NAB lifts cash profit 4pc, keeps dividend steady

NAB has lifted full-year cash earnings to $6.48bn and kept its dividend, but faced stronger pressure on margins.

NAB chief executive Andrew Thorburn. Pic: Stephen Cooper

National Australia Bank has booked a 4 per cent rise in cash earnings for the full year and held its dividend steady, despite warnings from analysts its payout ratio is unsustainable.

Despite the solid headline numbers, NAB confronted headwinds on margins that were stronger than the market expected.

For the year to September 30, the bank (NAB) said cash profit lifted to $6.48 billion, up $261 million on last year.

Analysts had anticipated a more modest rise in cash earnings to $6.39bn.

NAB’s statutory earnings, in contrast, weakened 94.4 per cent to $352 million, hit by the loss on the divestments of its UK operations and 80 per cent of its life insurance arm.

The figure still topped analyst estimates for a reading of $307.7m.

The bank also detailed a rise in bad and doubtful debt charges, with a small number of single exposures in Australia pushing this figure up 7 per cent to $800m.

“This has been a milestone year for the group with the completion of major divestments including our exit from Clydesdale Bank and the sale of 80 per cent of our life insurance business to Nippon Life,” NAB Group CEO Andrew Thorburn said.
“NAB moves into 2017 a reshaped business — stronger, simpler and focused on helping our customers in Australia and New Zealand.

“These changes have been achieved while delivering an improved operating performance and maintaining a strong balance sheet, sound asset quality and tight control of costs.

“This is against a backdrop of favourable Australian and New Zealand economic conditions, but also rising funding costs and global uncertainty.”

NAB said its margins had been challenged through the year, with the closely-watched net interest margin down 2 basis points to 1.88 per cent.

The stress on margins was more apparent in the second-half, supporting the banks’ strident defence of their inability to pass on the latest RBA rate cut in full.

For the second half its net interest margin came in at 1.82 per cent, as against 1.93 per cent in the first half.

Market forecasts pointed to less acute pressure on margins, with the second half net interest margin tipped to come in at 1.9 per cent and the full year reading expected to be 1.91 per cent.

Margins were largely affected by higher wholesale funding costs, although strong competition in the mortgage markets in Australia and New Zealand also crimped margins.

“Improving momentum and stabilising margins in business banking have been particularly pleasing, with lending and revenue growth focused on higher returning priority segments,” Mr Thorburn said.

“In personal banking, we made good progress in restoring home loan volume growth back to system levels after a period of significant change in pricing and credit policies.”

The group delivered a cash return on equity of 14.3 per cent, down half a percentage point, while its tier-1 capital ratio edged up 8 basis points to 9.8 per cent, above its target given current regulatory requirements.

NAB will provide a final dividend of 99c per share, fully franked, in line with its most recent interim and final dividends.

Its dividend payout ratio crept up 1.3 percentage points to 80.8 per cent, above its 70 to 75 per cent target range.

In a conference call with media, Mr Thorburn said he was “currently comfortable” with the dividend.