The National Australia Bank Ltd (ASX: NAB) share price will be on watch this morning.
That's because the big four bank has just released its results for FY 2023.
How did it perform? Let's find out.
NAB share price on watch
- Net operating income up 12.9% to $20,654 million
- Cash earnings up 8.8% to $7,731 million
- Statutory net profit up 7.6% to $7,414 million
- Group CET1 ratio of 12.22%
- Final dividend up 7.6% to 84 cents per share
What happened during the 12 months?
For the 12 months ended 30 September, NAB reported a 12.9% increase in net operating income to $20,654 million. This reflects a 13.2% increase in net interest income to $16,807 million and an 11.7% lift in other operating income to $3,847 million.
With operating expenses increasing at a slower rate of 9.1% to $9,023 million, this led to NAB reporting underlying profit growth of 16.1% to $11,631 million.
However, an $802 million credit impairment charge, up from $125 million a year ago, means that the bank's cash earnings grew more modestly. Management advised that its charges primarily reflect volume growth, a deterioration in asset quality and higher specific charges off a low base.
NAB's cash earnings came in 8.8% higher year on year at $7,731 million. This is a touch short of the consensus estimate of $7,795 million, which could potentially weigh on the NAB share price today.
A final dividend of 84 cents per share was declared, which brought its full-year dividend to 167 cents per share. This was slightly ahead of consensus estimates.
What were the drivers of its result?
The stars of the show for NAB during FY 2023 were its business and institutional banking divisions, which offset weakness in its Australian personal banking division.
NAB's Business and Private Banking division posted a 10.1% increase in cash earnings to $3,318 million. This reflects volume growth and increased margins, partially offset by higher operating expenses.
The bank's Corporate and Institutional Banking business delivered a 14.9% increase in cash earnings to $1,870 million. This was driven by revenue growth and higher margins, which more than offset lower lending volumes and higher operating expenses.
The New Zealand division was also on form, reporting an 8.5% increase in cash earnings to NZ$1,522 million. This reflects higher margins and volume growth.
Finally, NAB's Personal Banking division was a drag on its results, posting a 9.1% decline in cash earnings to $1,446 million. While underlying profit increased modestly, this was more than offset by an increase in credit impairment charges. Management advised that its revenue growth benefitted from disciplined volume growth and broadly stable margins over the year, with the impact of the higher interest rate environment offset by competitive pressures.
Management commentary
NAB's CEO, Ross McEwan, was pleased with the bank's performance. He commented:
We have delivered a strong FY23 performance with cash earnings up 8.8% and underlying profit rising 16.1% compared with FY22. During a period of economic change, these results have benefitted from consistent investment in our strategic priorities. This has supported another year of strong growth in our leading SME franchise with Business & Private Banking increasing lending 9% and deposits 8%, underpinning a 22% rise in underlying profit in FY23. In other sectors such as Australian housing, we took a more measured approach to growth this year with a focus on returns.
Outlook
McEwan acknowledges that NAB's second-half performance was softer than the first half and that trading conditions are tough. Nevertheless, he remains cautiously optimistic on the year ahead. The CEO said:
Challenges in our operating environment became more evident as FY23 progressed with the impacts of monetary policy tightening and inflationary pressures increasingly weighing on households and the economy. This has seen our financial results soften in 2H23 compared with 1H23. While the economic transition has further to go, we are well placed to navigate this environment.
We continue to see attractive growth options and productivity is helping us manage inflationary pressures. We also have prudent balance sheet settings consistent with a focus on keeping the bank and customers safe through the cycle. Collective provision coverage has been maintained well above pre COVID-19 levels. Proforma capital levels are above our target range of 11.0-11.5% after allowing for completion of our current $1.5 billion on-market buy-back, and liquidity is strong. While the Australian economy is slowing, it is proving resilient. Our focus remains on managing NAB for the long term to drive sustainable growth in earnings and shareholder returns over time.
The NAB share price is down approximately 8% over the last 12 months.
