The National Australia Bank Ltd (ASX: NAB) share price is under the spotlight after the bank reported its FY24 first quarter update.
FY24 first quarter
NAB reported that it made $1.7 billion of statutory net profit after tax (NPAT) and $1.8 billion of cash earnings after tax.
The cash earnings fell 16.9% compared to the first quarter of FY23, and it was down 3% compared to the FY23 second-half quarterly average. Cash earnings before tax and credit impairment charges were down 13.3% year on year.
However, NAB noted that compared to the second-half quarterly average, cash earnings were broadly stable after excluding the impact of a higher effective tax rate.
Revenue rose 1% and expenses 2%. The net interest margin (NIM) slightly rose, though it was down if excluding ‘markets and treasury’ and the impact of ‘liquids’. It’s paying more to savers and there is a lot of Australian home lending competition.
Management said its performance reflects a “continued disciplined approach to growth during what remained a highly competitive period, combined with a focus on productivity to help offset cost pressures.” Remaining disciplined during this tricky period will be key for profitability and the NAB share price.
Over the quarter, lending balances rose 1%, with 2% growth in Australian small and medium business lending and 1% growth in Australian home lending. Customer deposit growth of 2% was “pleasing”.
Balance sheet comments
NAB said its strong balance sheet settings were maintained over the December quarter. It had a common equity tier 1 (CET1) ratio of 12% at 31 December 2023, above its target range of between 11% to 11.5%, even after allowing for the completion of its current on-market share buyback.
It noted its collective provision as a ratio of credit risk weighted assets (loans) increased. NAB also said its term wholesale funding task is “well progressed” with $20 billion issued as at 9 February 2024.
The credit impairment charge for this result was $193 million, reflecting higher Australian home loan arrears. The amount of loans at least 90 days overdue (and gross impaired loans) was 0.75%, up from 0.62% from the first quarter of FY23.
Final thoughts on the NAB share price
With rising arrears, NAB is entering the most important time of this higher rates period. The CEO Ross McEwan is leaving, who I highly rate, so that’s a negative.
I think NAB is one of the better banks now, and I hope the new CEO can continue its good performance. I wouldn’t call it a buy in this situation, at least until credit growth returns to a more normalised level. A lot of factors are weighing against banks at the moment, so I’d look to other ASX dividend shares right now.
