National Australia Bank Ltd.'s additional after-tax charges of A$1.18 billion for the fiscal second half ended Sept. 30 relating to higher provisions for customer compensation and software policy changes are credit negative for the bank, Moody's said.
The rating agency said the additional charges will significantly lower the bank's profit for fiscal 2019 at a time when Australian bank profits are under pressure from declining official interest rates and low credit growth.
In its Oct. 2 release, the bank said the charges are expected to cut its cash earnings for the fiscal second half by about A$1.12 billion and its earnings from discontinued operations by about A$57 million. About A$832 million of the charges relate to customer remediation provisions. Further, its fiscal second-half cash earnings are expected to be reduced by A$348 million as a result of changes to its software capitalization policies.
Moody's said it expects Australian banks to face pressure on their profits in 2020 due to the effect of lower interest rates and modest credit growth. Intense competition for loans, combined with cuts to the official cash rate, will lead to lower lending rates and, therefore, lower net interest income, the agency said. "This, along with the significant reduction in non-interest income, will create challenges for Australian banks' profits in 2020," it added.
