Like the Commonwealth Bank, the National Australia Bank will see stronger revenue gains in the next few months from mortgage rate increases that hit at the end of the June quarter, falling loan impairments and no trouble raising the fresh capital demanded by regulators.
Like the CBA, which has reactivated its dividend reinvestment plan for the final dividend, the NAB (and its rivals) are likely to follow suit if the quality of current earnings is any guide.
As it is the NAB reported a 5% improvement in unaudited cash profit to $1.7 billion. The CBA boosted its profit 8% to just under $10 billion, a record.
The NAB said revenue for the three months to June 30 rose 2%, helped by a higher net interest margin resulting from loan repricing and what it said were more favourable funding conditions. (The CBA reported a 1% rise in revenue for the year to June and a fall in net interest income, but strict cost controls saw profit margins expand).
The NAB in March lifted its standard variable mortgage rates for both owner- occupiers and investors, citing elevated funding costs. It then cut some variable rates from June 30, but hiked variable rates for interest-only mortgages in line with APRA’s bid to slow down riskier lending. The changes will boost interest income in the current 4th quarter towards the September 30 balance date for the year.
NAB CEO, Andrew Thorburn was positive about the outlook, saying in Friday’s announcement:
"The Australian and New Zealand economies remain resilient with solid growth supported by strong population growth and low unemployment," Mr Thorburn said.
"However, the household sector faces some challenges with high levels of household debt, muted wages growth and subdued consumer sentiment."
Bad and doubtful debt charges fell 12% over the quarter to $173 million, and down 24% on the same period a year ago.
The ratio of loans 90 or more days overdue and gross impaired assets declined 0.05 percentage points to 0.80% – flat on a year ago – which NAB said mainly reflected improved conditions for New Zealand dairy customers.
"Cash earnings and revenue are both higher, asset quality has improved and our capital and funding positions remain sound," NAB chief executive Andrew Thorburn said.
NAB said its tier one capital ratio dropped from 10.1% in March to 9.7%, but that it would comfortably meet the 10.5% target for January 2020 set by the Australian Prudential Regulation Authority earlier this year.
With the CBA estimating it will raise $1.4 billion in new capital from reactivating its DRP, the message is clear for the NAB, ANZ and Westpac to follow suit and not worry about claims from some greedy analysts and big shareholders that such issues are dilutive.
With bad and impaired debts falling and interest income rising, the banks look they will enjoy a good year from October 1, even after the Federal Government’s bank levy and one in South Australia, if that survives that state’s upper house.
