NAB shares tumble 8pc on earnings drop

Among concerns for investors are heightened competition in mortgages and deposits crimping margins, and for NAB, the fact that arrears are still rising.

NAB CEO Andrew Irvine.

The banking sector’s share price walloping kept pace on Wednesday, with National Australia Bank the latest target after the lender posted a drop in cash earnings.

NAB’s shares fell 8 per cent, its swiftest decline since 2020, to a six-month low as investors took in the bank’s latest update that showed expenses and arrears rising alongside weaker margins.

The share price drop comes after Bendigo Bank lost close to a fifth of its value across Monday and Tuesday as the bank revealed growth in lending and high-interest deposits in the six months to December that came at the cost of profits.

The majors are all in negative territory for the week so far, with ANZ the best of the lot, down 3.5 per cent, followed by CBA’s 4.2 per cent drop, Westpac’s 7 per cent and NAB’s 11 per cent decline. Bendigo Bank shares were flat on Wednesday following the brutal 18 per cent fall post its results. Peer BOQ is also down around 3 per cent since Monday.

The declines come after investors piled into the sector in 2024, making it one of the best performers in the local market. CBA led the pack and is still up 36 per cent on a one-year basis followed by Westpac, up 28 per cent. Even after a rough few days, Bendigo Bank shares are 14 per cent higher than a year ago, compared to a gain of 10 per cent for NAB and 6 per cent for ANZ.

Among concerns for investors are heightened competition in mortgages and deposits crimping margins, and for NAB, the fact that arrears are still rising.

For the quarter ended December 31, NAB reported unaudited cash earnings of $1.74bn, down 3 per cent on the prior corresponding period. Net profit was flat at $1.7bn.

The bank called out “a small decline in net interest margin” -- a key measure of profitability -- over the period, with drags from funding costs, lending competition and deposits.

At the same time, it flagged arrears were on the rise, with further deterioration in its business and private banking portfolio, as well as higher arrears for home loans.

Investors pushed NAB’s share price down 8.1 per cent to $36.30 by the close.

NAB provided no detail on how much margins contracted in the three months but said the impact was partially offset by benefits of a higher interest rate environment and a slightly positive impact from its markets and treasury business.

Peer Westpac and regional lender Bendigo Bank also reported squeezed margins in earnings reports this week. Westpac’s net interest rate margin slid to 1.81 per cent in the first quarter, while Bendigo Bank saw a 6 per cent drop in its NIM to 1.88 per cent in the first half, both to December 31.

CBA, however, reported a higher NIM for the six months through to December when it handed down its half-year numbers last week. The company reported a 2.08 per cent NIM, up one basis point on the prior half and two basis points from the prior corresponding period.

As NAB sees more borrowers fall behind on their loan repayments, Westpac and CBA both reported a decline in non-performing loans.

“We have started fiscal 2025 well. Our first quarter performance is sound and execution of our refreshed strategy is underway, chief executive Andrew Irvine said, as he cautioned on the challenges facing households.

“The economic outlook is improving, but cost of living and interest rate challenges persisted during the first quarter. While most customers are proving resilient, we have maintained prudent balance sheet settings to allow us to support customers while keeping our bank safe.”

Deposits rose 2 per cent over the three months as home lending grew below the system, at 1 per cent.

Cash earnings were also affected by higher credit impairment charges, at $267m, and income tax expenses, which more than offset underlying profit growth of 4 per cent, the lender said on Wednesday.

Revenue grew 3 per cent, primarily driven by higher markets & treasury income, as expenses lifted 2 per cent on higher personnel and financial crime-related costs, as well as increased technology spend.

Mr Irvine said NAB was still targeting productivity savings in excess of $400m this year and for operating expense growth to be lower than last year’s 4.5 per cent rise.

Originally published as NAB shares tumble 8pc on earnings drop