2022 was strong for the NAB share price. What's next?

Here's what the new year could bring for the major bank.

| More on:
A bald man in a suit puts his hands around a crystal ball as though predictin the future.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • NAB shares outperformed the ASX 200 by around 11% last year
  • Higher interest rates and profit growth may have driven the business in 2022
  • The improved lending margins may be close to a peak, with increasing uncertainty

The National Australia Bank Ltd (ASX: NAB) share price managed to significantly outperform the S&P/ASX 200 Index (ASX: XJO) in 2022.

Last year, the ASX 200 fell by around 7%, while NAB shares managed to deliver a positive gain of around 4%.

Created with Highcharts 11.4.3National Australia Bank PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

How did the bank manage to deliver a positive performance? I'd suggest it may have been down to two key things.

Positive run in 2022

A key factor for the performance of the ASX bank share segment of the market is interest rates.

The main profit generator for the Australian banking sector is lending. A change in the central bank interest rate can have widespread impact on the economy.

There were several interest rate rates by the Reserve Bank of Australia (RBA) last year. The interest rate jumped from 0.1% to 3.10%.

The lower official interest rate hurt bank lending margins, meaning their profitability was reduced. So, it would be logical for investors to think that higher interest rates can help lending margins.

NAB said that in the second half of its FY22, it had a net interest margin (NIM) of 1.67%. But, the fourth quarter NIM was 1.72%, up 10 basis points on the third quarter. This could be promising for short-term profitability.

Another factor that I think helped the ASX bank share in 2022 was that management has done a good job at turning the bank around and achieving growth.

In the FY22 report, the company reported cash earnings growth of 8.3% to $7.1 billion. Excluding the Citi consumer business acquisition, revenue rose 7.8%, mainly reflecting higher volumes with growth of 7.3% (with housing lending up 5.6% and non-housing lending up 9.6%).

NAB shares finished the 2022 financial year well capitalised, with a common equity tier 1 (CET1) ratio of 11.51%.

What could 2023 bring for the NAB share price?

The NAB CEO Ross McEwan referred to keeping "strong balance sheet settings". McEwan said when he delivered the bank's FY22 result:

Maintaining these settings is important during the current economic uncertainty, with higher interest rates and higher inflation likely to challenge some customers. However, strong employment conditions along with substantial household and business savings give us confidence in the resilience of our customers and the broader economy.

Our strategy is long term, and is not dependent on any particular operating environment or economic conditions. It is centred around an enduring ambition to improve the outcomes for our customers and colleagues. We have made good progress over the past two years which positions us well for a changing environment. However, there is more we can do. We will continue to remain focused on the disciplined execution of our strategy to support sustainable growth in earnings and shareholder returns over time.

However, the bank has also outlined key considerations for FY23.

It said that housing lending competitive pressures are "likely to intensify", as well as the deposit mix headwind accelerating, further increasing funding costs.

The NIM impact of RBA cash rate increases on unhedged deposits is "expected to peak" in the first half of FY23, with the estimated benefit of cash rate increases from October 2022 expected to be "lower".

So, the current monthly NIM that NAB is experiencing may be close to the best it is going to see during 2023. However, investors may also pay close attention to borrower arrears. If the higher interest rates mean some borrowers can't afford their loans, then that could cause problems, leading to bad debts.

If I had to guess, I wouldn't be surprised if the NAB share price doesn't move that much over 2023.

Should you invest $1,000 in Biotron Limited right now?

Before you buy Biotron Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Biotron Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A young man goes over his finances and investment portfolio at home.
Bank Shares

Why is the Macquarie share price sinking today?

Let's see what is causing its shares to start the week in the red.

Read more »

Woman with spyglass looking toward ocean at sunset.
Bank Shares

Here's the earnings forecast out to 2029 for NAB shares

Let’s look at what experts are predicting for the bank.

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

Here's what Westpac says the RBA will do with interest rates next week

The RBA is meeting on Tuesday. Will it cut rates? Let's find out.

Read more »

A woman wearing yellow smiles and drinks coffee while on laptop.
Bank Shares

CBA shares top $170. Where to now?

Another day, another record high for CBA shares.

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Bank Shares

Which big 4 ASX bank shares does Macquarie expect to cut their dividends?

Not every bank is likely to continue paying the same dividend.

Read more »

A woman sits in her home with chin resting on her hand and looking at her laptop computer with some reflection with an assortment of books and documents on her table.
Bank Shares

Is the CBA share price a buy in May?

The big bank has delivered great returns. Is it still a buy?

Read more »

Happy man at an ATM.
Bank Shares

After seeing its earnings report, what's Macquarie's price target on Commonwealth Bank shares?

Let's see what the broker is saying about this banking giant.

Read more »

Woman on her laptop thinking to herself.
Bank Shares

Should I sell Bank of Queensland shares before the RBA cuts interest rates?

A leading expert believes Bank of Queensland shares could soon be facing selling pressure.

Read more »