The National Australia Bank Ltd (ASX: NAB) share price is pushing higher this morning following the release of its full year results.
At the time of writing the banking giant's shares are up 1% to $18.87.
How did NAB perform in FY 2020?
For the 12 months ended 30 September, NAB reported a 36.6% decline in cash earnings to $3,710 million.
This decline was partly driven by a number of previously announced notable items. Excluding these items, the bank's cash earnings would have been down 25.9% to $4,733 million in FY 2020.
NAB reported a 1 basis point reduction in its net interest margin (NIM) to 1.77% for the year due to its Markets & Treasury businesses, which felt the impact of holding higher liquid assets. Excluding this, its net interest margin was flat, with the benefits of home loan repricing and lower wholesale funding costs offset by impacts of the low interest rate environment and competitive pressures.
The bank experienced an increase in its expenses in FY 2020. They rose 10.7% including notable items and 2% excluding them. The latter reflects costs associated with the implementation of its strategy refresh, combined with higher technology-related costs, salary increases, and COVID-19 related costs. Management advised that this was partly offset by productivity benefits, lower performance-based compensation, and reduced travel and entertainment costs.
At the end of the financial year, NAB's group common equity tier 1 (CET1) ratio stood at 11.47%, up 109 basis points from September 2019.
Thanks to this strong balance sheet, the bank was able to declare a final dividend of 30 cents per share. This brings its full year dividend to 60 cents per share, representing a 64% reduction compared with FY 2019. Management advised that this reduction reflects the uncertain outlook for COVID-19 impacts and APRA's revised dividend guidance, balanced with consideration of its strong capital position.
NAB CEO, Ross McEwan, commented on its result, stating: "Stronger provisions are the right thing to do but have impacted FY20 cash earnings, which are down 25.9% compared with FY19 (ex large notable items). In addition, low interest rates and lower fee income contributed to a decline in revenue. While we are acutely aware of the need for disciplined cost management, costs rose in FY20 as we adjusted to the COVID19 environment and started implementing our strategy refresh announced in April."
Outlook.
Mr McEwan appears positive on the bank's future thanks to the progress it is making with its strategy.
He explained: "We are progressing well with our strategy refresh which is creating a simpler, more accountable business, committed to execution. We have embedded a new organisational structure with end-to-end accountability. We are clear about our priorities, and we are focusing on our customers and colleagues to drive sustainable performance over time."
The chief executive also spoke about the economic outlook. NAB is expecting a gradual economic recovery for Australia.
"Economic activity in Australia has been materially impacted by COVID-19, with GDP falling 7.0% in the June quarter 2020 and forecast to decline 4.7% over the year to December 2020. Recovery is likely to be gradual, supported by stimulatory fiscal and monetary policy combined with expected relaxation of Victorian restrictions and a more complete reopening of state borders," he said.
"This sees forecast GDP growth of 4.6% over 2021 and 2.9% over 2022, albeit the outlook for the business sector remains highly uncertain and the pace of recovery is likely to be uneven across industries," he added.
As for NAB, the bank is aiming to improve the resilience of its business and build momentum for recovery from the COVID crisis. And while this will lead to an increase in expenses by 0% to 2% in FY 2021, management believes it is worth the investment.
It commented: "Over time, the successful delivery of our refreshed strategy is expected to result in stronger, safer growth in our chosen businesses, more engaged colleagues and more satisfied customers, a more efficient organisation with absolute costs (excluding large notable items) targeted to be lower over three to five years, and improved, more sustainable shareholder returns."
