The current National Australia Bank Ltd (ASX: NAB) share price looks like the most compelling S&P/ASX 200 Index (ASX: XJO) bank share opportunity to me.
There is plenty of competition for the top spot including Macquarie Group Ltd (ASX: MQG), Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA), and ANZ Group Holdings Ltd (ASX: ANZ).
Certainly, I still highly rate names like Macquarie and Westpac, but there's an argument for NAB being the pick of the bunch.
It's a good environment for all of the banks at the moment – lending margins have increased thanks to higher interest rates and there hasn't been an increase in arrears yet.
After seeing National Australia Bank's quarterly update for the three months to 31 December 2022, I think it could be a good time to look at the ASX 200 bank share.
Impressive quarterly update
The bank said that it generated cash earnings of $2.15 billion for the quarter, which represented 18.7% growth. Cash earnings before tax and credit impairment charges went up by 27%. Statutory net profit after tax (NPAT) was $2.05 billion.
NAB explained that excluding markets and treasury, revenue rose 12%, thanks to higher margins and volume growth. Expenses only grew by 4%.
The ASX 200 bank share said the credit impairment charge was $158 million, reflecting the impact of "lower house prices and business lending volume growth. Specific charges remain at 'low levels'".
This is one of the most interesting things to me – the ratio of 90+ days past due and gross impaired assets and acceptances decreased 4 basis points to 0.62%. In other words, the percentage of total loans that are in arrears over 90 days improved from 0.66% to 0.62%.
Considering the large ramp-up of interest rates in Australia since May, seeing the arrears at this low point is impressive, in my view. However, I wouldn't expect it to stay that low forever. Still, with it being this low, NAB is earning high levels of profit each month with strong cash flow.
The ASX 200 bank share remains very amply capitalised. Its common equity tier 1 (CET1) ratio was 11.3% at December 2022.
Why I think the NAB share price is the best ASX 200 bank share to buy
NAB seems to be doing the right things under Ross McEwan's leadership to deliver growth and profit while maintaining a conservative posture for the upcoming period.
According to Commsec, the NAB share price is valued at under 12 times FY23's estimated earnings with a possible FY23 grossed-up dividend yield of 8.2%.
That compares to the CBA share price which is valued at almost 17 times FY23's estimated earnings with a grossed-up dividend yield of 6.2%.
I do like that Macquarie is growing globally, though NAB's focus on the domestic economy could be a bonus if the global economy cools.
If NAB's arrears perform well then the increase in interest rates and margins could largely be a one-way boost.
