Owning National Australia Bank Ltd (ASX: NAB) shares could be a compelling choice this year because of how the economic situation is developing.
The ASX bank share's earnings are fairly exposed to the Reserve Bank of Australia (RBA) cash rate.
Generally, a higher RBA cash rate means NAB can earn a higher net interest margin (NIM) from lending out money that it doesn't pay much/any interest on (such as transaction accounts). However, a higher rate could mean a higher risk of loan arrears and bad debts.
It's uncertain at this stage how high inflation and interest rates will go. But, these are latest forecasts for earnings from broker UBS on where NAB's earnings could change, which includes analysis on the latest quarterly update from the bank.
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FY26
After seeing a record quarterly result in the first quarter of FY26, broker UBS decided to increase its earnings per share (EPS) estimates for FY26 by 2.8%, for FY27 by 2.1% and for FY28 by 0.8%, largely driven by an improving NIM and reduced credit charges in FY26 and FY27.
NAB's FY26 first quarter earnings increased 16% year-over-year to $2.02 billion, while underlying profit rose by 11% year-over-year.
UBS noted that NAB's NIM improved by 2 basis points (0.02%) to 1.8% over the quarter, supporting strong net interest income (NII) growth on the back of loan growth. NAB's total loans and acceptances (GLAs) rose by 6%.
Costs were largely flat compared to the second-half quarterly average, but up 5% year-over-year because of tech spending and staff inflation.
UBS also said that NAB's business lending was progressing more profitably its than peers, excluding Commonwealth Bank of Australia (ASX: CBA).
The broker thinks investors will focus on continued cost management, as well as loan growth with how the market treats the NAB share price.
UBS currently estimates that NAB could generate net profit of $7.5 billion in FY26.
FY27
The profit is expected to continue rising in the subsequent financial years.
In the 2027 financial year, NAB is projected to generate $7.7 billion of net profit.
FY28
UBS expects that NAB could deliver further net profit growth in the 2028 financial year, with net profit rising to $8 billion.
FY29
The 2029 financial year could see further growth in net profit, with earnings rising to $8.7 billion.
FY30
In the 2030 financial year, NAB could see net profit climb again in the final year of this series of projections, with earnings potentially climbing to $9.2 billion.
