NATIONAL AUSTRALIA BANK LIMITED (ASX:NAB) has reported flat cash earnings of A$1.77 billion for the third quarter, matching the same period last year but coming in below its first-half average. The bank attributed the subdued result to higher impairment charges and flagged a rise in costs linked to payroll remediation.
The bank booked a credit impairment charge of A$254 million in the quarter, primarily tied to business lending in Australia and New Zealand and unsecured Australian retail portfolios. Without these charges, underlying profit rose 4% on the prior corresponding period.
Revenue grew 3% overall, while excluding Markets & Treasury income, revenue was up 4% on stronger margins and volume growth. Net interest margin increased by 8 basis points, reflecting improved lending conditions. Business and private banking lending expanded 4%, while Australian home lending rose 2%. Deposits were stable over the quarter but grew 6% in the nine months to June 30.
Cost pressures mount with payroll review
NAB warned annual operating expenses would be about 4.5% higher than the previous year, above earlier expectations. It attributed the increase to payroll issues identified during the transition to a new Enterprise Agreement. The bank expects payroll remediation costs of at least A$130 million in the current year, cautioning that the figure may rise as reviews continue.
“NAB’s payroll review and remediation is ongoing and total costs remain uncertain,” the bank said. “The ongoing review and investment and the work undertaken to transition to a new Enterprise Agreement 2024 has helped identify further payroll issues. As a result, NAB has initiated a broader review into payroll-related benefits under current and certain historical agreements.”
The bank has previously incurred about A$250 million in costs between FY20 and FY22 for payroll-related reviews.
Market and analyst reaction
Shares in NAB rose 2.1% to A$40.01 following the update.
UBS analyst John Storey said earnings were broadly in line with expectations, with revenue and volumes stronger than anticipated, offset by higher costs and bad debts.
Stronger revenue trends and 5% on-year volume growth compared with 4% expected were “somewhat countered” by higher-than-expected cost growth, he noted. NAB’s revised cost guidance of around 4.5% is above market consensus of 3.9%, suggesting a 60-basis-point revision.
Credit impairment charges of A$254 million equated to about 13 basis points annualised, above the 12 basis points forecast for the second half. Storey added: “NAB continues to maintain significant portfolio provision overlays, and we do not anticipate any consensus revisions to full-year estimates in light of this information.”
Payroll dispute draws union criticism
The Financial Sector Union (FSU) criticised NAB over the payroll remediation, demanding guarantees workers “will never again be ripped off”. National president Wendy Streets said NAB had been forced to provision nearly A$400 million for repayments over the past five years, describing the underpayments as “systemic wage theft”.
Sarah White, NAB group executive of people and culture, apologised: “Paying our colleagues correctly is an absolute priority. We are sorry and apologise to our colleagues that this has happened and have commenced remediating those impacted.”