Analysts debate NAB’s provisions

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From Banking Day:

Citi Research issued a note in response to the announcement, saying: “We see this as primarily a reflection of ongoing UK economic weakness and shortfalls in collective provisioning relative to peers. It is not a broader sector problem.”

Credit Suisse took a similar line, saying: “NAB faces the risk of persistent earnings downgrades throughout the likely multi-year UK repositioning process. We would have preferred to see a much larger provision charge to immunise its UK exposure.”

However, Morgan Stanley said that the increase in provisions reflected problems that could affect all the banks. It said: “The top-up suggests that conditions in problem industries remain tough. NAB is heavily exposed to business banking headwinds, with 45 per cent of earnings coming from business banking.

Macquarie said the additional provisioning was related to NAB’s exposure to the slowdown in the mining states. It said: “NAB, followed by Westpac, has grown the fastest in Queensland and Western Australia. We were of the opinion that the uptick in bad and doubtful debts was a 2013 story, it appears it will be felt earlier than expected.”

Merrill Lynch said: “Business confidence remains fragile and some banks are reporting more downgrades than upgrades in their business portfolios, a shift which we think could lead to gradually higher bad and doubtful debts.”

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.