Risk models let NAB down

Six months after saying that its models were "improving" and that there was "a lesser requirement for collective provisions", National Australia Bank has had to top up those provisions in the final quarter of its financial year.

On Friday, NAB said it had "increased the economic cycle adjustment on its collective provisions" by A$250 million as at 30 September 2012. The after-tax value of increased provision is $175 million.

The bank cited offshore economic factors, mainly in the UK (where it operates Clydesdale Bank), as the primary reason for the higher provision. This factor is more relevant to NAB's profit than it is for other banks as the reporting season kicks off this week.

NAB also cited "low levels of business and consumer confidence" for the provision, a factor that may also resonate in the forthcoming profit reports from ANZ, Westpac and Macquarie, as well as from NAB.

NAB put its "cash earnings" for the September 2012 quarter at approximately $1.4 billion, a number that excludes the higher provision announced on Friday.

The bank said, however, that its 2012 full-year cash earnings (which allow for the higher provision) would be in line with 2011 cash earnings.

NAB said its dividend for the second half will be 90 cents a share, stable with the first half and one or two cents below the projections of sell-side analysts.