The NAB trading update is out, from Watermark via Fairfax:
Overall, the result was on the soft side with the bottom line being assisted by lower bad debts. However, NAB still exhibited growth in this quarter in contrast to ANZ’s update last week.
- Cash earnings of $1.75b for the quarter were in line with consensus expectations. Underlying profit grew by 2% in the quarter but was almost 5% below consensus expectations.
- The net interest margin declined in the quarter as a result of pressures on markets income and continued competition in business lending. Neither of these dynamics are new and have been well flagged by peers previously.
- The bad debt charge declined significantly in the quarter to 0.13% while consensus was expecting 0.17%. This decline assisted the bottom line, however it is pleasing to see that provisioning ratios did not materially deteriorate which suggests underlying credit quality actually improved rather than an aggressive release of provisions to achieve this outcome. This bad debt charge was quite different to the 0.25% we saw in ANZ’s quarterly update last Thursday but was largely due to lending mix.
- NAB reported a very healthy tier 1 capital ratio of 9.94% for the quarter. Pleasingly, NAB also mentioned that they are well placed to deal with APRA’s increased mortgage risk weightings from 1 July 2016.
Any bank relying on improving provisions at this stage of the cycle is vulnerable. The share price is basically flat.
