NAB's worrying message for Chalmers

Daily News

In the year to September 2022, NAB further entrenched its dominance of the local business banking market with lending to small and medium-size businesses up 10.5 per cent, or an impressive 1.3 times system growth.

But what while NAB continues to enjoy historically low levels of problem loans in its business book – loans that are more than 90 days overdue in their interest payments, or classified as impaired dropped to a very low 0.54 per cent of total business loans – the Melbourne-based bank has taken the initiative in recognising the risk to business earnings from surging energy costs.

In its latest profit results, NAB boosted its collective provisions to recognise the fact that its loan book was likely to come under growing stress, as rising interest rates cause economic activity to slow, and house prices to fall.

But the Melbourne-based bank also took the novel step of setting aside an additional $150 million to cover the potential problems that big energy-using firms in the manufacturing and transport sectors will feel as a result of surging energy bills.

Of particularly concern are those firms – such as food manufacturers which supply large grocery retailers – which only have limited scope to pass on higher energy costs to their end customers.

Now, NAB’s decision to set aside $150 million in provisions to cover this growing energy risk is extremely prudent at a time when wholesale electricity and gas prices in Australia’s main grid have tripled in the three months to June compared with the same period a year ago.

And the move likely reflects NAB’s view that higher energy prices are likely to be around for the medium term, rather than being a short-term glitch.

Geopolitical factors – especially the global surge in oil and gas prices after Russia’s invasion of Ukraine – will continue to play a major role in dictating the energy costs of local firms.

NAB’s move will also put the other major banks under pressure to follow suit, and to recognise that more businesses will struggle to survive if sky-high energy costs persist.

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