This morning National Australia Bank Ltd. (ASX: NAB) released its 3rd quarter trading update to investors revealing a cash profit of $1.65 billion, which represents a 3% fall compared to the same period a year earlier.

NAB has a slightly different reporting calendar to many ASX-listed companies like Commonwealth Bank of Australia (ASX: CBA) but updates the market this time of the year with a brief quarterly update.

NAB said its revenue grew by 1% year over year thanks to better lending to small and medium businesses as part of its Business & Private Banking division. However, its all-important net interest margin (NIM) declined slightly due to higher funding costs and “intense home loan competition“.

The net interest margin, or NIM, is an important metric for analysts because it represents the difference between what it costs NAB to get money in the door. For example, NAB pays interest on deposits from customers and loans from big lenders (“wholesale funding”). Then, it earns interest on loans to customers. The difference is the net interest margin.

“We have a long term plan focused on becoming a simpler bank that is better for our customers today and into the future,” NAB CEO Andrew Thorburn said.

“Revenue is up, despite elevated short term wholesale funding costs, while asset quality and balance sheet metrics remain strong.”

Another metric to watch is the expenses. NAB said its expenses rose 2% due to an increase in compliance costs and increased investment. NAB recently fronted the Royal Commission into banking and superannuation.

“The Royal Commission is challenging us with its focus on where we have let customers down,” Thorburn said. He said the bank is determined to respond and become a better bank.

Finally, NAB said its asset quality “remains sound” with the number of loans 90 days past due being 0.71% of total loans — the same as last quarter.

Last week, Commbank reported its full-year results showing an increase in consumer arrears. “There has been an uptick in home loan arrears as some households experienced difficulties with rising essential costs and limited income growth, leading to some pockets of stress,” Commbank said.

Introducing The Australian Investors Podcast

Join The Rask Group’s founder, Owen Raszkiewicz, as he profiles Australia’s best investors, founders, authors and financial thinkers. Download it free on iTunesCastboxSoundCloud or wherever you choose to listen.

itunessoundcloudcastboxdownload