National Australia Bank Ltd. (NAB) said cash earnings for the half year ended March 31, 2011, were A$2.7 billion, a 21.7% rise from a year earlier. First-half statutory net profit rose 15.9% to A$2.4 billion as it won mortgage customers and boosted fees from business banking.

The Melbourne-based bank said net profit was boosted by, among others, market share gains and disciplined margin and cost management in the Australian bank.

NAB, which is Australia's fourth largest bank by market value, said revenue increased by 6.8% as a result of disciplined margin management in Business Banking, strong growth in home lending in Personal Banking and a swing from mark-to-market losses to a gain of $59 million in its Specialized Group Assets. The bank said charges for bad and doubtful debts fell by 19.7% to A$988 million.

NAB has been trying to woo more customers by offering lower interest rates on home and business loans than its three larger competitors.

As a result, net interest margin in Personal Banking decreased by 12 basis points to 2.22% reflecting product mix change as a result of strong growth in home lending, higher funding costs and increased competition for deposits. Market share, however, lifted significantly for home lending and household deposits against a backdrop of consumer caution due to the Reserve Bank of Australia increases to official cash rates. This resulted to a cash earnings increase of 36.3% to $432 million due to substantially higher home lending volumes and a reduced charge for bad and doubtful debts.

"Improved shareholder returns, continued progress against strategic priorities and further consolidation of NAB's positive differentiation from peers were key achievements for the period," NAB Group Chief Executive Officer Cameron Clyne said today.
"At a Group level a strong balance sheet was maintained, costs were managed well within revenue growth, and initiatives aimed at anticipating regulatory, political and consumer trends and improving reputation supported strong momentum in our Australian banking businesses. Further sustainable improvement in NAB's shareholder returns remains the core focus of our strategic agenda," he added.

Best Performing Bank Stock This Year

NAB has the best performing stock this year among Australia's four largest lenders. National Australia shares rose 2.7% to A$27.11 as of 2:22 p.m. in Sydney, hiking this year's gain to 13%. Westpac Banking Corp. (WBC) has gained 7.7% this year, followed by Commonwealth Bank of Australia (CBA), which gained 2.8%.Australia & New Zealand Banking Group Ltd. (ANZ) lost 0.2%.

Westpac and ANZ posted earnings results this week that fell short of analysts' estimates, according to Bloomberg News. Westpac said yesterday that first-half cash profit rose 7% to A$3.17 billion in the six months ended March 31 from a year earlier. ANZ Bank said the day before that net income gained 3% to A$2.66 billion from the previous six months.

"They seem to be tracking reasonably well compared with the other banks," said Sean Fenton, according to reporting by Bloomberg News. The push to win extra mortgage market share is "not hurting them so it's probably worth doing. They've got to wait and see if they get scale," said Mr. Fenton, who helps manage about $1.1 billion at Tribeca Investment Partners in Sydney.

"We're seeing the early signs of business credit rebounding and we expect that to be stronger towards the end of this calendar year," Mr. Clyne told reporters in Sydney. "Whilst recognizing there are some headwinds out there, we're still broadly positive" on the outlook for the economy, he said.