The bank is moving away from its traditional reliance on home loans, choosing instead to invest heavily in business lending in an effort to improve profitability. This decision increases risk exposure. Over the past year, BOQ has reduced its mortgage portfolio by $4 billion and increased business lending by $1.6 billion, growing at more than twice the market rate. While bold, the key question is whether this strategy will deliver sustainable long-term returns.
The pivot forms part of a broader transformation at BOQ. This includes the buyback of 114 franchise branches, a major operational restructure, and a $250 million cost-cutting program. BOQ’s leadership views traditional mortgages, particularly those acquired through brokers, as unattractive due to high upfront and ongoing costs. Major banks can offer lower rates because of their funding advantages, making it increasingly difficult to compete in the home loan space.
While reducing reliance on mortgage brokering under the BOQ brand, the bank maintains some presence in the sector through ME Bank, which distributes loans exclusively through brokers. Nonetheless, the strategy is focused. BOQ aims to expand its business lending, targeting sectors such as healthcare and agriculture. These sectors align with the bank’s strong presence in Queensland. Early results are promising. Cash profits rose 12% to $383 million. Margins also improved, climbing by 12 basis points in the second half of the year.
Despite these improvements, profitability remains below expectations. Return on equity increased to 6.4%, up from 5.7% the previous year. However, this remains below the cost of capital. Earlier this year, the bank dropped its 8 to 9% ROE target, signalling that further progress is needed. Competition from NAB, Commonwealth Bank and private credit firms adds further pressure to margins by pursuing the same business customers.
BOQ is also betting on a new digital platform to help cut costs and improve integration with ME Bank. This platform is not expected to be completed until late next year. In the meantime, the bank must navigate intense competition and changing market conditions as it attempts to protect gains made from withdrawing from the mortgage market.
