NAB's cash earnings are down as royal commission costs rise

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  • In a third quarter update, NAB says cash earnings were down 3% on last year.
  • Revenue was up 1% but expenses rose 2%.
  • Net interest margin declined slightly.

The NAB warned of provisions ahead from the financial services royal commission as the bank recorded a drop in cash earnings for the third quarter.

In a trading update, the bank says Unaudited Cash earnings for the three months to June were $1.65 billion, down 3% on the same period last year. Unaudited statutory net profit was $1.65.

Credit impairment charges rose 9% to $203 million.

CEO Andrew Thorburn says the financial performance in a “challenging operating environment” has been sound.

“Revenue is up, despite elevated short term wholesale funding costs, while asset quality and balance sheet metrics remain strong,” he says.

“As we make progress towards resolving several previously disclosed regulatory compliance investigations, we expect to recognise additional provisions in the 2H18 result, noting there are significant uncertainties in determining a provisioning outcome at this time.

“These additional costs will be excluded from the expense growth guidance of 5%-8% for FY18.

“The Royal Commission is challenging us with its focus on where we have let customers down. We are determined to respond and become a better bank through living our
purpose and values every day.”

Revenue was up 1% due to growth in SME lending within Business & Private Banking and a strong contribution from New Zealand Banking.

The bank’s Net interest margin fell slightly, reflecting elevated short term wholesale funding costs and ongoing intense home loan competition.

Source: NAB

Revenue was up 1% but expenses rose 2% due to higher compliance costs, investment spend was consistent with the accelerated strategy, and increased depreciation and amortisation.

Thorburn says the bank has a long term plan focused on becoming a simpler bank.

“During the quarter we made further progress on our transformation by investing in both productivity and growth initiatives,” he says.

In the financial services royal commission last week, the NAB’s lawyers failed to suppress documents showing possible criminal counts of breaches of the bank’s licence.

The NAB allegedly charged fees for no service to superannuation fund customers, then delayed compensation when it was discovered, failed to report breaches on time and kept back the full extent of the problem of overcharging of customers.

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