NAB reveals $3.54bn cash profit and upsizes buyback by $1.5bn

Australians can withstand another rate rise, with the boss of National Australia Bank saying the economy is proving resilient as the market bets on the prospect of a further hike.

Australians can withstand another rate rise, with the boss of National Australia Bank saying the economy is proving surprisingly resilient as market bets on the prospect of a further hike.

Speaking as NAB unveiled its $3.45bn first-half profit on Thursday, chief executive Andrew Irvine said he did not expect a new round of rate rises, despite recent data showing stubbornly high inflation.

Financial markets are now pricing in a 40 per cent chance of an interest rate hike by November.

Mr Irvine said services inflation was proving sticky, noting rising wages had a “very clear knock on” effect on price data.

But he said inflation was likely to return to the target range “at some point next year”, noting goods price inflation was already tumbling.

The NAB boss said that if rates did rise it was a reflection of the economy’s strength.

He expected the RBA would look to cut rates from November, but warned this “could just as easily be February”.

“We’ve all got to remember if rates don’t go down or if rates were to go up that’s because the economy is outperforming,” he said.

Mr Irvine, who presented his first results since taking over from veteran Ross McEwan, said the bank was confident in the trajectory of the Australian economy despite cash earnings sliding 12.8 per cent from their highs of $4.07bn last year.

The NAB boss said the benign state of the Australian economy encouraged him to pour a further $1.5bn into an on-market buyback, topping out NAB’s earlier massive interventions in the market, after pumping $1.3bn of a total $1.5bn spend into buying its shares last year.

Mr Irvine said he expected inflation would continue to moderate over the coming months, after the consumer price index came in at 3.6 per cent for the 12 months to March, above the Reserve Bank’s target band.

National Australia Bank is putting another $1.5bn into buying back shares. Picture: Getty Images

The NAB boss’s comments come after Treasurer Jim Chalmers said investors and economists had “overreacted” to the latest hot inflation figures.

The Canadian boss of Australia and New Zealand’s biggest business lender said he was surprised at the resilience of business spending and investment, which was “performing better than our expectations”.

He said this was shown in NAB’s business lending, which expanded in the last six months rather than moderating, as expected.

“If you had asked me six months ago, as the head of the business bank, if we would print business credit growth close to 9 per cent, I’d say not a chance,” he said.

But Mr Irvine said taming inflation was going to be far harder than expected, with price rises “a bit stickier going down”.

“That is not an easy needle to thread,” he said.

Mr Irvine said NAB’s data showed many parts of the economy were still doing well, and many commentators were “overemphasised parts of the economy that are struggling”.

He said companies in mining, agriculture and manufacturing were prospering and “don’t get talked about that much”, as well as those in defence and healthcare.

They compared to retail, hospitality, and construction which were struggling.

NAB’s results showed as much, with the bank walking back $40m in provisions for bad debts.

Despite this, loans 90 days past due picked up 13 basis points to 0.79 per cent of the overall bank book, reflecting an increase in ­arrears across both home and business lending.

But Mr Irvine said the deterioration was “on the margin”.

He said it was “nothing to worry me at this stage”.

As Australia’s biggest business lender, NAB is heavily exposed to the fortunes of Australia’s high street.

Business failures are again nearing their recent highs, with warnings may hit near-Global Financial Crisis levels in the coming months.

In a note to investors alongside its results briefings, NAB warned that although the Australian economy was proving resilient and most customers performing well, the bank remained concerned about the outlook. This included “the impacts of global instability and the ability of customers to manage the full extent of higher interest rates and elevated cost of living pressures”.

This comes as analysts called a high point for Australia’s banking sector, with Macquarie analysts warning the latest results were as “good as it gets” amid concerns about the medium-term trajectory for the lenders.

NAB is the first of the big four banks to report over the coming weeks, with the health of the lenders’ returns a mark of the broader vigour of the business landscape.

The bank reported that calls to its NAB Assist hotline had jumped 7 per cent in the first half of the financial year, with many customers being offered reduced repayments on their loans, payment breaks, debt restructures or long term extensions.

NAB said it expected GDP growth to hit 1.7 per cent in 2024, before improving to 2.3 per cent in 2025 and 2026.

The bank expects pressures on households to begin moderating from the second half of the year.