NAB full year profits slump but mortgage growth up 10% despite soft metro housing markets

Big four bank NAB has reported a 22% drop in full year profits but very strong growth in mortgage lending despite soft metropolitan housing markets and low demand for housing credit.

Statutory net profits for the year to September decreased by $1.1 billion or 21.8% to $4.1 billion while cash earnings fell by $27 million or 0.5% to $5.4 billion reflecting “ongoing challenges” in the restructuring of its UK banking business.

However, mortgage lending increased by 9.9% over the financial year – 1.6% higher than system growth - with NAB picking up 30 basis points in mortgage market share (up from 14.5% to 14.8%) as its Australian mortgage book increased from $130 billion to $143 billion over the course of the financial year.

Cash earnings from NAB’s personal banking division increased by $113 million or 12.1% to $1.0 billion with the bank reporting that its “differentiated customer proposition continued to deliver market share gains in both housing lending and household deposits in a highly competitive market”.

NAB has maintained its promise of having the lowest standard variable home loan rate of the Big Four banks over the past three years.

NAB group chief executive Cameron Clyne says personal banking had a “particularly strong year delivering increased returns, higher market share in mortgages and household deposits, and the highest bank customer satisfaction score of the four major Australian banks ever recorded in the Roy Morgan survey”.

However mortgage lending has become less profitable with NAB’s net interest margin decreasing by 16 basis points compared to September 2011 due to "funding and deposit cost pressures and changes in product mix".

The bank regained two basis points on its net interest margins in the second half of the financial year (March to September) “reflecting mortgage repricing”.

The report notes the ongoing subdued lending environment and cautious behaviour of households, who remain focused on repaying down debt.

“The slowing in housing credit to a record low reflects the easing in lending to owner occupiers,” says NAB in its full year results release.

“Loan approval numbers have recently stabilised at a low level as the volume of lending has been held back by the weakness in key metropolitan housing markets.

NAB expects mortgage lending to accelerate further over the next two years to “around 8% year-on-year by late 2014”.

In its review of group performance, NAB reports that “Australia has been one of the best performing advanced economies over the last five years”.

However, it notes that challenges remain including the impact of the stronger Australian dollar due to the mining boom on employment and activity in the manufacturing and tourism industries and in the regions reliant on those sectors.

“Caution in the household sector, reflected in the higher savings ratio and weak credit appetite, is the other major challenge.