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NAB First-Quarter Profit Rises 3.6% on Business Loan Margins

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Feb. 7 (Bloomberg) -- National Australia Bank Ltd., the nation’s biggest lender to companies, said first-quarter profit climbed 3.6 percent as it expanded business lending margins and cut bad debts.

Unaudited cash earnings, which exclude some one-time costs, rose to A$1.45 billion ($1.5 billion) for the three months ended Dec. 31, the Melbourne-based bank said in a statement today. That compares with A$1.4 billion cash profit reported a year earlier. Unaudited net profit was about A$1.26 billion, it said.

Chief Executive Officer Cameron Clyne is trying to revive earnings growth after provisions at the bank’s U.K. unit led to the first decline in annual profit since 2009 last fiscal year. While NAB is increasing its share of the home loan market, central bank figures show mortgage lending is growing at its slowest annual pace since records begin in 1977.

“Bad debts have declined and the situation in the U.K. seems to have improved: Overall a pretty solid start to the financial year,” said David Ellis, head of banking research at Morningstar Inc. in Sydney. “Cost cuts and lower wholesale funding cost should have a positive benefit to margins for the 2013 financial year.”

Shares of National Australia Bank closed 1.9 percent higher in Sydney trading at A$28.63, the highest since April 2010. It has gained 15 percent this year compared with a 6.2 percent rise for the benchmark S&P/ASX 200 index in 2013.

Challenging Conditions

“Operating conditions remain challenging both in Australia and the U.K., notwithstanding recent improvements in financial markets,” Clyne said in the statement. “In this environment cost management continues to be a key priority.”

The U.K. unit restructure was progressing with lower costs, the closing of 38 Financial Solutions Centers, and reduction of its commercial real estate portfolio by about 300 million pounds ($470 million). NAB said U.K. units cash earnings improved in the quarter.

Expenses increased by about 4 percent and staff numbers fell by 500 in the quarter, largely due to the U.K. unit restructure, the bank said.

Profit for the year ended September fell 22 percent, the bank reported in October. A recession in the U.K. weighed on assets at the company’s Clydesdale Bank and Yorkshire Bank, prompting it to increase charges for bad and doubtful debts from the U.K. unit by 335 million pounds.

Bad Debts

The bank’s core Tier 1 capital ratio, a measure of its ability to absorb losses, was 8.39 percent as of Dec. 31, from 8.29 percent three months earlier. The bank has raised A$8.6 billion in term wholesale funding so far for the year to September, it said.

Bad debt charges for the group fell 10 percent to A$554 million in the quarter, reflecting lower charges across most business units, NAB said.

NAB said cash earnings rose at its business bank. NAB said both business and retail customer margins, a measure of the profitability of its lending business, improved in the quarter.

NAB is scheduled to brief investors on March 13 on its technology update program and its implications for business. Clyne has ruled out large job cuts, unions said on Jan. 31, though “incremental changes” would continue to control costs.

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

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

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