SYDNEY - [AAP] National Australia Bank's (ASX: NAB) cash earnings have slipped one per cent as expenses have risen partly due to the lender's increased spend on infrastructure and job cuts.

Unaudited cash earnings of $1.65 billion for the three months to December 31 were down one per cent over the quarter as net interest margin declined but were up three per cent compared to the prior corresponding period.

In a brief trading update, NAB said expenses had risen four per cent over the quarter due to the previously announced investment and job cuts, as well as the seasonal impact of its enterprise bargaining agreement with staff.

NAB in November said it would spend $1.5 billion on new technology and slash more than $1 billion in costs by the end of the 2020 financial year, partly through the elimination of 6,000 jobs.

"The acceleration of our strategy is well under way and we are pleased with the early progress," chief executive Andrew Thorburn said on Thursday.

"We are on track to deliver the targets announced with the FY17 results."

NAB said expenses were likely to grow by between five and eight per cent over the full year, then remain broadly flat until 2020.

Revenue rose one per cent thanks to growth in business and private banking as well as NAB's institutional unit.

The decline in net interest margin was due to markets and treasury, NAB said, notwithstanding pressure from a full period of the federal government's bank levy and competition from rivals in the mortgage market.

Rival Commonwealth Bank, announcing its first-half results on Wednesday, cited home loan rate rises as a positive for its net interest margin.

NAB's bad and doubtful debt charges fell 23 per cent over the period to $160 million, while asset quality also improved.

Morningstar head of Australian banking research, David Ellis, said NAB's lower NIMs were a concern considering Commonwealth Bank's impressive 6-basis-point uplift in margins for the six months to December 31.

However, Ellis said he continued to be impressed by NAB's sector-low bad debts and would not be making any change to his $32 fair value estimate on the stock.

"The standout from the brief update was the reduction in bad debts to just $160 million for the quarter, an unsustainably low annualised loss rate of 0.11 per cent," he said.

The bank raised its common equity tier one capital ratio from 10.1 per cent to 10.2 per cent over the quarter and said it was on track to meet the Australian Prudential Regulation Authority's 10.5 per cent target for 2020 in "an orderly manner".

 

AAP logo image

© [2018] Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.