National Australia Bank Ltd. (ASX: NAB) released its first-quarter trading results this morning. While its CEO Andrew Thorburn described the result as a "solid start to 2017" however, the bank did reveal a decline in cash earnings compared to the prior corresponding period.
According to the bank's release, it generated approximately $1.6 billion in cash earnings during the three months ended December 2016. That figure was 1% below the cash earnings generated during the same period in the prior year while it was also 1% lower than the quarterly average for the September 2016 half year result.
During the period, NAB managed to grow revenue by 1% and noted that it had achieved some savings via productivity improvements. It also said that its Net Interest Margin, or NIM, remained stable, meaning that it made around the same level of profitability on the loans that it has written. However, personnel costs contributed to a 5% increase in expenses which weighed on the group's result today. Meanwhile, Thorburn also noted 'intense' competition at a time of record low interest rates, as well as elevated funding costs.
On a more positive note, the bank did report a 23% decline in the charge for bad and doubtful debts to $164 million. Indeed, the bank had reported a significant increase in bad and doubtful debts in relation to mining, mining related and agricultural sectors last year, so investors will be relieved to see that has not been repeated.
Here are some of the other highlights from today's report:
- Group's Common Equity Tier 1 (CET1) ratio was 9.5% at 31 December, compared to a target of 8.75% to 9.25%
- The group's leverage ratio was 5.4% on an APRA basis at 31 December 2016
- The group's quarterly average liquidity coverage ratio (LCR) was 124% at 31 December 2016
Commenting on the result, NAB's CEO Andrew Thorburn said:
"We are taking a disciplined approach to reshaping our business, balancing higher levels of investment with tight cost management, to become more efficient and to serve customers better. Our first quarter expenses were impacted by the usual 1 October salary increases as well as elevated redundancy costs. Our FTE3 levels reduced by 488 in the quarter and for this full year we remain on track to deliver more than $200 million in productivity savings and continue to target positive 'jaws'. We are well advanced on a number of initiatives that give us confidence about second half productivity and cost benefits."
Despite management's confidence in the result, however, NAB's shares started the day in the red. They're currently trading 0.8% below their closing price from Friday, while its rivals Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) have gained 0.7% and 0.8% respectively. Westpac Banking Corp (ASX: WBC) shares have also gained 0.8% at the time of writing.
