Executive Interview - David Liddy - Managing Director, Bank of Queensland
(19 October 2004 – Australia) David Liddy left Westpac to become managing director of Bank of Queensland in 2001. Since then the bank has doubled its profit, market capitalisation and share of the home lending market in its home state. Last week the bank announced it had increased its net profit by 44 percent for the 2004 financial year (see separate story) with underlying profit passing the A$100 million mark for the first time. The bank also announced it was extending Mr Liddy’s tenure as managing director to August 31, 2009, saying he had "presided over a period of exceptional and profitable growth" at Bank of Queensland and that it wished to ensure the strategic management introduced under his stewardship is "embedded for the future".
East & Partners executive editor spoke to David Liddy two weeks before the bank announced its results for the 2004 financial year.
Bank of Queensland appears to be a great story right now. You’ve recently embarked on an ambitious interstate expansion program, made acquisitions and launched new products. How do you view the bank’s progress and direction since you became managing director in 2001?
Over the last three and a half years or so we’ve restructured the company to focus on what we think we’re really good at which is distribution and customer service, so most of the changes we’ve made have been around those two elements. When I first started we lacked scale and we lacked depth and breadth. We didn’t have a big customer base and we didn’t have a lot of representation, we had a very inefficient cost structure at about 79 cents in the dollar, we had a technology platform that was our Achilles heel, which didn’t allow us to either grow or expand and certainly didn’t allow us to bring new products onto the market. We’ve addressed each of those. I like to use the expression we’ve been "flying the plane as we build it", so basically for three and a half years we’ve replaced our core systems, fixed the infrastructure of the place so we can grow the bank. We’ve tried to focus very much on customers and we still haven’t got that 100 percent right but the perception of our customer service is still pretty high, I think it’s number two behind Bendigo Bank. Now we’ve got a platform where we’ve got 147 branches, up from 90, we’ve started our interstate expansion through our owner-manager model which is quite unique in banking.
We’ve made two reasonably major acquisitions for a company of our size in ATM Solutions; we’re now the second largest ATM provider in Australia, behind the Commonwealth Bank. We bought BOQ Equipment Finance which is about a A$1.1 billion lease portfolio which has grown significantly since we bought it. We’re now into our interstate expansion, we’ve opened seven branches, and we’re our way to 100 new branches interstate.
And how are the new branches tracking so far?
Well, they’re all above budget if that’s any indication which is really good but we’ve only been doing this for eight weeks so it’s still pretty early days, but the reception has been very good. We started at Byron Bay, then Kingscliff and they’re both doing very, very well, then we opened at north Parramatta and the chap there is putting on extra staff already and he’s only been going for five weeks and Victoria is exactly the same, so we’re really pleased.
So having the "Queensland" moniker is not an issue or deterrent for customers in other states?
No, it’s certainly a very strong brand here in Queensland because it’s our heritage but we spent a lot of time market researching before we went interstate. I wasn’t quite sure what the reception would be but it’s not a brand led strategy as such, it’s a people led strategy so the focus is about getting the very best people to run these franchise operations and they attract their own customers. The model itself incents the owner- manager to look after their customers and provide higher quality service than is normally available so that’s been the success, so I think that will be the continued success of the brand rather than the brand itself.
So the owner managers are not going out doing a lot of new marketing, they’re bringing customers over from their previous roles in other banks?
Yes, it’s more personal marketing. It’s local area marketing so we tend to recruit in local markets, so they’re usually involved in the local market environment anyway and that tends to be the success factor. And we certainly won’t be spending ANZ or Westpac’s advertising dollars, because we don’t have it.
Getting the right people into your owner manager branches model is obviously vital, so how have you been going about finding them?
It’s the most critical success factor of the whole concept I believe, that and the location. We tend to choose the location, and then we negotiate with the operator whether it’s the right location. Then we find the operators; a lot of them come to us. What we found here in Queensland as we started to roll out the franchise concept is that as it became successful people found out about it and then applied for it. Interstate it’s been a little different; we advertised and did road shows in both states to prospective people but we’re now seeing top quality people from all other banks applying to us rather than us having to tap people on the shoulder so to speak. I think as the model grows and succeeds interstate that will happen more and more, because good bankers know who the other good bankers are and they’ll spread the gospel. But individuals are by far the most critical success factor.
Given that some of the other banks have rediscovered branches, is there more competition to find these people?
I hear that the other banks are doing things but I haven’t seen it. The ANZ has had a localised management model for a couple of years but it’s nowhere near what we’re doing. Other banks are saying they’re opening branches but you don’t see a lot of it yet so I think we’ll continue to attract high quality people purely on the basis that these are successful individuals in banks today that get the opportunity to run their own businesses as a small business owner and get the rewards from being successful from that. That’s been the driver here and I’m sure that’ll be the driver interstate as we go forward.
You’ve earmarked 100 or so new owner-manager branches over the next 18 months. Are you going to be able to sustain this pace?
Basically we need to be able to open one new branch a week and we’ll achieve that, we’re on schedule to achieve that. Probably the biggest obstacle, if there is one, is finding the right location, finding the right sites. In some instances we’ve come against obstacles but we now have a group of national property people seeking out locations in those areas that we’ve identified as opportunities and so far we haven’t had a problem but I’m sure that we will run into issues with being able to find the right premises in the right main street at some stage.
But you’re confident of meeting those targets and rolling out that many branches in the timeframe?
We’re on schedule so far, that’s certainly our plan and by Christmas we’ll have about 20 out there and we’ll continue to roll them out over that remaining 18 month period. We’ve got a really good process for doing this and in any franchise environment you need to have good processes. We can open a branch within say nine or ten weeks from the moment we choose the operator to opening the branch. There are set designs, everything’s consistent, generally the same footprint depending on the location, and it’s all modular.
So how do you go about training people and getting them familiar with your products and IT systems etc?
We run all the training. We train them prior to the opening and then we stay with them for a period after they open. Most are experienced bankers and basically getting used to our systems is the only difference because our systems are different to the major banks. That’s for the owner-managers. For the general staff it’s basically just getting knowledge of the products and technology. Training will always be controlled by the bank as will things like credit. We maintain some things very closely to our heart: one is credit, one is brand and one is service. So those things the owner-managers can’t play with, they’re the tight things in the bank. Training’s another thing that’s tight where even though they’re not theoretically Bank of Queensland staff, as they’re employed by the owner-manager, they’re representing our brand so we train them.
When these owner-managers come over from other banks, do they have a similar story as to why they want to work with you?
I think the opportunity firstly is to run your own business, that’s the big drawcard. A lot of bankers get frustrated perhaps in larger organisations that they don’t have the freedom to operate and look after their customers in the way they want to, whereas with this model you’re incented to run it yourself and be a small business owner, so the incentive’s there definitely to differentiate yourself in terms of service and delivery of that service.
What kind of time frame do you have for keeping check on how these new businesses are going?
In the early days we monitor them daily but we have a regional management structure across all of our branches and it’s the same interstate, so each of these branches interstate has a leader – we call them a regional manager – who’s there to help them with any problems they have. We also have a team of implementation staff that are there to guide them through, but basically when they’re up and running they’re treated the same as a normal corporate branch so compliance and audit procedures and so forth are exactly the same.
What are these new branches going to do in terms of winning small business customers?
Traditionally a bank branch is very asset focussed rather than deposit focussed, and that’s no different at our bank. The main lending in the past few years has been obviously housing because we’ve been going through quite a boom, but the main direction of the bank going forward is more on the SME basis and we’ve put in place a broader business banking team here in Queensland and we’re supporting our branch network interstate with business bankers. They’re focussed at the small to medium end, not just the SME area but the medium commercial business area.
Our branches focus on SME customers only and anything above a certain level has to be referred on to a business banker, so the corner delicatessen for example, that’s looked after by a branch as it’s generally non complex lending. If it’s complex lending it can be managed initially by the branch but then is handed over to a business banker. The biggest difference with us compared to the other banks is that the SME segment is looked after face to face rather then through a call centre. Most of the other banks today, as I understand it, have call centre solutions for what they call the SME market. So the small to medium businesses generally deal with a 1800 or 1300 number, whereas with us they deal in a branch initially and/or through a business banker. That’s certainly helped us grow that SME segment here and I expect that it’ll be the same interstate.
How would you describe the bank’s business banking strategy going forward?
We want to be a pre-eminent business bank here in Queensland and that’s our main focus, particularly in the SME segment. We’re rapidly growing the number of resources and the number of business banking centres; we’ve opened ten business banking centres in the last 18 months and have probably quadrupled the number of business bankers. Our main emphasis is here but our business banking influence and strategy in NSW and Victoria will be to support the branch network, and that’s why we’re putting business bankers interstate. It’s not to drive and be the business bank in NSW and Victoria but purely to support the customers that we generate through the branch network. We’re not going to be big players in things like property finance interstate or things like that, but having said that we will grow our equipment finance business interstate and we will grow our debtor finance business interstate, both of which are very core competencies of the bank.
How has the purchase of UFJ helped the bank expand its SME business?
The business we bought from UFJ equipment finance was about 15,000 clients and they’re all SMEs, and that was about a A$1.1 billion equipment finance so that helped us get in to that segment of the market. We’ve always dealt with the SME market but perhaps not as aggressively as we have over the last couple of years. So we’ve certainly grown that business. Our balance sheet is about 60:40 and that’s about where we want it but we’ll continue to grow that side of our business as we go forward.
Has the UFJ acquisition generally provided the cross selling opportunities and synergies you were hoping for?
To be honest when we made the acquisition, we didn’t include any synergy benefits from cross selling. We achieved the synergies that we outlined in cost reduction, simply by integrating the two businesses. We already had an equipment finance business so we moved our business into their business basically, as they had a much better system and more efficient processing, so we achieved the synergy benefits in that within six months, which was really good for us. The surprising thing is that we found we could cross sell. The old UFJ business was undercapitalised and wasn’t being focussed on all that well. We’ve been able to enhance the delivery of service to that, we’ve grown our business significantly since we bought it in September last year and we’ve found we’re creating longer term customer relationships rather than just commodity relationships. Typically, people don’t go to their main bank for insurance or for leasing, you tend to use brokers in business, but we’ve been quite surprised that we’ve been able to grow the size of the book, improve margins and also increase our cross sell which is good.
Will you look at making other similar acquisitions?
Yes, that’s a distinct possibility; we’ll always look for acquisitions in areas where we have core competencies, such as retail distribution, or in that SME, equipment finance, debtor finance market.
How is the bank’s mortgage lending business tracking?
It’s quite interesting. We pulled out of the broker market in June and that was a deliberate strategic decision based on us growing our own business rather than doing it through third parties. As we’re opening our own branches it didn’t make sense to be paying third parties to be doing it and we’ve continued to grow market share through that expansion process. We’ve certainly seen some slow down in housing in Queensland – and let me point out that I’m just talking about Queensland now as it’s too soon to be talking about the interstate markets – but it’s quite interesting that over the last couple of weeks it’s kicked up again.
Queensland prices are still holding firm, quality property is still holding firm but you’re seeing some slowdown in some segments in the firm, the Gold Coast and some parts of the north coast are still going up. But we’re not as heavily dependent on housing as a lot of people think. Most people think regional banks and think of the housing market, that it’s all woe and gloom, but like I said we’re about 60:40 commercial to housing anyway. So even if there’s a decline in the housing market, we’re still growing our points of representation; in other words if the cake gets smaller we’re taking a bigger bite out if it, so we’ll continue to outstrip system growth purely on the basis that we’re continuing to expand our points of representation and all that business is new business to us. So I’m sure there is a slowing but Queensland won’t slow as quickly as parts of NSW and Victoria have, but there are certainly signs here that it’s starting to happen.
How will the decision to exit mortgage brokers affect volume and profits in the medium and long term?
In terms of volumes, it will certainly have a dampening affect on us for probably 12 months but we’re growing way outside the system anyway and we’ll replace that broker driven business by our own branches within 12 months. In terms of value it will enhance our profitability rather than decline it.
Do you think other banks will take a leaf out of your book and leave the third party channel?
From what I read in the press all banks seem to be kicking back at some stage with brokers right now. There seems to be a question about the returns that brokers should get and shouldn’t get, so a couple of the other banks have made moves. Most of the banks seem to be starting to have a look and we think imitation is a great form of flattery.
How is your Cash Management Account (CMA) product tracking so far?
I was just looking at the numbers this morning. It’s successful so far but it’s only been happening for a few weeks. One of our weak spots, if you like, has been our focus on deposits over the last couple of years. We’ve grown in excess of 40 percent on the assets side but probably in excess of 25 percent on the liability side which is way above system, which is good in its own right but when you’ve got that widening gap between your assets and your liabilities, you’ve got wholesale funding needs which are an issue for all banks. We couldn’t change any of our deposit products until we changed our core banking system but we’ve now got the best CMA account on the market in terms of features and price.
We’ve gone through a complete cultural change within the bank to emphasise why deposits are important, and when you’ve got a branch network, you should use that as retail deposit shops to be honest and we really hadn’t focussed on that until now. But it’s early days on the CMA but the results look really good but also it’s a key focus for us going forward.
Finally David, what’s your vision for the Bank of Queensland? What sort of bank do you see it becoming over the medium to longer term?
Well, we want to be Australia’s leading regional bank. Our core focus in life is distribution and providing customer service. We think we can gain five percent of the national market in home lending. If we can achieve that it basically triples the size of the bank. We’re underwriting about two and a bit percent today and on balance sheet we’d have about one and a bit percent. So we’re talking about quite a significant increase in that but that’s all supported by this branch network expansion that we’re doing. We’ve got a clear differentiated distribution model which will allow us to achieve those sorts of goals. But our focus has got to be "how do we differentiate from the big guys?" and that’s through service, so we’ve got to prove that we can actually be smaller but be different. That’s really our focus in life, to be the best regional bank in Australia, but how do you measure that? I guess by a lot of measures but one would be customer service, another would be shareholder returns and so forth, so every company has directions it wants to head in and we’ve got goals and five percent market share is part of that.
In business banking, certainly in Queensland we want to be the pre-eminent business bank. We’re not there yet, but that’s our longer term goal. And we’ll continue to focus on being better than the others in terms of being able to deliver. But we don’t want to be a big bank; we want to be a big small bank, not a small big bank and that’s all about our ability to interact with our customers and our staff and shareholders.
Bank of Queensland appears to be a great story right now. You’ve recently embarked on an ambitious interstate expansion program, made acquisitions and launched new products. How do you view the bank’s progress and direction since you became managing director in 2001?
Over the last three and a half years or so we’ve restructured the company to focus on what we think we’re really good at which is distribution and customer service, so most of the changes we’ve made have been around those two elements. When I first started we lacked scale and we lacked depth and breadth. We didn’t have a big customer base and we didn’t have a lot of representation, we had a very inefficient cost structure at about 79 cents in the dollar, we had a technology platform that was our Achilles heel, which didn’t allow us to either grow or expand and certainly didn’t allow us to bring new products onto the market. We’ve addressed each of those. I like to use the expression we’ve been "flying the plane as we build it", so basically for three and a half years we’ve replaced our core systems, fixed the infrastructure of the place so we can grow the bank. We’ve tried to focus very much on customers and we still haven’t got that 100 percent right but the perception of our customer service is still pretty high, I think it’s number two behind Bendigo Bank. Now we’ve got a platform where we’ve got 147 branches, up from 90, we’ve started our interstate expansion through our owner-manager model which is quite unique in banking.
We’ve made two reasonably major acquisitions for a company of our size in ATM Solutions; we’re now the second largest ATM provider in Australia, behind the Commonwealth Bank. We bought BOQ Equipment Finance which is about a A$1.1 billion lease portfolio which has grown significantly since we bought it. We’re now into our interstate expansion, we’ve opened seven branches, and we’re our way to 100 new branches interstate.
And how are the new branches tracking so far?
Well, they’re all above budget if that’s any indication which is really good but we’ve only been doing this for eight weeks so it’s still pretty early days, but the reception has been very good. We started at Byron Bay, then Kingscliff and they’re both doing very, very well, then we opened at north Parramatta and the chap there is putting on extra staff already and he’s only been going for five weeks and Victoria is exactly the same, so we’re really pleased.
So having the "Queensland" moniker is not an issue or deterrent for customers in other states?
No, it’s certainly a very strong brand here in Queensland because it’s our heritage but we spent a lot of time market researching before we went interstate. I wasn’t quite sure what the reception would be but it’s not a brand led strategy as such, it’s a people led strategy so the focus is about getting the very best people to run these franchise operations and they attract their own customers. The model itself incents the owner- manager to look after their customers and provide higher quality service than is normally available so that’s been the success, so I think that will be the continued success of the brand rather than the brand itself.
So the owner managers are not going out doing a lot of new marketing, they’re bringing customers over from their previous roles in other banks?
Yes, it’s more personal marketing. It’s local area marketing so we tend to recruit in local markets, so they’re usually involved in the local market environment anyway and that tends to be the success factor. And we certainly won’t be spending ANZ or Westpac’s advertising dollars, because we don’t have it.
Getting the right people into your owner manager branches model is obviously vital, so how have you been going about finding them?
It’s the most critical success factor of the whole concept I believe, that and the location. We tend to choose the location, and then we negotiate with the operator whether it’s the right location. Then we find the operators; a lot of them come to us. What we found here in Queensland as we started to roll out the franchise concept is that as it became successful people found out about it and then applied for it. Interstate it’s been a little different; we advertised and did road shows in both states to prospective people but we’re now seeing top quality people from all other banks applying to us rather than us having to tap people on the shoulder so to speak. I think as the model grows and succeeds interstate that will happen more and more, because good bankers know who the other good bankers are and they’ll spread the gospel. But individuals are by far the most critical success factor.
Given that some of the other banks have rediscovered branches, is there more competition to find these people?
I hear that the other banks are doing things but I haven’t seen it. The ANZ has had a localised management model for a couple of years but it’s nowhere near what we’re doing. Other banks are saying they’re opening branches but you don’t see a lot of it yet so I think we’ll continue to attract high quality people purely on the basis that these are successful individuals in banks today that get the opportunity to run their own businesses as a small business owner and get the rewards from being successful from that. That’s been the driver here and I’m sure that’ll be the driver interstate as we go forward.
You’ve earmarked 100 or so new owner-manager branches over the next 18 months. Are you going to be able to sustain this pace?
Basically we need to be able to open one new branch a week and we’ll achieve that, we’re on schedule to achieve that. Probably the biggest obstacle, if there is one, is finding the right location, finding the right sites. In some instances we’ve come against obstacles but we now have a group of national property people seeking out locations in those areas that we’ve identified as opportunities and so far we haven’t had a problem but I’m sure that we will run into issues with being able to find the right premises in the right main street at some stage.
But you’re confident of meeting those targets and rolling out that many branches in the timeframe?
We’re on schedule so far, that’s certainly our plan and by Christmas we’ll have about 20 out there and we’ll continue to roll them out over that remaining 18 month period. We’ve got a really good process for doing this and in any franchise environment you need to have good processes. We can open a branch within say nine or ten weeks from the moment we choose the operator to opening the branch. There are set designs, everything’s consistent, generally the same footprint depending on the location, and it’s all modular.
So how do you go about training people and getting them familiar with your products and IT systems etc?
We run all the training. We train them prior to the opening and then we stay with them for a period after they open. Most are experienced bankers and basically getting used to our systems is the only difference because our systems are different to the major banks. That’s for the owner-managers. For the general staff it’s basically just getting knowledge of the products and technology. Training will always be controlled by the bank as will things like credit. We maintain some things very closely to our heart: one is credit, one is brand and one is service. So those things the owner-managers can’t play with, they’re the tight things in the bank. Training’s another thing that’s tight where even though they’re not theoretically Bank of Queensland staff, as they’re employed by the owner-manager, they’re representing our brand so we train them.
When these owner-managers come over from other banks, do they have a similar story as to why they want to work with you?
I think the opportunity firstly is to run your own business, that’s the big drawcard. A lot of bankers get frustrated perhaps in larger organisations that they don’t have the freedom to operate and look after their customers in the way they want to, whereas with this model you’re incented to run it yourself and be a small business owner, so the incentive’s there definitely to differentiate yourself in terms of service and delivery of that service.
What kind of time frame do you have for keeping check on how these new businesses are going?
In the early days we monitor them daily but we have a regional management structure across all of our branches and it’s the same interstate, so each of these branches interstate has a leader – we call them a regional manager – who’s there to help them with any problems they have. We also have a team of implementation staff that are there to guide them through, but basically when they’re up and running they’re treated the same as a normal corporate branch so compliance and audit procedures and so forth are exactly the same.
What are these new branches going to do in terms of winning small business customers?
Traditionally a bank branch is very asset focussed rather than deposit focussed, and that’s no different at our bank. The main lending in the past few years has been obviously housing because we’ve been going through quite a boom, but the main direction of the bank going forward is more on the SME basis and we’ve put in place a broader business banking team here in Queensland and we’re supporting our branch network interstate with business bankers. They’re focussed at the small to medium end, not just the SME area but the medium commercial business area.
Our branches focus on SME customers only and anything above a certain level has to be referred on to a business banker, so the corner delicatessen for example, that’s looked after by a branch as it’s generally non complex lending. If it’s complex lending it can be managed initially by the branch but then is handed over to a business banker. The biggest difference with us compared to the other banks is that the SME segment is looked after face to face rather then through a call centre. Most of the other banks today, as I understand it, have call centre solutions for what they call the SME market. So the small to medium businesses generally deal with a 1800 or 1300 number, whereas with us they deal in a branch initially and/or through a business banker. That’s certainly helped us grow that SME segment here and I expect that it’ll be the same interstate.
How would you describe the bank’s business banking strategy going forward?
We want to be a pre-eminent business bank here in Queensland and that’s our main focus, particularly in the SME segment. We’re rapidly growing the number of resources and the number of business banking centres; we’ve opened ten business banking centres in the last 18 months and have probably quadrupled the number of business bankers. Our main emphasis is here but our business banking influence and strategy in NSW and Victoria will be to support the branch network, and that’s why we’re putting business bankers interstate. It’s not to drive and be the business bank in NSW and Victoria but purely to support the customers that we generate through the branch network. We’re not going to be big players in things like property finance interstate or things like that, but having said that we will grow our equipment finance business interstate and we will grow our debtor finance business interstate, both of which are very core competencies of the bank.
How has the purchase of UFJ helped the bank expand its SME business?
The business we bought from UFJ equipment finance was about 15,000 clients and they’re all SMEs, and that was about a A$1.1 billion equipment finance so that helped us get in to that segment of the market. We’ve always dealt with the SME market but perhaps not as aggressively as we have over the last couple of years. So we’ve certainly grown that business. Our balance sheet is about 60:40 and that’s about where we want it but we’ll continue to grow that side of our business as we go forward.
Has the UFJ acquisition generally provided the cross selling opportunities and synergies you were hoping for?
To be honest when we made the acquisition, we didn’t include any synergy benefits from cross selling. We achieved the synergies that we outlined in cost reduction, simply by integrating the two businesses. We already had an equipment finance business so we moved our business into their business basically, as they had a much better system and more efficient processing, so we achieved the synergy benefits in that within six months, which was really good for us. The surprising thing is that we found we could cross sell. The old UFJ business was undercapitalised and wasn’t being focussed on all that well. We’ve been able to enhance the delivery of service to that, we’ve grown our business significantly since we bought it in September last year and we’ve found we’re creating longer term customer relationships rather than just commodity relationships. Typically, people don’t go to their main bank for insurance or for leasing, you tend to use brokers in business, but we’ve been quite surprised that we’ve been able to grow the size of the book, improve margins and also increase our cross sell which is good.
Will you look at making other similar acquisitions?
Yes, that’s a distinct possibility; we’ll always look for acquisitions in areas where we have core competencies, such as retail distribution, or in that SME, equipment finance, debtor finance market.
How is the bank’s mortgage lending business tracking?
It’s quite interesting. We pulled out of the broker market in June and that was a deliberate strategic decision based on us growing our own business rather than doing it through third parties. As we’re opening our own branches it didn’t make sense to be paying third parties to be doing it and we’ve continued to grow market share through that expansion process. We’ve certainly seen some slow down in housing in Queensland – and let me point out that I’m just talking about Queensland now as it’s too soon to be talking about the interstate markets – but it’s quite interesting that over the last couple of weeks it’s kicked up again.
Queensland prices are still holding firm, quality property is still holding firm but you’re seeing some slowdown in some segments in the firm, the Gold Coast and some parts of the north coast are still going up. But we’re not as heavily dependent on housing as a lot of people think. Most people think regional banks and think of the housing market, that it’s all woe and gloom, but like I said we’re about 60:40 commercial to housing anyway. So even if there’s a decline in the housing market, we’re still growing our points of representation; in other words if the cake gets smaller we’re taking a bigger bite out if it, so we’ll continue to outstrip system growth purely on the basis that we’re continuing to expand our points of representation and all that business is new business to us. So I’m sure there is a slowing but Queensland won’t slow as quickly as parts of NSW and Victoria have, but there are certainly signs here that it’s starting to happen.
How will the decision to exit mortgage brokers affect volume and profits in the medium and long term?
In terms of volumes, it will certainly have a dampening affect on us for probably 12 months but we’re growing way outside the system anyway and we’ll replace that broker driven business by our own branches within 12 months. In terms of value it will enhance our profitability rather than decline it.
Do you think other banks will take a leaf out of your book and leave the third party channel?
From what I read in the press all banks seem to be kicking back at some stage with brokers right now. There seems to be a question about the returns that brokers should get and shouldn’t get, so a couple of the other banks have made moves. Most of the banks seem to be starting to have a look and we think imitation is a great form of flattery.
How is your Cash Management Account (CMA) product tracking so far?
I was just looking at the numbers this morning. It’s successful so far but it’s only been happening for a few weeks. One of our weak spots, if you like, has been our focus on deposits over the last couple of years. We’ve grown in excess of 40 percent on the assets side but probably in excess of 25 percent on the liability side which is way above system, which is good in its own right but when you’ve got that widening gap between your assets and your liabilities, you’ve got wholesale funding needs which are an issue for all banks. We couldn’t change any of our deposit products until we changed our core banking system but we’ve now got the best CMA account on the market in terms of features and price.
We’ve gone through a complete cultural change within the bank to emphasise why deposits are important, and when you’ve got a branch network, you should use that as retail deposit shops to be honest and we really hadn’t focussed on that until now. But it’s early days on the CMA but the results look really good but also it’s a key focus for us going forward.
Finally David, what’s your vision for the Bank of Queensland? What sort of bank do you see it becoming over the medium to longer term?
Well, we want to be Australia’s leading regional bank. Our core focus in life is distribution and providing customer service. We think we can gain five percent of the national market in home lending. If we can achieve that it basically triples the size of the bank. We’re underwriting about two and a bit percent today and on balance sheet we’d have about one and a bit percent. So we’re talking about quite a significant increase in that but that’s all supported by this branch network expansion that we’re doing. We’ve got a clear differentiated distribution model which will allow us to achieve those sorts of goals. But our focus has got to be "how do we differentiate from the big guys?" and that’s through service, so we’ve got to prove that we can actually be smaller but be different. That’s really our focus in life, to be the best regional bank in Australia, but how do you measure that? I guess by a lot of measures but one would be customer service, another would be shareholder returns and so forth, so every company has directions it wants to head in and we’ve got goals and five percent market share is part of that.
In business banking, certainly in Queensland we want to be the pre-eminent business bank. We’re not there yet, but that’s our longer term goal. And we’ll continue to focus on being better than the others in terms of being able to deliver. But we don’t want to be a big bank; we want to be a big small bank, not a small big bank and that’s all about our ability to interact with our customers and our staff and shareholders.
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