National Australia Bank gains market share as profits rebound


Net interest margins, the difference between what banks receive in interest from borrowers and what they pay out to savers, have been a focus of concern as the market braces for higher interest rates.

NAB said that excluding its markets operations and higher holdings of liquid assets, its NIM fell 2 basis points “due to competitive pressures and the mix of housing loans, partially offset by lower financing and deposit costs”.

NAB’s margin decline in the first quarter is smaller than that of other major banks. On Monday, ANZ Bank said its margins fell 8 basis points in the first quarter, the same amount Westpac reported last week. Commonwealth Bank said on Wednesday its NIM fell 17 basis points over the half.

In NAB’s first quarter, home loans increased by 2.6%, SME loans by 3.4% and New Zealand loans by 2.2%. Revenue rose 8%, which NAB said reflected higher home and business lending volumes and a recovery in contribution from its treasury operations.

With analysts focusing on costs across the sector, the NAB said, “although the level of growth and emerging inflationary pressures present challenges, we continue to target broadly flat spending for FY22.”

Asset quality remains strong – impaired assets declined during the quarter – and the Common Equity Tier 1 (CET1) ratio is 12.4%, compared to 13% six months ago, while the repurchase of NAB shares continues.

CEO Ross McEwan said in a statement that the disruptions to supply chains and labor markets caused by omicron “present challenges for some of our customers”, but the bank is generally positive about the outlook for the economy.

“While this creates uncertainty, we remain optimistic about the outlook for Australia and New Zealand and are well positioned to continue to grow with a strong balance sheet and the disciplined execution of a clear strategy,” Mr. McEwan said.

The NAB release marks the end of major banking market updates, where margin pressure was the key issue across the industry.

After Commonwealth Bank said its net interest margin had shrunk due to the low interest rate environment, increased liquid assets and stiff competition, rating agency S&P Global Ratings said it expects these trends to continue over the next year.

However, the agency added: “We expect credit losses to remain low and close to pre-COVID levels over the next two years.

“A recovering economy and falling unemployment should help mitigate risks to Australia’s banking system.”


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