The National Australia Bank Ltd (ASX: NAB) share price was out of form in the last financial year.
During the 12 months, the banking giant's shares lost approximately 12% of their value.
This compares unfavourably to the performance of the ASX 200 index, which recorded a 9.7% gain over the period.
This equates to a relative underperformance of almost 22%.
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Why did the NAB share price underperform?
Investors were selling NAB and other ASX 200 bank shares during the last financial year for a number of reasons.
While rising interest rates were initially seen as a big positive for the banking sector, it wasn't long until all that changed.
Rather than a gradual increase in rates, sticky inflation required a more aggressive monetary policy. This put a lot of pressure on the sector and led to the collapse of a number of banks such as Silicon Valley Bank and Credit Suisse.
In addition, with inflation remaining high, this has led to an increase in costs in the sector, which is offsetting some of the benefits of higher net interest margins (NIMs).
Combined with intense competition for mortgages and a potential recession, many investors have become wary of the sector and have been reducing their exposure.
Though, it is worth noting that NAB's CEO, Ross McEwan, remains positive on the bank's outlook despite everything. With the bank's half-year results, he said:
The impact of higher living and interest costs on household spending and the broader economy is becoming more evident and we have a range of options available for customers needing support. Early signs that inflation is moderating are encouraging and we remain optimistic about the outlook – our bank and most customers enter this period from a position of strength and we are well placed to continue managing our business for the long term. We remain focused on the disciplined execution of our strategy to drive sustainable growth in earnings and shareholder returns over time.
NAB is releasing its third-quarter update next month. This will give investors a chance to see if the market was right (or wrong) to sell down the NAB share price over the last 12 months.
