National Australia Bank (NAB) has been forced to slash its dividend after massive customer compensation bills in the wake of the Hayne inquiry.
The bank had been paying out close to 100% of its earnings to shareholders but has now cut its interim payout per share from 99 cents down to 83 – a 16.2% reduction.
It’s the first time the bank has reduced its dividend in five years, describing it as a necessary move because of a “more difficult operating environment” with challenged profits and flattened earnings.
The move is expected to “provide greater flexibility to accommodate further regulatory change and additional earnings volatility, including further potential customer-related remediation”.
In a statement, NAB acting CEO Philip Chronican said the decision to cut the dividend wasn’t an easy one.
“We have to trade off the fact that our shareholders really rely on that dividend for income, but we need to also make sure that we’ve got a strong bank,” he said.
“We have reduced the dividend to make sure that we were in a strong position and we can deal with a number of headwinds that might arise. The Board has determined it is prudent to reduce the 2019 interim dividend by 16% to 83 cents per share… these actions significantly strengthen NAB’s balance sheet.
“The royal commission highlighted the need for us to take greater action to earn back the trust of our customers and the community.”
The decision was backed by investors and bank analysts, including UBS analyst Jonathon Mott.
“We believe NAB’s move to shore up its balance sheet via cutting the dividend and raising equity is prudent, especially given the deteriorating housing market, sharply rising delinquencies and NZ capital headwinds,” Mr Mott said in a note to clients.
After ANZ pointed to rising mortgage delinquencies in its half-year results, NAB said its impairment charges rose to $449 million – a 20% increase.
The bank said the rise in mortgage delinquencies reflected the trend of borrowers converting interest-only loans to principal and interest loans.
NAB chief financial officer Gary Lennon said an increasing number of customers are more than 90 days overdue on their mortgage repayments, and there had been a “general increase in consumers under stress”.
But Mr Chronican remains optimistic.
“The economy isn’t growing strongly, but it’s not a basket case,” he told the ABC.
“So it may not be stellar growth, but actually it’s a really solid and stable economy and we’re really pleased to be operating in that environment.”