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National Australia Bank's expected profit decline is credit negative


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According to Market Intelligence, April 2023

National Australia Bank's expected profit decline is credit negative

National Australia Bank Ltd.'s expected reduced profit for the fiscal second half ended Sept. 30 is credit negative for the bank, Moody's said.

The rating agency said Oct. 18 that the profit warning reflects the profit challenges Australian banks will face because of earlier misconduct highlighted by the Australian Royal Commission into misconduct in the banking, superannuation and financial services industry.

The Australian lender said it expects to announce a lower profit for the fiscal second half due to additional costs worth A$314 million after tax, in relation to its customer remediation program. The additional costs will cut its cash earnings for the period by an estimated A$261 million and earnings from discontinued operations by an estimated A$53 million.

The extra costs are related to customer compensation arising from the bank's wealth business, as well as costs for implementing the remediation process and other regulatory compliance expenses.

The Australian lender is expected to release its full-year results Nov. 1.

Moody's expects that supplementary findings and final recommendations from the royal commission will create additional profitability pressures for Australian banks, with higher regulatory compliance costs, potential for additional fines and tighter mortgage underwriting processes.