWA
($ million)
18,147
17,736
Customer deposits (2)
($ million)
10,838
(1) Calculated on a cash earnings basis and net of offset accounts.
(2) Treasury managed deposits are included in the Bank’s Other operating segment.
4%
4%
4%
3%
3%
5%
3%
-
7%
1%
-
47
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
4.2 BOQ BUSINESS INCOME STATEMENT, KEY METRICS AND FINANCIAL PERFORMANCE REVIEW (CONTINUED)
Business review
BOQ Business has continued to support its large and small
customers during the current difficult economic climate through
ongoing lending and specific COVID-19 relief where required.
The business continued to execute on its niche segment
strategy of providing a tailored relationship offering to
customers and achieving total asset growth of $1.1 billion
or five per cent on FY20. This was matched by strong
deposit growth of $1.1 billion or 11 per cent over FY21 largely
in the transaction and savings account products.
BOQ commercial growth of $0.4 billion or 0.8x system.
Other banking solutions such as merchant facilities and
foreign exchange contributed to the diversification of
the portfolio and stronger non-interest income.
The small business strategy remains a key focus and
improvements to the lending offering have been made to
policy, product and process. This has resulted in growth
of $52 million in the BOQ small business portfolio and
the first year of growth in this portfolio since 2012. Both
retention and new business volumes improved through the
branch, broker and direct business banker channels.
BOQ Specialist commercial lending portfolio grew by $0.2
billion or seven per cent on FY20, whilst asset financing in this
channel contracted. Home lending grew by $0.5 billion or nine
per cent, with a strong second half as confidence returned to the
sector. The mortgage offering provides a pipeline of customers
with potential commercial lending needs in the future.
Improvements were made to online banking in BOQ Specialist
that continued to drive deposit growth in transaction and savings
accounts. BOQ Specialist focuses on clearly defined niches and
has developed deep client relationships offering tailored consumer
and commercial products and services to assist professionals.
BOQ Finance grew its $5.5 billion asset finance portfolio by
$0.3 billion or five per cent due to record settlement
volumes in Equipment finance and strong structured
finance growth. Key industry growth continues to be in the
transport, agriculture and construction industries. This
was partly offset by a decline in the BOQ Specialist Asset
finance book of $75 million, which was driven by lower levels
of investment from dentistry and medical practices.
Financial performance review
BOQ Business cash earnings after tax increased by $93 million
or 65 per cent on FY20. This result was driven by both improved
underlying profit and favourable loan impairment expense due to
a reduction in the collective provision.
Net interest income
Net interest income increased $12 million or two per cent on FY20.
This was driven by margin improvement in the business lending
and asset finance portfolios.
Asset margins improved due to lower funding and hedging costs
and whilst maintaining pricing. Income growth from assets was
impacted as the lending growth occurred late in the year.
Deposit margins decreased due to a lower interest rate
environment, impacting transaction and saving deposit account
margins. Strong deposit growth has continued throughout FY21,
reflecting the higher liquidity in the market and government
stimulus for small business. Total deposit growth of $1.1 billion
or 11 per cent was driven by growth in transaction and savings
accounts, partly offset by a decrease in term deposits as the
customer deposits mix rebalanced.
Non-interest income
Non-interest income increased by $8 million or 20 per cent
on FY20. The increase was mainly driven by higher merchant
terminal revenue from small business customers, financial
markets customer transactions, the reinstatement of some fees
paused during COVID-19 and income from a new card services
arrangement with a third party supplier.
Operating expenses
Operating expenses increased by $4 million or two per cent on
FY20. This was driven by investment in small business initiatives,
banker capability and regulatory and technology projects. This is
targeting an improved customer experience and efficiency in the
operational aspects of lending fulfilment.
The increase also reflected additional staff to support customers
impacted by COVID-19 and increasing Know Your Customer
(KYC) regulatory compliance costs. This was partly offset by lower
discretionary spend particularly travel and entertainment.
Loan impairment expense
Loan impairment expense decreased by $119 million on FY20. This
was primarily driven by a reduction in the collective provision in
FY21 of $32 million due to improvements in data quality relating
to collateral as well as an improved economic outlook. In FY20, a
collective provision overlay of $89 million was recorded for the
potential impacts of COVID-19.
Specific provisions were largely unchanged on FY20 as activity
remained subdued, reflecting improved economic conditions
and government stimulus. A write back of one large commercial
Agribusiness exposure that returned to performing following
strong crop harvests due to improved weather conditions was
offset by an increase in specific provision expense in Asset
finance as lockdowns impacted some niche medical practices.
48
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
4.3 OTHER SEGMENT INCOME STATEMENT AND FINANCIAL PERFORMANCE REVIEW
Overview
The Other segment includes Treasury, St Andrew’s Insurance and Group head office.
$ million
Net interest income / (expense)
Non-interest income
Total income
Operating expenses
Underlying profit / (loss)
Loan impairment expense
Profit / (loss) before tax
Income tax (expense) / benefit
Cash profit / (loss) after tax
Year End Performance
Half Year Performance
Aug-21
Aug-20
Aug-21 vs
Aug-20
Aug-21
Feb-21
Aug-21 vs
Feb-21
3
8
11
(15)
(4)
-
(4)
3
(1)
6
14
20
(19)
1
-
1
(1)
-
(50%)
(43%)
(45%)
(21%)
Large
(100%)
Large
Large
100%
(3)
3
-
(8)
(8)
-
(8)
4
(4)
6
5
11
(7)
4
-
4
(1)
3
(150%)
(40%)
(100%)
14%
Large
(100%)
Large
Large
Large
Financial performance review
Cash earnings after tax was a loss of $1 million in FY21, compared to $nil for FY20.
Net interest income / (expense)
Net interest income decreased by $3 million or 50 per cent on FY20. This primarily reflected lower income from Treasury’s hedging of
interest rate risk, partly offset by higher home loan break cost income.
Non-interest income
Non-interest income comprises St Andrew’s insurance revenue and Treasury trading income. Non-interest income decreased by
$6 million or 43 per cent on FY20. This was mainly driven by lower insurance income following a decision in FY20 by St Andrew’s to
materially close to new business. It also reflects lower Treasury trading income as a lack of volatility and lower interest rate environment
reduced trading income opportunities, together with reduced market exposures and widening in credit spreads in 2H21.
Operating expenses
Operating expenses decreased by $4 million or 21 per cent on FY20. This primarily reflected a decrease in St Andrew’s expenses following
its closure to new business in FY20.
49
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
4.4 PRO FORMA RESULTS
The following Pro Forma results are designed to facilitate a meaningful understanding of the combined Group’s performance for FY20
and FY21 and to form a basis for the outlook for FY22.
They have been prepared on the basis that ME Bank was included for the full twelve months of FY20 and FY21. They reflect a number of
adjustments to both BOQ and ME Bank in order to make the results more indicative of future performance including:
• Alignment of ME Bank to BOQ’s August year end;
• Alignment of ME Bank to BOQ’s presentation of net interest income, non-interest income and operating expenses; and
• Removal of St Andrew’s insurance.
The Pro Forma results for the years ended 31 August 2020 and 2021 are outlined below.
Pro Forma Year Ended Performance
Aug-21 vs Aug-20
BOQ
Adjusted (1)
Aug-20
ME Bank
Adjusted
Aug-20
BOQ
Group
Pro Forma
Aug-20
BOQ
Adjusted (1)
Aug-21
ME Bank
Adjusted (2)
Aug-21
BOQ
Group
Pro Forma
Aug-21
BOQ
Adjusted (1)
%
ME Bank
Adjusted
%
BOQ
Group
Pro Forma
%
986
117
1,103
(603)
500
(175)
325
(101)
224
114
470
16
486
(283)
203
(60)
143
(42)
101
87
1,456
133
1,589
(886)
703
(235)
468
(143)
325
201
1,050
118
1,168
(626)
542
20
562
(173)
389
352
489
16
505
(307)
198
9
207
(64)
143
111
1,539
134
1,673
(933)
740
29
769
(237)
532
463
6%
1%
6%
4%
8%
Large
73%
(71%)
74%
Large
4%
-
4%
8%
(2%)
Large
45%
(52%)
42%
28%
6%
1%
5%
5%
5%
Large
64%
(66%)
64%
130%
$ 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
Statutory net profit after tax (3)
KEY METRICS
Aug-20
Aug-20
Aug-20
Aug-21
Aug-21
Aug-21
Aug-21 vs Aug-20
Profitability and efficiency measures
NIM
CTI
LIE to GLA
(%)
(%)
(bps)
1.91
54.7
37
1.59
58.2
22
1.79
55.8
32
1.95
53.6
(4)
1.70
60.8
(4)
1.86
4bps
55.8
(110bps)
11bps
Large
7bps
-
(4)
(41bps)
(26bps)
(36bps)
(1) BOQ result has been adjusted as follows:
(a) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(b) St Andrew’s income as disclosed in note 2.4 and operating expenses and non-interest income of $7 million in FY21 and operating expenses of $9 million and non-interest
income of $11 million in FY20 have been removed to reflect the planned divestment in 1H22.
(2) Includes the amortisation of fair value adjustments on acquisition including an effective interest adjustment following a fair value adjustment to the loan portfolio on
acquisition of ME Bank.
(3) ME statutory adjustments for FY21 include transaction costs ($23 million), hedge ineffectiveness, intangible asset review, integration costs and amortisation of acquisition
fair value adjustments.
50
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021FINANCIAL PERFORMANCE Financial Performance 20
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Governance and Risk Management 55
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Directors’ Details 71
4.5 OUTLOOK
Despite the uncertain environment, we are cautiously optimistic that Australia remains well placed for economic recovery,
characterised by further house price rises and solid growth in consumer spending and business investment.
There may still be uncertainty associated with COVID-19 for at least the next year. We expect that fiscal and monetary policy will
continue to underpin the economic recovery. Over the next year, we will continue to maintain a prudent approach to provisioning
given the ongoing impact of lockdowns.
51
2021 Annual ReportFor the year ended 31 August 2021FINANCIAL PERFORMANCE About BOQ
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Responding to COVID-19
14
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Acquisition of ME Bank
15
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Value Creation and Strategy
16
5 APPENDIX
5.1 CASH EPS CALCULATIONS
Reconciliation of cash earnings for EPS
Cash earnings after tax
Returns to other equity instruments (3)
Cash earnings available for ordinary
shareholders
Effect of Wholesale Capital Notes
Effect of Capital Notes 1
Effect of Capital Notes 2
Cash diluted earnings available for ordinary
shareholders
Weighted average number of shares
(WANOS)
Basic WANOS - Ordinary shares
Effect of award rights
Effect of Wholesale Capital Notes
Effect of Capital Notes 1
Effect of Capital Notes 2
Diluted WANOS for cash earnings EPS (4)
Earnings per share
Basic EPS - Ordinary shares
Diluted EPS - Ordinary shares
Year End Performance
Half Year Performance
Aug-21
Aug-20 (1)
Aug-21
vs Aug-20
Aug-21 (2)
Feb-21 (1)(2)
Aug-21
vs Feb-21
($ million)
($ million)
($ million)
($ million)
($ million)
($ million)
412
(1)
411
-
9
5
225
-
225
4
11
-
83%
(100%)
83%
(100%)
(18%)
100%
247
(1)
246
-
5
4
165
-
165
-
5
2
50%
(100%)
49%
-
-
100%
($ million)
425
240
77%
255
172
48%
630
468
35%
(million)
(million)
(million)
(million)
(million)
(million)
550
455
3
-
38
21
612
2
18
59
-
534
21%
50%
(100%)
(36%)
100%
15%
3
-
38
28
699
3
-
40
15
526
(cents)
(cents)
74.7
69.5
49.6
45.1
51%
54%
38.8
36.2
35.5
32.8
-
-
(5%)
87%
33%
9%
10%
(1) The basic and diluted earnings per share for August 2020 and February 2021 have been adjusted per ASX announcement on 20 April 2021.
(2) The sum of 1H21 and 2H21 EPS and cash earning adjustments do not equal FY21 due to the impact of the capital raising and the uneven distribution of cash earnings after tax
across the two halves of the year.
(3) Other equity instruments assumed on the acquisition ME Bank. Refer to Note 3.10(B) in the Financial Statements.
(4) During the year ended 31 August 2021, the Group granted 8,033,732 premium priced options to eligible employees. The options were anti-dilutive during the period and
therefore have not impacted the diluted WANOS during the period.
52
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5.2 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS
INTEREST EARNING ASSETS
Loans & advances (3)
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 (4)
Total interest bearing liabilities
Non-interest bearing liabilities
Total liabilities
Shareholders’ funds
Total liabilities & shareholders’ funds
Average
balance
$m
45,241
8,569
53,810
134
1,679
(355)
1,458
55,268
33,185
15,964
49,149
1,178
50,327
4,941
55,268
FY21 (1)
Interest
$m
1,430
28
1,458
Average
rate
%
Average
balance
$m
3.16
0.33
2.71
202
206
408
0.61
1.29
0.83
FY20 (2)
Interest
$m
1,656
59
1,715
Average
rate
%
3.73
0.80
3.31
397
332
729
1.31
1.89
1.52
44,375
7,388
51,763
157
1,696
(257)
1,596
53,359
30,378
17,603
47,981
1,240
49,221
4,138
53,359
INTEREST MARGIN & INTEREST SPREAD
Interest earning assets
Interest bearing liabilities
Net interest spread
Benefit of free funds
53,810
49,149
1,458
408
NIM - on average interest earning assets
53,810
1,050
2.71
0.83
1.88
0.07
1.95
51,763
47,981
1,715
729
51,763
986
3.31
1.52
1.79
0.12
1.91
(1) Relates to BOQ only.
(2) Comparative periods have been restated to conform to presentation in the current period. Derivatives have been reallocated to better match their association to assets
or liabilities.
(3) Net of average mortgage offset balances.
(4)
Includes hedging costs, execution costs and dealer fees.
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Acquisition of ME Bank
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Value Creation and Strategy
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5.2 AVERAGE BALANCE SHEET AND MARGIN ANALYSIS (CONTINUED)
INTEREST EARNING ASSETS
Loans & advances (3)
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 (4)
Total interest bearing liabilities
Non-interest bearing liabilities
Total liabilities
Shareholders’ funds
Total liabilities & shareholders’ funds
2H21 (1)
Interest
$m
Average
rate
%
Average
balance
$m
706
14
720
3.05
0.32
2.61
85
97
182
0.50
1.23
0.73
44,511
8,441
52,952
144
1,626
(360)
1,410
54,362
32,518
16,285
48,803
1,231
50,034
4,328
54,362
Average
balance
$m
45,970
8,697
54,667
126
1,732
(350)
1,508
56,175
33,851
15,643
49,494
1,126
50,620
5,555
56,175
1H21 (2)
Interest
$m
724
14
738
Average
rate
%
3.28
0.33
2.81
117
109
226
0.73
1.35
0.93
INTEREST MARGIN & INTEREST SPREAD
Interest earning assets
Interest bearing liabilities
Net interest spread
Benefit of free funds
54,667
49,494
720
182
NIM - on average interest earning assets
54,667
538
2.61
0.73
1.88
0.07
1.95
52,952
48,803
738
226
52,952
512
2.81
0.93
1.88
0.07
1.95
(1) Relates to BOQ only.
(2) Comparative periods have been restated to conform to presentation in the current period. Derivatives have been reallocated to better match their association to assets
or liabilities.
(3) Net of average mortgage offset balances.
(4)
Includes hedging costs, execution costs and dealer fees.
54
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Managing our risk landscape
BOQ’s approach to the effective and prudent management of
key risks is at the forefront of our business strategy. Key risks are
identified and managed as part of a Group Risk Management
Framework that includes the Board approved Business Plans,
Risk Management Strategy and Risk Appetite Statement,
followed by the capital and funding plans.
Another cornerstone of the enterprise-wide strategy is the
Group Risk Appetite Statement which covers the principal
sources of risk and is cascaded to businesses, as part of the
business unit planning process, qualitatively (through risk
policies, standards and operating procedures) and quantitatively
(through risk limits, settings and decision authorities).
A cornerstone of the enterprise-wide strategy is the annual
Board Strategic Review, which provides a forward outlook taking
into consideration various factors:
The below diagram illustrates the governance framework for
managing BOQ’s key risks and how they are identified, measured,
monitored and reported from Management up to the Board.
• Macroeconomic and financial services outlook
•
Internal, environmental and competitive assessment
• Group strategic, risk and financial objectives
• Group strategy statement
• Financial forecast
• System growth assumptions and relative returns
of business lines (Banking)
• Key strategic initiatives
• Strategic goals and targets
• Material strategy execution risks and proposed
mitigating actions
Bank of Queensland Board
Risk Committee
Executive
Committee
(ExCo)
Asset &
Liability
Committee
Executive
Credit
Committee
Executive
Risk Committee
Strategic
Risk
Financial Risks
Non-Financial Risks
Sustainability
& Climate
Change Risk
Liquidity &
Funding Risk
Market
Risk
Credit
Risk
Insurance
Risk
Compliance,
Conduct &
Regulatory
Risk
Operational
Risk
Reputational
Risk
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Acquisition of ME Bank
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Value Creation and Strategy
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BOQ’s operations and performance are impacted by strategic risks, financial risks and non-financial risks. Key risks are
identified and managed as part of BOQ’s risk management framework. The below table outlines the key risks impacting the
business and how BOQ manages these.
Risk
Description
Management of Risk
Value Drivers
Compliance,
conduct &
regulatory
engagement risk
The risk of failure to comply with any regulatory obligations including data privacy breaches; the risk of inadequate
response to regulatory change; not acting in accordance with customers’ best interests; not designing and
distributing products and services to customers in an adequate, accurate and proper manner; not acting in
accordance with BOQ’s values and Code of Conduct; not acting in accordance with Workplace Health and Safety
laws; not complying with Environmental laws. Failure to adhere to the requirements of BOQ’s Financial Crime
Compliance Framework which includes BOQs Anti-Money Laundering and Counter-Terrorism Financing Program
- Parts A and B, Anti-Bribery and Corruption and Sanctions Evasion.
BOQ has a Compliance Management Framework and underlying standards and procedures that outline how compliance
risks are identified and managed within risk appetite and tolerance to meet regulatory requirements. This is supported
Customer
by a Privacy Management and Financial Crime Compliance Framework to manage the risk of money laundering
and terrorism financing and other financial crime risks, and a Conduct Risk Standard that outlines the approach to
establishing and maintaining a strong ethical culture via embedded principles and policies. Regulatory obligations are
mapped to controls and captured in the Governance Risk and Compliance (GRC) tool to allow early identification of
potential obligation breaches via incident management, assurance and issue management. Incident management also
includes ensuring timely and appropriate notifications to regulators. Regulatory change is managed through a Regulatory
Change Roadmap.
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.
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.
Risk management practices in place to support effective credit risk management include the establishment and
ongoing maintenance of a limits monitoring and management framework. BOQ’s Credit Risk Management Principles
provide core standards for the provision of credit for all customers. The credit risk management principles express the
expectations of the Board for both the analytical and behavioural aspects of granting of credit to customers. BOQ
maintains a suite of credit policies to address the range of lending products provided to customers and to satisfy the
Board level requirements expressed in the Credit Risk Management Principles and Risk Appetite Statement.
BOQ maintains a diverse and stable pool of potential funding sources. The Bank maintains adequate liquidity buffers
and short-term funding capacity to withstand periods of disruption in long-term wholesale funding markets. BOQ
adopts a robust limit framework including stress testing and scenario analysis that enables risk based decisioning
ensuring the business remains within risk appetite.
Operational risk
The risk of loss resulting from inadequate or failed internal processes, people and systems, and/or from
external events. As such, operational risk captures business continuity plans, crisis management, process,
systems and operations risk, people related risks, health and safety related risks, information technology,
information security, and data risks.
BOQ has an Operational Risk Management Framework and underlying standards and procedures that outlines
how operational risks are identified and managed within risk appetite and tolerance to meet regulatory, customer,
operational and strategic requirements. This includes mechanisms to undertake risk-reward business decisions taking
into account operational risk exposures and the control environment. These risks are managed through our GRC tool.
Insurance risk
Insurance risk arises from the ownership and operation of insurance companies. Insurance Risk can be broadly
defined as an unexpected economic gain or loss relating to movements in claim costs. This includes the risk that
inadequate or inappropriate product design (including pricing), underwriting, claims management and reinsurance
management will expose the business to financial loss and the consequent inability to meet its liabilities.
Contagion risk
The primary sources of market contagion risk relate to correlated concentrations, balance sheet contagion and
severe market liquidity events. Internal contagion risk is the risk that problems arising in BOQ’s subsidiaries may
compromise the financial and operational position of the BOQ Group.
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.
Strategic risk
Strategic Risk is the risk that might arise from the pursuit of a business model or strategy that is not viable.
St Andrew’s manages insurance risk through the Reinsurance Management Strategy, Claims Management Policy and
the Risk Appetite Statement. The divestment of St. Andrew’s will significantly reduce the exposure BOQ has toward
insurance, and therefore the necessity to have this as a material risk class.
BOQ’s credit portfolio limit framework and risk appetite measures enable effective management of market contagion
risk. BOQ applies common risk management practices across all Group subsidiaries. The performance of subsidiaries
is subject to ongoing review and oversight, with senior management representation on subsidiary management
committees and boards.
BOQ has relevant risk management frameworks for the management of the underlying risks which can have an impact
on reputation risk, as outlined in this section. Supporting this are conduct and reputational risk frameworks outlining
the approach to establishing and maintaining a strong ethical culture via embedded principles and policies throughout
the Group to support the management of reputation risk.
Business strategy development incorporates risk management practices to ensure any potential changes in the level
of risk, including new risks, are continuously considered when making strategic decisions. Key strategic risks are subject
to ongoing review and analysis with monthly reporting provided to management and the Board including performance
against strategic growth targets.
More detail on climate change risk can be found on pages 61 - 69.
Refer to page 62 for full details on how we are managing sustainability risk and climate change.
Sustainability and
climate change risk
56
Finance
Customer
Finance
Environment &
climate change
Finance
Customer
People
Environment &
climate change
Finance
Finance
Finance
Customer
Finance
Finance
Technology
& data
capabilities
Community
Environment &
climate change
GOVERNANCE AND RISK MANAGEMENTBank of Queensland Limited and its Controlled Entities Financial Performance 20
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Governance and Risk Management 55
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Directors’ Details 71
Risk
Description
Management of Risk
Compliance,
conduct &
regulatory
engagement risk
The risk of failure to comply with any regulatory obligations including data privacy breaches; the risk of inadequate
response to regulatory change; not acting in accordance with customers’ best interests; not designing and
distributing products and services to customers in an adequate, accurate and proper manner; not acting in
accordance with BOQ’s values and Code of Conduct; not acting in accordance with Workplace Health and Safety
laws; not complying with Environmental laws. Failure to adhere to the requirements of BOQ’s Financial Crime
Compliance Framework which includes BOQs Anti-Money Laundering and Counter-Terrorism Financing Program
- Parts A and B, Anti-Bribery and Corruption and Sanctions Evasion.
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.
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 has a Compliance Management Framework and underlying standards and procedures that outline how compliance
risks are identified and managed within risk appetite and tolerance to meet regulatory requirements. This is supported
by a Privacy Management and Financial Crime Compliance Framework to manage the risk of money laundering
and terrorism financing and other financial crime risks, and a Conduct Risk Standard that outlines the approach to
establishing and maintaining a strong ethical culture via embedded principles and policies. Regulatory obligations are
mapped to controls and captured in the Governance Risk and Compliance (GRC) tool to allow early identification of
potential obligation breaches via incident management, assurance and issue management. Incident management also
includes ensuring timely and appropriate notifications to regulators. Regulatory change is managed through a Regulatory
Change Roadmap.
Risk management practices in place to support effective credit risk management include the establishment and
ongoing maintenance of a limits monitoring and management framework. BOQ’s Credit Risk Management Principles
provide core standards for the provision of credit for all customers. The credit risk management principles express the
expectations of the Board for both the analytical and behavioural aspects of granting of credit to customers. BOQ
maintains a suite of credit policies to address the range of lending products provided to customers and to satisfy the
Board level requirements expressed in the Credit Risk Management Principles and Risk Appetite Statement.
BOQ maintains a diverse and stable pool of potential funding sources. The Bank maintains adequate liquidity buffers
and short-term funding capacity to withstand periods of disruption in long-term wholesale funding markets. BOQ
adopts a robust limit framework including stress testing and scenario analysis that enables risk based decisioning
ensuring the business remains within risk appetite.
Operational risk
The risk of loss resulting from inadequate or failed internal processes, people and systems, and/or from
external events. As such, operational risk captures business continuity plans, crisis management, process,
systems and operations risk, people related risks, health and safety related risks, information technology,
information security, and data risks.
BOQ has an Operational Risk Management Framework and underlying standards and procedures that outlines
how operational risks are identified and managed within risk appetite and tolerance to meet regulatory, customer,
operational and strategic requirements. This includes mechanisms to undertake risk-reward business decisions taking
into account operational risk exposures and the control environment. These risks are managed through our GRC tool.
Insurance risk
Insurance risk arises from the ownership and operation of insurance companies. Insurance Risk can be broadly
defined as an unexpected economic gain or loss relating to movements in claim costs. This includes the risk that
inadequate or inappropriate product design (including pricing), underwriting, claims management and reinsurance
management will expose the business to financial loss and the consequent inability to meet its liabilities.
Contagion risk
The primary sources of market contagion risk relate to correlated concentrations, balance sheet contagion and
severe market liquidity events. Internal contagion risk is the risk that problems arising in BOQ’s subsidiaries may
compromise the financial and operational position of the BOQ Group.
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.
Strategic risk
Strategic Risk is the risk that might arise from the pursuit of a business model or strategy that is not viable.
St Andrew’s manages insurance risk through the Reinsurance Management Strategy, Claims Management Policy and
the Risk Appetite Statement. The divestment of St. Andrew’s will significantly reduce the exposure BOQ has toward
insurance, and therefore the necessity to have this as a material risk class.
BOQ’s credit portfolio limit framework and risk appetite measures enable effective management of market contagion
risk. BOQ applies common risk management practices across all Group subsidiaries. The performance of subsidiaries
is subject to ongoing review and oversight, with senior management representation on subsidiary management
committees and boards.
BOQ has relevant risk management frameworks for the management of the underlying risks which can have an impact
on reputation risk, as outlined in this section. Supporting this are conduct and reputational risk frameworks outlining
the approach to establishing and maintaining a strong ethical culture via embedded principles and policies throughout
the Group to support the management of reputation risk.
Business strategy development incorporates risk management practices to ensure any potential changes in the level
of risk, including new risks, are continuously considered when making strategic decisions. Key strategic risks are subject
to ongoing review and analysis with monthly reporting provided to management and the Board including performance
against strategic growth targets.
Sustainability and
climate change risk
More detail on climate change risk can be found on pages 61 - 69.
Refer to page 62 for full details on how we are managing sustainability risk and climate change.
Value Drivers
Customer
Finance
Customer
Finance
Environment &
climate change
Finance
Customer
People
Environment &
climate change
Finance
Finance
Finance
Customer
Finance
Finance
Technology
& data
capabilities
Community
Environment &
climate change
57
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Responding to COVID-19
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Acquisition of ME Bank
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Value Creation and Strategy
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MANAGING THE EVOLVING RISK ENVIRONMENT
The financial services industry continues to receive significant focus from the Federal Government, regulators,
investors and consumers. A summary of the key areas of reform and areas of increased risk focus are outlined below.
Regulatory developments
Capital Management
Policy and Priorities
Following a suspension in March 2020, later in the year APRA
recommenced its planned policy and supervision agenda to
prioritise activities that responded to the impacts of COVID-19.
In February 2021, APRA released its policy and supervision
activities across 2021/22. A key focus was on enhancing the
resilience and crisis readiness of Australia’s financial system.
Achieved by working closely with peer regulators to support
the recovery from the impacts of COVID-19 through delivery
of efficient, proportionate regulation that facilitates a resilient,
competitive and innovative financial sector.
For the remainder of 2021, APRA’s policy priorities will centre on
completing key reforms to strengthen financial resilience. Of
relevance to BOQ, these include:
• Completing the bank capital reforms, with three final
standards for capital adequacy to be released in November
2021 and to apply from January 2023
• Consulting on reforms to the insurance capital framework to
reflect changes in the accounting standard AASB17
• Consulting on new standards for financial contingency
planning and resolution, to be released in November 2021 for
an extended consultation
In addition, APRA advised it also plans to release final guidance on
managing the financial risks of climate change in addition to an
Information Paper setting out APRA’s framework for the use of
macro-prudential policy tools.
APRA also noted that several other policy releases originally
scheduled for this 2021 have been deferred to 2022, including
standards for operational resilience, remuneration disclosure
requirements, interest rate risk in the banking book and
offshore reinsurance.
ASIC released an interim one year corporate plan refreshing its
strategic priorities in response to the impact of COVID-19. The
priorities for 2020–21 are:
• Protecting consumers from harm at a time of
heightened vulnerability
• Maintaining financial system resilience and integrity
• Supporting Australian businesses to respond to the effects of
the COVID-19 pandemic
• Continuing to identify, disrupt and deter the most harmful
conduct, including through enforcement action
• Continuing to build our organisational capability in
challenging times
APRA provided guidance to all ADIs and Insurers on capital
management to ensure entities can fulfil their role in supporting
the economy, which included:
• Regular stress testing to assess financial resilience in a range of
scenarios, including severe but plausible downturn conditions
• Assurance on the capacity to continue to lend and underwrite
insurance, with the use of capital buffers to absorb the
impacts of stress if needed
• A rigorous approach to recovery planning, to ensure
readiness to initiate contingency measures and respond to
conditions if required
• Caution in capital distributions, with an ongoing measured
approach to dividends in this heightened risk environment
Conduct
Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry
(Royal Commission)
On 12 November 2020, the Financial Sector Reform (Hayne
Royal Commission Response) Bill 2020 was introduced into
the House of Representatives implementing 21 of the 76
recommendations from the Royal Commission.
The package of reforms implements a significant number of
the Royal Commission recommendations and the additional
commitments made by the Government to improve consumer
protections and strengthen regulators. This includes
addressing conflicts between the interests of financial
institutions and their customers, ensuring customers are
treated fairly in dealings with the financial sector and ensuring
regulators have the powers and resources needed to be
effective in their enforcement and supervision role.
The Bill was passed on 10 December 2020.
While the reforms apply across all financial services, including
superannuation and insurance, and also impact the roles of
APRA and ASIC, the key impacts for BOQ are as follows:
Legislation
Start date
Substantial changes to
mandatory breach reporting
1 October 2021
Expansion of the
anti-hawking rules
5 October 2021
Introduction of a deferred sales
model for add-on insurance
5 October 2021
Caps on commissions for
add-on insurance
1 January 2021 (but no caps
enacted at this stage)
Enforceable code provisions
1 January 2021 (but no codes
prescribed as enforceable
at this stage)
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MANAGING THE EVOLVING RISK ENVIRONMENT (CONTINUED)
Conduct (continued)
Risk Governance Self-Assessment
BOQ is committed to continuous improvement in our risk
governance practices. During the year, BOQ continued to
advance our risk maturity and capabilities to manage non-
financial risks in order to deliver sustainable improvement in risk
management practices, including enhancements to our key risk
frameworks, mechanisms to monitor maturity and risk appetite.
New Regulatory Guide 271 – Internal Dispute Resolution
On 30 July 2020, ASIC released the Regulatory Guide (RG) 271
on Internal Dispute Resolution (IDR), which seeks to raise the
IDR standards across the financial sector. The new RG, makes
parts of the IDR standards and requirements enforceable,
which will require an increased focus on complaints handling
across the industry.
The changes that will likely have the greatest operational
impact include:
• The updated requirement to acknowledge complaints within
24 hours of receiving it
• The new 30-day resolution timeframe for standard
complaints reduced from 45 days
• The heightened focus and new requirements for the early
identification and investigation of systemic issues
• The need to ensure that all the social media platforms
owned or controlled by a firm will be monitored for
complaint identification
The new RG comes into effect on 5 October 2021, the same
go-live date as the DDO regime. The effective and appropriate
management of complaints continues to be a focus for BOQ
and a regulatory change group will work towards effective
implementation of this new RG.
Consumer Data Right Bill (CDR) and Open Banking
CDR is designed to give customers more control over their
banking data, and improve customers’ ability to compare and
switch between products and services. The Government has
committed to implementing CDR in the banking, energy and
telecommunications sector. For the banking sector, this is referred
to as “Open Banking” and is the first sector to apply the CDR.
At BOQ, the sharing of consumer reference data was due to
take place by 1 July 2021. BOQ did not meet compliance by 1 July
2021, and has a rectification schedule in place to commence
sharing consumer reference data later this year, and to ensure
compliance with the CDR regime more broadly.
Financial Accountability Regime
On 16 July 2021 the Federal Treasury released exposure
draft legislation to implement further recommendations
of the Banking, Superannuation and Financial Services
Royal Commission, including the Financial Accountability
Regime (FAR) that will replace the current Banking Executive
Accountability Regime (BEAR) applicable to ADIs.
FAR imposes a strengthened responsibility and accountability
framework within financial institutions, absorbs the BEAR
requirements and makes a number of changes, including:
• Extension of the regime beyond the banking industry to include
insurance and superannuation sectors
• Introduction of new responsibilities including product, dispute
resolution, customer remediation and breach reporting, which
will be allocated to senior executives
• ASIC will join APRA as a co-regulator
Timeliness for implementation of the FAR forms part of the
current consultation, which BOQ continues to actively engage
in and is committed to comply with the requirements of FAR.
Regulatory oversight & change
Design and Distribution Obligations
The Treasury Laws Amendment (Design and Distribution
Obligations and Product Intervention Powers) Act 2019 (DDO)
is an end-to-end approach to manage design and distribution
of products. DDO places responsibility on financial firms to
ensure that products are designed and distributed to the
appropriate class of customer. This will be achieved by defining
who the target market is for each product and then taking
measures to ensure that only customers who fall within that
target market are issued with that product (Target Market
Definitions). The obligations will apply to all products within
BOQ, with the exception of business credit. The DDO are
broken into two separate categories: ‘design obligations’ and
‘distribution obligations’. The ‘design obligations’ will belong to
the product issuer and the ‘distribution obligations’ will belong
to the product ‘distributor’. In many cases, BOQ will act as both
product issuer and distributor. In other cases, broker and white
label partners will be the distributors.
DDO was implemented by the BOQ group prior to the 5 October
2021 deadline. BOQ already has processes in place for managing
the life cycle of its products which will be updated to include the
new requirements introduced by DDO.
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Responding to COVID-19
14
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Acquisition of ME Bank
15
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Value Creation and Strategy
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MANAGING THE EVOLVING RISK ENVIRONMENT (CONTINUED)
Hawking of Financial Products
Financial crime
The new anti-hawking rules came into effect on 5 October 2021
and they expand the current anti-hawking regime applicable to
general insurance by making it apply to all financial products (as
defined in the Corporations Act) sold to a retail customer. Credit
products are not in-scope under the new rules.
Anti-Money Laundering and
Counter Terrorism Financing Compliance
Recognising that banks play a vital role in preventing and
detecting financial crime to protect Australia’s financial system
from criminal exploitation, BOQ continues to build its financial
crime capability through technology, people, partnerships and
a strong Anti-Money Laundering (AML)/Counter Terrorism
Financing (CTF) framework.
BOQ continues to engage with Australian Transaction Reports
and Analysis Centre (AUSTRAC) in relation to BOQ’s AML/ CTF
program and continues to enhance and strengthen its AML/
CTF systems and controls following the closure of the findings
by AUSTRAC post their onsite review in 2018. The deployment
of a new platform for AML/CTF controls has enhanced BOQ’s
capability to prevent, detect and mitigate financial crime risks
across BOQ.
Credit risk
Response to COVID-19
BOQ worked swiftly and decisively with the Australian Banking
Association (ABA), the Federal Government and regulators to
establish the Banking Relief Package program for customers
impacted by COVID-19. BOQ deployed 70 highly skilled
individuals into the Customer Assistance Team, dedicated to
assisting customers impacted by COVID-19.
Building upon the processes implemented in 2020, BOQ
continues to monitor the credit quality of the portfolio to assess
economic impacts due to COVID-19, particularly in light of the
recent spike in cases causing the reintroduction of more severe
restrictions and lockdowns. BOQ has a number of credit models
designed to assist in measuring the credit risk in the portfolio
based on changing economic and environmental conditions.
Further information on BOQ’s response to COVID-19 can be
found on page 14.
Broadly speaking, the legislation prohibits an offer to issue or sell
a financial product to a retail customer, or invite the customer to
ask for a product, unless the contact occurs following a positive,
express request from the customer. The prohibition applies to real-
time contact which the customer does not expressly and positively
request, for example, contact in-person, in online chats and by
phone. The regime is not intended to apply to emails or other
written correspondence where the customer is not expected to
respond immediately. Once the customer has made such a request
regarding a financial product, there is a period of 6 weeks in which
to discuss the product and make an offer to the customer, before
the customer consent/request is deemed expired.
BOQ had a project team working to ensure compliance with the
new hawking regime. BOQ has provided training to employees
to ensure compliance with the new rules, and implemented a
refreshed approach to providing insurance products to ensure
only positive, express requests from the customer are actioned.
Breach Reporting
The legislation relating to breach reporting represents a
substantial overhaul of the mandatory breach reporting regime.
From 1 October 2021, BOQ has to report:
a) Every breach of a civil penalty provision e.g. this would include
every breach of the requirement to act efficiently, honestly
and fairly – no materiality threshold
b) Every breach of the misleading and deceptive conduct
provisions – no materiality threshold
c) Every breach of a criminal penalty provision
d) Every breach that may result in material loss or damage to a
person/s to whom BOQ provides financial services
e) Every investigation into a potentially reportable matter that
runs beyond 30 days, including where the matter is deemed
non-reportable after investigation
The breaches must be reported 30 calendar days from when
BOQ knew or should have known about the issue.
In addition, there is what is being referred to as the “dobbing
obligations” where BOQ has a duty to lodge a report with ASIC
where there are reasonable ground to believe there is reportable
conduct by a mortgage broker or financial advisor (in relation to
complex financial products sold to retail customers).
BOQ had a project team working to ensure compliance with
the new breach reporting regime. BOQ has provided training
to employees to ensure compliance with the new rules, and
implemented a refreshed approach, including GRC Tool
enhancements, to breach reporting to ensure the regulatory
requirements are achieved.
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BOQ AND CLIMATE CHANGE
Climate change is visibly impacting our customers, our people, our suppliers, and society more broadly.
We acknowledge these impacts and take action managing our climate related risks through scenario analysis, consideration of
outcomes into risk management and resilience activities, reducing our footprint by becoming a carbon neutral organisation, and
tracking the impact of our lending activities.
This year we elevated our climate scenario analysis that informs the resilience of our strategy by engaging with climate scientists
and other relevant experts.
Going forward, we will continue to evolve our assessment of climate risks and its impact on our business. This evolution includes
further integration of the outcomes of stress testing and scenario analysis into BOQ’s strategic response to climate related risks
and opportunities and the activities needed to support our customers through the transition to a low carbon economy.
We also see opportunity to influence the transition to a resilient low carbon economy by engaging with our customers and suppliers,
consistent with our purpose to create prosperity for our customers, shareholders and people through empathy, integrity and by
making a difference.
Climate risk position
BOQ accepts climate change is the product of human influence
and supports the transition to a net zero carbon economy in
alignment with the Paris Agreement to keep global warming
well-below 2 degrees Celsius and striving to limit warming to
1.5 degrees Celsius. The recent Intergovernmental Panel on
Climate Change (IPCC) report reinforces the urgency for both
governments and corporates to accelerate action to tackle
climate change as warming caused by greenhouse gas emissions
is increasing the rate of unprecedented disruption in every region
across the world. The impacts of climate change are increasingly
shaping investment flows, policy, and consumer behaviour.
Financial regulators including ASIC and APRA, through their
recent draft prudential guidance, have continued to highlight
climate-related risks as a potential source of financial risk to
the future stability and resilience of the financial system. As a
distributor of capital, we play a role in supporting the transition
to a lower carbon economy through our direct consumption
of resources and through our financing activities. We are
committed to advocating for and integrating strong climate
change action into all facets of our organisation.
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Responding to COVID-19
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Acquisition of ME Bank
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Value Creation and Strategy
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BOQ AND CLIMATE CHANGE (CONTINUED)
Governance
The Board and Risk Committee directly oversees BOQ’s climate-
related risks, opportunities and strategies and are responsible for
reviewing and approving respective climate-related objectives,
performance, goals, and targets. Progress on climate change
commitments and targets are reviewed by the Board on a
quarterly basis through our Sustainability Balanced Scorecard.
Updates to policy, regulatory, and liability responses to climate
change are reported to the Board and the Risk Committee on a
regular basis as needed.
The Board delegates the day to day management of environmental
and social risks and opportunities including climate change to the
Executive Team. The Executive Team are accountable for BOQ’s
actions and commitments to embed climate change into BOQ’s
business strategy and risk management.
The Sustainability Working Group (SWG) supports executive
management with the development and implementation of
climate initiatives and reporting requirements. The SWG is
made up of senior representatives across the Group who are
involved in the day to day management of climate change and
other sustainability matters. SWG members are responsible for
ensuring the leadership teams across the bank remain informed
on climate related issues and our progress on climate change
commitments and targets.
Board
The board is responsible for oversight of the Group’s
approach to and management of climate change
Risk Committee
Oversight of management of climate-related risks
Executive Team
Ultimately responsible for embedding
climate change into the Group’s risk
management and business strategy
Sustainability Working Group
Supports Executive Team with development
and implementation of climate initiatives
and reporting requirements
Risk management
Our processes for identifying and assessing climate-related
risks are integrated into multi-disciplinary company-wide risk
management activities with a focus on material credit and
operational risks.
We have updated our Risk Management Strategy (RMS) and
Risk Appetite Statement (RAS) to specifically address climate
and sustainability risk. These policies set out the Board’s
expectations regarding the degree of risk that BOQ is prepared
to accept. The RMS and RAS are updated annually, informed by
workshops to validate and prioritise our approach to climate
change risks. This process is supported by scenario analysis and
external climate consultants and scientists.
Scenario analysis is used to inform potential future exposure to
material climate risks and opportunities across business units
and locations. This provides insight into where climate change
mitigation and adaptation could be incorporated into our strategy
to support our customers as well as to capture commercial
opportunities and ensure our business operations are resilient.
The management of climate change is embedded in our
business through credit policies overseen by the Executive
Credit Committee such as the Ecological Care and
Sustainability Lending Policy to assess potential environmental
implications to credit risk. Credit risk operational activities are
assessed at a portfolio level as well as at an individual credit
exposure level on a case-by-case basis. Property valuations
take into account factors such as flooding and environmental
risk including insurance impacts 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. The climate scenario analysis is undertaken at
the portfolio level.
We are also continually monitoring trends, concerns,
publications, and actions that emerge from regulators and
investors through structured engagement and industry forums.
This allows BOQ to keep abreast of changes to climate-related
risks including compliance with any legislative or regulatory
obligations. We are continuing to evolve how we assess climate
risk and its impact on our business, which will include the
development of a Climate Change Risk Management Framework.
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BOQ AND CLIMATE CHANGE (CONTINUED)
Strategy
BOQ is committed to supporting Australia and our customers to transition to a low carbon and climate-resilient economy. Our
approach to climate change is informed by prioritised risks and opportunities. This has led to an initial set of commitments covering
BOQ’s operations and includes achieving carbon neutrality and sourcing 100 per cent renewable energy.
This year we have increased the sophistication of our climate scenario analysis by engaging with climate scientists and relevant experts to
better understand the potential financial-related impacts of key risks and opportunities, delivering on our prior year commitment.
With a focus on credit, liquidity market and operational risks, we have prioritised the below climate risks and opportunities over the short
term (0-5 years), medium term (10 years) and long term (20+ years), informing areas required for further climate scenario analysis.
Climate Risks (R) / Opportunities (O)
Timeframe
Potential impacts on BOQ customers and BOQ
Physical
Acute
R & O
Extreme weather events including
flooding associated with extreme rain,
cyclones, storms, and bushfires
Short to long term
Chronic
R
Long-term weather changes such as
rising temperatures, sea level rise and
drought
Long term
• Decline in value of assets due to impact
• Rise in insurance premiums or inability to obtain insurance
• Business disruption
• Devaluation of collateral
•
Increased expenses
• Reduced profitability
•
Increased arrears, hardship and impairments
Transition
Policy
R
R
Government climate policies (e.g.
carbon taxes and cross border tariffs)
Short to
medium term
• Reduced market competitiveness
•
•
Increased operating costs/ complexity
Increased credit risk
Increased climate regulation for
financial institutions
Short term
• Enhanced reporting and compliance obligations
Technology
R & O
Transition to renewable energy,
lower emissions technology, and
electrification
Short to
medium term
Market
Increased / decreased costs
Increased / decreased profitability
•
•
• Obsolete assets
•
Increased / decreased credit risk
R
Disruption of carbon intensive industries
and associated value chains
Short to
medium term
O
Growth of low carbon sectors
Short to long term
• Obsolete assets
• Devaluation of collateral
•
Increased arrears, hardship and impairments
Increased profitability
•
• Reduced carbon intensity of loan book
R & O
Shift in demand for services
and products
Short to
medium term
•
•
Increase/ decrease of customers and income
Increased costs/ complexity from new products
Reputation
Increased climate risk focus
from investors
Short to
medium term
•
Increased/ decreased cost of capital
Alignment with customer and employee
values on climate change
Short to
medium term
• Higher productivity, increased ability to retain and attract talent
•
Increase/ decrease of customers and income
R & O
R & O
Liability
R
Increased stakeholder activism/ litigation
against organisations demonstrating
insufficient climate action
Short to
medium term
• Business disruption, increased costs
• Director liability
• Reputational damage
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Responding to COVID-19
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Acquisition of ME Bank
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Value Creation and Strategy
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BOQ AND CLIMATE CHANGE (CONTINUED)
Climate scenario analysis
In FY21 we expanded our scenario analyses of climate risks to include physical risks from climate extremes to BOQ’s residential lending
portfolios across (including ME Bank) and the BOQ Business property and construction portfolios.
We also enhanced our transition risk analysis of commercial lending and asset finance and leasing across BOQ, BOQ Finance, and, BOQ
Specialist to assess risks and opportunities from disruption of carbon intensive sectors, and growth of low carbon sectors.
The scenario analysis evaluated the impact of both physical and transition risk to BOQ in line with the latest industry guidance and
best practice, utilising reference scenarios sourced from global sources including:
• IPCC to describe plausible physical climate futures resulting from global Representative Concentration Pathway (RCPs); and
• Network for Greening the Financial System (NGFS) transition pathway scenarios to assess the impact of climate-related transition risks.
Physical Risk
Climate Extremes
Transition Risk & Opportunities
Growth of low carbon sectors or disruption of carbon intensive sectors
Businesses and
portfolios
Residential portfolio across all
BOQ brands
Commercial lending and asset finance and leasing across BOQ,
BOQF and BOQS
BOQB property and
construction portfolio
Risks Assessed
Extreme heat
Extreme rain
Very high fire days
Cyclones and east coast lows
Extreme sea level events
Chronic temperature and sea level rise
Change in exposure to transition risk estimated as the additional costs
upon a sector as a result of its direct and indirect emissions from a
carbon price under the relevant scenario
Approach
BOQ’s portfolio was mapped on a postcode
scale nationally.(1) These locations were
overlayed with multi-model averaged future
climate change projections from publicly
available regional (5 km scale) and global
(~100 km scale) climate model datasets, and
peer reviewed literature
Using downscaled Australian-level data from global NGFS models,
in addition to Australian statistics regarding emissions and industry
value added. Calculated the change in sectoral emissions and
additional costs upon a sector as a result of its direct and indirect
emissions from a carbon price(2) under different scenarios. BOQ’s
financial sectoral exposure is overlaid to infer the implications for the
bank. The composition of sectoral exposure was held constant for the
purposes of the analysis.
Timeframe
2030, 2050
2030, 2040, 2050
Reference
scenarios
Strong climate action (RCP4.5)
NGFS:
No global climate action (RCP8.5)
Orderly
- Below 2°C – (2°C aligned)
- Net Zero 2050 - (1.5°C aligned)
Disorderly
- Delayed Transition - (2°C aligned)
- Divergent Net Zero - (1.5°C aligned)
Metrics
considered
Number of days over 35°C annually
Industry value added
1-in-20yr wettest day rainfall
Sectoral emissions
Number of days annually where the
Forest Fire Danger Index exceeds 25
(very high rating)
Cyclone intensity, frequency and land
rainfall rate
1-in-100yr Extreme sea level events
Carbon price
(1) Assessment includes 85% of BOQ’s total credit risk.
(2) Scenario analysis process uses a carbon price as a representation of a suite of policies and regulations which may or may not be purely financial.
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BOQ AND CLIMATE CHANGE (CONTINUED)
Climate scenario analysis (continued)
Physical risk scenario analysis insights
Prolonged exposure to hotter temperatures, and extreme temperature events such as widespread drought and heatwaves, extreme
rainfall events and rising sea levels can damage property and reduce health and liveability. Severe weather and long-term changing
weather patterns may reduce collateral values thereby increasing credit risk via a higher loss given default or result in loss of asset values
and increase volatility. Moreover, macroeconomic shocks may increase liquidity risk. It is expected there will be future changes in physical
climate hazards (extreme rain, heat, fire and sea level events) across BOQ’s residential and construction portfolio assets.
Figure 1 shows the concentration of assessed collateral by postcode. The highest concentration of collateral is located on the north to
south-east QLD coast, central and south-east NSW coast and metropolitan Victoria. While the ME Bank has diversified the geographic
spread of BOQ, all states in the portfolio are at risk to increasing frequency of one or more climate hazards.
Low
High
Figure 1: Concentration of BOQ’s Portfolio
NT - 1%
WA - 11%
QLD - 33%
NSW - 25%
ACT - 4%
VIC - 22%
SA - 3%
TAS - 2%
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Responding to COVID-19
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Acquisition of ME Bank
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Value Creation and Strategy
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BOQ AND CLIMATE CHANGE (CONTINUED)
Climate scenario analysis (continued)
Physical risk scenario analysis insights (continued)
Scenario analysis found increases in extreme rain are likely to be experienced across Australia. Changes are non-uniformly
distributed across time and spatially. Figure 2 shows the projected future change in the intensity of the 1-in-20 year extreme rainfall
across BOQ’s portfolio under a strong climate action (RCP4.5) and no global climate action (RCP8.5) scenario.
Figure 2: Future change in the 1-in-20yr extreme rainfall in 2030 compared to (1986-2005)
30mm
decrease
100mm
increase
RCP4.5
RCP8.5
2030
2050
2030
2050
By 2030 under RCP8.5 the annual average temperature in Australia is projected to increase by 0.6-1.3°C above the mean temperature
and extreme heat risk similarly increases. Extreme heat conditions can disrupt construction labour and change soil structure. The
scenario analysis found that the BOQB property and construction portfolio is projected to experience at least 7 additional hot days
over 25°C annually across inland NT, SA, WA, NSW and QLD portfolios.
A warmer and drier climate provides favourable conditions for increases in bushfire risk. Models project that under RCP8.5 in 2030, the
majority of the NT, SA and WA portfolios will experience at least an additional 6 days of very high fire danger (Figure 3).
Figure 3: Future change in very high fire days annually compared to (1986-2005)
0 Days
RCP4.5
> 30 Days
RCP8.5
2030
2050
2030
2050
Our strategy and risk management framework has controls in place to ensure we appropriately manage physical risks. An important
mechanism in ensuring our exposure to physical climate risk remains low is our customers maintaining insurance protection in
accordance with their lending contracts.
In the longer term, insurance affordability or inability to insure will need to be tracked in addition to enhanced consideration of potential
flood and other hazards at loan origination.
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BOQ AND CLIMATE CHANGE (CONTINUED)
BOQ AND CLIMATE CHANGE (CONTINUED)
Climate scenario analysis (continued)
Transition risk scenario analysis insights
Some sectors are likely to face significant challenges because of their current high emissions intensity and the rapid rate of
decarbonisation needed under low emissions scenarios. BOQ’s lending portfolio has no exposure to fossil fuel power generation and
minimal direct exposure to fossil fuels extraction.
BOQ’s business lending portfolios have minimal exposure to sectors with greater than 50 per cent of exposure to transition risk under
the most ambitious disorderly decarbonisation scenario.
Sectors contributing to the provision of clean energy are expected to thrive under the scenarios. Opportunity sectors exist in
industries aligned with BOQ’s portfolio including agri-tech, bioenergy, critical minerals and carbon forestry.
More than 70 per cent of BOQ’s business lending portfolio is exposed to sectors with a minimal impact (<10 per cent of sectoral
exposure) from the additional costs expected to be incurred during a transition to net zero emissions under both orderly and disorderly
1.5˚C and 2.0˚C scenarios at 2030, 2040 and 2050.
Industries including agriculture, non-metallic mineral product manufacturing and waste collection and disposal services are likely to
face transition challenges despite their products remaining in demand. BOQ’s behavioural loan term for these sectors is generally
short providing an opportunity to re-assess and support our customer’s transition at renewal points.
BOQ’S BUSINESS LENDING (1) PORTFOLIO EXPOSURE TO TRANSITION RISK UNDER AN ORDERLY 2°C SCENARIO.
Sectors
Current Portfolio
Sector Exposure due to transition to low carbon
economy under orderly 2ºC Scenario
Professional Services and Real Estate
Accommodation and Health Services
Construction
Agriculture
Manufacturing and Mining
Transport
Other
Total
$m
4,850
3,617
2,003
1,232
779
843
2,509
15,833
%
31%
23%
13%
8%
5%
5%
16%
100%
2030
0%
1%
1%
25%
5%
4%
1%
2040
0%
1%
1%
25%
5%
4%
1%
2050
0%
1%
1%
23%
4%
4%
1%
(1)
Includes commercial and asset financing from BOQB, BOQS, and BOQF.
The table above shows sectors exposure due to the transition to a low carbon economy under an orderly 2˚C scenario and our
proportionate credit exposures in our business lending portfolio. Under an orderly 2˚C scenario BOQ’s portfolio has low exposure to high
emitting sectors. The projected risk identified may not necessarily be realised for all customers within the sector. Customer level impacts
will likely be realised based on unique exposures from geography, asset type, diversity, and operations of business models therein.
Future scenario analysis
The results from our scenario analysis work inform where to best prioritise mitigation and adaptation options whilst simultaneously
harnessing the opportunities identified. The focus of our scenario analysis will evolve as our understanding of the impact of climate risks
and opportunities on ourselves and our customers matures.
Climate risk scenario analysis and climate vulnerability analysis is a developing area and BOQ’s approach will evolve and mature over time.
Areas for further refinement include enhancing our understanding of the interaction between physical climate risks, property
damage and the resilience of construction, and insurance including underinsurance and noninsurance and subsequent impacts
on credit stress testing.
We also see opportunity to continue to collaborate with broader industry groups to ensure the best outcomes for our customers
and communities.
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Responding to COVID-19
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Acquisition of ME Bank
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Value Creation and Strategy
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BOQ AND CLIMATE CHANGE (CONTINUED)
Targets & Metrics
Industry exposures
The table below outlines the proportionate credit exposures of lending activities.
Credit Risk
Sector
Residential Mortgages
Property & Construction
Healthcare
Professional Services
Agriculture
Transportation
Manufacturing & Mining
Hospitality & Accommodation
Other
Total (1)
Per Balance Sheet (2)
FY21
FY20
% of Total
Exposure
78.5%
7.5%
4.0%
1.9%
1.6%
1.1%
1.0%
0.8%
3.5%
100.0%
$m
59,053
5,627
3,017
1,453
1,232
843
779
622
2,598
75,244
75,748
% of Total
Exposure
66.9%
10.8%
7.1%
2.7%
2.4%
1.6%
1.7%
1.3%
5.4%
100.0%
$m
31,155
5,046
3,305
1,272
1,105
750
788
618
2,522
46,560
47,043
The acquisition of ME Bank has significantly shifted proportional exposures to residential lending. This shift highlights the need for
continued enhancement of data and risk management processes to help pinpoint risks and impacts such as improving our geo-
locational data mapping to better understand potential physical impacts and increasing our understanding of which mortgage
customers may be exposed to high risk industries.
Financed emissions
BOQ recognises that measuring financed emissions is an
important consideration in managing climate related risks
and opportunities.
In FY21 the carbon intensity of the loan (3) book was 0.25kg
of CO2-e per $1 loaned, a reduction of 19 per cent(4) largely
driven by the shift in portfolio mix from the increase in
residential exposures resulting from the integration of
ME Bank and improvements in the method to estimate
residential lending emissions.
Residential and commercial property makes up 86 per
cent of our credit risk exposure and comprises 54 per cent
of the carbon emissions from our lending portfolio as at
August 2021.
4%
4%
8%
3%
5%
14%
27%
BOQ Group
Lending
% of emissions
by sector (1)
9%
27%
Residential
Mortgages
Professional
Services
Manufacturing
& Mining
Property &
Construction
Hospitality and
Accommodation
Healthcare
Agriculture
Transport
Other
(1) Due to rounding, numbers presented may not add up to the totals provided.
(2) This includes unearned income reallocated in Credit Risk and the balance of credit cards, overdrafts and personal loans.
(3) Financed emissions calculations include estimates greenhouse gas emissions associated with residential mortgages, commercial loans and asset financing.
(4) The FY20 carbon intensity of the loan book has been revised to 0.31 kg of CO2-e per $1 loaned.
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Climate related targets
BOQ is committed to cease funding equipment directly involved
in the extraction of fossil fuels by 2024. As at 31 August 2021,
our exposure to this industry was $12.7 million representing 0.01
per cent of lending.
In FY21 we have taken action by becoming a carbon neutral
organisation and joining the Australia Government Climate
Active certification programme. The BOQ certification
includes operations and supply chain contribution from BOQ
Retail (including branches), Virgin Money Australia, BOQ
Business and BOQ Finance, and BOQ Specialist. ME Bank has
a separate Climate Active certification. The BOQ and ME Bank
certifications will be integrated in 2022.
We are well progressed with our commitment to source 100
per cent of our operational electricity from renewable sources
by 2025. The Sustainability Working Group has endorsed the
Renewable Energy Strategy and by the end of FY22 BOQ intends
to operate its major Brisbane, Sydney and Melbourne support
centres on renewable electricity.
BOQ AND CLIMATE CHANGE (CONTINUED)
Targets & Metrics (continued)
Operational Greenhouse Gas Footprint
In FY21 we have met our ambition to be carbon neutral across
our operations. By becoming a carbon neutral organisation we
have achieved a balance between the greenhouse gas emissions
associated with running our business and the emission
reduction activities we support.
We have looked to reduce emissions associated with fuel and
electricity consumption, and emissions in the BOQ supply chain
including embodied emissions from data centres, IT software
and hardware, office equipment, furniture, legal & insurance,
and consultants supporting BOQ strategy and head office
operations. The reduction in greenhouse gas emissions between
FY20 and FY21 has been largely driven by a combination of
transient COVID-19 related savings (lowering consumption of
electricity and reducing staff commuting) and lower indirect
supply chain related emissions.
BOQ will reduce operational emissions through our
commitment to purchase 100 per cent of our operational
electricity from renewable sources by 2025, exploration of low
emissions fleet options, and implementation of a Supplier Code
of Conduct that allows for climate engagement. While we work
towards minimising our footprint BOQ supports accredited
projects that reduce emissions and produce verified offsets.
More details of the offsets our use of offsets can be found in
our FY21 Sustainability Report on page 20.
Greenhouse gas
emissions (tCO2-e) (1)
Scope 1
Scope 2
Scope 3
Total
FY21
FY20
Change
248
252
(2%)
4,521
5,007
(10%)
29,702
36,944
(20%)
34,470
42,203
(18%)
(1) Emissions estimates are calculated in accordance with the GHG Protocol using the factors consistent with Climate Active carbon neutral program. Emission estimates
exclude ME Bank. BOQ and ME Bank emission estimates will be integrated in 2022.
Scope 1 includes direct emissions from transport fleet. Scope 2 includes electricity purchased. Scope 3 includes purchased goods and services, capital goods, fuel and
energy-related emissions from fuel extraction, waste generated in operations, business travel, employee commuting, and working from home. Due to rounding, numbers
presented may not add up to the totals provided.
69
GOVERNANCE AND RISK MANAGEMENT2021 Annual Report
About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
OUR APPROACH TO CORPORATE GOVERNANCE
BOQ continues to focus on enhancing our governance and risk management practices to meet the expectations of our stakeholders.
Further details on our Corporate Governance policies and practices are set out in our Corporate Governance Statement which has been
prepared in accordance with the ASX Corporate Governance Council’s Corporate Governance Principles & Recommendations (4th edition).
The FY21 Corporate Governance Statement can be viewed at boq.com.au/2021.
Corporate governance framework
BOQ’s Board is responsible for setting the strategy and risk appetite of the Bank and for leading the culture and values for our people. The
Corporate Governance framework sets out how the Board delegates to Management and provides oversight and governance of key decisions.
Shareholders
BOQ Board
Investment
Committee
Audit
Committee
Nomination &
Governance
Committee
Risk
Committee
People,
Culture &
Remuneration
Committee
Transformation
& Technology
Committee
(Previously known as
Information Technology
Committee)
Board Reserved Powers and Delegation of Authority Policy
Chief Executive Officer
Group Executive Committee
Board areas of focus
During FY21 the Board and its Committees have focused on 10 key strategic, governance and oversight activities:
1 Customer experience oversight
5 Digital transformation
8 Financial & non-financial
• Continue to improve the
customer experience and delight
our customers every day
• Commitment to a three-year technology
uplift program (supported by the
November – December 2019 capital raise)
• Focus on the customer voice in
• Focus on: (1) the modernisation of
all Board decisions
2 Strategy
• Ensuring a clear strategy is in place with
disciplined execution
• Successful ME Bank acquisition,
strategically aligned
• Reimagining our long term vision and new
options for growth
3 Culture
• Cultural transformation underway with
purpose and values of empathy, integrity
and making a difference being embedded
Improving employee engagement,
empowerment and accountability
•
4 Building a Sustainable business
• Achieved carbon neutral certification
• Key sustainability targets incorporated
in risk management framework
infrastructure, (2) moving to a cloud
based digital banking platform and (3)
automating processes
• By FY23 we aim to have implemented
c.$90 million of productivity benefits
6
Leadership & talent
• Focused on an uplift in leadership & talent
to drive our success
• Oversight of programs to enhance
the calibre of the leadership
team and our people, including
development and retention
7 Business Performance Oversight
• Continuous improvement in our financial
performance, growing EPS and ROE
• Delivering against our
transformation program
• Pathway to delivering a scalable operating
model, lowering our cost to income ratio
risk oversight
• Strengthening & embedding our risk culture
• Management of the business within our
risk framework with optimal growth
• Regulatory compliance
9 Capital management
• Prudent capital management to protect
deposit holders, debt security holders and
shareholder interests
• ME Bank acquisition successfully funded
via a $1.35 billion capital raising
10 Future-Fit Board
• Board composition reviewed with Board
renewal program to be complete by the
2021 AGM
• Board refresh focused on building a
diverse and contemporary Board with the
appropriate mix of skills, high emotional
intelligence and intellectual curiosity
• Strong presence in the business
with increased interactions with key
stakeholders including our people,
regulators and investors
70
GOVERNANCE AND RISK MANAGEMENTBank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
BOARD OF DIRECTORS
Patrick Allaway
BA, LLB
George Frazis
B. Eng (Hons), MBA
Managing Director and
Chief Executive Officer
since September 2019.
Independent non-
executive director since
May 2019. Chairman since
October 2019. Chair,
Investment Committee
and Nomination &
Governance Committee.
Member Transformation
& Technology, People,
Culture & Remuneration,
Audit and Risk
Committees.
Bruce Carter
B Econ, MBA, FAICD,
FICA
Independent non-
executive director since
February 2014. Chairman
Risk Committee, Member
Audit, Transformation &
Technology, Investment,
People, Culture &
Remuneration and
Nomination & Governance
Committees.
Deborah Kiers
B Sc (Hons), MPA,
MAICD
Independent non-
executive director since
August 2021. Member
Transformation &
Technology, Risk, People,
Culture & Remuneration,
Audit and Nomination &
Governance Committees.
John Lorimer
B Com
Warwick Negus
B Bus, M Com, SF Fin
Karen Penrose
B Com, CPA, FAICD
Mickie Rosen
BA, Economics, MBA
Independent non-
executive director since
January 2016. Member
Transformation &
Technology, Risk, People,
Culture & Remuneration,
Audit and Nomination &
Governance Committees.
Independent non-
executive director since
September 2016. Chair
People, Culture
& Remuneration
Committee,
Member Audit, Risk,
Transformation &
Technology, Investment
and Nomination
& Governance
Committees.
Independent non-
executive director since
November 2015. Chair
Audit Committee,
Member People, Culture
& Remuneration, Risk,
Transformation &
Technology, Investment
and Nomination &
Governance Committees.
Independent non-
executive director
since March 2021.
Chair Transformation
& Technology. Member
Risk, People, Culture &
Remuneration, Audit and
Nomination & Governance
Committees.
71
For the year ended 31 August 2021DIRECTORS’ DETAILS2021 Annual Report About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
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 2021 and the independent
auditor’s report thereon.
The Directors of the Bank at any time during or since the end of the financial year are:
Name, qualifications &
independence status
Patrick Allaway
BA/LLB
Chairman
Experience, special responsibilities and other Directorships
Mr Allaway was appointed as a Non-Executive Director of the Bank in May 2019 and was appointed
Chairman on 18 October 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.
Mr Allaway brings over 30 years of 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, Country Road Group, and Nine Entertainment Co. Mr Allaway chaired the Audit &
Risk Committees for Metcash, David Jones, and Country Road Group.
Mr Allaway is currently a Non-Executive Director of Allianz Australia and Dexus Funds Management
Limited and a member of the Adobe International Advisory Board. He chairs BOQ’s Investment and
Nomination & Governance Committees and is member of the People, Culture & Remuneration,
Transformation & Technology, Audit, and Risk Committees.
George Frazis
B. Eng. (Hons), MBA
Managing Director &
Chief Executive Officer
Mr Frazis joined BOQ as Managing Director and CEO in September 2019 and has over 26 years of
corporate experience.
Mr Frazis has a long history in Banking and Finance, having worked in the industry for the past 17
years. Most recently he was Chief Executive of Westpac Group’s Consumer Bank. Prior to that Mr
Frazis was CEO, St. George Banking Group and Chief Executive, Westpac New Zealand Limited.
Mr Frazis has held senior executive roles at National Australia Bank, Commonwealth Bank of Australia,
as well as Air New Zealand. He started his career as an officer in the Royal Australian Air Force.
72
For the year ended 31 August 2021DIRECTORS’ DETAILSBank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
Name, qualifications &
independence status
Bruce Carter
B Econ, MBA, FAICD,
FICA
Non-Executive
Independent Director
Deborah Kiers
B.Sc (Hons), MPA, MAICD
Non-Executive
Independent Director
John Lorimer
B Com
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Carter was appointed 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 the Australian Submarine Corporation, Aventus Capital Limited and One Rail Australia
Boards, and a Non-Executive Director of Crown Resorts Limited, AIG Australia Limited, and Sage
Group Holdings Limited.
Mr Carter is Chair of the Risk Committee and a member of the Audit, Transformation & Technology,
Investment, People, Culture & Remuneration, and Nomination & Governance Committees.
Ms Kiers was appointed as a Non-Executive Director of the Bank on 5 August 2021.
Ms Kiers previously acted as a Director of ME Bank since July 2020 and acted as Chair of the ME Bank
Board’s People and Culture sub-committee and as a member of the Risk and Compliance Committee.
Ms Kiers brings over 30 years of strategic, advisory and consulting experience to boards and executive
management teams across a wide range of industries including Financial Services, Energy and Resources,
Industrials, Property, Infrastructure and Regulated Utilities, both in Australia and internationally.
As Managing Director of JMW Consultants (Asia Pacific), Ms Kiers’s support for companies included
strategic advice, business model transformations, M&A integration, leadership transition and
development for CEOs, executive teams and board directors, as well as building synergies between
culture, performance and remuneration strategies.
Ms Kiers is currently a Non-Executive Director for IFM Investors and holds the position of Chair of the
IFM Board Responsible Investment and Sustainability Committee and is a member of the Board Audit
and Risk Committee. Ms Kiers is also a Non-Executive Director of the Tiverton Agriculture Impact Fund.
Ms Kiers is a member of the Audit, Risk, Nomination & Governance, People, Culture and
Remuneration, and Transformation & Technology Committees.
Mr Lorimer was appointed 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).
In addition, Mr Lorimer was a Non-Executive Director of Aberdeen New Dawn Investment Trust plc and
International Personal Finance plc.
Currently, Mr Lorimer is a Non-Executive Director of Bupa Australia Pty Ltd and Bupa Aged Care
Holdings Pty Ltd, and is Chairman of Bupa (Asia) Ltd.
Mr Lorimer a member of BOQ’s Transformation & Technology, Risk, People, Culture & Remuneration,
Audit, and Nomination & Governance Committees.
73
For the year ended 31 August 2021DIRECTORS’ DETAILS2021 Annual Report About BOQ
12
|
Responding to COVID-19
14
|
Acquisition of ME Bank
15
|
Value Creation and Strategy
16
Name, qualifications &
independence status
Warwick Negus
B Bus, M Com, SF Fin
Non-Executive
Independent Director
Karen Penrose
B Com, CPA, FAICD
Non-Executive
Independent Director
Mickie Rosen
B.A., Economics, MBA
Non-Executive
Independent Director
Experience, special responsibilities and other Directorships
Mr Negus was appointed 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.
Mr Negus is Chair of Pengana Capital Group and a Non-Executive Director of Washington H Soul
Pattinson & Co Ltd, Dexus Funds Management Limited, Virgin Australia Holdings Pty Ltd and Terrace
Tower Group. He is a member of the Council of UNSW and Chair of UNSW Global Limited.
Mr Negus is Chair of the People, Culture & Remuneration Committee and a member of the Audit, Risk,
Transformation & Technology, Investment, and Nomination & Governance Committees.
Ms Penrose was appointed a Non-Executive Director of BOQ on 26 November 2015.
Ms Penrose is an experienced non-executive director and banker. As a banker, Ms Penrose has 20
years of experience leading businesses within Commonwealth Bank of Australia and HSBC and
over ten years in accounting and finance roles. Ms Penrose has particular expertise in the financial
services, health, property, resources and energy sectors. Ms Penrose is a Non-Executive Director
of Vicinity Centres Limited, Ramsay Health Care Limited, Estia Health Limited and Rugby Australia
Limited. Ms Penrose was formerly a Non-Executive Director of AWE Limited, Spark Infrastructure
Group, 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 the People, Culture & Remuneration,
Risk, Transformation & Technology, Investment, and Nomination & Governance Committees.
Ms Rosen was appointed a Non-Executive Director of BOQ on 4 March 2021.
Ms Rosen has three decades of strategy, operating, advisory, and board experience across media,
technology, and e-commerce. She has built and led global businesses for iconic brands such as Yahoo,
Fox, and Disney, as well as early-stage companies including Hulu and Fandango.
Ms Rosen is also a Non-Executive Director of Nine Entertainment Co and Ascendant Digital Acquisition
Company in the United States. Until recently, Ms Rosen served on the board of Pandora Media and was
the President of Tribune Interactive, the digital arm of Tribune Publishing, and was concurrently the
President of the Los Angeles Times. Ms Rosen commenced her career with McKinsey & Company, is
based on the West Coast of the United States, and holds an MBA from Harvard Business School.
Ms Rosen currently chairs the Transformation & Technology Committee and is a member of the Risk,
People, Culture & Remuneration, Audit, and Nomination & Governance Committees.
74
For the year ended 31 August 2021DIRECTORS’ DETAILSBank of Queensland Limited and its Controlled Entities Financial Performance 20
|
Governance and Risk Management 55
|
Directors’ Details 71
Company Secretaries
Fiona Daly
LLB, LLM, AGIA, ACG, 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.
Nicholas Allton
LLB LLM, GAICD
Mr Allton joined BOQ as Group General Counsel and Company Secretary on 1 February 2021. Nicholas has more than 27 years’
experience across Financial Services, including 11 years in private practice for top-tier Australian, English and US firms. Prior to joining
BOQ, Nicholas held the role of Group General Counsel and Company Secretary at MLC and spent 15 years working across a number of
senior roles within the Macquarie Group.
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
People,
Culture &
Remuneration
Committee
- BOQ & St
Andrews
Transformation
& Technology
Committee (1)
Investment
Committee
Due
Diligence
Committee
Tenure as at
31 August
2021
6/6
8/8
2/2
6/6
5/5
2/2
14/14
21/21
21/21
20/21
1/1
21/21
20/21
Patrick
Allaway
George
Frazis
Bruce
Carter
Deborah
Kiers (2)
John
Lorimer
Warwick
Negus
Karen
Penrose
Mickie
Rosen (3)
Kathleen
Bailey-
Lord (4)
6/6
8/8
2/2
0/0
1/1
0/0
6/6
8/8
6/6
8/8
2/2
2/2
2/2
1/1
6/6
0/0
6/6
6/6
6/6
2/2
5/5
1/1
5/5
5/5
5/5
3/3
2/2
13/14
2/2
14/14
2/2
14/14
21/21
9/9
6/6
8/8
6/6
3/3
4/4
20/20
6/6
7/7
2/2
6/6
4/4
Michelle
Tredenick (5)
6/6
2/3
3/4
1/1
4/4
2/2
Information Technology Committee changed its name to Transformation & Technology Committee effective 26 November 2020.
(1)
(2) Deborah Kiers appointed as a Director on 5 August 2021.
(3) Mickie Rosen appointed as a Director on 4 March 2021.
(4) Kathleen Bailey-Lord ceased as a Director on 5 August 2021.
(5) Michelle Tredenick ceased as a Director on 8 December 2020.
2 years,
4 months
2 years
7 years,
6 months
1 month
5 years,
7 months
4 years, 11
months
5 years, 9
months
6 months
2 years, 3
months
9 years, 9
months
75
For the year ended 31 August 2021DIRECTORS’ DETAILS2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
CONTENTS
78
80
81
88
Section 1.
Remuneration Snapshot
Section 2.
Key Management Personnel (KMP)
Section 3.
Remuneration Outcomes
Section 4.
Remuneration Strategy and Structure
Dear Shareholder,
Introduction
At BOQ, our ambition is to be known as the bold challenger bank
with multi-brands that are digitally enabled with a personal
touch. Achieving this ambition is dependent on the successful
delivery of our strategy, which is dependent on our people,
culture and remuneration settings.
On behalf of the Board I am delighted to present the Remuneration
Report for the period 1 September 2020 to 31 August 2021 (FY21)
and share with you our progress and achievements against our
people & culture and organisational strategies.
FY21 performance
FY21 performance was compelling, led by strong financial
returns; quality, above system growth in mortgages; good
margin management; and execution of strategic projects such
as the launch of the Virgin Money digital bank. These results
were achieved whilst also successfully acquiring ME Bank,
raising capital and undertaking a 90 day sprint to accelerate the
integration program for the two organisations.
FY21 remuneration changes
In last year’s Report we shared a summary of our new Senior
Executive Remuneration Framework (the Framework), which
took effect on 1 September 2020. The introduction of the
Framework, which includes fixed reward (FR) and a total
variable reward opportunity comprising Performance Shares
and Premium Priced Options is focused on alignment with
shareholders, balanced measures of performance and long term
deferral. As part of the transition to the new Framework, Senior
Executives no longer have any cash incentives. Instead, 100 per
cent of their variable at-risk reward, which is a fixed percentage
of FR, is awarded in equity and deferred over multiple years. This
significantly increases the alignment between the interests of
Senior Executives and shareholders.
After the 2020 Annual General Meeting (AGM), Senior
Executives were awarded grants of Performance Shares and
Premium Priced Options.
Performance Shares differ from traditional short-term incentives
that typically involve a combination of cash and shares, and where
the outcome varies within a range, often dictated by complicated
formulae. Performance Shares are granted as Rights, with each
Senior Executive being awarded a fixed percentage of their FR at
the beginning of the financial year. The Rights convert to Restricted
Shares at the completion of the financial year, based on an
assessment undertaken by the Board. Upside is determined by the
continued performance of the business throughout the financial
year, and by share price growth in future years, until vesting.
90
94
95
Section 5.
Remuneration Governance
Section 6.
Non-Executive Director (NED) Remuneration
Section 7.
Statutory Tables
Whilst in most years it is expected that management will achieve
a conversion of Rights into Restricted Shares, the outcome can be
varied up or down should exceptional or threshold performance,
both financial and non-financial, dictate.
Premium Priced Options have a single performance hurdle - an
exercise price that is 120 per cent of the share price after the
AGM in December. This aligns the interests of Senior Executives
with those of Shareholders, as participants derive zero value
unless the share price at vesting (four and five years from grant)
exceeds the exercise price. The BOQ share price is determined
by financial performance, effective risk management, and other
non-financial factors (including reputation, customer growth
and future outlook).
FY21 remuneration outcomes
Fixed reward for Senior Executives is set based on a
combination of the executive’s experience and capability,
competitiveness relative to the financial services sector and
similarly sized ASX listed companies, and internal relativities.
Ewen Stafford, our Chief Financial Officer and Chief Operating
Officer was our only Senior Executive to receive a fixed reward
increase during FY21.
Remuneration outcomes for FY21 reflect a range of relevant factors:
• the Group’s performance in relation to the five strategic
priorities in the Group Scorecard and achievement of the
Board-approved financial and non-financial measures;
• Senior Executive contribution to the Group Scorecard
performance and progress toward the achievement of our
strategic priorities;
• explicit consideration of risk events, behaviours and
outcomes based on input from the Chief Risk Officer and
Board Risk Committee;
• the additional demands and expectations of M&A activity
alongside the challenges of an ongoing pandemic; and
• the experience of our shareholders during the year in terms of
share price and dividends.
The Board assessed performance against the Group
Scorecard as Exceeds. This outcome, combined with separate
consideration of risk, resulted in the 100 per cent conversion of
Performance Shares awarded at the start of FY21 to Restricted
Shares for all continuing Senior Executives.
The Board has considered the feedback provided regarding
transparency in relation to the Group Scorecard and greater
disclosure of the FY21 Group Scorecard is provided in this Report.
76
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
The performance hurdles for the FY17 long-term incentive
(LTI) grant of Performance Award Rights (PARs) were tested
in December 2020. Results for both measures, relative Total
Shareholder Return (rTSR) and relative Earnings per Share
(rEPS), were below the minimum performance threshold. As a
result, the FY17 grant of PARs lapsed in full. Whilst PARs are no
longer offered by the Group, awards from FY18 and FY19 remain
on-foot, to be tested in FY23 and FY24 respectively.
To encourage alignment between employees and shareholders
and to promote ownership across the employee population, BOQ
offered a tax-exempt employee gift share plan, which we refer
to as ThankQ Shares, for the first time during FY21. The ThankQ
Share Plan was offered to eligible employees who would generally
not participate in other forms of equity-based remuneration
and saw approximately 1,600 employees receive $1,000 in BOQ
shares. At BOQ, we have a focus on encouraging employee
equity ownership, and permanent employees are given the
opportunity to become shareholders either through equity-based
remuneration or employee share plans.
FY22 remuneration
After two years in the role, the fixed reward of our Managing
Director & Chief Executive Officer was benchmarked and
increased from $1.3 million to $1.5 million, effective from 1
September 2021. Two other Senior Executives also received
increases in their fixed reward from 1 September 2021 - the Chief
Information Officer and Group Executive, People & Culture.
The FY22 Group Scorecard continues to focus our Senior
Executives on achieving the Group’s strategy and fulfilling our
ambition. The collective performance of Senior Executives, and
the conversion of Performance Shares granted in FY22, will be
assessed against this.
Non-executive Director (NED) fees were increased effective 1
September 2021; this represents the first increase to NED fees
since FY14. A reduction to the number of NEDs (from 10 at the
beginning of FY20 to 7 effective from the 2021 AGM) ensures
that the total fees payable for FY22 will remain within the
shareholder approved fee pool of $2.8 million.
ME Bank acquisition
The acquisition of ME Bank on 1 July 2021 saw the Group
welcome around 1,200 new team members and expanded our
employee ranks to around 3,500. Part of the appeal of ME Bank
as an investment for the Group was its cultural alignment and
we are strengthened by the addition of so many dedicated and
customer-centric team members.
Our people are responsible for the success to date, having delivered
consistently through all stages of the M&A process, to completion
on 1 July 2021 and we are now progressing well on integration.
Looking ahead, the program of work required for successful
integration will primarily be completed within 18 months, with the
balance of the integration activities to be incorporated into the
Group’s broader Transformation program at that time.
As part of the capital raising for the ME Bank acquisition,
employee shareholders were offered participation, consistent
with all other retail shareholders. Many employees took up that
offer. The equity incentive plan rules confer on the Board the
power to extend eligibility to participate in an entitlement offer
to employees, Senior Executives, and NEDs who hold Rights to
BOQ shares. After consideration, despite the possible dilution
impact on our employee rights holders, the Board determined
not to extend this eligibility. The Board also determined that,
although the ASX Listing Rules allow us to do so, the exercise
price on the Premium Priced Options would not be reduced.
People & culture strategy
Following the FY20 launch of a cultural change program
designed to ensure that we have the right organisational
conditions to support the delivery of the Group strategy, we
launched the Achievement Approach in FY21. The Achievement
Approach brings together career planning, development, and
performance. By focusing on achievement, we empower our
people to pursue personal and professional success, which in
turn contributes to our success as a Group.
Highlights observed during the FY21 roll-out of the
Achievement Approach include a meaningful improvement to
the number of our people with documented performance goals
in place at the beginning of the performance period (meaning
our people commenced FY21 with clarity of priorities and
expectations); showcasing the diverse career paths of a broad
group of BOQ employees; and the roll-out of two signature
capability programs, Coaching for Achievement and Wellbeing
and In the Moment Feedback.
Two Pulse surveys were conducted in FY21 and we were pleased
to see improvements to employee sentiment in the areas of
engagement and culture. Further detail is provided in section 3.4
(Group Scorecard).
As part of our commitment to our customers, employees,
shareholders and community, each of our employees was
offered two half days of paid leave for the purposes of obtaining
full COVID-19 vaccination.
Key management personnel changes
Lyn McGrath, former Group Executive, Retail Banking, retired on
31 January 2021. In April 2021, we welcomed Martine Jager to the
role of Group Executive, Retail Banking. On 30 September 2021,
Fiamma Morton ceased as Group Executive, Business Banking
and Chris Screen was appointed to the role effective 1 October
2021. Adam McAnalen will transition to a new role in the Group
when David Watts commences as Group Chief Risk Officer in
early 2022.
We are confident that our strength at both Senior Executive and
Board levels will enable our continued success.
Conclusion
The Board remains committed to ensuring that the Group’s people,
culture and remuneration frameworks and practices further the
interests of all stakeholders, including customers, shareholders,
regulators and employees. This extends to having adequate
flexibility to anticipate and respond to labour market trends as we
navigate a new normal through COVID-19 recovery. It is the Board’s
view that the remuneration outcomes for FY21 are appropriate
in light of our consistent and positive progress against our five
strategic priorities and the environment in which we operate.
I welcome any feedback on the remuneration report and look
forward to engaging with you again.
Warwick Negus
Chair, People, Culture & Remuneration Committee
77
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
SECTION 1. REMUNERATION SNAPSHOT
AMBITION
We will be known as the bold challenger bank; with multi-brands that are
digitally enabled with a personal touch.
OUR PURPOSE AND VALUES
Creating prosperity for our customers, shareholders and people through:
Empathy
Integrity
Making a difference
STRATEGIC PRIORITIES
Our empathetic culture
sets us apart
Distinctive brands serving attractive
niche customer segments
Digital Bank of the future with a
personal touch
Simple and intuitive business with
strong execution capability
Strong financial and risk position,
with attractive returns
REMUNERATION OBJECTIVES
Reward sustainable, profitable
growth as BOQ executes its strategy
Reward our people for delivering
exceptional customer experiences
Align our people to long term value
creation for our shareholders
Provide exceptional employee
experiences, including performance
and reward to attract and retain a
diversity of high-quality talent
Ensure remuneration structures are
consistent with our purpose-led culture,
clear accountability frameworks and
robust risk management framework
Take into account prudent risk
management in accordance with
BOQ’s risk appetite
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Non-Executive Director Remuneration 94
|
Statutory Tables 95
SENIOR EXECUTIVE REMUNERATION FRAMEWORK SUMMARY
The Framework is anchored in the remuneration objectives and designed to support the Group’s ambition by facilitating the successful
achievement of the strategic priorities, in line with our purpose and values.
Fixed reward
Performance Shares
Premium Priced Options
Purpose
To attract and retain talent and
reflect the individual’s skills,
capabilities and experience.
To focus Senior Executives on
delivering against the Group’s strategy
collaboratively and as a team.
To align Senior Executives’ interests with
the interests of shareholders, to achieve
improved outcomes for all stakeholders
and grow shareholder value.
Delivery
Cash.
Rights that convert to
Restricted Shares.
Options with a premium exercise price
(120% of share price at grant).
Proportion of
fixed reward
N/A
MD & CEO: 88%
MD & CEO: 58%
Other Senior Executives: 78%
Other Senior Executives: 52%
Performance
criteria
Satisfactory performance,
compliance with the terms and
conditions of employment including
the Code Of Conduct and fulfilment
of accountabilities under the
Banking Executive Accountability
Regime (BEAR).
Performance against the Group
Scorecard over the one year
performance period (the FY) modified
by the Board’s overall assessment
of risk, performance and behaviours
determines the conversion from
Rights to Restricted Shares.
BOQ’s share price must exceed the
exercise price set for the award, and a
risk assessment conducted by
the Board.
Risk
N/A
Risk assessment prior to vesting.
Risk assessment prior to vesting.
Unvested awards are subject
to malus.
A clawback period of two years applies
to each tranche after vesting.
Unvested awards are subject to malus.
MD & CEO: Each tranche is subject to
dealing restrictions for two years after
vesting.
Other Senior Executives: Each
tranche is subject to the dealing
restrictions for one year after vesting.
For all participants, a clawback period
of two years applies to each tranche
after vesting.
Vesting profile
N/A
33% in December 2022, 33%
in December 2023 and 34% in
December 2024 (i.e., after two, three
and four years).
50% in December 2024 and 50% in
December 2025 (i.e., after four and
five years).
79
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Summary 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
SECTION 2. KEY MANAGEMENT PERSONNEL
This section identifies Directors and Senior Executives who are KMP and sets out the changes that have occurred within this cohort
during FY21 and up until the date of this Report.
TABLE 1 - EXECUTIVE & NON-EXECUTIVE DIRECTORS
Current Directors
Patrick Allaway
Chair (Non-executive)
Bruce Carter
Non-executive Director
George Frazis
Managing Director & Chief Executive Officer
Deborah Kiers
Non-executive Director (from 5 August 2021)
John Lorimer
Non-executive Director
Warwick Negus
Non-executive Director
Karen Penrose
Non-executive Director
Mickie Rosen
Non-executive Director (from 4 March 2021)
Former Directors
Kathleen Bailey-Lord
Non-executive Director (ceased 5 August 2021)
Michelle Tredenick
Non-executive Director (ceased 8 December 2020)
TABLE 2 - OTHER SENIOR EXECUTIVES
Current Senior Executives
Debra Eckersley
Group Executive, People and Culture
Martine Jager
Group Executive, Retail Banking (from 27 April 2021)
Adam McAnalen
Chief Risk Officer
Fiamma Morton
Group Executive, Business Banking
Craig Ryman
Chief Information Officer
Ewen Stafford
Chief Financial Officer and Chief Operating Officer
Former Senior Executives
Lyn McGrath
Group Executive, Retail Banking (ceased 31 January 2021)
The following changes are effective during FY22:
1. Fiamma Morton ceased as Group Executive, Business Banking on 30 September 2021.
2. Chris Screen was appointed Group Executive, Business Banking on 1 October 2021.
3. Adam McAnalen will transition to a new role in the Group when David Watts commences as Group Chief Risk Officer in early 2022.
80
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|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
SECTION 3. REMUNERATION OUTCOMES
This section details remuneration outcomes for Senior Executives during the FY21 year.
3.1 REMUNERATION MIX
Figure 1 illustrates the mix of Fixed Reward, Performance Shares and Premium Priced Options awarded to Senior Executives in FY21.
Figure 1 - Remuneration Mix (at Target level)
Managing Director & CEO
Senior Executives
40.6%
43.5%
35.6%
33.9%
23.8%
22.6%
Fixed Reward
Performance Shares
Premium Priced Options
3.2 FIXED REWARD
Ewen Stafford, the Chief Financial Officer & Chief Operating Officer was awarded a fixed reward increase during FY21. The increase of
14 per cent took effect 1 June 2021, and took into account Mr Stafford’s contribution to Group, his capability, and market-competitive
fixed reward levels for comparable roles in the financial services sector and similarly sized ASX listed companies.
Fixed remuneration at 1 September 2020 informed the face value of annual awards of Performance Shares and Premium Priced Options.
George Frazis, the MD & CEO; Debra Eckersley, Group Executive, People & Culture; and Craig Ryman, Chief Information Officer, were
awarded fixed reward increases for FY22, effective 1 September 2021. The average increase awarded for FY22 was 12 per cent.
3.3 LINKING PERFORMANCE & REWARD OUTCOMES
The Group’s financial performance is summarised in Table 3, together with its relationship to the aggregate value of Performance Shares
granted and converted or, for one former Senior Executive, STI awarded in relation to FY21 and, for prior years, the amount of STI paid.
TABLE 3 - GROUP PERFORMANCE
5 Year Company Performance
Statutory net profit/(loss) after tax
Cash net profit after tax (2)
Cash basic earnings per share (2)(3)
Cash cost to income ratio (2)
Share price at balance sheet date
Total shareholder return
Value of dividends paid
Senior Executive Performance Shares converted / STI awarded (4)
($m)
($m)
(cents)
(%)
($)
(%)
($m)
($m)
FY21 (1)
FY20
369
412
74.7
54.4
9.46
115
225
49.6
54.9
6.13
63.75
(29.8)
164
3.79
126
1.78
FY19
298
320
79.5
51.0
9.17
(13.9)
288
-
FY18
336
372
94.7
47.5
11.49
(2.7)
341
2.73
FY17
352
378
97.6
46.6
12.59
26.5
308
4.02
(1) All results are inclusive of ME Bank.
(2) Non-statutory measures are not subject to audit.
(3) The basic and diluted earnings per share for all prior periods have been adjusted per ASX announcement on 20 April 2021.
(4) Performance Shares are converted based on the Board’s assessment of the Group Scorecard and other considerations.
81
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 81
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
3.3 LINKING PERFORMANCE & REWARD OUTCOMES
Figure 2 compares the total Performance Shares converted based on FY21 Group Scorecard results and STI awarded for one former
Senior Executive and STI awarded to Senior Executives from FY17 to FY20 with BOQ’s Cash NPAT over the past 5 years.
Figure 2: FY21 Performance Shares converted / STI awarded vs 5 year NPAT
400
350
300
250
m
$
200
150
100
50
0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
m
$
Cash NPAT
Performance Shares
converted / STI
awarded
FY17
FY18
FY19
FY20
FY21 (1)
(1) FY21 includes pro-rated STI award for Lyn McGrath, former Group Executive, Retail Banking. All current executives participated in Performance Shares.
3.4 GROUP SCORECARD
At the commencement of FY21, the Group Scorecard was approved by the Board. The Group Scorecard is based on the priorities that
underpin the five-year strategy announced by the MD & CEO in 2020.
The Group Scorecard articulates the areas of focus that support the achievement of the strategy and sets the tone for how
achievement is measured throughout the performance period, for Senior Executives and all other employees of the Group. It connects
the Group’s vision with tangible outcomes that contain an appropriate degree of stretch.
The Board’s assessment of achievement against the Group Scorecard, together with holistic consideration of risk, performance or any
other matters considered relevant by the Board determine the conversion of Performance Shares.
For FY21, the overall outcome against the Group Scorecard is Exceeds. This is based on achievement of the targets against each
measure, modified by the Board’s separate and explicit consideration of risk and any other relevant considerations.
Figure 3 details the FY21 Group Scorecard, including strategic priorities and weightings set by the Board, together with FY21 outcomes.
Figure 3: Assessment of FY21 Group Scorecard
Strategic Priority
Weighting
FY21 assessment
Our empathetic culture sets us apart
Delighting our Customers - Net Promoter Score:
• Consumer NPS ranked 3rd
• Business Bank SME NPS ranked 3rd
Engagement, culture and leadership compared to prior year:
• Engagement score increased by 5 points
• Culture score increased by 10 points
•
I feel safe to speak up score increased by 13 points
• Senior Women in Leadership improved by 4 points
• Overall Women in Leadership regressed by 1 point
Distinctive brands serving attractive niche customer segments
Demonstrated by above-system growth in mortgages and
business lending:
• Mortgage growth of 1.7x system
• Business lending growth of 0.8x system
10%
Achieving
10%
Achieving
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|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
3.4 GROUP SCORECARD (CONTINUED)
Strategic Priority
Weighting
FY21 assessment
Digital bank of the future with a personal touch
Delivery of Virgin Money Australia and BOQ Retail digital banks:
• Virgin Money Australia Phase 1 completed and launched, and
Phase 2 now in build and delivery
• Strong progress on BOQ Retail Phase 1
• Phases 1 and 2 of a new Card Management System delivered
Simple and intuitive business, with strong execution capability
Productivity benefits; containing expense growth:
• $30m productivity benefits
• Expense growth of 3%
• JAWS 2%
Product simplification and improved efficiency and
customer experience:
• 15% of products were closed for sale during FY21, with a 26%
reduction to the product register
• During August we reached, time to conditional yes of 1 day for
Proprietary and 3 days for our Broker channel , even as volume
growth occurred (1)
Project delivery and execution:
• 20+ strategic projects delivered, with strong
benefits realisation
Strong risk position
Strengthen the bank through CET1 ratio and deposit growth:
• CET1 ratio 9.8%
• Deposit to Loan Ratio 75%
Strong risk and compliance outcomes:
• Delivery of key regulatory compliance projects including AML
and prudential reporting
• A strengthened AML/CTF program
• Embedding the 3 lines of defence model
10%
Achieving
10%
Exceeds
10%
Exceeds
Strong financial position, with attractive returns
Profitable and sustainable growth in Cash Earnings and Earnings
per Share; strong return on equity and organic capital growth:
• Cash earnings $389m (excluding ME Bank); 73% growth
50%
• Earnings per Share 74.7c, up 51% (including ME Bank)
• Return on Equity 8.2%; up 280bps (including ME Bank)
• Organic Capital Generation 93bps (including ME Bank)
Overall including consideration of risk
(1) Time to conditional yes varies during the year based on volumes and customer mix
Rating scale:
Exceeds
Exceeds
1
2
3
4
5
Underachieving
Threshold
Achieving
Exceeds
Exceptional
83
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 81
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
3.5 GRANT AND CONVERSION OF PERFORMANCE SHARES
Performance Shares were granted to Senior Executives in FY21. Performance Shares are intended to drive collaboration and
encourage Senior Executives to achieve strong business outcomes as a team. The Board undertakes a holistic assessment of
performance against the Group Scorecard and other factors including a risk assessment to determine the proportion of Performance
Shares that convert on completion of the performance period. Whilst in most years it is expected that management will achieve
a conversion of awarded Rights into Restricted Shares, the outcome can be varied up or down at the Board’s discretion should
exceptional or threshold performance, both financial and non-financial, dictate.
The face value of the MD & CEO’s allocation was 88 per cent of fixed reward; for other Senior Executives, the face value of their allocation
was 78 per cent of fixed reward. Annual grants were made on 6 January 2021. Martine Jager’s award was granted on 9 June 2021.
The MD & CEO’s grant of Performance Shares was approved by shareholders at the 2020 AGM.
The number of Performance Shares allocated as part of the annual grant was determined using the face value of the award divided by
the Volume Weighted Average Price (VWAP) of BOQ shares over the five trading days immediately following the 2020 AGM. Intra-year
awards for Senior Executives who join part way through the performance period are based on the VWAP over the five trading days
immediately preceding their date of commencement with BOQ.
Based on the Board’s assessment of the Group Scorecard and consideration of risk, for all continuing Senior Executives, 100 per cent of
Performance Shares granted in FY21 converted on completion of the one year performance period (1 September 2020 to 31 August 2021).
Post-conversion, the Restricted Shares will vest over three years, subject to service conditions, a pre-vesting assessment by the Board and
all other original terms, including malus.
Performance Shares that converted to Restricted Shares will vest in three tranches, 33 per cent in December 2022, 33 per cent in
December 2023, and 34 per cent in December 2024, subject to the Board’s assessment of risk prior to each vesting date. Each tranche
is subject to a clawback period of two years from the vesting date.
Table 4 details the grants and conversion of FY21 Performance Shares.
TABLE 4 - PERFORMANCE SHARES GRANTED AND CONVERTED
Name
Position Title
George
Frazis
Managing Director
& Chief Executive
Officer
Debra
Eckersley
Group Executive,
People & Culture
Martine Jager (1) Group Executive,
Retail Banking
Fixed reward
at time of
grant
Performance
Shares as %
of FR
Face value of
Performance
Shares award
Performance
Shares
granted
VWAP
% of
Performance
Shares
converted
Performance
Shares
lapsed
$1,300,000
88%
$1,140,000
$7.7781
146,566
100%
$560,000
78%
$436,800
$7.7781
56,158
100%
$685,000
78%
$185,907
$9.0718
20,493
100%
Adam
McAnalen
Fiamma
Morton (2)
Craig
Ryman
Ewen
Stafford
Chief Risk Officer
$675,000
78%
$526,500
$7.7781
67,691
100%
Group Executive,
Business Banking
Chief Information
Officer
Chief Financial
Officer & Chief
Operating Officer
$700,000
78%
$546,000
$7.7781
70,198
65%
24,568
$700,000
78%
$546,000
$7.7781
70,198
100%
$700,000
78%
$546,000
$7.7781
70,198
100%
-
-
-
-
-
-
(1) Martine Jager commenced as a KMP on 27 April 2021, therefore, her award for FY21 has been pro-rated.
(2) The portion of Performance Shares that converted for Fiamma Morton will remain on foot to vest in accordance with the original terms of the Award.
84
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
3.6 LTI VESTED DURING FY21
PARs granted in 2017 were tested in December 2020 consistent with plan terms. This grant was subject to two performance hurdles,
being rTSR (with an 80 per cent weighting) and rEPS (with a 20 per cent weighting). None of the PARs granted in 2017 vested in FY21.
The statutory tables in Section 7 set out the detail of LTI awards forfeited by individual qualifying Senior Executives. The results of the
testing are presented in Table 5 below.
TABLE 5 - LTI VESTING OUTCOMES - FY17 GRANT
Grant Date
Performance Period
Vesting Hurdle
Performance Outcome
13/12/2017
12 October 2017
to 13 October 2020
TSR ranking of at least 50th percentile
BOQ TSR achieved ranking of 19th percentile, resulting
in 0% of the TSR tranche vesting
Relative EPS ranking of at least 60th percentile
BOQ EPS achieved a ranking of 45th percentile
resulting in 0% of the EPS tranche vesting
Figure 4: Percentage of LTI vesting of the last five years
65%
55%
16%
70%
60%
50%
40%
30%
20%
10%
0%
FY17
FY18
FY19
BOQ no longer offers PARs.
0%
FY20
0%
FY21
3.7 PREMIUM PRICED OPTIONS GRANTED
Premium Priced Options were granted to Senior Executives in FY21. As approved by shareholders at the 2020 AGM, the face value of
the MD & CEO’s allocation was 58 per cent of fixed reward. For other Senior Executives, the face value of their allocation was 52 per
cent of fixed reward. Annual grants were made on 6 January 2021. Martine Jager’s award was granted on 9 June 2021.
To determine the number of Premium Priced Options each Senior Executive was allocated, the face value of their award was
divided by the option value as determined by the Board. For the annual grant, the Board determined that the value of a Premium
Priced Option was six per cent of the VWAP over the five trading days immediately following the 2020 AGM. The Exercise Price
was set at 120 per cent of the same VWAP.
Intra-year awards for Senior Executives who join part way through the performance period were determined using the same
methodology to derive a value that is based on the VWAP of BOQ shares over the five trading days immediately preceding their date
of commencement with BOQ. This approach is adopted so that the Exercise Price for intra-year awards remains consistent with the
Exercise Price for annual grants.
For Ms Jager’s award, the value of an option was nine per cent of the VWAP over the five trading days immediately preceding
her commencement.
85
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 81
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
3.7 PREMIUM PRICED OPTIONS GRANTED (CONTINUED)
Table 6 details the Premium Priced Options awarded to participants in FY21.
TABLE 6 - PREMIUM PRICED OPTIONS GRANTED
Name
Position Title
George
Frazis
Debra
Eckersley
Martine Jager (1)
Managing Director
& Chief Executive
Officer
Group Executive,
People & Culture
Group Executive,
Retail Banking
Fixed reward
at time of
grant
Options % of
fixed reward
Options grant at
Face Value
VWAP
Options
value
FY21
Options
granted
Exercise
price
$1,300,000
58%
$760,000
$7.7781
$0.4667
1,628,456
$9.3337
$560,000
52%
$291,200
$7.7781
$0.4667
623,956
$9.3337
$685,000
52%
$123,938
$9.0718
$0.8165
151,792
$9.3337
Adam McAnalen Chief Risk Officer
$675,000
52%
$351,000
$7.7781
$0.4667
752,090
$9.3337
Fiamma Morton (2) Group Executive,
Business Banking
Craig
Ryman
Ewen
Stafford
Chief Information
Officer
Chief Financial
Officer & Chief
Operating Officer
$700,000
52%
$364,000
$7.7781
$0.4667
779,945
$9.3337
$700,000
52%
$364,000
$7.7781
$0.4667
779,945
$9.3337
$700,000
52%
$364,000
$7.7781
$0.4667
779,945
$9.3337
(1) Martine Jager commenced as a KMP on 27 April 2021, therefore, her award for FY21 has been pro-rated.
(2) Fiamma Morton’s Premium Priced Options will be pro-rated to her cessation date, with the pro-rated portion to remain on foot to vest in accordance with the original terms
of the Award.
Participants derive value from Premium Priced Options only if the Exercise Price is exceeded at the relevant vesting date. Premium
Priced Options vest four and five years after grant.
3.8 SENIOR EXECUTIVE TOTAL REWARD OUTCOMES FOR FY21 (NON-STATUTORY DISCLOSURE)
This section provides a summary of the total benefit earned by Senior Executives with respect to performance over FY21. As in
previous years, this non-statutory table shows the Senior Executives’ actual remuneration in respect of FY21.
Table 7 includes a breakdown of the following components of Senior Executive remuneration:
• FY21 fixed reward (including base salary and employer superannuation contributions);
• the value of non-monetary and other short-term benefits provided in FY21; and
• the value of any variable remuneration which vested, lapsed or was forfeited during FY21.
86
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
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For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report
Remuneration Snapshot 81
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
SECTION 4. REMUNERATION STRATEGY AND STRUCTURE
This sections outlines the Group’s remuneration strategy and the structure of senior executive remuneration.
4.1 STRATEGY
The Group’s remuneration objectives articulate the remuneration strategy, and apply at all levels throughout the organisation.
These are to:
• reward sustainable, profitable growth as BOQ executes its strategy;
• reward our people for delivering exceptional customer experiences;
• align our people to long-term value creation for our shareholders;
•
•
provide exceptional employee experiences, including performance and reward to attract and retain a diversity of high-quality talent;
ensure remuneration structures are consistent with our purpose-led culture, clear accountability frameworks and robust risk
management framework; and
• take into account prudent risk management in accordance with BOQ’s risk appetite.
4.2 STRUCTURE
Senior Executives’ remuneration is structured in accordance with the Framework that was introduced on 1 September 2020. The
particular objectives of the Framework are to:
increase alignment with shareholder interests by delivering a sizeable proportion of total remuneration in equity;
•
• encourage long-term performance, with an appropriate focus on financial and non-financial metrics;
• focus senior executives on improving absolute shareholder returns;
• provide a simple and transparent executive remuneration framework; and
• attract and retain executive talent.
The features of the Framework are outlined in Table 8.
TABLE 8 - THE SENIOR EXECUTIVE REMUNERATION FRAMEWORK
Fixed reward
Performance Shares
Premium Priced Options
Purpose
To attract and retain talent and
reflect the individual’s skills,
capabilities and experience.
To focus Senior Executives on
delivering against the Group’s strategy
collaboratively and as a team.
To align Senior Executives’ interests with
the interests of shareholders, to achieve
improved outcomes for all stakeholders
and grow shareholder value.
Delivery
Cash.
Rights that convert to
Restricted Shares.
Options with a premium exercise price
(120% of share price at grant).
Opportunity
Based on capability, experience and
complexity of role.
MD & CEO: 88% of FR
MD & CEO: 58% of FR
Other Senior Executives: 78% of FR
Other Senior Executives: 52% of FR
Eligibility
N/A
Allocated Value
Fixed reward levels are informed by
benchmarking comparable roles in
financial services and/or similarly
sized ASX listed companies.
At least three months’ active
employment during the performance
period.
At least three months’ active
employment during the performance
period.
The face value of the Senior
Executive’s opportunity is divided by
the VWAP of BOQ shares.
For the annual grant, the VWAP is
calculated over the 5 trading days
immediately following the AGM.
For Senior Executives who join part-
way through the performance period,
the VWAP is calculated over the 5
trading days immediately preceding
their commencement date.
The face value of each Senior
Executive’s opportunity is divided
by the value of an option, which was
calculated by applying the Board
approved valuation percentage of
6% to the VWAP calculated over the
5 trading days immediately following
the AGM.
For Senior Executives who join
part-way through the performance
period, a percentage of the VWAP as
determined by the Board, calculated
over the 5 trading days immediately
preceding their commencement date.
88
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
4.2 STRUCTURE (CONTINUED)
Fixed reward
Performance Shares
Premium Priced Options
Performance
criteria
Satisfactory performance,
compliance with the terms and
conditions of employment including
the Code Of Conduct and fulfilment
of accountabilities under the Banking
Executive Accountability Regime
(BEAR).
Performance against the Group
Scorecard over the one year
performance period (the FY) modified
by the Board’s overall assessment of
risk and performance determines the
conversion from Rights to Restricted
Shares.
BOQ’s share price must exceed the
exercise price set for the award,
and a risk assessment conducted
by the Board.
The exercise price is set at 120% of
the VWAP.
Risk
N/A
Risk assessment prior to vesting.
Risk assessment prior to vesting.
Unvested awards are subject to malus.
Unvested awards are subject to malus.
A clawback period of two years applies
to each tranche after vesting.
MD & CEO: Each tranche is subject to
dealing restrictions for two years after
vesting.
Other Senior Executives: Each tranche
is subject to the dealing restrictions for
one year after vesting.
For all participants, a clawback
period of two years applies to each
tranche after vesting.
Vesting profile
N/A
33% in December 2022, 33%
in December 2023 and 34% in
December 2024 (i.e., after two, three
and four years).
50% in December 2024 and 50% in
December 2025 (i.e., after four and
five years).
4.3 DELIVERY AND REALISATION TIMEFRAMES
Figure 5 illustrates the delivery profile of the different components of Senior Executives’ remuneration for FY21.
Figure 5: Delivery and realisation timeframes
MD & CEO
Fixed Reward
Cash
Performance Shares
Premium Priced Options
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
Other Senior Executives
Fixed Reward
Cash
Performance Shares
Premium Priced Options
FY21
FY22
FY23
FY24
FY25
FY26
FY27
FY28
Grant
Convert
Vest
Restrictions lifted
Clawback period
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For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
SECTION 5. REMUNERATION GOVERNANCE
5.1 GROUP REMUNERATION POLICY
The Group Remuneration Policy (the Policy) sets out the governance structure for oversight of BOQ’s remuneration frameworks and
practices and the minimum expectations for their implementation. Specifically, the Policy requires that the Group’s performance and
remuneration frameworks:
• align the design and management of remuneration with:
— BOQ’s strategic, customer and financial objectives; and
— prudent risk-taking, incorporating adjustments to reflect:
• the outcomes of business activities,
• the risks related to those activities taking account, where relevant, the cost of the associated capital, and
• the time necessary for the outcomes of those business activities to be reliably measured; and
• encourage behaviours that:
— are consistent with BOQ’s purpose and values;
— align with and reward the delivery of superior customer outcomes;
— support BOQ’s Risk Management Framework (RMF), prudent risk-taking and long-term financial success;
— prevent matters that may negatively impact prudential standing or reputation; and
— comply with all relevant jurisdictional legislative and regulatory requirements.
5.2 ROLES AND RESPONSIBILITIES
5.2.1 The Board
The Board is responsible for determining BOQ’s Remuneration Policy and, through the People, Culture and Remuneration Committee
(PCRC), focuses on strategic human resources and remuneration.
The Board must, at least annually, review and approve:
• the Policy;
•
individual remuneration arrangements, including but not limited to fixed remuneration levels, variable reward targets and outcomes,
make-good awards, retention awards and other benefits of significant value for those employees designated as Accountable Persons
and Responsible Persons;
• collectively, remuneration structures for other cohorts specified by APRA; and
• all equity plans, including the terms and conditions under which grants are offered.
5.2.2 The People, Culture & Remuneration Committee
In accordance with its Charter, the PCRC will:
• review and make recommendations to the Board on the performance objectives and individual remuneration arrangements for the
MD & CEO at least annually;
• make recommendations to the Board on individual remuneration arrangements for Accountable Persons and Responsible Persons,
including Senior Executives, at least annually as part of the remuneration review, and as otherwise required (e.g., on appointment, for
out-of-cycle awards, and on separation if outside of policy);
• make recommendations to the Board on collective remuneration arrangements for other cohorts specified by APRA;
• at least annually, review the Policy and, where necessary, recommend amendments to the Board. The review must include an
assessment of the Policy’s:
— effectiveness and compliance with prudential standards and any other relevant legal, regulatory and/or governance requirements,
including an assessment of underlying procedures, controls and oversight;
— effectiveness in supporting BOQ’s purpose, strategy and objectives, including to identify material deviations from the intent of the
Policy and unreasonable or undesirable outcomes that flow from existing arrangements;
— effectiveness in protecting the interests of customers and quality outcomes for customers;
— alignment with shareholder interests; and
— alignment with BOQ’s RMF and the protection of BOQ’s long-term financial soundness.
All members of the PCRC are also members of the Board Audit Committee and the Board Risk Committee. This construct supports
the alignment of audit, risk and reward matters, and facilitates the effective sharing of information between the various committees.
Where appropriate the Board Audit Committee and Board Risk Committee make recommendations to the PCRC to inform its
decision-making in relation to performance and reward matters. This includes input from the Board Risk Committee as it relates to
setting objectives for, and assessing the performance of, the Chief Risk Officer.
The PCRC may seek advice from external advisers to assist with the execution of its responsibilities.
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Non-Executive Director Remuneration 94
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Statutory Tables 95
5.3 BOARD DISCRETION
Senior Executives’ remuneration is determined by the remuneration strategy, Policy and the Framework. Remuneration outcomes are
determined in accordance with relevant performance measures, plan design and the Equity Incentive Plan (EIP) rules.
The PCRC and Board recognise that there are a range of factors which are specific to current and future years, and these may be taken
into account when considering the overall remuneration outcomes for each year. To account for those factors, the PCRC and Board
may make discretionary adjustments to remuneration outcomes for Senior Executives and those employees classified as Accountable
Persons and/or Responsible Persons. These discretionary adjustments may impact an individual’s remuneration positively or
negatively. In accordance with this principle, remuneration outcomes have been adjusted both positively and negatively in prior years.
The criteria used by the PCRC and the Board to recommend and approve discretionary adjustments respectively include:
• factors either not known or not relevant at the beginning of a performance period or financial year, which can impact performance
positively or negatively during the course of that performance period or financial year;
• the degree of stretch implicit in the performance measures and targets, and the environment and market context in which the
targets were set;
• whether the operating environment during the performance period or financial year was materially different than forecast;
• comparison of the Group’s performance relative to its competitors;
• the emergence of any major positive or negative risk or reputational issues;
• the quality of financial results as shown by their composition and consistency;
• whether leadership behaviours consistent with the Group’s Code of Conduct and values have been regularly demonstrated throughout
the performance period or financial year; and
• any other matters that the PCRC and Board deem to be relevant and which are not outlined above.
5.4 RISK ADJUSTMENT
The Chief Risk Officer presents a report to the PCRC on a biannual basis. This report which is also reviewed by the Chair of the Board
Risk Committee covers significant and thematic risk events and is used by the PCRC to inform variable reward decisions including the
granting of equity to Senior Executives and other employees, and the Board’s assessment of risk prior to vesting of equity awards.
The findings of the CRO’s Report are typically discussed at a closed PCRC session, which also provides the Chair of the Board Risk
Committee an opportunity to provide input.
The PCRC and Board have at their disposal three avenues for making risk adjustments to remuneration. These include:
in-period adjustment, where all, or a portion, of potential variable reward may be reduced, including to zero;
•
• malus, where the Board may determine that all, or a portion of any unvested award will be lapsed or forfeited; and
• clawback, where, subject to legal limitations, the Board may seek to recover all, or a portion of an award that has been paid and/or vested.
Circumstances in which the PCRC may recommend, and the Board may approve, to invoke in-period adjustment, malus and/or
clawback provisions include where, in the opinion of the Board, a Senior Executive or other individual has:
• engaged in serious misconduct or a breach of their employment obligations (including fraud, dishonesty, gross negligence,
recklessness or wilful indifference);
• failed to meet BOQ’s conduct and behavioural standards, including a determination that a former employee engaged in conduct
that would be considered failure of the conduct and behavioural standards if still employed;
• contributed to a material misstatement in, or omission from, BOQ’s financial statements, or a misstatement of a performance
condition applicable to a variable remuneration plan;
• acted, or failed to act, in a way that contributed to material reputational damage to BOQ; or
• received a variable reward where all or part of the initial award was not justified having regard to the circumstances or information
which has come to light after an award was made.
91
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
5.5 CESSATION OF EMPLOYMENT AND CHANGE OF CONTROL
The treatment of future awards and unvested deferred awards depends on the circumstances under which employment ceases. Generally:
•
•
in the event of summary dismissal or resignation, Senior Executives are not eligible to be awarded any further grants of Performance Shares
or Premium Priced Options, and any unvested equity will be lapsed or forfeited (as relevant to the particular award and/or instrument).
in particular circumstances, referred to as Qualifying Reasons or where minimum service requirements have been met (as approved
by the Board), it may be possible and permitted for a Senior Executive’s unvested equity to remain on foot. Qualifying Reasons include
redundancy; retirement; death; mutual agreement for cessation; and total and permanent disablement.
• where a Senior Executive ceases employment for a Qualifying Reason but is subsequently employed by a competitor of BOQ within six
months of ceasing, any unvested equity will be lapsed or forfeited (as relevant to the particular award and/or instrument) as though
they had resigned, unless the Board consents otherwise.
• The Policy and various plan documentation also sets out the relevant treatment on change of control.
Generally speaking, in relation to awards granted up to and including FY21, where an employee separates for a Qualifying Reason or due to
a Change of Control event, unvested awards will be pro-rated to cessation date and remain on foot to vest in the normal course, subject
to the original terms and conditions unless the Board determines otherwise.
5.6 MINIMUM SHAREHOLDING REQUIREMENTS
NEDs are required to hold shares equal in value to one times their base fee within three years of their appointment to the Board.
There are no minimum shareholding requirements for Senior Executives. However, the prevalence of equity and the long-dated
vesting timeframes that underpin the Framework ensures that all Senior Executives will have, at a minimum, equity interests
reflecting at least one times their fixed remuneration once they have been awarded an annual grant of Performance Shares and
Premium Priced Options.
5.7 SECURITIES TRADING POLICY
The Group’s Securities Trading Policy regulates dealings by Directors, employees and contractors in BOQ securities. Under the policy,
Prescribed Persons (those employees with the authority, responsibility, participatory role in, or knowledge of the planning, directing or
controlling of the activities of the Group) are prohibited from dealing in BOQ securities during certain blackout periods, including:
• the period commencing 1 March and ending at the close of trading on the ASX one 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 day after the announcement of BOQ’s full
year results; or
• any other period nominated from time to time by the Chair, MD & CEO or Chief Financial Officer of BOQ.
If a Director, employee or contractor has inside information about the BOQ Group, they must not deal in BOQ securities at any time,
including outside of a blackout period.
5.8 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 Chair of the PCRC in order to ensure, upon engagement, that the appropriate level of
independence exists from Management. Reports provided by independent consultants are submitted directly to the Chair of the
PCRC. Where the consultant’s engagement requires a recommendation, the recommendation is provided to and discussed directly
with the PCRC Chair in accordance with the requirements of the Corporations Act.
During FY21 the PCRC did not engage independent advisors to provide remuneration recommendations.
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Non-Executive Director Remuneration 94
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Statutory Tables 95
5.9 EXECUTIVE CONTRACTS
The remuneration and terms of Senior Executives’ employment are formalised in their Executive Services Agreement (ESA). Each ESA
provides for the payment of fixed and performance-based variable remuneration, superannuation and other benefits such as statutory
leave entitlements. The employment terms of each ESA is summarised in Table 9.
TABLE 9 - SENIOR EXECUTIVE CONTRACT TERMS
Position Title
Current Senior Executives
George Frazis
Managing Director & Chief
Executive 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
Debra Eckersley
Group Executive, People & Culture
6 months
6 months
6 months’ fixed remuneration in lieu of notice
Martine Jager
Group Executive, Retail Banking
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
Fiamma Morton
Group Executive, Business Banking 6 months
6 months
6 months’ fixed remuneration in lieu of notice
Craig Ryman
Chief Information Officer
6 months
6 months
6 months’ fixed remuneration in lieu of notice
Ewen Stafford
Chief Financial Officer & Chief
Operating Officer
Former Senior Executives
6 months
6 months
6 months’ fixed remuneration in lieu of notice
Lyn McGrath
Group Executive, Retail Banking
3 months
3 months
3 months’ fixed remuneration in lieu of notice
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For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
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 with changes to its size and composition.
The Board will not be seeking an increase to the fee pool at the 2021 AGM.
6.2 REMUNERATION FRAMEWORK
NED fees are set to attract and retain individuals of appropriate calibre to the Board and Committees. Fees are reviewed annually by the
PCRC having regard for the external market of similarly sized and comparably complex organisations.
The Board Chair’s fee is determined independently from the fees of other Directors and is also based on the external market. The Chair is
not present at any discussions relating to the determination of his own remuneration.
In order to maintain independence and impartiality, NEDs to do not receive any performance-based 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.
The BOQ Constitution allows the Company to pay Directors additional remuneration for extra or special services performed.
6.3 BOARD COMMITTEES
From 1 September 2020, all NEDs serve on the Board Audit; Nomination & Governance; People, Culture & Remuneration; Risk; and
Transformation & Technology (previously Information Technology, until 26 November 2020) Committees.
6.4 ME BANK
BOQ NEDs became Directors of the ME Bank Limited Board on 1 July 2021. All NEDs assumed equivalent roles with ME Bank Limited,
for example, Patrick Allaway is the Chair of the ME Bank Board and all other NEDs are members.
In accordance with APRA regulation, the Board of ME Bank Limited is required to maintain its own Board Audit and Board Risk
Committees. Karen Penrose serves as the Chair of the ME Bank Board Audit Committee and Bruce Carter serves as the Chair of the
ME Bank Board Risk Committee. All other NEDs are members of both committees.
No additional fees are payable for chairmanship or membership of the ME Bank Board or its Board committees.
6.5 NED FEE STRUCTURE
To reflect the revised committee composition and to provide fairness and simplicity, on 1 September 2020 BOQ moved to a flat fee
structure, inclusive of superannuation which is payable up to the maximum contributions base. The only instances where additional
committee fees are payable are in relation to the Due Diligence Committee and the Investment Committee, which are paid on a per-
meeting basis.
During FY21, the Board approved an additional fee for three NEDs resulting from additional work undertaken in relation to the
ME Bank acquisition.
A benchmarking exercise was undertaken during FY21 and, consequently, the Board approved an increase to NED fees for FY22,
effective 1 September 2021.
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Non-Executive Director Remuneration 94
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Statutory Tables 95
6.5 NED FEE STRUCTURE (CONTINUED)
The FY21 and FY22 fee structures are set out in Table 10.
TABLE 10 - FY21 AND FY22 NED FEES (INCLUSIVE OF SUPERANNUATION)
Annual Fees
Base fees
Committee fees(2)
St Andrew’s Board(3)
Per meeting Fees
Investment Committee
Due Diligence Committee
One-off fees
ME Bank acquisition(4)
FY21 (01/09/2020 - 31/08/2021)
FY22 (01/09/2021 - 31/08/2022)
Chair/Committee
Chair (1)
$
Directors/
Committee
Members
$
Chair/Committee
Chair
$
Directors/
Committee
Members
$
420,000
30,000
-
2,500
2,500
165,000
80,000
50,000
1,750
1,750
50,000
25,000
500,000
50,000
-
2,500
2,500
n/a
185,000
80,000
50,000
1,750
1,750
n/a
(1) The Chair receives no additional remuneration for involvement with Committees.
(2) A flat fee applies for the following Committees: Audit; Nomination & Governance; People, Culture & Remuneration; Risk; and Transformation & Technology.
(3) Karen Penrose is also a member of the St Andrew’s Board of Directors.
(4) The Board approved payment of an additional one-off fee of $50,000 to Patrick Allaway, the Chair and $25,000 each to NEDs Karen Penrose and Warwick Negus due to their
involvement in the due diligence phase of the ME Bank acquisition. For Ms Penrose and Mr Negus, this fee was paid instead of their per-meeting Due Diligence Committee fees.
6.6 NED FEE SACRIFICE RIGHTS PLAN
At the beginning of FY21, as in prior years, offers were made under the NED Fee Sacrifice Rights Plan. Five NEDs elected to participate
in the Plan, the details of which are provided in Table 11.
TABLE 11 - TERMS OF THE NED FEE SACRIFICE RIGHTS PLAN
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.
At the beginning of the participation period, NEDs can nominate 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 FY21 the
participation period was the twelve months from 1 September 2020 to 31 August 2021. The rights do not
have any performance conditions in order to preserve the NEDs’ 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 15 years from grant date).
Cessation of Directorship
If a participant ceases to be a NED prior to the Rights vesting, they will retain a pro-rata number of Rights
based on the period they were a NED. If directorship ceases during the restriction period, any disposal
restrictions on the shares will be lifted subject to a minimum trading restriction of 12 months.
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 (Cth), of each major element
of the remuneration of each Director and Senior Executive of the Group, calculated in accordance with accounting standards.
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For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
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Non-Executive Director Remuneration 94
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Statutory Tables 95
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For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report
Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
7.2 EQUITY HELD BY SENIOR EXECUTIVES
TABLE 14 - MOVEMENT IN EQUITY AWARDS HELD BY SENIOR EXECUTIVES DURING THE FINANCIAL YEAR 2021
Senior (1)
Executive
Current
Type
Grant Date
George Frazis
2019 PARs
2021 Performance Shares
19/12/2019
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
Debra Eckersley
2018 PARs
2019 PARs
2021 Performance Shares
6/01/2021
11/12/2018
19/12/2019
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
6/01/2021
Martine Jager
2021 Performance Shares
30/06/2021
2021 Premium Priced Options
30/06/2021
Adam McAnalen 2017 PARs
2017 DARs
2018 PARs
2018 DARs
2019 PARs
2021 Performance Shares
13/12/2017
13/12/2017
11/12/2018
11/12/2018
19/12/2019
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
Fiamma Morton
2021 Performance Shares
6/01/2021
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
Craig Ryman
2021 Performance Shares
6/01/2021
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
Ewen Stafford
2019 PARs
2021 Performance Shares
6/01/2021
19/12/2019
6/01/2021
2021 Premium Priced Options
6/01/2021
Restricted Shares
6/01/2021
Former
Lyn McGrath
2018 PARs
Restricted Shares
2019 PARs
Restricted Shares
11/12/2018
11/12/2018
10/02/2020
6/01/2021
Movements during the 2021
Financial Year
Share
Price at
Grant
Date (2)
$
Balance
at 1 Sep
2020 Granted (3) Exercised
Lapsed
Vested
during
the
Year (5)
(%)
Balance at
31 Aug
2021 (3)(4)
7.36
7.70
7.70
7.70
9.74
7.36
7.70
7.70
7.70
9.11
9.11
12.71
12.71
9.74
9.74
7.36
7.70
7.70
7.70
7.70
7.70
7.70
7.70
7.70
7.70
7.36
7.70
7.70
7.70
9.74
9.74
7.36
7.70
143,215
-
-
146,566
- 1,628,456
-
85,443
49,450
57,397
-
-
-
-
-
-
56,158
623,956
36,807
20,493
151,792
7,634
1,909
10,361
3,014
65,597
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-
-
-
-
-
-
-
-
76,529
-
-
-
59,811
8,478
68,877
-
-
-
-
-
67,691
752,090
44,365
70,198
779,945
11,502
70,198
779,945
5,981
-
70,198
779,945
41,369
-
-
-
-
34,506
1,884
30%
-
143,215
-
-
-
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-
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-
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-
-
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146,566
1,628,546
85,443
49,450
57,397
56,158
623,956
36,807
20,493
151,792
-
-
10,361
65,597
67,691
752,090
44,365
70,198
779,945
11,502
70,198
779,945
5,981
76,529
70,198
779,945
41,369
-
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-
1,130
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-
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59,811
-
4,239
-
4,239
30%
-
-
50,038
-
18,839
34,506
-
-
(1) Senior Executives with nil shareholding movements while KMP have been excluded from the table above.
(2) Restricted shares granted on 6 January 2021 are valued as at the FY20 STI allocation date rather than the grant date.
(3) This represents the maximum number of equity awards that may vest to each Executive.
(4) Balance amounts as at 31 August 2021 are unvested and not yet exercisable.
(5) Percentage of initial grant.
98
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities
Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
7.2 EQUITY HELD BY SENIOR EXECUTIVES (CONTINUED)
TABLE 15 - VALUE OF EQUITY AWARDS HELD BY SENIOR EXECUTIVES DURING THE FINANCIAL YEAR 2021
Fair Value
per equity
award at
Grant Date (1)
$
Value at
Grant Date (2)
$ Exercise Date
Share Price
at Exercise
Date (3)
$
Value at
Exercise
Date (4)
$
Expiry /
Lapsing
Date
Senior
Executive
Current
Grant
Grant Date
George Frazis
2019 PARs
2021 Performance
Shares
2021 Premium
Priced Options
19/12/2019
6/01/2021
6/01/2021
Restricted Shares
6/01/2021
Debra Eckersley
2018 PARs
11/12/2018
2019 PARs
2021 Performance
Shares
2021 Premium
Priced Options
19/12/2019
6/01/2021
6/01/2021
Restricted Shares
6/01/2021
2021 Performance
Shares
2021 Premium
Priced Options
30/06/2021
30/06/2021
Martine Jager
Adam McAnalen 2016 DARs
23/12/2016
3.61
7.49
0.57
6.85
4.91
3.61
7.49
0.56
6.85
8.86
0.99
11.45
517,006
1,097,779
928,220
585,285
242,800
207,203
420,623
349,415
252,128
181,568
150,274
-
-
-
-
-
-
-
-
-
-
-
41,529
19/12/2017
13/12/2018
23/12/2019
2017 PARs
2017 DARs
13/12/2017
13/12/2017
7.14
11.05
54,507
-
42,178
13/12/2018
2018 PARs
2018 DARs
2019 PARs
2021 Performance
Shares
2021 Premium
Priced Options
11/12/2018
11/12/2018
19/12/2019
6/01/2021
6/01/2021
Restricted Shares
6/01/2021
2021 Performance
Shares
2021 Premium
Priced Options
6/01/2021
6/01/2021
Restricted Shares
6/01/2021
2021 Performance
Shares
2021 Premium
Priced Options
6/01/2021
6/01/2021
Restricted Shares
6/01/2021
4.91
8.21
3.61
7.49
0.56
6.85
7.49
0.56
6.85
7.49
0.56
6.85
09/12/2019
14/12/2020
50,873
-
30,935
09/12/2019
14/12/2020
236,805
507,006
421,170
303,900
525,783
436,769
78,789
525,783
436,769
40,970
-
-
-
-
-
-
-
-
-
-
Fiamma Morton
Craig Ryman
(1) Restricted shares granted on 6 January 2021 are valued as at the FY20 STI allocation date rather than the grant date.
(2) Represents equity awards held at 1 September 2020 or granted during FY21.
(3) Closing share price on exercise date of rights that have a nil exercise price.
(4) Closing share price on exercise date multiplied by the number of rights exercised during the year.
-
-
-
-
-
-
-
-
-
-
-
12.66
9.56
7.35
-
9.56
7.45
7.60
-
7.45
7.60
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19/12/2026
-
8/12/2027
-
11/12/2025
19/12/2026
-
8/12/2026
-
-
29/06/2026
9,179
23/12/2021
10,401
13,333
23/12/2021
23/12/2021
-
08/03/2021
7,294
8,530
13/12/2022
13/12/2022
14,508
13/12/2022
-
11/12/2025
5,617
8,588
-
-
-
-
-
-
-
-
-
-
11/12/2025
11/12/2025
19/12/2026
-
8/12/2026
-
-
8/12/2026
-
-
8/12/2026
-
99
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Snapshot 78
| Key Management Personnel 80
| Remuneration Outcomes 81
| Remuneration Strategy & Structure 88
7.2 EQUITY HELD BY SENIOR EXECUTIVES (CONTINUED)
TABLE 15 - VALUE OF RIGHTS HELD BY SENIOR EXECUTIVES DURING THE FINANCIAL YEAR 2021 (CONTINUED)
Fair Value
per Right at
Grant Date (1)
$
Value at
Grant Date (2)
$
Exercise Date
Share Price
at Exercise
Date (3)
$
Value at
Exercise
Date (4)
$
Expiry /
Lapsing
Date
-
-
-
-
8.89
8.85
7.27
-
7.27
7.65
-
-
-
-
-
-
348,746
108,244
33,500
19/12/2026
-
8/12/2026
-
-
-
-
-
25/02/2021
41,083
32,428
-
-
-
-
19/12/2026
-
Senior
Executive
Grant
Grant Date
Current (continued)
Ewen Stafford
2019 PARs
19/12/2019
2021 Performance
Shares
6/01/2021
2021 Premium
Priced Options
6/01/2021
Restricted Shares
6/01/2021
3.61
7.49
0.56
6.85
276,270
525,783
436,769
283,378
-
-
-
-
Former
Lyn McGrath
Restricted Shares
17/10/2018
10.91
611,702
30/04/2019
15/08/2019
11/12/2019
2018 PARs
11/12/2018
Restricted Shares
11/12/2018
4.91
10.62
293,672
-
150,050
11/12/2019
2019 PARs
10/02/2020
Restricted Shares
6/01/2021
3.61
6.85
248,646 (5)
236,366
7/12/2020
-
-
(1) Restricted shares granted on 6 January 2021 are valued as at the FY20 STI allocation date rather than the grant date.
(2) Represents equity awards held at 1 September 2020 or granted during FY21.
(3) Closing share price on exercise date of rights that have a nil exercise price.
(4) Closing share price on exercise date multiplied by the number of rights exercised during the year.
(5) 18,839 with a fair value of $68,009 PARs remain as at 31 August 2021.
100
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
7.3 OTHER EQUITY INSTRUMENTS - HOLDINGS AND MOVEMENTS
The number of other equity instruments held directly, indirectly or beneficially by each Director, Senior Executive or related party is set
out in Table 16. All shares were acquired by NEDs under normal terms and conditions or through the NED Fee Sacrifice Rights Plan.
TABLE 16 - NUMBER OF OTHER EQUITY INSTRUMENTS HELD DIRECTLY, INDIRECTLY OR BENEFICIALLY
Ordinary shares (1)
Directors - Current
Patrick Allaway
Bruce Carter
George Frazis
John Lorimer
Warwick Negus
Karen Penrose
Director - Former
Kathleen Bailey-Lord
Michelle Tredenick
Executives - Current
Debra Eckersley
Adam McAnalen
Executives - Former
Lyn McGrath
Held at
1 September
2020
Purchases/
(Sales)
Rights granted
under NED Fee
Sacrifice Rights
Plan
Received on
Exercise of
Rights / Vesting
of Restricted
Shares
Held at
31 August
2021
142,737
75,620
50,000
21,128
51,872
19,828
13,903
19,762
-
43,614
61,719
42,737
22,642
40,552
6,326
15,531
5,937
4,163
-
14,879
36,791
-
12,268
40,165
-
-
40,165
4,746
6,627
-
-
-
-
-
-
-
-
-
-
-
-
-
3,039
4,239
197,742
138,427
90,552
27,454
107,568
30,511
n/a
n/a
14,879
83,444
n/a
(1) Directors and Senior executives with nil shareholding balances as at 31 August 2021 have been excluded from the table above.
101
For the year ended 31 August 2021REMUNERATION REPORT2021 Annual Report Remuneration Governance 90
|
Non-Executive Director Remuneration 94
|
Statutory Tables 95
7.4 TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL (DIRECTORS & SENIOR EXECUTIVES)
Loan transactions
Loans to KMP and their related parties (including close family members 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 Group.
There have been no write-downs or amounts recorded as provisions during FY21.
Details of loans held by KMP and their related parties during FY21, where the individual’s aggregate loan balance exceeded $100,000 at
any time in this period, are as follows:
TABLE 17 - INDIVIDUAL LOAN TRANSACTIONS WITH KMP (OVER $100,000)
Executives
Debra Eckersley
Other Related Parties
George Frazis related parties
Balance at
1 September 2020
$
Interest charged
during the year
$
Balance at
31 August 2021
$
Highest balance
during the year
$
350,000
11,508
350,000
351,046
760,430
34,998
743,279
763,433
Details regarding the aggregate value of loans made, guaranteed or secured by any entity in the Group to all Senior Executives and their
related parties and the number of individuals in each group are as follows:
TABLE 18 - AGGREGATED LOAN TRANSACTIONS WITH KMP
Balance at
1 September 2020
$
Interest charged
during the year
$
Balance at
31 August 2021
$
Number in group at
31 August 2021
#
Executives
Other Related Parties
350,000
760,430
11,508
34,998
350,000
743,279
1
1
102
For the year ended 31 August 2021REMUNERATION REPORTBank of Queensland Limited and its Controlled Entities 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 relevant
policy) of the Bank against certain liabilities arising in the course
of their duties to the Bank and its subsidiaries, as defined in the
relevant policy. 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:
Patrick Allaway
George Frazis
Bruce Carter
John Lorimer
Warwick Negus
Karen Penrose
Deborah Kiers (1)
Mickie Rosen (2)
Ordinary shares
197,742
90,552
138,427
27,454
107,568
30,511
-
-
(1) Deborah Kiers was appointed as a Director of the Board on 5 August 2021.
(2) Mickie Rosen was appointed as a Director of the Board on 4 March 2021.
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.
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 Note 5.7 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
Total audit related services
Non-audit services
- Taxation services
- Other
Total non-audit services
Consolidated
2021
$000
2,172
704
2,876
373
373
116
250
366
2020
$000
1,857
762
2,619
402
402
122
192
314
Bank
2021
$000
1,826
611
2,437
154
154
116
250
366
Details of the amounts paid to other auditor for audit services provided during the year in respect of Members Equity Bank Limited
(ME Bank) acquisition are set out below and in Note 5.7 Auditor Remuneration:
Other auditor
Audit services
- Statutory audits and reviews of the financial reports
Total audit services
Consolidated
2021
$000
202
202
2020
$000
-
-
Bank
2021
$000
-
-
2020
$000
1,437
667
2,104
143
143
77
174
251
2020
$000
-
-
103
2021 Annual ReportFor the year ended 31 August 2021DIRECTORS’ REPORT Lead auditor’s independence declaration
The lead auditor’s independence declaration is set out on
page 105 and forms part of the Directors’ report for the year
ended 31 August 2021.
Director and management changes
Director changes during the year:
• On 8 December 2020, Michelle Tredenick
retired as Director of the Board.
• Mickie Rosen was appointed as a Director
of the Board on 4 March 2021.
• Deborah Kiers was appointed as a Director
of the Board on 5 August 2021.
• On 5 August 2021, Kathleen Bailey-Lord
retired as Director of the Board.
Management changes during the year:
• On 31 January 2021, Lyn McGrath retired
as Group Executive, Retail Banking.
• On 27 April 2021, Martine Jager commenced
as Group Executive, Retail Banking.
• On 30 September 2021, Fiamma Morton retired
as Group Executive, Business Banking.
• Chris Screen commenced as Group Executive,
Business Banking on 1 October 2021.
• Adam McAnalen will transition to a new role in
the Group when David Watts commences as
Group Chief Risk Officer in early 2022.
Management attestation
The Board has been provided with a joint written statement
from the Group’s Managing Director & CEO and Chief
Financial Officer & Chief Operating Officer confirming that,
in their opinion, the financial records of the Bank and the
Group have been properly maintained and the accompanying
financial statements and notes are in accordance with the
Corporations Act 2001 (Cth) and comply with accounting
standards and present a true and fair view in all material
respects of the Bank’s and Group’s financial position and
performance as at and for the year ended 31 August 2021.
The Directors’ Declaration can be found on page 183 of the
financial statements.
Environmental regulation
The Group’s operations are not subject to any significant
environmental regulations under either Commonwealth or State
legislation. The Board confirms that the Group is not aware of any
breach of environmental requirements.
Subsequent events
Dividends have been determined after 31 August 2021. The
financial effect of the dividends has not been brought to account
in the financial statements for the year ended 31 August 2021.
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.
The evolution of the COVID-19 pandemic remains uncertain,
including the duration of the pandemic, the severity of the
downturn and the speed of the economic recovery. BOQ has
considered whether events subsequent to the reporting date
have confirmed conditions existing as at reporting date and has
not identified any COVID-19 related developments which would
require adjustments to the amounts or disclosures contained
in the consolidated financial statements. Future economic
conditions may differ to the assumptions and scenarios used in
the consolidated financial statements, the impact of which will be
reflected in future reporting periods.
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.
Rounding
In accordance with applicable financial reporting regulations and
current industry practices, amounts in this report have been
rounded 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.
Operating and Financial Review
Our Operating and Financial Review is contained in
pages 12 – 75 of this report
Signed in accordance with a resolution of the Directors:
Patrick Allaway
Chairman
12 October 2021
George Frazis
Managing Director & CEO
12 October 2021
104
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021DIRECTORS’ REPORT LEAD AUDITOR’S INDEPENDENCE
DECLARATION UNDER SECTION 307C
OF THE CORPORATIONS ACT 2001
105
105 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 Shaun Kendrigan Partner Sydney 12 October 2021 105 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 Shaun Kendrigan Partner Sydney 12 October 2021 2021 Annual Report 2021
FINANCIAL
STATEMENTS
Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
INCOME 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 gain/ (loss) on loans and advances
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Equity holders of the parent
Other equity instruments holders
Profit for the year
Earnings per share (EPS) (1)
Basic EPS - Ordinary shares (cents)
Diluted EPS - Ordinary shares (cents)
Consolidated
2021
$m
1,576
112
(560)
1,128
118
1,246
7
1,253
(736)
21
538
(169)
369
368
1
369
67.0
62.6
2020
$m
1,676
120
(810)
986
103
1,089
11
1,100
(752)
(175)
173
(58)
115
115
-
115
25.4
24.4
Note
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.2
3.3
2.3
2.6
2.6
Bank
2021
$m
1,367
117
(705)
779
228
1,007
-
1,007
(641)
13
379
(115)
264
264
-
264
2020
$m
1,597
134
(1,008)
723
220
943
-
943
(705)
(116)
122
(41)
81
81
-
81
(1) The basic and diluted earnings per share for August 2020 have been adjusted for the effects of the Group’s capital raise that occurred in March 2021. The basic and diluted
earnings per share for August 2021 have been adjusted for the effects of other equity instruments assumed on ME Bank acquisition (refer Note 3.10(B)).
The Income Statements should be read in conjunction with the accompanying notes.
108
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021 Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
STATEMENTS OF COMPREHENSIVE INCOME
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
Other comprehensive income, net of income tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the parent
Other equity instruments holders
Total comprehensive income for the year
Consolidated
Bank
2021
$m
369
53
19
35
(12)
95
464
463
1
464
2020
$m
115
2021
$m
264
2020
$m
81
3
20
-
(12)
11
126
126
-
126
53
19
35
(12)
95
359
359
-
359
4
20
-
(12)
12
93
93
-
93
The Statements of Comprehensive Income should be read in conjunction with the accompanying notes.
109
2021 Annual ReportFor the year ended 31 August 2021STATEMENTS OF COMPREHENSIVE INCOME Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
BALANCE SHEETS
ASSETS
Cash and cash equivalents
Due from other financial institutions
Derivative financial assets
Financial assets at fair value through profit or loss (FVTPL)
Debt instruments at FVOCI
Equity instruments at FVOCI
Debt instruments at amortised cost
Loans and advances
Other assets
Current tax assets
Property, plant and equipment
Assets held for sale
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
Provisions
Amounts due to controlled entities
Insurance policy liabilities
Borrowings
Total liabilities
Net assets
EQUITY
Issued capital
Note
3.1
3.8
3.2
3.2
3.2
3.2
3.3
5.5
5.5
2.3
4.1
5.6
3.4
3.8
5.5
4.2
3.5
Other equity instruments
3.10
Reserves
Retained profits
Total equity
The Balance Sheets should be read in conjunction with the accompanying notes.
110
56,772
65,548
60,012
Consolidated
2021
$m
2,563
827
137
1,087
9,701
9
-
2020
$m
1,353
860
154
1,854
4,530
6
-
75,437
46,674
190
-
198
43
-
50
1,180
10
91,432
273
65,902
653
575
28
17
64
-
-
148
2
148
-
-
122
908
13
296
39,593
803
458
-
-
47
-
5
Bank
2021
$m
1,373
708
86
1,087
5,548
6
7,699
44,827
1,154
-
120
30
1,910
85
915
-
2020
$m
835
826
101
1,854
4,530
6
7,662
41,520
1,031
2
142
-
552
113
838
-
273
43,569
620
360
24
-
43
6,241
-
8,806
59,936
296
39,810
799
385
-
-
38
6,707
-
7,914
55,949
17,723
85,235
11,339
52,541
6,197
4,231
5,612
4,063
5,213
314
376
294
6,197
3,869
-
184
178
4,231
5,224
-
383
5
5,612
3,875
-
194
(6)
4,063
Bank of Queensland Limited and its Controlled EntitiesAs at 31 August 2021BALANCE SHEETS Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
STATEMENTS OF CHANGES IN EQUITY
CONSOLIDATED
YEAR ENDED 31 AUGUST 2021
Issued
capital
$m
Other
equity
instruments
$m
Employee
benefits
reserve
$m
Share
Revaluation
Reserve
$m
Equity
reserve
for credit
losses
$m
Cash flow
hedge
reserve
$m
FVOCI
reserve
$m
Profit
reserve
$m
Retained
profits
$m
Total
equity
$m
Balance as at 1 September 2020
3,869
Acquisition of ME Bank
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
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
Institutional share placement (1)
Institutional entitlement offer (2)
Retail entitlement offer (3)
Issues of ordinary shares (4)
Dividend reinvestment plan
Dividends to shareholders
Cost of capital issuance
Equity settled transactions
Treasury shares (5)
Other equity instruments
distributions paid
Total contributions by and
distributions to owners
-
-
-
-
-
-
-
-
-
-
350
321
681
1
19
-
(23)
-
(5)
-
1,344
-
315
30
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(1)
(1)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
-
-
5
Balance at the end of the year
5,213
314
35
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3
-
3
3
63
(142)
33
200
178
4,231
-
-
-
-
-
-
-
(11)
(11)
(11)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
315
-
-
53
19
-
-
-
-
-
-
-
35
(12)
-
72
23
-
369
369
264
(264)
-
-
-
-
-
-
-
-
-
-
-
11
11
53
19
35
(12)
-
95
72
23
264
116
464
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(164)
-
-
-
-
-
350
-
-
-
-
-
-
-
-
-
321
681
1
19
(164)
(23)
5
(2)
(1)
-
(164)
-
1,187
52
(70)
56
300
294
6,197
(1) On 23 February 2021, the Bank completed an institutional placement of new fully paid ordinary shares at the offer price of $7.35 per share. The shares were issued on 3 March 2021.
(2) On 23 February 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable institutional entitlement offer at the offer price of $7.35 per
share. The shares were issued on 3 March 2021.
(3) On 15 March 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable retail entitlement offer at the offer price of $7.35 per share. The
shares were issued on 17 March 2021.
(4) On 9 November 2020, 130,000 ordinary shares were issued at $6.37 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the issue of
shares under the BOQ Employee ThankQ Plan.
(5) Treasury shares represents the value of shares held by a subsidiary that the Bank is required to include in the Consolidated Entity’s financial statements. The revaluation of
treasury shares is netted off in equity.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
111
2021 Annual ReportFor the year ended 31 August 2021STATEMENTS OF CHANGES IN EQUITY Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
CONSOLIDATED
YEAR ENDED 31 AUGUST 2020
Balance at beginning of the year
Change on adoption of new accounting standards (1)
Restated balance at beginning of the year
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
Institutional share placement (2)
Dividend reinvestment plan
Dividends to shareholders
Issues of ordinary shares (3)
Cost of capital issue
Share purchase plan (4)
Equity settled transactions
Issued
capital
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash
flow
hedge
reserve
$m
FVOCI
reserve
$m
Profit
reserve
$m
Retained
profits
$m
Total
equity
$m
3,497
-
3,497
26
-
26
62
-
62
(165)
-
(165)
-
-
-
-
-
-
-
-
-
-
250
31
-
4
(3)
90
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
1
1
1
-
-
-
-
-
-
-
-
-
3
20
-
-
-
-
23
23
-
-
-
-
-
-
-
45
-
45
-
-
-
-
-
(12)
-
-
(12)
(12)
-
-
-
-
-
-
-
245
-
245
-
81
-
-
-
-
-
-
-
81
-
-
(126)
-
-
-
-
149
(4)
3,859
(4)
145
3,855
115
(81)
115
-
-
-
-
-
-
(1)
(1)
3
20
-
(12)
-
-
11
33
126
-
-
-
-
-
-
-
250
31
(126)
4
(3)
90
4
Total contributions by and distributions to owners
Balance at the end of the year
372
3,869
4
30
-
63
-
(142)
-
33
(126)
200
-
250
178
4,231
(1) The August 2020 financial results reflect the adoption of AASB 16 on 1 September 2019.
(2) On 26 November 2019, the Bank completed a capital raising by way of institutional share placement of new fully paid ordinary shares at an issue price of $7.78 per share. The
shares were issued on 29 November 2019.
(3) On 29 November 2019, 440,000 ordinary shares were issued at $8.33 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 Plans and the issue of shares under the BOQ Restricted Share Plan and the BOQ Employee Share Plan.
(4) On 30 December 2019, the Bank completed the share purchase plan of new fully paid ordinary shares at an issue price of $7.27 per share. The shares were issued on 2 January 2020.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
112
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021STATEMENTS OF CHANGES IN EQUITY Financial Statements 108
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Shareholding Details
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Glossary 201
BANK
YEAR ENDED 31 AUGUST 2021
Balance as at 1 September 2020
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
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
Institutional share placement (1)
Institutional entitlement offer (2)
Retail entitlement offer (3)
Issues of ordinary shares (4)
Dividend reinvestment plan
Dividends to shareholders
Cost of capital issue
Equity settled transactions
Total contributions by and distributions to owners
Balance at the end of the year
-
-
-
-
-
-
-
-
-
350
321
681
1
19
-
(23)
-
1,349
5,224
Issued
capital
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash
flow
hedge
reserve
$m
FVOCI
reserve
$m
Profit
reserve
$m
Retained
profits
$m
Total
equity
$m
3,875
30
64
(133)
33
200
(6)
4,063
-
264
264
264
(264)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5
5
-
-
-
-
-
-
(11)
(11)
(11)
-
-
-
-
-
-
-
-
-
-
-
53
19
-
-
-
72
72
-
-
-
-
-
-
-
-
-
-
-
-
-
35
(12)
-
23
23
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
264
-
-
-
-
-
(164)
-
-
(164)
35
53
(61)
56
300
-
-
-
-
11
11
11
-
-
-
-
-
-
-
-
-
5
53
19
35
(12)
-
95
359
350
321
681
1
19
(164)
(23)
5
1,190
5,612
(1) On 23 February 2021, the Bank completed an institutional placement offer at the offer price of $7.35 per share. The shares were issued on 3 March 2021.
(2) On 23 February 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable institutional entitlement offer at the offer price of $7.35 per
share. The shares were issued on 3 March 2021.
(3) On 15 March 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable retail entitlement offer at the offer price of $7.35 per share. The
shares were issued on 17 March 2021.
(4) On 9 November 2020, 130,000 ordinary shares were issued at $6.37 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the issue of
shares under the BOQ Employee ThankQ Plan.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
113
2021 Annual ReportFor the year ended 31 August 2021STATEMENTS OF CHANGES IN EQUITY Financial Statements 108
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Shareholding Details
195
|
Glossary 201
BANK
YEAR ENDED 31 AUGUST 2020
Balance at beginning of the year
Change on adoption of new accounting standards (1)
Restated balance at beginning of the year
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
Institutional share placement (2)
Dividend reinvestment plan
Dividends to shareholders
Issues of ordinary shares (3)
Cost of capital issue
Share purchase plan (4)
Equity settled transactions
Issued
capital
$m
Employee
benefits
reserve
$m
Equity
reserve
for credit
losses
$m
Cash
flow
hedge
reserve
$m
FVOCI
reserve
$m
Profit
reserve
$m
Retained
profits
$m
Total
equity
$m
3,503
-
3,503
26
-
26
63
-
(157)
-
63
(157)
-
-
-
-
-
-
-
-
-
-
250
31
-
4
(3)
90
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
-
-
-
-
-
-
-
1
1
1
-
-
-
-
-
-
-
-
-
4
20
-
-
-
-
24
24
-
-
-
-
-
-
-
45
-
45
-
-
-
-
-
(12)
-
-
(12)
(12)
-
-
-
-
-
-
-
245
-
245
-
81
-
-
-
-
-
-
-
81
-
-
(126)
-
-
-
-
(1)
(4)
(5)
81
(81)
-
-
-
-
-
(1)
(1)
(1)
-
-
-
-
-
-
-
3,724
(4)
3,720
81
-
4
20
-
(12)
-
-
12
93
250
31
(126)
4
(3)
90
4
Total contributions by and distributions to owners
Balance at the end of the year
372
3,875
4
30
-
64
-
(133)
-
33
(126)
200
-
(6)
250
4,063
(1) The August 2020 financial results reflect the adoption of AASB 16 on 1 September 2019.
(2) On 26 November 2019, the Bank completed a capital raising by way of institutional share placement of new fully paid ordinary shares at an issue price of $7.78 per share.
The shares were issued on 29 November 2019.
(3) On 29 November 2019, 440,000 ordinary shares were issued at $8.33 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 Plans and the issue of shares under the BOQ Restricted Share Plan and the BOQ Employee Share Plan.
(4) On 30 December 2019, the Bank completed the share purchase plan of new fully paid ordinary shares at an issue price of $7.27 per share.
The shares were issued on 2 January 2020.
The Statements of Changes in Equity should be read in conjunction with the accompanying notes.
114
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021STATEMENTS OF CHANGES IN EQUITY Financial Statements 108
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Glossary 201
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Note
Interest received
Fees and other income received
Interest paid
Cash paid to suppliers and employees
Income tax paid
Increase / (decrease) in operating assets:
Loans and advances at amortised cost
Other financial assets
Increase in operating liabilities:
Deposits
Net cash inflow / (outflow) from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of ME Bank, net of cash acquired
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
Dividends received from controlled entities
Net cash inflow / (outflow) from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
Repayments of borrowings
Net movement in other financing activities
Proceeds for issue of ordinary shares
Payments for treasury shares
Other equity instruments distribution paid
Dividends paid
Payment of lease liabilities
Net cash inflow / (outflow) from financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash and cash equivalents included in assets held for sale
Cash and cash equivalents as presented in the
Balance Sheets
3.1
5.5
4.1
3.5
3.5
3.1
5.5
Consolidated
2021
$m
1,663
127
(569)
(622)
(100)
499
(3,070)
(1,001)
3,953
381
(746)
(9)
6
(119)
2
-
2020
$m
1,694
125
(733)
(577)
(89)
420
(874)
(272)
1,318
592
-
(9)
6
(102)
-
-
Bank
2021
$m
1,387
205
(712)
(531)
(91)
258
(3,443)
(173)
3,738
380
(1,388)
(9)
-
(115)
-
4
2020
$m
1,537
206
(925)
(508)
(87)
223
(809)
(309)
1,330
435
-
(9)
1
(101)
-
4
(866)
(105)
(1,508)
(105)
3,628
(3,063)
-
1,329
(7)
(1)
(145)
(42)
1,699
1,214
1,353
2,567
(4)
2,563
2,583
(3,193)
-
336
(1)
-
(95)
(38)
(408)
79
1,274
1,353
-
1,353
1,844
(937)
(378)
1,329
(7)
-
(145)
(40)
1,666
538
835
1,373
-
1,373
2,205
(1,625)
(962)
336
(1)
-
(95)
(38)
(180)
150
685
835
-
835
The Statements of Cash Flows should be read in conjunction with the accompanying notes.
115
2021 Annual ReportFor the year ended 31 August 2021 Financial Statements 108
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195
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Glossary 201
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
COVID-19 financial reporting considerations
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
Other notes
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
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
116
Page
117
117
117
117
118
119
120
120
121
122
125
126
128
129
129
130
132
141
142
144
154
157
163
164
166
166
169
170
170
173
173
173
175
179
180
180
181
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Shareholding Details
195
|
Glossary 201
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 Group.
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 (ECL) - Note 3.3;
• Financial instruments – Notes 3.2 and 3.7;
• Carrying value of goodwill and other intangible assets –Note 4.1;
• Provisions - Note 4.2; and
• Business combinations - Note 5.5.
NOTE 1. BASIS OF PREPARATION
1.1 REPORTING ENTITY
The Bank of Queensland Limited (the Bank or BOQ) is a for-profit
company domiciled in Australia. Its 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 2021 comprise the Consolidated
Entity (or the Group), being the Bank and its controlled entities,
and the Consolidated Entity’s interest in equity accounting
investments. The principal activity of the Group 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 12 October 2021.
(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 instruments at FVTPL; and
• Financial instruments at FVOCI.
(C) Functional and presentation currency
The consolidated financial statements are presented in Australian
dollars, which is the Bank’s functional currency.
(D) Rounding
The Group is of a kind referred to in ASIC Corporations
Instrument 2016/191 dated 24 March 2016 and in accordance
with that instrument, amounts in the consolidated financial
statements have been rounded to the nearest million dollars,
unless otherwise stated.
117
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS
Financial Statements 108
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195
|
Glossary 201
Goodwill
The Group tested goodwill for impairment, updating the
assumptions and cash flow forecasts, where necessary, to reflect
the potential impact of COVID-19. No impairments were required
to be recognised for goodwill held across the Group as at
31 August 2021. Management judgement is required to determine
the assumptions underpinning value-in-use calculations and
changes in these key assumptions could have an adverse impact
on the carrying value of goodwill. Refer to Note 4.1.
Hedge Accounting
The Group has considered the continued impact of COVID-19
on its existing hedges and whether they continue to meet the
criteria for Hedge Accounting. Hedged future cash flows, including
forecast rollovers of variable rate assets and liabilities, remain
highly probable. Refer to Note 3.8.
Borrowings
The Term Funding Facility (TFF) was announced by the Reserve
Bank of Australia (RBA) in March 2020 to provide three-year
funding to ADIs as part of a package of measures to support the
Australian economy. The facility initially provided three-year
funding to ADIs through repurchase transactions at a fixed pricing
of 0.25 per cent per annum. From 4 November 2020 the interest
rate on new drawings was lowered to 0.1 per cent per annum. As at
31 August 2021, $3 billion of the group facility has been drawn.
The TFF is accounted for as borrowings with the securities pledged
as collateral. There are no substantive conditions attached to
the ongoing use of the TFF and it is not linked to the provision of
specific loans to customers. However, as the funding is, in effect, a
below market interest loan from a Government entity, the loan is
classified as a Government Grant under AASB 120 Accounting for
Government grants and Disclosure of Government Assistance.
Grants related to income can be deducted in reporting the related
expense and, as such, the net interest expense will reflect the TFF
reduced cost of borrowing. Refer to Note 3.5.
1.4 COVID-19 FINANCIAL REPORTING CONSIDERATIONS
Background
The COVID-19 pandemic, together with measures implemented
to contain the virus, continues to create uncertainty for the
Australian economy. Although Gross Domestic Product (GDP),
property prices and unemployment have been less severe than
anticipated in FY20, we have seen on-going COVID-19 lockdowns
across several states. To mitigate the economic impact of the
COVID-19 pandemic, the Australian Banking Association (ABA)
Council proposed that the banking industry offer further relief
packages to small businesses and home loan customers that have
been significantly impacted by current or recent lockdowns. BOQ
continues to support customers by offering Business Banking
repayment deferrals, Everyday Banking support and Home Loan
support as proposed by the ABA.
The Group continues to carefully consider the impact of
COVID-19 in preparing its financial statements for the year ended
31 August 2021, including the increased estimation uncertainty
associated with:
• Disruption to businesses as a result of continuing lockdowns;
• The extent and duration of the expected economic downturn
including forecasts for growth, unemployment and property
prices; and
• The effect of government incentives and banking relief
packages to support businesses and consumers through this
economic downturn.
The key impacts on the consolidated financial statements,
including the use of critical estimates and judgements, are
as follows:
Provisions for impairment
In assessing forecast conditions, the Group has incorporated the
effects of COVID-19 and government support measures based
on reasonable and supportable information at the reporting date.
Model updates, including a complete review of the overlays and
adjustments in place as well as updated scenarios and scenario
weightings to cater for economic uncertainties, have been
implemented in 2H21. Forward looking adjustments have been
determined based on a probability weighted range of plausible
economic and industry stress scenarios, taking into account
the mitigating impacts of government and industry assistance
packages, including loan repayment deferrals. As the economy
showed signs of a rebound and the economic outlook improved
since the outbreak of COVID-19, this allowed for the release
of some provisions raised in prior periods while maintaining a
prudent provision coverage to cater for the ongoing uncertainty
of the pandemic. In line with guidance from APRA, the Group has
not treated the period of repayment deferrals offered as support
for affected customers as a period of arrears nor an automatic
significant increase in credit risk. Refer to Note 3.3.
118
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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195
|
Glossary 201
1.4 COVID-19 FINANCIAL REPORTING CONSIDERATIONS
1.5 NEW AUSTRALIAN ACCOUNTING STANDARDS
(CONTINUED)
Events subsequent to reporting date
The evolution of the COVID-19 pandemic remains uncertain,
including the duration of the pandemic, the severity of the
downturn and the speed of the economic recovery. BOQ has
considered whether events subsequent to the reporting date
have confirmed conditions existing as at reporting date and has
not identified any COVID-19 related developments which would
require adjustments to the amounts or disclosures contained
in the consolidated financial statements. Future economic
conditions may differ to the assumptions and scenarios used in
the consolidated financial statements, the impact of which will be
reflected in future reporting periods.
International Financial Reporting Standards
Interpretations Committee final agenda decisions not
yet adopted
In April 2021, the IFRS Interpretations Committee (IFRIC)
published its second agenda decision in relation to Software as
a Service (SaaS) cloud computing arrangements. The decision
discusses whether configuration or customisation expenditure
relating to SaaS arrangements is able to be recognised as an
intangible asset and if not, over what time period the expenditure
is expensed. Specifically, IFRIC stated that in most instances,
configuration and customisation costs incurred in implementing
SaaS solutions will be treated as an operating expense.
The Group’s accounting policy has historically been to capitalise
costs related to SaaS arrangements as intangible assets. The
adoption of the IFRIC decision could result in a reclassification of
these intangible assets to either a prepaid asset on the Balance
Sheet or recognition as an expense in the Income Statement,
impacting both the current and prior periods presented. For ME
Bank assets, the adoption could result in an adjustment to the fair
value of assets acquired and a corresponding increase to goodwill
as part of the Group’s acquisition accounting (refer Note 5.5 (C)).
The Group has over 110 software assets and 40 software assets
under construction (AUC). Both the scale and complexity of
assessing such a large number of complex projects is such that
BOQ has been unable to adopt this IFRIC agenda decision in
advance of the year-end reporting date. As such, the existing
policy of capitalising configuration and customisation costs
continues to apply as at 31 August 2021.
The complexity of the assessment also means that the impact
of the IFRIC decision cannot be reasonably estimated at the
reporting date. At 31 August 2021, software assets with net book
value of $188 million were subject to the detailed assessment.
BOQ will adopt the IFRIC decision in the HY2022 Consolidated
Interim Report and restate prior period comparatives.
119
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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195
|
Glossary 201
NOTE 2. FINANCIAL PERFORMANCE
2.1 OPERATING INCOME
Consolidated
INTEREST INCOME
Effective interest income
Other: Securities at fair value
Total interest income
INTEREST EXPENSE
Retail deposits
Wholesale deposits and borrowings
Lease liabilities
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 (loss) / income from financial instruments and derivatives
at fair value
Securitisation income
Dividend income
Management fees – controlled entities
Other income
Other operating income
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.
2021
$m
1,576
112
1,688
(206)
(351)
(3)
(560)
1,128
62
(6)
31
13
5
(4)
-
-
-
17
118
42
-
(35)
7
1,253
2020
$m
1,676
120
1,796
(388)
(419)
(3)
(810)
986
61
(6)
34
11
4
(10)
-
-
-
9
Bank
2021
$m
1,367
117
1,484
(192)
(510)
(3)
(705)
779
62
(6)
12
13
-
(5)
111
4
29
8
2020
$m
1,597
134
1,731
(388)
(617)
(3)
(1,008)
723
63
(6)
12
12
-
(9)
119
4
21
4
103
228
220
50
1
(40)
11
1,100
-
-
-
-
-
-
-
-
1,007
943
Interest income and expense
Interest income and expense for all interest bearing financial instruments is 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 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.
120
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2.2 EXPENSES
OPERATING EXPENSES
Advertising
Commissions to owner-managed branches
Communications and postage
Printing and stationery
Processing costs
Impairment
Other
ADMINISTRATIVE EXPENSES
Professional fees
Directors’ fees
Other
IT EXPENSES
Data processing
Amortisation – computer software
4.1
Depreciation – IT equipment
OCCUPANCY EXPENSES
Depreciation - ROU assets and lease expenses
Depreciation – property, plant and equipment
Other
EMPLOYEE EXPENSES
Salaries, wages and superannuation contributions
Payroll tax
Equity settled transactions
Other
OTHER
Amortisation – acquired intangibles
4.1
Total expenses
Consolidated
2021
$m
2020
$m
Bank
2021
$m
2020
$m
Note
33
4
20
4
14
-
36
111
38
2
17
57
121
47
1
169
29
9
3
41
313
16
8
17
354
4
4
736
28
5
17
3
13
41
43
150
24
2
9
35
126
77
1
204
28
10
2
40
289
14
9
6
318
5
5
752
19
4
16
3
14
-
32
88
32
2
23
57
112
36
1
149
26
9
3
38
272
14
7
14
307
2
2
641
16
4
17
3
13
41
48
142
21
2
15
38
120
71
1
192
26
10
2
38
265
12
8
6
291
4
4
705
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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:
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
Other
Numerical reconciliations between tax expense
and pre-tax profit
Profit before tax
Income tax using the domestic corporate tax rate of 30% (2020: 30%)
Increase in income tax expense due to:
Non-deductible expenses
Decrease in income tax expense due to:
Other (1)
Income tax expense on pre-tax net profit
Consolidated
2021
$m
2020
$m
Bank
2021
$m
123
(2)
121
48
169
20
-
10
30
538
161
10
(2)
169
103
(8)
95
(37)
58
6
(2)
(4)
-
173
52
7
(1)
58
113
(7)
106
9
115
19
-
10
29
379
114
9
(8)
115
2020
$m
83
(6)
77
(36)
41
7
(2)
(4)
1
122
37
6
(2)
41
(1)
In the Bank, this includes a prior period adjustment and the impact of dividends received from subsidiary members in the tax consolidated group which are both eliminated
at a group level.
122
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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
ROU Asset and Lease Liability
Lease financing relating to
lessor activities
Intangibles
Consolidation - Taxation of Financial
Arrangements (TOFA) (1)
Other
Total tax assets / (liabilities) (2)
BANK
Accruals
Capitalised expenditure
Provisions for impairment
Other provisions
Equity reserves
ROU Asset and Lease Liability
Lease financing relating to
lessor activities
Other
Total tax assets / (liabilities)
Assets
2021
$m
2020
$m
4
-
119
30
6
41
-
4
-
13
217
3
-
66
19
2
41
-
8
139
3
-
111
16
36
47
-
-
-
2
215
2
-
76
14
31
47
-
2
172
Liabilities
Net
2021
$m
-
(5)
-
-
-
(32)
(87)
(18)
(22)
(3)
(167)
-
(1)
-
-
-
(32)
(18)
(3)
(54)
2020
$m
-
(6)
-
-
-
(38)
(45)
(2)
-
(2)
(93)
-
(2)
-
-
-
(38)
(18)
(1)
(59)
2021
$m
4
(5)
119
30
6
9
(87)
(14)
(22)
10
50
3
(1)
66
19
2
9
(18)
5
85
2020
$m
3
(6)
111
16
36
9
(45)
(2)
-
-
122
2
(2)
76
14
31
9
(18)
1
113
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 (3)
Gross capital gains tax losses
2021
$m
23
50
2020
$m
24
50
(1) The provisional business combination balances relating to the acquisition of ME Bank include a transitional deferred tax liability that will unwind equally across the current
and next three years.
(2) The St. Andrew’s Group is classified as held for sale at the reporting date of 31 August 2021, refer to Note 5.5(E) for further information. Net deferred tax assets of $1 million
have been reclassified as held for sale. The above table excludes these net deferred tax assets.
(3) Income tax losses are subject to utilisation over an expected 15-20 year period.
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2.3
INCOME TAX EXPENSE AND DEFERRED TAX (CONTINUED)
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.
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 Group 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.
124
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2.4 DIVIDENDS
Ordinary shares
Final 2020 dividend paid 25 November 2020 (2019: 27 November 2019)
Interim 2021 dividend paid 26 May 2021
2021
Cents per
share
12
17
Bank
$m
55
109
164
2020
Cents per
share
31
-
All dividends paid on ordinary 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
22
The final ordinary share dividend will be paid on 18 November 2021 to owners of ordinary shares at the close of business on
29 October 2021 (record date). Shares will be quoted ex-dividend on 28 October 2021.
$m
126
-
126
$m
141
30% franking credits available to shareholders of the Bank for subsequent financial years
Bank
2021
$m
507
2020
$m
208
The ability to utilise the franking credits is dependent upon there being sufficient available profits to pay dividends. The profits
accumulated in the profit reserve are available for dividend payments in future years. All dividends paid 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 2021, is $446 million calculated at the 30 per cent
tax rate (2020: $183 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 the Market Price less such discount (if any) as the directors may determine from
time to time and notify to the ASX (rounded to the nearest cent).
Market price is the arithmetic average, rounded to four decimal places, of the daily volume weighted average price of:
• all shares sold in the ordinary course of trading on the ASX automated trading system; and
• where shares are sold on trading platforms of Australian licensed financial markets operated by persons other than ASX, all shares sold in
the ordinary course of trading on such of those trading platforms determined by the Board, from time to time, during the 10 trading day
period commencing on the second trading day after the record date in respect of the relevant dividend.
The calculation of the daily volume weighted average price shall not include certain transactions, as outlined in the DRP terms and conditions.
If, after this calculation, there is a residual balance, that balance will be carried forward (without interest) and added to the next dividend for the
purpose of calculating the number of shares secured under the DRP at that time.
Shares issued or transferred under the DRP will be fully-paid and rank equally in all respects with existing shares.
The last date for election to participate in the DRP for the 2021 full year dividend is 1 November 2021.
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2.5 OPERATING SEGMENTS
Segment information
The Group 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 Group 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 Group’s
other components. All operating segments’ operating
results are regularly reviewed by the Group’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 Group’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, Virgin Money distribution channels and
ME Bank (refer to Note 5.5);
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 Group’s
total revenue in 2021 or 2020.
Geographic information
While the Group 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 Group’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.
126
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2.5 OPERATING SEGMENTS (CONTINUED)
Retail Banking
BOQ Business
Other
Segment Total
2021 (1)
$m
2020 (2)
$m
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
INCOME
Net interest income (3)
Non-interest income
Total income
Operating expenses
Underlying profit / (loss)
Loan impairment gain/ (loss)
Cash profit / (loss) before tax
Income tax (expense)/ benefit
Segment cash profit / (loss) after tax (4)
STATUTORY BASIS ADJUSTMENTS:
Amortisation of acquisition fair value
adjustments
Hedge ineffectiveness
Transaction costs (5)
Integration costs (5)
Intangible asset review and restructure (6)
Regulatory / compliance
Employee pay and entitlements review
Other legacy items
570
74
644
437
74
511
555
48
603
543
40
583
3
8
11
(407)
(335)
(262)
(258)
(15)
237
21
258
(80)
178
-
-
-
-
-
-
-
-
176
(56)
120
(37)
83
341
-
341
(106)
235
325
(119)
206
(64)
142
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(4)
-
(4)
3
(1)
(3)
(3)
(19)
(9)
(3)
-
(6)
-
6
14
20
(19)
1
-
1
(1)
-
(4)
(10)
-
-
(80)
(5)
(8)
(3)
1,128
130
1,258
(684)
574
21
595
(183)
412
(3)
(3)
(19)
(9)
(3)
-
(6)
-
Statutory net profit / (loss) after tax
178
83
235
142
(44)
(110)
369
INCLUDED IN THE RESULTS:
986
128
1,114
(612)
502
(175)
327
(102)
225
(4)
(10)
-
-
(80)
(5)
(8)
(3)
115
Depreciation and amortisation
(54)
(67)
(22)
(45)
(8)
(3)
(84)
(115)
Total assets
Total liabilities
54,077
26,058
23,913
22,920
13,442
7,794
91,432
37,046
17,156
10,838
9,780
37,351
25,605
85,235
56,772
52,541
The August 2021 financial results includes the ME Bank contribution from 1 July 2021 until 31 August 2021.
(1)
(2) VMA operating costs have been restated from non-interest income and included in operating expenses per ASX announcement on 30 September 2021.
(3) 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.
(4) This excludes a number of items that introduce volatility and / or one-off distortions of the Group’s performance.
(5) Integration and transaction costs from ME Bank acquisition completed on 1 July 2021.
(6) The August 2021 financial results include a non-recurring adjustment due to a change in the ME Bank minimum threshold for the capitalisation of intangible assets to align
with BOQ.
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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
Returns to other equity instruments (1)
Profit available for ordinary shareholders
Basic earnings
Effect of Wholesale Capital Notes
Effect of Capital Notes
Effect of Capital Notes 2
Diluted earnings
Consolidated
2021
$m
369
(1)
368
-
9
5
382
2020
$m
115
-
115
4
11
-
130
Weighted average number of shares used as the denominator
2021 Number
2020 Number (2)
Number for basic earnings per share
Ordinary shares
Number for diluted earnings per share
Ordinary shares
Effect of award rights
Premium priced options (3)
Effect of Wholesale Capital Notes
Effect of Capital Notes
Effect of Capital Notes 2
EARNINGS PER SHARE
Basic earnings per share - Ordinary shares (cents)
Diluted earnings per share - Ordinary shares (cents)
549,628,512
454,599,751
549,628,512
454,599,751
3,248,973
1,909,302
-
-
-
18,456,165
37,717,103
58,658,037
21,033,327
-
611,627,915
533,623,255
67.0
62.6
25.4
24.4
(1) Other equity instruments assumed on the acquisition of ME Bank. Refer to Note 3.10(B) for further information.
(2) The basic and diluted earnings per share for August 2020 have been adjusted for the effects of the Group’s capital raise that occurred in March 2021.
(3) During the year ended 31 August 2021, the Group granted 8,033,732 premium priced options to eligible employees. The options were anti-dilutive during the period and
therefore have not impacted the diluted weighted average number of shares (WANOS) during the period.
128
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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 RBA. 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
Total
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
Add / (less) non-cash items or items classified as investing / financing:
Depreciation
Amortisation - acquired intangibles
Software amortisation and impairment
Profit on sale of property, plant and equipment
Equity settled transactions
Salary sacrifice reserve
Dividends received from controlled entities
Add / (less) changes in operating assets and liabilities:
(Increase) / decrease in due from other financial institutions
(Increase) in financial assets
(Increase) in loans and advances
Increase / (decrease) in provision for impairment
(Increase) / decrease in derivatives
(Increase) / decrease in deferred tax asset
(Increase) / decrease in amounts due to / from controlled entities
(Increase) / decrease in other assets
Increase / (decrease) in due to other financial institutions
Increase in deposits
Increase / (decrease) in accounts payable and other liabilities
Increase in current tax liabilities
Increase in provisions
Increase / (decrease) in deferred tax liabilities
(Decrease) in insurance policy liabilities
Net cash (inflow) / outflow from operating activities
2021
$m
2,124
238
201
2,563
4
2,567
369
39
4
47
(5)
8
(3)
-
119
(1,120)
(3,052)
(58)
(19)
17
-
(18)
(24)
3,982
33
34
5
23
-
381
2020
$m
983
270
100
1,353
-
1,353
115
35
5
118
(4)
9
-
-
(152)
(120)
(825)
136
14
(40)
-
45
11
1,278
(43)
5
7
2
(4)
592
2021
$m
1,135
238
-
1,373
-
1,373
264
36
2
36
-
7
(3)
(4)
118
(292)
(3,439)
(35)
(9)
(1)
35
(142)
(24)
3,733
67
26
4
1
-
380
2020
$m
465
270
100
835
-
835
81
35
4
108
-
8
-
(4)
(158)
(120)
(772)
89
13
(31)
(670)
548
11
1,302
(24)
6
13
(4)
-
435
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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.
The Bank invests in debt securities at amortised cost that are
issued by 100 per cent owned securitisation vehicles within the
Consolidated Group. The programs’ underlying pool of financial
instruments are recorded within the Bank’s Loans and advances.
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
Financial Instruments (AASB 9).
Where a financial liability is designated at fair value through profit
or loss, the movement in fair value is 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, is
recognised as a gain or loss in the Income Statement.
Reclassification of financial instruments
The Group 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 Group does not reclassify financial liabilities.
Derecognition of financial instruments
Financial assets are derecognised when the contractual rights
to receive cash flows from the assets have expired, or where
the Group has transferred its contractual rights to receive the
cash flows of the financial assets or substantially all the risks and
rewards of ownership, or upon substantial modification.
Financial liabilities are derecognised when they are extinguished,
i.e. when the obligation is discharged, cancelled or expired.
130
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Glossary 201
3.2 FINANCIAL ASSETS AND LIABILITIES (CONTINUED)
Financial assets recognised and measured at fair value and debt instruments at amortised cost 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.
DERIVATIVE FINANCIAL ASSETS
Current
Non-current
Total derivative financial assets
FINANCIAL ASSETS AT FVTPL
Floating rate notes and bonds
Negotiable certificates of deposit
Promissory notes
Reverse repurchase agreements
Total financial assets at FVTPL
Current
FINANCIAL ASSETS AT FVOCI
Debt instruments
Equity instruments
Total financial assets at FVOCI
Current
Non-current
DEBT INSTRUMENTS AT AMORTISED COST
Current
Non-current
Consolidated
2021
$m
82
55
137
664
180
200
43
1,087
1,087
9,701
9
9,710
3,232
6,478
-
-
-
2020
$m
19
135
154
1,829
25
-
-
1,854
1,854
4,530
6
4,536
80
4,456
-
-
-
Bank
2021
$m
19
67
86
664
180
200
43
1,087
1,087
5,548
6
5,554
607
4,947
168
7,531
7,699
2020
$m
19
82
101
1,829
25
-
-
1,854
1,854
4,530
6
4,536
80
4,456
200
7,462
7,662
131
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3.3 LOANS AND ADVANCES
Loans and advances at amortised cost
Loans and advances are originated by the Group 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. The method used to determine the appropriate period to amortise
any upfront payments or receipts on origination of loan contracts is the weighted average life (WAL) of the loan category.
Finance lease receivables
Loans and advances include finance lease receivables. 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 plus the present value of a guaranteed residual
value expected to accrue at the end of the lease term. Subsequently, lease repayments are apportioned between interest income and the
reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment
outstanding in respect of the lease.
Residential property loans
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
Consolidated
Bank
2021
$m
59,053
182
164
9,900
178
6,347
75,824
(76)
(107)
(204)
75,437
2020 (1)
$m
31,155
91
209
9,449
59
6,172
47,135
(92)
(94)
(275)
2021
$m
34,101
95
164
9,715
57
928
45,060
(14)
(83)
(136)
2020 (1)
$m
31,155
91
209
9,271
59
1,009
41,794
(20)
(68)
(186)
46,674
44,827
41,520
(1) Comparative information has been restated. To align product definitions across the Group, $810 million of BOQ Specialist asset finance products has been reclassified from
Commercial loans to Asset finance and leasing. $124 million of BOQ Specialist consumer lending products has been reclassified from Personal loans to Commercial loans.
(A) Loans and advances - Expected Credit Losses (ECL)
In accordance with AASB 9 Financial Instruments, the Group utilises 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 month ECL is the portion
of lifetime ECLs resulting 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 Group 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.
132
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3.3 LOANS AND ADVANCES (CONTINUED)
The Group 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 Group 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 considers the
expected behaviour of the asset as well as forward looking
macro-economic forecasts. Stage 2 also includes facilities
where the credit risk has improved and the loan has been
reclassified from Stage 3.
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.
Purchased or originated credit-impaired (POCI) - POCI assets
are financial assets that are purchased or originated as being
credit impaired. The ECL for POCI assets is measured at an
amount equal to the lifetime ECL. However, the amount
recognised as a loss allowance for these assets is not the total
amount of lifetime ECLs, but instead the changes in lifetime
ECLs since initial recognition of the asset.
Write-offs
Financial assets are written off, either partially or in full, against
the related provision when the Group 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.
Definition of default
A default is considered to have occurred when the borrower is
unlikely to pay its credit obligations in full without recourse by
the Group to the realisation of available security and/or the
borrower is at least 90 days past due on their credit obligations.
This definition is in line with the regulatory definition of default
and also aligned to the definition used for internal credit risk
management purposes across all portfolios.
Significant increase in credit risk
SICR for financial assets is 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 Group considers qualitative and quantitative
information. For the majority of BOQ’s portfolios, SICR is assessed
using PD based triggers, by comparing the PD at the reporting
date to the PD at origination. PD’s are primarily assigned through
either a Customer Risk Rating or statistical models, utilising
account behaviours. 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 and other qualitative criteria.
Calculation of ECL
Both 12 month 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. 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-month 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.
Incorporation of forward-looking information
The credit risk factors described above are 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, and is an
important component of the provisioning process. The Group
considers four forward-looking macro-economic scenarios
(base, upside, downside and severe downside) over the next three
years. The scenarios are then probability weighted based on the
likelihood of the scenario occurring to ensure ECL appropriately
captures forward looking effects and considers the range
of possible economic outcomes. 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.
133
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3.3 LOANS AND ADVANCES (CONTINUED)
Incorporation of forward-looking information (Continued)
The scenarios, including their underlying indicators, are developed using a combination of publicly available data and internal
forecasts 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, 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.
Impact of COVID-19 on ECL
In response to the COVID-19 global pandemic, BOQ continues to offer support to its customers through a range of industry-wide
financial assistance measures including temporary loan repayment deferrals. Notwithstanding these measures, together with
government stimulus, there remains significant estimation uncertainty in relation to the measurement of BOQ’s ECL for loans and
advances. Although GDP, property prices and unemployment have been less severe than anticipated in FY20 there have been further
outbreaks of infection and snap lockdowns across a large part of Australia with metropolitan cities experiencing extended lockdown
periods. The true extent of the level of stress in the economy, which could result in credit losses, is still highly uncertain.
In determining the reported ECL of $311 million, the Group has taken into account the facts, circumstances and forecasts of future
economic conditions and supportable information available at the reporting date. Model updates have been implemented in 2H21 which
include a complete review of the overlays and adjustments in place as well as updated scenarios and scenario weightings to cater for
economic uncertainties. Observed credit deterioration, and its resultant impact on PD and LGD, incorporated in the most recent data set
has translated some of the model overlay into the modelled outcome while management overlays have been refined based on industry
and occupation data observed during the pandemic.
The ECL reflects an unbiased and probability-weighted amount, determined by the evaluation of a range of possible forward looking
economic outcomes, rather than being based on a best or worst case scenario. The macro-economic outlook, as reflected in the base
case scenario, has improved since FY20 including lower unemployment and improved property prices. The Group has introduced a new
Upside scenario reflecting low unemployment and strong growth due to extensive fiscal and monetary support. However, the potential
for further downside risk remains, including economic deterioration from additional lockdowns, the reduction of government support
and vaccine rollout delays. The probability weighting across each scenario has therefore been updated per the table below utilising the
most up to date macro-economic information available as at reporting date.
Weighting
Upside
Base
Downside
Severe
2021
5.0%
2020
2021
2020
2021
2020
2021
-
42.5%
75.0% 30.0% 20.0%
22.5%
2020
5.0%
The general shape of the economic recovery varies within each scenario. The table below provides a summary of macro-economic
assumptions used in the Base and Downside scenarios as at 31 August 2021.
Macro-economic assumption
GDP
Unemployment rate
Residential property prices
Commercial property prices
2021
(%)
3.75%
5.00%
17.00%
3.25%
Base
2022
(%)
4.75%
4.50%
7.50%
(0.25%)
2023
(%)
2.75%
4.25%
4.00%
0.75%
2021
(%)
(0.25%)
6.75%
6.75%
1.00%
Downside
2022
(%)
2.75%
6.75%
(2.00%)
(3.75%)
2023
(%)
2.00%
6.50%
(0.25%)
(2.75%)
Sensitivity of provisions for impairment
The ECL reflects an unbiased and probability-weighted amount across a range of macro-economic scenarios as described above. The
following table compares the reported ECL to approximate levels of ECL under the Base and Downside scenarios assuming a 100 per cent
weighting was applied to each scenario with all other assumptions held constant.
Reported probability weighted ECL
100% base case
100% downside
134
Consolidated
$m
311
289
331
Bank
$m
219
199
234
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Glossary 201
3.3 LOANS AND ADVANCES (CONTINUED)
Governance
The Executive Credit Committee has the delegation for reviewing and approving the methodology, including any judgements and
assumptions. 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 Group’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.
The following table discloses the reconciliation of the ECL model of the Group for the year ended 31 August 2021.
CONSOLIDATED
Balance as at 1 September 2020
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 2021
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
95
19
(5)
(1)
36
(56)
-
-
88
115
(10)
10
(5)
31
(91)
-
-
50
65
(1)
(2)
3
53
(52)
-
-
66
94
(8)
(3)
3
55
(1)
(29)
(4)
107
Total
$m
369
-
-
-
175
(200)
(29)
(4)
311
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 Group during the year ended 31 August 2021.
CONSOLIDATED
Gross carrying amount as at 1 September
2020
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or
purchased (2)
Loans and advances derecognised or repaid
during the year including write-offs
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Stage 3 -
POCI Loans
$m
42,831
3,605
408
199
1,307
(2,373)
(235)
(1,282)
2,436
(182)
40,232
342
(11,074)
(909)
(23)
(35)
321
7
(135)
543
(66)
477
(2)
(28)
96
8
(52)
221
(107)
114
Balance as at 31 August 2021
Provision for impairment
70,688
(88)
Net carrying amount as at 31 August 2021
70,600
4,010
(50)
3,960
(1) The amounts presented above are inclusive of unearned finance lease income.
(2) $25,159 million of new loans and advances originated relates to ME Bank acquisition.
Total (1)
$m
47,043
-
-
-
-
-
-
-
286
40,875
-
(12,170)
286
-
286
75,748
(311)
75,437
135
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Glossary 201
3.3 LOANS AND ADVANCES (CONTINUED)
The following table discloses the reconciliation of the ECL model of the Group for the year ended 31 August 2020.
CONSOLIDATED
Balance as at 1 September 2019
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 2020
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
81
8
(3)
(1)
47
(37)
-
-
95
44
(7)
4
(5)
94
(15)
-
-
115
23
(1)
(1)
2
50
(8)
-
-
65
Stage 3 –
Specific
provision
$m
85
-
-
4
39
3
(32)
(5)
94
Total
$m
233
-
-
-
230
(57)
(32)
(5)
369
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 Group during the year ended 31 August 2020.
CONSOLIDATED
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Gross carrying amount as at 1 September 2019
43,233
2,425
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or purchased
Loans and advances derecognised or repaid during
the year including write-offs
Balance as at 31 August 2020
Provision for impairment
Net carrying amount as at 31 August 2020
682
(2,278)
(156)
11,641
(10,291)
42,831
(95)
42,736
(666)
2,304
(89)
319
(688)
3,605
(115)
3,490
(1) The amounts presented above are inclusive of unearned finance lease income.
351
(15)
(25)
195
34
(132)
408
(65)
343
Stage 3 –
Specific
provision
$m
207
(1)
(1)
50
1
(57)
199
(94)
105
Total (1)
$m
46,216
-
-
-
11,995
(11,168)
47,043
(369)
46,674
136
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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195
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Glossary 201
3.3 LOANS AND ADVANCES (CONTINUED)
The following table discloses the reconciliation of the ECL model of the Bank for the year ended 31 August 2021.
BANK
Balance as at 1 September 2020
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 2021
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
57
5
(3)
(1)
18
(25)
-
-
51
78
(4)
7
(3)
25
(64)
-
-
39
51
(1)
(1)
2
35
(40)
-
-
46
68
-
(3)
2
40
(8)
(13)
(3)
83
Total
$m
254
-
-
-
118
(137)
(13)
(3)
219
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 2021.
BANK
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Gross carrying amount as at 1 September 2020
38,270
2,934
399
171
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or purchased
Loans and advances derecognised or repaid during the year
including write-offs
Balance as at 31 August 2021
Provision for impairment
Net carrying amount as at 31 August 2021
(1) The amounts presented above are inclusive of unearned finance lease income.
997
(2,133)
(203)
13,008
(9,203)
40,736
(51)
40,685
(973)
2,195
(168)
263
(634)
3,617
(39)
3,578
(22)
(34)
289
14
(147)
499
(46)
453
(2)
(28)
82
4
(33)
194
(83)
111
Total (1)
$m
41,774
-
-
-
13,289
(10,017)
45,046
(219)
44,827
137
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195
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Glossary 201
3.3 LOANS AND ADVANCES (CONTINUED)
The following table discloses the reconciliation of the ECL model of the Bank for the year ended 31 August 2020.
BANK
Balance as at 1 September 2019
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 2020
Collective Provision
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
47
4
(1)
-
26
(19)
-
-
57
33
(4)
2
(4)
63
(12)
-
-
78
19
-
(1)
2
37
(6)
-
-
51
65
-
-
2
26
(2)
(19)
(4)
68
Total
$m
164
-
-
-
152
(39)
(19)
(4)
254
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 2020.
BANK
Stage 1 –
12 month ECL
$m
Stage 2 –
Lifetime ECL
$m
Stage 3 –
Lifetime ECL
$m
Stage 3 –
Specific
provision
$m
Gross carrying amount as at 1 September 2019
38,266
2,212
341
Transfers during the year to:
Stage 1
Stage 2
Stage 3
New loans and advances originated or purchased
Loans and advances derecognised or repaid during
the year including write-offs
Balance as at 31 August 2020
Provision for impairment
Net carrying amount as at 31 August 2020
640
(1,677)
(140)
9,450
(8,269)
38,270
(57)
38,213
(625)
1,703
(82)
305
(579)
2,934
(78)
2,856
(14)
(25)
190
32
(125)
399
(51)
348
(1) The amounts presented above are inclusive of unearned finance lease income.
181
(1)
(1)
32
-
(40)
171
(68)
103
Total (1)
$m
41,000
-
-
-
9,787
(9,013)
41,774
(254)
41,520
138
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
3.3 LOANS AND ADVANCES (CONTINUED)
The table below discloses the breakdown of impairment expense on loans and advances.
(Decrease)/ increase in collective provision for impairment
Increase in specific provision for impairment
Bad debts written off net of recoveries
Impairment (gain)/ loss on loans and advances
Consolidated
Bank
2021
$m
(71)
20
30
(21)
2020
$m
127
14
34
175
2021
$m
(50)
21
16
(13)
(B) Lease receivables
Asset finance and leasing include the following finance lease receivables for leases where the Group 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
Net investment in finance leases
2021
$m
334
611
34
979
(76)
903
303
570
30
903
2020
$m
335
696
58
1,089
(92)
997
300
645
52
997
2021
$m
14
108
31
153
(14)
139
15
97
27
139
2020
$m
87
7
22
116
2020
$m
20
142
37
199
(20)
179
20
128
31
179
139
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
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), Impala and SMHL Securitisation (SMHL
Trusts) programs, the Group packages loans and advances through a series of securitisation vehicles from which debt securities are issued
to investors. The Group 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 Group’s Balance Sheet. The note holders have recourse only to the loan pool of assets. Refer to Note 5.9 (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. Refer to Note 5.9 (A)(iii) for further information.
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
Covered bonds - Loans and advances
ASSOCIATED FINANCIAL LIABILITIES
Securitisation liabilities - external investors
Covered bonds - external investors
Amounts due to controlled entities
FOR THOSE LIABILITIES THAT HAVE RECOURSE
ONLY TO TRANSFERRED ASSETS (1)
Fair value of transferred assets
Fair value of associated liabilities
Net position
Consolidated
2021
$m
6,952
3,078
10,030
7,653
2,362
-
10,015
2020
$m
3,430
2,961
6,391
3,432
2,371
-
5,803
Bank
2021
$m
9,115
3,078
12,193
-
2,362
9,324
11,686
2020
$m
10,169
2,961
13,130
-
2,371
10,189
12,560
10,042
(10,015)
27
6,408
(5,803)
605
12,202
(11,686)
516
13,166
(12,560)
606
(1)
The fair values of transferred assets and liabilities that reprice within 6 months are assumed to equate to the amortised cost. All other fair values are calculated using a
discounted cash flow model.
140
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
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
2021
$m
34,732
26,427
4,743
65,902
56,469
9,433
65,902
2020
$m
19,773
16,810
3,010
39,593
34,762
4,831
39,593
2021
$m
23,502
16,744
3,323
43,569
38,180
5,389
43,569
2020
$m
19,971
16,829
3,010
39,810
34,960
4,850
39,810
141
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
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 Group recorded the following movements on borrowings:
CONSOLIDATED
YEAR ENDED 31 AUGUST 2021
Balance at beginning of year
Acquisition of ME Bank
Proceeds from issues/ new funding
Repayments
Deferred establishment costs
Amortisation of deferred costs (5)
Foreign exchange translation (5)
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities
(2)
$m
EMTN
program
$m
Term
funding
facility (3)
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Capital
Notes (4)
$m
Total
$m
3,429
4,558
1,134
(1,476)
(2)
2
-
2,367
194
-
-
-
-
1
(9)
820
872
1,334
-
-
-
-
350
-
250
(150)
(1)
-
-
3,833
346
11,339
403
650
(1,325)
(1)
1
-
-
260
-
(5)
1
-
5,833
3,628
(3,063)
(9)
5
(10)
3,026
449
3,561
602
17,723
-
-
(112)
-
-
(1)
81
Balance at end of year
7,645
2,359
CONSOLIDATED
YEAR ENDED 31 AUGUST 2020
Balance at beginning of year
Proceeds from issues/ new funding
Repayments
Deferred establishment costs
Amortisation of deferred costs (5)
Foreign exchange translation (5)
Securitisation
liabilities (1)
$m
Covered
bonds
liabilities
(2)
$m
EMTN
program
$m
Term
funding
facility (3)
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Capital
Notes (4)
$m
Total
$m
4,617
378
(1,568)
(1)
3
-
1,649
750
-
(2)
1
(31)
263
-
(60)
-
-
(9)
194
-
820
-
-
-
-
349
-
-
-
1
-
4,613
635
495
-
11,986
2,583
(1,415)
(150)
(3,193)
(1)
1
-
-
1
-
(4)
7
(40)
820
350
3,833
346
11,339
Balance at end of year
3,429
2,367
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) The TFF provides funding at a fixed interest rate of 25 basis points, for a maximum of 3 years and is accounted for as borrowings. From 4 November 2020 the interest rate
of new borrowings was lowered to 10 basis points. The funding is a below market interest loan from a Government entity and, accordingly, classified as a Government Grant.
The Group reflects a net interest expense in the Income Statement. There are no terms and conditions associated with the TFF other than pledging eligible collateral that
meet the RBA’s eligibility criteria. At 31 August 2021, the Group has pledged $3.7 billion of self-securitised residential mortgage-backed securities as collateral.
(4) 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 2021, 3,500,000 Capital Notes were outstanding.
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 volume 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 Capital Notes 2 and other equal ranking instruments, but behind the claims of all
senior ranking creditors, including depositors and unsubordinated and subordinated creditors.
Capital Notes 2
On 30 November 2020, the Bank issued 2,600,000 Capital Notes 2 at a price of $100 per note. Capital Notes 2 are perpetual and convertible notes issued by BOQ, with
preferred, discretionary, non-cumulative distributions. They are not guaranteed or secured. As at 31 August 2021, 2,600,000 Capital Notes 2 were outstanding. Capital
Notes 2 must convert into ordinary shares on 15 May 2029 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 2 based on the volume weighted average price of
ordinary shares during a specified period. Capital Notes 2 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 2 on 14 May 2027 or following a regulatory or tax event. BOQ may also elect to convert all Capital Notes 2
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 2 will rank for payment of capital ahead of ordinary shares, equally with Capital Notes (issued 28 December 2017) and other equal ranking instruments, but behind the
claims of all senior ranking creditors, including depositors and unsubordinated and subordinated creditors.
(5) Amortisation of deferred costs and foreign exchange translation are non-cash movements. Foreign exchange translation movements are 100 per cent hedged.
142
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS
Financial Statements 108
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Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
Total
$m
7,914
1,844
(937)
(8)
3
(10)
Total
$m
7,372
2,205
(1)
3
(40)
7,914
3.5 BORROWINGS (CONTINUED)
The Bank recorded the following movements on borrowings:
BANK
YEAR ENDED 31 AUGUST 2021
Covered
bonds
liabilities (1)
$m
EMTN
program
$m
Term
funding
facility (2)
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Capital
Notes (3)
$m
Balance at beginning of year
2,371
Proceeds from issues / new funding
Repayments
Deferred establishment costs
Amortisation of deferred costs (4)
Foreign exchange translation (4)
Balance at end of year
-
-
-
-
(9)
2,362
194
-
(112)
-
-
(1)
81
820
1,334
-
-
-
-
350
250
(150)
(1)
-
-
3,833
-
(675)
(1)
1
-
346
260
-
(6)
2
-
2,154
449
3,158
602
8,806
BANK
YEAR ENDED 31 AUGUST 2020
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 year
Covered
bonds
liabilities (1)
$m
EMTN
program
$m
Term
funding
facility (2)
$m
Subordinated
notes
$m
Senior
unsecured
notes
$m
Capital
Notes (3)
$m
1,652
750
-
-
-
(31)
2,371
263
-
(60)
-
-
(9)
194
-
820
-
-
-
-
349
-
-
-
1
-
4,613
635
(1,415)
(1)
1
-
495
-
-
1
-
820
350
3,833
346
(150)
(1,625)
(1) Covered bonds liabilities are secured by a charge over a pool of loans and advances and guaranteed by the covered bond guarantor.
(2) The TFF provides funding at a fixed interest rate of 25 basis points, for a maximum of 3 years and is accounted for as borrowings. From 4 November 2020 the interest rate
of new borrowings was lowered to 10 basis points. The funding is a below market interest loan from a Government entity and, accordingly, classified as a Government Grant.
The Bank reflects a net interest expense in the Income Statement. There are no terms and conditions associated with the TFF other than pledging eligible collateral that
meet the RBAs eligibility criteria. At 31 August 2021, the Bank has pledged $2.7 billion of self-securitised residential mortgage-backed securities as collateral.
(3) 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 2021, 3,500,000 Capital Notes were outstanding. 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.
Capital Notes 2
On 30 November 2020, the Bank issued 2,600,000 Capital Notes 2 at a price of $100 per note. Capital Notes 2 are perpetual and convertible notes issued by BOQ, with
preferred, discretionary, non-cumulative distributions. They are not guaranteed or secured. As at 31 August 2021, 2,600,000 Capital Notes 2 were outstanding. Capital
Notes 2 must convert into ordinary shares on 15 May 2029 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 2 based on the volume weighted average price of
ordinary shares during a specified period. Capital Notes 2 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 2 on 14 May 2027 or following a regulatory or tax event. BOQ may also elect to convert all Capital Notes 2
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 2 will rank for payment of capital ahead of ordinary shares, equally with Capital Notes (issued 28 December 2017) and other equal ranking instruments, but behind the
claims of all senior ranking creditors, including depositors and unsubordinated and subordinated creditors.
(4) Amortisation of deferred costs and foreign exchange translation are non-cash movements. Foreign exchange translation movements are 100 per cent hedged.
143
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS
Financial Statements 108
|
Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
3.6 RISK MANAGEMENT
The Group adopts a “managed risk” approach to its banking and insurance activities in which the articulation of a risk aware culture is
prevalent throughout the Group’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 Group’s corporate objectives through the operationalisation and
progressive development of the Group’s risk management function. The continued improvement of the Group’s risk management
function focuses on a number of key areas, with particular emphasis on:
1. the efficiency and effectiveness of the Group’s credit, market, liquidity, operational risk and compliance management process
controls and policies to support the Bank’s customer proposition in line with its risk appetite;
2. 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; and
4. contributing to the Group 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 Group’s enterprise risk management framework incorporates active management and monitoring of a range of risks including
(but not limited to):
1. Market;
2. Credit; and
3. Liquidity.
(A) Market risk
Market risk is the risk that movements in market rates and prices will result in profits or losses to the Group. The objective of market risk
management is to manage and control market risk and to minimise its impact on the Group.
(i) Interest rate risk management
The operations of the Group 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 Group’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
one 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
2021
$m
23
6
23
(6)
2020
$m
2
(2)
7
(13)
It is the Bank’s policy not to carry material foreign exchange rate exposures, net of associated hedging instruments, in the banking
book. At balance date, there are no net material foreign exchange rate exposures in the banking book.
The Bank uses cross currency swaps and forward foreign exchange contracts 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.
144
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
|
Shareholding Details
195
|
Glossary 201
3.6 RISK MANAGEMENT (CONTINUED)
(A) Market risk (continued)
(iii) Traded market risk
Market risks attributable to trading activities are primarily measured using a historical simulation 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 one-day time horizon to a 99 per cent confidence level using two-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
2021
$m
0.45
1.13
0.20
2020
$m
0.64
1.25
0.19
(B) Credit risk
Credit risk arises in the business from lending activities, the provision of guarantees including letters of credit and commitments to lend,
investment in bonds and notes, financial market transactions and other associated activities. Credit risk is the potential loss arising from
the possibility that customers or counterparties fail to meet contractual payment obligations to the Group as they fall due.
The Board has 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 senior executives and senior risk managers, chaired by the Chief Risk Officer;
risk grading the Bank’s commercial exposures 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, counterparty concentrations, loan grades and security
strength ratings.
The Group 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 Group can hold derivative financial instruments for
trading purposes. Credit risk on derivative contracts used for these purposes is minimised as counterparties are recognised financial
intermediaries with acceptable credit ratings determined by a recognised rating agency.
(i) Maximum exposure to credit risk
The amounts disclosed are the maximum exposure to credit risk, before taking account of any collateral held or other credit
enhancements. For financial assets recognised on the Balance Sheet, the exposure to credit risk equals their carrying amount. For
customer commitments, the maximum exposure to credit risk is the full amount of the committed facilities as at reporting date.
145
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
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
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 (1)
Total potential exposure to credit risk
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 (1)
Total potential exposure to credit risk
(1) Refer to Note 5.2 for details of customer commitments.
Stage 1
$m
2,563
827
10,847
137
14,374
70,688
85,062
5,344
90,406
Stage 1
$m
1,373
708
14,385
86
16,552
40,736
57,288
1,541
58,829
2021
Stage 2
$m
Stage 3
$m
-
-
-
-
-
4,010
4,010
-
4,010
2021
Stage 2
$m
-
-
-
-
-
3,617
3,617
-
3,617
-
-
-
-
-
1,050
1,050
-
1,050
Stage 3
$m
-
-
-
-
-
693
693
-
693
Total
$m
2,563
827
10,847
137
14,374
75,748
90,122
5,344
95,466
Total
$m
1,373
708
14,385
86
16,552
45,046
61,598
1,541
63,139
2020
Total
$m
1,353
860
6,444
154
8,811
47,135
55,946
1,926
57,872
2020
Total
$m
835
826
14,101
101
15,863
41,794
57,657
1,128
58,785
146
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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:
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
Consolidated
2021
$m
72,849
69,361
3,276
212
14,374
14,374
-
-
2,656
1,327
734
595
243
-
-
243
90,122
2020
$m
45,479
42,288
3,065
126
8,811
8,811
-
-
1,461
635
540
286
195
-
-
195
55,946
Bank
2021
$m
43,131
40,053
2,924
154
16,552
16,552
-
-
1,735
683
693
359
180
-
-
180
61,598
2020
$m
40,269
37,716
2,423
130
15,863
15,863
-
-
1,364
574
511
279
161
-
-
161
57,657
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
There is no individual exposure included in impaired assets which exceeds five per cent of shareholders’ equity (2020: nil).
The Group 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 Group can take possession of, or appoint
receivers and managers/administrators to, the collateral held against the loans and advances as a result of customer default. To ensure
reduced exposure to losses in such scenarios, the collateral held by the Group is then realised in accordance with legal and regulatory
requirements whilst also taking into consideration the individual circumstances of each matter.
Estimates of fair value are based on the value of collateral assessed at the time of borrowing, or for commercial exposures updated
values as periodically obtained in accordance with the Group policy and regulatory requirements. When a loan is individually assessed as
impaired, the value of collateral held is updated regularly to assess any specific provisioning requirements. 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
2021
$m
7,387
3,796
2,118
1,473
212
-
-
212
2020
$m
4,204
2,724
1,002
478
141
-
-
141
2021
$m
5,983
2,823
2,078
1,082
141
-
-
141
2020
$m
2,721
1,276
973
472
121
-
-
121
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
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Glossary 201
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; and
•
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
2021
$m
2020
$m
Gross loans & advances
Gross loans & advances
Retail
Commercial
Gross
loans &
advances
50,580
48,145
2,094
341
7,731
7,221
330
180
946
659
105
182
155
155
-
-
4,625
4,505
84
36
9,447
8,635
730
82
2,036
1,140
667
229
228
228
-
-
55,205
52,650
2,178
377
17,178
15,856
1,060
262
2,982
1,799
772
411
383
383
-
-
Other
financial
assets
14,365
14,365
-
-
-
-
-
-
9
9
-
-
-
-
-
-
Retail
Commercial
Gross
loans &
advances
25,752
24,606
1,070
76
5,065
4,840
199
26
612
353
106
153
-
-
-
-
4,320
3,964
330
26
8,831
7,935
855
41
2,365
1,035
1,045
285
190
190
-
-
30,072
28,570
1,400
102
13,896
12,775
1,054
67
2,977
1,388
1,151
438
190
190
-
-
Other
financial
assets
8,805
8,805
-
-
-
-
-
-
6
6
-
-
-
-
-
-
59,412
16,336
75,748
14,374
31,429
15,706
47,135
8,811
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
148
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Glossary 201
3.6 RISK MANAGEMENT (CONTINUED)
(B) Credit risk (continued)
(ii) Credit quality (continued)
2021
$m
2020
$m
Gross loans & advances
Gross loans & advances
Bank
Retail
Commercial
30,739
28,478
2,094
167
2,622
2,223
330
69
857
571
105
181
34
34
-
-
4,087
4,003
51
33
5,967
5,318
588
61
740
109
449
182
-
-
-
-
Gross
loans &
advances
34,826
32,481
Other
financial
assets
15,449
15,449
2,145
200
8,589
7,541
918
130
1,597
680
554
363
34
34
-
-
-
-
-
-
-
-
6
6
-
-
1,097
1,097
-
-
Retail
Commercial
Gross
loans &
advances
25,752
24,606
1,070
76
5,065
4,840
199
26
612
353
106
153
-
-
-
-
3,770
3,415
329
26
5,797
4,953
799
45
798
123
431
244
-
-
-
-
29,522
28,021
1,399
102
10,862
9,793
998
71
1,410
476
537
397
-
-
-
-
Other
financial
assets
15,017
15,017
-
-
32
32
-
-
6
6
-
-
808
808
-
-
34,252
10,794
45,046
16,552
31,429
10,365
41,794
15,863
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
(iii) Loans and advances which were past due but not impaired
Loans which are 90 or more days past due are not classified as impaired assets where the estimated net realisable value of the
security is sufficient to cover the repayment of all principal and interest amounts due.
Less than 30 days
- Retail
30 to 89 days
90 days or more
- Commercial
- Retail
- Commercial
- Retail
- Commercial
Consolidated
Bank
2021
$m
1,184
711
349
90
213
109
2020
$m
392
503
86
47
305
129
2021
$m
635
618
105
66
212
99
2020
$m
392
436
86
27
305
118
2,656
1,462
1,735
1,364
149
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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 counterparties are engaged in similar activities, operate in the same
geographical areas or industry sectors and have similar economic characteristics, so that their ability to meet contractual obligations
is similarly affected by changes in economic, political or other conditions. The Group 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
2021
$m
24,258
23,058
14,924
449
1,877
7,477
2,226
1,170
385
2020
$m
19,633
14,543
6,915
253
340
3,959
866
234
392
2021
$m
18,697
15,076
5,951
237
329
3,735
808
227
-
2020
$m
17,793
13,205
5,721
234
314
3,610
703
214
-
75,824
47,135
45,060
41,794
150
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Glossary 201
3.6 RISK MANAGEMENT (CONTINUED)
(C) Liquidity risk
Liquidity risk arises from the possibility that the Group 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 Group 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 analyses.
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
CONSOLIDATED
2021
FINANCIAL LIABILITIES
Due to other financial
institutions
Deposits
Derivative financial
instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings (3)
Liabilities held for sale
273
273
-
-
65,902
34,732
16,974
13,346
28
575
7,645
10,078
17
-
-
-
-
-
5
384
1,702
622
-
13
27
1,234
1,807
-
-
988
11
114
2,807
7,620
-
-
-
-
50
2,258
265
-
Total financial liabilities
84,518
35,005
19,687
16,427
11,540
2,573
DERIVATIVE FINANCIAL
INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET
POSITIONS
Guarantees, indemnities and
letters of credit
Customer funding
commitments
519
-
-
-
-
-
-
880
(809)
71
1,196
(1,079)
117
1,913
(1,574)
339
168
(131)
37
259
5,085
5,344
-
-
-
-
-
-
-
-
-
-
-
-
(1) Derivative financial instruments other than those designated in hedge relationships.
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
(3) Borrowings include the $3 billion TFF.
-
-
-
-
-
-
17
17
-
-
-
-
-
-
273
66,040
29
575
8,001
10,314
17
85,249
4,157
(3,593)
564
259
5,085
5,344
151
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Glossary 201
3.6 RISK MANAGEMENT (CONTINUED)
(C) Liquidity risk (continued)
CONSOLIDATED
2020
FINANCIAL LIABILITIES
Due to other financial
institutions
Deposits
Derivative financial
instruments (1)
Accounts payable and other
liabilities
Securitisation liabilities (2)
Borrowings (3)
Insurance policy liabilities
Total financial liabilities
DERIVATIVE FINANCIAL
INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET
POSITIONS
Guarantees, indemnities and
letters of credit
Customer funding commitments
Carrying
amount
$m
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
296
296
-
-
39,593
19,773
11,778
7,264
52
458
3,429
7,910
5
-
-
-
-
-
10
310
255
647
-
25
28
766
1,016
-
-
943
17
98
1,973
6,461
-
-
-
-
29
551
-
-
51,743
20,069
13,000
9,099
9,492
580
-
-
-
775
(703)
72
415
(260)
155
2,433
(2,041)
392
267
1,659
1,926
-
-
-
-
-
-
-
-
-
643
-
-
-
139
(66)
73
-
-
-
-
-
-
-
-
-
5
5
-
-
-
-
-
-
296
39,758
52
465
3,545
8,124
5
52,245
3,762
(3,070)
692
267
1,659
1,926
(1) Derivative financial instruments other than those designated in hedge relationships.
(2) Repayment of securitisation bonds is forecast based on the expected repayment profile of the underlying assets of the Trusts.
(3) Borrowings include the $0.8 billion TFF.
152
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Glossary 201
1 to 5
years
$m
-
806
11
98
3.6 RISK MANAGEMENT (CONTINUED)
(C) Liquidity risk (continued)
BANK
2021
FINANCIAL LIABILITIES
Carrying
amount
$m
At Call
$m
3 months
or less
$m
3 to 12
months
$m
Due to other financial institutions
273
273
-
-
Deposits
43,569
23,502
10,971
8,369
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings (2)
Amounts due to controlled entities
28
360
8,806
6,241
-
-
-
6,241
5
212
621
-
13
28
1,404
6,745
-
-
Total financial liabilities
59,277
30,016
11,809
9,814
7,660
Derivative financial instruments
(hedging relationship)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and letters of credit
Customer funding commitments
BANK
2020
FINANCIAL LIABILITIES
Due to other financial institutions
Deposits
Derivative financial instruments (1)
Accounts payable and other liabilities
Borrowings (3)
Amounts due to controlled entities
-
-
-
259
1,282
1,541
At Call
$m
296
19,971
-
-
-
6,707
877
(822)
55
-
-
-
451
(299)
152
-
-
-
3 months
or less
$m
3 to 12
months
$m
-
-
11,797
7,264
10
237
647
-
25
28
1,016
-
537
-
-
-
Carrying
amount
$m
296
39,810
52
385
7,914
6,707
Total financial liabilities
55,164
26,974
12,691
8,333
DERIVATIVE FINANCIAL INSTRUMENTS
(HEDGING RELATIONSHIP)
Contractual amounts payable
Contractual amounts receivable
OFF BALANCE SHEET POSITIONS
Guarantees, indemnities and letters of credit
Customer funding commitments
-
-
-
267
861
1,128
775
(712)
63
-
-
-
411
(273)
138
-
-
-
692
-
-
-
Derivative financial instruments other than those designated in hedge relationships.
(1)
(2) Borrowings include the $2 billion TFF.
(3) Borrowings include the $0.8 billion TFF.
1,095
(796)
299
-
-
-
1 to 5
years
$m
-
943
17
98
6,461
-
7,519
848
(429)
419
-
-
-
Over
5 years
$m
Total
contractual
cash flows
$m
-
-
-
29
265
-
294
168
(131)
37
-
-
-
273
43,648
29
367
9,035
6,241
59,593
2,591
(2,048)
543
259
1,282
1,541
Over
5 years
$m
Total
contractual
cash flows
$m
-
-
-
29
-
-
29
139
(66)
73
-
-
-
296
39,975
52
392
8,124
6,707
55,546
2,173
(1,480)
693
267
861
1,128
153
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3.7 FAIR VALUE OF FINANCIAL INSTRUMENTS
(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 materially equate to their carrying value and 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 to 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 ending 31 August 2021 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.
154
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3.7 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
(B) Fair value hierarchy
The Group 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; and
• 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 held at amortised cost:
• Debt instruments at amortised cost – Level 2
• Loans and advances - Level 3
• Deposits and borrowings - Level 2.
There was no movement between levels during the year.
The table below analyses financial instruments carried at fair value, by valuation method:
CONSOLIDATED
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
Financial instruments measured at fair value
Derivative financial assets
Financial assets at FVTPL
Debt instruments at FVOCI
Equity instruments at FVOCI
Derivative financial liabilities
Level 1
$m
-
43
6,309
-
6,352
-
6,352
Level 1
$m
-
-
4,125
-
4,125
-
4,125
2021
Level 2
$m
Level 3
$m
137
1,044
3,392
-
4,573
(653)
3,920
-
-
-
9
9
-
9
2020
Level 2
$m
Level 3
$m
154
1,854
405
-
2,413
(803)
1,610
-
-
-
6
6
-
6
Total
$m
137
1,087
9,701
9
10,934
(653)
10,281
Total
$m
154
1,854
4,530
6
6,544
(803)
5,741
155
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3.7 FINANCIAL INSTRUMENTS (CONTINUED)
(B) 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
Financial instruments measured at fair value
Derivative financial assets
Financial assets at FVTPL
Debt instruments at FVOCI
Equity instruments at FVOCI
Derivative financial liabilities
Level 1
$m
-
43
5,061
-
5,104
-
5,104
Level 1
$m
-
-
4,125
-
4,125
-
4,125
2021
Level 2
$m
Level 3
$m
86
1,044
487
-
1,617
(620)
997
-
-
-
6
6
-
6
2020
Level 2
$m
Level 3
$m
101
1,854
405
-
2,360
(799)
1,561
-
-
-
6
6
-
6
Total
$m
86
1,087
5,548
6
6,727
(620)
6,107
Total
$m
101
1,854
4,530
6
6,491
(799)
5,692
156
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Glossary 201
3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING
(A) Fair value of derivatives
The following tables summarise the notional and fair value of the Group’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
2021
2020
Notional
Amount
Fair Value
Notional
Amount
Fair Value
$m
Asset
$m
Liability
$m
$m
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
10,232
51
57
10,340
29,971
2,185
755
32,911
4,491
27
30
1
-
31
23
70
11
104
2
-
(27)
(1)
-
13,118
93
281
(28)
13,492
(103)
(22)
(4)
(129)
15,503
1,997
731
18,231
(496)
3,597
-
25
44
2
-
46
26
78
4
108
-
-
(50)
(2)
-
(52)
(147)
(8)
(23)
(178)
(573)
-
47,769
137
(653)
35,345
154
(803)
157
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3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(A) Fair value of derivatives (continued)
Bank
2021
2020
Notional
Amount
Fair Value
Notional
Amount
Fair Value
$m
Asset
$m
Liability
$m
$m
Asset
$m
Liability
$m
8,032
77
57
8,166
22,415
631
755
23,801
30
1
-
31
35
7
11
53
(27)
(1)
-
(28)
(82)
(10)
(4)
(96)
13,118
118
281
13,517
16,171
443
731
17,345
44
2
-
46
42
9
4
55
(50)
(2)
-
(52)
(147)
(4)
(23)
(174)
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
4,491
2
(496)
3,597
-
(573)
36,458
86
(620)
34,459
101
(799)
(B) Hedging strategy
The Group 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 Group’s and Bank’s risk management framework. The Group uses derivative financial instruments
to hedge its exposure to foreign exchange and interest rate risks arising from operating, financing and investing activities.
The Group’s hedging strategy is to protect net interest income from variability in interest rates in Australian dollars. This requires the
Group 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 Group may decide not to
apply hedge accounting to that risk. Instead, the Group will manage its exposure under broader risk management processes.
(C) Accounting for derivatives
In accordance with its treasury risk policies, the Group 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 Group would receive or pay to terminate the swap at the reporting
date, taking into account current interest rates and current creditworthiness of the swap counterparties.
The fair value of forward exchange contracts is their quoted market price at the reporting date, being the present value of the quoted
forward price. The fair value of futures contracts is their quoted market price.
158
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Glossary 201
3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(C) Accounting for derivatives (continued)
The following table shows the maturity profile of hedging derivatives based on their notional amounts.
2021
2020
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
22,725
19,819
2,150
44,694
19,734
10,490
1,994
32,218
833
57
831
-
-
1,314
-
-
40
833
57
2,185
849
281
154
-
-
1,842
-
-
1
849
281
1,997
CONSOLIDATED
Interest rate swaps
Foreign exchange forwards
Futures
Cross currency swaps
(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 Group 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.
159
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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.
Cash flow hedges
Cash flow hedges
Hedging Instruments
Interest rate swaps
Cross currency swaps
Currency
AUD
AUD/USD
AUD/EUR
NZD/AUD
Net Investment hedges
Foreign exchange forwards
AUD/NZD
Consolidated
2021
2020
0.010% - 3.890% 0.090% - 4.340%
0.761 - 0.793
0.761 - 0.793
0.617 - 0.672
1.036 - 1.119
1.049
0.617-0.672
1.036-1.130
1.082
Fair value hedges
Fair value hedges are used by the Group to manage exposure to changes in the fair value of an asset. Changes in fair values arise from
fluctuations in interest rates. The Group 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.
160
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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 Group 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 Group’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 nil (2020: nil) for the Group.
Consolidated
2021
2020
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
5,041
(194)
4,167
(303)
(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) Hedge 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
2021
2020
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
Interest rate swaps
INTEREST RATE AND FOREIGN
EXCHANGE RISK
Fair value and cash flow hedges
109
70
(109)
(67)
Cross currency swaps
(9)
9
-
3
-
6
(1)
41
(7)
(6)
(41)
(1)
(7)
-
161
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3.8 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (CONTINUED)
(F) Master netting or similar arrangements
The Group 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 Group receives
and gives collateral in the form of cash in respect of derivatives and such collateral is subject to standard industry terms. The Group has
not offset these amounts in the Balance Sheet as their ISDA agreements do not meet the criteria to do so. The Group 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
Group 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.
2021
Gross amounts as
presented in the Balance
Sheet
$m
Net amounts of
recognised assets and
liabilities available for
offset
$m
Calculated
Balance
$m
Cash
collateral
$m
Net amounts if
offsetting applied in
the Balance Sheet
$m
137
(653)
(51)
51
86
(602)
-
579
86
(23)
2020
Gross amounts as
presented in the
Balance Sheet
$m
154
(803)
Net amounts of
recognised assets and
liabilities available for
offset
$m
Calculated
Balance
$m
Cash
collateral
$m
Net amounts if offsetting
applied in
the Balance Sheet
$m
(48)
48
106
(755)
-
745
106
(10)
2021
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of
recognised assets and
liabilities
available for offset
$m
Calculated
Balance
$m
Cash
collateral
$m
Net amounts if
offsetting applied in
the Balance Sheet
$m
86
(620)
(51)
51
35
(569)
-
565
35
(4)
2020
Gross amounts as
presented in the
Balance Sheet
$m
Net amounts of
recognised assets and
liabilities
available for offset
$m
Calculated
Balance
$m
Cash
collateral
$m
Net amounts if offsetting
applied in
the Balance Sheet
$m
101
(799)
(48)
48
53
(751)
-
745
53
(6)
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
162
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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3.9 CAPITAL MANAGEMENT
The Bank and Group’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.
BOQ intends to operate above the CET1 capital target range of between 9.0 per cent and 9.5 per cent until the final impacts of APRA’s
changes to risk weighted assets and capital calibration are understood. At 9.80 per cent, BOQ is operating above the top end of the target
range and this includes the impact of the acquisition of ME Bank completed on 1 July 2021.
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
2021
$m
5,213
346
277
5,836
(1,180)
(311)
(11)
(1,502)
4,334
610
4,944
450
178
628
5,572
44,229
9.80%
11.18%
12.60%
2020
$m
3,871
134
163
4,168
(908)
(187)
16
(1,079)
3,089
350
3,439
350
230
580
4,019
31,576
9.78%
10.89%
12.73%
(1) APRA Prudential Standard APS 001 Definitions defines Level 2 as the Bank and all of its subsidiary entities other than non-consolidated subsidiaries. The non-consolidated
subsidiaries excluded from Level 2 regulatory measurements at 31 August 2021 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 Ltd;
• 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;
• Series 2019-1 REDS Trust;
• SMHL Series Securitisation Fund 2015-1;
• SMHL Series Securitisation Fund 2016-1;
• SMHL Series Securitisation Fund 2017-1;
• SMHL Series Securitisation Fund 2018-2;
• SMHL Series Securitisation Fund 2019-1;
• SMHL Series Private Placement Trust 2019-1;
• SMHL Series Private Placement 2019-2; and
• SMHL Securitisation Trust 2020-1.
163
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Glossary 201
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 Rights Plan,
Equity Incentive Plan, Restricted Shares, Non-Executive Director Fee Sacrifice Rights Plan and the BOQ Employee ThankQ Plan. Where
these shares remain unvested to employees they are treated as treasury shares and deducted from capital as required by AASB 132
Financial Instruments: Presentation. No profit or loss is recorded on purchase, sale, issue or cancellation of these shares.
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 a winding up of the Bank, ordinary shareholders rank after capital note holders and creditors and
are fully entitled to any residual proceeds of liquidation.
MOVEMENTS DURING THE YEAR
Balance at the beginning of the year – fully paid
454,335,413
405,784,809
454,335,413
405,784,809
Consolidated
Bank
2021
No of shares
2020
No of shares
2021
No of shares
2020
No of shares
Dividend reinvestment plan (1)
Issues of ordinary shares (2)
Institutional share placement (3)
Institutional entitlement offer (4)
Retail entitlement offer (5)
Share purchase plan (6)
2,386,974
3,642,826
2,386,974
3,642,826
130,000
440,000
130,000
440,000
47,619,048
32,133,677
47,619,048
32,133,677
43,684,531
92,733,597
-
-
43,684,531
92,733,597
-
-
-
12,334,101
-
12,334,101
Balance at the end of the year – fully paid
640,889,563
454,335,413
640,889,563
454,335,413
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
633,187
495,484
1,128,671
644,034
(10,847)
633,187
-
-
-
-
-
-
(1) 11 per cent of the dividend paid on 26 May 2021 and 13 per cent of the dividend paid on 25 November 2020 were reinvested by shareholders as part of the dividend
reinvestment plan. 25 per cent of the dividend paid on 27 November 2019 was reinvested by shareholders as part of the dividend reinvestment plan in prior year.
(2) On 9 November 2020, 130,000 ordinary shares were issued at $6.37 to the trustee of the Bank of Queensland Limited Employee Share Plans Trust to satisfy the issue
of shares under the BOQ Employee ThankQ Plan. On 29 November 2019, 440,000 ordinary shares were issued at $8.33 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 the issue of shares under the BOQ Restricted
Share Plan and the BOQ Employee Share Plan.
(3) On 23 February 2021, the Bank completed an institutional placement of new fully paid ordinary shares at the offer price of $7.35 per share. The shares were issued on
3 March 2021. On 26 November 2019, the Bank completed an institutional share placement of new fully paid ordinary shares at an issue price of $7.78 per share. The shares
were issued on 29 November 2019.
(4) On 23 February 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable institutional entitlement offer at the offer price of
$7.35 per share. The shares were issued on 3 March 2021.
(5) On 15 March 2021, the Bank completed an underwritten 1 for 3.34 accelerated pro-rata non-renounceable retail entitlement offer at the offer price of $7.35 per share.
The shares were issued on 17 March 2021.
(6) On 30 December 2019, the Bank completed the share purchase plan of new fully paid ordinary shares at an issue price of $7.27 per share. The shares were issued on
2 January 2020.
164
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3.10 CAPITAL AND RESERVES (CONTINUED)
(B) Other equity instruments
Other equity instruments of $314 million include Additional Tier 1 (AT1) securities assumed on the acquisition of ME Bank. The securities
are perpetual, non-cumulative, subordinated and unsecured notes (AT1 Capital Notes) and are structured to constitute AT1 capital of ME
Bank. The AT1 Capital Notes were recognised at fair value on acquisition, the face value of the AT1 Capital Notes on issue is $300 million at
a price of $10,000 per note.
AT1 EQUITY INSTRUMENTS
AT1 Capital Notes
AT1 Capital Notes
Total AT1 equity instruments
Earliest
redemption date
2021
No of Capital Notes
2020
No of Capital Notes
28/11/2022
5/12/2023
20,000
10,000
30,000
-
-
-
The principal terms of the AT1 Capital Notes are described below:
•
In a winding up of ME Bank, if the AT1 Capital Notes have not been written-off on account of a non-viability trigger event, they will rank
for payment:
• Ahead of common equity;
•
Equally without any preference amongst themselves for each series and with the holders of equal ranking instruments; and
• Behind the claims of subordinated tier 2 instruments and the senior creditors of ME Bank.
• AT1 Capital Notes are undated and, unless a tax event or regulatory event occurs, are only redeemable, at the option of ME Bank, on or
after the fifth anniversary of the date of issue, subject to regulatory approval;
• AT1 Capital Notes pay quarterly floating rate non-cumulative distributions. The payment of distributions is at the discretion of ME
Bank and subject to no payment condition existing at the payment date; and
• Some or all of the AT1 Capital Notes must be written-off if a non-viability trigger event, as determined by APRA, occurs.
(C) 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 5.1 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).
Share revaluation reserve
The share revaluation reserve represents the gain or loss on revaluation of the shares held within the employee share plan trust. The
revaluation of treasury shares is netted off in equity.
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NOTE 4. OTHER ASSETS AND LIABILITIES
4.1
INTANGIBLE ASSETS
CONSOLIDATED
Balance as at 1 September 2019
Opening balance adjustment (1)
Additions
Transfers to asset
Impairment
Amortisation charge
Accelerated amortisation charge
Balance as at 31 August 2020
Balance as at 1 September 2020
Acquisition of ME Bank
Additions
Transfers to asset
Amortisation charge
Accelerated amortisation charge (2)
Goodwill
$m
682
3
-
-
-
-
-
685
685
35
-
-
-
-
Balance as at 31 August 2021
720
BANK
Balance as at 1 September 2019
Opening balance adjustment (1)
Additions
Transfers to asset
Impairment
Amortisation charge
Accelerated amortisation charge
Balance as at 31 August 2020
Balance as at 1 September 2020
Additions
Transfers to asset
Amortisation charge
Accelerated amortisation charge
Goodwill
$m
619
3
-
-
-
-
-
622
622
-
-
-
-
Balance as at 31 August 2021
622
Customer
related
intangibles
and brands
$m
Computer
software
$m
Assets under
construction
$m
Other
$m
9
-
-
-
-
(2)
-
7
7
57
-
-
(4)
-
60
115
-
-
56
-
(39)
(37)
95
95
72
6
134
(43)
(4)
260
117
-
100
(56)
(39)
-
(1)
121
121
40
113
(134)
-
-
140
1
-
2
-
-
(3)
-
-
-
-
-
-
-
-
-
Customer
related
intangibles
and brands
$m
Computer
software
$m
Assets under
construction
$m
Other
$m
8
-
-
-
-
(2)
-
6
6
-
-
(2)
-
4
103
-
-
56
-
(35)
(35)
89
89
6
132
(35)
(1)
191
117
-
100
(56)
(39)
-
(1)
121
121
109
(132)
-
-
98
1
-
1
-
-
(2)
-
-
-
-
-
-
-
-
Total
$m
924
3
102
-
(39)
(44)
(38)
908
908
204
119
-
(47)
(4)
1,180
Total
$m
848
3
101
-
(39)
(39)
(36)
838
838
115
-
(37)
(1)
915
(1) The opening balance adjustment reflects the recognition of a DTL on the balance of intangible assets acquired as part of historic acquisitions. This amount is not allocated to
CGUs and the DTL is expected to unwind over 3 years.
(2) The August 2021 financial results include a non-recurring adjustment due to a change in the ME Bank minimum threshold for the capitalisation of intangible assets to align
with BOQ.
166
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4.1
INTANGIBLE ASSETS (CONTINUED)
Recognition and measurement
Intangible assets are measured at cost on initial recognition.
Intangible assets acquired in a business combination are
measured at fair value at the date of acquisition.
Following initial recognition, 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 on intangible assets is capitalised only when
it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure is expensed as incurred.
Computer software
Customer related intangibles and brands
Amortisation
Except for goodwill, amortisation is charged to profit 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:
Years
3-10
3-10
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 is 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 are materially aligned with the Group’s Strategic Plan as announced to market as part of the Bank’s strategic review;
• Determined future lending growth and income growth in line with expected benefits from the Bank’s increased capital investment
and digital transformation;
• Cost growth assumptions are aligned with the Group’s Strategic plan and aspirations to reduce cost to income targets;
• A terminal growth rate of 3 per cent (2020: 2.5 per cent) was used to extrapolate long-term growth; and
• A post-tax discount rate of 9.4 per cent (2020: 9.4 per cent) was used.
• Goodwill of $35 million arising on the acquisition of ME Bank is not included for the purpose of the annual impairment testing. The
goodwill has been assessed by applying the acquisition method in business combination accounting on 1 July 2021. The goodwill
recognised of $35 million represents the fair value of expected future synergies arising from the acquisition.
The key assumptions described above may change as economic and market conditions change. Management has stressed key
assumptions to understand key sensitivities and impact to the value in use.
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4.1
INTANGIBLE ASSETS (CONTINUED)
Impairment testing of the cash generating units containing goodwill (continued)
The aggregate carrying amounts of goodwill for each CGU are:
Retail Banking
BOQ Business
Total
2021
$m
288
394
682
2020
$m
288
394
682
The measurement of the CGU’s recoverable amounts is most sensitive to a change in net interest income, cost of capital and cost to
income ratios. BOQ has considered reasonably possible changes in key assumptions and the table below provides these assumption
changes across the period of assessment that would result in impairment if all other assumptions were held constant.
Model Parameter
Cost of capital
Cost to income
NIM change
Retail Banking
BOQ Business
Change from base case
0.6%
3.0%
(5bps)
0.8%
4.0%
(11bps)
168
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4.2 PROVISIONS
A provision is recognised in the Balance Sheet when the Group 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)
Provision for non-lending loss
Other (2)
Total provisions
Consolidated
2021
$m
47
3
14
64
2020
$m
23
13
11
47
Bank
2021
$m
27
3
13
43
2020
$m
20
13
5
38
Pay and entitlements review
In 2020 BOQ commenced a review of payments to employees covering Superannuation guarantee compliance and whether correct
payments have been made to employees under successive BOQ Enterprise Agreements, being 2010, 2014 and 2018. During the year,
BOQ made remediation payments for base wage, superannuation and interest for active permanent employees. As at 31 August 2021,
the remaining provision balance was $11 million. The provision balance is based on financial modelling that has reconstructed BOQ’s
payroll obligations, covering Enterprise Agreement remediation, on-costs and interest and associated professional costs based on
management’s assessment of the facts and circumstances existing as at the reporting date. It is reasonably possible that the final
outcomes may differ to those reported, the impact of which will be reflected in future reporting periods.
Movements in provisions
Movements in each class of provision during the year, other than employee benefits, are as follows:
2021
Carrying amount at beginning of year
Additional provision recognised (3)
Amounts utilised during the year
Release of provision
Reclassification from non-lending loss provision (4)
Carrying amount at end of year
Current
Non-current
Consolidated
Bank
Non-lending
loss
$m
Other
$m
Non-lending
loss
$m
Other
$m
13
1
(1)
(1)
(9)
3
3
-
11
11
(8)
(9)
9
14
14
-
13
1
(1)
(1)
(9)
3
3
-
5
14
(7)
(8)
9
13
13
-
(1)
Employee benefits provision consists of annual leave (represents present obligations resulting from employees’ services provided up to the reporting date, calculated based
on remuneration wage and salary rates that the Group 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. $18 million of employee
benefits provision relates to ME Bank acquisition. $32 million (2020: $18 million) of this provision balance is classified as current.
(2) Other provisions include $11 million in relation to the Group’s employee pay and leave entitlements review and a restructure provision of $2 million.
(3) $1 million of additional provision recognised in Other relates to ME Bank acquisition.
(4) During the year, the employee pay and leave entitlements review provision has been reclassified from Non-lending loss to Other.
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NOTE 5. OTHER NOTES
5.1 EMPLOYEE BENEFITS
(A) Superannuation commitments
Superannuation plan
The Group 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
The Group is required to meet the minimum legal obligations
under the relevant superannuation guarantee legislation and the
industrial instrument provisions.
(B) Share based payments
The Group currently operates the Equity Incentive Plan
(previously the Awards Right Plan) for equity-settled
compensation. The plan allows the Group’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
The Award Rights Plan was first introduced and approved
by shareholders on 11 December 2008, with the subsequent
changes to the Award Rights Plan approved by shareholders
on 30 November 2017. It is an equity based program under
which Award Rights were granted as long-term incentives.
Types of award rights granted to employees under this plan
were Deferred Award Rights (DARs), Performance Award
Rights (PARs), BOQ Group Transformation Award (BTAs),
BOQ Group Transformation Award - Virgin (VTAs) and
Restricted Shares.
The Award Rights Plan was replaced by the Equity Incentive
Plan on 1 September 2020. Types of award rights granted to
employees under the new plan are DARs, Premium Priced
Options, Performance Shares and Restricted Shares.
No amount is payable by employees for the grant or exercise
of the award rights.
Equity Incentive Plan
Effective 1 September 2020, the Group made changes to
the way it delivers variable remuneration, including the
discontinuation of the PARs plan and the introduction of
Premium Priced Options and Performance Shares.
Performance Shares
Performance Shares are delivered in rights that convert to
restricted shares at the end of the financial year based on
the Board’s assessment of performance against the Group
Scorecard, risk and conduct. Once converted, the restricted
shares vest after a further one, two and three years.
Premium Priced Options
Premium Priced Options vest in two tranches with 50 per
cent vesting at the end of year four and 50 per cent at the
end of year five. The exercise price is set at 120 per cent of
the share price based on a volume weighted average price
over the five trading days following the Annual General
Meeting (AGM). On exercise, the options can be settled in
cash or an allocation of shares.
DARs
There are no market performance hurdles or other
performance based vesting conditions for DARs but the
holder must remain an employee of the Bank. DARs granted
in December 2018 and December 2019 were issued under the
Award Rights Plan and 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.
In 2021, DARs were issued under the Equity Incentive
Plan and the vesting period is dependent on if a person
is an Accountable Person under the Banking Executive
Accountability Regime (BEAR). DARs issued to Accountable
Persons under the BEAR were extended to vest over four
years in a ratio of 20 per cent at the end of year one, 10
per cent at the end of year two, 10 per cent at the end of
year three and 60 per cent at the end of year four. All other
employees are unaffected by this change.
DARs may be exercised by the employee once they
have vested.
Restricted Shares
The Group has used shares with restrictions on disposal as a
non-cash, share based component of both short term and
long term incentive awards. On occasion, restricted shares are
also used as make-good awards.
170
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BTAs
The performance hurdles or vesting conditions for BTAs are
linked to BOQ Group meeting cash earnings excluding loan
impairment expense and income tax targets. BTAs vest in
two tranches in the ratio of 50 per cent in year one and 50
per cent in year two if BOQ Group meets the respective cash
earnings targets. There is an opportunity for retest in year two
and three. There are no market performance hurdles. BTAs
may be exercised by the employee once they have vested.
VTAs
The performance hurdles or vesting conditions for VTAs
are linked to the delivery of a next generation core banking
platform through Virgin Money Australia (Project de Novo)
and BOQ Group meeting cash earnings excluding loan
impairment expense and income tax targets. VTAs vest in
two tranches in the ratio of 50 per cent subject to the delivery
of Project de Novo and 50 per cent if BOQ Group meet cash
earnings targets in year two. There is an opportunity for retest
in year three. There are no market performance hurdles. VTAs
may be exercised by the employee once they have vested.
5.1 EMPLOYEE BENEFITS (CONTINUED)
(B) Share based payments (Continued)
Award Rights Plan
PARs
For PARs granted in December 2018 and December 2019 the
vesting framework is based on the relative Total Shareholder
Return (rTSR) and relative EPS. The rTSR component makes
up 80 per cent of the employee’s PARs and is measured
against a peer group over a four year period. That peer
group consists of companies included in the S&P / ASX
200 index, 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.
The TSR component of the PARs vests in accordance with
rTSR performance as follows:
rTSR
performance
TSR component
of PARs vesting
At or above 75th percentile
All
50th to 75th percentile
Relative proportion between
50 and 100 per cent
Below 50th percentile
None
The remaining 20 per cent of PARs vest based on the Bank’s
EPS performance measured against a financial services peer
group over a four year period:
The Bank’s cash EPS
Compound Annual Growth
Rate (CAGR) performance
PARs vesting
At or above 90th percentile
All
60th to 90th percentile
Relative proportion between
50 and 100 per cent
Below 60th percentile
None
PARs may be exercised by the employee once they have vested.
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5.1 EMPLOYEE BENEFITS (CONTINUED)
(B) Share based payments (continued)
(ii) Award rights on issue
The number of rights and restricted shares on issue for the Bank is as follows:
Deferred
Award Rights
Performance
Award Rights
Premium
Priced Options
BOQ Group
transformation
award
BOQ Group
transformation
award - Virgin
Performance
Shares
Restricted
Shares
2021
’000
2020
’000
2021
’000
2020
’000
2021
’000
2020
’000
2021
’000
2020
’000
2021
’000
2020
’000
2021
’000
2020
’000
2021
’000
2020
’000
1,606
1,252
1,792
1,787
-
1,156
837
-
1,065
8,034
(170)
(139)
(593)
(1,057)
(450)
(344)
(2)
(3)
-
-
2,142
1,606
1,197
1,792
8,034
-
-
-
-
-
431
-
66
-
-
-
435
(63)
(120)
(4)
-
-
-
(26)
66
661
-
-
-
-
248
431
40
66
661
-
-
-
-
-
73
202
295
(65)
-
-
(3)
(129)
300
73
Balance at
beginning of
the year
Granted
Forfeited /
expired
Exercised
Outstanding
at the end of
the year
(iii) Measurement of fair values
The Premium Priced Options have been valued using a four step methodology that uses a simulation approach to project future share
prices and then the Binomial model to value the options on vesting. The fair value of PARs has been measured using a Monte Carlo
simulation approach.
The fair value of DARs, BTAs, VTAs and Performance Shares have been measured using a formula based approach discounted by the
assumed dividend yield.
The value of Restricted Shares is equal to the Share Price as at the grant date.
The weighted average of the inputs used in the measurement of the long term incentive award rights grants during the year
was as follows:
Deferred
Award Rights
Performance
Award Rights
Premium
Priced Options
BOQ Group
transformation
award
BOQ Group
transformation
award- Virgin
Performance
Shares
Restricted
Shares
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Fair value at grant date
($)
6.97
6.09
Share price at grant date ($)
Expected volatility
Risk free interest rate
Dividend yield
(%)
(%)
(%)
7.73
25.1
0.2
5.0
7.41
18.0
0.8
8.8
-
-
-
-
-
3.61
7.42
0.67
8.02
18.0
25.0
0.8
8.8
0.4
5.0
-
-
-
-
-
-
-
-
-
-
6.12
7.41
18.0
0.8
8.8
-
-
-
-
-
6.12
7.41
7.79
7.98
18.0
26.4
0.8
8.8
0.2
5.0
-
-
-
-
-
7.04
7.83
25.6
0.2
5.0
-
-
-
-
-
(iv) Salary sacrifice arrangements
The Non-Executive Director Fee (NEDs) Sacrifice Rights Plan (NED Plan) allows 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.
(v) Other employee awards
BOQ ThankQ Plan
The ThankQ Plan replaces the previously offered salary sacrifice Employee Share Plan and is a gift of shares up to a maximum of
$1,000 per eligible employee. During the year the Group granted 235,498 shares under this plan. The shares under this plan are
restricted from sale until the earlier of three years or until an employee ceases employment with the Group.
172
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5.2 COMMITMENTS
(A) CUSTOMER FUNDING COMMITMENTS
Guarantees, indemnities and letters of credit
Customer funding commitments
Consolidated
2021
$m
259
5,085
5,344
2020
$m
267
1,659
1,926
Bank
2021
$m
259
1,282
1,541
2020
$m
267
861
1,128
In the normal course of business the Group 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 Group 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.
The Group has lease commitments of $103 million (2020: nil) which have not been recognised as lease liabilities on the Balance Sheets as
the lease commencement dates are after the end of the financial year. Expenditure on software assets and other expenditure contracted
for but not provided on the Balance Sheets is $34 million (2020: $8 million).
5.3 CONTINGENT LIABILITIES
As part of the St Andrew’s sale agreement, BOQ will provide a capped indemnity of $8.5 million to the buyer, Farmcove Investment
Holdings, for certain pre-completion matters.
5.4 RELATED PARTIES INFORMATION
(A) Controlled entities
Details of interests in materially controlled entities are set out in Note 5.5.
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 5.5(A).
The Bank receives management fees from its operating controlled entities except ME Bank, 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 5.5(A).
The Bank has a related party relationship with equity accounted joint ventures, refer to Note 5.6.
(B) Key management personnel compensation
KMP have authority and responsibility for planning, directing and controlling the activities of the Bank and the Group, including Directors
and other Senior 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
2021
$
6,667,311
137,887
264,703
3,045,711
-
10,115,612
2020
$
5,944,543
46,646
267,565
1,451,477
686,024
8,396,255
Individual Directors and Senior Executives compensation disclosures
Information regarding individual Directors and Senior 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.
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5.4 RELATED PARTIES INFORMATION (CONTINUED)
(C)
Other financial instrument transactions with key management personnel and their related parties
A number of 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 Group. 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 (2020: nil).
The transactions undertaken between the Group and KMP or their related parties up to 31 August 2021 are:
Term products (loans / advances)
KMP
Other related parties
Total
Term products (loans / advances)
KMP
Other related parties
Total
Balance as at
For the period (1)
1 September
2020
$
31 August
2021
$
Total loan
drawdowns /
(repayments)
$
Total loan /
overdraft
interest
$
Total fees
on loans /
overdraft
$
350,000
760,430
350,000
743,279
1,110,430
1,093,279
(11,508)
(52,449)
(63,957)
11,508
34,998
46,506
-
300
300
Balance as at
For the period
1 September
2019
$
31 August
2020
$
Total loan
drawdowns /
(repayments)
$
Total loan /
overdraft
interest
$
Total fees
on loans /
overdraft
$
1,529,029
350,000
186,543
760,430
1,715,572
1,110,430
(16,441)
731,742
715,301
16,595
25,851
42,446
40
175
215
(1) Amounts are included only for the period that the Director / Executive is classified as a member of the KMP.
174
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5.5 CONTROLLED ENTITIES
(A) Particulars in relation to materially controlled entities
The Group’s controlled entities at 31 August 2021 are set out below. The country of incorporation or registration is also the principal place
of business.
Place of
business/
country of
incorporation
Controlled entities:
Alliance Premium Funding Pty Ltd
New Zealand
Parent entity’s
interest
2021
%
100%
2020
%
100%
Bank of Queensland Limited
Employee Share Plans Trust
BOQ Asset Finance and Leasing Pty Ltd
BOQ Covered Bond Trust
BOQ Credit Pty Limited
BOQ Equipment Finance Limited
BOQF Cashflow Finance Pty Ltd
BOQ Finance (Aust) Limited
BOQ Finance (NZ) Limited
BOQ Funding Pty Limited
Australia
100%
100%
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
BOQ Home Pty Ltd
Australia
100%
100%
BOQ Share Plans Nominee Pty Ltd
Australia
100%
100%
BOQ Specialist (Aust) Limited
Australia
100%
100%
BOQ Specialist Pty Ltd
B.Q.L. Management Pty Ltd
Australia
Australia
100%
100%
100%
100%
Home Credit Management Pty Ltd
Australia
100%
100%
Home Financial Planning Pty Ltd
Impala Trust No. 2 - Sub-Series 2
Members Equity Bank Limited
ME Portfolio Management Limited
SMHL Series Private Placement 2014-2
SMHL Series Securitisation Fund 2015-1
SMHL Series Securitisation Fund 2016-1
SMHL Series Securitisation Fund 2017-1
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
SMHL Series Private Placement Trust 2017-2
Australia
SMHL Series 2018-1 Fund
SMHL Series Securitisation 2018-2
Australia
Australia
SMHL Series Private Placement Trust 2019-1
Australia
SMHL Series Securitisation Fund 2019-1
SMHL Series Private Placement 2019-2
SMHL Securitisation Trust 2020-1
Pioneer Permanent Pty Ltd
Series 2008-1 REDS Trust
Series 2010-2 REDS Trust
Series 2012-1E REDS Trust
Australia
Australia
Australia
Australia
Australia
Australia
Australia
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
2021
$m
2020
$m
-
-
-
-
-
15
-
230
22
-
157
-
13
-
-
-
-
-
1,388
-
-
-
-
-
-
-
-
-
-
-
-
32
-
-
-
-
-
-
-
-
15
-
Dormant
Trust
Asset finance & leasing
Issue of covered bonds
Asset finance & leasing
Asset finance & leasing
Professional finance
230
Asset finance & leasing
22
-
157
-
13
Asset finance & leasing
Dormant
Investment holding
entity
Dormant
Professional finance and
asset finance & leasing
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
32
-
-
-
Professional finance
Trust management
Investment holding
entity
Dormant
Securitisation
Financial services
Dormant
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Dormant
Securitisation
Securitisation
Securitisation
175
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
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Glossary 201
5.5 CONTROLLED ENTITIES (CONTINUED)
(A) Particulars in relation to materially controlled entities (continued)
Place of
business/
country of
incorporation
Parent entity’s
interest
Controlled entities:
Series 2013-1 REDS Trust
Series 2015-1 REDS Trust
Series 2017-1 REDS Trust
Series 2018-1 REDS Trust
Series 2018-1 REDS EHP Trust
Series 2019-1 REDS Trust
Series 2021-1 REDS EHP Trust
St Andrew’s Australia Services Pty Ltd (1)
St Andrew’s Insurance (Australia) Pty Ltd
St Andrew’s Life Insurance Pty Ltd
Statewest Financial Planning Pty Ltd
Virgin Money (Australia) Pty Limited
Virgin Money Financial Services Pty Ltd
Virgin Money Home Loans Pty Limited
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
2021
%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
2020
%
100%
100%
100%
100%
100%
100%
-
100%
100%
100%
100%
100%
100%
100%
Amount of investment
Principal activities
2021
$m
2020
$m
-
-
-
-
-
-
-
-
-
-
-
53
-
-
-
-
-
-
-
-
-
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
Securitisation
30
Insurance holding entity
-
-
-
53
-
-
General insurance
Life insurance
Dormant
Financial services
Financial services
Dormant
1,910
552
(1) The investment in St Andrew’s Australia Services Pty Ltd has been classified as held for sale as at 31 August 2021. Refer to note 5.5(E) for further details.
(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.
The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any
goodwill that arises is tested annually for impairment.
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.
Transaction Costs
Transaction costs that the Group incurs in connection with a business combination, such as a finder’s fee, legal fees, due diligence
fees and other professional and consulting fees are expensed as incurred. Transaction costs related to the issue of ordinary shares are
recognised as a deduction from equity.
(ii) Business combinations during the year
On 1 July 2021, the Group acquired 100 per cent of the shares and voting interests in ME Bank for cash consideration of $1.388 billion.
ME Bank engages in the provision of banking services including funding, management and servicing of residential and consumer
lending portfolios and carrying out associated funding activities for off balance sheet portfolios. The addition of ME Bank to the BOQ
Group will further strengthen the Group’s multi-brand strategy, deliver material scale, broadly double the size of the Retail bank,
provide geographic diversification and create a compelling alternative to the big banks.
In the period from 1 July 2021 to 31 August 2021, ME Bank contributed revenue of $83 million and profit after tax of $17 million to the
Group’s results. If the acquisition had occurred on 1 September 2020, BOQ estimates that consolidated revenue would have been
$499 million and consolidated profit for the year would have been $111 million which includes amortisation of fair value adjustments
between 1 July 2021 to 31 August 2021. Due to the nature of these adjustments, the full year impact has not been disclosed as it
cannot be reliably measured.
BOQ incurred acquisition-related costs of $19 million on legal fees and due diligence costs. These costs have been predominantly
included in administrative expenses.
176
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
|
Signed Reports
183
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Shareholding Details
195
|
Glossary 201
5.5 CONTROLLED ENTITIES (CONTINUED)
(ii) Business combinations during the year (continued)
The fair values of the identifiable assets and liabilities of ME Bank as at the date of acquisition were:
Fair value on acquisition
$m
Assets
Cash and cash equivalents
Due from other financial institutions
Debt instruments at FVOCI
Equity instruments at FVOCI
Property, plant and equipment
Software intangibles
Brand intangibles
Customer relationship intangibles
Loans and advances
Other assets
Total Assets
Liabilities
Deposits
Derivatives financial liabilities
Accounts payable and other liabilities
Provisions
Current tax liabilities
Borrowings
Deferred tax liabilities
Total Liabilities
Net identifiable assets and liabilities
Other equity instruments
Goodwill arising on acquisition
Total Purchase consideration transferred
Cash acquired
Net cash outflow
642
124
3,320
3
73
112
26
31
25,669
19
30,019
22,302
26
161
18
9
5,833
2
28,351
1,668
(315)
35
1,388
642
746
The goodwill recognised of $35 million represents the fair value of expected future synergies arising from the acquisition.
All fair values are disclosed on a provisional basis. If new information obtained within one year of the date of acquisition about facts
and circumstances that existed at the date of acquisition identifies adjustments to the above amounts, or any additional provisions
that existed at the date of acquisition, then the accounting for the acquisition will be revised.
(iii) Entities established during the year
The following entities were established during the financial year:
•
Series 2021-1 REDS EHP Trust was opened on 11 August 2021.
(D) Disposal of controlled entities
The following entities were closed during the financial year:
• Series 2010-2 REDS Trust was closed on 29 March 2021.
177
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
5.5 CONTROLLED ENTITIES (CONTINUED)
(E) Operations classified as held for sale
On 13 October 2020, the Bank entered into an agreement to sell the Bank’s controlled entities - St Andrew’s Australia Services Pty Ltd
and its subsidiaries, St Andrew’s Insurance (Australia) Pty Ltd and St Andrew’s Life Insurance Pty Ltd (the St Andrew’s Insurance Group)
for proceeds of approximately $23 million. As at the reporting date, the St Andrew’s Insurance Group remained part of the BOQ Group
due to outstanding regulatory approvals.
As at 31 August 2021, the Consolidated Entity met the relevant criteria for reporting the St Andrew’s Insurance Group as held for sale
under AASB 5 Non-current assets held for sale and discontinued operations (AASB 5). However, as all of the assets of the disposal group
are excluded from the measurement requirements of AASB 5, an impairment loss has not been recognised. As such, the indicative loss on
sale after tax of $24 to $27 million will be reflected upon completion and will be impacted by completion adjustments, transaction costs
and final taxation impacts.
The sale of the St Andrew’s Group will impact the operating segment, Other.
As at 31 August 2021, the Bank had assets held for sale of $30 million which represents the Bank’s investment in the St Andrew’s Group.
Financial information in relation to the St Andrew’s Group assets and liabilities held for sale for the year to 31 August 2021 is set out below:
Cash and cash equivalents
Due from other financial institutions - term deposits
Assets arising through reinsurance contracts
Other assets
Total Assets
Insurance policy liabilities
Other liabilities
Total Liabilities
Net assets
(1)
Intragroup balances have been eliminated, however, will impact on the final loss on sale at completion.
2021 (1)
$m
4
33
5
1
43
7
10
17
26
178
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
INVESTMENTS IN JOINT ARRANGEMENTS
5.6
The Group holds interests in a number of collectively and
individually immaterial joint ventures that are accounted for using
the equity method.
Accounting for joint arrangements
(A)
The Group’s investment in joint venture entities is accounted
for under the equity method of accounting in the consolidated
financial statements. Joint ventures are entities in which the
Group has joint control over all operational decisions and activities.
(B) Details of joint ventures
Set out below are the joint ventures of the Group as at 31 August
2021 which, in the opinion of the Directors, are immaterial to the
Group. Australia is the place of business and also the country of
incorporation for all joint ventures.
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)
Total equity accounted investments
Ownership Interest
Carrying amount
2021
(%)
9.31
17.08
25.00
5.81
25.00
2020
(%)
9.31
17.08
25.00
5.81
25.00
2021
$m
2020
$m
3
7
-
-
-
10
6
7
-
-
-
13
(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.
Summary financial information for equity accounted joint ventures, adjusted for the share of ownership held by the Group, is
contained below:
Profit from continuing operations
Total comprehensive profit
2021
$m
1
1
2020
$m
-
-
179
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
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Glossary 201
5.7 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
Total audit related services
Non-audit services
- Taxation services
- Other
Total non-audit services
Consolidated
2021
$000
2,172
704
2,876
373
373
116
250
366
2020
$000
1,857
762
2,619
402
402
122
192
314
Bank
2021
$000
1,826
611
2,437
154
154
116
250
366
Non-audit services, other, include trust assurance work coupled with capital raising in connection with the ME Bank acquisition.
Details of the amounts paid to other auditor for audit services provided during the year in respect of ME Bank acquisition:
Other auditor
Audit services
- Statutory audits and reviews of the financial reports
Total audit services
Consolidated
2021
$000
202
202
2020
$000
-
-
Bank
2021
$000
-
-
2020
$000
1,437
667
2,104
143
143
77
174
251
2020
$000
-
-
5.8 EVENTS SUBSEQUENT TO BALANCE DATE
The evolution of the COVID-19 pandemic remains uncertain, including the duration of the pandemic, the severity of the downturn and
the speed of the economic recovery. BOQ has considered whether events subsequent to the reporting date have confirmed conditions
existing as at reporting date and has not identified any COVID-19 related developments which would require adjustments to the amounts
or disclosures contained in the consolidated financial statements. Future economic conditions may differ to the assumptions and
scenarios used in the consolidated financial statements, the impact of which will be reflected in future reporting periods.
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
Group in future financial years.
180
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
5.9 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 Group.
(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 Group conducts a loan securitisation program whereby
mortgage loans are packaged and sold to the REDS RMBS
Trusts. The Group also securitises hire purchase, chattel
mortgages and finance leases which are packaged and sold
to the REDS EHP Trusts. Assets securitised to the Impala
Trust are financed by the Bank through the BOQ Specialist
channel and consist of medical finance equipment. The Group
acquired SMHL Trusts program as part of ME Bank acquisition
on 1 July 2021.
The Group
The Group receives the residual income distributed by the
REDS, Impala and SMHL Trust (Trusts) after all payments
due to investors and associated costs of the program have
been met. As a result, the Group 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 Group,
however, the Group does not stand behind the capital value or
the performance of the securities or the assets of the Trusts.
The Group 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 Group
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.
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) Covered bond program
The Bank issues covered bonds for funding and liquidity
purposes. Certain housing loans have been assigned to a
bankruptcy remote structured entity to provide security
for all obligations payable on the covered bonds issued by
the Bank. Similar to the securitisation programs, the Bank
is entitled to any residual income after all payments due to
covered bond investors have been met. As the Bank retains
substantially all of the risks and rewards associated with the
housing loans, the Bank continues to recognise the housing
loans on Balance Sheet. Investors have dual recourse to the
Bank and the covered pool assets.
(iv) 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, initially, translated at
the foreign exchange rate ruling at the date of the transaction.
Subsequently, at reporting date, monetary assets and
liabilities denominated in foreign currencies 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 remain translated using the
original exchange rate at the date of the transaction. Foreign
exchange differences arising on translation are recognised in
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 Group 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.
181
2021 Annual ReportFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements 108
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Signed Reports
183
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Shareholding Details
195
|
Glossary 201
5.9 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) Operating leases
Operating leases, in which the Group 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 and residual values are reviewed
at each reporting date and adjusted if appropriate.
(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 Taxation 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 measured at cost
on recognition.
(ii) Subsequent costs
Subsequent additional costs are only capitalised when it
is probable that future economic benefits in excess of the
originally assessed performance of the assets will flow to the
Group 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 Group has elected to use the cost model to measure
property, plant and equipment after recognition. The carrying
value is the initial cost less accumulated depreciation and any
accumulated impairment losses.
(iv) Depreciation
Depreciation is charged to the profit or loss in the Income
Statement on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and equipment.
The estimated useful lives are as follows:
IT equipment
Plant, furniture and equipment
Leasehold improvements (1)
(1) Or term of lease if less.
Years
3 - 10
3 - 20
6 - 12
The useful lives are reassessed annually.
Impairment of non-financial assets
(F)
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. The recoverable amount of an
asset or CGU is the greater of its value in use and its fair value less
costs to sell. Value in use is based on the estimated future cash
flows, 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 or CGU. Impairment
losses recognised in respect of CGUs are allocated first to reduce
the carrying amount of goodwill allocated to the units and then to
reduce the carrying amounts of the other assets in the unit on a
pro-rata basis.
This grouping is subject to an operating segment ceiling test. Non-
financial assets, other than goodwill, that suffered impairment are
tested for possible reversal of the impairment whenever events or
changes in circumstances indicate that the impairment may have
reversed. An impairment loss in respect of goodwill is not reversed.
(i) Calculation of recoverable amount
The recoverable amount of a non-financial asset or CGU is
the greater of its 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.
182
Bank of Queensland Limited and its Controlled EntitiesFor the year ended 31 August 2021NOTES TO THE FINANCIAL STATEMENTS Financial Statements
108
|
Signed Reports 183
|
Shareholding Details
195
|
Glossary 201
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 76 to 182, 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 Group as at 31 August 2021 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 Group 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 2021.
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:
Patrick Allaway
Chairman
12 October 2021
George Frazis
Managing Director & CEO
12 October 2021
183
2021 Annual Report 184
184 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 2021; • 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; and • 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. 184 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 2021; • 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; and • 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. Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 185
184 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 2021; • 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; and • 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. 185 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 • Acquisition of ME Bank 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 to the Financial Reports The key audit matter How the matter was addressed in our audits 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, incorporating forward-looking information to reflect current and future economic scenarios, including the potential economic impact of the COVID-19 pandemic and in determining assumptions such as defining a significant increase in credit risk (SICR). The Consolidated Entity and Bank measure ECLs on a forward-looking basis reflecting a range of future economic conditions, including key forward-looking macroeconomic assumptions such as forecast Real-Gross Domestic Product (GDP), residential and commercial property price index and unemployment rates. Given the COVID-19 pandemic and associated economic uncertainty, significant judgement was exercised by the Consolidated Entity and Bank with developing the forward -looking macroeconomic assumptions and in the multiple forward-looking Our procedures for ECL (collective pprroovviissiioonn ffoorr iimmppaaiirrmmeenntt) 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 macroeconomic 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 including estimates of default on both a 12 month and lifetime basis. • Testing the completeness and accuracy of relevant data elements used within ECL 184 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. 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 2021 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 2021; • 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; and • 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. 2021 Annual ReportINDEPENDENT AUDITOR’S REPORT 186
186 economic scenarios and probability weighting determined for each of these scenarios. 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 lifetime basis. 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. We applied significant judgement to assess the impact of the forward-looking macroeconomic assumptions and economic scenarios used and the judgemental out of model adjustments applied to the ECL models. 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 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. 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 and which incorporated consideration of the impacts of COVID-19. 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. • Challenged the Consolidated Entity’s and Bank’s forward-looking information and economic scenarios and their associated probability weighting. We compared the Consolidated Entity’s and Bank’s forecast GDP, residential and commercial property price index and unemployment rates to relevant publicly available macro-economic information and the sensitivity of the ECL to changes in such assumptions. We focused on ensuring that these key assumptions reflected the impacts of COVID-19. • 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 loans for which specific impairment provisions are held, with particular focus on the impact of COVID-19 on high-risk industries. This included: − Challenging the Consolidated Entity’s and Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 187
186 economic scenarios and probability weighting determined for each of these scenarios. 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 lifetime basis. 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. We applied significant judgement to assess the impact of the forward-looking macroeconomic assumptions and economic scenarios used and the judgemental out of model adjustments applied to the ECL models. 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 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. 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 and which incorporated consideration of the impacts of COVID-19. 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. • Challenged the Consolidated Entity’s and Bank’s forward-looking information and economic scenarios and their associated probability weighting. We compared the Consolidated Entity’s and Bank’s forecast GDP, residential and commercial property price index and unemployment rates to relevant publicly available macro-economic information and the sensitivity of the ECL to changes in such assumptions. We focused on ensuring that these key assumptions reflected the impacts of COVID-19. • 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 loans for which specific impairment provisions are held, with particular focus on the impact of COVID-19 on high-risk industries. This included: − Challenging the Consolidated Entity’s and 187 Bank’s risk grading of the loans. − Considering the latest developments in relation to the borrower by inspecting the Consolidated Entity’s and Bank’s latest loan strategy papers 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 and consideration of COVID-19 impacts in relation to the amount and timing of recoveries. • 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. • 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. • 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. These conditions increase the inherent 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 2021 Annual ReportINDEPENDENT AUDITOR’S REPORT 188
188 uncertainty of the forecasts, the probability of a wider range of possible outcomes and the possibility of goodwill being impaired; 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. 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 considering the known and anticipated COVID-19 impacts, using our knowledge of the Consolidated Entity and Bank, their past performance, and our inquiries with Management. We also checked the consistency of the key assumptions used in the VIU model to the Consolidated Entity’s and Bank’s Board approved cash flow forecasts. • Using our industry knowledge and published studies of industry trends and expectations, assessing 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. We did this to identify those CGUs at higher risk of impairment and those assumptions at a higher risk of bias or inconsistency in application and to focus our further procedures. • 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. We focussed on the adequacy of the disclosures where a reasonably possible change in key assumptions could cause the carrying amount of a CGU to exceed its recoverable amount to assess whether additional disclosures may be required. Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 189
188 uncertainty of the forecasts, the probability of a wider range of possible outcomes and the possibility of goodwill being impaired; 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. 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 considering the known and anticipated COVID-19 impacts, using our knowledge of the Consolidated Entity and Bank, their past performance, and our inquiries with Management. We also checked the consistency of the key assumptions used in the VIU model to the Consolidated Entity’s and Bank’s Board approved cash flow forecasts. • Using our industry knowledge and published studies of industry trends and expectations, assessing 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. We did this to identify those CGUs at higher risk of impairment and those assumptions at a higher risk of bias or inconsistency in application and to focus our further procedures. • 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. We focussed on the adequacy of the disclosures where a reasonably possible change in key assumptions could cause the carrying amount of a CGU to exceed its recoverable amount to assess whether additional disclosures may be required. 189 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 and its application during the year 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. • 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’s broader technology roadmap, results of our testing and inquiring with Project Managers. • Assessing the adequacy of the disclosures associated with impairment testing of intangible computer software in the financial report. 2021 Annual ReportINDEPENDENT AUDITOR’S REPORT 190
190 Valuation of financial instruments at fair value – Consolidated Entity and Bank Refer to Note 3.7 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 191
190 Valuation of financial instruments at fair value – Consolidated Entity and Bank Refer to Note 3.7 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. 191 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. 2021 Annual ReportINDEPENDENT AUDITOR’S REPORT 192
192 Acquisition of ME Bank – Consolidated Entity and Bank Refer to Note 5.5 (c) to the Financial Reports The key audit matter How the matter was addressed in our audits On 1 July 2021, the Bank acquired 100% of ME Bank, for a total consideration of $1.388 billion. The purchase price accounting was provisional at the date of authorisation of the financial report. The accounting for this business combination is a key audit matter due to the: • Size of the acquisition having a significant impact on the Consolidated Entity’s and Bank’s financial report; and • Judgement and complexity relating to the Consolidated Entity’s and Bank’s determination of the provisional fair value of assets and liabilities acquired in the acquisition requiring significant audit effort. These included customer relationships and brand name which are inherently judgemental, driving additional audit effort specifically on the key assumptions and methodology used in the valuation of these intangible assets. The key assumptions we focussed on in the valuation of intangible assets included forecast earnings, discount rates and useful lives. The Consolidated Entity and Bank engaged an external valuation expert to assess the fair value of acquired intangibles such as customer relationships and brand name. We involved corporate finance specialists to supplement our senior audit team members in assessing this key audit matter. Working with our corporate finance specialists, our procedures included: • We evaluated the acquisition accounting by the Consolidated Entity and Bank against the requirements of the accounting standards. • We read the underlying transaction agreement to understand the terms of the acquisition and nature of the assets and liabilities acquired. • Considered the scope, objectivity and competence of the external valuation expert engaged by the Consolidated Entity and Bank. • We evaluated the valuation methodology used by the Consolidated Entity and Bank to determine the fair value of assets and liabilities acquired, against accounting standard requirements and observed industry practices. • Examined and assessed the key assumptions in the Consolidated Entity’s and Bank’s external valuation expert report prepared in relation to the identification and valuation of intangible assets including: 1. assessing the useful life of the brand name and customer relationships by using our industry experience and against the accounting standard requirements; 2. comparing forecast earnings assumptions to growth rates from comparable company broker estimates and industry growth rates; and 3. evaluating the discount rate adopted having regard to the Internal Rate of Return of the acquisition. • Compared the provisional fair values of the acquired assets and liabilities recognised by the Consolidated Entity and Bank to the audited financial statements of ME Bank and external valuation expert report. • We recalculated the goodwill balance recognised as a result of the acquisition and compared it to the goodwill amount recorded Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT 193
192 Acquisition of ME Bank – Consolidated Entity and Bank Refer to Note 5.5 (c) to the Financial Reports The key audit matter How the matter was addressed in our audits On 1 July 2021, the Bank acquired 100% of ME Bank, for a total consideration of $1.388 billion. The purchase price accounting was provisional at the date of authorisation of the financial report. The accounting for this business combination is a key audit matter due to the: • Size of the acquisition having a significant impact on the Consolidated Entity’s and Bank’s financial report; and • Judgement and complexity relating to the Consolidated Entity’s and Bank’s determination of the provisional fair value of assets and liabilities acquired in the acquisition requiring significant audit effort. These included customer relationships and brand name which are inherently judgemental, driving additional audit effort specifically on the key assumptions and methodology used in the valuation of these intangible assets. The key assumptions we focussed on in the valuation of intangible assets included forecast earnings, discount rates and useful lives. The Consolidated Entity and Bank engaged an external valuation expert to assess the fair value of acquired intangibles such as customer relationships and brand name. We involved corporate finance specialists to supplement our senior audit team members in assessing this key audit matter. Working with our corporate finance specialists, our procedures included: • We evaluated the acquisition accounting by the Consolidated Entity and Bank against the requirements of the accounting standards. • We read the underlying transaction agreement to understand the terms of the acquisition and nature of the assets and liabilities acquired. • Considered the scope, objectivity and competence of the external valuation expert engaged by the Consolidated Entity and Bank. • We evaluated the valuation methodology used by the Consolidated Entity and Bank to determine the fair value of assets and liabilities acquired, against accounting standard requirements and observed industry practices. • Examined and assessed the key assumptions in the Consolidated Entity’s and Bank’s external valuation expert report prepared in relation to the identification and valuation of intangible assets including: 1. assessing the useful life of the brand name and customer relationships by using our industry experience and against the accounting standard requirements; 2. comparing forecast earnings assumptions to growth rates from comparable company broker estimates and industry growth rates; and 3. evaluating the discount rate adopted having regard to the Internal Rate of Return of the acquisition. • Compared the provisional fair values of the acquired assets and liabilities recognised by the Consolidated Entity and Bank to the audited financial statements of ME Bank and external valuation expert report. • We recalculated the goodwill balance recognised as a result of the acquisition and compared it to the goodwill amount recorded 193 by the Consolidated Entity and Bank. • Assessed the adequacy of the disclosures in the financial report using our understanding obtained from our testing and against the requirements of the accounting standards. 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. 2021 Annual ReportINDEPENDENT AUDITOR’S REPORT 194
194 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Bank of Queensland Limited for the year ended 31 August 2021, 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 76 to 102 of the Directors’ report for the year ended 31 August 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Shaun Kendrigan Partner Sydney 12 October 2021 Bank of Queensland Limited and its Controlled EntitiesINDEPENDENT AUDITOR’S REPORT Financial Statements
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SHAREHOLDING DETAILS
1. TWENTY LARGEST ORDINARY SHAREHOLDERS
As at Thursday 23 September 2021, the following shareholding details applied:
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
WASHINGTON H SOUL PATTINSON AND COMPANY LIMITED
CITICORP NOMINEES PTY LIMITED
GOLDEN LINEAGE PTY LTD
NATIONAL NOMINEES LIMITED
CARLTON HOTEL LIMITED
AMP LIFE LIMITED
MR KIE CHIE WONG
PACIFIC CUSTODIANS PTY LIMITED
THE MANLY HOTELS PTY LIMITED
BNP PARIBAS NOMS (NZ) LTD
NATIONAL EXCHANGE PTY LTD
Total
Number of
ordinary shares
116,895,053
60,259,245
56,077,870
41,450,195
11,146,804
9,076,602
6,855,102
5,855,700
3,709,233
3,494,197
3,324,124
3,110,131
2,636,102
1,084,037
1,066,119
992,908
934,537
926,301
831,885
760,000
%
18.24
9.40
8.75
6.47
1.74
1.42
1.07
0.91
0.58
0.55
0.52
0.49
0.41
0.17
0.17
0.15
0.15
0.14
0.13
0.12
330,486,145
51.57
The above table includes shareholders that may hold shares for the benefit of third parties.
Voting rights
On a poll every person who is a holder of ordinary shares or a duly appointed representative of a holder of ordinary shares has one vote.
195
194 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: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of Bank of Queensland Limited for the year ended 31 August 2021, 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 76 to 102 of the Directors’ report for the year ended 31 August 2021. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG Shaun Kendrigan Partner Sydney 12 October 2021 2021 Annual Report Financial Statements
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SHAREHOLDING DETAILS
2. TWENTY LARGEST CAPITAL NOTE HOLDERS
As at Thursday 23 September 2021, the following holding details applied:
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
DIOCESE DEVELOPMENT FUND - CATHOLIC DIOCESE OF PARRAMATTA
JOHN E GILL TRADING PTY LTD
NATIONAL NOMINEES LIMITED
MUTUAL TRUST PTY LTD
BOND STREET CUSTODIANS LIMITED
TRUSTEES OF CHURCH PROPERTY FOR THE DIOCESE OF NEWCASTLE
NETWEALTH INVESTMENTS LIMITED
BNP PARIBAS NOMINEES PTY LTD
BERNE NO 132 NOMINEES PTY LTD
FEDERATION UNIVERSITY AUSTRALIA
INVIA CUSTODIAN PTY LIMITED
HAVENFLASH PTY LTD
NAVIGATOR AUSTRALIA LTD
BNP PARIBAS NOMINEES PTY LTD
NAVIGATOR AUSTRALIA LTD
PACIFIC DEVELOPMENT CORPORATION PTY LTD
Total
Number of
capital notes
143,575
136,325
117,911
65,465
56,238
54,593
43,234
32,812
32,200
27,499
24,713
23,893
23,705
21,935
21,310
21,000
17,672
16,703
16,629
15,500
%
4.10
3.90
3.37
1.87
1.61
1.56
1.24
0.94
0.92
0.79
0.71
0.68
0.68
0.63
0.61
0.60
0.50
0.48
0.48
0.44
912,912
26.08
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.
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3. TWENTY LARGEST CAPITAL NOTE 2 HOLDERS
As at Thursday 23 September 2021, the following holding details applied:
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
MUTUAL TRUST PTY LTD
DIMBULU PTY LTD
DIOCESE DEVELOPMENT FUND - CATHOLIC DIOCESE OF PARRAMATTA
BERNE NO 132 NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
BERNE NO 132 NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
ALWOOD PTY LTD & ALWOOD PTY LTD
NETWEALTH INVESTMENTS LIMITED
LEOPOLD STATION PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
QM FINANCIAL SERVICES PTY LTD
MFIC SECURITIES PTY LTD
NAVIGATOR AUSTRALIA LTD
SANDHURST TRUSTEES LTD
G HARVEY INVESTMENTS PTY LIMITED
NETWEALTH INVESTMENTS LIMITED
CERTANE CT PTY LTD
Total
Number of
capital notes
200,845
119,965
100,482
84,905
75,000
58,000
50,400
43,537
40,713
22,700
20,539
18,600
14,021
13,000
12,456
12,000
12,000
10,052
10,000
10,000
9,004
8,250
%
7.72
4.61
3.86
3.27
2.88
2.23
1.94
1.67
1.57
0.87
0.79
0.72
0.54
0.50
0.48
0.46
0.46
0.39
0.38
0.38
0.35
0.32
946,469
36.40
The above table includes shareholders that may hold shares for the benefit of third parties.
Voting rights
Capital Notes 2 do not give the holders any voting rights at any general shareholders meetings, except in certain circumstances.
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4. DISTRIBUTION OF SECURITY HOLDERS
Distribution of fully paid ordinary shares as at Thursday 23 September 2021:
Number of
shareholders
% of
shareholders
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Total
Less than marketable parcel (1)
Distribution of Capital Notes as at Thursday 23 September 2021:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Total
Less than marketable parcel (2)
59,976
31,956
8,418
5,857
144
106,351
3,300
4,750
388
23
28
3
5,192
23
100.00
640,889,563
3.10
64,328
Number of
shares
21,392,483
78,114,407
59,874,797
122,499,025
359,008,851
Number of
securities
1,522,756
754,918
160,549
663,966
397,811
56.39
30.05
7.92
5.51
0.14
91.49
7.47
0.44
0.54
0.06
100.00
3,500,000
0.44
50
% of issued
capital
3.34
12.19
9.34
19.11
56.02
100.00
0.01
% of issued
capital
43.51
21.57
4.59
18.97
11.37
100.00
-
Number of
security holders
% of
security holders
Distribution of Capital Notes 2 as at Thursday 23 September 2021:
Category
1 - 1,000
1,001 - 5,000
5,001 - 10,000
10,001 - 100,000
100,001 - and over
Total
Less than marketable parcel (3)
Number of
security holders
% of
security holders
Number of
securities
% of issued
capital
2,468
299
25
15
3
2,810
1
87.83
10.64
0.89
0.53
0.11
894,682
622,387
173,716
487,923
421,292
100.00
2,600,000
0.04
1
34.41
23.94
6.68
18.77
16.20
100.00
-
(1) Based on a closing price of $9.11 on 23 September 2021.
(2) Based on a closing price of $103.70 on 23 September 2021.
(3) Based on a closing price of $104.46 on 23 September 2021.
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SHAREHOLDING DETAILS
5. PARTLY PAID SHARES
There are no partly paid shares.
6. 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:
The Vanguard Group Inc.
Number of ordinary shares
in which interest is held
(at date of notification)
27,345,351
Date of notification
27 October 2020
7. SECURITIES EXCHANGE LISTING
The shares of Bank of Queensland Limited (BOQ), Capital Notes (BOQPE) and Capital Notes 2 (BOQPF) are quoted on the Australian
Stock Exchange.
Notes issued under BOQ’s Euro Medium Term Note Programme and covered bonds issued under BOQ’s Covered Bond Programme may
be listed on the London Stock Exchange.
8. UNQUOTED SECURITIES
As at 30 September 2021, the following unquoted securities were on issue:
Unquoted securities (1)
Deferred Award Rights
Performance Award Rights
Premium Priced Options
Performance Shares
Transformation Award Rights
9. ON MARKET BUY-BACK
There is no current on market buy-back.
Number of
holders in the plan
Number of
unquoted securities
385
101
14
12
44
2,115,375
1,168,938
8,033,732
661,135
280,721
10. SECURITIES PURCHASED ON MARKET
During the year ended 31 August 2021, 1,184,500 shares were purchased on market under the employee incentive scheme (2). The average
price per security was $6.36.
11. OTHER INFORMATION
BOQ is a publicly listed company limited by shares and is incorporated and domiciled in Australia.
(1) Unquoted securities are issued under the Award Rights Plan and the Equity Incentive Plan.
(2) Inclusive of shares purchased under the NED Plan.
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SHAREHOLDER INFORMATION
SHARE REGISTRY
COMPANY DETAILS
Link Market Services Limited
Level 21, 10 Eagle Street
Brisbane Qld 4000
Bank of Queensland Limited
ABN 32 009 656 740
ACN 009 656 740
Australia: 1800 779 639
International: +61 1800 779 639
Email: boq@linkmarketservices.com.au
Registered office:
Level 6, 100 Skyring Terrace
Newstead Qld 4006
CUSTOMER SERVICE
Australia: 1300 55 72 72
International: +61 7 3336 2420
Postal address:
GPO Box 898
Brisbane Qld 4001
linkmarketservices.com.au
Telephone: +61 7 3212 3333
Investor Relations:
InvestorRelations@boq.com.au
boq.com.au
twitter.com/boq
facebook.com.au/BOQOnline
KEY SHAREHOLDER DATES
Dividend dates for ordinary shares only are:
2021
Financial full year end
Full year results and dividend announcement
Full year ex-dividend date
Full year dividend record date
Full year dividend payment date
Annual General Meeting
31 August 2021
13 October 2021
28 October 2021
29 October 2021
18 November 2021
7 December 2021
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GLOSSARY
TERM
DESCRIPTION
APRA Prudential Standard (APS)
Prudential standards issued by APRA which are applicable to ADIs.
Australian Accounting Standards Board (AASB)
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.
Australian Banking Association (ABA)
The trade association for the Australian banking industry
Asset backed securities (ABS)
A financial security which is pledged by a pool of assets such as but not limited to loans, leases and
credit card debt.
Australian Finance Industry Association (AFIA)
AFIA is the national association for the equipment leasing and financing industry. Formerly Australian
Equipment Lessors Association.
Alternative liquid assets (ALA)
Alternative liquid assets are alternative treatments for holdings in the stock of HQLA. These treatments
are made available in jurisdictions where there is insufficient supply of HQLA1 (or both HQLA1 and
HQLA2) in the domestic currency to meet the aggregate demand of banks with significant exposures
in the domestic currency in the LCR framework. Within Australia, a locally-incorporated ADI subject to
LCR requirements is able to establish a CLF with the Reserve Bank of Australia, sufficient in size to cover
any shortfall in Australian dollars between the ADI’s holdings of HQLA and net cash outflows.
Australian Prudential Regulation Authority
(APRA)
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 And Investments
Commission (ASIC)
Australian Securities Exchange (ASX)
ASIC is Australia’s corporate, markets and financial services regulator.
Australian Securities Exchange or ASX Limited (ABN 98 008 624 691) and the market activities operated
by ASX Limited.
Authorised deposit-taking institution (ADI)
A corporation which is authorised under the Banking Act 1959 and includes banks, building societies and
credit unions.
Available stable funding (ASF)
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)
The Bank is a for-profit entity primarily involved in providing retail and business banking, leasing finance
and insurance products to its customers.
Banking Relief Package (BRP)
Basel II and III
A for of Government assistance that gives eligible clients the option of deferring loan repayments for a
period of time
A global regulatory framework to improve the regulation, supervision and risk management within the
banking system developed by the Basel Committee on Banking Supervision.
Basis points (bps)
One per cent of one per cent (0.01 per cent).
Banking Executive Accountability Regime (BEAR)
The Banking Executive Accountability Regime (BEAR), set out in Part IIAA of the Banking Act 1959,
establishes accountability obligations for authorised deposit-taking institutions (ADIs) and their senior
executives and directors.
Bonus Interest savings Account (BISA)
BOQ’s Bonus Interest Savings Account is a savings account with a variable base interest rate and a
bonus interest rate calculated on a tiered basis.
BOQ Blue
BOQ Blue refers to the original BOQ brand and excludes new brands such as Virgin Money, BOQ
Specialist and BOQ Finance. It is predominantly represented as transactions and products serviced
through our branch network, business bank relationship managers and financial markets.
BOQ Group Transformation Award (BTA)
BOQ Group Transformation Award is a type of incentive award granted to select employees. BTAs vest
subject to the achievement of a core earnings hurdle.
Capital Notes (BOQPE) &
Capital Notes 2 (BOQPF)
Cash earnings
Committed liquidity facility (CLF)
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.
Common equity tier 1 (CET1)
Capital that is recognised as the highest quality component of capital under APS.
Common equity tier 1 ratio (CET1 ratio)
CET1 capital divided by total RWA calculated in accordance with relevant APS.
Consolidated Entity (the Group)
BOQ and its subsidiaries
Corporations Act 2001
The Corporations Act 2001 (Cth)
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GLOSSARY
TERM
DESCRIPTION
Corporation Regulations 2001
The Corporations Regulations 2001 made under the Corporations Act 2001 (Cth)
Cost to income ratio (CTI)
Covered bond guarantor
Deferred Award Rights (DARs)
Days past due (dpd)
Dividend payout ratio
Dividend reinvestment plan (DRP)
Dividend yield
Earnings per share (EPS)
Operating expenses divided by net operating income.
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).
Deferred Award Rights (DARs) are a type of long-term incentive award rights granted to employees
below Senior Executive Level. DARs vest subject to service conditions and a risk assessment.
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.
Effective tax rate
Income tax expense divided by profit before tax.
Equipment hire purchase trust (EHP trust)
EHP trust under the REDS securitisation program, issuing asset backed securities to the term market.
Euro Medium Term Note (EMTN)
EMTN is an offshore medium term note program.
Expected Credit Loss (ECL)
Full time equivalent (FTE)
Estimated credit losses using a forward looking impairment methodology accounted for in accordance
with AASB 9 Financial Instruments.
A calculation based on number of hours worked by full and part time employees as part of their normal
duties.
General reserve for credit losses (GRCL)
An additional reserve for future unidentified credit losses, in line with APS 220 Credit Risk Management,
not reflected as part of existing ECL provisions.
Gross Domestic Product (GDP)
Gross loans and advances (GLA)
Monetary measure of the market value of all the final goods and services produced in a specific
time period.
Gross loans and advances is the principal amount of loans and advances provided, gross of provisions
and deferred fee income and including any accrued interest.
High Quality Liquid Assets (HQLA1)
Comprises the Bank’s notes and coins and marketable securities representing claims on or guaranteed
by the Australian Government or Semi-Government authorities.
Impaired assets
Exposures that have deteriorated to the point where full collection of principal and interest is in doubt.
Interest bearing liabilities
The Bank’s liabilities that accrue interest expense.
International Accounting Standards Board (IASB)
Independent, private-sector body that develops and approves International Financial Reports Standards.
International Financial Reporting Standards
(IFRS)
A series of globally accepted accounting standards for accounting for particular types of transactions
and events.
International Panel on Climate Change (IPCC)
IPCC is the United Nations body charged with overseeing climate change and publishing the global
climate models’ (including RCP’s).
Issued capital
Value of securities allotted in a company to its shareholders.
Know Your Client (KYC) Regulatory
compliance costs
Line of credit (LOC)
Liquid assets
Liquidity Coverage Ratio (LCR)
The KYC guidelines in financial services require professionals to verify the identity, suitability, and risks
involved with maintaining a business relationship. The procedures fit within the broader scope of the
Bank’s anti-money laundering (AML) policy.
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.
Members Equity Bank Limited (ME Bank or ME)
ME Bank is a for profit entity that operates in the retail segment of the domestic market offering
primarily home loan products and everyday transaction and online savings accounts.
Mortgage Net Promoter Score (NPS)
The Net Promoter Score is an index that measures the willingness of customers to recommend a
company’s products or services to others. It is used as a proxy for gauging the customer’s overall
satisfaction with a company’s product or service and the customer’s loyalty to the brand.
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GLOSSARY
TERM
DESCRIPTION
Net capitalised investment (CAPEX)
Net capitalised investment is the amount spent on purchasing or improving capital assets less their cost
of the depreciation and amortisation.
Net interest margin (NIM)
Net interest income divided by average interest-earning assets.
Net stable funding ratio (NSFR)
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. 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 (NTA)
Net tangible assets are calculated as the total assets of a company minus any intangible assets such as
goodwill, less all liabilities and the par value of preferred stock.
Non-Executive Director Fee Sacrifice Rights Plan
(NED Plan)
The Non-Executive Director Fee (NEDs) Sacrifice Rights Plan (NED Plan) allows NEDs to sacrifice a
portion of their Board fees to acquire BOQ shares.
Non-interest earning assets
The Bank’s assets that do not accrue interest income.
Novel coronavirus disease (COVID-19)
The Novel Coronavirus disease that was declared as a global pandemic on 11 March 2020.
Owner-managed Branch (OMB)
A branch which is run by a franchisee.
Performance Award Rights (PARs)
Performance Award Rights (PARs) are a type of long-term incentive award rights which were granted
to senior employees, including executives, until 2019. PARs vest subject to two performance hurdles;
relative total shareholder return (rTSR) and relative earnings per share (EPS).
REDS
Term to describe the BOQ securitisation programmes.
Representative Concentration Pathway (RCP)
RCP are physical climate scenarios set by the IPCC (with the assistance of the global scientific
community).
Required stable funding (RSF)
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.
Reserve Bank of Australia (RBA)
Australia’s central bank and drives its functions and powers from the Reserve Bank Act 1959.
Residential mortgage backed securities (RMBS)
BOQ’s securitisation program which enables the trustee to issue debt securities backed by assets
originated by the Group such as mortgages.
Return on average equity (ROE)
Net profit attributable to the owners of the Bank divided by average ordinary equity.
Return on average tangible equity (ROTE)
Net profit attributable to the owners of the Bank divided by average ordinary equity less goodwill and
identifiable intangible assets.
Right-of-use (ROU) asset
Risk weighted assets (RWA)
Significant Increase in Credit Risk (SICR)
The right-of-use asset is a lessee’s right to use an asset over the life of a lease.
A quantitative measure of various risks including credit, operational, market and securitisation as
defined by APS.
SICR is a significant change in the estimated risk of default over the remaining expected life of the
financial asset. SICR is 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.
Small and Medium Enterprises (SME)
SME are businesses whose personnel numbers fall below certain limits.
Term Funding Facility (TFF)
Funding Facility for authorised deposit-taking institutions established by the RBA to support the
Australian economy.
Total capital adequacy ratio
Total capital divided by total RWA calculated in accordance with relevant APS.
Total Shareholder Return (TSR)
Treasury shares
Virgin BOQ Group Transformation Award (VTA)
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.
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 BOQ Group Transformation Award is a type of incentive award granted to select employees.
VTAs vest subject to the achievement of two hurdles: core earnings and the delivery of the Virgin
Money digital bank.
Virgin Money Australia
(VMA or Virgin Money)
Virgin Money (Australia) Pty Ltd and its subsidiaries. The VMA entities are subsidiaries of the Group that
engage in the provision of financial services on behalf of business partners, including BOQ.
Weighted average life (WAL)
Is the average length of time for the principal on a loan to be paid in full.
Weighted average number of shares (WANOS)
Calculated in accordance with AASB 133 Earnings per share.
Wholesale Capital Notes (WCN)
WCNs are notes that may convert into common shares in certain circumstances as described in the
offer documentation of the notes.
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2021 Annual Report Bank of Queensland Limited
ABN 32 009 656 740