NAB posts $1.9b third-quarter profit, hurt by ‘modest deterioration’ in loans

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National Australia Bank boss Ross McEwan says there has been a “modest deterioration” in the quality of the bank’s home loans but announced a $1.5 billion buyback as it reported a 5.8 per cent increase in its third-quarter profit to $1.9 billion.

Releasing a trading update on Tuesday, the country’s second-largest bank said its performance came against a backdrop of higher interest rates but also slowing growth, inflationary pressures and elevated competition.

NAB chief executive Ross McEwan said the bank’s home loan growth was below that of the broader sector.

“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,” McEwan said.

NAB’s unaudited cash earnings for the June quarter were 5 per cent lower than the average across the December and March quarters, but grew 5.8 per cent relative to the same period last year to $1.9 billion.

McEwan said small-to-medium enterprise business lending increased 4 per cent over the quarter, but that home lending grew below the broader sector’s growth of 1 per cent. Gross loans were broadly flat.

NAB’s net interest margin – which compares funding costs with what it charges for loans, and which McEwan said had peaked in the bank’s May trading update – fell 5 basis points to 1.72 per cent.

The bank said the decline was a result of continued home lending competition combined with higher deposit costs, partly offset by a higher interest rate environment.

NAB also announced a buyback of up to $1.5 billion of ordinary shares on-market, set to commence in late August subject to market conditions. “This decision is consistent with our focus on maintaining a strong balance sheet through the cycle, while progressively reducing our share count over time,” McEwan said.

The bank said its credit impairment charge – or writebacks – increased $9 million to $244 million over the quarter reflecting volume growth and a modest deterioration in asset quality.

NAB said its proportion of 90-day-plus arrears and impaired assets compared to its loans and acceptances increased 5 basis points to 0.71 per cent. “This mainly reflects a modest deterioration in delinquencies across the group’s home loan and business lending portfolios,” the bank said.

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