The National Australia Bank Ltd (ASX: NAB) share price will be one to watch on Thursday after the banking giant released its full-year results.
Here are key takeaways from today's release:
- Statutory net profit of $5,285 million.
- Cash earnings increased 2.5% to $6,642 million.
- Cash earnings per share of 249 cents.
- Final dividend of 99 cents per share fully franked. Full-year dividend of $1.98 per share.
- Net interest margin down 3 basis points to 1.85%.
- Common Equity Tier 1 (CET1) ratio of 10.06%, up 29 bps year-on-year.
- Bad and doubtful debts increased 1.25% to $810 million.
Overall I thought this was a reasonably solid result from National Australia Bank.
The key highlight in my opinion was the performance of its Business and Private Banking segment. Thanks to lending growth, increased margins, and disciplined expense management, the segment posted a 6.3% increase in cash earnings to $2,841 million.
Elsewhere, the Corporate and Institutional Banking segment delivered an impressive 12.3% lift in cash earnings to $1,535 million due to tight management of capital, expense reductions, and strong asset quality outcomes.
NAB's Consumer Banking and Wealth segment saw cash earnings rise 4.3% to $1,633 million thanks to housing volume growth, low expense growth, and lower bad and doubtful debts charges.
And the bank's New Zealand Banking business posted an 9.7% increase in cash earnings to $882 million due to favourable currency movements, strong lending growth, and lower bad and doubtful debts charges.
Weighing on its results was the Corporate Functions and Other segment which posted a loss of $249 million. This decrease was predominantly due to redundancy costs recognised centrally and higher collective provision overlays within the Australian portfolio.
What's next?
According to today's release, NAB is reshaping its workforce and by FY 2020 expects to create up to 2,000 new jobs. However, it expects 6,000 existing roles will be impacted as it further automates and simplifies its business.
This will result in a net reduction in staff of approximately 4,000 by the end of FY 2020, which is expected to give rise to a restructuring provision of $500 million-$800 million in the first-half of FY 2018.
Doing so will cause FY 2018 expenses to grow approximately 5% to 8%, after which the bank aims to keep expenses broadly flat in FY 2019 and FY 2020.
Should you invest?
Although NAB is arguably the best value of the big four banks, like Westpac Banking Corp (ASX: WBC) and its peers, I would still class it as a hold at the current share price.
I think the work the company is doing at cutting costs and simplifying its business will ultimately add value for shareholders, but it will take time.
