The bank has taken a massive hit to its cash earnings and has been forced to slash dividends and executive pay as the coronavirus hammers the Australian economy.
NAB’s cash earnings fell 51 per cent to $1.44 billion from 1H19 as credit impairment charges increased to $1.161 billion. Half-year charges included $828 million of additional collective provision forward-looking adjustments, of which $807 million reflects potential COVID-19 impacts.
“Our result for the half-year ending 31 March has been materially impacted by the COVID-19 pandemic, with cash earnings (ex. large notable items) declining 24.6 per cent relative to the first half of 2019,” CEO Ross McEwan said in a letter to shareholders. “We entered this crisis in a robust position, with our capital significantly strengthened over recent years."
NAB has joined a number of Australia’s other banks in providing six months of mortgage relief and bridging funding for impacted customers and businesses. But that – along with an increased risk of defaults – means the bank has had to make “hard decisions”, including the slashing of its interim dividend to 30 cents a share.
“We acknowledge you are feeling the pain of significant recent drops in the value of your investments across the market,” Mr McEwan said. “Many of you rely on investments for your livelihood, particularly in retirement. We also know that reducing the 2020 interim dividend to 30 cents per share has a direct impact on our shareholders, and those invested in NAB through their superannuation.”
“These actions are intended to provide us with sufficient capacity to continue supporting our customers through the challenging times ahead, as well as increasing our capital level to assist to manage through a range of possible scenarios, including a prolonged and severe economic downturn.”
NAB has also cut the fixed remuneration of its executives by 20 per cent and launched a $3.5 billion capital raising, with a fully underwritten institutional share placement of $3 billion and a non-underwritten share purchase plan of $500 million – a “decisive action for uncertain times ahead”.
“We have no expectations that the world will return to what it was at the start of this year,” Mr McEwan said. “But we approach this knowing the current disruption offers us great opportunities to change how we operate. Our belief in the opportunities that lie ahead is undiminished.”
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