Aussie bank battles recession headwinds

National Australia Bank, the country's biggest by assets, said first-half profit fell 0.9 per cent as bad debts rose in an economy headed for its first recession in 18 years.

Net income dropped to A$2.66 billion in the six months ended March 31, from A$2.69 billion a year earlier, as the bad and doubtful debt charge for the half rose to A$1.8 billion, the Melbourne-based bank said yesterday.

Cash earnings, which excluded gains from currency and interest rate movements on the bank's debt, declined 9.4 per cent.

"The bad and doubtful debt charge is a little higher than some would have expected and may head higher," said Peter Vann, who manages more than US$600 million at Constellation Capital Management in Sydney.

Cameron Clyne, who took over as chief executive from John Stewart on January 1, is also facing pressure in the UK, where the company's Clydesdale and Yorkshire banking units are confronting the prospect of the worst recession since the 1930s.

National Australia is firing workers and cut its dividend payout by a quarter to 73c in the half to weather the downturn.

The bank's shares, which had rallied 27 per cent since March 9, dropped 76c to A$21.28 on the ASX yesterday.

Collective provisions increased by A$1.2 billion to A$3.6 billion, while specific provision increased by A$800 million to A$1.3 billion since March 2008.

Total provisions as at March 31 stood at A$4.9 billion, reflecting "a downgrade in customer credit ratings across all businesses", the bank said.

"The fall in cash earnings reflects the tough economic conditions that continued to deteriorate as the half year progressed," Clyne said.

In Australia, bank cash earnings rose 7.5 per cent, while earnings at its MLC wealth management unit dropped 28 per cent.

In the UK, where National Australia owns Clydesdale Bank and Yorkshire Bank, cash earnings have fallen by 64 per cent.

National Australia remained committed to Clydesdale Bank and Yorkshire Bank, it said on March 12.

With more than 190 retail branches for Yorkshire Bank and 150 for Clydesdale, the company derives the highest proportion of earnings abroad among Australia's four biggest lenders.

- Bloomberg