NAB profits jump 19 per cent to $2.05b, helped by RBA’s rate hikes

National Australia Bank’s first-quarter profits jumped by close to a fifth to $2.05 billion, as revenue increased sharply thanks to higher interest rates and growth in its loan portfolio.

Releasing a trading update on Thursday before the market open, the big four bank said it expected the slowing economy and rising interest rates would cause stress for some customers, but most borrowers were well-placed to deal with a tougher economic period ahead.

NAB chief executive Ross McEwanCredit:Elke Meitzel

NAB said unaudited cash earnings were $2.05 billion in the December quarter, which was 18.7 per cent higher than the same quarter a year earlier. Revenue lifted by 15 per cent.

Like its rivals, the bank has benefited from rising interest rates as central banks seek to rein in the highest inflation in decades. Its net interest margin – which compares funding costs with what it charges for loans – widened by 12 basis points to 1.79 per cent.

“The higher interest rate environment, resulting from central bank actions to curb inflation, has benefitted our revenue this period. But this is also causing economic growth and house prices to soften, and loan repayments to increase,” said chief executive Ross McEwan.

The bank’s lending and deposits both increased by 1 per cent in the December quarter, and the bank grew faster than the market average in small business lending, NAB’s traditional stronghold.

‘Continued strong employment conditions and healthy savings buffers mean most customers look well-placed to manage through this period.’

The result comes after Commonwealth Bank delivered a record profit of $5.15 billion on Wednesday, also thanks to a sharp widening in its net interest margin.

A key reason margins have widened is because banks have passed on more of the increase in the Reserve Bank’s interest rates to borrowers than they have to savers. However, some analysts believe this margin benefit has now peaked, as lenders also compete fiercely for mortgage borrowers, offering discounted interest rates and cashbacks worth thousands of dollars.

Alongside the boost in margins, the other focus of bank investors is the risk of bad debts rising as borrowers feel the pinch of higher rates and inflation.

NAB said the proportion of customers more than three months behind on their loan repayments had fallen to 0.62 per cent, which is consistent with trends reported by CBA. NAB took a $158 million credit impairment charge for loans gone sour, citing factors including lower house prices.

In a sign of balance sheet strength, NAB’s common equity tier 1 capital was 11.3 per cent of risk-weighted assets, which is ahead of the minimum level required by regulators.

McEwan said some customers would find themselves under financial pressure from the weaker economic backdrop and rate rises, and indicated the bank would provide some support for customers in stress.

“We know these changing circumstances, combined with cost of living pressures, will create difficulties for some of our customers, and we have a range of options available for those needing support,” he said.

“Overall though, continued strong employment conditions and healthy savings buffers mean most customers look well-placed to manage through this period.”

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