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NAB flags competitive pressures amid mortgage growth

Although the big four bank managed to grow its home loan book over the 2021 financial year, margin pressures are expected to continue into the coming months.

NAB posted its results for the year to 30 September on Tuesday (9 November), reporting a 61 per cent year-on-year surge in net profit, to $6.3 billion.

The group’s gross loans and advances grew by 5.9 per cent, to a total of $621.1 billion for the FY21, with housing loans accounting for $360 billion worth (up 5.3 per cent year-on-year).

In the personal banking division, housing lending had grown by 2.5 per cent year-on-year, to $212 billion.

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Digital subsidiaries UBank and 86 400 on the other hand contributed to a loans total of $9.1 billion, up by 10 per cent from September 2020.

As a result of volume growth in home lending, cash earnings for personal banking were up by 14.4 per cent, to $1.6 billion.

While NAB reported growth in mortgages and profitability, its net interest margin was squeezed by competition and a product mix shift towards more fixed rate lending – with it declining by six basis points to 1.71 per cent.

Excluding large notable items of $49 million in 2020, net interest income slipped by 1 per cent, or $133 million, to $13.7 billion.

The bank expects competitive pressures for housing lending margins to continue into FY22, as outlined in its outlook.

“There is substantial competition across the markets in which the group operates,” the annual financial report stated, when reflecting on NAB’s risk profile.

“The group faces competition from established financial services providers as well as new market entrants, including foreign banks and non-bank competitors such as fintechs and digital platforms, some of which have lower costs and/or operating and business models or products that differ or are more competitive than the group.

“Intense competition also increases the risk of a price war, especially in commoditised lines of business, where the players with the lowest unit cost may win share and industry profit pools may erode.”

The bank’s broker share in home loans had also grown over the year.

Around 41.8 per cent of NAB’s home loan portfolio had been sourced through brokers, a rise from 37.8 per cent in September FY20.

The proportion of home loans from the direct channel had shrunk from 62.2 per cent over the year to 58.2 per cent.

NAB also reported that it has continued its roll-out of the Simple Home Loans system, which now processes around 80 per cent of its proprietary applications.

The platform reportedly returns loan approvals within an hour for 30 per cent of applications, or in a day for 60 per cent. Around 80 per cent reportedly see an outcome within five days.

The bank has flagged the platform will roll out to brokers in FY22, alongside a new credit decision engine for the channel.

In addition to digitisation, the bank has moved to simplify and streamline its home lending policies.

[Related: CBA locks exclusive partnership with AI platform]

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