The National Australia Bank Ltd (ASX: NAB) share price will be on watch on Tuesday.
That's because the banking giant has just released its third-quarter update.
NAB share price on watch following $1.9bn cash profit
- Cash earnings up 5.8% to $1.9 billion
- Statutory net profit of $1.75 billion
- CET1 of 11.9%
- Net interest margin down 5 basis points to 1.72%
- $1.5 billion share buyback
What happened during the quarter?
For the three months ended 30 June, NAB reported a slowdown in its earnings growth compared to the first half. The bank's cash earnings grew 5.8% over the prior corresponding period to $1.9 billion.
As a comparison, during the first half, the bank's cash earnings grew 17% to $4.07 billion. Management notes that this means its cash earnings declined 5% compared to the first-half quarterly average.
NAB revealed that this reflects gross loans and acceptances being broadly flat with growth in housing and Australian SME business lending offset by lower corporate and institutional volumes. Together with lower margins, this resulted in the bank's revenue declining 2% for the quarter.
The all-important NIM declined 5 basis points to 1.72% for the three months reflecting continued home lending competition combined with higher deposit costs. This was partly offset by the benefits of a higher interest rate environment.
In respect to costs, NAB's expenses increased by 3% during the quarter. This was driven by higher staff-related costs and continued investment in technology capabilities, which was partly offset by productivity.
Finally, at the end of the period, NAB had a CET1 ratio of 11.9%. In light of this strong capital position, the bank has announced plans to buy back up to $1.5 billion of its shares on-market. This is part of a plan to take its CET1 ratio towards the target range of 11.00–11.50%. NAB expects to commence the buy-back in late August.
How does this compare to expectations?
According to a note out of Goldman Sachs, its analysts are expecting FY 2023 cash earnings to grow 8.75% to $7,726 million. This implies second-half cash earnings of $3,656 million.
Based on this update, it would seem that NAB is well-placed to deliver on this.
Management commentary
NAB's CEO, Ross McEwan, was pleased with the quarter. He said:
We have delivered a sound 3Q23 result, following a very strong 1H23 outcome. Our performance during these periods has benefited from the consistent and disciplined execution of our strategy, against a backdrop of higher interest rates but also slowing growth, inflationary pressures and elevated competition.
Growing our SME franchise remains a priority and over the June quarter SME business lending rose 4%. During the same period, we chose to maintain our disciplined approach in the competitive Australian home lending market with below system growth of 1%. Our strategy is also delivering productivity, which is key to helping us manage inflationary impacts while still investing in our key priorities. We continue to target productivity savings of approximately $400 million in FY23.
McEwan also revealed that NAB's asset quality is holding up despite the challenging economic environment. He adds:
We know this environment is challenging for our customers, but pleasingly, most are proving resilient with only a modest deterioration in asset quality in 3Q23. Consistent with our strategy, we are focused on keeping our customers and our bank safe and maintaining prudent risk and balance sheet settings. Capital levels remain healthy even after allowing for our latest on-market share buy-back announced today.
The NAB share price is down 8% over the last 12 months.
