CEO Ross McEwan Says Home Loan Repayments On Track Despite Rising Interest Rates
That appears to have spooked the market, with NAB shares falling 3% on Tuesday morning; the stock is essentially stable since the beginning of the year.
But the margin increase is coming, with Citi analyst Brendan Sproules indicating that NAB’s NIM will rise from 1.62% in May to 1.64% in September, then to 1.76% a year later. late.
But with the RBA only starting its tightening cycle in May, later than many of its global peers, investors will have to wait a bit longer for this tailwind to really kick in.
Of course, rising rates are a double-edged sword for banks, and NAB chief executive Ross McEwan urged borrowers worried about mortgage stress to come forward early and seek help, let it be. whether it is an adjustment of their loan repayments, fixing or splitting. their loan, by tapping into their ease of withdrawal or simple assistance in the event of difficulty.
But for now, NAB’s mortgage portfolio appears to be in pretty good shape.
NAB’s total credit impairment charge for the quarter was just $11 million, less than a third of the charge taken in the March quarter.
Even better, loans past due for 90 days or more and gross loans as a percentage of NAB’s loan portfolio continue to decline. Only 0.7% of NAB’s loans fell into this “distressed” category as of June 30, compared to 0.75% as of March 30 and 1.13% as of June 30, 2021.
Again, NAB’s June quarter figures – and Commonwealth Bank’s full-year earnings on Wednesday – come too soon to reflect the full impact of the RBA’s rate hikes, so there is no doubt that the mortgage stress that we see is still a few months later. .
But the fact that the percentage of distressed loans in NAB’s portfolio continues to fall shows that banks – and households more broadly – will start this difficult period in a fairly good position.
McEwan thinks most of his clients can absorb higher rates, with about 70% of home loan repayments ahead of schedule.
Of course, the glass-half-empty view is that there are 30% of customers who live from mortgage payment to mortgage payment – including a large portion of borrowers willing to move from fixed rates to fixed rates. variables – in an environment where rates will end the year about 3 percent higher than where they started.
And, according to Barrenjoey analyst Jonathan Mott, it’s the 10% of households – representing something like $200 billion in home loans – that are the real concern; the average customer may be fine, but it’s the queue that can hurt the banks.
But as McEwan points out, this downturn won’t be like your parents’ recession three decades ago — a historically low unemployment rate and historically high household savings should provide resilience this time around.
If consumer spending can moderate, as seems likely, and wage growth does not spin out of control, perhaps the soft landing the RBA dreams of can be engineered.