The National Australia Bank Ltd (ASX: NAB) share price is higher after the bank released its FY21 third quarter update.
FY21 third quarter
The big ASX bank announced that in its third quarter it generated $1.65 billion of statutory net profit and $1.7 billion of cash earnings.
NAB said that cash earnings were 10.3% higher compared to the third quarter of FY20. This was helped by “significantly better” credit impairment outcomes.
Looking within the numbers, NAB said that revenue declined 1% with higher volumes and margins more than offset by lower markets and treasury income.
It pointed to a pleasing performance with momentum across its business. In Australia, housing lending grew by 2% and small and medium (SME) business lending grew 4.3% – both of these metrics outperformed the broader loan market in recent months.
In New Zealand there was also good growth, with lending growth of 2.7%.
NAB attributed the above loan growth to the decisions and investments that it’s making, which are having a positive impact for customers and colleagues.
Balance sheet strength could help the NAB share price
NAB disclosed to investors that its common equity tier 1 (CET1) ratio was 12.6%. This is comfortably higher than APRA’s ‘unquestionably strong’ benchmark and gives the business the potential for good shareholder returns when it reports its FY21 result. Share buybacks seem to be the popular thing to do with excess capital.
Management comments
NAB CEO Ross McEwan said: “Continued COVID-19 outbreaks and lockdowns are creating uncertainty and challenges for some of our customers. Through this we will support them while keeping our bank safe. However, we remain optimistic about the long-term outlook for Australia and New Zealand. The strong economic momentum leading into this period, ongoing government support and customers’ relatively healthy starting positions give us confidence that once restrictions are eased, the economy will again bounce back.”
Final thoughts on NAB and the share price
Seeing profit rise 10% year on year is a solid outcome for shareholders. The strong capital position of the bank should be good for shareholder returns in FY21.
I’m not sure how much further the bank’s profit can rise considering, at the moment, banks are seeing the loan impairment expense not being repeated this year like last year.
There are other ASX dividend shares that I believe have more long-term compound profit growth potential.
