NAB shares lift despite asset quality concerns
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More news: Shares in National Australia Bank lifted at market open as revenue softness in the third quarter was offset by costs and a credit impairment charge that both came in lower than expected.
NAB shares were up 1.3% to $36.42 by 10:40am AEST.
What they said: "The pleasing element is that the 3Q24 NIM [net interest margin] is better than expected, staying stable at the 1H24 level," E&P Capital analyst Azib Khan said.
"However, separately to the trading update, it appears that NAB has sharpened its Australian home loan pricing over the last month to deal with mortgage market share loss — so there may be some NIM pressure to come from this over the next six months.
"The element of increasing concern is asset quality. Despite the bad debt charge being lower than expected, there continues to be broad-based deterioration in the business lending portfolio.
"At this stage, we expect FY24 consensus pre-provision profit to be reduced by 1% on M&T [markets and treasury] softness. We do not expect material changes to consensus pre-provision profit for outer years."
NAB Q3 cash profit drops as mortgage arrears grows
The news: National Australia Bank reported a fall in cash earnings during the third quarter, as CEO Andrew Irvine flagged higher mortgage arrears.
The numbers: Cash earnings were down 6% to $1.75 billion year on year but flat compared with its first half quarterly average.
NAB's statutory profit rose 9% to $1.9 billion compared to the previous corresponding period. Underlying profit fell 8% year on year and 2% compared with the bank's FY24 first half quarterly average, driven down by a decline in revenue and rise in operating costs.
The big four lender said that lending balances rose 1% over the June quarter, supported by 3% growth in Australian SME business lending. However, growth in Australian home lending was below sector average at 1%.
It also reported a credit impairment charge of $118 million due to a “further deterioration of asset quality across the group”. This compared to a $170 million impairment charge booked in the second quarter.
NAB said it will continue to target productivity savings of around $400 million in FY24, and for cost growth in FY24 to be lower than FY23.
The context: The bank said there was continued broad-based deterioration in the business and private banking business lending portfolio, along with higher arrears for the Australian mortgage portfolio.
Irvine said the Q3 result reflected a "more stable operating environment". He noted that the "economic environment, including persistent inflationary pressures, is challenging for our customers and we are here to help them".
What they said: "While most customers are proving resilient, not unexpectedly we have seen asset quality deteriorate further in 3Q24," Irvine said in a statement.
"Our strategy has served us well over recent years. As we build on this progress, our strategic priorities will evolve including an increased focus on delivering better service to customers and removing complexity across NAB."
The sources: ASX announcement, E&P Capital research
