National Australia Bank has raised its provisions to deal with the impact of an economic downturn by $250 million, a move that will negatively impact its full year earnings.
NAB on Thursday said low levels of consumer and business confidence had reduced the outlook for economic growth in 2013, while conditions in the United Kingdom had further deteriorated in the last three months.
In response, the bank said, it had increased the economic cycle adjustment on its collective provisions by $250 million, or $175 million after tax, as of September 30.
The increase in collective provisions will be reported in NAB's cash earnings for its fiscal 2012 year, which ended on September 30.
NAB shares fell on the news, down 69 cents, or 2.6 per cent, at $26.26 at 1019 AEDT.
Excluding the impact of the increased provisions, NAB expects its cash earnings for the year to September to be broadly in line with the previous year's $5.5 billion.
Cash earnings in the final quarter of the fiscal year were about $1.4 billion, broadly in line with the preceding quarter, NAB said.
'The UK economy has now posted three consecutive quarters of declining GDP (gross domestic product) and expectations for recovery in 2013 have continued to be downgraded,' chief executive Cameron Clyne said in a statement.
'Considering the increased level of uncertainty, we feel that increasing the economic cycle adjustment on the collective provision is a prudent measure at this time.
'Balance sheet strength remains a key priority for the group and this increase in the economic cycle adjustment will further strengthen our provision coverage.'
The Australian economy was performing well relative to other advanced economies, he said, although business conditions across different sectors and states were mixed.
NAB expects to pay a fully-franked final dividend of 90 cents per share for the year to September, up 4.7 per cent from the previous year.