SYDNEY, Feb 19 (Reuters) - National Australia Bank (NAB), the country's largest business lender, reported a decrease in first-quarter profit on Wednesday. This decline was attributed to heightened competition affecting margins and an increase in borrower delinquencies, leading to a drop in its stock price.
Australian banks have faced a challenging period with growing arrears and margin pressures in their pursuit of customers in an inflation-weary environment, following 13 interest rate hikes since 2022, reaching a 13-year high.
The recent rate cut by Australia's central bank, the first in five years, brought relief to borrowers but could not offset the impact on this earnings season.
NAB, headquartered in Melbourne and ranked as Australia's third-largest mortgage lender, posted a cash profit of A$1.74 billion ($1.11 billion) for the quarter ending December 31. This figure was slightly below the Visible Alpha consensus estimate of A$1.77 billion and lower than the A$1.80 billion reported a year earlier.
The bank expressed concerns about borrower strain from high living expenses and observed a margin contraction in their recent financial reports.
NAB noted a rise in impaired or defaulted assets, reaching the highest level in at least two years, while an increase in business loan impairments led to a rise in total impairment charges, setting a new high for the same period.
CEO Andrew Irvine commented on the improved economic outlook but highlighted persistent challenges from living costs and interest rates in the first quarter of 2025.
NAB's shares dipped significantly, initially down 8% before stabilizing at a 7% decrease by mid-session on Wednesday, marking its largest intraday decline in five years, which contributed to a broader market index decline of 0.8%.
Financial analysts at Citi highlighted concerns about NAB's non-performing loans and mortgage arrears compared to industry peers, noting that the bank's exposure to the business segment could intensify competition in deposits and funding.
In its brief quarterly update, NAB mentioned a slight decrease in net interest margin due to increased funding expenses and competitive pressures. Operating expenses rose by 2% in the quarter, driven mainly by higher personnel costs, financial crime-related expenses, and elevated technology investments.
The ANZ Group, the final member of Australia's "Big Four" banks to release financial results in this period, is slated to provide a quarterly update on Thursday.
($1 = 1.5743 Australian dollars)