CANBERRA: National Australia Bank ((NAB)) delivered a first quarter update that held few surprises for brokers. The bank posted $1.6bn in quarterly cash earnings. Revenue growth was subdued, up 1%. Underlying margins were stable, as competition for deposits eased, while trading revenues were strong on the back of high levels of volatility. Provisioning improved relative to the second half of FY16. Provisioning was that its lowest quarterly level in 12 months, $80m below Ord Minnett’s expectations, given the non-repeating overlay for mining and agricultural exposure. The broker expects a typical seasonal uplift in the second quarter for provisioning. Elevated expenses growth of 5% is expected to improve over the year from efficiency initiatives, which should mean there is sufficient capital generated to maintain a flat dividend at an 80% pay-out ratio, in the broker’s view.
Net interest margin was broadly stable in the first quarter following a decline of 11 basis points over the second half of FY16. The flat margin in the first quarter suggests to Ord Minnett that the recent re-pricing of selective mortgage products is offsetting the flowing through of higher deposit costs. Credit Suisse was slightly disappointed with the update and believes it sets a subdued tone for the bank reporting season. The broker did not like the fact that costs growth is outstripping the pace of revenue growth, even though revenues benefitted from higher financial markets income. The broker believes banks are facing a difficult underlying profit environment, despite asset quality metrics remaining stable amid modest consumption of capital.
