National Australia Bank first quarter earnings fall 1 percent as costs rise

By Jamie Freed

SYDNEY (Reuters) – National Australia Bank Ltd (NAB), the No. 4 lender by market value, on Monday reported a 1 percent fall in first quarter unaudited cash profit as costs grew faster than revenue.

NAB posted unaudited cash earnings of A$1.6 billion ($1.23 billion) in line with market expectations for the quarter ended Dec. 31, with its net interest margin remaining “broadly stable”.

Australian bank returns have been under pressure from higher wholesale funding and deposit costs, as well as regulatory changes requiring them to hold more capital against their mortgage books to provide a more level playing field for smaller banks.

“While the Australian and New Zealand economies remain resilient and continue to deliver solid growth, the operating environment has some challenges with funding costs remaining elevated and competition still intense,” NAB Chief Executive Andrew Thorburn said in a statement.

Omkar Joshi, a senior analyst at Regal Funds Management, said it was pleasing that the net interest margin was broadly stable, but consensus expectations had started to price in an increase in the margin this year.

“(That) may turn out to be too optimistic if competition remains intense,” he said.

NAB said costs rose by 5 percent in part due to annual salary increases and higher redundancy costs, while revenue rose by 1 percent.

“The expense increase was slightly higher than I thought it would be,” Bell Potter analyst TS Lim said. But he noted NAB was still targeting income growth to outpace expense growth for the financial year ended Sept. 30.

The ratio of 90-days past due and total impaired assets to gross loans rose to 0.90 percent at end-December from 0.85 percent at end-September 2016. NAB did not give a reason for the increase. It said bad and doubtful debt charges fell by 23 percent to A$164 million for the end-December quarter.

NAB said its Tier 1 capital ratio had fallen to 9.5 percent at Dec. 31 from 9.8 percent on Sept. 30 after it paid a final dividend. The bank said it was considering the issue of a Tier 2 capital security to shore up its capital position, subject to market conditions.

The bank is the first of Australia’s “Big Four” lenders to report results for the quarter ended Dec. 31.

(Corrects Sept. 30 Tier 1 capital figure in graf 10)

(Reporting by Jamie Freed; Editing by Louise Ireland)