The National Australia Bank Ltd (ASX: NAB) share price is under the spotlight after the ASX bank share revealed major profit growth in FY23 Q1.
Strong start for NAB in FY23
NAB told investors how it performed for the December 2022 quarter.
It said that it made $2.05 billion of statutory net profit after tax (NPAT).
The bank also revealed $2.15 billion of cash earnings, which was 18.7% higher than the FY22 first quarter. Cash earnings before tax and credit impairment charges increased by 27%.
That profit increase was driven by revenue rising by 15%, thanks to higher margins, stronger markets & treasury income and volume growth. Excluding markets & treasury, revenue rose 12%.
Expenses only grew by 4%, or 3% excluding the acquired Citi consumer business. Higher staff-related costs were partly offset by productivity and lower remediation charges.
Net interest margin (NIM)
The NIM tells investors what profit margin the bank is making on its lending. It’s the loan rate for borrowers, compared to the percentage rate of bank funding (such as deposits like savings accounts). If NAB can increase its NIM, that can be positive for the NAB share price.
NAB’s NIM rose 12 basis points (0.12%) to 1.79%. Excluding markets & treasury and the impact of ‘liquids’, NIM rose 15 basis points (0.15%) to 1.82%.
The ASX bank share said it’s benefiting from the rising interest rate environment, partly offset by home lending competition.
Balance sheet and credit quality
NAB revealed that its common equity tier 1 (CET1) ratio was 11.3% at the end of the December 2022 quarter. Its balance sheet is still in a strong position, as it has been through the COVID-19 pandemic.
But, the bank did say that its credit impairment charge was $158 million, reflecting the impact of lower house prices and business lending volume growth. However, specific charges remain at low levels. The quarterly impairment charge was the highest it’s been over the last two years.
The ratio of loans that were overdue by at least 90 days was 0.62% at December 2022. This was down from 0.66% at September 2022, 0.70% at June 2022, 0.75% at March 2022 and 0.81% at December 2021.
Final thoughts on the NAB share price
This seemed like a good update from NAB. Profit growth, a very low amount of loans being overdue, a strong balance sheet. These are good signs for the business.
The bank is targeting productivity benefits of around $400 million in FY23.
I think NAB is one of the best banks on the ASX, so if I had to pick one, it’d be one of the first I’d put in my portfolio.
However, there are other ASX dividend shares that I think have more growth potential, which could mean stronger overall returns.
