Key Morningstar Metrics for National Australia Bank (ASX:NAB)

Data from Morningstar Direct as of 22 February 2024

What we think of National Australia Bank’s Shares

National Australia Bank is Australia's largest business bank, a mantle it will fight hard to retain as competition in the highly profitable mortgage market intensifies. The bank's continued investment in the business franchise leaves it well placed to benefit as business confidence and credit demand improve. The Financial Services Royal Commission hit all banks hard, but none more so than NAB. We think the bank has continued to do a good job on making investments which support credit growth and earnings in the medium term. High regulatory and compliance costs are unlikely. The bank is well capitalized. 

National Australia Bank Share Price (ASX: NAB)

Source: Morningstar Direct. Data as of 22 February 2024

National Australia Bank Economic Moat Rating

We assign National Australia Bank a wide moat based on maintainable cost advantages and switching costs. The four major Australian banks combined control just under 75% of business and consumer lending, and a similar share of deposits. It’s virtually the same market structure in New Zealand. National Australia Bank’s total loan book of around AUD 700 billion and deposits of around AUD 590 billion put the bank third in pecking order by size. This also holds true in home loans, however National Australia Bank is the market leader in business lending. The bank's business loan book equates to 21% market share in Australia, trumping both Westpac and Commonwealth Bank. Despite regulatory changes lifting capital requirements, the bank’s large loan and deposit books continue to deliver robust net fee income, and with the increasing importance of scale to cope with changes in technology and regulation, National Australia Bank should consistently earn returns above its 9% cost of equity through the cycle.

Bank moats are typically derived from two sources: cost advantages and switching costs. Cost advantage is an important source of the bank's wide economic moat, and supported by a low-cost deposit base, operating efficiency, and conservative underwriting relative to peers. The latter manifests in lower loan losses on average through the cycle. Given the commoditized nature of the industry, and competition for both loans and deposits, low costs is key to achieving excess returns.

Access our full research report to continue reading about National Australia Bank’s (ASX:NAB) moat rating.

National Australia Bank Risk and Uncertainty

National Australia Bank is a major Australian bank, with operations spanning the consumer, business, and large corporate and institutional segments of the economy. It is exposed to changes in economic conditions, as well as adverse movements in interest rates, inflation, unemployment, and exchange rates. Banks finance the economy, and changes in economic growth affect business activity, loan quality, and earnings growth. Regulatory changes increase the risk profile, with the potential to change capital requirements and lending standards. A substantial loss of market share in any major segment, coupled with a contraction in net interest margins as the bank competes more aggressively on price, could diminish net interest income. We believe taking all these factors into consideration makes a Morningstar Uncertainty Rating of Medium most appropriate.

National Australia Bank’s environmental, social, and governance, or ESG, risks primarily relate to breaches of law and regulatory requirements, unfair treatment of customers, protection of customer data, and lending exposure to environmental and socially sensitive sectors. In our view, the combined probability and materiality of these ESG-related risks is small relative to the cash flows of the bank. Breaches of anti-money laundering and misleading practices in financial advice could bring civil penalties in the future.

Access our full research report to continue reading about risks and uncertainties relating to National Australia Bank (ASX: NAB) shares.

National Australia Bank Bulls Say

National Australia Bank Bears Say