Business lending picks up the slack as second-tier lender moves to a single digital platform
Bank of Queensland (BOQ)’s home lending book shrank by $4.6 billion, or 8%, in the year to 31 August, making it the second non-major lender to report a smaller mortgage book on Thursday.
BOQ put the fall down to lower settlement volumes and higher portfolio run-off during a year dominated by its shift to a single digital platform, including moving every ME Bank customer off legacy systems.
Also announced this morning, AMP Bank's residential mortgage book fell about $407 million in the September quarter to $23.2 billion.
“FY26 was a year of consistent delivery for BOQ. We completed the ME migration, transitioned mortgage origination to digital channels, and continued to grow our Business Bank,” said managing director and chief executive Rod Finch.
ME Bank migration completes digital shift
BOQ's financial year was dominated by its move to a single digital bank. It met its commitment to migrate all ME Bank customers off legacy platforms, and the broker-focused ME brand is now in market on the new platform across everyday banking, at-call savings, term deposits and home lending.
“All ME customers are experiencing an end-to-end digital banking proposition,” Finch said.
The shift now runs across the whole group. As of August 2026, 88% of home lending applications across all BOQ brands came through digital channels, and the digital bank brought in more than $2 billion of new-to-bank deposits over the year.
But the migration has cost BOQ volume. The decline has been building since the lender paused broker originations onto its legacy BOQ platform in September 2024, steering broker flow to ME Bank as part of a strategy to cut origination costs. Loans written through ME's broker channel made up 43% of BOQ's total home loan portfolio at February 2026, and brokers wrote 71% of new home loans in the first half of FY26.
The payoff is meant to arrive in FY27. BOQ is now decommissioning ME Bank's heritage technology environment and expects productivity benefits from that, and from its technology partnership with Capgemini, next financial year. It also said housing application volumes and run-off improved in the second half (March to August 2026).
Margin up, earnings down
The smaller book has not hurt BOQ's margin. Net interest margin rose six basis points to 1.7%, helped by funding optimisation and higher interest rates, though BOQ said competition in home and business lending partly offset the gain.
Growth came from the business bank instead. Commercial lending rose 16%, or $2.1 billion, led by healthcare, agriculture and small-to-medium businesses. BOQ also sold $3.6 billion of equipment finance loans to Challenger under a new capital partnership, keeping the origination and servicing through a forward flow arrangement.
That deal helped lift BOQ's common equity tier 1 (CET1) capital ratio 70 basis points to 11.64%, above its 10.25–10.75% target range. Customer deposits fell $3.8 billion, or 6%, as funding needs shrank with the home loan book.
Two shrinking books, two different stories
BOQ and AMP Bank both reported smaller mortgage books on Thursday, but for different reasons. AMP is deliberately putting margin and capital efficiency ahead of volume. In its first-half 2026 results on 6 August, it said it was managing the loan book for margin, and it is releasing capital from AMP Bank through securitisation.
BOQ frames its decline as a side-effect of transformation rather than a strategy, and is now planning to grow again.
Both sit within a wider pullback by second-tier lenders. Non-bank lender Liberty's residential mortgage book dipped to $7.67 billion from $7.75 billion over its 2026 financial year. Suncorp Bank stopped accepting new mortgage applications from brokers and its own channels from 7 October as ANZ absorbs the brand.
Road to growth
BOQ plans to return to home lending growth in FY27 by extending its digital mortgage – the platform ME now runs on – to more channels and customer segments. With ME the group's main broker-facing brand, brokers will be watching how much of that growth runs through the third-party channel.
The lender is cautious on the backdrop. Its outlook expects sustained competition for quality lending and deposits, says further cash rate increases are possible, and does not expect a rate cut before calendar 2028.
“As we enter FY27, we are well positioned for a sustainable return to growth. While economic conditions remain uncertain, the foundations we have built give us confidence in our ability to deliver for our customers and shareholders,” Finch said.
