NAB posts quarterly cash profit of $1.65bn, after fewer impaired loans
NAB encouraged by economic and health outcomes, after first quarter cash earnings rose as the value of impaired loans sank.
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A big fall in soured loans has enabled National Australia Bank to report cash earnings of $1.65bn for the December quarter, up 47 per cent on the quarterly average in the second half of 2020.
However cash earnings for the quarter were flat on the previous corresponding period, while unaudited statutory profit was $1.7bn.
The value of impaired loans plunged to only $15m, down 98 per cent from the previous quarterly average.
This reflected top-ups and forward-looking adjustments in the second half which did not recur in the latest quarter.
Chief executive Ross McEwan said NAB’s underlying performance had been sound in a competitive, low-interest rate environment.
“Improving economic and health outcomes in Australia and New Zealand are encouraging, as are the reductions we are seeing in deferral balances,” Mr McEwan said.
“However, there are still a number of uncertainties requiring further clarity.
“These include the impact on customers of ongoing health alerts and measures put in place to contain the spread of COVID-19, and the wind down of deferral and JobKeeper programs.
“Supporting customers and keeping the bank safe through this period remain our priorities.”
In a stronger overall market, NAB shares climbed 27c, or 1.1 per cent on Tuesday, to $25.56.
UBS analyst Jon Mott said in a note that the cash profit was above expectations due to the lowest credit impairment charges since the bank began quarterly reporting in 2008, and its smallest annualised charge since 1980.
“With a vastly experienced management team, a strong balance sheet and leverage to a business recovery, we retain our buy rating on NAB,” Mr Mott said.
JP Morgan analyst Andrew Triggs said NAB had again delivered a quarterly performance of sound quality, in terms of both revenue and capital.
At an operating level, cash earnings before tax and impairment charges fell 5 per cent compared to the quarterly average, with revenue declining 3 per cent after lower treasury and markets income due to the non-repeat of mark-to-market loss reversals.
The net interest margin declined but was stable excluding the impact of treasury and markets and higher liquids.
Competition and the impact of low interest rates were offset by home-loan repricing and lower funding and deposit costs.
Expenses fell 1 per cent as a result of productivity benefits and lower restructuring costs, partly offset by provisions for higher performance-based pay.
NAB said it continued to target expense growth of 0-2 per cent in the 2021 financial year.
Mr McEwan said implementation of the bank’s strategy was proceeding well.
“While there is still much to do, it is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings,” he said.
By the end of last year, home-loan deferrals had fallen to $2bn, and business-loan deferrals had declined to $1bn.
This compared to peak deferral balances of $38bn for home loans and $19bn for business loans.
NAB said current asset quality trends for customers exiting deferrals were worse than for the total portfolio but better than expected at this stage.
At February 3, more than 90 per cent of the balance of deferred loans had resumed repayments.
The group’s common equity tier one capital ratio stood at 11.7 per cent at the end of 2020, up 20 basis points from last September.
The capital result was about 15 basis points above expectations due to the benefits from foreign exchange translation and mark-to-market on NAB’s liquids book.
After completion of the MLC sale, the CET1 ratio will rise to about 12.05 per cent.
With a strong capital position and strengthening economy, Mr Mott said NAB could announce higher dividends and a $3bn buy-back with its 2021 result.
Originally published as NAB posts quarterly cash profit of $1.65bn, after fewer impaired loans
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