The big bank revealed that its first quarter cash earnings of $1.65 billion were 47% higher than the FY20 second half quarterly average. This was primarily driven by low credit impairment charges. At the underlying level, NAB said that performance has been sound in the current competitive, low interest rate environment. Statutory profit generation amounted to $1.7 billion.
NAB reported that its credit impairment charges fell 98% compared with the second hand quarterly average, to $15 million.
Revenue declined 3%, reflecting lower markets and treasury income, mainly because of the one-off reversal of mark-to-market reversal of losses in the second half of FY20. Excluding markets and treasury, revenue grew 1% with higher fees and commissions income benefiting from increased levels of business activity.
The net interest margin (NIM) declined but was stable excluding the impact of markets and treasury and higher liquids. NAB explained that competition and the impact of low interest rates were offset by home loan repricing and lower funding and deposit costs.
NAB’s expenses for the period fell 1% with productivity benefits and lower restructuring related costs, partly offset by provisions for higher performance-based compensation. The big bank is targeting expense growth in FY21 of 0% to 2%.
The bank said at that 31 December 2020, the Australian home loan deferral balance had declined to approximately $2 billion and the Australian business loan deferral balance had declined to approximately $1 billion. These balances are much lower than the peak balances of approximately $38 billion for home loans and approximately $19 billion for business loans.
However, the percentage of loans that are more than 90 days past due and gross impaired assets, compared to gross loans and acceptances, increased by 17 basis points between December 2020 and January 2021 to 1.18%.
The big four ASX bank disclosed that its group common equity tier 1 (CET1) ratio had increased to 11.7%, compared to 11.5% at 30 September 2020. This includes the benefit of 12 basis points from the foreign currency translation and mark-to-market on its liquids portfolio.
NAB strategy comments
NAB’s CEO Ross McEwan spoke about the bank’s ongoing strategy:
“Implementation of our strategy is proceeding well as we invest for the long-term and focus on initiatives that make a real difference to our customers and colleagues. While there is still much to do, it is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings.”
Aside from the market’s upbeat reaction to the report, sending the NAB share price higher, analysts have also been having their say.
The Australian Financial Review quoted Credit Suisse analyst Jarrod Martin as saying that the NAB result was a clean and solid first quarter trading update and that he expected the market to react positively.
Using the earnings projections on Commsec, the NAB share price is valued at under 20x FY21’s estimated earnings and it’s valued at 16x FY22’s estimated earnings.