NAB rolling in cash

National Australia Bank (ASX: NAB) has reported unaudited cash earnings up 2% for the June quarter to $1.5 billion. The bank — like most of the majors — has a year end of 30 September and reports its quarterly results with comparison to the immediate preceding quarter. On that basis, revenues grew by 1% while expenses rose 2%. The bottom line was helped by a 10% fall in bad and doubtful debts which fell due to lower charges in both Business Banking and the UK division.

CEO Cameron Clyne noted that “NAB has produced a solid third quarter result reflecting strong momentum in Personal Banking and lower loan losses in our UK businesses.” He also highlighted market share gains achieved in mortgages – NAB’s mortgage market share now stands at 15.3% — and that operating conditions remained challenging in Business Banking, noting weak business confidence.

Turning to the balance sheet, the company described asset quality metrics as “broadly stable over the quarter excluding the impact of exchange rates.”

Investors are now just waiting on Westpac (ASX: WBC) to round out updates from the big four banks. Commonwealth Bank (ASX: CBA) reported a huge full-year cash net profit after tax last week of $7.8 million and announced a fully franked final dividend of $2 per share. CBA also reported strong growth in interest-bearing deposits which now account for 63% of total group funding.

ANZ (ASX: ANZ) also reported its third-quarter results last week. ANZ reported that cash profit rose 11% to $4.8 billion for the nine months to June with the bank stating that provisions for total impaired assets and new impaired assets continued to decline.

Foolish takeaway

Despite many commentators continuing to suggest Australian banks are both expensive by global standards and exposed to a weakening domestic economy, many investors continue to be drawn to buying the banks. With the strong dividend yields on offer and record high profitability the appeal is understandable; however bank shareholders should not forget the inherent risks associated with a bank’s leveraged balance sheet.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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