NAB’s quarterly earnings soar 19pc to $2.15bn, bank says can withstand slowing economic conditions

The bank’s cash profit hit $2.15bn in the December quarter, as it declared it was in ‘good shape’ to weather tougher times.

National Australia Bank has posted a jump in December quarter cash profit to $2.15bn, buoyed by loans to small business, and declared it is in “good shape” to weather tougher macroeconomic conditions.

The bank’s unaudited cash earnings of $2.15bn in the three months ended December 31 were 19 per cent higher than $1.8bn in the same quarter a year earlier. In an ASX statement on Thursday, NAB said the result was 18 per cent higher than the quarterly average in the six months ended September 30, its second half.

Chief executive Ross McEwan said the higher interest rate environment had benefited NAB’s revenue during the quarter, but would also cause economic growth to slow and a prompt a further slump in property prices.

“We know these changing circumstances, combined with cost-of-living pressures, will create difficulties for some of our customers, and we have a range of options available for those needing support,” he added. “Overall though, continued strong employment conditions and healthy savings buffers mean most customers look well placed to manage through this period.

“Our business is in good shape for this environment.”

That doesn’t mean that NAB was immune to a souring loan environment, as the bank booked a higher credit impairment charge for the December quarter.

Still, NAB’s shares rallied 0.7 per cent to $30.51, as investors cheered the better-than-expected result and the rise in net interest margin. That followed a 4.1 per cent slump in the stock on Wednesday, as negative sentiment about CBA’s interim profits and the prospects for the industry’s earnings and net interest margins, weighed on the sector.

NAB’s net interest margin – a profitability measure that reflects what it earns on loans less funding costs – rose 12 basis points to 1.79 per cent. Excluding NAB’s markets and treasury division and the impact of liquid assets, the net interest margin climbed 15 basis points to 1.82 per cent, helped by rate rises but “partly offset” by fierce competition for home loans.

NAB boss Ross McEwan said the bank is in ‘good shape for this environment’. Picture: Supplied

NAB’s revenue climbed 15 per cent in the December quarter aided by deposit and lending growth and fatter margins. The bank’s expenses rose 4 per cent, or 3 per cent if the acquisition of Citigroup’s retail banking business is excluded.

Mr McEwan said NAB continued to target annual productivity benefits of about $400m.

JPMorgan analyst Andrew Triggs said the quarterly growth in costs was “slightly higher” than he expected, with staff expenses posing a headwind.

Citigroup analyst Brendan Sproules said the rise in NAB’s net interest margins reflected “more disciplined pricing in mortgages” alongside a benefit from rates increases.

The “result should provide some comfort that NIMs still have tailwinds from rising rates should asset pricing issues be managed appropriately. Having said that, we maintain our view that NIMs should peak in 2H23, and consequently we remain close to an inflection point,” he added.

Morningstar analyst Nathan Zaia raised his full-year profit estimate for NAB by 9 per cent on Thursday to $8.3bn, citing improved loan growth and higher non-interest income.

CBA on Wednesday delivered a record $5.15bn interim cash profit, helped by rate rises and growth in business and home lending. But investors fretted about the bank’s prospects and the fact the peak benefit from rate hikes may have passed, sending the stock down 5.7 per cent. CBA’s shares fell a further 1.5 per cent to $101.50 on Thursday.

The Reserve Bank has hiked official rates to 3.35 per cent since May, reflecting the highest level in more than a decade, as it seeks to cool economy-wide inflationary pressures. Banks benefit as rates rise as they pass on hikes in their entirety to borrowers but hold back on passing on all of the increases to savers.

The sharp rise in rates is expected to see bank loan losses climb as borrowers navigate higher repayments and more expensive goods and services.

As NAB keeps close tabs on its loan book as rates rise further and the economy slows, it said the ratio of those 90-plus days past due and gross impaired assets to gross loans and acceptances decreased four basis points to 0.62 per cent.

NAB’s credit impairment charge was $158m in the December quarter, up from $114m three months earlier. In the same quarter a year earlier, NAB booked a credit impairment benefit.

The bank’s common equity tier one capital ratio was 11.3 per cent at December 31, compared with 11.5 per cent three months earlier and after taking into account the payment of a dividend in that period.

NAB’s estimated proforma capital ratio, under new regulatory requirements that took effect in January, stands at 11.6 per cent.

“Capital and provisioning remain strong and we are well advanced on our FY23 term wholesale funding task with $20bn issued by 10 February,” Mr McEwan said.

As the banks face scrutiny from a new probe by the competition regulator on deposit pricing, they have argued that wholesale funding costs are rising. Banks fund loans from deposits and wholesale funding.

Originally published as NAB’s quarterly earnings soar 19pc to $2.15bn, bank says can withstand slowing economic conditions