Banks

NAB posts $1.8bn profit, but warns of higher costs & macro headwinds

By Market Index
Tue 09 Aug 22, 11:58am (AEST)
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Source: Unsplash

Key Points

  • NAB posted an unaudited cash earnings of $1.8bn for the three months ended June 30, up 6% from $1.7bn in the same quarter last year
  • NIM was slightly lower compared to the first half average
  • CEO Ross McEwan reminded the market that credit impairment charges, which stood at $11m, reflect continued benign asset quality

There weren’t too many surprises within National Australia Bank’s (ASX: NAB) quarterly update this morning, but the bank’s fears of a deteriorating macro environment clearly unnerved the market with the share price down -3.26% at the open.

The country’s fourth largest bank posted an unaudited cash earnings of $1.8bn for the three months ended June 30, up 6% from $1.7bn in the same quarter last year and in line with Morgan Stanley’s and Citi’s expectations.

Key talking points today

As the market had expected, the bank yet again guided to higher FY22 cost growth, with an expected 3% to 4% increase (previously 2% to 3%) also in line with the broker’s expectations.

Reflecting the benefit of a rising interest rate environment [excl markets and treasury] the net interest margin (NIM) was up slightly.

However, after factoring in home lending competition and higher wholesale funding costs, NIM was slightly lower compared to first half average.

Other highlights within today’s quarterly update included:

  • Cash earnings rose 3% compared with the 1H22 quarterly average, including the acquisition of Citigroup’s Australian consumer business or 2% without

  • Lending and deposit momentum continued, up 2% and 4% respectively over the June quarter [excl Citi acquisition].

  • Expenses increased 1% compared to the first half average due to additional full time equivalent hours to support its growth and customer-related remediation provisions

What did management say?

Overall, management advised investors that the outlook for credit quality remained benign with the benefits of rising interest rates being offset by higher funding costs.

CEO Ross McEwan described the bank’s third quarter performance as pleasing, and despite rising rates and higher inflation, reminded the market of the very healthy state the bank’s loan book.

McEwan also advised investors that executing clear strategy with discipline is the bank’s key priority.

“We will continue to focus on getting the basics right, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns,” he noted.

Deteriorating macroeconomic environment

Putting a brave face on the deteriorating macroeconomic environment, McEwan reminded the market that credit impairment charges, which stood at $11m, reflect continued benign asset quality including low specific charges.

“There has been no impact on credit impairment charges from changes to assumptions used in the economic adjustment or forward-looking adjustments during the quarter,” the bank confirmed.

“Balance sheet settings remain strong and we are well advanced on our financial year 2022 term wholesale funding task with $34 billion raised by end June.”

In May, NAB reported an increase in interim cash earnings to $3.48bn and lifted the first-half dividend by 6c to 73c.

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NAB share price over six months.

 

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