All eyes will be on the National Australia Bank Ltd (ASX: NAB) share price on Tuesday.
This follows the release of the banking giant's third quarter update this morning.
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NAB share price on watch after reporting $1.8bn cash profit
- Unaudited statutory net profit of $1.85 billion
- Cash earnings up 6% over the prior corresponding period to $1.8 billion
- CET1 ratio of 11.6%
- Net interest margin slightly lower compared to first half average
- Cost growth guidance increased to 3% to 4%
What happened during the quarter?
For the three months ended 30 June, NAB reported a 6% increase in cash earnings over the prior corresponding period to $1.8 billion.
This was also a 3% lift over the quarterly average during the first half of FY 2022 including the Citi acquisition. This was driven by a 2% increase in revenue thanks to higher volumes.
NAB's expenses increased 1% compared to the first half average. This was due to additional full time equivalent hours to support its growth, partly offset by productivity.
Disappointingly, but perhaps not surprisingly, management has revised its FY 2022 cost growth guidance again. It now expects cost growth to be approximately 3% to 4%, which includes a top-up to payroll and customer-related remediation provisions of $60 million to $100 million for existing matters.
This compares to its most recent guidance of 2% to 3%, which was increased from "broadly flat" at the start of the financial year.
How does this compare to expectations?
The good news for the NAB share price is that this update appears to be in line with expectations.
For example, the team at Morgan Stanley were expecting the bank to report a quarterly cash profit of $1.8 billion.
Though, the big question will be how the market reacts to NAB's cost growth revision.
Management commentary
NAB's CEO, Ross McEwan, was pleased with the quarter. He commented:
Our performance this quarter is pleasing, highlighting the ongoing execution of our strategy including completing the acquisition of Citigroup's Australian consumer business (Citi acquisition). Cash earnings in 3Q22 rose 3% compared with the 1H22 quarterly average, and lending and deposit momentum continued (up 2% and 4% respectively over the June quarter excluding the Citi acquisition)
McEwan also revealed that the bank's loan book remains in a very healthy state despite rising rates and higher inflation. He explained:
As the economy changes, continued low unemployment and healthy household and business balance sheets are helping mitigate the impacts of higher inflation and higher interest rates. The majority of our customers are well placed to manage these challenges, including approximately 70% of customer home loan repayments ahead of schedule. For those customers who need our support, we have a range of options available.
Finally, the CEO appears optimistic on the future thanks to the bank's strategy.
We have a clear strategy and executing this with discipline is our key priority. We will continue to focus on getting the basics right, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns.
