NAB share price in focus following Q1 $2.15b cash profit

NAB is printing money in FY 2023 thanks to rising interest rates…

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Key points

  • NAB has released its first quarter update on Thursday
  • The banking giant is benefitting greatly from rising interest rates
  • This has underpinned strong profit growth during the quarter

The National Australia Bank Ltd (ASX: NAB) share price will be in focus on Thursday.

This follows the release of the banking giant's unaudited first quarter trading update this morning.

NAB share price on watch

  • Cash earnings up 18.7% to $2.15 billion
  • Statutory net profit of $2.05 billion
  • CET1 ratio of 11.3%
  • Net interest margin (NIM) up 12 basis points to 1.79%

What happened during the quarter?

For the three months ended 31 December, NAB reported a 15% increase in revenue thanks to higher margins, stronger Markets & Treasury income, and volume growth. Excluding Markets & Treasury, NAB's revenue rose 12%.

The bank's NIM rose 12 basis points to 1.79%. Excluding Markets & Treasury and the impact of liquids, NIM rose 15 bps to 1.82%. This reflects the benefits of the rising interest rate environment partly offset by home lending competition.

NAB advised that its expenses rose significantly slower than its revenue at 4%, or 3% excluding the Citi consumer business. This was driven by higher staff-related costs, partly offset by productivity and lower remediation charges.

Finally, the bank's asset quality remains very strong. While NAB reported a $158 million credit impairment charge due partly to lower house prices, its 90+ days past due and gross impaired assets to gross loans and acceptances ratio fell 4 basis points to 0.62%. The latter reflects continued improvement across the Australian home loan portfolio, along with a continued low level of impaired assets in the business lending portfolio.

Management commentary

NAB's CEO, Ross McEwan, was pleased with the bank's start to FY 2023. He said:

We have started FY23 with a strong financial performance and our strategy is continuing to drive targeted growth across our business. Lending and deposits both increased by 1% over the December quarter including above system growth in Australian SME business lending.

1Q23 cash earnings rose 18% compared with the 2H22 quarterly average. The higher interest rate environment, resulting from central bank actions to curb inflation, has benefitted our revenue this period. But this is also causing economic growth and house prices to soften, and loan repayments to increase.

Outlook

McEwan believes the bank is well-placed for the remainder of FY 2023. He added:

Our business is in good shape for this environment. Capital and provisioning remain strong and we are well advanced on our FY23 term wholesale funding task with $20 billion issued by 10 February. We are investing to deliver simpler, more digital experiences for customers and colleagues and continue to target productivity benefits of approximately $400 million in FY23.

Executing our strategy remains our key priority. We are focused on getting the basics right, maintaining cost discipline, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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