BoQ banks earnings boost after drop in bad loans

A fall in bad home loans has lifted Bank of Queensland's profit by 16 per cent, as the regional lender benefits from a property market recovery and a push to clean up its loan book.

After last year becoming the first Australian bank to post a loss for 20 years, BoQ is looking to lift lending standards, cut costs and curb its heavy exposure to the Sunshine State.

Its latest results showed its home loan book had improved significantly in the latest half, which helped drive a bounce in cash earnings to $119.9 million.

Charges for impaired loans fell 19 per cent, and chief executive Stuart Grimshaw said this had occurred due to an improving property market and an effort by the bank to work through its retail loan book with customers.

"It involved talking to people, seeing what repayment schedule we could put them on, or refinancing them out, and at worst selling the property," he said.

The property market has also been buoyed by rising auction clearance rates and prices in recent months, but Mr Grimshaw said it was too early to say if the trend would continue.

With profit margins also widening after the bank passed on only part of last year's cash rate cuts to borrowers, BoQ raised its interim dividend by 2¢ to 28¢ a share.

But the lender remains cautious about the economy, saying many small businesses are struggling in the face of weak confidence and a stubbornly high exchange rate.

Mr Grimshaw said the high dollar continued to take a toll on many small businesses. "I think the Aussie dollar is here to stay at this level for a while, and that's tough. Everyone needs to adjust to that," he said. "Even in a low-interest-rate environment, where typically you'd say things shouldn't be too bad, it's still pretty tough."

The results come after BoQ last year embarked on a management reshuffle and job cuts to rationalise the business after its loss.

Shaw Stockbroking analyst David Spotswood said the improving health of BoQ's loan book was encouraging and the company appeared to be recovering well from a series of bad loans that were exposed by the global financial crisis.

The bank has been taking steps to broaden its customer base so that it is less exposed to Queensland. Last week it bought Richard Branson's Virgin Money for $40 million in a deal it hopes will give it greater access to a wide range of consumers.

BoQ shares fell 15¢, or 1.5 per cent, to $9.45.