Bank of Queensland (ASX:BOQ) faces challenges on multiple fronts as the company works to get its roughly 6% return on equity close to its 12% cost of capital, Jarden said in a late Thursday note.
On one hand, the bank has a structurally weak deposit franchise, which it is attempting to address via savings account offerings at around 100 basis points above the cash rate. But this funding disadvantage leaves the company hamstrung on assets as growth pressures margins, the investment firm said.
Additionally, Bank of Queensland's current commercial bad debt run rate is 7 basis points with a 0.2% impaired ratio, but bad debts have previously peaked at 101 basis points, with impaired peaking at 1%.
The higher risk appetite has come at a time when private credit is shaky, Jarden said, adding that it doesn't think the bank's provisions are sufficient.
"Hence, we reiterate, there are multiple battles, and we can't see them winning many," it said.
Jarden maintained a sell rating on Bank of Queensland and cut its price target to AU$5.40 from AU$5.50.
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