Bank of Queensland has posted a record profit, but expects challenging lending conditions to persist due to weak business and consumer confidence.
The warning came as the bank delivered a record cash profit of $301 million in the year to August 31, up 21 per cent from the previous year.
BoQ's profit growth was driven by a $28 million fall in bad debt charges, and an improvement in its net interest margin - a measure of the profitability of its loans.
However, its home and business lending rose only slightly in the year.
The lender said its exposure to Queensland's slower property market played a major role in its meagre mortgage growth.
Acting chief executive Jon Sutton warned business investment and consumer confidence were expected to remain subdued.
"Business banking is growing modestly in a market that is flat to negative in terms of growth, given the subdued business sentiment," he said.
"Brokers are telling us that the market is as quiet as they've ever seen it and small businesses in particular are still delaying investment decisions."
Despite difficult conditions, Mr Sutton said he expected BoQ's investment in business banking in the past 18 months to translate into further growth, while mortgage lending should lift as it increases the number of brokers.
"While our mortgage growth hasn't been where we've wanted it to be, we do remain confident that a sustainable growth profile is not far away," he said.
Mr Sutton expressed concern about potential changes to lending regulations for investors, which have been flagged as a way to moderate rapidly rising house prices.
"From our perspective, the property issues relate primarily to investors in the Sydney and Melbourne market, an area where we are less well represented," he said.
"While some type of macro-prudential change to moderate activity appears likely, it'll be important to ensure there are no unintended consequences for other markets, which have not seen the same level of performance as Sydney and Melbourne."
A strong balance sheet also sets up BoQ for any regulatory changes that may come from a financial system inquiry headed by former Commonwealth Bank chief David Murray, Mr Sutton added.
The bank's results have pleased investors with its shares lifting 37.5 cents, or 3.18 per cent, to $12.155 at 1440 AEDT.
Pitcher Partners wealth management director David Lane said BoQ had increased its margin and continued to diversify, with the acquisition of a specialist finance and leasing business, during a difficult time for banks.
"It was a strong result and the impaired assets are moving in the right direction in that they're declining," he said.
"It's just a matter of how well they continue to do and without having a chief executive in place at the moment that does create some uncertainty."
Stuart Grimshaw suddenly resigned as chief executive in August to be the director of Cash Converters' board.
BoQ ACHIEVES RECORD ANNUAL PROFIT
Full year net profit $260.5m, up 40 pct from $185.8m in 2012/13
Cash profit of $301.2m, up 21 pct from $250.9m
Author: Petrina Berry
Final fully franked dividend of 34 cents, up from 30 cents