National Australia Bank has warned of a slowing economy and flagged weaker than expected full year earnings, causing a sell-off of shares in all four major banks.
NAB surprised the market by increasing its provisions to cover losses from bad debts by $250 million on Friday, taking its total cover to $320 million.
It also said it expected its full year cash earnings, including the increased provisions, to be in line with the previous year’s $5.5 billion.
That disappointed investors, as analysts had forecast full year cash earnings in the range of $5.6 billion to $5.8 billion.
NAB shares were down 77 cents, or 2.9 per cent, at $26.18 at 1505 AEDT, while losses of between 0.35 per cent and 1.77 per cent by its three rivals also weighed in the wider market.
Weakening global economic growth, particularly in the United Kingdom, was behind the move, chief executive Cameron Clyne said.
“The UK economy has now posted three consecutive quarters of declining GDP (gross domestic product) and expectations for recovery in 2013 have continued to be downgraded,” he said in a statement.
NAB’s UK businesses, Yorkshire Bank and Clydesdale Bank, have been struggling through weak economic conditions, and made a STG25 million ($A38.95 million) loss in the first half of fiscal 2012.
NAB has been working to streamline the banks to mitigate the financial damage, cutting jobs and scaling back to focus on retail banking and business lending.
Morningstar analyst David Ellis said he was surprised NAB had not spoken about raising provisions in its third quarter trading update in August.
“Realistically, economic conditions in the UK have been terrible for quite a while,” Mr Ellis said.
“So it’s an ongoing saga.
“The businesses are not wanted by NAB, but they can’t get out unless they incur a potential loss on disposal or sale.
“So they’ve just got to manage them as well as they can.”
Mr Clyne also pointed to weakness in the Australian economy, highlighting the impact of lower commodity prices.
NAB recently reduced its forecast for GDP growth to 2.5 per cent, from 3.3 per cent.
“Mining and related sectors have been performing strongly, but in the last few months, falling commodity prices and weaker global growth prospects, specifically in China, have reduced growth in these sectors,” Mr Cameron said.
“Considering the increased level of uncertainty, we feel that increasing the economic-cycle adjustment on the collective provision is a prudent measure at this time.”
Mr Ellis said Westpac, ANZ and Commonwealth were unlikely to increase their bad debt provisions, as they were not exposed to the UK.
NAB also said it expected to pay a fully franked final dividend of 90 cents per share for the year to September, up 4.7 per cent from the previous year.
