NAB Profit Drives Australia's 'Big Four' Bank Earnings to Record

National Australia Bank
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National Australia Bank

National Australia Bank added to bumper bank earnings on Thursday with a 3.1 percent rise in first-half cash profit, propelling combined earnings for the period at Australia's "Big Four" to a record high.

The rise was smaller than those recorded by its peers - Australia and New Zealand Banking, Commonwealth Bank of Australia and Westpac Banking - as NAB's struggling U.K. business weighed on earnings.

But it was enough to push total first-half earnings by the quartet to A$13.2 billion ($13.46 billion), the most for any half-year period. NAB also followed the pack, albeit with a more subdued lift, by gifting shareholders a 3 percent rise in its dividend to A$0.93. Australia's big lenders are attracting high-yield hunters from around the globe as they hand out stellar dividends, pushing bank valuations to record levels.

"These banks are making excellent money and are very well capitalised," said OptionsXpress analyst Ben Le Brun.

(Read More: Westpac Plans Special Dividend Hike)

NAB's cash profit - which excludes one-offs, non-cash accounting items, investment gains or losses and is closely watched by investors - rose to A$2.92 billion ($2.98 billion) in the six months to March 2013, from A$2.83 billion a year earlier.

The result for Australia's largest bank by assets was just ahead of analysts' average estimate of A$2.87 billion in profit according to Thomsom Reuters I/B/E/S data.

NAB's profits have lagged its peers, which are generating record returns based largely on the domestic lending market, as it remains hamstrung by its poorly performing UK operations.

Its group net interest margin, a measure of profitability, dropped 3 basis points from the September quarter to 2.03 percent, tighter than analysts had anticipated.

Tier I capital, a measure of a bank's ability to absorb unforeseen losses, increased 32 basis points over the same period to 8.22 percent.

(Read More: NAB Says No UK 'Fire Sale' As It Seeks To Save $825 Million Per Year)

UK Business

NAB Chief Executive Cameron Clyne, who has previously said he would not engage in a "desperate fire sale" of the struggling UK business, said the bank's strategic review of the unit was ahead of plan.

UK media reported in January that Spain's Banco Santander SA <SAN.MC> was mulling a $3.2 billion bid for NAB's 337 Clydesdale and Yorkshire bank branches.

Santander denied it was in talks with NAB.

The UK unit was "managing a smaller and stronger balance sheet" following the transfer of the majority of its commercial real estate portfolio to NAB in October 2012, Clyne said on Thursday.

Still, the UK commercial real estate business recorded a loss of 149 million pounds ($231.92 million), and took a charge for bad and doubtful debts of 185 million pounds.

"We certainly want a bit more clarity around the long-term plan for NAB on the U.K. assets," said Le Brun of OptionsXpress. "The market would love to see an exit strategy."

The bank in March unveiled a broader restructuring plan to save up to A$800 million ($825 million) a year.

(Read More: Commonwealth Bank of Australia Posts Record Cash Profit)

The standout result for the half was a 19.2 percent increase in personal banking cash earnings, driven by growth in home lending volumes and improved margins.

The bank said it expected demand for credit to remain "relatively soft" in the coming year, despite historically low interest rates in Australia.

The latest profits at the Big Four - ANZ earned A$3.18 billion, Westpac recorded a record A$3.53 billion gain and CBA, which reports on a different cycle to its peers, also posted a record A$3.58 billion - have led to criticism that the major lenders have too much market power.

A common complaint is that they have failed to fully pass on a series in official interest rate cuts in the past year.

Three of the banks moved to curb that criticism after Australia's central bank lowered rates to a record 2.75 percent on Tuesday - right in the middle of the reported earnings boon.

NAB, CBA and Westpac all announced they would match the quarter percentage point cut. ANZ is due to hold its monthly rate review on Friday.