NAB warns of $1.1bn hit to profit

NAB says first-half profit will be hit by charges for software, life insurance and remediation, and COVID-19 impacts will follow.

NAB chief executive Ross McEwan. Picture: AAP

National Australia Bank’s first-half profit will be hit by $1.14bn in charges for software and life insurance writedowns and higher customer compensation, as the lender also warned of COVID-19 related impacts to come.

In a statement to the ASX on Monday, the bank outlined the three areas that will be a negative drain on interim earnings as new chief executive Ross McEwan looks to get the bank on a firmer footing.

The change in NAB’s software capitalisation policy amounts to a hit of $742m after tax, while the impairment of the bank’s holding in MLC Life totals $214m and the net rise in provisions for customer remediation is $188m.

The higher customer compensation costs are expected to reduce the bank’s common equity tier one capital ratio by about six basis points.

That comes after the banking regulator urged banks to conserve capital to navigate the COVID-19 pandemic and keep credit flowing throughout the economy.

The Australian Prudential Regulation Authority called on banks to materially reduce dividend payments or consider their suspension while the crisis was impacting the economy.

Westpac this month said its interim profit would be dented by provisions and writedowns of $1.43bn in anticipation of a record financial crimes penalty. It also warned that climbing loan losses were anticipated and estimates would be provided when it hands down results next month.

NAB also cautioned of further pressure on profit as it models how loan losses will play out as the pandemic grips the economy.

The bank must also make a crucial call on dividends.

The bank’s statement said further detail would be forthcoming at its results next month.

“This will include information about the impact of the COVID-19 pandemic on NAB’s earnings and balance sheet including provisions, combined with capital and dividend implications,” the ASX statement said.

Meanwhile Morgans analyst Azib Khan has revised up his estimates for loan loss estimates at the big banks.

“We are forecasting each major bank’s September 30, 2019 collective provision balance to increase by about 50 per cent in the first half of 2020,” he said.

NAB releases its half year results on May 7, after ANZ starts the major bank reporting season late this month. Commonwealth Bank reports on a June 30 year end, while its three main rivals have a September 30 balance date.