NAB's retiring CFO Gary Lennon
NAB reported a net profit of A$3.9 billion for the half year to March – an increase of 11.7 per cent over the previous corresponding period. On a cash basis, earnings rose 17 per cent to $4.1 billion. The bank said a higher net interest margin was the key driver of earnings growth.
Income: Net interest income rose 19.6 per cent to $8.5 billion, compared with the previous corresponding period. Other operating income rose 17.8 per cent to $2 billion. Total net operating income rose 19.3 per cent to $10.5 billion.
Expenses and cost to income: Operating expenses rose 11.6 per cent to $4.4 billion. Excluding the impact of the Citibank acquisition, expenses rose 6.3 per cent. The cost-to-income ratio was 42 per cent, compared with 44.9 per cent in the previous corresponding period.
Impairment expense: The credit impairment charge has increased from just $2 million in the March half last year and $123 million in the September half to $393 million in the latest half. The bank said the increase reflects the impact of lower house prices, volume growth and “a modest increase in specific charges off a low base”. The specific credit impairment charge (after write-backs and recoveries) rose 51.8 per cent year-on-year to $126 million, while the collective charge was $267 million, compared with a write-back of $81 million in the previous corresponding period. The credit impairment charge as a proportion of gross loans and advances rose from 4 basis points in the September half last year to 11 bps in the latest half.
Credit quality: Loans in arrears (90 days or more past due) fell 2.1 per cent over the six months to March to $3.4 billion. This represented a decline from 51 bps of gross loans and acceptances to 49 bps. The bank said delinquencies in the Australian mortgage portfolio improved. Gross impaired assets rose 18.1 per cent over the same period to $1.2 billion. The growth in impaired assets came from the business lending portfolio and New Zealand customers affected by severe weather events.
Margin: The bank’s net interest margin was 1.77 per cent, rising from 1.63 per cent in the March half last year and 1.67 per cent in the September half. The biggest contributors to the increase were higher earnings on deposits, which contributed 35 basis points, and higher earnings on capital. These increases were offset by higher wholesale funding costs and competitive pricing of home loans.
Return on equity: ROE rose from 11.5 per cent in the March half last year and 11.1 per cent in the September half to 13.3 per cent in the latest half (13.7 per cent on a cash basis).
Earnings per share: EPS rose from 109.1 cents a share in the March half last and 104.8 cents on the September half to 126.3 cents a share in the latest half (129.5 on a cash basis).
Dividend: The bank declared a dividend of 83 cents per share for the half – up from 78 cents in the September half and 73 cents in the March half. The dividend payout ratio is 65.7 per cent (64.1 per cent on a cash basis).
The divisions: The bank’s biggest division, business and private banking, made a cash profit of $1.7 billion – an increase of 19.9 per cent over the previous corresponding period. The personal banking division’s profit fell 0.4 per cent to $785 million. Corporate and institutional banking was up 16.6 per cent to $940 million. New Zealand Banking was up 20.5 per cent to $759 million.
Market share: Over the six months to March, the bank’s share of Australian mortgage lending fell from 14.9 per cent to 14.7 per cent, its share of Australian business lending remained steady at 21.6 per cent, Australian household deposit share was steady at 13.8 per cent and business deposit share fell from 20.1 per cent to 19.9 per cent. New Zealand mortgage share rose from 16.3 per cent to 16.5 per cent an, while retail deposit share fell from 17.8 per cent to 17.7 per cent.
Capital: The common equity tier 1 capital ratio was 12.2 per cent – up 70 bps over the six months to March. APRA’s new regulatory capital rules, which took effect in January, contributed 47 bps to CET1 capital.
Funding and liquidity: Gross loans and advances rose 6.2 per cent year-on-year to $700.5 billion, while total customer deposits rose 8.4 per cent to $574.9 billion. The share of gross loans and acceptances funded by deposits was steady at 81 per cent. The bank issued $23 billion of term funding facilities during the half, which was in excess of maturities and means the bank is well placed to repay its Term Funding Facility debt. The net stable funding ratio was 117 per cent.
Customer remediation: The bank spent $45 million on customer and payroll remediation – one of the lowest payouts since it started the program in June 2018. It said its payroll remediation is largely completed. Total payments since June 2018 hit $2.2 billion and provisions at March 30 were $297 million.
Staffing and branches: The number of full-time equivalent employees working in continuous operations rose 10.2 per cent year-on-year to 36,140. The number of Australian retail branches and business banking centres fell from 592 to 546 over the year to March – a decline of 7.8 per cent. In New Zealand branch and business banking centre numbers fell from 138 to 134 over the same period.