Unemployment the biggest threat: NAB Chief

National Australia Bank chief executive Cameron Clyne has warned that rising unemployment will be the biggest threat to the Australian economy from the volatile world financial markets.

NAB, Australia’s fourth-largest bank by market capitalisation, yesterday reported $1.4 billion third-quarter cash earnings.

The performance, driven by a 2 per cent revenue growth across the bank, was better than expected by most analysts.

Revenue growth was highest in retail and business banking as a result of NAB’s “Break Up” campaign, intended to take mortgage market share from its major rivals.

NAB reported a $443 million bad and doubtful debts charge, which was lower than the second quarter.

The bank’s net interest margin improved from 2.23 per cent in the March half to 2.32 per cent, as a result of the out-of-cycle rate rises in the first half of the financial year.

Mr Clyne said bad debts were “stubborn” and could rise further.

“If unemployment changes and rises, then clearly that has implications for the mortgage book,” he said. “People will generally start to have difficulties with that, and that flows through to business credit.

“So it’s unemployment that we are watching: if that trends up then it becomes a different ball game.”

He said Australian banks faced a tough environment with “panic and crisis” on financial markets.

“It’s fair to say that we are operating in a pretty uncertain environment right now,” Mr Clyne said. “I don’t need to list all those reasons that have translated into uncertainty, but it’s hurt business and consumer confidence and that is having an effect on our business. We are seeing that across the whole bank.”

He said despite the crisis, the bank would not alter its strategy to boost market share in core areas of retail and business banking.

“We didn’t get up this morning and see that the Dow Jones was off by 600 points and go `we’re going to run the bank differently’,” Mr Clyne said.

“We have been around for 150 years. You don’t do that.

“You look at it and you look at what it means for funding costs.”

He said NAB was unlikely to enter the wholesale funding markets because it had already raised its 2011 capital requirements.

Chief financial officer Mark Joiner said the bank was reducing its exposure to the troubled synthetic collateralised debt obligation portfolio and had sold out of one of the three assets.

Mr Joiner said the market volatility would not alter the underlying assets of the debt instruments.

“We have been of the view that we won’t lose money,” he said.