The 5 charts from NAB that underscore the challenges ahead for Australian banks

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National Australia Bank posted a 2.3% increase in cash profit, meeting expectations.

A deep dive into its earnings chart pack shows the grind Australian banks face amid increased regulatory oversight and the simmering housing market.

These 5 charts selected from NAB’s investor presentation give you a ringside view of what may lie ahead for the banking sector as a whole.

1. Regulatory challenges: This chart, aptly titled “Macro Prudential Housing Changes”, shows the task ahead for NAB to meet regulatory changes, which could eventually sap investor appetite for home loans. For instance, interest only mortgages, a type of loan favoured by investors, stood at 41%, 11 percentage points more than where the banking regulator would like it to be. And NAb has said it expects to meet the regulatory limit.

2. The case of falling margins: If there is one blotch in Australian banks’ stellar profit run over the past eight years, it’s been sliding net interest margins, a measure of lending profitability. There is no end in sight though.

3. Housing exposure: Home loans make up 58% of NAB’s total loans and advances. While loan loss rates are negligible and stress testing scenarios by the bank show things are very much under control, there is one metric which is showing some niggles. Mortgage arrears that are due for 90 or more days is starting to nudge up, albeit from a low base. The bank has boosted its provisions though.

4. Revenue challenges: Net interest income actually fell for NAB with total revenue salvaged only by other operating income. That comes two days after rival ANZ also reported falling revenue.

5. Expenses still rising: NAB showed expenses continued to climb and flagged investment spend, depreciation and amortization will likely rise. That comes despite a reduction of 711 jobs.

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