The National Australia Bank Ltd (ASX: NAB) share price declined by 2.7% in November 2022. This compares to the S&P/ASX 200 Index (ASX: XJO) which climbed by 6.1%.
That means that NAB underperformed the market by 8.8%. That's a lot in just one month.
For NAB, the main piece of news during the month was the bank's 2022 financial year report.
Let's recap the financial highlights.
FY22 result
The ASX bank share said that cash earnings were 8.3% higher at $7.1 billion. Revenue increased by 8.9%, and excluding the impact of the Citi consumer business, revenue rose by 7.8%. This mainly reflected higher volumes and slightly higher margins excluding markets and treasury.
Expenses increased 5.8%. Excluding the impact of the Citi consumer business, expenses rose 3.9%. Key drivers included higher remuneration and volume-related costs, higher technology and investment costs and increased financial crime and remediation spending, partly offset by productivity benefits.
The net interest margin (NIM) decreased 6 basis points to 1.65%. Excluding a 1 basis point increase from the Citi consumer business and 8 basis points reduction from markets and treasury (which includes the impact of holding higher liquid assets), NIM rose 1 basis point. NAB explained that this "primarily reflected higher earnings on deposits and capital as a result of the rising interest rate environment, mostly offset by home lending competition".
The ASX bank share's final dividend increased by 16% to 78 cents per share. That took the full-year dividend up by 19% to $1.51 per share. Bigger dividends could be a boost for the NAB share price if investors are getting larger cash returns.
Outlook for profitability
In the bank's NIM commentary, it said that the FY22 fourth quarter NIM was 1.72%.
The change in this number is important because it measures what the lending profitability is for the bank. It compares the lending rate to the rate of the funding (such as savings).
However, NAB said that housing lending competitive pressures are "likely to intensify". The deposit mix headwind is accelerating, leading to a further increase in funding costs.
The NIM impact of the RBA cash rate increases on unhedged deposits is expected to peak in the first half of FY23. The estimated benefit of cash rate increases from October 2022 is expected to be lower.
Economic expectations
NAB also said that, in Australia, consumption and overall growth are expected to soften from September 2022 as the impact of higher interest rates and inflation impacts household budgets more heavily.
The ASX bank share wrote in its earnings release:
While there are a number of uncertainties in the outlook, the most likely scenario has forecast inflation peaking in the December 2022 quarter before easing through 2023. This would see the cash rate peak at 3.6% in March 2023, but a more inflationary outcome would likely mean greater monetary policy tightening and a more pronounced economic correction.
2022 NAB share price snapshot
Despite the bank's short-term problems, or lessened outlook, the bank's shares have still risen by 7% over the year. That compares to a 5% rise for the Commonwealth Bank of Australia (ASX: CBA) share price in 2022 and a 4% drop for the ASX 200 in 2022.
