Bad debts and margin squeeze hurts major bank profit

One of Australia’s big four banks yesterday reported a fall in cash earnings and a significant increase in the charge for bad and doubtful debts over the three months to 30 June.

NAB’s quarterly results showed unaudited cash earnings of approximately $1.6 billion, 3 per cent lower than the quarterly average for the March 2016 half year results and 3 per cent lower than the prior corresponding period.

In a trading update yesterday the major bank noted that the charge for bad and doubtful debts for the quarter rose 21 per cent to $228 million.

“The increase largely reflected the non-recurrence of the unusually low bad and doubtful debt charge in the first quarter of 2016 and an increase in the mining and agriculture collective provision overlay,” it said.

“The ratio of 90+ days past due and gross impaired assets to gross loans and acceptances was 0.81 per cent at 30 June 2016, up from 0.78 per cent at 31 March 2016.

Commenting on the result, NAB Group CEO Andrew Thorburn said that while asset quality “remains strong”, the bank did feel the pressure of higher funding costs over the quarter, which had a material impact on NAB’s net interest margin (NIM).

“The Australian and New Zealand economies remain resilient and continue to deliver growth amid heightened global uncertainty. While we saw higher funding costs during the quarter, asset quality remains strong and cost control was pleasing,” Mr Thorburn said.

“These higher funding costs contributed to our decision to not pass on all of the most recent RBA interest rate cut to home loan borrowers. The decision reflects the responsibility we have to balance the needs of all stakeholders — borrowers, depositors and our 584,000 shareholders.”

The major bank chief said the branch roll out of NAB’s “state-of-the-art Personal Banking Origination Platform has now been completed” in every state except New South Wales, which recently commenced.

“Our customers and people are now benefiting from much simpler application processes and much faster approval times,” he said.

“NAB Labs, our innovation hub, has delivered a number of key initiatives particularly supporting the small business sector including NAB QuickBiz loans, NAB Business Start-up and new digital marketplace Proquo in partnership with Telstra.”

The sale of 80 per cent of NAB’s life insurance business to Nippon Life remains on track for completion during the second half of calendar year 2016, Mr Thorburn said, following the achievement of an important milestone on 1 July with the merger of five super funds to create Australia’s largest retail super fund with approximately $70 billion in funds under management.

“We recently announced changes to our organisational structure which will continue our momentum in creating a simpler more customer-focused organisation and achieving our vision of becoming Australia and New Zealand’s most respected bank.”

[Related: Major bank sounds alarm on bad debts]

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