The National Australia Bank Ltd (ASX: NAB) share price is ending the week in a positive fashion.
At the time of writing, the banking giant's shares are rising 1.5% to $36.47.
Why is the NAB share price rising?
Investors have been bidding the big four bank's shares higher this morning after responding positively to its third quarter update.
During the quarter, NAB reported a 1% decline in revenue. This was driven by weakness in the Markets & Treasury (M&T) business, which offset volume growth and higher other operating income.
Heading the other way were the bank's expenses, which increased 1% during the quarter. This was driven largely by higher salary-related costs, which were partly offset by productivity benefits.
The combination of its top line softness and higher expenses meant that the big four bank reported a 2% decline in underlying earnings and slightly lower cash earnings at $1.75 billion.
The latter was in line with the market's expectations, which may explain why the NAB share price is rising today.
However, not everyone was impressed. A note out of Citi reveals that its analysts believe that NAB's profit result was technically weaker than expected when you look at its composition. It said:
While cash earnings were in-line, compositionally this was aided by a low bad and doubtful charge. Consequently, this implied a core earnings print that was around 3% below consensus driven by softer revenues than anticipated.
Citi currently has a sell rating and $26.50 price target on the bank's shares. This implies potential downside of approximately 27% for the NAB share price from current levels.
Anything else?
One thing that investors seem willing to overlook today is the bank's asset quality.
NAB recorded a credit impairment charge (CIC) of $118 million, which reflects a further deterioration in asset quality across the group. It also revealed that the ratio of non-performing exposures to gross loans and acceptances increased by 11 basis points to 1.31%.
Management advised that this reflects continued broad-based deterioration in the Business & Private Banking business lending portfolio, combined with higher arrears for the Australian mortgage portfolio.
Unfortunately, NAB's CEO, Andrew Irvine, believes that there could be more to come due to the tough economic environment. He warned:
The economic environment, including persistent inflationary pressures, is challenging for our customers and we are here to help them. While most customers are proving resilient, not unexpectedly we have seen asset quality deteriorate further in 3Q24. It is essential we keep our customers and our bank safe.
