The share price of Australia’s second-largest bank National Australia Bank Ltd [ASX:NAB] is up slightly today on the release of its first-quarter trading update.
The NAB share price has risen 25 cents or just under 1% at the time of writing to $25.54 per share.
The share price action from the Melbourne-based bank comes despite added uncertainty from Victoria’s latest round of lockdowns.
A problem that the bank has flagged, saying government responses to the virus are hampering economic recovery.
Given the times, no growth is better than negative growth
During the height of the lockdowns across the nation, Australia’s lenders offered some reprieve to their customers by freezing loan repayments for those struggling to meet their obligations.
With the economic recovery going well the amount of frozen loans has dwindled considerably.
NAB said its portfolio of frozen home loans as of 31 December 2020 was down from a peak of $38 billion to $2 billion.
The bank also has $1 billion worth of frozen business loans, which is down from a peak of $19 billion.
And APRA data shows the bank is ahead of its peers as far as managing down its book of frozen loans.
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NAB’s unaudited statutory net profit for the December quarter came to $1.7 billion.
And unaudited cash totalled $1.65 billion.
Meaning there was virtually no change from the previous corresponding quarter.
But if you cast your mind back to the December quarter of 2019, think how just how different operating conditions were.
So, there’s an argument to be made that NAB’s results is actually pretty decent.
CEO Ross McEwan described the Bank’s performance in light of the challenging conditions as ‘sound’ in a competitive market characterised by record low rates.
‘Improving economic tends have been a key driver of our 1Q21 result, with cash earnings 47% higher then the 2H20 quarterly average primarily driven by low credit impairment charges.’
Management sound despite uncertainty
It has been anything but smooth sailing for the banks over the past few years, with the banking inquiry condemning their corporate culture and COVID-19 snapping at profits.
Though NAB appears to have righted the ship somewhat.
NAB’s measure of financial strength, CET1, 20 basis points to 11.7% from the September quarter.
And its credit impairment charges fell to just $15 million over the quarter from $185 million in the prior corresponding quarter.
The bank’s expenses also fell by 1% as productivity gains and lower restructuring costs were realised.
Mr McEwan said it was a sign that NAB’s long term strategy is working.
‘It is pleasing to see momentum building in our core businesses as we simplify and streamline our processes and policies and enhance our digital offerings.’
But it’s not all good news I’m afraid, there are more longer-term factors that could hurt financial institutions like NAB.
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