NAB seeks $1.8 billion in extra capital as economy worsens due to Middle East conflict
The lender warned of rising bad debts and the need to preserve more capital as the shock from rising interest rates hurts Australian borrowers.
National Australia Bank is targeting another $1.8 billion in capital from investors to shield itself from the worsening impact of soaring interest rates and the Middle East war.
On Monday morning the lender said it would extend its dividend reinvestment plan discount to 1.5 per cent and partially underwrite the plan to save on cash it has to pay out to shareholders.
The bank has also raised bad debt debt provisions by $201 million for businesses linked to the Middle East energy shock and by $152 million for local borrowers.
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By continuing you agree to our Terms and Privacy Policy.“In light of the volatility in markets following the conflict in the Middle East, National Australia Bank has reviewed its credit provisioning and capital settings to better reflect the risks now inherent in our business,” the bank said.
More cost hits
Shares have jumped 25 per cent over the last year to last close at $42.55 as investors bet the banking sector will emerge a net winner from cost efficiencies linked to advances in artificial intelligence.
On Monday the bank also flagged it will book a one-off $1.35 billion profit hit in its results for the for the six months to March 31 due to a policy change on how it accounts for software development costs. The bank said the shift to AI services means it will now expense more of its tech costs on an upfront basis, rather than amortise them over longer time periods.
For the six months to March 31 it still currently expects cash operating expense growth to be 4.6 per cent.
The bank said the shift in dividend payout policy is necessary to bolster the amount of cash it holds in reserve as a proportion of total loans outstanding in a financial metric known as its Risk Weighted Asset base.
NAB’s move comes after, Australia’s second-largest lender Westpac, warned of a growing economic shock from the war in the Middle East and rising interest rates last week.
Other companies to have flagged profit hits on the local share market since the war on Iran; include Qantas, Virgin Australia, Cleanaway Waste, Orora, a2 Milk, and EML payments.
More to come.
