The National Australia Bank Ltd (ASX: NAB) share price is in the spotlight today after the big ASX bank share revealed its FY23 half-year result.
These numbers that NAB has reported are for the six months to 31 March 2023.
NAB HY23 result
Here are some of the highlights from the result:
- Revenue increased by 19.3%, but excluding the Citi acquisition it rose 16.6%
- The net interest margin (NIM) increased 14 basis points (0.14%) to 1.77%
- Total lending (gross loans and advances) increased 6.2%, while deposits went up 8.4%, excluding Citi the lending increased 4.2%
- Expenses rose 11.6%, or 6.3% excluding Citi
- There was a credit impairment charge of $393 million
- Cash earnings grew by 17% year on year to $4.07 billion
- Statutory net profit after tax (NPAT) grew 11.7% to $3.97 billion
- Half-year dividend grew by 13.7% to $0.83 per share
The NIM is a measure showing how much lending profit a bank is making, it compares the loan rate to the funding cost (eg savings account interest). The higher NIM reflected higher earnings on deposits and capital as a result of the rising interest rate environment.
Revenue rose thanks to higher margins combined with stronger volumes and markets & treasury income.
Expenses rose because of salary increases, continued investment in technology and compliance, and payments for remediation. It was offset by productivity benefits.
There was a larger credit impairment charge because of lower house prices, volume growth, and a “modest increase” in specific charges from a low starting point.
NAB said that strong underlying profit growth reflected execution of its long-term strategy, which has allowed it to make “deliberate choices to target growth in higher returning segments combined with the impact of the interest rate environment.”
Arrears
Despite all of the interest rate rises, NAB revealed that the ratio of loans that are 90+ days past due reduced 9 basis points (0.09%) to 0.66%. It was 0.66% in the second half of FY22 as well. Will this start rising later this year? If arrears don’t rise, the NAB share price could benefit.
NAB explained that key drivers include improved delinquencies across the Australian home lending portfolio partially offset by an increase in business lending arrears.
The bank said that while there are encouraging signs that “inflation is moderating and interest rates are peaking in Australia, the full impact of a higher cost of living and higher interest rates on the outlook remains uncertain, particularly the extent to which households reduce discretionary spending and potential flow-on consequences to the broader economy.”
Dividend yield
I’m expecting NAB to grow its dividend in the second half of FY23, but if we add the latest $0.83 dividend to the $0.78 final dividend, that’s an annualised payout of $1.61, which is a fully franked dividend yield of 5.6%.
The dividend yield including the franking credits is around 8%. So, I think the actual FY23 dividend yield will be even higher.
Final thoughts on the NAB share price
I like that the business is taking a disciplined approach to home lending, rather than punishing its margins. Its loan growth is tracking at 0.6x system growth, it’s prioritising more attractive growth options across the bank, such as business lending. I think this is good for longer-term returns.
NAB noted that growth is slowing, but the Australian economy appears to be resilient. The dividend could be a key part of the returns if lending competition remains strong. I think NAB is one of the strongest banks, with a focus on sustainable profit generation. It’d be my pick of the big four.
