National Australia Bank’s First-Half Profit Increases 16% on Home Lending

National Australia Bank Ltd. (NAB), the nation’s best-performing bank stock this year, said first-half profit rose 16 percent as it won mortgage customers and boosted fees from business banking.

Net income advanced to A$2.43 billion ($2.61 billion) in the six months ended March 31 from A$2.1 billion a year earlier, the Melbourne-based bank said in a statement today. Profit at the retail banking unit, which boosted its share of Australia’s mortgage lending market even as total demand cooled, surged 36.3 percent.

The shares gained the most since February after Chief Executive Officer Cameron Clyne snared home loan customers from rivals with fee cuts and lower interest rates, while waiting for a pickup in business lending. Westpac Banking Corp. (WBC) and Australia & New Zealand Banking Group Ltd. (ANZ) posted earnings that fell short of analysts’ estimates.

“They seem to be tracking reasonably well compared with the other banks,” said Sean Fenton, who helps manage about $1.1 billion at Tribeca Investment Partners in Sydney, including shares in Australia’s four biggest banks. The push to win extra mortgage market share is “not hurting them so it’s probably worth doing. They’ve got to wait and see if they get scale,” he said.

Photographer: Gillianne Tedder/Bloomberg

The logo of National Australia Bank Ltd. is displayed at National Australia Bank House in Sydney. Close

The logo of National Australia Bank Ltd. is displayed at National Australia Bank House in Sydney.

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Photographer: Gillianne Tedder/Bloomberg

The logo of National Australia Bank Ltd. is displayed at National Australia Bank House in Sydney.

National Australia shares rose 2.4 percent, the first gain in three days, to A$27.01 as of the 4:10 p.m. close in Sydney, taking this year’s gain to 14 percent. The country’s benchmark S&P/ASX 200 index rose 0.3 percent today. Westpac has advanced 6.8 percent this year, Commonwealth Bank of Australia (CBA) added 3.7 percent and ANZ Bank has climbed 1 percent.

Credit Rebound

“We’re seeing the early signs of business credit rebounding and we expect that to be stronger towards the end of this calendar year,” Clyne said in a briefing with reporters today in Sydney. “Whilst recognizing there are some headwinds out there, we’re still broadly positive” on the outlook for the economy, he said.

Business loans increased 1 percent in March from the previous month, the biggest increase since October 2008, the Reserve Bank of Australia said April 29.

Westpac said yesterday that first-half cash profit rose 7 percent to A$3.17 billion in the six months ended March 31 from a year earlier as bad debts fell. ANZ Bank said a day earlier that net income gained 3 percent to A$2.66 billion from the previous six months, which missed the A$2.77 billion median estimate of six analysts surveyed by Bloomberg News.

Photographer: Ian Waldie/Bloomberg

Cameron Clyne, chief executive officer and managing director of National Australia Bank Ltd. Close

Cameron Clyne, chief executive officer and managing director of National Australia Bank Ltd.

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Photographer: Ian Waldie/Bloomberg

Cameron Clyne, chief executive officer and managing director of National Australia Bank Ltd.

Loan Demand

Demand for mortgages and business loans waned after the central bank’s seven interest-rate increases from October 2009 to November 2010. Lending to households rose 0.4 percent in March from the previous month, the smallest gain in nine months, the RBA’s April 29 report showed.

Central bank Governor Glenn Stevens left the benchmark rate unchanged at 4.75 percent May 3, citing weaker credit demand.

Profit at National Australia’s business bank, which accounts for 44 percent of cash earnings, rose 7.9 percent in the fiscal first half from a year earlier. Earnings rose 36.3 percent at its personal banking unit, which boosted its share of Australia’s mortgage lending market to 13.8 percent from 12.8 percent a year earlier, the bank said today.

National Australia’s overall net interest margin, a measure of profitability of the bank’s lending business, narrowed to 2.23 percent in the six months to March 31 from 2.24 percent in the previous six months. In its business lending division, the margin widened to 2.57 percent from 2.50 percent, while for retail banking it shrank to 2.22 percent from 2.28 percent six months ago.

Bad Loans

The impairment charge for bad debts fell 19.7 percent from a year earlier to A$988 million.

Operating expenses gained 3.4 percent in the six months to March 31 to A$4 billion from the year-earlier period. Net operating income advanced 6.8 percent to A$8.8 billion.

“Our revenue growth is significantly stronger than our cost growth,” Clyne told reporters.

The bank’s Tier 1 capital ratio, a measure of its ability to absorb potential losses, was 9.19 percent from 8.91 percent at the end of September. National Australia will pay a dividend of 84 Australian cents a share for the half.

Net income of A$2.43 billion missed the A$2.64 billion median estimate of five analysts surveyed by Bloomberg News.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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