SYDNEY (Reuters) - National Australia Bank Ltd posted a 7 percent rise in first-half cash profit on Thursday, as strong revenue and above average lending growth in Australia and New Zealand more than offset lower margins and higher bad debt charges.
Australia’s fourth-largest lender also said it would cut its dividend to comply with capital requirements, after it was forced to set aside A$1.1 billion ($772.5 million) to compensate customers for wrongdoing exposed at a public inquiry last year.
The bank slashed its interim dividend 16 percent to 83 Australian cents per share - its first dividend cut in a decade - providing a capital buffer should economic conditions deteriorate amid a slowing broader economy.
“We have reduced the dividend to make sure that we were in a strong position and we can deal with a number of headwinds that might arise,” Interim Chief Executive Officer Philip Chronican said in a statement.
Australia’s top four lenders dominate about 80 percent of the country’s consumer and commercial banking market. They are highly leveraged to any economic downturn, and are grappling with record low credit demand, falling house prices and stricter regulatory oversight.
They are also licking their wounds from the damaging inquiry that revealed widespread misconduct across the financial sector, with NAB singled out for especially harsh criticism. The four major banks have set aside more than A$6 billion to cover remediation for wronged customers in the wake of the revelations.
The inquiry triggered a change of leadership at NAB, which is now trying to regain public trust as it searches for a new CEO.
Cash earnings came in at A$2.95 billion for the six months ended March 31, compared with A$2.76 billion a year earlier. The result was slightly below a Reuters poll of seven analysts, who had forecast A$3 billion.
NAB shares were 0.6 percent lower in late morning trading, in line with the broader market.
Net interest margin (NIM) - a key measure of bank profitability - fell 7 basis points to 1.79 percent due to rising competition in housing lending, NAB said.
Declining profitability has been a long-term trend at Australia’s banks. Australia and New Zealand Banking Group Ltd posted its lowest NIM since at least 2005 on Wednesday.
Credit impairment charges jumped 20 percent to A$449 million, hurting every business unit except for New Zealand. The charges were largely driven by a small number of larger exposures, the bank said.
Mortgage arrears leapt 18 percent from a year ago to A$4.77 billion, representing 0.79 percent of total loans. Home lending delinquencies was at the highest level in over 6 years, the bank said.
“We believe NAB’s move to shore up its balance sheet via cutting the dividend and raising equity is prudent, especially given the deteriorating housing market, sharply rising delinquencies and NZ capital headwinds,” UBS banking analysts said in a note to clients.
NAB’s common equity tier 1 ratio was 10.4 percent as of March 31. With the dividend cut, the lender was now on track to meet the minimum regulatory requirement of 10.5 percent by January 2020.
(GRAPHIC: NAB's consistent dividend since 2014, tmsnrt.rs/2DyRHWH)
Reporting by Paulina Duran in Sydney; Additional reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Stephen Coates