Earnings decline amid margin pressure, higher impairments, and increased lending competition
Shares of National Australia Bank (NAB) fell as much as 8.6% after the lender reported a drop in first-quarter earnings, driven by tighter margins and an increase in credit impairments.
The banking giant posted an unaudited net profit of $1.7 billion for the three months to December 31, according to a statement. NAB’s stock was trading 6.8% lower on Wednesday morning, after earlier recording its biggest intraday decline since March 2020.
The earnings update highlights mounting margin pressure across the banking sector. Earlier this week, Westpac also warned of narrowing margins. The Reserve Bank of Australia’s (RBA) recent interest rate cut — the first since 2020 — has added further challenges, with lenders reducing home loan rates in response.
NAB’s margin squeeze points to a slowdown in business lending, according to Bloomberg Intelligence senior industry analyst Matt Ingram. “The bank is hitting the brakes on business lending,” Ingram was quoted as saying in a Bloomberg report.
Business lending, traditionally a key strength for NAB compared to rivals, has slowed as competition among Australia’s largest banks for home loan customers spreads into the business lending segment. Commonwealth Bank of Australia expanded its business loan portfolio by 11% in December, outpacing NAB’s 7% growth in a market that grew by 9%.
“The economic outlook is improving but cost of living and interest rate challenges persisted,” said NAB chief executive Andrew Irvine.
Rising credit impairments have also raised concerns that NAB may hold off on offering another share buyback. Ingram noted that higher impairments pose a potential risk to future shareholder returns.
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