NAB has announced cash earnings of $1.74 billion in 1Q25, down from $1.8 billion in 1Q24 and 2 per cent on the 2H24 quarterly average.
In an ASX announcement on Wednesday, the bank said this mainly reflected underlying profit growth offset by higher credit impairment charges and income tax expense.
Namely, its unaudited statutory net profit stood at $1.7 billion, 4 per cent growth on the average of the two previous quarters.
According to NAB, the primary drivers of underlying profit growth included revenue increasing by 3 per cent, primarily driven by higher Markets and Treasury income.
It also said that profits were bolstered by a “small decline” in net interest margin. Though it did not offer specifics, it explained the margin declined with drags from funding costs, lending competition and deposits, partially offset by benefits of a higher interest rate environment.
Notably, NAB’s share price fell by almost 7.8 per cent on Wednesday.
Commenting on the results, chief executive Andrew Irvine said that FY2024–25 has started off well for the big four bank.
“Our 1Q25 performance is sound and execution of our refreshed strategy is underway,” Irvine said on Wednesday.
“Over the December quarter, our focus on improving deposit performance has supported good growth of 2 per cent in deposit balances.
“Australian home lending grew 1 per cent and we have seen improved momentum versus system of 0.9x compared with 2H24 and increased drawdowns through our proprietary channels. Business lending balances rose 2 per cent, including 1 per cent growth in SME business lending.”
Meanwhile, expenses rose by 2 per cent, mainly driven by higher personnel and financial crime-related costs, along with increased technology spend.
At the same time, NAB said this was offset by productivity benefits and lower costs relating to the group’s enforceable undertaking with the Australian Transaction Reports and Analysis Centre.
“We have delivered further efficiency benefits this quarter, helping us manage costs while investing for long-term sustainable growth,” the CEO added.
“We continue to target productivity savings in excess of $400 million in FY25 and for operating expense growth in FY25 to be lower than FY24 growth of 4.5 per cent.”
The bank saw credit impairments of $1,267 million, with $152 million of this being individually assessed charges, driven mainly by Australian business lending and unsecured retail portfolios. Collective charges, totalling $115 million, reflected asset quality deterioration and Australian business lending volume growth.
NAB reported a group common equity tier 1 ratio of 11.6 per cent, compared with 12.4 per cent at the end of September. This, the bank said, reflected payment of the 2024 final dividend and credit risk-weighted assets growth of $13.2 billion.
Looking ahead, Irvine said that while the economic outlook is improving, cost of living and challenges posed by high interest rates persisted in 1Q25.
“While most customers are proving resilient, we have maintained prudent balance sheet settings to allow us to support customers while keeping our bank safe,” he said.
“Our refreshed strategy is focused on becoming the most customer centric company in Australia and New Zealand. While still early days, we have made good progress during 1Q25, laying the foundations required to successfully execute our strategy.
“We remain optimistic about the outlook and are well placed to manage our business for the long term and deliver sustainable growth and returns for shareholders,” Irvine added.
On the back of the trading update, Saxo Asia-Pacific senior sales trader Junvum Kim said NAB’s results exemplify that the environment remains competitive.
"NAB navigated a challenging first quarter, posting a net profit of $1.7 billion amid pressures from tighter margins and higher credit impairments,” Kim said.
“The 2 per cent decline in cash earnings and a modest 7 per cent growth in business lending highlight the competitive environment. CEO Andrew Irvine remains focused on bolstering the bank’s balance sheet and achieving significant productivity savings of over $400 million.
Kim added that Tuesday’s rate cut by the RBA could signal shifts in NAB’s strategic direction moving forward.
Last month, NAB jumped on the rate cut bandwagon, joining its big four peers in predicting a 25 basis point cut in February.
In a policy update, it reminded that it has maintained, since June, that the RBA would cut rates by 75 to 100 basis points in 2025, likely starting in February or May.
While initially advocating for the RBA to wait for more data on the labour market and household spending, NAB ended up correctly predicting the RBA would begin its cutting cycle in February.
