NAB (ASX:NAB) share price on watch after reporting 77% jump in cash earnings

NAB’s cash earnings surged in FY 2021…

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The National Australia Bank Ltd (ASX: NAB) share price will be one to watch closely on Tuesday.

This follows the release of the banking giant’s full year results this morning.

NAB share price on watch after profit surge in FY 2021

  • Revenue down 2.4% to $16,729 million
  • Cash earnings up 76.8% to $6,558 million
  • Cash return on equity up 420 basis points to 10.7%
  • Net interest margin of 1.69%
  • CET1 ratio of 13%
  • Fully franked final dividend per share of 67 cents (full year dividend up 111% to $1.27 per share)
  • Credit impairment charge write-back of $217 million
  • Collective provisions at 1.35% of credit risk weighted assets

What happened in FY 2021?

For the 12 months ended 30 September, NAB reported a 76.8% increase in cash earnings to $6,558 million. This was driven partly by a lack of notable items in FY 2021. Excluding notable items from the prior corresponding period, NAB’s cash earnings would have increased 38.6% over the 12 months.

A key driver of NAB’s growth was its Personal Banking segment, which reported a 14.4% increase in cash earnings to $1,650 million. Management advised that this reflects lower credit impairment charges and volume growth in home lending.

Also supporting NAB’s growth was its New Zealand Banking business, which reported an 18.7% increase in cash earnings to NZ$1,230 million. This was driven by lower credit impairment charges, combined with higher revenue, volume growth, and increased margins.

NAB’s Business & Private Banking segment delivered a 0.3% increase in cash earnings to $2,480 million in FY 2021. Its broadly stable earnings also reflect lower credit impairment charges, which were partly offset by higher operating expenses.

Finally, the Corporate & Institutional Banking segment acted as a drag on NAB’s performance. It reported a 14.8% decline in cash earnings to $1,207 million. This reflects lower Markets income, combined with higher credit impairment charges. The latter relates to an increase in provisions associated with the partial sale of an aviation portfolio.

NAB’s CEO, Ross McEwan, commented: “Our results this year demonstrate we have navigated a challenging environment well while delivering better experiences for customers and colleagues, resulting in safe growth across our business.”

“Our strategy is achieving results. While there is still much to do, I am encouraged by our progress as we execute with discipline and focus. Over the year, customer and colleague engagement scores increased, and we extended our market leadership in SME business with lending growth of 7%, well ahead of system.”

“Our bank has momentum, our strategy is clear and as lockdown restrictions ease, a pick-up in activity is expected. While some uncertainties exist in the outlook including the impact of tapering support, our balance sheet settings are strong and we are well positioned for the expected economic rebound in Australia and New Zealand.”

Outlook

NAB released a few key considerations for FY 2022 with its results. It expects the net interest margin impact from the low rate environment in FY 2022 to be broadly neutral, before turning positive in FY 2023.

Management also expects competitive pressures and mix to continue impacting housing lending margins, along with full period impact of liquids build. And finally, lower funding costs and its deposit mix are expected to be a moderating tailwind.

How does this result compare to expectations?

According to a note out of Morgans, its analysts were expecting the banking giant to report cash earnings from continuing operations of $6,597 million in FY 2021. This was broadly in line with consensus estimates. Morgans had also pencilled in a fully franked final dividend of 64 cents per share.

This means NAB missed slightly with its cash earnings of $6,558 million but is paying a larger than forecast final dividend at 67 cents per share.

The NAB share price is up 27% in 2021.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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