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Highlights
- NAB (NAB) shares dropped 6% following the FY25 Q1 financial update.
- Cash earnings fell 2%, despite a 3% revenue increase.
- Credit impairments rose, leading to concerns about loan performance.
The share price of National Australia Bank (ASX:NAB) faced a 6% drop today after the release of its first-quarter FY25 financial results. Investors reacted to a decline in profit, rising credit impairments, and a slight dip in the bank’s net interest margin (NIM).
Profit & Revenue Performance
NAB reported a statutory net profit of $1.7 billion and cash earnings of $1.74 billion for the three months ending December 2024. However, cash earnings were 2% lower than the average of the second half of FY24.
Despite a 3% increase in revenue, largely driven by higher markets and treasury income, the core banking revenue remained stable. The bank also experienced a slight decline in its NIM, which was affected by funding costs, lending competition, and deposit trends.
Expenses climbed 2%, mainly due to higher personnel costs, financial crime-related spending, and technology investments. However, these were partially offset by productivity savings and lower AUSTRAC-related costs.
Loan Portfolio & Credit Impairments
A key concern in NAB’s update was its rising credit impairment charge, which increased to $267 million. This included:
- $152 million in individually assessed impairments, mainly tied to Australian business lending and unsecured retail loans.
- $115 million in collective charges, reflecting asset quality deterioration and business lending volume growth.
The bank also reported that its ratio of non-performing loans increased by 4 basis points to 1.43%. This was mainly due to higher arrears in its Australian mortgage portfolio and rising stress in the business and private banking segments.
Management Insights
CEO Andrew Irvine acknowledged the challenges but pointed to positive developments. NAB’s deposit balances grew by 2%, and Australian home lending saw 1% growth, with improved momentum compared to the second half of FY24.
The bank also highlighted ongoing productivity savings, targeting over $400 million in cost efficiencies for FY25. While economic conditions are showing signs of improvement, cost-of-living pressures and interest rate challenges continue to impact customers.
Market Reaction & Outlook
The 6% share price decline reflects investor concerns over rising credit impairments and lower profitability. While NAB shares may offer better value now compared to before the update, the bank’s profit growth outlook remains uncertain.
