Sydney (Business Emerge), August 16: National Australia Bank (NAB), Australia’s third-largest lender by total loans, revealed a decline in profits for the June quarter as rising inflation drove up expenses and intensified market competition. Despite these challenges, the bank’s core operating margins remained stable, which positively impacted its share price.
As the leading business lender in the country and a significant player in the mortgage market, NAB expressed concerns over a worsening in its business banking portfolio. The volume of “non-performing” loans has reached its highest level in over two years, signaling potential challenges ahead.
In its limited third-quarter trading update, NAB reported that its net interest margin (NIM)—a key indicator of banking performance, which calculates the difference between the interest earned on loans and the interest paid to depositors—remained unchanged from the first two quarters. This stability in NIM was enough to meet market expectations and alleviate concerns among investors.
NAB’s underlying profit dropped by 8% to A$1.75 billion (US$1.16 billion) compared to the same period last year. While this decline was in line with analysts’ expectations, which were based on estimates from market data aggregator Visible Alpha, the stability of the NIM was a focal point for analysts. They interpreted it as a sign that NAB might navigate through the ongoing price competition that began in 2022, driven by rising interest rates and inflation.
By mid-session, NAB’s shares had risen by 1.5%, reflecting the broader Australian market’s upward trend. Investors seemed to overlook the slight decline in loan quality, choosing instead to focus on the bank’s stable core profit measure.
JPMorgan brokers highlighted in a note to clients that the minimal signs of deterioration in the NIM compared to market expectations are likely to keep the market optimistic for now.
Although Australian banks initially reported that most borrowers were coping well with rising interest rates, recent data, including NAB’s report, shows an increase in financial stress. NAB confirmed that asset quality deteriorated further in the June quarter, adding to the growing concerns about the economic environment.