NAB's (ASX:NAB) cash profit jumps 10% as bad debt drops in June quarter

Company News

by Melissa Darmawan

The nation’s third largest bank National Australia Bank (ASX:NAB) post a $1.7 billion third quarter cash profit beating analyst’s expectations of $1.55 billion, thanks to improved bad debt outcomes and growth across their retail and business lending book.

Despite the pop in cash earnings, markets and treasury income came in soft given the situation around global monetary policy.

The bank’s net margins grew modestly with lower deposit and funding costs, partly offset by the impact of low interest rates combined with home lending competition and mix. Looking at the year-on-year cash earnings headline, it jumped 10.3 per cent.

Driving the 10.3 per cent year-on-year earnings headline was the 1 per cent quarterly jump in cash earnings, while cash earnings before tax and credit impairment charges fell 1 per cent.

NAB wrote back $112 million of previously recognised bad debts due to the Covid-19 pandemic and higher property prices which helped boost quarterly earnings. The bank also de-risked its portfolio by selling $1.5 billion in aviation loans which saw the ratio of collective provisions to credit-risk-weighted assets decline 13 basis points from the March quarter to 1.37 per cent.

Looking at their lending book for the June quarter, their mortgage book rose 2 per cent on the back of government initiatives like Homebuilder amid a low rate environment, while their business lending grew 4.3 per cent. Across the Tasman, New Zealand delivered robust growth, up 2.7 per cent during the June quarter.

The news followed their $2.5 billion buy back to take course from mid to late this month for a year with expectations that further buy back offers will be announced after the company said that they will “continue to assess various options to return capital to shareholders". Also they mentioned that the finalisation of APRA's new capital framework over 2021 to 2022 is set to provide "improved clarity to consider further capital management initiatives".

Looking ahead, NAB finalized the deal this week with Citi to acquire their retail arm with a premium of $250 million for their net assets. The proposed acquisition will include their home lending portfolio, unsecured lending business (operating under the Citigroup brand as well as white label partner brands) and retail deposits business.

The bank will also take on their private wealth management arm despite completing the sale of its MLC wealth business to IOOF. NAB has kept their private wealth division servicing high net wealth and self-directed clients and has mentioned the possibility of extending this offer to the Citi clients that will join NAB.

“These outcomes are a result of the decisions and investments we are making, which are having a positive impact on customers and colleagues,” said chief executive officer Ross McEwan.

Shares in NAB (ASX:NAB) are trading 0.3 per cent higher at $27.31.

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.