NATIONAL AUSTRALIA BANK LIMITED
The trend on all credit ratings is Stable. The Intrinsic Assessment (IA) of the Bank is AA (low) and the Support Assessment is SA2, which reflects the generally supportive regulatory framework and DBRS Morningstar's expectation of timely systemic support, given NAB's importance to the financial system in
KEY CREDIT RATING CONSIDERATIONS
The confirmation of NAB's credit ratings take into account the strength of its banking franchise in
CREDIT RATING DRIVERS
An upgrade of the credit ratings would require a sustained improvement in profitability and a reduction of usage of wholesale funding whilst maintaining sound asset quality and capital.
A downgrade of the credit ratings could be driven by prolonged weakening of profitability and asset quality as well as significant additional operational risk issues. Furthermore, a downgrade of the long-term ratings would occur if, in DBRS Morningstar's opinion, the likelihood of timely systemic support were reduced.
CREDIT RATING RATIONALE
Franchise Combined
NAB is one of the four largest Australian banks and is the leading business lending bank in
Earnings Combined
NAB's profitability has improved in recent years and more recently the Group's revenues has benefitted from the higher interest rate environment. On statutory basis, NAB's net profit attributable to owners was AUD 7,414 million, up 7.6% year-on-year (YOY) from AUD 6,891 million, and largely supported by higher net interest income (NII) amid the higher interest rate environment which offset higher operating expenses largely driven by wage inflation, and higher, albeit still low, loan loss provisions driven by a slight deterioration in asset quality. The Group reported a statutory return on equity (ROE) of 12.3% in FY23, up from 11.3% in FY22 and 10.4% in FY21. NII increased 13.3% YoY to AUD 16,807 million in FY23 [p. 160 FY23 Annual report], mainly supported by volume and margin growth. Statutory operating expenses grew 7.8% YOY in FY23 totalling AUD 9,382 million largely reflecting the higher cost of living YOY, further investments in IT and operating costs from the integration of Citi consumer business. The growth in operating revenue led to an improvement of NAB's cost-income ratio on a statutory basis to 45.4% in FY23, from 46.9% in FY22. The cost of risk was a low 14 bps in FY23, although higher than the year before level of 4 bps.
Risk Combined
NAB's credit risk profile as generally conservative. The Group's asset quality is sound with low levels of impaired loans which have benefitted from the benign economic environment in its home markets of
Funding and Liquidity Combined
NAB's funding and liquidity is sound and supported by an improved funding mix driven by growth in customer deposits in its home markets over recent years. Customer deposits including certificates of deposits (CDs), totalled AUD 644.2 billion at end-FY23, and were up 4% YoY, largely driven by deposit growth in
Capitalisation Combined
NAB's capital position is strong, supported by solid and improving earnings generation, supported by the higher interest rate environment. At end-FY23, NAB reported an APRA Common Equity Tier 1 (CET1) ratio of 12.2% at end-FY23, up 71 bps from 11.5% at end-FY22 but lower than 13.0% at end-FY21 [p.4 FY23 full results]. The CET1 improvement in FY23 was driven by higher retained earnings (62 bps) and the positive impact of the finalisation of
Further details on the Scorecard Indicators and
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Governance (G) Factors
The subfactor 'corporate governance' remains relevant to the rating of NAB but does not affect the overall rating or trend assigned to the bank and this is reflected in the Risk grid building block. DBRS Morningstar considers that NAB is making progress in strengthening its operational risk framework after significant weaknesses were identified in the 2018 and further in
There were no Environmental or Social factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
Notes:
All figures are in AUD unless otherwise noted.
The principal methodology is the Global Methodology for
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.
The sources of information used for this credit rating include Morningstar Inc. and Company Documents,
With respect to
With Rated Entity or Related Third-Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO
DBRS Morningstar does not audit the information it receives in connection with the credit rating process, and it does not and cannot independently verify that information in every instance.
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and credit ratings are under regular surveillance.
For further information on DBRS Morningstar historical default rates published by the
The sensitivity analysis of the relevant key credit rating assumptions can be found at: https://www.dbrsmorningstar.com/research/424266
This credit rating is endorsed by
Lead Analyst:
Rating Committee Chair:
Initial Rating Date:
Last Rating Date:
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