National Australia Bank posts solid earnings amid housing boom

A National Australia Bank (NAB) sign is displayed outside an office building in central Sydney, Australia July 24, 2015. REUTERS/David Gray

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Feb 10 (Reuters) – National Australia Bank Ltd (NAB.AX), the country’s second-largest lender, posted a bigger-than-expected rise in first-quarter profits on Thursday as a robust property market led to a surge in new ventures, sending its shares 4% higher.

The result caps a reporting season for the country’s so-called big lenders where investors have looked past razor-thin profit margins – due to fierce competition for mortgages – and focused on the upside as interest rates are starting to rise, maybe this year.

Melbourne-headquartered NAB said cash profits, a key measure of banking performance that only includes ongoing business, jumped 9.1% to A$1.8 billion ( $1.3 billion) in the December quarter, compared to the year-ago period, beating a Morgan Stanley estimate of around A$1.6 billion.

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“NAB has started fiscal 2022 well,” chief executive Ross McEwan said in a statement alongside the limited trade update. “Asset quality remained benign and good momentum continued across our business despite a still competitive environment.”

Like its three main rivals earlier this month, NAB said its lending margins have shrunk due to competition and a shift to fixed-rate loans – which are less profitable – as customers seek protection. against rising interest rates.

But NAB’s margin narrowed the least – by five basis points, compared to 14 basis points at Commonwealth Bank of Australia (CBA.AX) – and investors applauded its cost control and its positioning in the event of a rate hike.

NAB shares rose 4.3% against a flat overall market (.AXJO) in the afternoon. The other banking stocks also remained stable.

“A bit of net interest margin pressure: that’s good. What a lot of them are doing is competing for market share and building their portfolio by moving to higher rates,” said Hugh Dive, chief investment officer at Atlas Funds Management, which owns shares of major banks.

“The historic rate hike is a good time for banks.”

After the initial economic upheaval of the COVID-19 pandemic, Australian banks prospered as emergency interest rates and the shift to working from home fueled a meteoric recovery in the property market. Read more

Many economists had predicted a pandemic-fueled decline in house prices, but they soared 22% in 2021 nationwide, adding pressure on the Reserve Bank of Australia to start raising prices. rate from August.

It can also benefit banks, as higher rates allow them to pay people with deposit accounts lower interest than they charge for mortgages and business loans.

In the December quarter, NAB said Australian retail and business lending grew 2.6% and 3.4%, respectively, and New Zealand lending grew 2.2%. Personal and commercial lending revenue, including fees, increased 5%.

($1 = 1.3926 Australian dollars)

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Reporting by Byron Kaye in Sydney and Shashwat Awasthi and Indranil Sarkar in Bengaluru; Editing by Anil D’Silva and Sherry Jacob-Phillips

Our standards: The Thomson Reuters Trust Principles.

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