National Australia Bank, the country’s top lender by assets, reported today that full-year net profit had fallen 22 per cent to $4.08 billion due to millions of dollars in costs from its troubled operations in Britain.
The result marks the first time since 2009 that NAB has not reported improved profits.
NAB, which had suggested earlier this month that its annual profit would be largely in line with the previous year, said bad debt provisions had risen 44 per cent to $2.6 billion, hurt by its struggling British operations and the cooling Australian economy.
NAB’s net profit fell from $5.22 billion in the previous 12 months.
The bank’s full-year cash profit, which excludes one-off financial items, was $5.43 billion, down slightly from $5.46 billion in the previous year, ending two years of record profits.
The result for the year to September 30 included a $250 million provision for bad debts at its British banks, plus impairment and restructuring costs.
NAB said its outlook for bad debt charges in 2013 is slightly worse.
Australia’s big banks are expected to post a record annual profit of more than $25 billion, but the pace of expansion is the slowest in three years with bad debt charges beginning to rise as the Australian economy eases.
Chief executive Cameron Clyne said NAB’s Australian and New Zealand businesses posted improved performances in the year to September, but that was overshadowed by the problems in Britain.
NAB has owned the Clydesdale and Yorkshire banks since 1987.
Mr Clyne said NAB would not be conducting a fire sale of its British banks, adding that all efforts had been made to simplify its business there.
But conditions in Britain remain challenging, with the economic recovery proving to be slower than the recovery from the Great Depression, he said.
‘‘Hopefully we are seeing the bottom of the cycle in the UK,’’ Mr Clyne told reporters on Wednesday.
Mr Clyne said economic conditions in Australia would be challenging in fiscal 2013, with consumer sentiment low and business conditions weak.
But that is not expected to cause a spike in bad debt costs in NAB’s domestic business, he said.
‘‘We are not by any means seeing a marked rise, but it is reflecting that businesses have been dealing with subdued conditions for some years now, and we are just seeing a slightly worse [economic] outlook for 2013,’’ he said.
With conditions weak, NAB would continue to focus on attracting new customers and cutting operating costs in order to achieve revenue growth, Mr Clyne said.
The bank cut staff numbers by 1309 in the year to September, to 43,336.
Bell Potter Securities banking analyst TS Lim said the fall was well-flagged by NAB when it announced higher provisions around the British banking operations a few weeks ago.
‘‘It comes as no surprise but margins in business banks are coming off slightly more than I would like them to, and I think (NAB is) maybe just happy to maintain market share,’’ said Mr Lim.
City Index chief analyst Peter Esho said NAB profits had been dragged down by the banking situation in Britain.
‘‘While the jury is out on how to treat ’one-off’ increases in provisioning, our real focus in these numbers is to distinguish between the Australian and UK businesses – the blend of two tends to distort numbers so we want to see exactly what is happening in each market to better form a judgment on where NAB can expect earnings to go in 2013,’’ he said.
‘‘Our initial impressions show that the UK saw a doubling of bad debt costs and arrears continue to rise,’’ said Mr Esho.
‘‘Things are much worse UK than in Australia.
‘‘[Britain] is bearing the brunt of the losses as expected while NAB tries to build a narrative that things are tough in both markets,’’ said Mr Esho.
‘‘The market was already expecting full year 2012 earnings to be in line with the same period last year when including the higher provisioning charges,’’ he said, but excluding higher provisioning would be unfair.
‘‘Bad debt charges are part of doing business and banks should not be forgiven by shareholders for ongoing elevated losses,’’ said Mr Esho.
NAB has maintained its promise to offer the lowest standard variable home loan rate for several years, and it’s commitment expires on December 31.
Mr Clyne said the bank was still deciding whether to extend its pricing commitment.
‘‘We haven’t decided, but we will decide before New Year’s Eve,’’ he said.
NAB declared a fully franked final dividend of 90 cents per share, up from 88 cents per share at the same time last year.
Agencies, with Chris Zappone