Is the NAB [National Australia Bank] about to sell its Credit card business?

The National Australia Bank will not confirm or deny rumours that it is considering the sale its $3 billion credit card business.

Overseas banking players in the Australian market including Citibank, HSBC and GE have been touted as potential buyers, if any transaction were to go ahead.

A spokesman said the bank would not comment on speculation.

So why would the NAB even think of selling a cash cow like credit cards?

Banks of course review all their business options and opportunities and reward for risk, and that is where the credit card business is failing to stack up in recent years. Credit cards represent small beans to the NAB with just 2 per cent of their gross loans, and probably a lot more headaches and bad debt.

The NAB is currently fourth-largest issuer of credit cards in Australia behind its big three domestic rivals ANZ, Commonwealth Bank and Westpac, and so it’s other banking business units are in a much stronger relative market position where they are number one or two.
According to Cannex, the NAB’s cards trail the Commonwealth Bank and the other domestic banks in the ratings of their product line.

Another headache for the NAB is other players are aggressively taking market share. For instance Citigroup has set a goal to take NAB’s place as the nation’s fourth-largest issuer of credit cards.

Also the competition for market share in the last few years, from New players in the segment including Aussie, Virgin and GE who have aggressively attacked the Visa /bank dominance with the MasterCard product has driven card interest rates down, trimming the margin that makes cards profitable.

Another blow to credit card profitability came in May this year when the RBA pushed to reduce interchange fees between banks, a nice cosy arrangement of ATM revenues that was about to be controlled.

Cards interest that were once as high as 18 per cent pa, have dropped to under 9 per cent pa, with things like the reward points programs being foregone.

The reason I can see that the NAB will hold on to its card business is the value of cross selling other products to its card customers and the effect selling the business channel might have on its customer base in the home loan and business lending markets where the NAB is strong.
Lets see which way the cat jumps.
 

About: Rick Adlam: Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers. Website: http://www.mrmortgage.com.au