- Expenses for soured loans climbed 21% in the quarter
- Net interest margin declined amid higher funding costs
National Australia Bank Ltd.’s third-quarter profit fell 3 percent amid rising expenses for bad debts and provisions for mining and agricultural loans, rounding off the most challenging reporting season for the nation’s lenders in six years.
Unaudited cash profit from continuing operations, which excludes one-time items, declined to A$1.6 billion ($1.2 billion) in the three months ended June 30, the Melbourne-based lender said in a statement on Monday. The charge for bad and doubtful debts for the quarter rose 21 percent to A$228 million.
National Australia joins Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. in increasing provisions for bad loans as a streak of record profits at the nation’s biggest banks draws to a close. The big four lenders are also facing declining loan margins, a regulatory clampdown on mortgages to combat runaway housing prices, and demands to boost capital and liquidity.
“We are at a point where interest rates are so low that it is being problematic across the economy including for banks, with margins slipping and consumers gearing up to unprecedented levels,” said Angus Gluskie, chief investment officer at White Funds Management Ltd. in Sydney who oversees A$600 million including shares in the nation’s four largest lenders. “Across the board, we are seeing poorer statistics on bad debts and margins, indicating credit conditions are a little tougher.”
While revenue was broadly stable, growth in lending was offset by a lower net interest margin due to higher funding costs, according to the statement. Expenses fell about 1 percent because of tight cost controls, National Australia said.
“While we saw higher funding costs during the quarter, asset quality remains strong and cost control was pleasing,” Chief Executive Officer Andrew Thorburn said in the statement.
National Australia shares fell as much as 1.3 percent at the open in Sydney. They have lost 8 percent this year, compared with a 4.3 percent advance for the benchmark S&P/ASX 200 Index and a 9.5 percent decline for an index of bank shares.
Other key figures reported by the bank:
- Unaudited net income was about A$1.6 billion
- Common equity Tier 1 ratio, a measure of its ability to absorb future losses, fell to 9.5 percent from 9.7 percent at the end of March after factoring in payment of the interim dividend
- Leverage ratio was 4.9 percent at the end of June, based on the local regulator’s criteria
- The group’s quarterly average liquidity coverage ratio at June 30 was 125 percent
National Australia’s earnings followed results from two rivals last week: ANZ Bank posted a 3 percent drop in nine-month cash profit, while Commonwealth Bank reported a 3 percent increase in full-year earnings. It was Commonwealth Bank’s slowest annual profit growth since 2009, with measures such as return on equity and bad-debt expenses and net interest margins all at levels last seen six years earlier.
The Reserve Bank of Australia two weeks ago dropped its cash rate by a quarter point to an unprecedented low of 1.5 percent to stoke inflation and wage growth.
National Australia and its largest rivals responded by trimming business and home-loan costs by less than the central bank’s 25 basis-point move. Instead, they said they’ll offer higher payouts on some term deposits as they battle to maintain their overall deposits to meet regulatory requirements and to stabilize net interest margins.
Australia’s major banks will face regular scrutiny from a parliamentary panel, Prime Minister Malcolm Turnbull said Aug. 4, amid growing public disquiet about the lenders’ practices. Banks have been attacked over misadvice to wealth customers and were also criticized by lawmakers for failing to pass on in full the RBA’s latest interest-rate reduction.