National Australia Bank’s full-year cash profit has soared 76.8 per cent to $6.558 billion as solid performances in business banking and home lending offset a weaker performance in institutional banking.
The bank showed half-on-half lending growth across business and home lending at rates at, or above, system growth with the result supported by a $3 billion swing in provisions over the full year as the economy picked up speed.
CEO Ross McEwan said he was pleased with progress on areas such as expenses which would see the bank poised to reap the full benefit of the economic recovery as conditions continued to improve.
“Our bank has momentum, our strategy is clear and as lockdown restrictions ease, a pickup in activity is expected,” Mr McEwan said.
“While some uncertainties exist in the outlook including the impact of tapering support, our balance sheet settings are strong, and we are well-positioned for the expected economic rebound in Australia and New Zealand.”
NAB shares rose on the news in early trade which included a rise in the dividend to 67¢ for the second half or $2.2 billion in dividends. Sentiment turned against the bank in a volatile hour of trade, with NAB shares down 2.7 per cent as of 10.50am.
Macquarie analyst Victor German applauded the bank for a clean result with low impairments being a highlight. He said the bank was performing well and deserved a premium relative to ANZ and Westpac but shareholders should be prepared for short term weakness.
“Given the strong share-price performance in the lead-up to the result, we see room for some consolidation at these levels, but on a longer-term view, we retain our preference for NAB,” Mr German wrote in an email to clients.
The result was underpinned by a write-back of $217 million against the previous year’s charge of $2.762 billion for bad debts flowing from the virus crisis that never fully materialised.
The bank revealed a 1.8 per cent increase in costs to $7.817 billion, in-line with expectations. The final dividend was hiked to 67¢ a share for the second half representing a 112 per cent increase on the previous financial year.
Evans and Partners analyst Matthew Wilson described the result as a “good beat” in flash note to clients saying the result should be well-supported by the market, highlighting the unexpected fillip in the common equity tier 1 (CET1) ratio 13 per cent.
Around 75 basis points of CET1 was generated organically with the sale of MLC Wealth minus the acquisition of 86 400 adding another 29 basis points. The first half dividend cost the bank around 47 basis points.
At a divisional level, full-year cash earnings from the business and private banking division were flat at 0.3 per cent, personal banking climbed 14.4 per cent, New Zealand gained 18.7 per cent while institutional and corporate banking fell 14.8 per cent.
Divisional performances between halves was a more complicated story with business banking up 3.9 per cent, personal banking falling 7.9 per cent, New Zealand earnings were flat and institutional and corporate banking plummeted 45.7 per cent.
NAB says the exceptionally strong first half performance of the personal bank was bolstered by the sale of mortgage aggregators noting the 2.3 per cent increase in gross loans and acceptances during the second half.
“We had a very, very strong half where not only did we put assets on the book but we didn’t decrease our net interest margin. We did take some additional costs in that business as we put on another 550 bankers,” Mr McEwan said.
The bank said SME lending grew at 1.4 times system over the half however earnings were offset by an increase in customer-facing roles. Home lending grew slightly above the average at 1.1 times system over the half while pointing to discounting and switching as a reason for weaker half-on-half earnings.
Mr McEwan’s pay more than doubled over the year according to the annual report released at the same time as the full-year result. The bank boss took home $4,013,241 this year compared with $1,837,165 the year prior. The increase consisted of a $666,701 increase in fixed pay and a cash bonus of $1,509,375.
The fully franked second-half dividend takes the full-year payment to $1.27 or more than double the previous year. Cheques worth a total of $2.2 billion will hit the mailboxes of investors in December taking the full-year cash return to just shy of $4.2 billion.
NAB’s dividend peaked between 2014 and 2018 when it posted 10 consecutive distributions of 99¢ each half. The bank paid two dividends of 30¢ under instructions from the regulator to conserve capital in 2020, before it rose to 60¢ a share in May.
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