National Australia Bank has forecast a challenging year ahead after ongoing troubles in Britain caused its first drop in profit since the global financial crisis (GFC).
Almost $1 billion in costs from measures aimed at shoring up its United Kingdom business caused NAB’s net profit for the year to September 30 to drop by 22 per cent from the previous year to $4.08 billion.
NAB will not be selling its Yorkshire and Clydesdale banks in the UK and, with liabilities now reduced, their performance hinges predominantly on Britain’s economy, chief executive Cameron Clyne said.
Despite the UK’s recent exit from recession with surprise quarterly economic growth of one per cent, there’s no signs of a sustained recovery, he said.
“The UK is experiencing a very slow recovery,” Mr Clyne said.
“In fact, the recovery now from the depths of the GFC is slower than the great depression recovery, so it’s very subdued.”
In Australia, the high dollar and low consumer confidence is also expected to keep demand for loans low, he said.
“I think our businesses perform well, we’ve grown momentum in the Australian franchise and the Australian economy will still probably outperform most developed economies,” Mr Clyne said.
“But it obviously looks like it’s going to be a challenging 2013.”
NAB’s full year cash profit, which excludes the costs associated with its UK restructure, was $5.43 billion, down slightly from $5.46 billion in the previous year.
Earnings from business banking, NAB’s largest division, dropped by 1.5 per cent from the previous year, as weak conditions affected revenue and caused a rise in bad debt costs.
Bad debts rose as troubled businesses were unable to recover under weak trading conditions, not because more customers were coming under financial hardship, Mr Clyne said.
NAB would continue to focus on attracting new customers and reducing its costs to achieve revenue growth in the year ahead, he said.
Operating expenses fell by 1.8 per cent in the year to September to $7.8 billion, and staff numbers were reduced by 1,309 over the same period to 43,336.
Analysts said the result was disappointing because of NAB’s UK exposure, but they also saw some positives in the performance of its local business.
“Our patience is wearing thin as the UK operations continue to drag on group earnings,” Morningstar analyst David Ellis said.
NAB shares were down 16 cents at $25.72 at 1514 AEDT, while shares in the other major banks were slightly higher.
