The National Australia Bank Ltd (ASX: NAB) share price is rising today after reporting a recovery in its FY21 first quarter profit.
What happened in NAB’s FY21 first quarter?
NAB reported that it generated $1.7 billion of unaudited statutory net profit in the FY21 first quarter. It also made $1.65 billion of unaudited cash earnings.
The big bank explained that improving economic trends have been a key driver of the result which saw first quarter cash earnings 47% higher than the FY20 second half quarterly average, primarily driven by low credit impairment charges.
Compared to the prior corresponding period of the FY20 first quarter, cash earnings were actually up 1%. However, cash earnings before tax and credit impairment charges were down 6%.
Operating performance
NAB’s revenue declined 3%, reflecting lower markets and treasury income – excluding those two segments, revenue grew 1% with higher fees and commissions income benefiting from increased levels of business activity.
Expenses fell 1% due to productivity benefits and lower restructuring related costs, partly offset by provisions for higher performance-based compensation. The major bank is still targeting FY21 expense growth of between 0% to 2%.
Net interest margin (NIM)
The NIM is important because it shows how much profit that the bank is making on the loans that it gives out (compared to the cost).
NAB said that the NIM declined but was stable excluding the impact of markets and treasury and higher liquidity. Competition and the impact of lower interest rates were offset by home loan repricing and lower funding and deposit costs.
Loan quality
Credit impairment charges fell 98% compared to the second half quarterly average to $15 million.
In the first quarter of FY21, NAB said that the ratio of loans overdue by more than 90 days was almost flat at 1.01%, however the ratio for January 2021 increased by 17 basis points (0.17%) to 1.18% mainly due to missed payments relating to the large cohort of home loan customers exiting deferrals in October.
Despite that, the NAB common equity tier 1 (CET1) ratio improved to 11.7%, up from 11.5% at 30 September 2020. The sale of MLC is expected to add another 35 basis points (0.35%) to the CET1 ratio.
What’s NAB’s view on the economy now?
NAB said that improving economic and health outcomes in Australia and New Zealand are encouraging, as are the reductions it’s seeing in deferral balances. However, there are still a number of uncertainties requiring clarity, according to the bank. Those include the ongoing COVID-19 restrictions and the wind-down of deferral and jobkeeper programs.
Summary thoughts
It’s good to see that the first quarter of NAB’s FY21 displayed a strong level of profit recovery. That could be good news for the upcoming interim result and dividend. However, the rising overdue loans is a concern.
The NAB share price is almost back to where it was before the GFC crash, so I wouldn’t call it good value now.
I do believe that there are a few ASX dividend shares that could be worth considering.
Before you consider NAB, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
