NAB has announced $1.75 billion in cash profit in its third-quarter results - almost 8% lower than the same time last year, thanks to a jump in expenses.
👉 Background: NAB is the second biggest of the big 4 banks based on its market value and is the largest in the business banking space.
👉 What happened: NAB has announced $1.75 billion in cash profit in its third-quarter results - almost 8% lower than the same time last year, thanks to a jump in expenses. NAB's biggest cost was an increase in its credit impairments. Not what you want to hear as a bank.
👉 What else: Now, NAB had warned its investors of an impairment charge of $118 million in the first half. It's biggest challenging now is growing its loan book while also making sure their customers don’t default on their loans.
💡Asset quality is the fancy banking term for the overall risk associated with a bank’s loan portfolio. High asset quality means that a bank is lending to customers with a high likelihood of paying back their loans.
💡For a bank, it's relatively easy to boost its loan book by lending to customers by lending to customers with lower creditworthiness. But this can result in significant losses down the line if those customers struggle to repay.
💡NAB has seen a $118 million impairment charge, and also allowed for more than $360 million impairment charges in the future. So the big challenge for banks like NAB is to grow their lending while maintaining high asset quality.
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