NAB hits pay dirt from $112m writeback

National Australia Bank says recent acquisitions will accelerate its growth after business and home lending outpaced the wider banking system.

National Australia Bank, led by chief executive Ross McEwan, has reported a 10 per cent jump in cash profit to $1.7bn for the June quarter. Picture: Aaron Francis/The Australian

A $112m writeback from improved asset quality in housing and business lending has enabled National Australia Bank to report a 10 per cent jump in cash profit to $1.7bn for the June quarter.

Chief executive Ross McEwan said the bank’s overall performance was encouraging with strong momentum across the business.

This was evident in the 2 per cent increase in home lending and 4.3 per cent rise in small and medium-sized enterprises business lending, both outpacing the average of the wider banking system.

“These outcomes are a result of the decisions and investments we are making, which are having a positive impact on customers and colleagues,” Mr McEwan said.

“We have a clear focus on where and how we will continue to grow.

“The exit of MLC Wealth is now complete, and the acquisitions of 86 400 and Citigroup’s Australian consumer business will help accelerate our growth strategy.”

More broadly, Mr McEwan said he remained optimistic about the long-term outlook for Australia and New Zealand.

While continuing Covid-19 outbreaks and lockdowns were creating uncertainty and challenges for customers, the economy would again bounce back.

This was due to ongoing government support and customers’ “relatively healthy” starting positions.

NAB’s common equity tier one ratio was 12.6 per cent, up from 12.4 per cent at the end of March. This included a 47 basis-point impact from payment of the interim dividend, a 31 basis-point benefit from the sale of MLC Wealth, and the acquisition of neobank 86 400.

NAB said the $1.2bn acquisition of the Citigroup consumer business would cut the CET1 ratio by 85 basis points, with a further 60 basis-point impact from the recently announced $2.5bn share buyback, less 7 basis points from the BNZ Life divestment.

Evans & Partners analyst Matthew Wilson said all the major banks had excess capital and NAB had found the right balance of investing in the productive capacity of the firm, evidenced by the Citi deal to enhance its retail offer, and returning surplus capital to investors.

“At the end of the day, a buyback acknowledges a dearth of appropriate risk-adjusted return/growth opportunities,” Mr Wilson said.

“It’s a perspicuous strategy in the key banking units of business, corporate and institutional and retail across Australia and New Zealand that revolves around relationships, simplicity, safety and the long term.”

The cash profit was a 10.3 per cent increase on a year ago and 1 per cent higher than the quarterly average for the second half.

Revenue slipped 1 per cent with higher volumes and margins more than offset by lower treasury and markets income due to more limited trading opportunities arising from the current global monetary policy settings.

The net interest margin was broadly stable, with lower deposit and funding costs partly offset by the impact of low interest rates and home lending competition.

Expenses fell 1 per cent due to higher technology and investment spending offset by productivity benefits.

NAB said it was continuing to target expense growth in the range of 0-2 per cent in the current financial year.

Significantly improved credit impairment costs were a big driver of the quarterly profit, helped by higher property prices and continuing low specific provisions.

Compared to the March quarter, the ratio of collective provisions to credit risk-weighted assets fell 13 basis points to 1.37 per cent.

The key driver was the sale of $1.5bn of aviation loans and the associated $300m reduction in collective provisions to reduce risk in the portfolio.

At the end of July, total deferred loan balances due to current lockdowns were less than $1bn.

The bank said it had fully drawn its total term funding facility allowance of $31.9bn, including supplementary and additional allowances totalling $17.6bn drawn down in the current financial year.