National Australia Says Low Jobless Rate Prevents Bad-Debt Spikeby
Thorburn sees low write-offs despite mining-sector stress
Australian banks face regulatory pressures, weaker margins
Australia’s low unemployment rate should allow National Australia Bank Ltd. to maintain asset quality and prevent any spike in bad-debt levels, according to the bank’s chief executive officer.
NAB’s write-offs remain low despite the financial problems experienced by Australian mining companies and other firms facing debt pressures, Andrew Thorburn said at a media conference in Sydney Tuesday.
“Employment is an indicator I look at to determine the overall stress,” Thorburn said. “Unemployment is a key driver of defaults. If the economy stays where it is, asset quality should remain quite sound.“
The health of the local economy is key for the lender, which under Thorburn has shed units in the U.K. and U.S. and focused on the Australian and New Zealand markets. Australia’s economy grew at the fastest pace in four years in the first quarter, underpinned by an export boom. The unemployment rate has remained below 6 percent since February.
Still, corporate defaults have been on the rise, with companies including electronics retailer Dick Smith Holdings Ltd., steel maker and miner Arrium Ltd. and transport firm McAleese Ltd. calling in administrators. Bad debts have climbed in the mining states of Western Australia and Queensland, though they remain manageable, Thorburn said.
After six consecutive years of record profits, Australian banks are facing regulatory pressure to increase capital levels, reduce the risk in their mortgage portfolios and boost liquidity, at a time when net interest margins, a measure of lending profitability, have dropped to the lowest in eight years.
National Australia set aside A$375 million ($283 million) for soured loans in the six months ended March 31, compared with A$667 million for Westpac Banking Corp. and A$918 million for Australia & New Zealand Banking Group Ltd. For ANZ and Westpac, the provisions rose to the highest in six years, according to their filings.
National Australia shares have dropped 6.7 percent this year compared with a 10.5 percent decline for the local bank index and a 3.4 percent gain for the benchmark S&P/ASX 200 index.