Moody's cuts Bank of Queensland rating

Moody's Investors Service cut the long term credit rating of Bank of Queensland to A3, from A2. The credit ratings agency said the outlook remained negative for the bank's rating.

Moody's placed BOQ's ratings on review for possible downgrade in October. It justified its rating action on a deterioration in asset quality and ongoing structural challenges.

BOQ is exposed to a number of large commercial loans, and the weakening economic environment is making resolution of these exposures difficult, according to Moody's.

In addition, BOQ sources 40 per cent of its funding from wholesale debt markets, though scarcely any of this funding is from offshore.

In December, Standard & Poor's cut the BOQ rating to cut to BBB from BBB+. At that time, BOQ's chief executive, Stuart Grimshaw, defended the bank’s strategy and its balance sheet strength. Grimshaw said: "The main issues S&P has flagged as negatives are around our inability to compete with the major Australian banks, lack of geographic diversification, the level of bad debts and our overall relevance to the financial services sector.

"While S&P is telling us we need to be more diversified, I do not believe that should be the case. Last time I looked, Queensland was larger than most European nations and I don’t see S&P telling their banks to diversify geographically; in fact, the exact opposite.

"We continue to expand in Queensland and also out of state, but our comparative advantage is that this is our home state and this is where we need to be much stronger."

Grimshaw said access to funding would remain a critical strategic issue for all banks. However, Bank of Queensland relies on the international capital markets for only 1.5 per cent of its total funding, he said.

"While we have, disappointingly, been downgraded by S&P to BBB [from BBB+] there will not be any material impact on us," said Grimshaw.
"Our funding book is well under control. We don’t have to pursue unsecured debt funding this financial year.

"BOQ’s expansion into capital-lite businesses, such as St Andrews Insurance, while also seeking higher margin business in our expanding vendor finance, equipment finance and debtor finance business lines, means that we are doing well in these uncertain times."