Australia likely to get hurt in Trump’s trade war, warns NAB boss

The nation’s largest business lender has warned Australian companies could be hit hard if President-elect Donald Trump ploughs ahead with his pledge to impose hefty tariffs on imports to the United States and triggers a trade war with China.

National Australia Bank chief executive Andrew Irvine said Trump’s election promises to impose a 10 per cent or 20 per cent universal tariff on all imports, and a tariff of at least 60 per cent on Chinese goods, would disrupt global trade and affect countries that rely on exports, such as Australia.

NAB chief executive Andrew Irvine said Donald Trump’s commitment to fuelling growth in the world’s largest economy would potentially boost inflation.Credit: Dominic Lorrimer

“If he does go forward and execute his tariff agenda, that will have negative implications to the global economy, and therefore to Australia,” Irvine said after handing down his first full-year results for the bank on Thursday morning.

“There’s no doubt, I think, it will be disruptive to global trading patterns. Australia is a trading nation, and some of our commodities and manufactured goods as well as services will be impacted. I do worry about a global trade war between the two biggest global economies in the US and China.”

Irvine said Trump’s commitment to cut red tape and corporate taxes would fuel growth in the world’s largest economy, but potentially boost inflation and lead to higher long-term interest rates in the US.

However, the NAB boss did not expect Trump’s election to have a short-term impact on the Reserve Bank of Australia’s decision to cut the cash rate, which the bank is forecasting would happen by the middle of next year.

“Our view is that inflation will come into range in the first quarter of the next calendar year, and that’s when we’ll have the first 25 [basis] point cut,” he said.

Irvine made his comments after unveiling a $7.1 billion profit for the year to September 30, down 8.1 per cent on last year as intense competition in the mortgage market squeezed the bank’s profits, although pressure was easing in the second half. The result was largely in line with market expectations. Analysts had forecast NAB would post cash earnings of $7.06 billion.

Irvine said while the Australian economy remained resilient and there was “light at the end of the tunnel”, the country was now in “the toughest point in the economic cycle” as elevated interest rates weighed down borrowers.

Loan arrears at the bank jumped 26 basis points in a year to 1.39 per cent, its highest level since 2020, equating to about $10 billion of NAB’s loan book. Irvine said while hardship applications had plateaued in the second half of the year, he expected arrears to continue rising during 2025.

“While there’s delinquency, that’s not leading to impairments on the housing side [because house prices continue to be strong],” Irvine said. “On SME [small and medium enterprises], it’s a little bit different. We’ve also continued to see rises in delinquency, but we have taken some specific impairments in SME, there were a handful of large business and private banking names that hit us.”

The bank booked writedowns for bad debts in the construction, agribusiness and discretionary spending-related industries, while the supply chain, manufacturing sectors and food businesses were also stressed, he said.

He expected business delinquencies to rise over the next 12 months amid pressure on their profit margins.

“Their supply costs are still rising, but they’re unable to pass that on to their customers,” Irvine said.

“In food processing and manufacturing, input costs are going up, but supermarkets are pushing hard to not have price increases for their consumers, so that could be pinching certain suppliers”

NAB’s business and private banking arm reported cash earnings of $3.3 billion. Profits at the personal banking division fell almost 20 per cent to $1.2 billion as intense competition in the mortgage market hurt its margins.

The bank’s net interest margin – a key measure of profitability comparing banks’ funding costs with what they charge for loans – fell 3 basis points to 1.71 per cent.

Expenses rose 4.5 per cent, driven by labour, restructuring and technology costs. NAB has budgeted a further $20 million for the enforceable undertaking it entered into with the financial intelligence agency (AUSTRAC) in 2021 to lift its compliance with anti-money laundering and counter-terrorism financing laws. The independent auditor will provide its final report to the agency in March.

The bank declared a full-year fully franked dividend of $1.69 per share, up 2¢ on last year.

Barrenjoey bank analyst Jonathon Mott said NAB’s results were in line with expectations, but its credit impairment expenses were slightly higher on the back of rising arrears.

Shares in NAB traded 0.9 per cent lower about 2.30pm.

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