National Australia Bank (NAB) is on track to deliver an annual cash profit higher than $5.5 billion after strong June quarter earnings emphasised the return of margin growth for the bank.
Australia’s fourth biggest bank posted better-than-expected unaudited cash earnings of around $1.4 billion for the June quarter, outpacing its first half 2010/11 earnings growth rate thanks to stronger credit growth, improved loan arrears and flat bad debts.
The bank is still on track to report a 20 per cent jump in annual profit to $5.545 billion in October from $4.615 billion a year earlier, according to Credit Suisse analysts Jarrod Martin and James Ellis.
But the annual profit could be bigger given NAB now needs just $1.2 billion in September quarter earnings to meet consensus earnings estimates, City Index’s chief market strategist Peter Esho says.
Deutsche Bank’s James Freeman says the market’s estimates for the current quarter are too bearish because they imply no growth.
Strong growth in NAB’s margins drew analysts’ attention, with a positive turnaround in group net interest margin (NIM) which grew by nine basis points to 2.32 per cent after contracting by 12 basis points in the first half.
Deposit growth exceeded lending growth, which will support higher margins in future as NAB joins other banks in paying consumers less for retail deposits as competition for deposits cools.
NAB chief executive Cameron Clyne said the bank was in a stronger position than each of the three previous years, and the key trigger for any deterioration in its performance would be a rise in unemployment.
“While the world may remain uncertain, what we’ve done is put the bank in the strongest possible position we could possibly put it in.
“That puts us in good shape to deal with whatever gets thrown at us.”
He said despite recent commentary of Australia’s multi-speed economy causing domestic economic growth to slow, it has not seen any deterioration in bad debts and loan delinquencies in July.
“The fundamentals … are okay and we’re not seeing anything that’s going to lead to a material increase in bad and doubtful debts.”
NAB said charges for bad and doubtful debts were 0.41 per cent of gross loans, or $443 million, at June 30, 2011, compared with 0.41 per cent at March 31, 2011.
Loan delinquencies or arrears, measured by the proportion of the bank’s loans that have suffered missed or late repayments by 90 days or more, improved to 1.85 per cent at June 30 from 1.92 per cent at March 31.
Mr Clyne said NAB’s business banking grew revenue and market share despite lower business credit growth during the quarter.
Personal banking added customers and achieved revenue and earnings growth.
In wholesale banking, however, Mr Clyne said currency and interest rate markets provided limited trading opportunities, resulting in lower income.
NAB’s shares experienced a rollercoaster ride amid sharp volatility across the Australian share market.
The stock plunged 5.9 per cent on Tuesday morning before paring losses and closing 60 cents, or 2.87 per cent, higher to $21.50.
