Given "lower global growth expectations" in Australia, and the continuing decline of GDP in the UK, NAB has upped the "economic cycle adjustment (ECA) on its collective provisions" by A$250m at FY12 year end. NAB also cited "low levels of business and consumer confidence" for the provision. This increases the total ECA to A$320m (excluding the overlay allocated to UK CRE portfolio). Including the rise in ECA, FY12 cash earnings are "broadly in line with 2011 cash earnings".
NAB Group capital will be unaffected. NAB's CEO confirmed "balance sheet strength remains a key priority for the Group”. The major banks are likely to remain committed to retaining their AA band ratings.
It is unclear whether this is a sector wide asset quality issue or just a top up given NAB’s lower provisioning than some peers. Given NAB’s higher weighting towards business banking, this may signal a negative headwind in various sectors of corporate Australia.
Full year results are due 31 October.