NAB's earnings slip in wage-related expenses blowout

Photo: Torsten Blackwood/AFP/Getty Images

National Australia Bank’s first quarter earnings fell 1% as expenses growth outstripped increase in revenue and the lender warned funding costs were high and competition intense.

Unaudited cash profit, which excludes one-time items, for the three months ended December 31 fell 1% to $1.6 billion, the Melbourne-based bank said. Revenue increased 1% and expenses soared 5%, it said blaming a new wage agreement, costs associated with job cuts and regulatory spend. Net interest margins were stable, the NAB said.

Australia’s largest banks are struggling to grow profits after a seven -year record profit run as loan growth slows, competition intensifies and funding costs rise. The lenders are also being forced to hold more capital and liquidity to as part of global banking rules, which are aimed at preventing another banking crisis.

The charge for bad and doubtful debts for the quarter declined 23% to $164 million as it wasn’t required to set aside more money to safeguard against potential losses in the mining and agriculture sectors, it said.

The NAB’s Common Equity Tier 1 (CET1) ratio, a measure of its ability to absorb future losses, was 9.5% at December 31 December 2016, compared with 9.8% three months earlier after factoring in the final dividend payment, it said. The CET1 target ratio remains 8.75% – 9.25%, based on current regulatory requirements. As part of NAB’s ongoing commitment to maintain a strong and efficient capital position, it is considering issuance of a new ASX-listed Subordinated Tier 2 Capital security, the lender said.

Australian banks provided limited information with their quarterly updates. Commonwealth Bank of Australia, which has a June-year end unlike its main peers that close their books in September, posts first half earnings next week. ANZ Bank reports its first quarter numbers February 17. Westpac doesn’t provide one.

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