National Australia Bank: Mostly Steady as Credit Stress Creeps Up

National Australia Bank’s third-quarter cash profit of AUD 1.75 billion was broadly as expected, flat on the average quarterly profit of the first half. Net interest margin remained steady at the 1.72% reported in the first half. Competitive lending rates and bank customers switching to more costly term deposit and saving accounts are a drag on margin. However, higher returns on deposit and capital hedges provided an offset. We expect a modest improvement in fiscal 2025 due to more favorable pricing on loans and deposits. Some banks that used high refinancing levels and cheap funding to try and aggressively grab market share are expected to be more focused on preserving margins. Operating expenses appear to be tracking marginally better than we anticipated, as operating productivity benefits help offset wage growth and technology spending. Guidance for expense growth below last year’s 5% rate is unchanged. Bad debt expenses remain very low, although nonperforming exposures are rising. We expect that the depletion of savings, rising unemployment, and less rapid house price appreciation will contribute to higher loan losses in fiscal 2025. Hoever, we forecast below long-term average levels in the short term as the bank releases bad debt provisions.