Investors shrugged off yesterday’s first quarter trading update from the National Australia Bank (NAB), giving it the benefit of doubt on a 5% jump in expenses in the three months.
As well investors thought that the 23% fall in bad debt provisions in the quarter was not a funny bit of accounting but a result of the comparison with the same quarter a year ago when the bank made extra additions to its provisions. That extra was not needed in the December quarter, hence the sharp fall.
At the close of trading, NAB shares were up 0.8% on the day, while Westpac shares rose 0.5%, and the Commonwealth Bank 0.3%, but ANZ shares eased 0.2%. But NAB shares were up more than 1.6% at one stage and eased back in a late sell off which saw the market end in the red.
The earnings update was the first from a major Australian bank in 2017, and suggests the soft revenue conditions continued late last year. Revenue rose by around 1%, in the quarter, which was hardly impressive.
In a sign of a slide in credit quality, the proportion of loans that were more than 90 days in arrears edged up from 0.85% to 0.9%.
NAB chief executive Andrew Thorburn emphasised the bank was keeping a tight rein on costs, revealing it had cut full-time staff numbers by 488 people in the quarter.
"Our first-quarter expenses were impacted by the usual 1 October salary increases as well as elevated redundancy costs," Mr Thorburn said.
Redundancies spiked in the quarter because the bank completed several major projects, including the sale of its life insurance arm to Japan’s Nippon Life, and a revamp of its technology system used by frontline bankers.
The bank’s enterprise agreement last year saw staff get increases of up to 3% depending on their position, and scrapped some of the sales targets offered to frontline bankers.
The bank continued to target faster revenue growth than cost growth, Mr Thorburn said, and was on track to deliver $200 million in "productivity savings" over the full year.
"We are well advanced on a number of initiatives that give us confidence about second-half productivity and cost benefits."
"While the Australian and New Zealand economies remain resilient and continue to deliver solid growth, the operating environment has some challenges with funding costs remaining elevated and competition still intense," Mr Thorburn said.
