By Scott Murdoch and Sneha Kumar
May 4 (Reuters) – National Australia Bank on Monday reported weaker first-half cash earnings, hurt by one-off and potential bad debt charges, while warning that the U.S.-Israeli war on Iran and growing inflation levels at home were becoming major risks for the global economy.
NAB, Australia’s top business lender, reported cash earnings of A$2.64 billion ($1.91 billion) for the six months ended March 31, falling short of the Visible Alpha estimate of A$2.93 billion and the A$3.58 billion it posted a year earlier.
The bank recorded a A$949 million post-tax charge related to a change in its software capitalisation policy which dragged down its bottom line.
NAB shares were down 1.42% Monday after earlier falling as much as 3.1% following the lower-than-forecast result. The S&P/ASX200 was down 0.44%. NAB’s stock price is now at the lowest level since December and has lost 7.2% so far this year.
Australia’s banks are considered among the most expensive in the world which means their share prices can often react quickly to news that investors regard as pessimistic. NAB trades on a more expensive price-to-earnings ratio than much larger global rivals like JPMorgan and HSBC.
In the first half, NAB posted a credit impairment charge of A$706 million, with about A$300 million of that linked to potential future bad debts arising from the war.
Chief Executive Andrew Irvine said the Middle East conflict was making it more difficult for Australian businesses, including his bank, to manage their operations given the uncertainty created by the changing situation.
NAB is also looking to raise A$1.8 billion through its dividend reinvestment program, which is being offered with a 1.5% discount to investors to further boost its capital levels.
“It’s certainly very challenging for us and very challenging for all businesspeople out there, large and small,” Irvine said on a call.
“We took a prudent approach to our balance sheet, fortifying some of our settings, we plan on raising a little bit of capital and that’s because we don’t know necessarily what is coming.
“It’s very hard to forecast in these times.”
Cash earnings grew marginally to A$3.59 billion, excluding large notable items in the first half, largely driven by robust growth in business lending volumes.
Business lending volumes rose more than 10%, boosting the six-month cash earnings of the business and private banking segment by 12.3% to A$1.85 billion.
NAB’s net interest margin – a closely watched measure of lending profitability – increased three basis points from the previous six months to 1.81% for the period that ended in March.
Meanwhile, the bank’s measure of its spare cash or common equity tier 1 ratio declined to 11.65% in the first half from 12.01% a year earlier, reflecting the impact of market volatility.
The bank declared an interim dividend of 85 Australian cents a share, unchanged from last year.
($1 = 1.3858 Australian dollars)
(Reporting by Sneha Kumar in Bengaluru; Editing by Edmund Klamann, Cynthia Osterman and Thomas Derpinghaus)
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