NAB cuts dividend as cash earnings rise 7.1pc to $2.95bn

NAB has cut its interim dividend to the lowest level in over eight years, even as earnings rose 7.1pc to $2.95bn.

Acting NAB CEO Philip Chronican. Pic: AAP

National Australia Bank has cut its first-half dividend to the lowest level in more than eight years, citing a “more challenging” operating climate even as interim cash earnings climbed to $2.95 billion.

NAB reported a 7.1 per cent increase in cash earnings to $2.95 billion for the six months ended March 31.

The result was helped by stronger performances in NAB’s New Zealand and corporate and institutional bank divisions, while its business and consumer divisions both reported softer cash earnings.

NAB declared an interim dividend of 83 cents per share, fully franked, compared to 99 cents per share in the same period a year earlier. It comes after the bank last month warned its dividend settings were under review.

NAB hasn’t had a dividend lower than 83 cents since its final payment declared late in 2010.

Analysts had expected a cash profit of almost $3.19 billion, according to Bloomberg. Of analysts expecting a dividend cut, most expected a decline to 85 cents per share.

Moody’s Investors Service labelled NAB’s moves to reduce its dividend and apply a 1.5 per cent discount to its partially underwritten dividend reinvestment plan as positive.

“It will likely strengthen the bank’s common equity tier 1 ratio by approximately 45 basis points,” it said. “This development will in turn set it on a clear path to meeting upcoming regulatory capital targets ahead of schedule.”

NAB’s shares fell almost 1 per cent to $25.53 in early ASX trading.

Acting chief executive Phil Chronican earlier called out balance sheet strength as a priority at NAB.

“The 16 per cent reduction in the (first-half) dividend resets for a more challenging operating environment and provides greater flexibility to accommodate further regulatory change and additional earnings volatility, including further potential customer remediation,” he said in the statement.

The bank’s total net interest income edged up 0.4 per cent for the half to $6.8 billion, from the same period a year earlier. The net interest margin declined 7 basis points, due to “housing lending competition and product mix changes”.

Common equity tier one capital rose to 10.4 per cent, just shy of the banking regulator’s unquestionably strong threshold of 10.5 per cent required in 2020.

NAB also announced a cut to directors’ fees in 2019 as part of its Hayne royal commission accountability measures.

Executives will also take a further pay hit with up to $5.5 million of variable pay earned across 2016-2018 to be forfeited by the majority of the leadership team.

The results follow a tumultuous period for NAB. The royal commission’s scathing final report – which singled out NAB for special attention - claimed the positions of the bank’s former CEO Andrew Thorburn and will see chairman Ken Henry replaced by Mr Chronican later this year.

On NAB’s efforts to find a new CEO, Mr Chronican said: “The search for the new CEO is well underway, that’s a board sub-committee that’s being run by Ann Sherry.

“All I can say at this stage is it’s progressing and we hope in the near future to be getting down to a shortlist that we can make a decision from.”

NAB’s results were hit by the disclosure of an additional $749 million in before-tax provisions, or $525m after tax for its customer remediation program last month.

That brought NAB’s total provisions for customer-related remediation to $1.1bn, and the financial hit isn’t over yet.

NAB today said excluding those remediation costs, interim cash earnings were “broadly flat” on a year earlier.

NAB is yet to get a good handle on how much it needs to repay customers who received poor advice from so-called aligned planners, which sit under its dealer groups.