National Australia Bank has lifted first-half profit to $3.29 billion while putting more money aside for soured loans amid an impending oversupply of east coast apartments.
The 2.3 per cent increase in cash profit for the six months to March 31 was marginally higher than most analysts' forecasts, but NAB's charge for bad and doubtful debts rose 5.1 per cent to $394 million.
That was mainly due to a new $89 million overlay for potential risks in the bank's commercial real estate portfolio.
"We do see some signs of apartments and commercial property in some parts of the country where there's oversupply and therefore pressures on rent," chief executive Andrew Thorburn said.
Australian Prudential Regulation Authority chief Wayne Byres last week warned that commercial property lending standards had fallen due to fierce competition but Mr Thorburn said NAB was not overly worried.
"We're just being a little bit more prudent," Mr Thorburn said.
"It's not an indicator that we are highly concerned about that sector."
An increase in mortgage delinquencies in Victoria and NSW helped push the proportion of loans 90 or more days past due up 0.05 percentage points over the past six months to 0.41 per cent of gross lending.
But Mr Thorburn said the increase came off a very low base and that NAB home loan customers were on average 15 repayments ahead of schedule.
"We're seeing some slight uptick in those markets but nothing of any materiality," Mr Thorburn said.
"We have really become more conservative on our risk settings on those markets and, particularly in inner city postcodes, we've really taken a step back and are on a watching brief."
Investor home loan lending grew by eight per cent on the same period a year earlier - well within APRA's 10 per cent annual limit - and Mr Thorburn said the bank would be able to reduce interest-only lending from 41 per cent of new lending to meet APRA's recently introduced 30 per cent limit.
Net interest margin was flat at 1.82 per cent, still down 0.11 percentage points on the same period a year earlier.
Investors initially welcomed the results warmly and NAB shares were 1.2 per cent higher in early trade before giving up those gains amid a broader sell-off in financial stocks.
NAB closed 18 cents weaker at $32.91.
"(The result) is better than expected, but the market's expectations were probably too low," Citi analyst Craig Williams said in a note.
ANZ chief executive Shayne Elliott said this week he was gearing for a decline in credit growth due to increased mortgages regulation but Mr Thorburn sounded optimistic.
"The operating environment for banks remains challenging, including heightened regulatory change, digital disruption and increasing stakeholder expectations," Mr Thorburn said.
"Australia's economic fundamentals provide a favourable backdrop including strong population growth and improving business conditions."
NAB'S HY NUMBERS
* Cash profit up 2.3pct to $3.29b
* Net profit $2.55b v $1.74b loss
* Revenue up 1.8pct to $8.87b
* Interim dividend flat at 99 cents, fully franked
Share
