By Danny John
NATIONAL Australia Bank says a pick-up in business lending later this year is still on the cards as companies get over the lingering effects of the global financial crisis and the impact of recent natural catastrophes.
But while that will be good news for a banking sector labouring under a continuing fall in corporate borrowing, NAB chief executive Cameron Clyne predicted the industry would have to cope with increased political pressures to create more competition.
Speaking after unveiling an 18 per cent increase in first-quarter profit to $1.3 billion, Mr Clyne said he was confident that growth in business lending would resume in the second half of the year.
Having delayed investment because of the crisis, the high Australian dollar and now disasters such as the flooding and cyclone Yasi in Queensland, companies were getting to the point of borrowing again. "In many respects they know they can't hold back from that investment," Mr Clyne told an analysts' briefing yesterday.
Monthly falls in business lending over the six months to December 31 have hit profit growth at the banks, with NAB revealing a 1.7 per cent decline in borrowing over the period for which it reported yesterday.
The drop was in part countered by higher charges for risk on existing loans and an increase in interest rates on mortgages, while a continuing fall in bad debts - by $493 million on a year ago - helped NAB grow its bottom line.
Nevertheless, the group's profit margins slipped slightly - to 2.21 per cent overall - as the impact of higher funding costs on its borrowings carried through to the first quarter of its financial year.
The unaudited profit result - which was just ahead of the $1.29 billion figure in the last quarter of NAB's 2010 financial year - was also helped by a $49 million gain in the mark-to-market position of its exposure to financial crisis-related toxic loans.
Mr Clyne said the core Australian business could face higher charges and slower growth if political pressures resulted in changes to boost competition. "The consumer desires more value and competition [and] as long as that remains the case, the sector will be exposed to political pressures."
Yesterday's profit was slightly ahead of analysts' forecasts but brokers indicated that banks will continue to labour under weak credit growth and margin pressures. That view is likely to be confirmed by Commonwealth Bank today when it reports its first-half earnings.
Investors shrugged off those worries yesterday and marked up NAB's shares by 48¢ to $25.48.