Citigroup analyst Brendan Sproules said the result was disappointing given NAB’s rally since June, but the impact of the Reserve Bank of Australia raising interest rates would be better reflected in the remaining months of 2022.
“Overall, we expect the market will be disappointed with this profit update after a strong share price rally from its June lows. Rising rates are expected to lead to a very different fourth quarter result with upside risk to financial year 2023 consensus estimates,” Mr Sproules said.
Mr McEwan said the business is “in good shape for this evolving environment”.
“Balance sheet settings remain strong and we are well advanced on our financial year 2022 term wholesale funding task with $34 billion raised by end June,” he said.
NAB’s investments in digital experiences are expected to exceed $400 million in productivity benefits this year.
“We have a clear strategy and executing this with discipline is our key priority. We will continue to focus on getting the basics right, managing our bank safely and improving customer and colleague outcomes to deliver sustainable growth and improved shareholder returns,” Mr McEwan said.
Despite fears about the deteriorating macroeconomic environment, NAB said its credit impairment charges stood at $11 million “reflecting continued benign asset quality including low specific charges”.
“There has been no impact on credit impairment charges from changes to assumptions used in the economic adjustment or forward-looking adjustments during the quarter,” the bank confirmed.
Mr Sproules said cash earnings were in line with consensus, however they benefited from a very low bad and doubtful debt charge of just $11 million.
“Pre-provision profit of $2.5 billion was in line with Citi but 5 per cent below consensus, driven by weaker than expected revenue growth of just 3 per cent,” Mr Sproules said.
“NAB’s underlying revenue growth [stripping out the impact of acquiring Citigroup’s Australian consumer business] of 2 per cent was well below ANZ’s 5 per cent.”
NAB’s net interest margin (NIM) was also slightly lower, dragged down by markets and treasury performance.
“Excluding markets and treasury, NIM was up slightly reflecting the benefit of a rising interest rate environment, partly offset by home lending competition and higher wholesale funding costs,” NAB said.
While the market had been looking for margin expansion on the back of the Reserve Bank of Australia’s move to hike the cash rate in May and June, Mr Sproules said NIM ex markets and treasury was up “only slightly” compared to consensus expectations for a 4 basis point expansion.
UBS analyst John Storey said “the commentary on NIM is maybe a bit disappointing in the context of some banks which have already reported, but the underlying margin trend is as expected.”