The National Australia Bank Ltd (ASX: NAB) share price is in focus as the bank reports its FY22 result.
NAB is the last of the major banks to reveal its numbers for the 12 months to September 2022.
NAB FY22 result
Here are some of the main numbers reported by NAB for the year:
- Statutory net profit after tax (NPAT) rose 8.3% to $6.89 billion
- Cash earnings increased by 8.3% to $7.1 billion
- The CET1 capital ratio was 11.51% at the end of the year
- Final dividend of $0.78 per share, up 16%
- Total FY22 dividend of $1.51 per share, up 19%
Management described this result as pleasing. The bank reported that underlying profit growth increased by 11.5%. It continues to target volume growth, while being disciplined with managing costs and investing for growth. Profit performance usually makes a difference to the NAB share price.
Revenue increased by 8.9%, or 7.8% excluding the impact of the Citi consumer business acquisition.
Gross loans and advances (GLAs) increased 9.3% and deposits rose 13.3%. Excluding the impact of the Citi consumer business, GLA increased 7.3%, with housing lending up 5.6% and non-housing lending up 9.6%.
Net interest margin (NIM)
NAB reported that the NIM decreased by 6 basis points (0.06%) to 1.65%.
Excluding a 1 basis point (0.01%) increase from the Citi consumer business and an 8 basis point (0.08%) reduction from markets & treasury which includes the impact of holding higher liquid asset, NIM rose 1 basis point.
NAB said that the above effects primarily reflect higher earnings on deposits and capital as a result of the rising interest rate environment, mostly offset by home lending competition.
The NIM is very important for banks because it shows how much profit it’s making from its lending. Therefore, improvement in the NIM could be a help for the NAB share price.
Investors are thinking that the higher interest rates will lead to better profit.
NAB revealed that its fourth quarter NIM was 1.72%, an increase of 10 basis points (0.10%) compared to the third quarter.
Outlook for FY23
The big bank said that housing lending competitive pressures are “likely to intensify”.
NAB’s mix of deposits is an accelerating headwind, with a further increase in funding costs.
The NIM impact of RBA cash rate increases on unhedged deposits is expected to peak in the first half of FY23, however the estimated benefit of cash rate increases from October 2022 is “expected to be lower”.
NAB suggested that the most likely scenario is that the cash rate will reach 3.6% in March 2023 “but a more inflationary outcome would likely mean greater monetary policy tightening and a more pronounced economy correction.”
My thoughts on the NAB share price
Taking the numbers by themselves, I thought this was another impressive performance of growth by NAB, with bigger dividends too.
However, it’s interesting that NAB is still referring to strong competition, and the benefit of cash rate increases is expected to be lower.
I believe that NAB is the best of the big four banks to own, but I’m going to keep my eyes on how the NIM develops – as hopes of increased profitability has driven the NAB share price higher up until now.