The Bank of Queensland (ASX: BOQ) has reported that it made substantial investments in IT for the year to August 31, with information technology accounting for 21 per cent of the bank’s operating expenses.
In an ASX statement, the bank said it had spent some $68.3 million on IT, spearheaded by $43.8 million on data processing costs, slightly down from the $44.5 million in recorded in 2009.
Amortisation on computer software for the year was $20.3 million, up from $16.9 million in 2009. Amortisation on technology infrastructure was $1.5 million, equal to 2009’s figure.
Depreciation on IT equipment was also $1.5 million, equal to 2009’s costs.
The bank has also reported that its bad debts have peaked, helping it post a 27 per cent rise in reported annual net profit and predicted higher growth in the current year.
Net profit for its fiscal year was $179.6 million, up from $141.1 million in the prior year.
A key performance measure used by investors, normalised cash net profit, was $197.1 million, up five per cent on the prior year despite "peak bad debt losses that were in line with (BoQ's) guidance".
Bad debt expense for the year increased by 58 per cent to $104 million, largely in BoQ's equipment financing portfolio.
Net interest margin was 1.60 per cent, up from 1.56 per cent, despite increased funding costs putting pressure on margins in the second half of the year.
BoQ managing director David Liddy said that for a couple of years BoQ had not been able to provide solid guidance, given economic turbulence and uncertainty.
"However, we now feel confident of giving some form of formal guidance," Liddy said in a market briefing.
"For FY11 (the 2011 fiscal year) in terms of growth, we will maintain growth at 1.5 to two times system (other banks).
"We expect that bad debts in the first half next year, or this current financial year, will be similar to what we've just experienced.
"We expect cash normalised NPAT (net profit after tax) to be somewhere between $220 million and $250 million.
"Dividend growth is expected to be between 10 and 20 per cent, and in terms of efficiency, we maintain our guidance of a 45 per cent cost-to-income ratio in FY11."
Liddy said headwinds included ongoing pressure on margins, which the entire banking sector was facing.
"If anyone's not certain that the cost of funding for all banks has increased, I'm telling you that's fact," he said.
Among the tailwinds, BoQ's recently acquired CIT ANZ vendor finance business and the St Andrew's insurance business were already performing better than expected, and there were other bolt-on acquisition opportunities.
Liddy described BoQ's 2010 result as strong, despite the economic conditions and the level of bad debts which he said had flowed through to BoQ's core customer segment of small to medium-sized (SME) businesses.
He put the 2010 result down to "a strong balance sheet and focused expense discipline, along with system-beating growth in lending and deposits".
Liddy said BoQ had reduced its cost-to-income ratio by 4.1 per cent to 45.8 per cent, and the CIT and St Andrew's acquisitions would help diversify BoQ's income sources and increase overall margins.
The bank's lending had grown during the year by 2.5 times system growth, while deposits were 1.5 times system growth.
Liddy said retail deposit growth had rebounded in the second half - although such growth was "very costly" - which had allowed BoQ to reduce its reliance upon wholesale debt.
Liddy said the bank's bad debt exposure had peaked during 2009/10, and investments in collection processes and resources would improve specific portfolio performance.
"As per guidance, we have experienced an increase in bad debts expense during the year and, as a result, we have increased our provision coverage," he said.
"Some positive trends are emerging and our focus remains on well-secured housing and SME lending."
BoQ said it would continue to convert corporate branches to owner-managed branch (OMBs) and open new OMBs in high-growth areas over the next couple of years.
Also, BoQ would roll out new products to attract new customers, and reduce funding costs.
BoQ declared a final dividend of 26 cents per share, fully franked, steady with the prior year. The total dividend for the fiscal year was 52 cents per share.
Shares in BoQ were five cents lower at $10.47 at 14:53 AEDT on Thursday.