National Australia Bank’s group returns continue to be stymied by its UK operations, despite recently offloading 20 per cent of its commercial real estate loans.
While the GPB 625 million sale of largely nonperforming UK commercial real estate, or CRE, loans reduced the lender’s risk weighted assets and released GPB 127 million ($354 million) of capital, NAB’s underperforming UK banking operations remain a challenge, according to Morningstar.
“We expect similar transactions during the next 12 months as the remaining GBP 2.4 billion of nonperforming UK CRE loans run off,” Morningstar analyst David Ellis said.
“The UK businesses have struggled because of weak economic conditions and sharp falls in real-estate values,” Mr Ellis said.
“However, during the past 18 months, economic conditions have started to recover, property values have increased and consumer confidence has bounced.”
The recent stabilisation and recovery in UK commercial property valuations has stemmed the flow of loan impairment costs for the bank.
Notwithstanding the proactive actions of management, the UK businesses still underperform and drag on group returns, Mr Ellis said.
“Improved operating conditions in the UK economy and the financial services sector in particular are increasing disposal options with a trade sale or initial public offering potential exit strategies for NAB’s Clydesdale and Yorkshire banks,” he said.