NAB’s cash earnings boosted as economic conditions improve
National Australia Bank has reported its cash earnings are growing and loan deferrals are falling, in a trading update chief executive Ross McEwan said was underpinned by encouraging health and economic conditions.
NAB’s cash earnings for the July quarter were 47 per cent higher than the quarterly average of the first six months of last year, partly due to lower credit impairment charges, it said.
NAB CEO Ross McEwan says the bank’s quarterly performance is sound.Credit:Jesse Marlow
The bank reported $1.7 billion in unaudited statutory net profit and $1.65 billion in unaudited cash earnings for the quarter, identical figures to those reported during the corresponding period last year.
Mr McEwan said the performance had been “sound” in the competitive, low interest rate environment.
“Improving economic and health outcomes in Australia and New Zealand are encouraging as are the reductions we are seeing in deferral balances,” he said. “However, there are still a number of uncertainties requiring further clarity.”
Mr McEwan said ongoing COVID-19 restrictions and the tapering off of government support will have an impact on the big four bank and its customers.
NAB provided an update on its loan deferrals, which have now fallen to about $2 billion for businesses and $1 billion for mortgage owners as of December 31, compared to peaks of $19 billion for business and $38 billion for home loans.
At NAB’s full-year results in November, it reported Victorian businesses make up more than 50 per cent of those referred to the bank’s troubled loan division SBS, with the bulk of these employed in retail, tourism, hospitality and entertainment. These trends have been continuing.
Evans and Partners executive director Matthew Wilson said further lockdowns in Victoria would create hardship for individual customers but did not pose a systemic risk to the bank as NAB had been “very good” at managing its deferrals.
“It will be painful for people at the margin. Some people who were struggling, it might push them over the edge but I don’t see it being a wholesale issue for NAB,” Mr Wilson said.
“Despite NAB having a bigger exposure with its home base in Melbourne, they have the lowest deferrals out of the majors.”
NAB is outperforming the other big four banks with deferred loans as a percentage of the total loan book at 1 per cent, compared to 3 per cent at ANZ and Westpac, and 2 per cent at CBA, according to January figures from the Australian Prudential Regulation Authority.
The bank has approved more than 4000 home loans using the federal government’s first home loan deposit scheme, which allows first home buyers to pay only a 5 per cent deposit and removes the need to pay for costly lenders mortgage insurance.
Mr McEwan said implementation of the bank’s strategy was “proceeding well”.
“While there is still much to do, it is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings.”
Evans and Partners told clients NAB is now “clearly in a position” to leverage its updated technology infrastructure to “attack the excess returns in retail banking”.
NAB’s bad debt charge for the quarter was $15 million, which was 97 per cent below what Goldman Sachs had predicted, reflecting NAB’s topped up COVID-19 provision announced in April.
“Importantly, while these customers exiting deferrals are performing worse than the total portfolio, they are performing better than expected at this stage,” Goldman Sachs said in a research note.
NAB shares jumped more than 2 per cent to $25.80 in early morning trade.
More to come
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Charlotte is a reporter for The Age.