NAB announces $1.5bn buyback, but results reveal slower home loan growth
The bank’s third-quarter profit hit $1.9bn, but home lending growth slowed, and it booked more money to cover future loan losses.
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National Australia Bank surprised investors with a $1.5bn share buyback, shrugging off fears over a slowing economy and tick up in loan arrears.
The big four bank unleashed plans for the capital return amid a rise in third-quarter cash earnings to $1.9bn and a modest fall in lending margins.
NAB’s unaudited third-quarter results on Tuesday revealed cash earnings were up 6 per cent on the same period a year ago, while unaudited statutory net profit hit $1.75bn.
But its books revealed signs of a slowdown, as revenues dipped and NAB recorded a modest increase in loan arrears.
Cash earnings were down 5 per cent on levels posted in the first half, with revenues down 2 per cent, “mainly reflecting lower margins”.
The net interest margin fell 5 basis points to 1.72 per cent as slower home lending growth and higher deposit costs squeezed NAB’s lending margins.
The bank reported home lending rose 1 per cent in the quarter, below system growth, but its small and medium-sized business lending book rose 4 per cent.
NAB chief executive Ross McEwan had flagged at the half year in May the bank would pull back from the bun fight with other lenders over the mortgage market.
But the lender also reported a creeping increase in home and business borrowers falling behind on their payments.
Loans 90 days past due ticked up 5 basis points to 0.71 per cent of the loan book. NAB last faced levels of loans 90 days past due at this level in the third quarter 2022, when 0.7 per cent of the loan book was impaired.
However, this still stands well below the 1.13 per cent of the loan book marked as impaired in the same quarter of 2021.
Mr McEwan said the bank would hand back excess cash to investors through a share buyback “consistent with our focus on maintaining a strong balance sheet through the cycle, while progressively reducing our share count over time”.
Citi said the buyback was a surprise. “While there is clearly excess capital, the message in May was one of ‘pause’ to evaluate data. It is not apparent what improved over the 3Q, but clearly the board is sufficiently comfortable on capital and asset quality,” Citi analysts said.
The bank was planning to hit the market in late August in a move that would take its common equity tier-1 capital ratio back to 11-11.5 per cent, from its current 11.9 per cent level.
Big four rival Commonwealth Bank last week announced a share buyback worth $1bn.
It comes after NAB wrapped its latest $5bn buyback.
On Tuesday, Mr McEwan said NAB had delivered “a sound third-quarter result”.
“We know this environment is challenging for our customers, but pleasingly most are proving resilient with only a modest deterioration in asset quality in the third quarter,” Mr McEwan said.
“We are focused on keeping our customers and our bank safe and maintaining prudent risk and balance sheet settings.”
NAB booked a $224m credit impairment charge in the quarter in what the bank pointed to as a sign of “modest deterioration in asset quality across the group and volume growth”.
NAB’s total provisions now stand at $5.7bn.
The ratio of collective provisions to credit risk weighted assets rose 5 basis points in the quarter to 1.47 per cent.
NAB’s liquidity coverage ratio lifted in the quarter to 137 per cent, up from 130 per cent at the half.
Expenses rose 3 per cent, with higher staff and technology costs weighing.
The bank will wear a higher wages bill after staff endorsed a workplace agreement that will see pay rises of up to 17.5 per cent over four years and allow more permanent work-from- home arrangements.
Of the NAB staff who voted on the agreement 85 per cent supported the deal. The agreement now goes to the Fair Work Commission for final approval.
The agreement, a key step for Mr McEwan to secure certainty in the bank’s operating outlook, followed an initial enterprise deal being rejected last year.
NAB shares closed the day up 1.09 per cent to $28.64.
Originally published as NAB announces $1.5bn buyback, but results reveal slower home loan growth
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