National Australia Bank boss Andrew Irvine warns risk of recession in Australia slowly increasing

National Australia Bank chief Andrew Irvine has warned the risk of recession in Australia has increased as a slowly growing number of customers report being in trouble with their mortgage.

The share of NAB’s Australian mortgage book underwater surged more than sixfold in a year to 0.49 per cent, leaving those borrowers owing more than their homes were worth.

Mr Irvine’s comments came as NAB posted a 13.4 per cent fall in annual cash earnings to $6.14 billion, weighed down by higher credit impairment charges and a previously disclosed software accounting charge.

Nationally, NAB expects economic growth to slow to about 1 per cent next year, with Mr Irvine warning the full impact of this year’s interest rate rises had yet to flow through to customers.

“We don’t think a recession is the most likely scenario, but it’s probably increased in terms of its probability of an occurrence, and we’ll have to see,” he said.

Some States were doing better than others, Mr Irvine said. WA was holding up better than NSW and Victoria, pointing to the State’s mining and energy industries as a “tailwind” for its economy.

“There’s also much less employment stress in that part of the market, and you know, there’s just, I think, more confidence both amongst consumers as well as amongst businesses,” he said.

The pressure is emerging in mortgage repayments. The proportion of NAB’s Australian home loans more than 90 days overdue rose from 1 per cent in March to 1.09 per cent in September, with worsening arrears and impairments heavily concentrated among borrowers relying on business income.

Mr Irvine said those customers were showing more strain than wage and salary earners as higher costs squeezed their businesses.

“We know small businesses have been hit with input cost increases. That’s been quite inflationary,” he said.

“We know in some sectors, liquid fuel costs have pressured subsets of our customers as well.”

He stressed that overall mortgage stress remained low by historical and international standards.

Across its wider loan portfolio, NAB’s credit impairment charges jumped 85.7 per cent to $1.55b, including additional provisions against a weaker economic outlook.