The National Australia Bank Ltd (ASX: NAB) share price is down 6% today after the bank reported its FY25 first quarter update.
FY25 first quarter update
NAB reported that it generated $1.7 billion of statutory net profit and $1.74 billion of cash earnings in the three months to December 2024.
The cash earnings were 2% lower than the quarterly average of the second half of FY24. This included 4% underlying profit growth, offset by a higher credit impairment charge and income tax expense.
Revenue rose 3%, primarily due to higher markets and treasury income. Excluding that, revenue was broadly stable.
There was a small decline in the net interest margin (NIM), a metric that tells investors how profitable its lending is, in margin terms. The NIM was impacted by funding costs, lending competition and deposits. A falling NIM is not a good effect for the NAB share price.
Expenses rose 2%, mainly reflecting higher personnel and financial crime-related costs, as well as higher technology spending. This was offset by productivity benefits and lower costs relating to AUSTRAC.
Loan portfolio performance
The bank reported a credit impairment charge of $267 million, with $152 million of individually assessed charges (meaning specific loans going bad) related to Australian business lending and unsecured retail portfolios. Collective charges were $115 million primarily reflecting asset quality deterioration and Australian business lending volume growth. This isn’t great news for the NAB share price.
NAB revealed that its ratio of non-performing loans increased by 4 basis points (0.04%) from September 2024 to 1.43%. This deterioration was mainly in its business and private banking segment, combined with higher arrears for the Australian mortgage portfolio.
Management commentary
The NAB CEO Andrew Irvine said:
Over the December quarter, our focus on improving deposit performance has supported good growth of 2% in deposit balances. Australian home lending grew 1% and we have seen improved momentum versus system of 0.9x compared with 2H24 and increased drawdowns through our proprietary channels. Business lending balances rose 2% including 1% growth in SME business lending.
We have delivered further efficiency benefits this quarter, helping us manage costs while investing for long term sustainable growth. We continue to target productivity savings in excess of $400 million in FY25 and for operating expense growth in FY25 to be lower than FY24 growth of 4.5%.
The economic outlook is improving but cost of living and interest rate challenges persisted during 1Q25. While most customers are proving resilient, we have maintained prudent balance sheet settings to allow us to support customers while keeping our bank safe.
Final thoughts on the NAB share price
A 6% decline is a big negative reaction for NAB, but perhaps unsurprising considering the high starting valuation, the lower profit and the rising troubles in its loan book.
NAB is better value today, but I’m not sure about its profit growth outlook from here, so there are other ASX dividend shares I’d rather buy first.
