Published : 1 month ago, on 07/11/2024

By Byron Kaye and Roushni Nair

SYDNEY (Reuters) -National Australia Bank said annual profit fell in line with forecasts as it shied from margin-crushing competition, and there was a risk inflation could remain stronger for longer from Donald Trump’s upcoming return to the U.S. presidency.

Australia’s biggest business lender and its No. 3 retail lender said customers were mostly surviving the toughest point of the economic cycle and the country’s next interest rate move would be down, although late loan repayments were rising among home and business borrowers.

Trump’s election victory could hurt the global economy by sparking a trade war with China due to a policy of raising tariffs, the Melbourne-based bank said, adding his plan to cut regulation may stoke inflation and keep interest rates higher for longer.

You’re probably going to see stronger economic growth in the U.S.,” NAB CEO Andrew Irvine said on a call with reporters.

“The thing we’re going to have to watch for is what does that mean for inflation and what does that mean for interest rates? If the U.S. economy is stronger the rates won’t come down as hard there as maybe markets were expecting, and that could have implications (for) the rest of the global economy.”

NAB and the other major Australian banks currently forecast a rate cut in February or March 2025, which would be the first in five years. Australia’s inflation has cooled in recent months but is not expected to be under control until 2026, according to the Reserve Bank of Australia.

NAB posted a A$7.10 billion ($4.66 billion) cash profit for the year to end-September, down 8.1% on the prior year but just ahead of an LSEG estimate of A$7.07 billion. The company’s net interest margin – its core metric of loan profitability – shrank three basis points to 1.71% due to competition, while costs rose 4.5%.

“We’re at the toughest point in the economic cycle right now and customers have gotten through it,” Irvine said. The company was “continuing to see asset quality deterioration” – problems servicing loans – but requests for assistance had plateaued, he added.

Shares of NAB were trading 2% lower by midsession, against a 0.5% dip in the broader market, as analysts weighed the wide-ranging impacts of inflation.

The result was “broadly consistent with expectations” but “credit impairment expense (was) slightly higher, with asset quality continuing to deteriorate”, Barrenjoey analyst Jonathan Mott said in a client note.

Manufacturing (is the) key sector under pressure,” he added.

NAB’s business banking division, which accounts for about 45% of the lender’s earnings, grew customer deposits by A$14.5 billion and business lending by A$11.7 billion during the year.

The bank declared a final dividend of 85 Australian cents per share, up from 84 Australian cents a year ago.

($1 = 1.5232 Australian dollars)

(Reporting by Byron Kaye in Sydney and Roushni Nair in Bengaluru; Editing by Shailesh Kuber and Jamie Freed)