NAB Profit Rises on Mortgage Growth, Lower Bad Debt Cost
National Australia Bank Ltd. (NAB), the best performing stock among the nation’s four-biggest lenders this year, said third-quarter cash earnings rose 7 percent on mortgage growth and lower bad-debt charges.
Unaudited cash earnings, which strips out one-time costs, in the three months ended June 30 climbed to A$1.5 billion ($1.4 billion) from A$1.4 billion, the Melbourne-based lender said in a statement today. Net income jumped 42 percent to A$1.7 billion. The bank’s shares rose 1 percent and were on course for their highest close in three months.
NAB joins competitors Commonwealth Bank of Australia and Australia & New Zealand Banking Group Ltd. (ANZ) in reporting higher profits. NAB Chief Executive officer Cameron Clyne is increasing the lender’s focus on Australian mortgages and shrinking its U.K. operations where mounting bad debts triggered the lender’s first annual profit drop since 2009.
“NAB continues to build share in domestic housing,” John Buonaccorsi, a Sydney-based analyst at CIMB Group Holdings Bhd. (CIMB) said in an emailed statement. “This will help boost the personal bank cash earnings” while lower loan losses in the U.K. and a recovery in the property market there “will increase returns,” he said.
Bad-debt charges fell 10 percent from the quarterly average of the first six months to A$489 million due to lower provisions at its business bank and U.K. unit, the lender said. Revenue climbed 1 percent on mortgage growth and improved customer margins, while expenses rose 2 percent due in part to the costs of implementing changes in the group’s structure.
Cash earnings from business banking were unchanged, reflecting subdued demand for credit and wholesale banking was lower. Personal banking cash earnings were higher helped by mortgage demand, the lender said.
NAB’s mortgage market share climbed to 15.3 percent at the end of June compared with 12.8 percent in August 2009, filings from the bank show. NAB is the nation’s third-largest mortgage lender after top-ranked Commonwealth Bank, which has a 25.3 percent market share, according to the Australian Prudential Regulatory Authority.
Cash earnings in the U.K., where NAB has owned Scotland’s Clydesdale Bank and the Yorkshire Bank since 1987, were stable, it said.
A recession in the U.K. forced the bank on Oct. 31 to increase charges for bad and doubtful debts from the local unit by 335 million pounds for the year ending September. NAB’s net income in that period sank 22 percent to A$4.08 billion, the first decline in annual profit since 2009.
NAB moved 5.6 billion pounds ($8.8 billion) of commercial real estate onto its own balance sheet in October and said in March that the remaining U.K. operations had become profitable. The real estate portfolio has been cut to 4.4 billion pounds as of June 30, the lender said today.
Core Tier 1 capital, a measure of the bank’s ability to absorb losses, dropped due to the payment of an interim dividend, it said. The ratio was 7.97 percent at the end of June compared to 8.22 percent on March 31, based on Australian Prudential Regulatory Authority standards.
Commonwealth Bank, the nation’s biggest lender, posted higher-than-estimated second-half cash profit on Aug. 14 as earnings from wealth management rose and bad-debt costs shrank. ANZ Banking reported on Aug. 16 an 11 percent increase in nine-month cash profit.
NAB shares climbed to A$31.66 at 1:20 p.m in Sydney and were heading to their highest close since May 24. That extended gains this year to 27 percent, compared with a 9.4 percent increase for the benchmark S&P/ASX 200 Index. Commonwealth Bank has gained 14 percent, ANZ Bank has climbed 18 percent and Westpac Banking Corp. (WBC) has risen 21 percent.
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