NAB Delivers Solid First Quarter in FY25, Eyes Long-Term Growth

National Australia Bank (ASX: NAB) has kicked off FY25 on steady footing, delivering a first-quarter cash earnings result of $1.74 billion—a 2% decline from the average of the second half of FY24. While higher credit impairment charges and tax expenses put some pressure on the bottom line, the bank saw 4% growth in underlying profit, fueled by stronger Markets & Treasury income.

CEO Andrew Irvine struck an optimistic tone, saying:

“We have started FY25 well. Our first-quarter performance is sound, and execution of our refreshed strategy is underway.”

Revenue Growth, but Margins Remain Under Pressure

Revenue rose 3% for the quarter, mainly thanks to a strong performance from the Markets & Treasury division. However, outside of that, revenue remained flat, with lending volume growth balancing out margin compression.

Net interest margin dipped slightly as funding costs, deposit competition, and lending pressures took their toll. However, this was partially offset by the benefits of a higher interest rate environment.

On the cost side, operating expenses rose 2%, reflecting increased spending on technology, financial crime prevention, and personnel. That said, NAB’s ongoing focus on efficiency continues to deliver results, with productivity savings helping to manage cost growth. The bank is targeting over $400 million in cost savings for FY25 and expects expense growth to slow compared to FY24’s 4.5% increase.

Lending and Deposits Show Solid Growth

Despite a challenging economic backdrop, NAB saw growth across its lending and deposit books:

  • Deposit balances increased 2%, reflecting efforts to improve performance in this area.
  • Australian home lending grew 1%, with an improvement in drawdowns through NAB’s proprietary channels.
  • Business lending rose 2%, including 1% growth in SME lending.

With the economy facing ongoing cost-of-living pressures, Irvine acknowledged that some customers are feeling the strain but reassured investors that NAB’s balance sheet remains strong and well-positioned to support customers while managing risk.

Credit Impairment Rises as Business Lending Pressures Build

Credit impairment charges jumped to $267 million for the quarter. The increase was driven by:

  • $152 million in individually assessed charges, primarily related to Australian business lending and unsecured retail portfolios.
  • $115 million in collective charges, reflecting deterioration in asset quality and business lending volume growth.

The ratio of non-performing exposures to gross loans ticked up to 1.43%, mainly due to challenges in the Business & Private Banking lending portfolio and rising arrears in Australian mortgages.

Capital and Liquidity Remain Strong

NAB remains well-capitalized, with a Common Equity Tier 1 (CET1) ratio of 11.6%, down from 12.4% in September 2024. The decline was largely due to the payment of the 2024 final dividend and growth in credit risk-weighted assets.

Other key capital and liquidity metrics include:

  • Leverage ratio: 4.8%
  • Liquidity coverage ratio: 139% (quarterly average)
  • Net stable funding ratio: 118%
  • $15.2 billion in term funding raised over the four months to January 2025

A Customer-Focused Strategy in Action

Beyond the financials, NAB highlighted its commitment to enhancing customer experience and security, including:

  • Expanding branch accessibility, with 29 high-traffic locations now open on Saturdays.
  • Strengthening fraud prevention, joining the BioCatch Trust Australia network to share intelligence between banks in real-time and prevent scams before they happen.
  • Supporting sustainable businesses, rolling out a $300 million green loan program in partnership with the Clean Energy Finance Corporation to help businesses and farmers invest in emissions-reducing technologies.

Looking Ahead

While the economic environment remains uncertain, NAB is optimistic about the road ahead. With a refreshed strategy aimed at becoming the most customer-centric bank in Australia and New Zealand, the focus remains on sustainable growth, disciplined cost management, and long-term shareholder returns.

Irvine summed it up by saying:

“We remain optimistic about the outlook and are well placed to manage our business for the long term.”