Two Regional Banks – Bank of Queensland Limited and Bendigo & Adelaide Bank Ltd.
Better positioned for the current business environment: Recently, Standard & Poor’s (S&P) has downgraded its long-term credit rating of Bank of Queensland Limited (ASX: BOQ) to ‘BBB+’ from ‘A-’ as part of a downgrade of ratings on 23 Australian financial institutions, while maintaining a stable outlook. S&P’s decision is based on its view that continued build-up of economic imbalances in the country due to a rapid rise in private sector debt, house prices and exposure of Australian financial institutions to systemic risks. However, S&P expects the conditions to unwind in an orderly fashion. Further, BOQ seems to have a significantly lower level of exposure to the Sydney and Melbourne property markets than many other industry participants and the bank’s loan book has performed well in the central Queensland and northern WA. During H1FY17, BOQ has faced several industry headwinds including low credit growth and intense competition for both loans and deposits. This has placed increasing pressure on Bank margins and reduced overall revenue. Despite the tough operating environment, banks focus on asset quality and expense management coupled with growth in lending segment is expected to deliver earnings growth in FY17. The stock has declined by 7.8% in the last one month owing to fears over recent regulations on home loans.
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