Bad debts fall but NAB lags rivals
Sydney Morning Herald
Saturday February 20, 2010
THE growing divide between the biggest and smallest of the big four banks was underlined yesterday after National Australia Bank revealed that increasing competition and flat revenue growth had held back any immediate post-global financial crisis profit boost.NAB also disclosed that it had yet to benefit from a significant bottom-line increase from falling bad debts, despite signs that its impairment charges had now peaked. Its first-quarter results for the 2010 financial year showed a $202 million drop in sour loans since September.At the same time, overall provisions for bad debts rose slightly from the year-end by $300 million to $5.4 billion.The impact of the different factors on NAB's financial performance saw it turn in unaudited cash earnings for the three months to December 31 of $1.1 billion - a mirror image of the profit outcome for the corresponding period 12 months ago.The flat result left investors distinctly unimpressed. They had expected better numbers following the recent sizeable earnings gains made by the country's two largest banks, the Commonwealth and Westpac.CommBank's surge during its first half, which included the same period as NAB's first quarter, took its interim net profits to a record $2.9 billion, while Westpac's quarterly year-on-year earnings to December 31 rose 33 per cent to $1.6 billion.Both banks reported large falls in bad debts as the economy began to recover.Analysts yesterday indicated that NAB was on target to turn in half-year net profits of $2.2 billion, but there was general agreement any earnings growth was likely to be the result of lower provisions, not revenue rises.Describing the underlying revenue trend as "disappointing", Goldman Sachs JBWere said the lack of revenue growth remained a concern.IGMarkets' institutional dealer Chris Weston said that the figure was "not necessarily a weak result" but it was not as strong as Westpac's. "They've been built up quite heavily because they've been riding on the coat-tails of Westpac, [which] is in the strongest position of the big four."The market responded with a sell-off of NAB's shares which closed 2.7 per cent down at $25.25 compared to a 0.43 per cent fall in the value of the ASX 200.Both CommBank, down 19c at $52.81, and ANZ, 9c lower at $21.96, dropped in line with the overall market while Westpac, whose shares have gained 10 per cent since its trading update, rose another 7c to $25.46.NAB said that its total revenues and net interest margins had remained broadly stable compared to the second half of last year, when the effects of the global financial crisis and an accompanying rise in bad debts were at their highest.However, NAB chief executive Cameron Clyne disclosed that its ability to push through better pricing for risk on its loan books had been eroded by greater competition. In particular, he said, foreign banks which had largely withdrawn from the market had started lending again.In Britain, where NAB is looking at acquiring as many as 300 branches from a financially-constrained rival, its operations benefited from lower bad debts charges and an easing of funding costs.The group also saw improvements in its wealth management business as a result of the recovery in investment markets, and its acquisitions of Aviva Australia and the private wealth arm of JBWere, which between them contributed $33 million to the first-quarter profit.AXA battle€” Page 3
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