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NAB announces $1.5bn share buyback after ‘sound’ Q3 result

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The big four bank has provided a third quarter trading update.

NAB has reported unaudited cash earnings of $1.90 billion for the third quarter year of its financial year while announcing a plan to buy back up to $1.5 billion of its shares.

In a trading update released to the ASX on Tuesday, NAB indicated its cash earnings were up 5.8 per cent compared to Q3 2022 but down 5 per cent compared to the first half-quarterly average.

“We have delivered a sound 3Q23 result, following a very strong 1H23 outcome,” commented NAB chief executive officer Ross McEwan.

“Our performance during these periods has benefited from the consistent and disciplined execution of our strategy, against a backdrop of higher interest rates but also slowing growth, inflationary pressures, and elevated competition.”

Revenue fell by 2 per cent during the quarter, which NAB said mainly reflected lower margins.

The bank’s net interest margin (NIM) declined by 5 basis points to 1.72 per cent as a result of continued competition in the home lending market as well as higher deposit costs, which were partly offset by the benefits of the higher interest rate environment.

Expenses increased by 3 per cent due to higher staff-related costs and NAB’s investment in technology capabilities, partially offset by productivity. Mr McEwan said the bank would continue to target productivity savings of approximately $400 million for the full financial year.

SME business lending rose 4 per cent while the bank’s “disciplined approach” in the Australian home lending market saw it report below system growth of 1 per cent.

A credit impairment charge of $244 million was declared by the bank. Total provisions of $5.70 billion included $5.17 billion of collective provisions. The ratio of collective provisions to credit risk weighted assets increased by 5 basis points to 1.47 per cent.

NAB also noted that the ratio of 90-plus days past due and gross impaired assets to gross loans and acceptances lifted 5 basis points to 0.71 per cent, which mainly reflected “a modest deterioration in delinquencies across the group’s home loan and business lending portfolios”.

“We know this environment is challenging for our customers, but pleasingly, most are proving resilient with only a modest deterioration in asset quality in 3Q23,” Mr McEwan said.

“Consistent with our strategy, we are focused on keeping our customers and our bank safe and maintaining prudent risk and balance sheet settings. Capital levels remain healthy even after allowing for our latest on-market share buyback announced today.”

The bank noted that the buyback, which is expected to commence later this month subject to market conditions, would bring its CET1 ratio down to 11.6 per cent, towards its target range of 11.0–11.5 per cent.

“This decision is consistent with our focus on maintaining a strong balance sheet through the cycle, while progressively reducing our share count over time,” Mr McEwan explained.

NAB reported a common equity tier 1 (CET1) ratio of 11.9 per cent in June versus 12.2 per cent in March, which included a 60 basis point impact from payment of the bank’s interim dividend.

“We will continue to execute our long-term strategy with discipline and improve customer and colleague outcomes to deliver sustainable growth and improved shareholder returns,” Mr McEwan concluded.