National Australia Bank says rates will soften economy, house prices as profit jumps
NATIONAL Australia Bank (NAB) on Thursday (Feb 16) posted a 19 per cent jump in first-quarter cash profit, helped by rising interest rates; but the lender warned of headwinds as house prices soften and borrowers get squeezed by rising living costs.
Australian banks are expected to post strong earnings in the high-interest-rate environment, but the lenders’ run is set to fade later this year, as a cooling economy is expected to result in slower credit growth and more bad debt.
NAB chief executive Ross McEwan said: “The higher interest rate environment, resulting from central bank actions to curb inflation, has benefited our revenue this period.
“But this is also causing economic growth and house prices to soften, and loan repayments to increase. We know these changing circumstances, combined with cost of living pressures, will create difficulties for some of our customers.”
After eight rate hikes through 2022 and a further quarter-point raise last week, the central bank has indicated more tightening ahead to stamp out inflation. Soaring rates have cooled the housing market and added to rising cost-of-living pressures.
NAB took a US$158 million credit impairment charge, up 23 per cent compared to the quarterly average in the second half of last year, which it said reflected the impact of lower house prices and business lending volumes.
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Earlier in the week, the country’s biggest lender, the Commonwealth Bank of Australia, delivered record half-yearly profits. But it also warned of headwinds facing its mortgages business and concerns that its margins may have peaked.
For the first quarter ended Dec 31, 2022, NAB said its net interest margin (NIM), a key measure of profitability, rose 12 basis points to 1.79 per cent. Its common equity tier 1 (CET1) ratio was at 11.3 per cent, down from 11.51 per cent at the end of the previous quarter.
Citibank analyst Brendan Sproules said: “Today’s result should provide some comfort that NIMs still have tailwinds from rising rates should asset pricing issues be managed appropriately. Having said that, we maintain our view that NIMs should peak in the second half of 2023, and, consequently, we remain close to an inflection point.”
NAB posted cash earnings of A$2.15 billion (S$1.98 billion) for the quarter, up from A$1.80 billion in the same quarter in 2021. Analysts had expected cash earnings of A$2.01 billion, according to a Visible Alpha consensus.
The ratio of the bank’s stressed loans – interest payments on which are delayed for over 90 days – to gross loans and acceptances fell to 0.62 per cent, down 0.4 percentage points quarter on quarter. REUTERS
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