Morningstar analyst Nathan Zaia said NAB’s bad debts were lower than he was expecting, but the market was most likely reacting to the net interest margins being down slightly and the increase in the forecasts for operating costs.
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“We didn’t really expect much in the way of net interest margin upside to be evident in the third quarter. I think you’ll probably see more of it in the fourth quarter,” he said. “It takes time. The last couple of rate increases aren’t even in this result, and it takes time after you’ve passed that onto your loans to get that benefit.”
Citi analyst Brendan Sproules said NAB had posted a weaker than expected profit update, which would likely disappoint the market given expectations for revenue growth were rising amid cash rate rises. He pointed out NAB’s underlying revenue growth of 2 per cent was well below ANZ’s 5 per cent.
However, he said NAB’s $11 million in bad debts was well below the consensus estimates.
“Looking to [the fourth quarter]the impact of recent RBA cash rate rises will deliver a very different set of results,” he said.
Goldman Sachs’ Andrew Lyons also said that given the back-end nature of the cash rate rises in the third quarter, the bank will see the benefits in the fourth quarter. He said the lower than expected performance was driven by weaker revenue.
White Funds Management managing director Angus Gluskie agreed and was surprised by the market’s reaction to NAB’s update.
“I think a significant positive in that NAB update is the fact that not only did the bad and doubtful debts remain negligible in the period to June 30, but also the direction of the arrears or impaired loans, in fact, continued to diminish,” he said.
He said the full impact of the rate rises is more likely to be felt in the near future.
NAB, alongside the other big banks, raised variable interest rates for home loan customers by 0.5 percentage points last week, passing on the Reserve Bank’s cash rate rise in full.
Since the RBA began raising interest rates in May, banks’ home loan rates have risen by far more than their rates on deposits, a dynamic that is boosting bank profits while attracting growing scrutiny from politicians and regulators.
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