The National Australia Bank Ltd (ASX: NAB) share price is under the spotlight after reporting its FY22 half-year result.
NAB has reported its numbers for the six months to March 2022.
NAB HY22 result
Here are some of the highlights from the report showing the year on year comparisons:
- Net interest income rose 3.6% to $7.09 billion
- Operating expenses increased 2.6% to $3.96 billion
- Underlying profit rose 6.3% to $4.87 billion
- Credit charge of $2 million
- Cash earnings up 4.1% to $3.48 billion
- Statutory net profit up 10.7% to $3.55 billion
- Dividend growth of 22% to $0.73 per share
The bank showed that business and private business cash earnings rose 17.5% to $1.43 billion, while personal banking cash earnings dropped 8.3%. Corporate & institutional banking cash profit rose 3.1% to $806 million, while New Zealand banking cash earnings rose 8.4%.
The business and private banking profit rise mostly reflected increased revenue, benefiting from strong growth in lending and deposit volumes.
The personal banking segment saw a profit drop due to lower credit impairment write-backs and reduced revenue due to competitive pressures and a mix shift in the housing lending portfolio.
Profit growth is obviously an important factor for the NAB share price.
Net interest margin (NIM)
This profit measure compares the income it generates from lending compared to the cost of the funding of that money. Savings deposits are a major category of the costs to lend.
The NIM declined 11 basis point (0.11%) to 1.63%. However, excluding the impact of ‘markets and treasury’ and higher holdings of liquid assets, the NIM declined 3 basis points (0.03%).
Credit quality
The HY22 credit impairment charge of $2 million compared to a write-back of $128 million in the year before. The HY22 charge reflects increased charges for forward-looking provisions for potential bad debts, combined with an underlying write-back.
Essentially, NAB increased its provision to include the increased risks, including the potential impact of higher inflation and interest rates.
However, the ratio of loans that were 90+ days past due and gross impaired assets to gross loans (and acceptances) reduced by 48 basis points (0.48%) to 0.75%. That’s a good thing and a big improvement.
Dividend and balance sheet
NAB’s board decided on a sizeable dividend increase to $0.73 per share.
It had a pro forma common equity tier 1 (CET1) of 11.65% at the end of the half when including the estimated impact of the proposed acquisition of the Citi Australian consumer business.
Outlook for the NAB share price and profitability
NAB is commencing another $2.5 billion share buy-back in May 2022, which can help support the NAB share price.
While it’s working on productivity to lower costs, growth and inflation mean it’s expecting cost growth of approximately 2% to 3% in FY22 and it’s no longer targeting absolute cost reductions by FY23 to FY25. The agreement to the enforceable undertaking with AUSTRAC is included in the 2% to 3% target.
It’s confident about the medium-term outlook for the Australian and New Zealand economies.
After a 10% rise in the NAB share price in 2022, I’m not sure how much further it can rise. The market already knows that interest rates are going to rise. It’ll be interesting to see how much the rising interest rate environment can help NAB’s NIM – competition in the sector supposedly remains strong.
For me, there are other ASX dividend shares I’d rather invest in for income.
