National Australia Bank Ltd (ASX: NAB) shares will be on watch today after the banking giant released its third quarter update.
Let's see how the big four bank performed during the three months.
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NAB shares on watch following Q3 update
- Statutory net profit of $1.9 billion
- Cash earnings of $1.75 billion
- CET 1 ratio of 12.6%
What happened during the quarter?
For the three months ended 30 June, NAB reported a 1% decline in revenue compared to the first half quarterly average. Management advised that this reflects weakness in the Markets & Treasury (M&T) business. Excluding this business, revenue rose 1% thanks to volume growth and higher other operating income, including business lending fees.
NAB's net interest margin (NIM) was stable during the quarter. It notes that small reductions from lending competition and deposit mix were offset by benefits of a higher interest rate environment. There was no NIM impact from M&T and liquids.
The bank's expenses increased 1% during the quarter mainly reflecting higher salary-related costs, partly offset by productivity benefits. NAB continues to target productivity savings of approximately $400 million in FY 2024 and for cost growth to be lower than in FY 2023.
This ultimately led to the big four bank reporting a 2% decline in underlying earnings and slightly lower cash earnings at $1.75 billion.
Asset quality
One negative was that NAB recorded a credit impairment charge (CIC) of $118 million. This primarily reflects a further deterioration in asset quality across the group, which was partly offset by methodology refinements which have reduced the economic adjustment. Nevertheless, the bank highlights that while individually assessed charges have increased, they remain at low levels.
It also revealed that the ratio of non-performing exposures to gross loans and acceptances increased by 11 basis points to 1.31%. This mainly reflects continued broad-based deterioration in the Business & Private Banking business lending portfolio, combined with higher arrears for the Australian mortgage portfolio.
Management commentary
NAB's CEO, Andrew Irvine, appeared pleased with the bank's performance during the quarter. He said:
Our 3Q24 result reflects a more stable operating environment and benefits from the consistent execution of our strategy. Lending balances rose 1% over the June quarter, supported by 3% growth in Australian SME business lending as we continue to prioritise growth in our SME franchise. In Australian home lending, our growth was sub-system at 1%. Balancing returns and growth in this dynamic market will remain important. Deposit growth is an ongoing focus and was 1% across Business & Private Banking and Personal Banking over 3Q24.
Outlook
Irvine concedes that the current economic environment has put pressure on asset quality but he remains positive. The CEO said:
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. Liquidity and collective provision coverage are healthy. Capital remained strong over the quarter supporting the continuation of our on-market share buy-back.
Our strategy has served us well over recent years. As we build on this progress, our strategic priorities will evolve including an increased focus on delivering better service to customers and removing complexity across NAB. But there will be no change to our disciplined approach to accountability and execution. We remain well placed to manage our business for the long term and deliver sustainable growth and returns for shareholders.
