NABZY National Australia Bank Ltd (PK)

By Alice Uribe

SYDNEY--National Australia Bank lifted its dividend by almost 14%, and reported a 19% increase in interim profit, helped partly by a strong performance in its business banking unit and higher interest rates.

Australia's second largest lender by market capitalization said its net profit rose to 3.97 billion Australian dollars (US$2.64 billion) in the six months through March, from A$3.55 billion a year prior. Analysts had expected an interim net profit of A$4.10 billion, according to FactSet's consensus estimate.

The bank declared an interim dividend of A$0.83 per share, compared with A$0.73 a year earlier.

"Our results have benefited from the execution of our strategy over multiple years. This includes consistent investment in long-term growth opportunities, while making choices for more targeted growth against the backdrop of a slowing economy and increasing competition," said Chief Executive Ross McEwan. "The higher interest rate environment has also been an important near-term driver of revenue this period."

Cash earnings--a measure closely tracked by analysts that strips out non-core items such as revenue hedges and treasury shares--rose by 17% to A$4.07 billion.

NAB's business and private banking unit was a standout with interim cash earnings up 20% to A$1.71 billion, but the lender's personal banking unit saw a 0.4% drop in cash earnings to A$785 million for the first half, which it attributed partly to home lending competition, offsetting the impact of the higher interest rate environment.

NAB's half-year net interest margin--the difference between the interest income generated and the amount of interest paid out to lenders--rose 14 basis points to 1.77%

NAB, like other lenders, has benefited from the rising interest rate environment. The Reserve Bank of Australia this week surprised financial markets, raising its official cash rate by 25 basis points to 3.85%, resuming an aggressive campaign of increases after pausing in April.

But some analysts see that mortgage competition, particularly in refinancing, may crimp future margins and earnings. At the same time, banks may also see pressure on credit quality, as customers grapple with higher mortgage repayments, inflation-related cost squeezes.

NAB on Thursday said that there were signs that inflation is beginning to moderate, which it said may mean Australia's official cash rate is near its peak.

"While there is still uncertainty over the extent to which higher interest and living costs will impact consumer spending, it now seems increasingly likely that Australia will avoid a pronounced economic correction," said NAB.

On capital, Mr. McEwan said levels were above NAB's targets, while liquidity remained strong, with collective provision coverage remaining well above pre Covid-19 levels. The lender's FY 2023 term funding task is "well advanced," he said with A$23 billion raised in the first half.

NAB's Common Equity Tier 1 capital ratio was 12.21%, down from 12.48% the previous year.

Write to Alice Uribe at alice.uribe@wsj.com

(END) Dow Jones Newswires

May 03, 2023 18:58 ET (22:58 GMT)

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