Banks have relaxed lending standards, says NAB

Cameron Clyne, chief executive of National Australia Bank (ASX: NAB), has accused the bank’s largest rivals of relaxing their lending standards in order to win business customers.

After having posted a record annual profit of nearly $6 billion yesterday, Clyne said that “The reality is there is not a lot of revenue growth in any business bank at the moment. There has been a weakening of credit standards in some competitors.”

There have certainly been concerns regarding this matter with Australia’s big four banks, including NAB, Westpac (ASX: WBC), ANZ (ASX: ANZ) and Commonwealth Bank (ASX: CBA), all aggressively competing for new customers. Westpac, NAB and Commonwealth Bank, for instance, have each offered customers sums of money or discounted loans in order to attract customers away from their rivals.

Whilst the Reserve Bank of Australia (RBA) has warned against such behaviour in order to avoid a potential property price bubble, Clyne says that that standards are not currently being lowered to the point that it poses as a threat to the economy, but that the relaxed standards have been contained to business customers and not extended to the home loan market. Clyne added that “We don’t see any sign of an Australian property bubble.”

Foolish takeaway

Whilst the bank yesterday announced a record annual profit of $5.94 billion and increased its final-dividend to 97c per share (taking its full-year payout to $1.90 per share from $1.80 per share last year), its shares fell 2.5%.

This is perhaps due to the underlying result not being quite as high as expected or news that its UK business is still causing significant headaches for the bank. It could also be argued that NAB’s shares fell based on the fact that its earnings were boosted by a fall in bad debts. Investors were perhaps concerned that these bad debts could rise when interest rates are inevitably increased, which could affect earnings in future periods.

Shares in the banks are overpriced and it remains unlikely that it will deliver market-beating returns in the long run. However, there are plenty of alternative companies that you could consider!

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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