Yorkshire Bank in position for the recovery

YORKSHIRE Bank owner National Australia Bank said business in the UK remains challenging despite some early signs of economic recovery.

NAB, which also owns Scotland's Clydesdale bank, said its UK arm benefited from easing of funding costs and lower bad debt charges – although these are still higher than historical levels.

But the bank said the proportion of its loans in arrears had worsened due to deterioration in its commercial property portfolio. The ratio of loans 90 or more days impaired and its gross impaired assets increased to 2.9 per cent at the end of December from 2.61 per cent three months earlier.

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Group chief executive Cameron Clyne said: "Our United Kingdom franchise remains well positioned to benefit from any improvement in operating conditions. We will continue to monitor market developments in the UK."

The bank is among several foreign players believed to be considering bids for UK banking assets as a result of a Government shake-up of the country's financial system to introduce more competition.

Speculation has linked NAB with potential offers for the so-called "good" part of recently split Northern Rock. It is also believed to be looking at assets due to be sold off by Royal Bank of Scotland and Lloyds Banking Group to appease European competition authorities.

Recent reports said NAB has been approached by private equity firm Blackstone and Resolution Group, Clive Cowdery's buyout vehicle, about a potential team bid for 318 RBS branches.

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Late last year the bank revealed it was considering options to lead consolidation in the UK banking sector. "We have been approached by a number of players in the UK market to see how we could work with them to participate in that consolidation," said Clyne at the time.

NAB yesterday declined to comment on the progress of these talks.

UK chief executive Lynne Peacock said: "While the signs of economic recovery are encouraging, our prudent strategic course remains unchanged and we are firmly focussed on growing our existing business.

"Playing a different game has served us well in keeping our business safe, strong and secure throughout the market dislocation. This is also true of our ongoing support for customers and we are firmly on track to deliver 10bn of gross new lending to businesses and mortgage customers over the next couple of years."

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However, the group did not say how much net new lending it plans. It added competition for deposits remains strong and other operating income is under pressure.

Mr Clyne said NAB as a whole had delivered a "sound result" in the three months to December.

NAB said earnings for the first quarter were approximately 1.1bn Australian dollars (635m), an increase of more than 20 per cent on the last three months of the previous financial year.

The group said its earnings were helped by a decline in the charge for bad debts – down 202m Australian dollars (117m) on the quarter before at 739m Australian dollars (427m) – and sound business performance.

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The bank also said lending growth was subdued, hurt by low retail demand and corporates tapping the equity markets to clean up their balance sheets.

Last year Yorkshire and Clydesdale Banks reported a 68 per cent fall in profits to 108m, but underlying profits were up by two per cent to 529m. The group said the sharp decline in pre-tax profits was due to the increased cost of funding and a 71 per cent increase in bad and doubtful debt charges to 421m.

Nab moving to axa division bid

National Australia Bank is working to finalise its bid for AXA Asia-Pacific Holding to expand its wealth management operations.

"Work to finalise our proposal to acquire the Australian and New Zealand Business of AXA APH is ongoing," said chief executive Cameron Clyne

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NAB already has the backing of AXA's independent directors for its $12bn bid, but the competition regulator last week raised concerns over an NAB-AXA alliance, tipping the scales towards rival bidder AMP.

AMP signalled recently it had room to improve its $11.6bn bid after AXA Asia-Pacific earlier this week posted its best annual profit in six years.

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