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Mortgage slump adds to NAB’s earnings woes

by Charbel Kadib12 minute read

A home lending portfolio contraction has been overshadowed by a 156.8 per cent spike in NAB’s credit impairment costs related to the COVID-19 crisis, which has triggered a slide in the major bank’s earnings.

NAB has released its half-year results for the 2020 financial year (1H20), reporting a $4.4-billion contraction in its total home lending portfolio, from $306.8 billion in 1H19 to $302.4 billion.

The contraction was triggered by negative portfolio growth of over $5 billion across NAB’s retail bank (includes subsidiary UBank) and its business and private bank.

This was partly offset by an increase of approximately $1 billion in its third-party-originated loan portfolio (includes Advantedge), from $111.5 billion to $112.5 billion.


As a result, the share of broker-originated loans in NAB’s overall portfolio increased from 36.4 per cent to 37.2 per cent.

Collectively, NAB originated approximately $27 billion in new loans (excludes top-ups and redraws), in line with the previous corresponding period. However, approximately $20 billion in loans expired or were refinanced to another lender over the period, up from $17 billion.

NAB earnings plunge, capital raise launched

But NAB’s home lending performance was overshadowed by significant COVID-induced hit to the bank’s bottom line.

The major bank posted a 51.4 per cent slide in cash earnings, from $2.9 billion in 1H19 to $1.4 billion.

The earnings slide was driven by a 156.8 per cent increase in credit impairment charges, from $449 million to $1.16 billion.

The spike in NAB’s credit impairment charges is in line with expectations of sharp deterioration in credit quality over the coming months in response to the ongoing COVID-19 crisis.

According to a recently published Scenario and Sensitivity analysis from S&P, credit losses across Australia’s banks are set to “more than triple” in the 2020 calendar year in response to the economic fallout from the COVID-19 pandemic.

S&P’s base case is for credit losses across Australia’s banks to rise from 0.14 per cent in 2019 to 0.5 per cent in 2020.

COVID-induced market volatility also triggered a $220-million reduction in markets and treasury income, with a total of $1.14 billion in one-off remediation, software capitalisation and devaluation costs also weighing on the bank’s earnings.

NAB launches capital raise

In response to the “material impact” of the COVID-19 crisis on the group’s balance sheet, NAB has launched a $3.5-billion capital raise to shore-up its funding position.  

The capital raise comprises of:

  • a fully underwritten institutional share placement of $3 billion; and
  • a non-underwritten share purchase plan (SPP), targeting approximately $500 million.

“These actions are intended to provide NAB with sufficient capacity to continue supporting our customers through the challenging times ahead, as well as increasing NAB’s capital level to assist to manage through a range of possible scenarios, including a prolonged and severe economic downturn,” NAB stated.  

NAB claimed that the offer is expected to increase the group’s common equity tier 1 capital ratio from 10.39 per cent (as at 31 March 2020) to 11.2 per cent.  

The bank noted that it is expecting to settle its placement shares on Thursday (30 April), while SPP shares are expected to commence trading on the ASX on 3 June.  

NAB announces senior executive appointments

NAB has also announced two new senior executive appointments as part of a new organisational structure.

Rachel Slade has been appointed group executive, personal banking, charged with “end-to-end accountability” for NAB’s home lending and everyday banking divisions across the branch network, direct and digital channels.

Ms Slade currently serves as NAB’s chief customer experience officer, and has led the product, marketing, customer experience, digital and innovation teams.

NAB has also appointed Nathan Goonan to group executive, strategy and innovation.

According to NAB, Mr Goonan will be accountable for execution of the bank’s strategy, innovation and transformation agenda, as well as all mergers and acquisition activity.

Mr Goonan – who currently serves as NAB’s executive general manager, group strategy and development – will now join the bank’s executive leadership team.

The appointments fill leaderships voids left by former head of retail, Mike Baird, and former chief customer officer, business and private banking, Anthony Healy, who stepped down last month.

Following the announcement, NAB CEO Ross McEwan welcomed Ms Slade and Mr Goonan to their new roles.

“Rachel and Nathan are talented leaders with deep experience in banking and will play critical roles in delivering for our customers and our bank,” he said.

“As chief customer experience officer, Rachel has been passionate about creating better experiences for customers and has led significant changes, including simplifying our products and improving our digital solutions.

“Nathan joins the executive leadership team having led the development of NAB’s long-term strategy announced today. He too is a passionate advocate for customers and has played a key role in NAB’s major strategic moves in recent years, including the divestment of NAB’s UK business.”

The appointments are subject to regulatory approval.

[Related: Loan relief to disguise ‘true’ credit impact of COVID-19]


Charbel Kadib


Charbel Kadib is the news editor on The Adviser and Mortgage Business.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

Email Charbel on: [email protected]

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