National Australia Bank Ltd has posted an 18 per cent rise in first quarter cash earnings, but warns floods and cyclones in Queensland may delay a rebound in business credit demand.
NAB reported unaudited cash earnings in the three months to December 31 of about $1.3 billion, up from about $1.1 billion in the previous corresponding period.
The improved earnings came on continuing falls in bad debt charges and improved revenue from its Australian banking operations, the bank said.
Margins fell slightly from the second half of fiscal 2010, with repricing for current market conditions offset by higher funding costs and strong mortgage volume growth.
The net interest margin for the three months to December was 2.21 per cent, compared with 2.24 per cent in the six months to September, executive director of finance Mark Joiner told analysts.
Investors welcomed the first quarter update, sending NAB shares up 48 cents, or 1.92 per cent, to $25.48, while its rivals were also boosted ahead of their trading updates or first half results in the next week.
Commonwealth Bank was up 45 cents at $53.92, Westpac lifted 26 cents, or 1.11 per cent, to $23.66, and ANZ firmed 18 cents to $24.42.
NAB's cash earnings were higher than market expectations and could see estimates for the bank's full year results upgraded, one analyst said.
NAB said it grew its market share in the housing lending market by 31 basis points to 13.61 per cent in the first quarter.
Its business lending continues to be a strength, with NAB's market share up 96 basis points to 23.8 per cent, despite continued weakness in the sector.
Chief executive Cameron Clyne said business credit demand would be affected by recent natural disasters, but still expected to see demand pick up this year.
"In many respects, they (businesses) are getting to a point where they can't actually hold back on some investment," Mr Clyne said.
"So we're still relatively confident that we're going to see, towards the back half of this calendar year, business credit come back."
Rebuilding from floods, cyclones and fires could provide a stimulus for business credit demand, Mr Clyne said.
He also said the Australian banking sector could be challenged by political intervention, in reference to the federal government's proposed banking reforms and a Senate inquiry into competition in the sector.
"It is clear that consumers desire more value from their relations with banks and more competition in the sector," he said.
"So long as this is the case, the sector will continue to experience political pressure.
"These factors do represent potential growth headwinds for the banking sector in the near term."
NAB's bad debt charges totalled $493 million in the three months to December, down from $739 million in the previous corresponding period.
Its Tier 1 capital ratio increased from 8.91 per cent to 8.96 per cent in the three months to December 31.
NAB's wealth management businesses - MLC and NAB Wealth - reported improved financial market conditions in the first quarter, although there was a rise in disability claims.
NAB's New Zealand business improved earnings despite subdued economic conditions, while UK operations remain "sound and resilient" in a difficult economic environment, Mr Clyne said.
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