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The rise in official interest rates has helped NAB deliver an 8.3 per cent jump in full-year profits.Credit:Jessica Hromas

The big four lender announced an 8.3 per cent jump in full-year cash earnings of $7.1 billion on Wednesday and declared a fully franked final dividend of 78¢ a share,taking the full-year dividend to $1.51 a share,compared with $1.27 in 2021. Small and medium business lending was up 13 per cent over the year while home lending grew 7 per cent.

McEwan said the results,which were broadly in line with market expectations,were pleasing and while all divisions of the bank had contributed to earnings,after 11 years of interest rate reductions,NAB’s earnings had also benefitted from the RBA raising the official cash rate.

McEwan said the bank had grown its mortgage book in the past year but the market dynamics around home lending were changing,and NAB needed to focus on “risk discipline”.

“At that time when we were growing,the margin in that business was quite strong and the profitability quite strong. But what you’re seeing now is this going from a new business market into a refinance market,and everybody’s chasing the business on a refinance,” he said.

He said some banks were offering cashbacks of up to $4000 when funding costs were also going up,creating margin pressure at a time of intense competition.

“I think we’re doing a very,very good job in this space at the moment. But there are players that want this more than we do at a price that we think is probably not worth being in the market to the volumes we were getting last year,” he said.

“There is a price for service and we’ve been extracting that but there is a price that you say that’s all very interesting,we’ll leave it to somebody else. We just think we have other options for where we put the funding.”

He said NAB wanted to maintain and grow its business banking.

“We are a business bank at our heart,our heartland is business banking.”

Morningstar analyst Nathan Zaia said NAB had benefitted from the poor customer service levels and slow approval times of competitors who had been unable to keep up with loan applications. But he said that upper hand had probably run its course.

“In a slow credit growth environment,application numbers are expected to fall,and more of the volume is likely to come from refinancers. Refinancers typically do not need an answer as quick,hence a borrower is more likely to be won over on price,” he said.

UBS analysts said NAB’s results were clean and in line with market expectations,while Citi analysts described the results as “solid and uncomplicated”. However,Citi analysts said they expected a key focus to be how much business credit growth could slow given it has been NAB’s point of difference.

“Over the past year,system business credit growth has accelerated while housing growth has slowed,” they said. “We think this has been a key driver of NAB’s valuation premium over peers ANZ and Westpac. However,NAB’s economists forecast system business credit to decelerate... should this play out,we expect this would place pressure on NAB’s premium.”

NAB’s share price dropped 1.2 per cent to $31.56 on Wednesday.

Similar to commentary from other banks,NAB said most of its customers were in a good position to weather economic uncertainty. The bank’s home loan book showed the $177 billion worth of loans were taken out over the past three years when interest rates were very low and serviceability was tested at 6 per cent.

Of this group,between $1 billion and $9.7 billion in loans would be at risk if the cash rate hits 3.6 per cent,as these customers have repayment buffers of less than 12 months,a loan-to-value ratio of more than 80 per cent and no lenders mortgage insurance,the bank said.

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