Comparative review
Recommendation
Apart from at the depths of the global financial crisis, Bank of Queensland’s share price is currently languishing at levels not seen in a decade. Despite benefiting from the resources boom, low unemployment and interest rates, Bank of Queensland was forced to raise capital and cut the dividend this year due to higher bad debts. The tourism industry is floundering due to the strong Aussie dollar, and floods and cyclones exposed the bank’s reliance on the Queensland economy.
As Bank of Queensland is less diversified by geography and product, less profitable and more reliant on non-deposit funding than the four majors, we’re unlikely to recommend Bank of Queensland over the big four banks without a compelling reason. The 7.2% dividend yield is less than 1% above Westpac’s 6.4% yield, for example, and doesn’t provide enough compensation for the additional risks. AVOID.
Bendigo and Adelaide Bank holds more appeal than Bank of Queensland, as it’s more diversified by geography and chiefly relies on deposits for funding. That’s also an advantage over the big four banks, though the big four have reduced their reliance on short-term overseas wholesale funding since the GFC. Still, the 7.2% dividend yield fails to compensate for the risk of owning a regional bank, which is unlikely to receive government assistance during a crisis. AVOID.
If you own regional banks and/or the income securities they’ve issued, pay close attention to your portfolio limits. We’d recommend having no more than 3% of your portfolio exposed to either Bank of Queensland or Bendigo and Adelaide Bank.