The National Australia Bank's first half net profit tumbled 21.4 per cent as the country's biggest business bank felt the sting of fee reductions and lower interest rate rises than competitors.
Melbourne-based NAB says net profit fell to 2.095 billion dollars for the six months to March 31 from 2.664 billion dollars in the prior corresponding period.
Still net profit recovered from the loss of 75 million dollars of the second half of last fiscal year.
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Cash earnings gained 8.2 per cent to 2.193 billion dollars on a robust performance from the business bank the wealth division and an improvement in the bank's bad and doubtful debt charge.
The NAB's first half 2010 earnings were expected to trail its rivals amid market concern over future revenue growth after the competition regulator blocked the bank's bid for AXA Asia Pacific Holdings.
NAB collected Canstar Cannex's first gong for banking leadership last week, awarded by the financial services researcher for its fee cutting campaign that will cause the bank to forego $110 million in profits.
Canstar applauds NAB's "banking breakthrough"
But while Canstar applauded NAB's fee cuts as a "banking breakthrough", analysts expect the bank's first half revenue to be flat and constrain future earnings.
"NAB is likely to experience lower revenue growth over the next few halves due to more aggressive pricing of mortgages, reduced markets income and lower fee revenue," UBS said.
Chief executive Cameron Clyne told investors in March a successful takeover of AXA APH would help reduce the bank's reliance on wholesale funding.
"An AXA acquisition would have provided NAB with a stronger foothold in a faster growing revenue stream," Citi said after the Australian Competition and Consumer Commission blocked the bid last month.
Clyne, noted in the bank's financial report that cuts in customer fees and the NAB's relatively low variable home loan interest rates, which sit 0.27 percentage points below Westpac the highest of the big four banks, will be valuable in the future by building
market share and customer retention.
An investment for sustainable business
"They represent an investment to create a sustainable business and improve customer relationships and satisfaction and the broader reputation of the NAB," he noted in the financial report.
"Customer satisfaction has risen and there has been a 32 per cent increase in new transaction account openings. We have also seen 20 per cent growth in new mortgage flows and a 42 per cent reduction in customer complaints."
NAB has the smallest retail banking franchise of Australia's big four banks and has undercut competitors on home loans to grow market share and achieve system growth rates.
It was the first of the big four banks to announce fee cuts which Citi estimates will reduce first half income from fees and commissions to $1.397 billion at March 31, 2010 from $1.426 billion last year.
