The National Australia Bank Ltd (ASX: NAB) share price has been rising in recent days after last week's profit update.
For readers who didn't see it, NAB reported the profit it generated in the third quarter of FY22, which was $1.85 billion of statutory net profit after tax (NPAT) and $1.8 billion of cash earnings. The cash earnings represented 6% growth year over year.
Cash earnings before tax and credit impairment charges went up by 10%.
However, part of the growth came from the acquisition of the Australian consumer business of Citigroup.
Including the acquisition, compared to the FY22 first half quarterly average, cash earnings before credit impairment charges and tax increased 3%. Excluding the acquisition, it only grew by 2%.
NAB has done a lot of work on improving its operational performance. The CEO said the bank's performance was "pleasing" for the quarter and highlighted the "ongoing execution" of its strategy.
The NAB share price has risen by 5.4% since the update, closing at $31.42 on Thursday.
Expert view on the update
Despite the growth, some experts felt that the quarterly numbers weren't quite good enough.
Brad Potter, Tyndall's head of Australian shares, said in a podcast released on Livewire that NAB's update was "slightly disappointing" for a business that was trading at such a "high premium". But, the bottom line was "okay".
He noted that NAB is not demonstrating profit margin growth yet after the recent interest rate rises.
However, Potter did say that asset quality is "pristine" and NAB is writing back excess provisions that it took during the COVID-19 pandemic. There is little mortgage stress and he doesn't think this will be an issue unless unemployment rises "substantially".
Potter said:
Over the next 12 months at least, banks have a net interest margin tailwind and, when combined with few bad debt issues, earnings should be reasonably strong.
What's going to happen next for NAB?
Many experts acknowledge that banks like NAB can benefit from rising interest rates because they will help the net interest margin (NIM). That's the margin that NAB makes on its lending (e.g., mortgages) compared to the cost of funding for those loans (e.g., savings accounts).
NAB thinks its customer base is well positioned to deal with whatever happens next.
NAB CEO Ross McEwan said:
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.
Our business is also in good shape for this evolving environment. Balance sheet settings remain strong and we are well advanced on our FY22 term wholesale funding task with $34 billion raised by the end of June. Investments to deliver simpler, more digital experiences for customers and colleagues are supporting balanced growth and productivity benefits which are expected to exceed $400 million in FY22.
Predictions for the NAB share price
The broker Macquarie believes NAB will start seeing the benefit of an improving NIM in the final quarter of FY22. But it did say that the third quarter wasn't quite as good as investors were expecting.
Macquarie also noted NAB's rising market share. Its price target for NAB shares is $29.50, which would represent a fall of 6% over the next 12 months.
The broker UBS thought that the third quarter was pretty good, though the NIM wasn't as good as hoped. UBS has a price target of $33 for NAB shares, implying a rise of around 5%.
It won't be too long until investors get to see how NAB performed over the past full year. The bank will report its annual result for the year to 30 September 2022 on 9 November.
