The NAB result is interesting.

If you just glance at the high level data, things look quite fine. Bad debt provisions at just 12bps.

ROE at solid looking levels.

NIM looks a touch weaker, but still modestly above the trend of the past couple years.

It’s more the way NAB frames the data / operating environment in the result.

NIM pressures to continue, sounds bad.

And the arrears data do look a little worse when you zoom in.

But again, it is the descriptive comments the catch the eye. “Broad-based deterioration across loan types and regions”. Credit is a macroeconomic phenomena.

The business bank didn’t sound much better either. Firstly, the plot.

Then the framing. Those words “broad based deterioration” again.

This is one of those moments where I think you should take management commentary at face value.

Our own analysis of the data suggests things look okay. The banks numbers give us a bit more granularity, and look “broadly” okay. But their wording does not.

Now the banks pay a pretty good yield, and they are “pillars of the economy” and all that, so we aren’t saying rush to the exit. But we are underweight the sector, and might have to think about extending that underweight.

The banks are like the resources sector; so large in the benchmark, that if you miss the trade your relative performance can really suffer. That’s why we’ve got some exposure to them at pretty much all points in the cycle; but I think “less than usual” is fine, and definitely worth looking if one happens to be running a large overweight to them.

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