UBS analyst John Storey said the new buyback was a positive, but underlying drivers are mixed. “A big question we have is, will an inline set of results be enough to sustain the upward momentum in NAB’s share price?” he said.
NAB’s net interest margin, a core revenue driver, fell 5 basis points in the half to 1.72 per cent, reflecting the tighter home lending competition and term deposit costs. It is down from 1.77 per cent a year earlier.
Competition for home loans through the broker channel is particularly intense, with pricing currently below the cost of capital, Mr Irvine revealed. He said this was forcing NAB to compete more on service, including providing certainty on settlement times, than on price.
However, mortgage net interest margins had bottomed out and rose slightly in the fourth quarter, he said. “At least the trajectory is upwards now.”
Bank in ‘good shape’
“Our first half financial performance has benefited from the disciplined execution of our strategy in a challenging environment,” Mr Irvine said. “This has helped us manage the impacts of slowing economic growth and competitive pressures while also absorbing a higher effective tax rate.”
NAB slightly lifted provisioning for bad debts, with total provisions of $5.8 billion reflecting “deteriorating asset quality”, the bank said. Overall impaired loans remain low, at 0.79 per cent of total lending.
Mr Irvine added: “Our bank and most customers are in good shape and the outlook for theAustralian economyremains resilient.”
But in a call with reporters, he explained that many Australians are doing it tough and demand for social services was rising. While most are “doing okay, that does not mean they are enjoying it,” he said.
Household consumption growth had slowed sharply in the second half of 2023 and NAB said it had recorded a 7 per cent increase in calls to its customer assistance centre over the first half; those in need are being offered reduced repayments, payment breaks, restructures and loan term extensions.
To struggling customers, he said: “Don’t tough it out on your own. Get in touch with us as soon as possible.”
However, some relief to cost-of-living pressures is anticipated later this year with expected tax cuts and a forecast easing in monetary policy from November should inflation continue to moderate, he said.
And business credit is growing strongly, far exceeding NAB’s expectations. It was up 9 per cent in the half, and the March pipeline for loans was NAB’s strongest on record, which Mr Irvine described as “frankly astonishing”.
Employment to grow
“Pressure has eased in the labour market and wage growth is expected to slow from elevated rates in 2023,” Mr Irvine said.
“The unemployment rate is expected to continue to drift higher – peaking at around 4.5 per cent by the end 2024 – but most indicators of labour demand remain healthy suggesting employment will continue to grow.”
Consensus forecasts put NAB’s cash profit at around $3.58 billion.
JPMorgan analyst Andrew Triggs, who predicted the 84¢ a share dividend, said: “NAB is more exposed to a deteriorating credit quality cycle due to its larger SME franchise,” but is well provisioned. He rates NAB shares “overweight”.
The greater exposure to business lending would also give it more scope to “return to above-peer NIM (and hence revenue growth) performance”, the analyst said in a preview last week.
Mr Irvine said he would maintain the same strategy that Mr McEwan initially put in place in April 2020 to create a stronger, simpler bank. “We are proud of our progress, but there is more to do,” the new boss said.
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