National Australia Bank Profit Rises 4%; Maintains DividendBy
Net profit slumps 94% on sale of Clydesdale, life insurance
Dividend payout maintained; bad debt charge rises 7%
National Australia Bank Ltd., the nation’s third-largest by assets, posted a 4 percent increase in full-year cash earnings on its domestic banking and wealth management businesses.
Unaudited cash profit, which excludes one-time items, rose to A$6.48 billion ($4.96 billion) in the year ended Sept. 30, from A$5.84 billion a year earlier, the Melbourne-based lender said Thursday in a regulatory filing. That beat the A$6.39 billion mean estimate of nine analysts surveyed by Bloomberg.
The better-than-expected results come even as Australian banks face headwinds from higher funding costs, lower interest margins and rising bad-debt charges. Over the past year, NAB Chief Executive Officer Andrew Thorburn has sped the bank’s exit from low-returning assets to focus on Australia and New Zealand. This year, that included selling 80 percent of its life-insurance business and spinning off U.K.-based Clydesdale Bank.
“The strategy to focus on the core Australian and New Zealand business appears to be paying off,” said David Ellis, an analyst at Morningstar in Sydney. “The pressure on net interest margins remain a concern for National Australia and more broadly for the sector. Besides that, expenses appear to be well managed and the loan loss rate for the lender is well below its main peers.”
National Australia Bank shares rose 2.1 percent in early Sydney trading, paring this year’s decline to 7.2 percent.
Full-year net income slumped 94% to A$352 million, reflecting the loss on the sale of both Clydesdale and the stake in its life insurance business, the bank said in the filing.
The lender’s net interest margin, a key measure of lending profitability, fell 2 basis points to 1.88 percent. Margins in the industry have come under pressure from a rise in wholesale funding costs and intense political pressure on lenders to pass on record-low interest rates to mortgage holders.
“The profit margin in banks has been under constant pressure,” Thorburn told reporters. The contraction in interest margins “has essentially come from the housing part of the business and in particular the rising funding costs that have not been able to be offset,” he said.
National Australia held its final dividend at 99 cents per share, a level Thorburn said the bank was “very comfortable” paying. Australia & New Zealand Banking Group Ltd. in May cut its dividend for the first time since 2009, prompting speculation the other big banks may follow suit.
Thorburn declined to give guidance on future dividend payments when asked whether the current payout ratio of 80.8 percent of profits is sustainable. The six biggest lenders in Canada, which has the most profitable banks in the developed world, have an average payout ratio of 43 percent, data compiled by Bloomberg show.
“We don’t want to jump the gun until we know the facts,” he said, adding that the board made the dividend decision each half based on the bank’s capital position, earnings and outlook.
National Australia’s bad and doubtful debts rose 7 percent to A$800 million.
National Australia kicks off the earnings season for the nation’s biggest banks. ANZ Bank reports next Thursday, with Westpac Banking Corp. following on Nov. 7. Commonwealth Bank of Australia, which has a June financial year compared to September for its main competitors, gives a first-quarter trading update on Nov. 8.
— With assistance by Narayanan Somasundaram