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NAB prepares for wandering customers

The big four bank’s chief has said the group is bracing for a rise in refinances, as home loan rates have begun to climb.

Alongside its major rivals, NAB raised its variable home loan rates by 25 bps on Wednesday (4 May), passing on the full cash rate hike from the Reserve Bank of Australia (RBA) the day before.

During the bank’s half-year results briefing, NAB chief executive Ross McEwan told investors on Thursday (5 May) that he expects the cash rate to keep lifting to around 200 to 250 bps above its current place.

More borrowers are also expected to start shopping around.

“There will be more refinancing. People will look as their interest rates go up, to what are their options?” Mr McEwan said.

“We need to be ready for that and we are, for customers looking at their optionality, particularly as they’re coming off a fixed rate and [they’ll say] ‘where do I go to next?’

“That’s something certainly in our mindset here to be all over. It’s going to be a competitive marketplace going forward, there are 160 players in this market at the moment.”

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Mr McEwan also echoed comments made the previous day by ANZ CEO Shayne Elliott, stating he expects the majority of borrowers will be able to make adjustments and weather the series of rate rises to come, although some will be hurt.

“Our assessment is that these will be absorbed, but it will be painful for customers. But it’s pretty hard to see them not expecting interest rates to go up, when we’ve been coming down for 11 years, they were never going to stay down where they were at,” he said.

Competition was also key in the bank’s results for the first half of the 2022 financial year (the six months up to March). NAB revealed a net profit of $3.5 billion, up 10.7 per cent year-on-year.

However, pricing wars in the mortgage space as well as a higher proportion of customers opting for fixed-rate products, saw cash earnings from the retail bank decline from the previous year by 8.3 per cent, to $788 million.

The group’s net interest margin had also fallen by 11 bps from the year before as a result of industry competition, down to 1.63 per cent.

Total housing loans across the various segments, including retail, business and private banking and the New Zealand business, came to $373.8 billion, up by 8.3 per cent from the year before. Total Australian home loans came to $322 billion, rising by 7 per cent year-on-year.

Broker-lodged loans made up 44.2 per cent of NAB’s Australian housing portfolio at the end of March, increasing from 41.8 per cent in September and 40 per cent the previous year.

The retail bank’s home loan book rose by 5.6 per cent from a year before, to $218.3 billion, as NAB captured growth in owner-occupier loans (up by 11.9 per cent year-on-year, to $181 billion).

Housing loans under the business and private bank were up by 11.9 per cent, to $94.9 billion.

The acquisition of 86 400 and its integration with UBank had accounted for a $1.9 billion (or 23.8 per cent) increase in housing loans under the corporate functions and other divisions.

Revenue from all Australian home loans across the group came to $2.04 billion, down by 5 per cent from the previous half and by 2 per cent year-on-year.

But NAB flagged its progress for its new Simple Home Loans platform, which launched for retail customers in 2021.

The digital end-to-end platform, with “intervention by exception”, automated data and identity verification and digital signatures; has been piloted for the broker channel, with the bank aiming for a roll-out in the second half of the 2022 financial year, into FY23.

NAB stated the new platform would ensure “quicker, more consistent outcomes from policy and process simplification” for brokers.

The platform has a median “time to yes” of around two days for the direct channel, with 35 per cent of applications being approved in less than one hour.

NAB commenced its roll-out to business and private banking customers in the first half of FY22.

Notably, NAB’s operating expenses were up by 2.6 per cent year-on-year, up to $3.9 billion, as the group added bankers and resources, while it also dealt with salary increases and technology investment.

Earlier in the week, NAB revealed it had commenced an enforceable undertaking aiming to improve its anti-money laundering and counter-terrorism financing controls, after an AUSTRAC investigation raised concerns over its systems. 

[Related: ANZ confident its borrowers can afford rate rises

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