Reporting Season

NAB posts $1.8bn profit: Margins disappoint and are tipped to soften further

Thu 10 Feb 22, 12:20pm (AEST)

Stocks in article


Share article

Key Points

  • Cash earnings represented a beat against the $1.59bn expected by Bell Potter
  • S&P Global Ratings expects NIM decline to continue over 2022
  • NAB CEO Ross McEwan noted that the bank is generally positive about the economic outlook

Despite announcing a net interest margin (NIM) decline of 5 basis points for the three months to the end of December, National Australia Bank’s (ASX: NAB) first quarter trading update today seems to have had sufficient good news to nudge the share price 4% higher in early morning trade.

But given that NIM – the difference between what banks receive in interest from borrowers and what they pay out to savers - is a vital indicator of bank performance, it will be interesting to see if the bank can hold onto these gains at the close today.

Once markets operations and higher holdings of liquid assets, were stripped away, NAB noted, NIM declined by 2 basis points and explain this away as being due “competitive pressures and housing lending mix, partly offset by lower funding and deposit costs”.

NIM tipped to head lower

Investors can take some solace from the knowledge that NAB’s margin over the first quarter compares favourably with ANZ Bank (ASX: ANZ) and CommBank (ASX: CBA) which recently disclosed that their margin had declined 8 and 17 basis points, respectively.

In light of low interest rate environment, increased liquid assets and strong competition, ratings agency S&P Global Ratings expects the NIM decline to continue over 2022.

In addition to a declining NIM, the bank also noted today costs were up 2% which including pressure from higher salaries.

Cash earnings and other positive news

What the market also seems to have fixated on today is cash earnings which for the three months to the end of December were up 9.1% on the first quarter a year ago to $1.8bn as it gained market share in home loans and deposits.

Cash earnings represented a beat against the $1.59bn expected by Bell Potter analysts.

Other highlights from NAB’s quarterly update today included:

  • Lending and deposit volumes were each up $18bn over the quarter, and management noted “good momentum has continued across our business despite the environment remaining competitive”.

  • Home lending was up 2.6%.

  • Lending to SMEs was up 3.4%.

  • Lending in NZ was up 2.2%.

  • Revenue increased by 8%, which NAB said reflected the higher volumes across housing and business lending and a recovery in the contribution from its treasury operations.

  • Impaired assets fell during the quarter – and the common equity tier 1 (CET1) ratio is 12.4%, down from 13% six months ago as the NAB share buyback continues.

Optimism in the face of uncertainty

NAB’s numbers were accompanied today by management iterating a continued target on broadly flat expenses in FY22, especially given the challenging environment for growth and emerging inflationary pressures.

While disruptions to supply chains and labour markets caused by omicron presents challenges, CEO Ross McEwan noted that the bank is generally positive about the economic outlook.

“While this creates uncertainty, we remain optimistic about the outlook for Australia and New Zealand and are well positioned to continue to grow with a strong balance sheet and disciplined execution of a clear strategy,” McEwan said.

Initial broker thoughts

Commenting on today’s result, Morningstar - one of the more bullish brokers on the sector - noted that NAB had fixed its delays in processing home loans through broker channels over the past 18 months, which it believes reflects increased risk appetite despite the pandemic.

As the country’s biggest business lender, Morningstar believes NAB growth outlook will reflect the underlying strength of small businesses Australia-wide.

Goldman Sachs noted that NAB’s cash earnings are “run-rating 6% ahead of what is implied by our current 1H22E forecasts.”

Last week UBS reinitiated coverage of NAB with a Buy rating and expects the bank to post an earnings recovery, driven by above-market growth in new business and widening net interest margins.

Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

Get the latest news and media direct to your inbox

Sign up FREE