National Australia Bank Ltd (ASX: NAB) has announced its FY20 third quarter to investors which showed more COVID-19 pain.
NAB FY20 Q3
A few months ago the major bank announced its FY20 half year result. Included in the half-year result was an $807 million provision relating to potential COVID-19 impacts, with total credit impairment charges of $976 million.
NAB said that it generated $1.5 billion of unaudited statutory net profit and $1.55 billion of unaudited cash earnings.
Compared with the quarterly earnings average from the first half of FY20 (and excluding large notable items), cash earnings rose by 24% and cash earnings before credit impairment charges increased 17%.
NAB 3Q: Revenue up, but margins narrow
NAB’s third-quarter revenue rose 10% thanks to higher Markets & Treasury income including the reversal of unrealised investment losses, meaning NAB’s assets rose in value over the quarter so it wasn’t showing a loss on paper.
The net interest margin (NIM) was largely stable, but after excluding Markets & Treasury it declined due to the low interest rate environment and competitive pressures. Lower funding costs partly offset this.
NAB’s expenses in the quarter increased by 2% with higher annual leave accruals and remuneration according to the bank. It said its target of flat expenses in FY20 is increasingly challenging, partly due to COVID-19 impacts such as additional customer support.
Credit impairment charges and overdue loans.
NAB recognised another $570 million of credit impairment charges after the $976 million charge in the second quarter. Remember that the 2020 first quarter had a $185 million charge and the third quarter of 2019 had a $247 million charge.
The NAB ratio of loans overdue by more than 90 days has increased again to 1.06%, up from 0.97% in the second quarter. It was 0.94% at the end of the first quarter and 0.93% at the end of FY19.
Balance sheet strength
NAB revealed that after its $4.25 billion discounted capital raising and reduced dividend payment it had a CET1 capital ratio of 11.6%.
Summary
The NAB share price responded positively to this quarter’s number, rising 0.9%. Generating $1.5 billion of profit in this COVID-19 environment is pretty good, in my opinion.
However, I still think the Commonwealth Bank of Australia (ASX: CBA) is the ASX’s best bank share. That said, NAB is the dark horse with Ross McEwan now leading the bank towards recovery.
For reliable dividends I’d rather invest in other ASX dividend shares – make sure you bookmark this page for regular ideas – or my preferred idea is Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.
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