NATIONAL AUSTRALIA BANK (NAB) – Capital provides dividend insurance

National Australia Bank Limited (NAB) is a financial services group that provides a comprehensive and integrated range of banking and financial services including wealth management throughout Australia and New Zealand and internationally. Largely as expected, National Australia Bank's first-half FY24 cash profit eased 3% from second-half FY23 to $3.5 billion. After being squeezed in the second half of FY23, the net interest margin widened 1 basis point to 1.72%. Competitive lending rates and bank customers switching to more costly term deposits and saving accounts weighed on margins, but higher returns on deposit and capital hedges provided an offset. We expect these trends to continue into the second half, with a modest improvement in FY25 due to more favourable pricing on new loans and deposits. Bad debt expenses were again below expectations at $363 million, or just 0.1% of loans, with a tick-up in borrowers falling behind in payments not leading to typical levels of losses. This is primarily thanks to house price and labour market strength, but it is also potentially helped by tighter lending standards. It could prove too conservative, but provisions for loan losses have been held steady until the fallout from the rate tightening cycle is clearer.  The interim dividend is flat on last year's final dividend at $0.84 per share, with the payout ratio nudging the top of the 65–75% target. We maintain our full-year DPS forecast of $1.68, implying a full-year payout ratio of 72%. Given the surplus capital position, there is headroom to lift the payout ratio to keep dividends flat on weaker earnings. The common equity Tier 1 capital ratio of 12.15% is above management's target of 11.5%, but it will move closer to the target after the completion of the $1.5 billion on-market share buyback announced on May 2

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