By Stuart Condie

SYDNEY--National Australia Bank's first-half profit fell for the second straight year as higher wholesale funding costs and lending competition kept pressure on its net interest margin.

It is the second of Australia's four largest banks to this week report lower profits, potentially supporting the majority view of local analysts that bank stocks are due for a pull-back following a long period of outperformance.

NAB on Wednesday reported a net profit for the six months through March of 3.41 billion Australian dollars, or about US$2.21 billion. That was 3.5% down on the A$3.49 billion reported a year earlier and compared with an average analyst forecast of A$3.45 billion, according to data compiled by Visible Alpha.

Operating income rose 1.4% to A$10.28 billion, slightly short of the A$10.36 billion anticipated by analysts. Operating expenses rose 3.0% to A$4.82 billion.

Net interest margin--a key measure of lending profitability--stayed flat at 1.70%. Stripping out markets and treasury income, net interest margin fell by 3 basis points, which NAB attributed to factors including funding costs and competition.

NAB had already reported what it called a "small decline" in net interest margin over the December quarter, without quantifying the drop.

Margins could be set to come under more pressure, with the Reserve Bank of Australia widely expected to cut the country's cash rate next week. NAB said its economists forecast the cash rate declining from its current 4.10% to 2.60% by February 2026.

Bank margins typically expand during periods of rising rates due to the timing and degree to which lenders pass on the increases to borrowers and savers.

The lender declared an interim dividend of A$0.85, compared with A$0.84 a year ago. Cash earnings, which banks and analysts look to for a picture of underlying performance, rose 1.0% to A$3.58 billion.

NAB recorded a credit impairment charge of A$348 million, including the A$267 million already announced for the December quarter. That was 4.1% lower than the A$363 million over the first half of its last fiscal year.

The bank said it is still looking for a new chief financial officer following Nathan Goonan's resignation for the same role at rival Westpac. Westpac this week posted a 0.6% fall in first-half profit, sparking a 4.9% drop in its shares across two sessions.

Write to Stuart Condie at stuart.condie@wsj.com

(END) Dow Jones Newswires

May 06, 2025 18:48 ET (22:48 GMT)

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