National Australia Bank (ASX: NAB) is one of the largest publicly listed banks in Australia. NAB has a market capitalisation of A$74.5 billion.

What are the key points from NAB 2019 AGM?

NAB has endured a rough year that consisted of low interest rates, increase regulatory pressures, slow economic growth, increased competition and worrying findings from the Royal Commission.

NAB announced in their 2019 full year results that cash earnings were down 10.6% compared with the previous period and Statutory profit was down 13.6% compared with the previous period.

NAB’s Chairman Philip Chronican and NAB’s CEO Ross McEwan yesterday (18 December 2019) gave their address to shareholders at NAB’s 2019 AGM and made a few comments about the banks performance this year and around the outlook. The key points are as follows:

  • NAB is committed to address the findings from the Royal Commission. Of the 39 recommendations that related to NAB, NAB have completed five and are currently working on the other 34.
  • Chairman Philip Chronican acknowledged that NAB has not always met 100% of AUSTRAC’s requirements.
  • CEO Ross McEwan notes:

An example of this is the civil legal action taken this week by ASIC against NAB in relation to alleged breaches concerning ongoing fee arrangements with clients of NAB Financial Planning

As we said, we take this action seriously and will continue to work cooperatively with ASIC to deal with this issue.

  • CEO Ross McEwan also notes that the Australian economy is sound. However, there are a number of challenges facing the economy such as low private sector demand and weak credit growth.

What is the outlook for NAB?

NAB CEO Ross McEwan notes:

In our own business, we are the facing the challenges of low interest rates, higher regulatory compliance and capital requirements.

 

The major banks such as NAB, Australia and New Zealand Banking Group (ASX: ANZ) Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corporation (ASX: WBC) face significant headwinds of slow credit growth (also reflecting weak economic growth as shown from the national accounts in the June and September quarters), pressures on net interest margins (which could lower profitability) and increased regulatory requirements (both capital and lending requirements). That is, in the short term at least, the major banks may have lower growth prospects than other sectors of the market.

Overall, the Australia’s banking sector is on a double-edged sword. On one edge, availability of credit to consumers and businesses should increase due to low interest rates and an easing in lending regulations and capital requirements. However, on the other edge, the net interest margins for each bank could be squeezed even more. It is clear that NAB fell this year on one side of the sword, where the squeezing of the net interest margin had a greater negative effect than the positive of an increase in potential borrowers.

What is the market reaction?

The market reaction to NAB’s AGM has been negative. NAB’s share price is down around 2% since the AGM yesterday and is currently trading at A$24.97. NAB has a forward P/E ratio in the low-teens and an annual dividend yield of around 6.6%.

 


 

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December 19, 2019