National Australia Bank says the country’s banking sector has remained strong throughout the pandemic but warns the recent COVID-19 outbreak in Sydney highlights how quickly conditions can deteriorate.
At its annual general meeting on Friday, Australia’s largest business bank said it remained robust to support households and small businesses while economic effects persisted from the 2020 health crisis.
NAB chair Philip Chronican, in his opening address, said the bank remained a safe investment for shareholders and would prioritise its future share price despite the pandemic wounding NAB’s 2020 financial year performance – a year-on-year net profit slump of 46.7 per cent to $2.56bn.
“While significant uncertainty remains, there is increased optimism emerging following the early-stage rollouts of vaccines overseas,” Mr Chronican said.
“There will be some sectors that continue to be constrained, some companies whose business models simply don’t work in a COVID-19 normal environment and some households who will remain under concerning financial stress.”
Mr Chronican also noted NAB had become the second largest bank in terms of market capitalisation, surpassing Westpac whose share price has been battered by both the pandemic and its 2019 money laundering scandal.
The bank also reaffirmed its simplification overhaul, confirming the sale of its wealth business MLC to IOOF would be finalised by the middle of 2021. NAB said it was the last major structural change that would occur in the near future.
NAB chief executive Ross McEwan warned “revenue headwinds” would endure while the bank incurred low credit growth and the “ultra-low” interest rate environment remained in place for the next few years.
NAB intends to spend $1.3bn in the next financial year to build, improve and simplify systems implemented in the bank’s organisational structure.
The bank noted the growth opportunities in its core divisions: NAB, BNZ (Bank New Zealand) and its digital-only service UBank.
Mr McEwan also said recent upgrades in Australia’s financial health had prompted the bank to reassess its economic outlook, and he expected conditions to return to pre-pandemic levels by the end of next year.
“We now think the economy will be back to 2019 growth levels by the end of 2021,” Mr McEwan said in his opening address.
“That’s about a year earlier than we previously thought.”
Mr McEwan also noted the pandemic had accelerated digital banking among customers and prompted the bank to consider changes to its network of physical branches and ATMs.
“Where some of our branches are no longer used by many customers, we need to consider the sustainability of each location,” he said.
NAB said more than 90 per cent of customers that had sought loan repayment deferrals during the pandemic had resumed payments. At the pandemic’s height, NAB deferred more than $60bn in loans.
NAB’s board also used its AGM to reaffirm core commitments to climate change, which by 2050 is to have a net-zero emissions stance within its lending portfolio.
“Climate change is an issue that presents commercial risks and opportunities for NAB as well as for our customers and their communities,” Mr Chronican said.
“NAB is the only Australian bank to have signed the Collective Commitment to Climate Action to bind us to this target, alongside 38 banks globally.”
Shareholder proxies showed a vote against a special resolution that would amend the bank’s constitution and make management and the board publicly disclose strategies in reducing exposure to fossil fuels such as thermal, which would ensure the bank is in line with climate commitments under the Paris Agreement.
NAB said it was not in favour of the change to the company’s constitution, claiming current policies are ensuring targets are being met.