NAB due to post third quarter cash earnings of $1.55 billion

  • By Elizabeth Fry

Impact of lockdowns 

National Australia Bank is expected to post a third-quarter cash profit of $1.55 billion on Thursday at which time it will unveil the bank’s exposure to Covid-affected industry sectors and the impact of lockdowns. 

Banking analysts said the key areas of interest will be volume growth, margin management, cost control, and commentary on credit quality, including NAB's exposure to 'sectors of interest'  

The lender claimed in early May that it is "building momentum" in Australian retail banking looks to be playing out, said Morgan Stanley’s banking analyst Richard Wiles. 

Based on APRA data, NAB achieved an annualised growth rate of 8 percent in mortgages in the June quarter. “At the same time, we expect improving trends in small business loan growth,” Wiles said. 

Wiles is most interested in the bank's $80 billion exposure to Covid-affected 'sectors of interest' and the potential impact of lockdowns.  

“We forecast an impairment charge of just $150 million in the June quarter, comprising a modest, model-driven collective provision release of $75 million and an underlying loss rate of 15 basis points. 

NAB recently announced that it would launch a $2.5 billion on-market buyback in mid-late August to help drive sustainable returns.  

The buyback is earlier and smaller than we expected, but the implied proforma ex-dividend common equity tier one ratio of11.7 percent is in line with our assessment of the prudential regulator's capital requirements. 

More buybacks on the horizon 

The banking specialist is expecting NAB to hand $3.5 billion of capital back to shareholders in 2023 and 2024, meaning that his estimate for total buybacks of $6 billion is unchanged.  

Wiles' forecast is based on the bank retaining between $1.8 billion and 3.9 billion of capital above its stated range of between 10.75 percent and 11.25 percent. “Together, we calculate that these buybacks will reduce the share count by around 6.5 percent, partly offsetting the 10 percent increase in shares resulting from NAB's $4.25 billion capital raising in May 2020.”  

The capital was raised at $14.15 per share. 

The analyst said the business bank has also established a solid track record of margin management in recent years, and he expects this to continue. The first half results revealed that NAB achieved net interest margins of 1.74 percent and are likely to stay around that level for the second half. 

On the costs, Wiles does not expect any change in NAB's medium-term target of "lower absolute costs" relative to the $7.7 billion reported last year. On his analysis, NAB will report a $7.6 billion cost base by 2024. 

Commonwealth Bank is expected to report a full-year result of around $8,46 billion on Wednesday 11 August.