Analysts say NAB's latest earnings update may mark a turning point for the underperforming bank and its long suffering shareholders.
That is despite National Australia Bank's unaudited first-quarter profit falling 21 per cent to approximately $1.26 billion, which it attributes to accounting devaluations of some assets and ineffective financial hedges.
NAB's preferred measure of cash earnings, which excludes asset revaluations and other one-off events, came in at $1.45 billion.
That is only 3.6 per cent higher than the same period a year earlier, but CLSA banking analyst Brian Johnson says it is a step up from seven quarters of stagnation.
"NAB's earnings had been stalled at 1.4 billion - if you strip out a big abnormal charge they took in the preceding quarter - so a result of $1.45 billion wasn't too bad," he said.
"The most important thing I would call out to you is that the margins, customer margins, are certainly going up in the personal banking business in Australia, and also the business banking business, and perhaps even the United Kingdom, which has got to be a real positive." The bank says its expenses increased around 4 per cent over the period, which it says reflects continued investment in the Australian business and enterprise agreement related wage increases.
However, the bank also shed around 500 staff over the quarter, due mainly to restructuring its troubled UK operations.
Overall, NAB's chief executive Cameron Clyne described the result as "pleasing".
"NAB delivered a stronger result for the quarter reflecting the underlying strength of our core Australian business and improved earnings in the UK," he noted in the report.
"In this environment cost management continues to be a key priority but we remain mindful of the need to balance this objective against the importance of continued investment.
On this front, our technology transformation project continues to make good progress." The bank says the quality of its outstanding loans was relatively stable, with bad debts at 1.74 per cent at the end of December versus 1.78 per cent at the end of September.
Investors have focussed on the bank's stable asset quality, and tentative signs of improvement in its troubled UK business, pushing its shares 1.9 per cent higher to $28.65 by 2:24pm (AEDT).
"NAB had been priced for what I would call pessimism in perpetuity," explained Brian Johnson.
"What's actually happening is it's surprising a little bit at the edges, and accordingly the share price is going up, and I think it's got a lot more to go."