Bank of Queensland: Point of Differentiation Gone, but Offering Simplified

Bank of Queensland announced several strategic initiatives to improve its competitive position, but in doing so, highlights the challenging outlook for small banks. Interest margins have suffered from loan and deposit competition, given small banks have less transaction deposit funding. Also, the cost base cannot easily be reduced to prevent an already high cost/income ratio from rising. Bank of Queensland is making sensible moves, but with no competitive advantage, we think the loan growth, margins, and cost savings needed to generate above-cost-of-equity returns will prove elusive.