NAB's Interim Profit Falls 12%, Share Buyback Increases — Update

By Alice Uribe

SYDNEY--National Australia Bank reported a 12% decline in half-year net profit amid ongoing competition in mortgages and announced it will increase its share buyback by 1.5 billion Australian dollars ($980 million) as it seeks to maintain a strong capital position.

Australia's second-largest lender by market capitalization said that net profit fell to A$3.49 billion in the six months through March, down from A$3.97 billion a year earlier. Analysts had expected an interim net profit of A$3.55 billion, according to FactSet's consensus estimate.

"Revenue has softened from strong first-half fiscal 2023 levels as the benefits of a higher interest-rate environment have been more than offset by competition. At the same time, cost pressures remained elevated," NAB said in a regulatory filing.

Cash earnings -- a measure closely tracked by analysts that strips out non-core items such as revenue hedges and treasury shares -- also fell, by 13% on-year to A$3.55 billion. Revenue dropped by 3.8% to A$10.17 billion.

Still, NAB declared an interim dividend of A$0.84 per share, compared with A$0.83 a year earlier.

At a divisional level, NAB's business and private banking unit reported a 2.4% on-year fall in cash earnings to A$1.67 billion, while the lender's personal banking unit saw a 30% drop in cash earnings to A$553 million.

NAB reported 8.6% growth in Australian small and medium-enterprises business lending and 6.4% growth in personal banking and business and private banking customer deposits, but Australian home lending was "subdued," said Chief Executive Andrew Irvine, with growth at 3.7%.

Arrears across NAB's home lending and business lending portfolio ticked up in the first half. The ratio of 90+ days past due and gross impaired assets to gross loans and acceptances increased 13 basis points to 0.79%.

NAB's half-year net interest margin -- the difference between the interest income generated and the amount of interest paid out to lenders -- fell five basis points on year to 1.72%. Analysts had expected an interim NIM of 1.70%, according to FactSet's consensus estimate.

NAB, like other lenders, has benefited from the rising interest-rate environment. But competition to write new mortgages has crimped margins at the same time as lenders faced funding cost pressures. Investors have been keeping a close eye on the bank's credit quality, as customers grapple with higher mortgage repayments and inflation-related cost squeezes.

The lender on Thursday also announced that it had increased its on-market share buyback by A$1.5 billion, which it said would allow it to continue managing its Common Equity Tier 1 ratio toward its target range of 11.00-11.50%.

For the first half, NAB's CET 1 capital ratio was 12.15%, down from 12.21% the previous year.

In its economic outlook, NAB said household consumption growth slowed sharply in the second half of 2023, impacted by interest- rate and cost-of-living pressures.

"This is weighing on real GDP growth which is expected to remain below trend over the near term. However, some relief is anticipated later this year with expected tax cuts and a forecast easing in monetary policy from November should inflation continue to moderate," the lender said.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

May 01, 2024 19:31 ET (23:31 GMT)

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