The National Australia Bank Ltd (ASX: NAB) share price is under the spotlight today after reporting its FY24 third quarter update.
NAB FY24 third quarter update
NAB’s third quarter finished on June 2024, and it saw a “more stable operating environment” and benefited from the consistent execution of its strategy.
The major ASX bank reported it made $1.9 billion of statutory net profit after tax (NPAT) and $1.75 billion of cash earnings over the quarter.
The cash earnings of $1.75 billion was 0.2% lower than the quarterly average of the first half of FY24. However, underlying profit declined 2%.
Revenue declined by 1%, though excluding ‘markets and treasury’ income, revenue rose 1% thanks to volume growth and higher ‘other operating income’, including business lending fees. Expenses increased 1%, due to higher salaries, partly offset by productivity benefits.
Highlights of the quarter
The bank reported its net interest margin (NIM) – a measure of how much profit it makes on its lending in percentage terms – was “stable” with “small reductions from lending competition and deposit mix”. A stabilised NIM would be good news for the NAB share price, in my opinion.
NAB revealed lending balances rose by 1% over the June quarter, with 3% growth in the Australian SME (small and medium enterprise) business lending division. The bank said it’s prioritising growth in this SME segment.
In the Australian home lending division, its growth was lower than Australian’s lower loan system, at 1%.
NAB said it’s balancing returns and growth in this market, and will “remain important”.
Deposit growth is an “ongoing focus”, with 1% growth across business and private banking, and personal banking, during the third quarter of the FY24.
NAB said it has delivered further efficiency benefits this quarter, helping the bank manage costs and invest for long-term sustainable growth. The bank is still targeting productivity savings of approximately $400 million in FY24 and for cost growth in FY24 to be lower than FY23.
The bank reported a credit impairment charge of $118 million, reflecting a “further deterioration in asset quality”.
NAB said the ratio of non-performing exposures increased by 11 basis points (0.11%) from March 2024 to 1.31%, reflecting deterioration in the business and private banking segment, including higher arrears for the Australian mortgage portfolio. In other words, the loan book continues to worsen.
Management comments
The NAB CEO Andrew Irvine said:
The economic environment, including persistent inflationary pressures, is challenging for our customers and we are here to help them. While most customers are proving resilient, not unexpectedly we have seen asset quality deteriorate further in 3Q24. It is essential we keep our customers and our bank safe. Liquidity and collective provision coverage are healthy. Capital remained strong over the quarter supporting the continuation of our on-market share buy-back.
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. But there will be no change to our disciplined approach to accountability and execution. We remain well placed to manage our business for the long term and deliver sustainable growth and returns for shareholders.
Final thoughts on the NAB share price
The NAB share price is up 1% at the start of morning trading in response to this update. Investors seem to like it, though rising arrears are not exactly a positive.
If I were a shareholder, I’d be happy with how things are progressing overall, but I’d be concerned if arrears keep rising from here.
However, with the NAB share price up more than 26% over the last year, I wouldn’t say it’s a good buy right now.
