NAB: Q3 Update

Quarterly results may be brief and short on numbers, but they can provide a clue to performance.

NAB's third-quarter update, for example, shows clear signs of slowing revenue growth and rising funding costs. That's a recipe for lower earnings – and sure enough, third-quarter cash earnings of $1.65bn were 3% lower than the prior period. Revenue grew a mere 1% and NAB says that its net interest margin ‘declined slightly'.

For industries in a slowdown, the focus often shifts to costs. NAB has been louder than most on the need to shrink expenses – but they're rising sharply nonetheless. A range of regulatory investigations (such as the Royal Commission) will come on top of the guidance for costs to increase by 5–8% in the current year. Much of that growth will be investment spending, however, which should reduce costs in future.

Like its peers, NAB is benefiting from lower loan losses, but these are sure to increase at some stage.

In the meantime, NAB's balance sheet remains healthy. Its CET1 ratio dropped to 9.7% at 30 June following dividend payments, although the bank should comfortably meet the 10.5% regulatory requirement by 2020. HOLD.