NAB earnings up despite ‘subdued’ mortgage growth

NAB has released a trading update for the third quarter of 2019 (3Q19), reporting a 1 per cent increase (when compared to the quarterly average) in its cash earnings to $1.65 billion. 

According to the bank, the earnings rise was driven by a 1 per cent increase in revenue, which it said reflected growth in SME lending and a “slightly higher” group margin.

The major lender reported that its expenses were also flat, given “ongoing productivity savings” which offset risk and compliance costs.

NAB’s interim CEO, Philip Chronican, claimed that the bank’s focus on being “simpler and faster” has resulted in a 27 per cent reduction in over-the-counter transactions and an 18 per cent reduction in call centre volumes.

However, despite reporting earnings growth, NAB’s mortgage book contracted over the three months to 30 June 2019.

According to the Australian Prudential Regulation Authority’s (APRA) monthly banking statistics, NAB’s portfolio of owner-occupied and investor home loans fell by $300 million over the June quarter to $260.8 billion.  

In spite of the weaker home lending performance, Mr Chronican said he was pleased with NAB’s overall performance over 3Q19.

“Against the backdrop of a challenging operating environment, including subdued home lending growth, our 3Q19 performance compared with the 1H19 quarterly average is solid, with revenue increasing and costs flat,” he said.

“Our transformation remains on track, with SME lending growth over the quarter again a highlight as our ‘Best Business Bank’ initiatives deliver better customer outcomes.”

However, looking ahead, Mr Chronican expects regulatory and compliance cost to increase over the coming months and dent the bank’s performance over the second half of the 2019 financial year.

“As previously highlighted, customer remediation programs and regulatory compliance investigations are continuing, with potential for additional costs,” Mr Chronican stated.

“While amounts and timing remain uncertain, additional provisions are expected to be recognised in 2H19, including for adviser service fees for self-employed advisers.”

Mr Chronican also noted the appointment of NAB’s new CEO, Ross McEwan, who is set to replace Mr Chronican in April 2020.

“Ross is an experienced banker with a track record for delivering the change required to be the bank we want to be for customers and restore community trust.”

Mr Chronican will assume the role of chairman later this year, replacing Ken Henry, who resigned from his role following the banking royal commission.  

[Related: REA Group assumes full ownership of brokerage]