NAB lifts Q1 cash earnings

National Australia Bank (NAB) has lifted its first-quarter cash profit, as lower bad debts and growth in mortgages combined to boost the lender's bottom line.

In the three months to December 31 NAB posted an unaudited cash profit of $1.55 billion, which represents a seven per cent rise on the $1.46 billion recorded in the previous corresponding period.

However, the result fell shy of Australia and New Zealand Banking Group's (ANZ) first quarter update, which saw NAB's rival post an unaudited cash profit of $1.73 billion, a 13% lift on the previous corresponding period.

Investors appeared to dwell on the comparison. At 1135 AEDT, NAB shares were 2.02% lower at $34.45, against a benchmark index lift of 0.48%. In earlier trade NAB shares touched as low as $34.18.

The lender said its first-quarter unaudited net income was $1.4 billion, also a modest improvement on the $1.26 billion recorded in the previous corresponding quarter.

NAB chief executive officer Cameron Clyne said the first-quarter result built on momentum garnered in the second half of the previous year, with further improvement in asset quality and solid growth in mortgages boosting the lender's result.

Mr Clyne said the lender also benefited from lower bad and doubtful debts (B&DDs) in the quarter, registering a charge of $324 million, which is 23 per cent lower than the previous corresponding period.

This was due to lower charges in both NAB's Australian banking and United Kingdom businesses.

"Particularly pleasing was the further improvement in the performance of UK Banking and the NAB UK Commercial Real Estate (CRE) run-off portfolio," Mr Clyne said.

"Both continue to benefit from the restructure we undertook in 2012 and the recovery of the UK economy."

NAB said business lending balances, excluding Asia, were slightly lower over the period, but the group's asset quality metrics improved over the period.

Revenue increased by 1%.

Higher lending balances were being partly offset by lower customer margins which, the bank said, reflected increased competition between the banks.

The bank's net interest margin - a measure of the profitability of its loans - was being hurt by higher holdings of liquid assets and the effect of falling interest rates on capital.

Expenses rose around three per cent in the quarter, but excluding the impact of foreign exchange movements increased only around one per cent.

The lender said its Basel III Common Equity Tier 1 ratio was 8.21% at December 31, lower than the ratio at September 30 primarily  due to the impact of the final 2013 dividend declaration.

For the financial year to date, NAB said it had raised approximately $10.1 billion of term wholesale funding, including approximately $1.6 billion of secured funding.

New strategic agenda progressing: Clyne

Mr Clyne said the lender was progressing well with its refreshed strategic agenda, as announced last March.

"Our new operating structure has now been implemented and for the first time this quarter we are able to report our results in line with that structure," he said.

"The model aligns our organisation to the external environment and evolving customer behaviours.

"We have continued to develop initiatives that increase our frontline employees’ time with our customers.

Mr Clyne also said NAB's 'Fair Value' agenda, now in its fifth year, continued to resonate with customers in the quarter, with market share growth in both mortgages and household deposits over the quarter.

"While recent improvements in business confidence and conditions are encouraging, we are yet to see this translate into a meaningful increase in demand for business credit, and competition in this space remains elevated," he said.