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Dividend decision for NAB in bank results

AAP logoAAP 24/10/2016 Stuart Condie

Bank dividends will come under scrutiny this week when National Australia Bank kicks off the lenders' reporting season with a big decision to make.

ANZ already cut its dividend at its half-year results and analysts say NAB is under pressure to follow suit at its full-year results on Thursday and bolster capital in the wake of the loss of income due to the recent sale of 80 per cent of its life insurance business.

UBS banking analyst Jon Mott expects NAB's earnings per share (EPS) to drop three per cent and says he wouldn't be surprised if the dividend cut - from 99 cents to 90 - he has tipped for the first half of the 2017 financial year arrives six months early.

"FY16 is likely to go down as a tough year for the Aussie banks, with each of the majors expected to deliver negative EPS growth for the first time since the financial crisis," Mr Mott wrote in a note.

"The banks are facing slowing credit growth; falling NIMs (net interest margins); subdued fee income and wealth; regulatory and technology expenses; normalising bad and doubtful debt charges and a rising share count."

Deutsche Bank expects a 1.5 per cent decline in NAB's second-half cash profit to $3.172 million, while UBS is forecasting a 2.5 per cent drop to $3.139 million.

Both forecasts are down on the bank's $3.22 billion first-half profit.

Six months ago, NAB returned 79 per cent of its earnings to shareholders but ANZ's signal at the same time to pull back its payout ratio to a more sustainable 60-65 per cent was hailed as a market-wide recalibration long in coming.

"We expect a flat final dividend at 99 cents per share, although we continue to believe that the payout ratio is unsustainable at these levels," Deutsche analyst Andrew Triggs said.

ANZ, which on November 3 is next to report its yearly results, is at least coming off an encouraging third quarter, when its net interest margin and bad debts both stabilised.

Deutsche and UBS both forecast a second-half cash profit of about $3.4 billion for ANZ, which would result in a full-year profit of about $6.182 billion - a drop of about 14 per cent on 2014/15 due largely to $717 million in first-half writedowns and restructuring charges.

Commonwealth Bank already reported a seventh straight record annual profit of $9.45 billion back in August and is due release a first-quarter trading update on November 8.

That leaves Westpac to release its annual results on November 7.

Westpac is expected to show a modest improvement in cash profit, with the lender having already issued guidance that bad debt charges would be lower than those in the first half.

Mr Mott expects NIM to fall from 2.14 to 2.12 per cent, with funding costs offsetting any gain from its decision to pass on just 14 points of the Reserve Bank's 25 basis point August rate cut.

"It is difficult to see the areas where the banks could surprise, especially given the political pressure they are under," Mr Mott said.

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