NAB impaired loans twice the average

About one third of National Australia Bank's impaired loans of $2.1 billion fall under either construction or property and business services, the bank's so-called Pillar 3 disclosures released yesterday show.

Two thirds of past due loans of $1.5 billion, which the bank does not treat as impaired, are personal loans including credit cards, while property and construction loans are less than one fifth of this category.

The bank has most troubled loans, proportionally, in its British banking business, where the bank counts 0.4 per cent of credit exposures as impaired, compared with 0.3 per cent in Australia and 0.2 per cent in New Zealand.

Andrew Reynolds, writing in the risk management blog OzRisk, concluded that downturn seems to be hurting NAB more than the two other large banks to report using the new approach, with NAB carrying more than double the impairments carried by Commonwealth and Westpac, despite it having a book that is only 10 to 20 per cent larger than its competitors.

Reynolds also noted that despite having fewer residential mortgages outstanding than the CBA (and with a matching proportion of loans 90 days or more past due) NAB has nearly three times the amount of impaired loans.

He inferred this means either that NAB was doing more risky lending or the bank is taking a much dimmer view of future property price, with the second reason more likely to explain the difference than the former.

Thanks to the use of the "standardised" approach to measuring credit risk in Britain (and also in the US where NAB owns a small mid-west bank) NAB has reported about one fifth of its credit exposures using the simpler formula. Commonwealth and Westpac reported about one tenth of their credit exposures this way.