The National Australia Bank Ltd (ASX: NAB) share price has been a strong performer in 2022 to date. It's up around 9%. That compares to the S&P/ASX 200 Index (ASX: XJO) which is down 10.4%.
NAB has outperformed the ASX share market by approximately 20%, which is significant for a blue-chip ASX share.
Before considering the upcoming period, let's consider what may be helping the NAB share price.
Higher interest rates and profit growth
NAB is one of the main ASX 200 bank shares, with a loan book of many billions.
What margin it makes on its lending is an important factor for NAB's bottom line.
With interest rates on the rise, this is expected to help the NAB's net interest margin (NIM). This measure compares the bank's lending rate against the cost of the money it's lending. One of the main examples of this is the amount banks pay on savings accounts.
With savings accounts not getting the same interest rate boost as loans, banks are expected to earn higher profits, at least in the shorter term.
Even before the ramping up of interest rates, NAB was already reporting that its net profit after tax (NPAT) was growing. For example, in early May, NAB revealed that its FY22 half-year cash earnings had increased 4.1% to $3.48 billion.
Can the NAB share price keep rising?
The profit boost from rising interest rates may only be part of the picture — and it may not all be positive, particularly over the longer term.
The Australian Financial Review has reported comments from Jarden analyst Carlos Cacho on the situation with rising interest rates:
While this is clearly positive for the sector, especially the major banks with their large low-cost deposit bases, we believe it is likely only a temporary benefit before deposit competition returns and the cash rate is eventually cut again.
The broker Citi currently has a buy rating on NAB, though the price target is only $32.75. That implies a very small rise in the NAB share price over the next year. The broker is expecting good profit growth from NAB in the shorter term, thanks to a stronger NIM and high liquidity.
However, the broker Morgan Stanley is less optimistic. It has an equal-weight rating, essentially a hold rating, however, the NAB share price target is $29.60. That suggests a possible fall of around 7.5% over the next year. It thinks that economic uncertainty could mean the NAB share price may not rise.
The NAB full-year result is expected to be released on 9 November 2022.
Citi thinks that NAB's grossed-up dividend yield for FY22 will be 6.7%. Morgan Stanley also estimates that the NAB grossed-up dividend yield will be 6.7%.
