NAB ravaged by bad debts but profits are rising
Sydney Morning Herald
Thursday October 29, 2009
NATIONAL AUSTRALIA BANK slipped into a small loss over the past six months after its profits were ravaged by bad debts and a series of one-off charges, including looming tax headaches in New Zealand.The chief executive, Cameron Clyne, also doused hopes that the banking sector might have seen the worst of the lending losses which have sliced billions of dollars from earnings in the past year.Despite signs that the big name corporate losses experienced at the start of this year were subsiding, Mr Clyne warned it could be at least 12 months before declaring whether the bad-debt cycle had peaked.Even with Australia side-stepping the worst of the global downturn, rising interest rates and a high currency could present more challenges.NAB was surprisingly downbeat over the outlook for the business lending market. "There are signs of improving sentiment but the caution we see is more to do with the economy than anything that's NAB specific," Mr Clyne told BusinessDay.NAB revealed a headline loss of $75 million for the six months to the end of September, after being hit with more than $1.88 billion in one-off charges linked to a range of legacy issues. After stripping out the charges, cash earnings for the half were $1.81 billion, down 10.5 per cent on the March half.NAB's full-year cash earnings of $3.84 billion are in line with consensus and down 1.9 per cent on last year.Analysts were buoyed by NAB's ability to claw back interest margins during the second half, mostly as it pushed through interest rate rises across business loans. While margins were flat on the year at 2.25 per cent, group margins were up from 2.07 per cent on the first half.Some still fear commercial property could again be a potential headache, particularly as NAB's 17 per cent exposure to the troubled sector is double that of others.Despite the second half headline loss, NAB held its final dividend at 73c a share, dipping into its reserves for the payment. This took the full year dividend to $1.46.Mr Clyne would not give a guarantee to keep any future increases in interest rates in step with those made by the Reserve Bank. But he promised to be transparent about the way funding costs affect pricing on mortgages.He talked down the prospect of large-scale acquisitions but was open to further opportunities that would boost distribution, particularly in Australia. While NAB has not had the depth of problems of many global banks, investors have been cautious, given its exposure to the British economy, which is in a deep recession.At the same time NAB has billions of dollars of out-of-money credit instruments, some of which are exposed to US mortgages and commercial property across Europe.NAB's bad debt charge of $3.81 billion for the year compares with $2.49 billion for last year.With its bad debt charge now at 0.87 per cent of average loans, the bank has some of the highest losses among its rivals as a proportion of its lending book.
© 2009 Sydney Morning Herald
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