(The following statement was released by the rating agency) Fitch Ratings-Sydney-September 10: Fitch Ratings has affirmed Bank of Queensland Limited's (BOQ) Long-Term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook. Bank of Queensland Limited; Long Term Issuer Default Rating; Affirmed; A-; RO:Sta ; Short Term Issuer Default Rating; Affirmed; F2 ; Viability Rating; Affirmed; a- ; Support Rating; Affirmed; 3 ; Support Rating Floor; Affirmed; BB ----senior unsecured; Long Term Rating; Affirmed; A- ----subordinated; Long Term Rating; Affirmed; BBB+ Key Rating Drivers IDRS, VIABILITY RATING AND SENIOR DEBTBOQ's IDRs and senior debt ratings are driven by the Viability Rating, which in turn reflects the bank's prudent risk management. A sound risk appetite is important for small financial institutions like BOQ to offset limited market share and pricing power. This should support the bank's asset quality through economic cycles. Asset quality may deteriorate modestly in the short-term due to a weaker operating environment, although low interest rates and steady unemployment should provide some offset. A significant deterioration is likely to require an external economic shock, such as a sharp China slowdown, which is not our base case.We expect BOQ's capital ratios to remain stable, subject to the finalisation of Australia's approach to the Basel III rules. BOQ has indicated some attrition of its common equity Tier 1 ratio into the financial year ending August 2020 (FY20) due to increased capitalised expenses - the ratio stood at 9.3% at end-February 2019. BOQ is more reliant on wholesale funding than many similarly rated international peers, but associated risks are mitigated by its sound liquidity management.We expect profit to remain under pressure during FY20 due to low interest rates, modest system loan growth, continued investment in the business and a rise in impairment charges from low levels. BOQ has a competitive advantage in some niches, such as with medical professionals, which results in some pricing power in these segments. However, the bank also has a large asset-leasing exposure, which is likely to show weaker performance than its retail portfolio through a cycle. BOQ's Short-Term IDR of 'F2' is at the lower of the two options at the 'A-' cross over point. This reflects Fitch's view that the funding and liquidity score is not sufficient to support the higher of the two options under the Short-Term Ratings Criteria.SUPPORT RATING AND SUPPORT RATING FLOOR BOQ's Support Rating and Support Rating Floor reflect the moderate potential of support from the authorities, should it be needed, in light of its modest market share and role in the banking system.SUBORDINATED DEBT AND OTHER HYBRID SECURITIESBOQ's subordinated Tier 2 debt ratings are notched down once from the anchor Viability Rating for loss severity. These instruments absorb losses at the point of non-viability through conversion to equity in part or in full, with write-off only occurring if the conversion cannot take place. No notching has been applied for non-performance risk. RATING SENSITIVITIES IDRS, VIABILITY RATING AND SENIOR DEBTBOQ's Viability Rating is likely to be downgraded should the bank loosen underwriting standards or weaken risk controls in the pursuit of growth. This could leave the bank susceptible to asset-quality deterioration, profit pressure and reduced capitalisation in a downturn relative to domestic peers.Positive rating action would require a substantial improvement in the franchise and market share, which is not probable in the short-term.SUPPORT RATING AND SUPPORT RATING FLOOR The Support Rating and Support Rating Floor are sensitive to changes in Fitch's assumptions about the propensity or ability of the Australian sovereign (AAA/Stable) to provide timely support. We expect continued strengthening of Australia's resolution framework, although a senior bail-in framework appears unlikely in the short to medium term. Negative action on the Support Rating and Support Rating Floor will not directly affect BOQ's IDRs, which are driven by the Viability Rating.SUBORDINATED DEBT AND OTHER HYBRID SECURITIESBOQ's subordinated debt ratings are sensitive to the same considerations as the Viability Rating. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg Contacts: Primary Rating Analyst Tim Roche, Senior Director +61 2 8256 0310 Fitch Australia Pty Ltd Level 15 77 King Street Sydney NSW 2000 Secondary Rating Analyst Jack Do, Director +61 2 8256 0355 Committee Chairperson Heakyu Chang, Senior Director +822 3278 8363
Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email: leslie.tan@thefitchgroup.com; Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com. Additional information is available on www.fitchratings.com Applicable Criteria Bank Rating Criteria (pub. 12 Oct 2018) https://www.fitchratings.com/site/re/10044408 Short-Term Ratings Criteria (pub. 02 May 2019) https://www.fitchratings.com/site/re/10073011 Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/site/dodd-frank-disclosure/10088072 Solicitation Status https://www.fitchratings.com/site/pr/10088072#solicitation Endorsement Policy https://www.fitchratings.com/regulatory ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. 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