SME lending growth for NAB underpins revenue lift
National Australia Bank reported cash earning of $1.65 billion, up 1 per cent with revenue also up 1 per cent.
In its third quarter trading update, the bank said the result reflected growth in its SME lending as well as a slightly higher group margin due to lower funding costs.
Expenses were also flat on the back of ongoing productivity savings from its transformation program – compensating for higher compliance and risk costs, the bank said.
Against the backdrop of a challenging operating environment including subdued home lending growth, NAB acting CEO and future chair Philip Chronican said the bank’s third-quarter performance was solid compared with its first quarter trading update - with revenue increasing and costs flat.
“Our transformation remains on track, with SME lending growth over the quarter again a highlight as our ‘Best Business Bank’ initiatives deliver better customer outcomes,” Chronican said.
He noted that this has resulted in a 27 per cent reduction in over-the-counter transaction and an 18 per cent reduction in call centre volumes since the transformation began.
The cash earnings excluded customer-related remediation.
Chronican acknowledged that regulatory compliance investigations are continuing with the potential for additional costs.
The bank will report its full-year result in November which will reflect these costs.
On the asset quality front, credit impairment charges increased 10 per cent to $247 million compared with the first half 2019 quarterly average.
Mortgages that are 90 days plus in arrears increased from 0.79 per cent to 0.85 per cent largely due to rising Australian mortgage delinquencies.
The banks said that overall, asset quality remains broadly sound.
The bank’s Group Common Equity Tier 1 ratio was 10.4 per cent but that did not include the $1 billion the bank raised in its dividend reinvestment plan.
Morningstar bank analyst Nathan Zaia said the result was largely as expected.
“After a soft second quarter, it is pleasing to see a return to - even, if marginal quarter-on-quarter - growth,” Zaia said.
“Despite the positive momentum, we continue to expect some downward pressure on net interest margins as the impact of the Reserve Bank of Australia’s recent cash rate cuts are absorbed,” he said.
However, he noted that expected remediation costs remain a disappointing feature of the major bank’s results.
While the Morningstar analyst expects additional provisions in the advice space to be recognised in second-half fiscal 2019, the magnitude wont’ impact on its valuation.
Although the 90-day arrears and impaired assets trended slightly higher, asset quality remains sound, according to Zaia.
“Australian mortgage delinquencies are being impacted by high household debt levels, weak wage growth, conversion from interest-only to principal and interest loans and less buoyant house price rises.
“Consequently, borrowers are staying in arrears for longer.”