National Australia Bank (NAB) posted a record annual cash profit of $5.5 billion and warned its funding costs will rise until 2014.
Strong growth in deposits and home lending helped Australia’s fourth biggest bank drive cash earnings 19.2 per cent higher.
The result largely met market expectations but was hailed by NAB’s chief executive as a victory for the bank’s recent focus on winning personal business, including the high profile ‘break up’ advertising campaign.
“We embarked on a (personal banking) strategy which was pretty well criticised as not going to deliver,” CEO Cameron Clyne said.
“Over the course of the last two years we have returned that business to having superior earnings to when we started that strategy.”
Net profit jumped 23.6 per cent to $5.2 billion for the 12 months to September 30, 2011.
No earnings guidance for fiscal 2012 was given.
NAB’s shares gained 92 cents, or 3.7 per cent, to close at $25.87 after market-wide trading halt was lifted by the Australian Securities Exchange. Rival banks gained about two per cent.
Despite weak demand for loans, Australia’s biggest business bank increased the value of its business loans by 6.3 per cent to $60.2 billion while consumer loans soared 19 per cent to $130.5 billion.
But the gains in market share came at the expense of net interest margin, which was flat in the full year at 2.25 per cent.
Recent volatility in financial markets had increased the cost of funding for many institutions, but NAB had a well-executed funding plan, Mr Clyne told analysts.
The bank’s executive director of finance, Mark Joiner, predicted that the average cost of funding would probably peak in mid-2014.
“So we’re going to be in a rising average cost of funds for the next three years,” he said.
But return on equity, one measure of profitability, on retail banking products was still very attractive, making a significant change in strategy unlikely, he added.
Whether rising funding costs translated to higher prices for consumers depended on a range of factors, Mr Clyne said.
NAB expects the Reserve Bank of Australia to cut the overnight cash rate on Melbourne Cup Day, but Mr Clyne stopped short of guaranteeing NAB would pass on any rate cuts in full in that event.
“We stand by our competitive record.”
NAB expected Australia’s top 500 corporates to lead business lending growth when business confidence picked up, he added.
“They’re looking at once-in-a-generation type opportunities to … expand or consolidate in the industry.”
Cash earnings at NAB’s wholesale banking and MLC & NAB Wealth divisions declined because of weak and volatile markets.
NAB’s New Zealand and UK divisions both increased cash earnings.
The bank cut its full time workforce by 650 in fiscal 2011 and Mr Clyne said staff numbers would “move around” as various projects were progressed and the bank continued to cut costs.
