National Australia Bank reported a full-year statutory net profit of $6.14 billion, down from the prior year, as credit impairment charges more than doubled to $1.5bn, Yahoo Finance reported. Cash earnings fell 13.4%, a decline that included a $949 million after-tax charge related to a change in how the bank accounts for software investments. Excluding that charge, cash earnings came in at $7.09 billion.
The bank published its results before the market opened, and NAB shares fell 5% to around $39.05 following the release. Revenue grew 5.8%, and stripping out the large notable item flagged at the half, underlying profit was up 6.9%. After removing the large software charge, operating costs climbed 4.5%.
Credit impairment charges rose $833 million compared to the prior year, reflecting both extra provisions against a weakening economic outlook and deterioration in the repayment performance of some borrowers. NAB attributed pressure on its bottom line to both a slowing economy and higher credit impairment charges. Chief executive Andrew Irvine told media that conditions are becoming harder for some customers and that most customers had been able to manage the changes but that there are pockets of challenge.
Net interest margins increased by 6 basis points, and Australian business lending grew 9.8% during the year, with the bank recording market share gains. The Business and Private Banking division lifted earnings by 10.7% when the large charge is stripped out.
Deposit balances were up 5.2%, and NAB's direct-channel share of Australian home loan originations improved from 41% to 50%. There was weakness in institutional and New Zealand banking.
Irvine told media that NAB's central forecast is for growth of around 1% in the following year and that a recession is not the most likely scenario but its probability has increased. He said productivity remains a key challenge for both growth and inflation.
NAB said the Reserve Bank's rate increase would help slow the economy and expects the central bank will hold rates until June to August of the following year before shifting to cuts. NAB's management flagged that underlying cost growth in the next financial year should come in below 3%, once certain restructuring and accounting items are excluded.
Borrowers with home loans had held up well despite five interest rate rises during the year, though rising credit impairment charges signal some borrowers are experiencing difficulty repaying loans as the economy slows.
Reporting: Yahoo Finance, The Motley Fool Australia
Written by Pick & Scroll News from the reporting and documents linked above.
