Low interest rates and intense competition in lending and saving have slowed Bank of Queensland's full-year profit growth.
The Brisbane-based bank's cash profit, which strips out one-off items, edged up one per cent to $360 million in the year to August 31.
Impaired assets declined $5 million to $232 million and loan impairment costs dropped nine per cent to $67 million, but chief executive Jon Sutton said highly competitive lending and deposit rates, combined with tougher funding conditions, had led to a three basis-point fall in net interest margin - the difference between income from and cost of loans.
Net interest margin was 1.94 per cent for 2015/16, but it was as low as 1.90 per cent the second half of the year compared to 1.97 per cent in the first half.
Mr Sutton said expectations of lower interest rates in Australia for longer had meant a lower rate of return on capital.
"Interest rates remain low, market volatility continues, regulatory requirements are increasing and competition for both loans and deposits are intensifying," he said.
"Given the expensive funding environment and increased competition, we slowed asset growth in the second half, following a strong period of growth in the first half."
The bank continues to diversify away from Queensland, with its home state now comprising of 48 per cent of total loans compared to 56 per cent three years ago.
BOQ's increasing penetration of other states, in particular NSW, is partly driven by the mining downturn in Queensland.
Mr Sutton said Queensland was benefiting from tourism and low interest rates and low unemployment were supporting the country's economic growth.
He said the bank is focused on increasing customer deposits as a funding source for loans and is growing its niche segments which can deliver higher returns.
The lender's statutory net profit for 2015/16 rose six per cent to $338 million.
Total lending increased five per cent, or $2.2 billion, on the prior year with housing up five per cent, commercial up seven per cent and its asset finance business, BOQ Finance, up three per cent.
The bank is now offering Virgin Money branded mortgages, which has received $100 million worth of loan applications since its launch in May.
Bank of Queensland shares were down 29 cents, or 2.53 per cent, at $11.17 at 1520 AEDT.
BOQ PROFIT RISES:
* Full year net profit up 6pct to $338m
* Cash profit up 1pct to $360m
* Final dividend unchanged at 38 cents, taking full-year distribution to 76 cents,fully franked.
