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National Australia Bank Ltd (ASX:NAB) releases its third quarter update

The National Australia Bank Ltd (ASX: NAB) share price will be one to watch on Tuesday after it released its third-quarter trading update.

What happened in the third quarter?

In the third quarter of FY 2018 the banking giant recorded unaudited cash earnings of $1,650 million, down 3% on the prior corresponding period. Management advised that this decline reflected higher investment spend and credit impairment charges.

Credit impairment charges rose 9% on the prior corresponding period to $203 million and included $25 million of additional collective provisions for forward looking adjustments (FLAs). This brought the total balance of FLAs to $547 million.

Pleasingly, though, asset quality remains solid and the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances remained steady at 0.71%.

The bank finished the quarter with a group common equity tier 1 ratio (CET1) of 9.7%. This was a decline from 10.2% in the prior quarter and was largely due to the negative impact of its interim dividend offsetting seasonally stronger long growth during the quarter. Management expects the bank to meet APRA’s unquestionably strong CET1 target of 10.5% by January 2020.

In addition to this, National Australia Bank finished the period with a leverage ratio of 5.3%, a liquidity coverage ratio of 132%, a net stable funding ratio of 113%, and a slightly lower net interest margin. The latter reflecting elevated short-term wholesale funding costs and ongoing intense home loan competition.

One slight cause of concern was NAB CEO Andrew Thorburn flagging increased provisions in the second half.

He stated that: “As we make progress towards resolving several previously disclosed regulatory compliance investigations, we expect to recognise additional provisions in the 2H18 result, noting there are significant uncertainties in determining a provisioning outcome at this time. These additional costs will be excluded from the expense growth guidance of 5-8% for FY18.”

Should you invest?

I thought this was a reasonably sound result, but I didn’t see enough in it to make me want to pick its shares up ahead of the rest of the big four.

For now, I still see more value in the shares of rivals Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC).

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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