NAB declined to lend A$8 billion to large corporates
(1 September 2016 – Australia) Fairfax reports that National Australia Bank (NAB) declined the opportunity of lending around A$8 billion to large corporations in the past year.
The bank told reports in a media briefing that it was concentrating on small and medium enterprises, mortgages, and wealth customers.
But larger-scale lending to institutional customers – big corporations – is being crunched by fierce competition from overseas banks willing to make returns well below what NAB deems acceptable.
The comments from NAB, which has a balance sheet of about A$800 billion overall, highlight the pressure on banks in institutional lending, where record-low interest rates are attracting more foreign banks to Australia. In response, the industry is ploughing more capital in higher-returning activities, such as small business lending and mortgages.
NAB chief operating officer Antony Cahill said a key reason behind its decision to steer clear of some institutional business was "highly competitive" global capital entering the segment.
"As a company we have deliberately made decisions not to participate in lending of over $8 billion in the last 12 months. We have chosen not to deploy the balance sheet to clients in that particular space," Mr Cahill said.
"You're seeing some of the offshore banks making their balance sheet available for return hurdles that we don't believe are appropriate."
Foreign banks were prepared to accept return on equity below 10 per cent in institutional lending, which was below NAB's cost of capital, he said.
Chief executive Andrew Thorburn, who has sought to sharpen the bank's focus on its core smaller business and retail customers, said it did not make sense for NAB to compete with banks such as some Asian lenders that accepted much lower returns.
"We're not going to go up against large global banks, particularly from Asia, where their cost of capital is so much lower, just to chase balance-sheet usage," Mr Thorburn said.
Chief customer officer for business and private banking Angela Mentis said NAB saw a "huge" opportunity to expand its share of 21 percent in small business lending, and 30 percent in medium businesses and agricultural banking.
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