By Eric Johnston
NATIONAL Australia Bank has set a sombre tone for the rest of the banking sector, posting a flat June-quarter profit as higher funding costs and weak loan growth take their toll.
Chief executive Cameron Clyne said the Australian economy was running at ''10 speeds'', with a higher currency affecting key sectors in different ways and states such as Queensland and Victoria hardest hit by the export squeeze.
The latest quarterly result was flat on teh previous three quarters.
''There is much more nuance than the two-speeds in the [Australian] economy than is commonly referred to,'' Mr Clyne told analysts as NAB posted a June-quarter cash profit of $1.4 billion.
While all the economic data pointed to sound underlying fundamentals for Australia, many were yet to be convinced this was the case, he said. ''That's why we've got confidence and business activity levels relatively low.''
However, Mr Clyne remained upbeat on the outlook for Australian growth, noting that the domestic economy should average growth of about 3.5 per cent over the next two years.
The latest quarterly result was flat on the previous three quarters, and it fell just short of expectations.
Even so, the results put NAB on course for its second consecutive year of record profits, with the lender set for a full-year profit of about $5.6 billion.
Commonwealth, Australia's biggest bank by market value, will report its full-year results today, with analysts expecting a net profit of $7.1 billion for the year. ANZ will report its quarterly update on Friday.
Banks are under increasing pressure to take a knife to costs as mortgage lending across Australia runs at the slowest pace in more than 30 years. The slowdown has occurred despite 1 percentage point worth of official interest rate cuts since last November.
Compounding the problem of revenue growth for banks, business lending has been persistently sluggish since the global financial crisis. Some signs of increasing demand have, however, emerged in recent months.
Still, NAB continues to notch fast-paced growth in mortgages, helped
by its strategy of discounting loans. Expansion of its mortgage book is running at 1.3 times growth in the broader market.
But with limited options on pricing of mortgages, questions remain whether its discounting efforts on housing loans remains sustainable while funding costs remain high. Unlike previous quarterly updates, the bank did not disclose its net interest margin - a key profit measure that has come under pressure over the past year.
NAB left investors disappointed after it reported that group revenue was down about 1 per cent from the March quarter.
It blamed the drop on higher UK funding costs and lower market revenue. However, its personal banking business benefited from good growth in revenue and lower charges for soured loans.
Investors marked the bank down, lopping as much as 80¢, or 3.2 per cent, from NAB's share price in early trading. However, the stock ended the session at $24.70, down 1.4 per cent.
''Nobody expected revenue to be down this quarter,'' said BBY banking analyst Brett Le Mesurier. ''But there were some upward trends in customer margins which subsequently gave the market some hope''.