NAB Delivers Underlying Growth While Strengthening Capital and Balance Sheet Resilience

About National Australia Bank Ltd

National Australia Bank Ltd (ASX:NAB) is one of Australia’s major banking groups, operating across business banking, personal banking, corporate and institutional banking, and New Zealand banking. Its strategy is centred on growing business banking, driving deposit growth, strengthening proprietary home lending and improving customer advocacy while continuing to simplify and modernise the bank. The latest half-year result reflects progress in those priorities, but also a more defensive posture as the bank responds to a more volatile economic and geopolitical environment.

The headline result was heavily affected by a large notable item

The clearest feature of NAB’s first-half result was the effect of a major software-related accounting charge. Cash earnings came in at $2.639 billion, down sharply from both 2H25 and 1H25, while statutory net profit fell to $2.750 billion. However, excluding large notable items, cash earnings were $3.588 billion, up 2.3 per cent on 2H25 and 0.1 per cent on 1H25. NAB said the change to its software capitalisation policy lowered cash earnings by $949 million after tax during the period.

That distinction matters. The statutory and reported cash numbers look weak at first glance, but the underlying operating performance was still positive once the large technology-related hit is stripped out. The shareholder summary reinforces that point: cash return on equity was 8.5 per cent on a reported basis, but 11.6 per cent excluding large notable items.

Underlying operating momentum remained constructive

Excluding the notable item, the operating result was reasonably solid. Revenue increased 3.1 per cent over 2H25, or 1.8 per cent excluding Markets & Treasury income. Gross loans and advances rose 2.9 per cent, while deposits increased 2.3 per cent. Net interest margin improved by 3 basis points to 1.81 per cent, with NAB noting that excluding the benefit from Markets & Treasury and liquid assets, NIM was broadly stable.

Expenses are another example of the difference between headline and underlying trends. Total operating expenses rose 26.2 per cent, but excluding the large notable item they actually fell 0.5 per cent. NAB said this reflected higher personnel and technology costs being more than offset by productivity benefits, lower remediation charges and some benefit from the weaker New Zealand dollar. Productivity benefits totalled $199 million in 1H26, and the bank said it continues to target more than $450 million of productivity benefits for FY26 while expecting cost growth of less than 4.6 per cent, excluding large notable items.

Business banking continues to do the heavy lifting

NAB’s divisional mix remains tilted toward business banking, and that was again the strongest contributor. Business and Private Banking generated $1.850 billion of cash earnings excluding large notable items, up 9.9 per cent on 2H25. The bank said this reflected stronger underlying profit and lower credit impairment charges, with revenue supported by lending volume growth, broadly stable margins and better Markets and fee income. Expenses were lower as productivity savings more than offset investments in growth and technology.

The strategic overview adds more detail. Business and Private Banking lending balances rose 4.6 per cent over the six months to March 2026, while deposit balances increased 5.9 per cent. NAB also said it achieved SME market share gains and that more than 80 per cent of lending applications were submitted digitally in the half, showing how digitisation is being used to lift banker productivity and improve customer experience.

Deposits, home lending and provisions remain central

NAB also highlighted progress in deposits and proprietary home lending. Deposit balances in Business & Private Banking and Personal Banking increased 4.7 per cent, including 8.0 per cent growth in transaction accounts excluding offsets. Proprietary home lending drawdowns improved from 41.4 per cent in 2H25 to 47.7 per cent in 1H26. These are important because proprietary lending and sticky transaction deposits support margin resilience and customer retention.

On asset quality, the ratio of non-performing exposures to gross loans and acceptances fell 3 basis points to 1.52 per cent. But NAB also materially lifted forward-looking collective provisions. Credit impairment charges rose to $706 million from $485 million in 2H25, including a $300 million increase in forward-looking provisions reflecting potential stress linked to the Middle East conflict. The sectors most affected by new or increased overlays were agriculture, transport and storage, manufacturing, construction and commercial property.

Capital remains solid

NAB ended March 2026 with a Group CET1 ratio of 11.65 per cent, down 5 basis points from September 2025. The bank expects a pro forma CET1 ratio of 12.05 per cent after the 1H26 dividend reinvestment plan discount and partial underwriting, which together are expected to raise around $1.8 billion. Liquidity and funding metrics also remained strong, with an average liquidity coverage ratio of 132 per cent and a net stable funding ratio of 116 per cent.

Outlook

NAB’s first-half result was shaped by two different stories at once. The reported numbers were hit hard by a large software-related accounting change, but the underlying business still showed growth in revenue, deposits, lending and profit, especially in Business & Private Banking. At the same time, the bank has clearly become more conservative on provisions and capital as geopolitical tensions raise the risk of a more difficult macro environment. The combination suggests NAB is still executing its strategy, but doing so with a more defensive balance-sheet posture as uncertainty rises.