NAB FY23 profits top analyst expectations, growth to slow

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.