NAB FY23 profits top analyst expectations, growth to slow
NAB's FY23 profits topped analyst expectations. But upbeat earnings may be a thing of the past.
Source: iStock
Mentioned
KEY POINTS
- NAB's net profit increased by 8.8% to $7.7 billion in FY23
- The bank raised its final dividend by 7.7% to 84 cents per share
- NAB expects growth to slow in FY24 due to subdued household spending and weaker goods exports
National Australia Bank (ASX: NAB) lifted its FY23 cash net profit by 8.8% to $7.7 billion which was ahead of analyst expectations of $7.3 billion and raised its final dividend by 7.7% to 84 cents per share.
Chief executive Ross McEwan attributes the growth to “our leading SME franchise with Business & Private Banking increasing lending 9% and deposits 8%” and a “more measured approach to growth this year with a focus on returns.”
NAB shares sold off around 1.5% as the market opened but rallied back to breakeven by 10:20 am AEDT.
FY23 at a glance
Earnings
Net interest income is up 13.3% to $16.8bn, in line with expectations
Cash earnings up 8.8% to $7.7bn vs. $7.3bn expected
Dividend
Final dividend up 7.7% to 84 cents per share
Full-year dividend up 16% to $1.67 per share vs. $1.68 expected
Cash payout ratio down 70 bps to 67.7%
Net Interest Margins
Net interest margin of 1.74%, in line with expectations
Return of equity up 120 bps to 12.9% vs. 12.8% expected
Expenses
Operating expenses up 7.8% to $9.38 billion
Assets and Capital
CET1 ratio up 71 bps to 12.22% versus 12.3% expected
Credit impairment charges of $802m vs. $922 million expected
90+ days past due and gross impaired assets to gross loans and acceptances at 0.75%, up from 0.66% a year ago
Growth is expected to slow
FY23 may very well be the best result we’ll see in a while.
“Growth is slowing, competitive and inflationary pressures are elevated and asset quality is deteriorating,” warned McEwan.
Some of the key takeaways from NAB’s outlook include:
Australian economic outlook: “It seems likely that Australia will avoid a pronounced economic downturn. However, real GDP growth is forecast to slow from 2.7% over 2022 to below trend rates of less than 2% p.a. over 2023 and 2024.”
Growth factors: Strong expected population growth is expected to be offset by subdued household spending.
Unemployment: “The unemployment rate is forecast to drift up to around 4.5% by end 2024 from a low of 3.4%.”
New Zealand economic outlook: “Growth over 2023 and 2024 is expected to remain subdued, including the possibility of negative growth in coming quarters, reflecting lower private consumption, limited business investment and weaker goods exports.”
A choppy session
NAB shares sold off within minutes of the market open, likely weighed by its downbeat outlook for the Australian economy.
Investors already received a read-through for big bank results after Westpac (ASX: WBC) announced a similar profit beat, big dividend and $1.5 billion buyback on Monday, 6 October.
Westpac shares rallied as much as 3.9% higher before finishing the session 2.0% higher. NAB shares also closed 1.0% higher.
NAB shares quickly returned to breakeven as the result was largely in line or slightly ahead of analyst expectations. So now we’re stuck in a tug-of-war between what was otherwise a solid result versus upcoming economic weakness.
