NAB annual cash earnings slide 14pc to $5.7bn

NAB’s fall in profit to $5.7bn follows lower earnings in its consumer and wealth unit, as mortgage margins were crimped.

National Australia Bank has reported a 14 per cent drop in annual profit to $5.7 billion, weighed down by lower earnings in its consumer and wealth unit as home loan margins were crimped.

The cash earnings represent the 12 months ended September 30 and compare to $6.6 billion in the prior corresponding period, the Melbourne-based lender said.

Excluding restructuring and customer remediation charges the annual result printed 2 per cent lower at $6.49 billion.

Analysts were expecting NAB (NAB) would deliver net income of $5.79 billion.

Earnings in the consumer and wealth division declined 5.8 per cent over the period to $1.5 billion, while its three remaining divisions saw improved results.

NAB attributed the lower earnings to “a decline in the housing margin and an acceleration of investment spend in new capabilities to improve customer experience and deliver the new payments platform”.

The larger business and private banking arm booked a 2.5 per cent income lift to $2.9 billion, buoyed by strong lending to small and medium business.

NAB’s corporate and institutional banking unit edged up 0.4 per cent, while New Zealand saw a result that was 6.7 per cent higher.

“We are operating in a challenging environment and remain alert to risks,” NAB chief executive Andrew Thorburn said in a statement. He noted though that the economic backdrop remained favourable.

“In Australia, solid economic growth is supported by strong government infrastructure spending, mining exports and improving non mining business investment.

“Increasing potential also exists for a pick-up in mining investment. Solid population growth and low unemployment continue to limit risks from a slowing housing cycle, and while the consumer sector remains subdued, a modest increase in wages growth is expected with a tightening labour market.”

In late trade, NAB’s shares were 0.44 per cent higher at $25.32.

UBS’s equities sales desk labelled NAB's result solid, telling clients the bank’s outlook statement was highlighting positive drivers including growth in infrastructure and population and improved non-mining investment. NAB is “pushing hard and well above system (industry growth) which is coming through in their numbers”.

Despite the weaker result in NAB’s consumer and wealth unit, the bank kept its group net interest margin steady at 1.85 per cent.

The bank’s credit impairment charges fell 3.8 per cent to $779 million, and as a percentage of gross loans and acceptances declined to 13 basis points.

Mr Thorburn also told investors NAB had a “clear path” to achieve the prudential regulator’s “unquestionably strong” 10.5 per cent target for core capital.

NAB’s common equity tier 1 (CET1) ratio increased 14 basis points over the year to 10.2 per cent. The bank declared a final dividend of 99 cents, taking the full year payment to $1.98 per share. That was flat on the 2017 year.

Like its major bank peers, NAB has booked costs associated with customer remediation related to the Hayne royal commission. The bank previously outlined that after-tax costs for customer compensation totalled $314 million. Total restructuring charges amounted to $755 million.

Cost cutting and process simplification remains a focus at NAB. The results showed during the year ended September 30, about 1900 full time staff exited the bank as NAB moves toward a target of removing 6,000 employees by 2020.

It is also adding 2000 roles, taking the net reduction to 4000. NAB has made slow progress on this front though, saying it had added 195 staff and brought another 542 roles in house from external service providers.