The National Australia Bank Ltd (ASX: NAB) share price will be one to watch on Tuesday.
This morning the banking giant released its first quarter update.
How is NAB performing in FY 2021?
For the three months ended 31 December, NAB reported an unaudited statutory net profit of $1.7 billion and cash earnings of $1.65 billion. The latter was a 1% increase on the prior corresponding period.
NAB also provided the market with a comparison to the average quarterly performance of the bank during the second half of FY 2020. Based on this, the bank’s revenue fell 3% over the period. This reflects lower Markets & Treasury income mainly due to the non-repeat of mark-to-market loss reversal. Excluding this, revenue would have grown 1% thanks to higher fees and commissions income.
Cash earnings excluding large notable items improved 47% on the quarterly average it achieved during the second half of FY 2020. Whereas cash earnings before tax and credit impairment charges fell 5%.
The bank’s net interest margin declined but was stable excluding the impact of Markets & Treasury segment. Management advised that competition and low interest rates were offset by home loan repricing and lower funding and deposit costs.
One positive that might bode well for the NAB share price was its cost control. NAB’s expenses fell 1% thanks to productivity benefits and lower restructuring related costs. Management advised that it continues to target FY 2021 expense growth of between 0% to 2%.
At the end of the period, NAB had a CET1 ratio of 11.7%. This is well-ahead of APRA’s unquestionably strong benchmark.
Asset quality
Another positive that may go down well with investors and support the NAB share price was its update on asset quality.
The releases advises that credit impairment charges fell 98% compared with the quarterly second-half average of FY 2020. Furthermore, the number of 90+ days past due and gross impaired assets to gross loans and acceptances declined 2 basis points to 1.01%.
Though, it does note that there has been a 17 basis points increase in January due to missed payments relating to a large cohort of home loan customers exiting deferrals in October.
Speaking of which, Australian home loan deferral balances have reduced to $2 billion and Australian business loan deferral balances have fallen to $1 billion. This compares to peak deferral balances of ~$38 billion and ~$19 billion, respectively.
And while current asset quality trends for customers exiting deferrals are worse than for the total portfolio, management advised that they are better than expected. Furthermore, as of 3 February, the bulk of customers exiting deferrals have resumed repayments (over 90% of balances) and just a small cohort require further assistance.
Management commentary
NAB’s CEO, Ross McEwan, was cautiously optimistic on the future of the bank.
He said: “Implementation of our strategy is proceeding well as we invest for the long term and focus on initiatives that make a real difference to our customers and colleagues. While there is still much to do, it is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings.”
The NAB share price is up 10% so far in 2021. Investors will no doubt be hoping this update helps drive its shares even higher today.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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