The National Australia Bank Ltd (ASX: NAB) share price will be in focus this morning.
This follows the release of the banking giant's first quarter update.
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NAB share price on watch following Q1 update
- Revenue up 8% over the FY 2021 second half quarterly average
- Cash earnings up 12% to $1.8 billion
- Cash earnings before tax and credit impairment charges up 13%
- Net interest margin down 5 basis points to 1.64%
- CET1 ratio of 12.4%
What happened during the quarter?
For the three months ended 31 December, NAB was on form and delivered an 8% increase in revenue over the second half quarterly average of FY 2021.
Management advised that this reflects higher volumes across housing and business lending, increased fees and commissions, and a recovery in Markets & Treasury (M&T) income. Excluding M&T, NAB's revenue rose 5% for the period.
As with the rest of the big four banks, NAB was unable to avoid margin pressures from home loan competition. The bank's net interest margin (NIM) declined by 5 basis points to 1.64%. This reflects competitive pressures and housing lending mix, partly offset by lower funding and deposit costs.
NAB's expenses increased 2% during the quarter. This was driven mainly by higher salaries and leave costs, combined with investment to support growth, which was partly offset by productivity benefits. Despite this and emerging inflationary pressures presenting challenges, management remains confident it will achieve broadly flat expenses in FY 2022.
The bank's asset quality remains strong. It reported a credit impairment charge (CIC) write-back of $35 million. This reflects the impact of higher house prices and improving asset quality across both housing and business lending and continued low specific charges.
Another positive is that the ratio of 90+ days past due and gross impaired assets to gross loans and acceptances decreased 13 basis points to 0.81%.
How does this compare to expectations?
The good news for the NAB share price is that the bank's cash earnings appear to have smashed expectations.
According to a note out of Bell Potter, its analysts were forecasting cash earnings of ~$1.59 billion for the quarter.
This means NAB's cash earnings of $1.8 billion is 13.2% ahead of the broker's estimates. And it is worth noting that Bell Potter is one of the more bullish brokers out there.
Elsewhere, Goldman Sachs notes that NAB's cash earnings are "run-rating 6% ahead of what is implied by our current 1H22E forecasts."
Management commentary
NAB's CEO, Ross McEwan, was pleased with the bank's start to the year.
He commented: "NAB has started the 2022 financial year well. Cash earnings increased 12% compared with the quarterly average of 2H21, asset quality remained benign and good momentum has continued across our business despite the environment remaining competitive. Volumes have been strong over the quarter with lending and deposits each up $18 billion."
"In Australia, over the three months to December 2021, home lending grew 2.6% and SME business lending increased 3.4%, and we gained market share across our core lending and deposit products. New Zealand loan growth was also strong at 2.2% over the same period."
"These results reflect an ongoing focus on executing our strategy, making the bank simpler for customers and colleagues. This is evident in our improving customer net promoter scores in consumer and business over 1Q22, which are pleasingly no longer negative," he added.
Looking ahead, Mr McEwan acknowledges that there is work to do but appears cautiously optimistic on the future.
He concluded: "There is more work to do but we are moving in the right direction. Disruptions to supply chains and labour markets caused by the recent spread of Omicron present challenges for some of our customers. While this creates uncertainty, we remain optimistic about the outlook for Australia and New Zealand and are well positioned to continue to grow with a strong balance sheet and disciplined execution of a clear strategy."
