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NAB earnings withstand lending slump

The big four bank’s underlying earnings have remained stable despite a contraction in its mortgage portfolio.

NAB has released a trading update to the ASX for the first quarter of the 2020 financial year (1Q20), reporting $1.65 billion in unaudited cash earnings, in line with the previous corresponding period.

Revenue increased by less than 1 per cent, which NAB said reflected a higher net interest margin, which benefited from home loan repricing that offset the impact of the low interest rate environment.

However, the bank reported that expenses also rose, up 3 per cent, which NAB attributed to the “timing and nature of technology and investment spend”, compounded by “higher performance-based compensation”.

NAB’s stable revenue performance came despite a contraction in its home-lending portfolio over the December quarter.

The major bank’s overall book decreased by approximately $100 million, from $261.1 billion to $261 billion.

However, NAB’s home-lending performance varied considerably when divided by channel.

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The thinning of NAB’s overall mortgage book was exclusively driven by a sharp decline of approximately $2.1 billion in its investment portfolio, from $112.6 billion to $110.5 billion.

This was offset by a strong improvement of approximately $2 billion in its owner-occupied book, from $148.5 billion to $150.5 billion.

Reflecting on the bank’s overall performance, CEO Ross McEwan said: “One of our key priorities is to grow our bank safely.

“In a challenging operating environment, featuring a low cash rate and subdued lending growth, our 1Q20 performance is sound.”

Mr McEwan claimed that NAB is delivering on its transformation strategy.  

“In this quarter, a further 32 fees were removed or reduced across Australian Banking and Wealth, product numbers declined again, and we have now migrated 30 per cent of legacy IT applications to more reliable, lower-cost cloud platforms,” he said.

The chief executive added that NAB remains focused on building the confidence and trust of the broader community by addressing past shortcomings.

“Customer-related remediation programs and regulatory compliance investigations (including associated enforcement actions and class actions) are continuing, with potential for additional charges, although amounts and timing remain uncertain,” he said.

“Work is underway to refresh our strategy and build a plan for the next five to 10 years, defining our ambition and being clear on the bank we want to be: one that gets the basics right, delivers for customers, is safe and secure and has the culture we need for NAB to be a leading bank again.”

MLC exit could be deferred

NAB also updated the market on the progress of its sale of MLC Wealth.

The bank said that it’s targeting a public market exit but will “explore alternative transaction structures and options”.

NAB added that it would take a “disciplined approach” to the exit of MLC Wealth and would have regard for the interests of all shareholders before completing the transaction at an “appropriate time”.

The bank conceded that in light of a “challenging” business environment, the exit may defer beyond FY20 and would remain subject to market conditions and approval from regulatory authorities.

[Related: ‘Unusually strong’ lending growth won’t persist: CBA CEO]

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