National Australia Profit Slumps as Bad-Debt Charges Swell

National Australia Bank Ltd. full-year profit slumped as the coronavirus-induced recession swelled bad-debt charges, rounding out the worst earnings season for the nation’s lenders in a decade.

Cash earnings fell 37% to A$3.71 billion ($2.7 billion) in the 12 months ended Sept. 30, the Melbourne-based bank said Thursday. The result includes a previously disclosed A$450 million charge for customer compensation and other impairments. Bad-debt provisions tripled to A$2.76 billion in anticipation of a tough 2021.

“Asset quality is starting to deteriorate given economic disruptions caused by Covid-19,” the bank said in the statement. “While the outlook remains uncertain, further deterioration is expected.”

For more detail from the earnings, click here

National Australia’s profit plunge caps off the worst earnings season since the financial crisis for the nation’s major lenders as they bear the brunt of the country’s first recession in almost three decades and margins narrow under pressure from ultra-low interest rates. Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. saw profits slump as bad debts increased and the bill for years of misconduct mounted.

Earnings are likely to remain under pressure after the banks on Wednesday slashed fixed-rate mortgages to record lows after the central bank cut the cash rate to 0.1% and ramped up its bond buying program. National Australia expects its net interest margin -- a measure of bank profitability -- to narrow 6 basis points next year due to the ultra-low rate environment.

National Australia Profit Slumps as Bad-Debt Charges Swell

Australia’s biggest business lender also warned the quality of its loan book is starting to deteriorate given the entrenched recession. The bank earmarked A$505 million of its bad-debt provision for the aviation, hospitality and tourism industries that have borne the brunt of the pandemic’s economic cost.

It’s also hurting in its home state of Victoria, which has just emerged from a three-month lockdown to arrest a resurgence of the virus. About A$500 million worth of home loans deferrals have been extended, one-third of which are in Victoria.

Still, the market is likely to give National Australia “the benefit of the doubt” given its better margin performance and cash position compared to peers, UBS Group AG analysts led my Jonathan Mott wrote in a note to clients. The bank’s shares rose 0.4% in early Sydney trading.

National Australia declared a A$0.30 per-share final dividend. That takes the full-year payout to A$0.60, compared to A$1.66 last year. The nation’s three other big banks have also reduced dividends, a blow for Australia’s legion of mom and pop shareholders.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.