Freshly minted National Australia Bank boss Andrew Irvine has unveiled a double-digit decline in profits in the half year to March but hinted that the ultra-competitive home loan market that was squeezing its margins was starting to ease.
In its latest half-year report released on Thursday, cash earnings for the six-months to March fell 12.8 per cent compared with a year earlier, dropping to $3.5bn, and short of consensus forecasts.
The bank, Australia’s second largest, declared an interim dividend of 84c per share, fully franked, and unveiled it would double a share buyback announced last August to $3bn.
With NAB the first of among the big four banks to release its half-year profit results, analysts are closely watching the sector for signs that the recent profit squeeze has bottomed out.
Net interest margin – a key metric of bank profitability that calculates the difference the bank is earning in interest on loans compared to what it is paying in interest on deposit – was 1.7 per cent – five basis points lower than its previous half-year result.
Shares rallied 1.7 per cent to $34.28 following the fresh result.
Unveiling a $40m reduction in bad debts across the bank, Mr Irvine, who replaced longstanding NAB chief Ross McEwan last month, said the struggling parts of the economy had been “overemphasised”.
“There are large parts of our economy, minerals, mining, agriculture, manufacturing, as you look at supply chains being brought back onshore, closer to customers, defence, healthcare, large portions of the Australian economy doing really, really well,” Mr Irvine said.
“They don’t get talked about that much.”
However, NAB’s half-year report also reported growing loans arrears, with the bank’s 90-plus days delinquency rate climbing to 0.8 per cent, up 13 basis points from September.
Across its Australian home loan business, just 141 properties were repossessed by NAB in the six months to March, down from 151 in the previous half-year period.
Mr Irvine said while economic growth was slowing and the increased cost of living was being felt by more households, the majority of NAB’s customers were managing the heightened pressures.
“They’re not enjoying it, and having to make some tough choices about how they manage their money, but they’re doing OK,” he said.
Underpinning the falling half-year earnings was declining profitability in NAB’s personal banking business, down 29.6 per cent in the last 12 months to $553m.
Helping to offset the fall was NAB’s business and private banking arm – the institution’s largest division – with cash earnings edging 2.4 per cent lower to $1.7bn.
The bank’s corporate and institutional arm, and its New Zealand segment, also took a hit to their profits, declining 2.8 per cent and 6.7 per cent, respectively.
“Our first-half financial performance has benefited from the disciplined execution of our strategy in a challenging environment,” Mr Irvine said.
“This has helped us manage the impacts of slowing economic growth and competitive pressures while also absorbing a higher effective tax rate.”