This article is from the Australian Property Journal archive
THE National Australia Bank posted a 5.8% or $17.7 billion growth in housing lending over the year to the March quarter. At the same time, bad debts increased by 5.1% mainly due to commercial property.
The strong lending business helped the bank post a 2.3% increase in first half year cash earnings to $3.29 billion. The interim dividend is 99 cents per share fully franked, unchanged from the 2016 interim and final dividends.
CEO Andrew Thorburn said this is another solid result and reflects improving momentum.
“Revenue is up, our asset quality remains sound and we have further strengthened our funding and capital positions. Cost growth has moderated from 2017 first quarter levels as our productivity initiatives gain traction. Our ROE of 14% reflects our disciplined approach to capital allocation,” he added.
Meanwhile NAB revealed that that its half yearly Bad and Doubtful Debt Charge (B&DD) was $394 million, up $19 million or 5.1%. The charge this period includes an increase in collective provision overlays of $89 million mainly for potential risks relating to the commercial real estate portfolio.
In the March quarter, 380 commercial property loans defaulted compared to 379 in September. However the CRE B&DD is small when compared to the bank’s $60.1 billion commercial real estate exposure. The impaired CRE loans ratio is 0.25% as at March 2017 compared to 0.30% in March 2016.
Within the $60.1 billion CRE loan book, 29% is for retail properties, 27% for offices, 15% for industrial, 13% for residential developments, 6% for land, 8% for other and 2% for tourism & leisure.
The NAB largest commercial property exposure is New South Wales, which represents 31% of the portfolio, followed by Victoria with 25%, Queensland with 15%, Western Australia with 7% and other countries.
Within the CRE loan book, lending to developers accounts for $7.8 billion or 15% and the remaining $44 billion is for investment.
Within the developer group, it comes as no surprise that 52% of lending is for residential developments followed by 28% for residential land – these activities outstripped development lending for retail (4%), office (4%) and industrial (5%).
Residential development lending balance is $4.1 billion and land is $2.2 billion, with 24% of total residential developer portfolio exposed to higher risk inner city postcodes.
Meanwhile in the home lending business, NAB’s loan book shows 63.2% of investors are on interest only products with 36.8% on principal and interest. Approximately 73.2% of investors have borrowed for houses and 26.8% for apartments with an average LVR of 71.6%.
NAB said it regularly conducts house lending stress tests and the most recent one, with a scenario of severe recession where unemployment rose to 11% and residential house prices declined by 28%, the bank would record Bad and Doubtful Debt Charge (B&DD) of $1.9 billion, of which $298 million are losses on the lender’s mortgage insurance portfolio.
Under the scenario, the $359 billion house lending book would record B&DD of $78 million in the first year, $664 million in the second, $641 million in the third and $552 million in the fourth year.
Australian Property Journal
