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AAP
AAP
Business
Prashant Mehra

NAB lifts first-half profit, dividend

National Australia Bank has delivered improved first-half cash earnings and lifted its interim dividend as a rebound in economic conditions helped stronger lending and deposit volumes, particularly in its business and institutional segments.

But Australia's second biggest bank by market value joined smaller rival ANZ in casting aside its cost reduction target, arguing this was not feasible in an environment of rising inflation and competitive pressures.

NAB reported half year cash profit of $3.48 billion, a 4.1 per cent improvement from the the same period a year ago.

Statutory net profit for the six months to March 31 was up 10.7 per cent to $3.55 billion, while operating revenue rose 4.6 per cent to $8.83 billion.

It prompted a lift in first-half dividend to a fully franked 73 cents a share, a jump from the 60 cents a share it paid for the same period last year.

"The lift in our 2022 interim dividend reflects progress of our strategy, confidence in the sustainability of our performance and our continued optimism in the medium-term outlook for the Australian and New Zealand economies," Chief executive Ross McEwan told investors on Thursday.

He said the execution of the bank's strategy was delivering good results during a period of increased customer activity across all divisions, including the fastest growth in business lending since the GFC.

NAB, considered the country's biggest business lender, said earnings at the key unit jumped 17.5 per cent, with lending volumes 1.3 times the average of the banking system

Institutional banking as well as the New Zealand unit also saw higher lending volumes, but earnings declined in retail banking amid ongoing competitive pressures in the home loans business.

The big four banks have enjoyed a boom in home lending amid record low rates, but margins have taken a hit amid intense competition and borrowers shifting to fixed-rate loans.

The Reserve Bank on Tuesday lifted its cash rate by 25 basis points to 0.35 per cent, the first time it has increased rates in more than a decade.

NAB, which along with peers CBA, Westpac and ANZ has already announced it will pass on the full increase to borrowers, said some customers will feel the pressure on their wallets amid rising inflation.

But it believes most customers are well positioned to absorb the higher payments and will be able to handle the expected increase in rates.

Still, NAB has put aside $131 million for "increased downside risks including the potential impact of higher inflation and interest rates".

Expenses rose 2.6 per cent, reflecting the hiring of additional staff to support growth, as well as salary increases and investment in technology.

NAB also walked back from a target of absolute cost reduction by 2025.

"We'll continue to focus on cost discipline and on driving productivity. But we need to consider changes in the operating environment to ensure we strike the right balance between managing our costs and investing to drive sustainable long term," Mr McEwan said.

Net interest margin - a key measure of profitability - declined 11 basis points from a year ago to 1.63 per cent, largely due to changes in composition of its funding.

The news initially drove the NAB stock down more than three per cent in early trading, before it recovered ground. By 1400 AEST, NAB shares were down 1 per cent at $32.12 in a firm Australian market.

"With interest rates on the rise, the positive effect on net interest margins should further boost income growth over the next 12 months," Moody's analyst Frank Mirenzi said after the results.

NAB LIFTS H1 PROFIT

* Cash earnings up 4.1pct to $3.48b

* Net profit up 10.7pct to $3.55b

* Operating revenue up 4.6pct to $8.83b

* Fully franked interim dividend 73 cents vs 60 cents year ago.

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