Strong competition in business lending has squeezed NAB’s net interest margin over the December quarter, offsetting strong volume growth.
Released yesterday, NAB’s first quarter trading update shows the lender's net interest margin (NIM) was flat over the three months to December 31, but excluding markets and Treasury it was slightly lower.
Growth in mortgage lending and improved business lending volumes were partially offset by a lower NIM, primarily relating to business lending competition, according to the group.
Home lending grew at 1.4 times system while growth in business lending grew 0.9 times system.
NAB has been busy hiring business bankers over the December quarter as it looks to ramp up its share of the SME lending market.
NAB Group CEO Andrew Thorburn said the lender is making progress against the strategic priorities it outlined last October. These include a focus on the “priority segments” in Australia and New Zealand, including home loans, business banking and SME lending.
“Australian home lending continues to generate strong growth and has now delivered 20 consecutive quarters of above system growth,” Mr Thorburn said.
“While the improvement in our core business banking franchise will take time, volume growth is now around system levels and we are well advanced on the hiring of additional business bankers,” he said
“However, we continue to see intense competition for business lending.”
NAB posted unaudited cash earnings of approximately $1.65 billion for the December quarter, up 6 per cent on the prior corresponding period.
On a statutory basis, unaudited net profit attributable to the owners of the company for the December quarter was approximately $1.80 billion.
On a cash earnings basis, revenue rose approximately 4 per cent, but excluding gains on the UK Commercial Real Estate (CRE) loan portfolio sale (as announced on 16 December 2014) and SGA asset sales, increased approximately 2 per cent, benefitting from higher markets income and growth in lending balances over the quarter.
“Following on from the IPO of a 31.8 per cent stake in Great Western Bank in October last year, we sold an additional £1.2 billion parcel of higher risk loans from our UK CRE portfolio in December, reducing the portfolio to approximately £800 million compared to the original balance of £5.6 billion in October 2012,” Mr Thorburn said.
“Further significant improvements in asset quality over the quarter are pleasing and reflect both the benign operating environment and the initiatives undertaken over recent years to improve our risk profile,” he said.