National Australia Bank has posted a $6.14 billion annual profit, a 9 per cent decline from last year, as home loan arrears edged higher and the bank's credit impairment charges nearly doubled. Chief executive Andrew Irvine said the economic outlook remained uncertain, with global events weighing on confidence and many households and businesses managing higher living and operating costs.
The bank's net interest margin, a key measure of profitability, rose 6 basis points to 1.8 per cent, and NAB grew its business loan book by 9.8 per cent over the year.
While the bank said household savings buffers remained strong, with offset balances rising 11 per cent, it reported a deterioration in arrears over the second half of the year. Loan repayments overdue by 30 days or more climbed 11 basis points to 1.69 per cent between March and September.
NAB warned that “household consumption growth is expected to slow, and the downturn in the housing market is likely to weigh on activity,” adding that “cost pressures continue to post a material risk to the economy, while the correction in the housing market poses some additional downside risk to growth.”
The bank's credit impairment charge reached $1.5 billion, up from $833 million last year, which NAB attributed to “a more challenging economic outlook”, growth in loan volumes, asset quality deterioration in business lending, and the impact of falling house prices on its Australian mortgage portfolio. NAB cut 2,500 jobs in October in a move aimed at making the bank more efficient and responding to a tougher economy, while leaving its full-year dividend unchanged at $1.70 a share.
Analysis
Why This Matters
- The rise in home loan arrears, while still low, signals that elevated interest rates and cost-of-living pressures are beginning to strain household budgets, with potential ripple effects across the wider economy.
- NAB's credit impairment charge nearly doubling flags specific concerns about asset quality in its business lending portfolio and the impact of declining house prices on its mortgage book.
- As Australia's largest business lender, NAB's cautious outlook on household consumption and the housing market serves as a bellwether for broader economic conditions facing Australian businesses and consumers.
Background
NAB is one of Australia's "big four" banks and its largest lender to businesses. The result comes as the Australian economy navigates a period of elevated interest rates and persistent inflation. The 2,500 job cuts announced in October reflect a broader push across the financial sector to reduce costs in a tighter operating environment.
What to Watch
- Whether home loan arrears and credit impairment charges continue to rise through the next financial year, potentially impacting NAB's profitability and dividend outlook.
- The trajectory of the housing market downturn, which NAB identified as a specific downside risk to economic growth.
- If other major banks report similar deterioration in their upcoming results, pointing to a sector-wide increase in financial stress.