* NAB H1 profit A$3.15 bln vs A$3.2 bln estimate
* Net interest margins squeezed across the board
* Rising mortgage competition, regulatory costs
* House price gains could be credit negative for banks -
(Recasts with margins, housing market, adds quotes, analysis)
By Swati Pandey
SYDNEY, May 8 Lending margins at Australia's
"Big Four" banks are headed for all-time lows, throttled by
competition for a share of the fast-growing housing market and
as cash-rich corporates rein in bank borrowing amid a sluggish
National Australia Bank, the country's top lender
by assets, joined its rivals in reporting narrowing net interest
margins (NIM) on Thursday, as it posted an 8.5 percent rise in
first-half cash earnings.
After emerging from the global financial crisis relatively
unscathed, Australian banks have turned to mortgages and
consumer businesses to generate about 35 to 40 percent of their
The strategy has paid off, and the Australian banks now have
better quality of earnings, generating on average 11.6 percent
return on equity compared with about 8.7 percent ROE earned by
Standard Chartered plc and HSBC Holdings,
according to Thomson Reuters data.
But their success has attracted new players. Last year,
investment bank Macquarie Group forayed into the
mortgage business while new, smaller lenders are also
threatening to disrupt the highly profitable segment.
NIMs for Australia's Big Four - NAB, Commonwealth Bank of
Australia, Australia and New Zealand Banking Group
and Westpac Banking Group - shrank 5 basis
points to 2.08 percent in the six months to March 31, according
to a biannual analysis by PwC.
Margins are close to the all-time low of 2.05 percent set in
2008, PwC Australia's financial services leader Hugh Harley said
on Thursday after NAB rounded off the Big Four's half-yearly
reporting season with yet another record profit.
Further falls to current margin levels are "likely as banks
increase competition for business," he added.
Ratings agency Moody's Investor Service also sounded a word
of caution, warning that a sharp jump in house prices fuelled by
historically low interest rates could become a credit negative
for Australian banks over the next 12 months.
"Australian house prices have been rising rapidly in recent
quarters, raising concerns with regard to their sustainability
and the possible negative impact on the quality of Australian
banks' residential mortgage portfolios," Ilya Serov, a Moody's
vice president and senior credit officer.
Even so, Australia's major banks are on track for a sixth
year of record profits, bolstered by their burgeoning mortgage
books and shrinking costs associated with bad debt provisions.
Higher mortgage lending and lower bad debt charges helped
NAB post a record cash profit of A$3.15 billion ($2.94 billion)
for the six months to March 31. That compares with analysts
expectations of A$3.2 billion and A$2.9 billion a year ago.
"If business credit growth comes back that is going to be a
big thing," NAB CEO Cameron Clyne told analysts at a
post-earnings briefing. "What we are seeing at the moment is
business confidence but it has to translate into activity," he
Australia's economy is expected to slowly gather speed over
the next couple of years as strength in housing and exports
works to offset the drag from a maturing mining boom.
Business credit is showing signs of a gradual uptick after a
year of flat growth. It rose at an annual pace of 4.4 percent in
three months to February, higher than 1.9 percent in the year to
Clyne, unveiling his final set of results before passing the
baton to Andrew Thorburn in August, also warned of rising
regulatory costs stemming from the need to maintain higher
Earlier this week, Australia's well-capitalised banks said
their capital ratios may take a hit after the banking regulator
advised them it was considering withdrawing some benefits they
get from issuing debt by their wealth management arms.
($1 = 1.0713 Australian Dollars)
(Reporting by Swati Pandey; Editing by Stephen Coates)