The National Australia Bank Ltd (ASX: NAB) share price is on watch after the big four ASX bank revealed more profit growth in the FY22 first quarter.
NAB’s solid Q1 profit growth
NAB reported that its statutory net profit was $1.8 billion. Cash earnings were also $1.8 billion.
The cash earnings represented an increase of 9.1% compared to the first quarter of FY21. Cash earnings before tax and credit impairment charges went up 6%. Compared to the quarterly average from the FY21 second half, cash earnings grew by 12%.
Revenue increased 8% reflecting higher volumes across housing and business lending, increased fees and commissions and a recovery in markets & treasury (M&T) income. Excluding M&T, revenue rose 5%.
Expenses increased 2%, mainly reflecting higher salaries and leave costs, combined with investments to support growth, combined with investment to support growth, partly offset by productivity benefits.
NAB said that asset quality remained “benign” and good momentum has continued across the business despite the lending environment remaining competitive. The ratio of loans that are 90+ days past due has fallen each quarter over the last few quarters, which is a good sign. It’s now at 0.81%.
Volumes have been strong over the quarter with lending and deposits each up $18 billion. This type of growth should help the NAB share price over time.
In Australia, over the three months to December 2021, home lending grew 2.6% and small and medium enterprise (SME) business lending increased 3.4%, and it gained market share across the core lending and deposit products. New Zealand loan growth was also “strong” at 2.2% over the same period.
Net interest margin (NIM)
The NIM can have an important impact on profitability.
It’s the net effect of how much a bank is making on its loans, compared to the cost of funding those loans (such as the interest rate of savings accounts).
The NIM declined 5 basis points to 1.64%, which included a modest negative impact from M&T and higher liquids. Excluding those impacts, NIM declined 2 basis points due to competitive pressures and housing lending mix, partly offset by lower funding and deposit costs.
Balance sheet strength
The group common equity tier 1 (CET1) ratio ended the period at 12.4%. This is comfortably more than the minimum set by APRA. I think it gives NAB the flexibility to pay a good dividend and possibly carry out a share buy-back.
Final thoughts on the NAB share price and this update
I thought it was a solid update. Taking the lowest reported growth number of 6%, that’s an impressive amount of underlying growth considering how large NAB is in my opinion – I’d be happy as a shareholder with that. It also recently announced an interesting digital healthcare acquisition.
Of the big four ASX banks, NAB would probably be my pick when looking at its business operational improvements combined with the current valuations of the other banks. But, there are other ASX dividend shares I’m looking at with even more long-term potential.
