Morningstar analyst Nathan Zaia said NAB’s bad debts were lower than he expected, but the market was likely reacting to slightly lower net interest margins and higher operating cost forecasts.
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“We really didn’t expect much in the way that the increase in net interest margin was evident in the third quarter. I think you’ll probably see more of that in the fourth quarter,” he said. “It takes time. The latest rate rises aren’t even in that result, and after you’ve passed that on to your loans it takes time to get that benefit.”
Citi analyst Brendan Sproules said NAB had issued a weaker-than-expected profit update, which was likely to disappoint the market as expectations for revenue growth were rising amid the rate hike of cash He noted that NAB’s underlying revenue growth of 2% was well below ANZ’s 5%.
However, he said NAB’s $11 million in bad debts was well below consensus estimates.
“Looking at [the fourth quarter]the impact of recent RBA cash rate hikes will deliver a very different set of results,” he said.
Goldman Sachs’ Andrew Lyons also said that given the fund-raising nature of the cash rate increase in the third quarter, the bank will see the benefits in the fourth quarter. It 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 this NAB update is the fact that not only bad and non-performing loans remained negligible in the period to June 30, but also the direction of arrears or impaired loans, in fact, continued to decline.” he said
He said the full impact of rate hikes is more likely to be felt in the near future.
NAB, along with the other big banks, raised variable interest rates for home loan customers by 0.5 percentage points last week, fully passing on the Reserve Bank’s cash rate hike .
Since the RBA began raising interest rates in May, banks’ home loan rates have risen far more than deposit rates, a dynamic that is boosting bank profits while attracting a increasing scrutiny from politicians and regulators.
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