NAB's earnings slide 3%, bad debts rise

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The NAB posted a 3% fall in cash earnings to $1.6 billion in the third quarter, reflecting a rise in bad loans and an increase in funding costs, according to unaudited numbers.

The charge for bad and doubtful debts rose 21% to $228 million, partly due to increasing provisions in the mining and agriculture sectors.

Revenue was broadly stable compared with the quarterly average but growth in lending was offset by a lower net interest margin. The margin was slightly lower due to higher funding costs.

Expenses fell about 1%.

CEO Andrew Thorburn says the Australian and New Zealand economies remain resilient and continue to deliver growth amid heightened global uncertainty.

“While we saw higher funding costs during the quarter, asset quality remains strong and cost control was pleasing,” he says in the quarterly update.

“These higher funding costs contributed to our decision to not pass on all of the most recent RBA interest rate cut to home loan borrowers.”

The banks drew political heat after passing on to home loan customers only about half the 0.25 percentage point cut in official cash rates.

The federal government announced that it would call the big bank CEOs before a parliamentary committee to explain the decision.

The rise in bad loans, from a low point, is a common theme among the banks.

Last week, the Commonwealth, in posting its full year results, showed a substantial jump in bad loans in the second half of the 2016 financial year. Loan impairment expenses increased 23% on the prior half to $692 million. For the year, they were up 27% to $1.256 billion.

There were two pain points: home loan arrears, mainly in the mining towns of Western Australia and Queensland; and rural New Zealand where the dairy sector is feeling the fallout from a global milk glut.

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