National Australia Bank beat expectations with a 21.7 per cent rise in first-half cash profit—a closely watched measure that strips out volatile items—underpinned by lower charges for sour loans and big gains in market share.
Australia's fourth-largest bank by market value has been attempting to attract more customers by offering lower interest rates on home and business loans than its three larger competitors.
The bank delivered cash earnings of $2.668 billion for the six months to March 31, and declared an interim dividend of 84 cents per share fully franked.
That, as well as the bank's 15.1 per cent return on equity (ROE) - a measure of profitability - beat market expectations. NAB also reported that interim net profit rose 15.9 per cent to $2.428 billion.
NAB shares rose 55 cents, or 2.08 per cent to $26.94 and by 1255 AEST.
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The percentage gain was the biggest since February 14. CLSA Asia Pacific analyst Brian Johnson and Citi analyst Craig Williams congratulated NAB's chief executive Cameron Clyne on "a great result".
"Credit where it's due for this result and you can in fact read my note out already which does have a Buy upgrading on it now," Mr Williams said.
Michael McCarthy, chief market strategist with CMC Markets, said more broker upgrades would follow due to NAB's "terrific result". "NAB are coming back from a low base," he said.
"They were the least preferred of the big four...and I think this result has spoken to a lot of those (concerns)."
But unlike Westpac Banking Corporation and ANZ Banking Group Ltd, NAB's group-wide net interest margin contracted during the first half of fiscal 2011.
The 12 basis point drop, along with NAB's bad debt charge of $988 million, which did not fall as much as its rivals, were key points of concern, Mr McCarthy said.
Mr Clyne and chief financial officer Mark Joiner said the bank was closing the gap on its big three rivals.
"This is a solid result," Mr Clyne said. "It demonstrates we've set the right strategy for the group, we're executing well against that strategy, we're improving our ROE and we've positioned our bank to compete sustainably in an uncertain environment."
Analysts had been looking for NAB's outlook for business credit growth and Mr Clyne confirmed the bank is seeing "green shoots" of recovery in its business banking business.
But NAB's business lending growth is mostly within the small to medium enterprise (SME) sector where bad and doubtful debts (BDD) have risen.
"We've had a difficult economic environment over the last couple of years," Mr Clyne told reporters.
"We're an active lender in the SME market, we're not concerned by the rise in BDD."
Mr Clyne admitted other banks had stepped up competition within the business banking arena in a general fight over market share in return for NAB's attack on the retail banking space through its lower interest rates and "break-up" campaign.
NAB said it increased its market share in the business lending market to 23.8 per cent, up from 20.8 per cent a year earlier. Cash earnings from business banking rose 7.9 per cent to $1.2 billion.
The bank also increased its market share in the personal banking market to 13.8 per cent from 12.8 per cent.
