NAB profit jumps as bad debts fall

In an ASX trading update yesterday, the major lender noted that the result was approximately six per cent above the quarterly average of the bank’s March 2015 half year result.

“This is a good quarterly result with continuing momentum in our Australian and New Zealand business, improvements in asset quality and further progress made towards addressing legacy issues,” NAB Group chief executive Andrew Thorburn said.

“Over this period we have maintained a clear focus on our core Australian and New Zealand business.

“We have continued to invest in a disciplined way in our priority customer segments of home lending, SME and specialised business, to deliver a better experience for customers and improve returns to shareholders,” he said.

Mr Thorburn added that NAB’s business banking loan growth has further accelerated in the bank’s priority segments.

On a cash earnings basis, group revenue increased approximately four per cent.

However, when you exclude a legal settlement gain in this quarter and gains from the UK Commercial Real Estate loan portfolio sale and SGA asset sales, revenue rose approximately two per cent, according to yesterday’s trading update.

While NAB’s Group net interest margin declined due to weaker markets and treasury income and competition for business lending, the bank saw a positive change in bad debt charges.

The charge for Bad and Doubtful Debts (B&DDs) for the quarter fell 15 per cent to $193 million due primarily to lower charges in domestic banking.

Mr Thorburn said the fall was in part due to an agriculture and resources sector overlay taken in the March 2015 half year which was not repeated.

NAB’s Common Equity Tier 1 (CET1) ratio was 9.94 per cent as at 30 June 2015, an increase of 107 basis points from March 2015 mainly reflecting the rights issue proceeds. The Group’s CET1 target ratio from 1 January 2016 remains between 8.75 per cent – 9.25 per cent, based on current regulatory requirements.

Last month the bank successfully divested its remaining holding in Great Western Bank.Yesterday Mr Thorburn said the divestment will release approximately $1.3 billion of CET1 capital (approximately 34 basis points).

“Maintaining a strong balance sheet has been an essential component of our group strategy, and the recently completed $5.5 billion rights issue was consistent with this objective.

“As a result, we are well placed to respond to APRA’s announcement of an increase in mortgage risk weights from 1 July 2016,” he said.