National Australia Bank has painted a bleak outlook for the Australian economy and warned that additional provisions might be required for its troubled UK operations, as it lifted its cash earnings by 8.5 per cent to $3.15 billion in the six months ended March 31, just missing expectations.
Australia’s fourth-largest bank boosted its interim dividend by 6¢ to 99¢, just ahead of expectations for a 98¢ dividend.
The result is the last to be delivered by chief executive Cameron Clyne, who will be replaced by Andrew Thorburn in the coming months. Mr Clyne has spent much of his tenure attempting to clean up NAB’s legacy issues, including its disastrous foray into the UK.
Mr Clyne said he was pleased with the improvement in the performance of the UK businesses, which was restructured in 2012; UK banking cash earnings rose 121 per cent on the March 2013 half year.
However, conduct-related costs for the period – which largely relate to the mis-selling of payment protection insurance – totalled £128 million, and the bank said: “There remains a wide range of uncertain factors relevant to determining the total costs associated with conduct related matters and there is risk that additional provisions will be required.”
Cash earnings in the UK commercial real estate run-off portfolio improved in the half year to a loss of £7 million, compared to a £149 million loss in the March 2013 half on lower bad debts, and NAB said it will “continue to look at options to accelerate that progress”.
In the Australian business, the Australian Banking division’s cash earnings were $2.47 billion, up 1 per cent on the March half last year. These are the first results reported under the new operating structure for our Australian businesses; Australian Banking includes the previous business, personal and wholesale divisions, along with the private bank. NAB said home lending grew by 5.8 per cent.
Earnings at NAB Wealth, which includes MLC, were flat.
The group net interest margin was 1.94 per cent, down 9 basis points on the March 2013 half year, which NAB said was the product of competition and it holding more liquid assets.
Bad and doubtful debts charged fell 52 per cent from the previous corresponding period to $528 million. Earnings per share increased 16.1 per cent to 16.7¢.
The return on equity was flat at 14.6 per cent. The common equity tier 1 capital ratio improved by 42 basis points to 8.64 per cent.
In commentary on the Australia economy, NAB pointed to a “mood of greater caution among households”, which it described as another headwind slowing the growth in domestic demand. While the low interest rate environment would likely boost housing construction and consumer spending in 2014, “the prospective fall in mining investment throughout 2014 and 2015 appears too significant to be offset by sufficient spending in other sectors”.
Slower growth in domestic spending will flow into labour market conditions, driving the unemployment rate up to 6.5 per cent by the end of 2014, NAB said.
more to come