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NAB has released its full-year results for the 2019 financial year (FY19), reporting a statutory net profit after tax of $4.8 billion, down from $5.5 billion in FY18.
A 4.2 per cent decline in NAB’s net operating income ($17.2 billion) was compounded by a 0.4 per cent increase in operating expenses ($8.1 billion), and customer-related remediation costs totalling $364 million.
Cash earnings generated by NAB’s Australian consumer banking and wealth business fell 11.2 per cent to $1.36 billion, partly driven by a decline in home lending volumes year-on-year.
NAB’s mortgage volumes dropped by approximately $15 billion, from $64 billion in FY18 to $49 billion in FY19.
As a result, the major bank reported a modest increase in its combined mortgage portfolio – which includes home loans originated via its business and private bank – from $303 billion in FY18 to $304 billion.
The modest improvement in NAB’s total mortgage portfolio came exclusively via the third-party channel, with on-balance sheet loans originated by brokers and wholesale funder Advantedge increasing by 3.8 per cent, from $107.5 billion to $111.6 billion.
Meanwhile, the value of on-balance sheet loans originated via NAB’s retail bank and subsidiary UBank fell from $104.7 billion to $104 billion, while those originated via its business and private bank fell from $90.8 billion to $88.3 billion.
Speaking to the media, NAB acting CEO and chairman-elect Philip Chronican acknowledged that the bank “fell behind” its peers in the mortgage market over the second half of FY19, adding that home loan growth was “clearly an area of disappointment”.
However, Mr Chronican said he is confident that NAB will recover ground in the home lending space over FY20, with CFO Gary Lennon revealing that applications increase by 18 per cent since June off the back of rate cuts, and changes to mortgage serviceability guidance.
Despite expecting volumes to improve in FY20, Mr Chronican said he expects overall credit growth to remain subdued.
“We’ve got work to get back to system growth, but from the numbers I’ve seen of the last four to six weeks in terms of applications suggests [there’s] pretty strong momentum coming through there but that’s clearly the area of focus for us,” he said.
“I’m pretty comfortable that we can grow broadly in line with system credit growth or better, but obviously it’s going to be a low number. Credit growth is going to be a low single-digit number.”
Over FY19, NAB increased its exposure to investment loans, with the share of investor loans as a proportion of its portfolio rising from 40.9 per cent to 43.1 per cent.
However, the share of investment loans decreased as a proportion of settlements, from 36.2 per cent to 33.7 per cent.
Further, NAB reduced its exposure to interest-only loans, with the share of IO loans a proportion of its mortgage book dropping from 24.5 per cent to 19.8 per cent, and from 25.4 per cent to 19.7 per cent as a proportion of its settlements.
As reflected in its mortgage portfolio, the share of loans originated by the third-party channel increased from 34.5 per cent to 36.7 per cent as a proportion of its mortgage book, and from 42.6 per cent to 43.4 per cent as a proportion of its settlements.
The results also revealed that credit quality of NAB’s mortgage book deteriorated over FY19, with over 90-day arrears increasing from 0.72 per cent to 0.96 per cent.
In light of cuts to the cash rate from the Reserve Bank, NAB’s net interest margin slipped by 7 bps to 1.78 per cent.