By Sameer Manekar
(Reuters) -National Australia Bank on Thursday posted a drop of about 13% in its first-half cash earnings as it grappled with high operating costs and cutthroat competition, but raised its ongoing share buyback program by A$1.5 billion ($979 million).
NAB, the country’s biggest business lender, reported a common equity tier 1 ratio, a closely watched measure of its spare cash, of 12.15% as of March-end, well above its target of 11% to 11.5%, allowing the lender to buy back more shares.
“Our continued focus on capital generation supports our objective to reduce our share count over time through on-market buybacks, while maintaining a strong capital position,” Chief Executive Officer Andrew Irvine said.
Under the buyback program, ongoing since August last year, NAB will now purchase shares worth a total of A$1.7 billion, which will reduce its common equity tier 1 ratio by about 40 basis points.
A rise in borrowing costs and increased competition in the lending industry for new business have prompted banks to offer competitive rates on loans while paying higher interest rates on deposits, squeezing their net interest margins.
NAB’s net interest margin – a closely watched key measure of profitability – fell to 1.72% from 1.77% a year earlier, but still beat the Visible Alpha consensus estimate of 1.69%.
“This mainly reflects lending margin competitive pressures primarily relating to housing lending, along with higher term deposit costs and deposit mix impacts,” the lender said in its results report.
The bank predicted that real economic growth in Australia will remain below trend over the near term due to pressures from high-interest rates and sticky inflation.
“However, some relief is anticipated later this year with expected tax cuts and a forecast easing in monetary policy from November should inflation continue to moderate,” the bank said.
Its cash earnings came in at A$3.55 billion ($2.32 billion) for the six months ended March 31, in line with Visible Alpha’s consensus estimate of A$3.55 billion compiled by UBS, but below last year’s A$4.07 billion.
NAB raised its interim dividend by 1 cent to 84 Australian cents per share.
($1 = 1.5319 Australian dollars)
(Reporting by Sameer Manekar and Poonam Behura in Bengaluru; Editing by Anil D’Silva)
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