National Australia Bank has posted a 7.7 per cent increase in first-quarter profit and said it will undertake a review of its UK operations.
While the increase was slightly below market expectations, the gain will likely add to pressure for the bank to pass on to borrowers a cut in interest rates if the Reserve Bank makes such a move later today.
Check back at The Canberra Times online at 2.30pm to learn the Reserve Bank's rates decision
NAB reported a first-quarter cash profit of $1.4 billion, up from $1.3 billion a year ago, slightly below an average forecast of $1.45 billion from five analysts surveyed by Reuters.
In December, NAB forecast a challenging 2012 with business and consumer sentiment subdued.
Last year, Australia's big four banks together made a record $25 billion in profits but credit growth has fallen to the lowest level since the 1970s as households increase savings and corporates pay down debt, forcing banks to focus on cost controls.
The RBA's monetary board meets this morning and will announce its monthly interest rate decision at 2.30pm. Financial markets and economists are tipping the RBA will lower its cash rate 25 basis points to 4 per cent but major banks have signalled in recent weeks that they may not pass on the rate reduction in full to their borrowers.
Soft growth
The bank said its statutory unaudited net profit for the first quarter of fiscal 2012 was approximately $1.6 billion.
The difference between net profit and cash earnings was due to gains on fair value on some assets and issues relating to its hedging activities, NAB said.
''Higher deposit and wholesale funding costs, softening credit growth and fragile economic conditions continued to be key characteristics of the operating environment in most of the regions in which NAB operates,'' chief executive Cameron Clyne said in a statement.
NAB shares are down 3.3 per cent over the past 12 months, making them the best performing stock among the big four banks. Commonwealth Bank's shares are off 4.9 per cent over the period, while Westpac's have lost 10 per cent and ANZ 12 per cent.
Margin shrinks
NAB's net interest margin, a key driver of profitability, was 2.19 per cent in the three months to December. In the previous six months, it was 2.28 per cent.
The bank said it had revenue growth in its wholesale banking operations, and, to a lesser extent, its wealth management business MLC and NAB Wealth.
Higher funding and deposit costs offset volume growth in its business and personal banking divisions, resulting in flat revenue, the bank said.
Revenue fell in NAB's UK business, and the bank announced it will conduct a strategic review of the business.
''It is clear that the UK economy is likely to experience a much longer period of subdued growth with the ongoing sovereign debt crisis in the eurozone and the continuing austerity program by the UK government,'' Mr Clyne said.
''We will work with UK management to appropriately reposition its business mix and structure for the changed economic environment and improve returns.''
The outcome of the review was expected to be announced by May, he said. NAB was making good progress on its strategy of building balance sheet strength, reducing costs and complexity, and improving its reputation, Mr Clyne said.
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