The National Australia Bank Ltd (ASX: NAB) share price will be in focus this morning.
This follows the release of the banking giant's half-year results.
NAB share price on watch after earnings miss
- Revenue up 4.6% over the prior corresponding period to $9,071 million
- Cash earnings up 4.1% to $3,480 million
- Net interest margin (NIM) down 11 basis points to 1.63%
- CET1 ratio of 12.48%
- Fully franked interim dividend per share up 22% to 73 cents
What happened during the half?
For the six months ended 31 March, NAB delivered a 4.6% increase in revenue to $9,071 million. This reflects strong growth in lending and deposits which were up 10% and 12%, respectively, versus the prior corresponding period.
It was a similar story on the bottom line, with cash earnings growth of 4.1% to $3,480 million. A key driver of this growth was the bank's business banking operations.
The Business & Private Banking segment reported a 17.5% increase in cash earnings to $1,429 million. This reflects increased revenue from strong growth in lending and deposit volumes, broadly stable margins and a rise in fee income. Credit impairment charges were also lower. This was partially offset by higher operating expenses, including additional resources to support growth and investment in technology.
Also performing positively was the Corporate & Institutional Banking segment. It delivered a 3.1% increase in cash earnings to $806 million. This was driven by increased revenue, with strong growth in lending and deposit volumes combined with higher markets and fee income. This was partially offset by lower credit impairment write-backs and higher operating expenses.
In New Zealand, NAB reported an 8.4% lift in cash earnings to NZ$668 million. This reflects growth in lending and improved margins, which was partly offset by higher operating expenses and a rise in credit impairment charges.
Finally, the Personal Banking segment was out of form and reported an 8.3% decline in cash earnings to $788 million. Management advised that this was driven by lower credit impairment write-backs, combined with reduced revenue given competitive pressures and mix shift in the housing lending portfolio.
How does this compare to expectations?
While this result appears solid on paper, it appears to have fallen a touch short of expectations.
For example, according to a note out of Goldman Sachs, its analysts were expecting NAB to report first half cash earnings of $3,545 million.
Though, positively, NAB's interim dividend of 73 cents per share came in ahead of Goldman's forecast by one cent.
Management commentary
NAB's CEO, Ross McEwan, was pleased with the bank's performance during the half. He said:
"The execution of our strategy is delivering good results for our customers, colleagues and shareholders. We are producing better and faster experiences and getting the basics right more consistently. This has been achieved during a period of increased customer activity across all divisions of the bank, including the fastest growth in business lending since the GFC. 1H22 cash earnings increased 4% compared with 1H21. Revenue rose 4.6%, benefitting from pricing discipline and strong growth in lending and deposits which were up 10% and 12% respectively versus March 2021."
However, one comment that could weigh on the NAB share price today relates to its cost growth targets, which have been reset higher.
He commented:
"Focused investment has been key to delivering strong momentum across our businesses. The recent shift to a higher growth outlook provides greater scope to keep investing while continuing to deliver productivity benefits. This, along with inflationary pressures has prompted a reset of our FY22 cost growth target to approximately 2-3%, to ensure we drive shareholder returns while balancing cost disciplines and growth opportunities. This target includes costs associated with the essential work underway to deliver the requirements of our Enforceable Undertaking (EU) with AUSTRAC."
Nevertheless, Mr McEwan revealed that he is confident in the region's medium term economic outlook and the strength of its balance sheet despite recent share buybacks. He said:
"Our results this period were achieved while maintaining strong balance sheet settings. This is key to delivering sustainable growth and keeping the bank safe. Our capital levels remain above our targets despite completing a $2.5 billion buy-back, with a further $2.5 billion buy-back commencing in May 2022. Our FY22 term funding is also well advanced. The lift in our 2022 interim dividend reflects progress of our strategy, confidence in the sustainability of our performance and our continued optimism in the medium term outlook for the Australian and New Zealand economies."
