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NAB share price: Q3 trading update unpacked

We look at the highlights from the National Australia Bank’s third quarter trading update, as well as one top investment bank’s reaction to these results.

NAB Source: Bloomberg

The National Australia Bank (NAB) saw its share price spike close to 2% in the first thirty minutes of trade after the bank released its third quarter trading update to the market.

Here NAB reported stable net interest margins, lower cash earnings on a year-over-year basis, and reported a common equity tier ratio of 11.6%.

Mind you, while the bank’s share price spiked in response to this market update, NAB’s market capitalisation has fallen by over 30% in the last year – as investors abandon a sector that has come to be dominated by uncertainty.

Indeed, underscoring these challenges, NAB’s CEO, Ross Mcewan, noted that today's Q3 results are 'reflective of the current operating environment, characterised by volatile markets, subdued credit demand, low interest rates, cost pressures and deteriorating asset quality. In navigating these near-term challenges, we have not lost sight of the need to invest for NAB's long term future.'

Q3 trading update unpacked

Looking at some of the key operational highlights from NAB's third quarter trading update, the bank reported unaudited statutory net profits of $1.50 billion and unaudited cash earnings of $1.55 billion – implying a year-over-year decline of 7%.

By a different measure – when compared to the H1 quarterly average and excluding a number of significant items – the bank noted that cash earnings increased by an impressive 24%, revenue rose by 10% and expenses increased 2%, driven by Covid-19 related staffing considerations.

Impressively, in spite of historically low interest rates, the bank reported stable net interest margins (NIMs), noting that low interest rates and competitive pressure were 'offset by lower short-term wholesale funding costs.'

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Credit quality under the microscope

Looking at how the coronavirus pandemic has impacted NAB's customers, the bank reported that by the end of the June quarter it had recognised some 86 thousand home loan deferrals and 38 thousand business loan deferrals – totalling $55 billion.

'Our repayment deferrals are providing vital assistance to customers, in combination with significant relief from governments and regulators,’ the bank said.

In line with the above, NAB also reported that its credit impairment charges remain elevated – coming in at $570 million in the June quarter, though down from the $976 million recorded in the prior quarter.

As per APRA’s recent regulatory guidance, for customers who have deferred their loan repayments, these loans have been deemed ‘performing’.

As the regulator noted in April, when an authorised deposit taking institution ‘restructures an affected borrower’s facilities before 31 March 2021 with a view to putting the borrower on a sustainable financial footing, the loan may continue to be regarded as a performing loan for capital and regulatory reporting purposes.’

NAB share price, the analyst view

In response to the Q3, Macquarie Wealth Management analysts were underwhelmed, reiterating their Underperform rating and $17.50 price target.

Here the investment bank argued that:

‘While we expect the market to see NAB’s 3Q20 trends positively and are supportive of NAB’s long-term thesis, we remain concerned with the risks stemming from deteriorating credit quality that is likely to impact NAB’s performance in FY21a.’

How to trade the banks, long or short

With both CBA and NBA now having reported their full-year and Q3 results, respectively – where do you stand on the banks, are you bullish or bearish? Whatever your view, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) NAB using CFDs, follow these easy steps:

  1. Create an IG Trading Account or log in to your existing account
  2. Enter ‘NAB’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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