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NAB has revealed that it aims to become a “world-leading business bank” and says it is “well placed” for growth in the SME lending market.
Releasing its half-year results for the financial year 2017, the big four bank announced that its business and private banking segment saw cash earnings grow 2.5 per cent to $1.36 billion as a result of “sound revenue growth and tight cost management, partly offset by higher bad and doubtful debt charges”.
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Net interest margin also improved (to 2.84 per cent by March 2017), as a result of “improved and lending growth in specialised businesses”, in particular health and agribusiness.
On a year-on-year basis, there was strong specialised business lending growth in government, education and community (13.8 per cent), health (8.3 per cent), agri business (5.8 per cent) and commercial and real estate (2.8 per cent).
Speaking of the results, NAB group CEO Andrew Thorburn said: “This is another solid result and reflects improving momentum as we execute on our strategy…
“There have been solid contributions across the business, in particular our priority segments of small and medium business, where we have maintained or grown our leading market shares.”
Touching on the fact that the operating environment for banks remains “challenging” in the face of “heightened regulatory change, digital disruption and increasing stakeholder expectations”, Mr Thorburn noted that Australia’s “economic fundamentals” mean that the bank is “well placed to deliver”.
Speaking to shareholders on Thursday, Mr Thorburn said: “Australia’s economic performance is sound, business conditions are at a nine-year high, we have strong population growth (well above higher income countries) and we have low unemployment, low interest rates, and solid economic growth. The latter of which in particular helps mitigate some housing market concerns.
“So we see risks and challenges, but we also see opportunities… Our goal here is to build on our market leadership to create a world-leading business bank.”
The group CEO said that the bank was “number one in agri and number one in SME in Australia”, adding that this business has “attractive returns and prospects”.
He said: “Our strategy is clear and it’s to build on the benefits of the market leadership that we have. One is expanding industry specialisation, building on the proof and strength we have in areas like agri, health and education into areas like professional services, and franchising… [so we can be] maintaining or growing our strong SME market share.”
Mr Thorburn said that the bank also sees opportunities in energy and infrastructure.
NAB’s chief financial officer, Gary Lennon, was more conservative, stating: “We would be preferring to get more growth in business and product lending. SME system growth currently continues to be subdued and continues to be patchy. A lot of the activity is starting to come through service sectors, agri etc, where we’re well placed for growth.
“What we really want [for future growth]… We need that positive outlook around business conditions being at nine-year highs [to start] translat[ing] across the board for our SME customers to want to grow and want our support from us for them to grow. Now, at this point in time we’re not really seeing much of that…
“We want to be growing and that’s really the essence of it – the growth is turning up in our specialised spaces, we do have capability in those areas, we are growing, but we would like to see more growth across the board.”
He added: “It’s still pretty modest to date, albeit there are some green shoots that we’re starting to see for the second half [of the financial year].”
Overall, the half-year results revealed that on a statutory basis, the bank’s net profit was $2.55 billion, compared to a loss of $1.74 billion for the March 2016 half year. The improved result primarily reflected reduced losses from discontinued operations.
Excluding discontinued operations, however, statutory net profit decreased 11.4 per cent.
Cash earnings were $3.29 billion, an increase of 2.3 per cent. Again, NAB highlighted that the main difference between statutory and cash earnings relates to “the effects of fair value and hedge ineffectiveness, and discontinued operations”.
The consumer banking and wealth segment of the business saw cash earnings remain “stable” at $764 million, due to “higher funding costs, increased competition in home lending, and reduced wealth income”.
The interim dividend is 99 cents per share fully franked, unchanged from the 2016 interim and final dividends.
[Related: Major bank renews SME product for brokers]
