The National Australia Bank Ltd (ASX: NAB) share price had a really rough time during May 2023, falling by around 10%. This was much worse than the S&P/ASX 200 Index (ASX: XJO), which only fell by 3%.
The ASX bank share released a major piece of news during the month – its FY23 half-year result for the six months to 31 March 2023.
Insights released to the market can be key to how investors judge the business. This time, it didn't seem to be good.
Earnings recap
NAB said that it generated cash earnings of $4.07 billion, representing growth of 17%. Statutory net profit after tax (NPAT) was $3.97 billion. Profitability is usually a key driver for the NAB share price.
There were some positives, such as the percentage of loans that were at least 90 days past due during the period being 0.66% of total loans, the same as the second half of FY22 (also 0.66%).
The ASX bank share's board decided to increase the interim dividend by 13.7% year over year to 83 cents per share. The continuing operations cash dividend payout ratio was 64%, a reduction from FY22.
Looking at the divisional earnings, there was good performance by three of its four divisions' cash earnings. Business and private banking cash earnings grew by 19.9% to $1.7 billion, corporate and institutional banking cash earnings rose 16.6% to $940 million, while New Zealand banking cash earnings increased 23.5% to $825 million.
However, there were some negatives. NAB said its 'personal banking' division suffered a 0.4% decline in cash profit. NAB reported an overall credit impairment charge of $393 million reflecting "the combined impact of lower house prices, volume growth and a modest increase in specific charges of a low base."
The negatives and rising competition could be a key detractor for the NAB share price.
Rising competition
The bank said that while it has benefited from higher interest rates, helping the net interest margin (NIM), it has also been "making choices for more targeted growth against the backdrop of a slowing economy and increasing competition."
In its strategic overview of the result, the ASX bank share said:
Australian home lending remains a key market, and we are continuing to invest to deliver better customer experiences. This includes progressing the rollout of our simple and digital home loan initiative to brokers and business and private banking. But this sector is now facing a number of headwinds including slowing credit growth along with heightened refinancing activity and competitive pressures. We have taken a disciplined approach to home lending in this period, with our share of system growth tracking at 0.6x over 1H23, and have prioritised more attractive growth options across our group.
What next for the NAB share price?
The bank faces strong competition, including from the Commonwealth Bank of Australia (ASX: CBA) which is aiming to grow its business banking market share.
Investors will need to wait another six months for the full-year result, though there may be some important insights in the next quarterly update for the three months to 30 June 2023.
Next week, the country will learn whether the Reserve Bank of Australia (RBA) has decided to increase the cash rate again. A decision either way could be a market mover for the NAB share price.
