NAB’s Earnings Slip Amid Asset Quality Concerns and Compliance Costs

Steady Financial Performance Amid Market Headwinds

National Australia Bank (NAB) reported its half year results for the six months ending 31 March 2025, posting a 1.1% increase in revenue to $10.28 billion. However, statutory net profit attributable to owners declined by 2.5% to $3.41 billion, reflecting a complex operating environment marked by competitive lending pressures and elevated regulatory costs.

Cash earnings, a key non-IFRS measure preferred by management and investors for its reflection of underlying performance, edged up 1.0% to $3.58 billion. This improvement was largely supported by stronger Markets and Treasury income, which rose 17.8% year-on-year, offsetting margin compression in core lending activities.

Capital Strength and Shareholder Returns

NAB maintained a robust Common Equity Tier 1 (CET1) capital ratio of 12.01%, down slightly by 34 basis points from September 2024, influenced by risk-weighted asset growth and the completion of a $3 billion on-market share buy-back. The bank’s proforma CET1 ratio, factoring in the pending sale of its remaining 20% stake in MLC Life, stands at 12.13%, comfortably above regulatory and internal targets.

The board declared an interim dividend of 85 cents per share, fully franked, payable on 2 July 2025. The dividend reinvestment plan (DRP) discount is set at nil, with participation capped at 5 million shares per shareholder, reflecting NAB’s balanced approach to capital management and shareholder returns.

Credit Quality and Lending Trends

Credit impairment charges decreased modestly to $348 million, supported by a reduction in collective provisions despite some deterioration in asset quality, particularly within the business lending portfolio. Non-performing exposures increased by 10.1% compared to September 2024, driven mainly by business and private banking segments and higher mortgage arrears.

Gross loans and advances grew 2.5% over the half, with housing lending up 3.2% and non-housing lending rising 5.7%. Customer deposits increased 4.1%, reflecting solid growth in both business and personal banking segments. Net interest margin remained stable at 1.70%, balancing higher earnings from capital and deposit replicating portfolios against competitive pressures and increased funding costs.

Strategic Execution and Operational Investments

NAB continues to execute its refreshed strategy focused on enhancing customer advocacy, simplifying processes, and modernising technology. Investments of $774 million in the half were directed towards infrastructure, compliance, and customer experience initiatives, including branch renovations and digital platform enhancements.

Divisional performance was mixed: Business and Private Banking saw a slight increase in cash earnings, Personal Banking experienced a decline amid higher credit impairments, Corporate and Institutional Banking reported growth driven by lending and Markets income, and New Zealand Banking delivered strong earnings growth supported by credit impairment write-backs.

Regulatory and Leadership Developments

The bank remains engaged with regulatory bodies, notably progressing its Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) program under an enforceable undertaking with AUSTRAC. NAB also disclosed ongoing legal contingencies, including class actions and compliance investigations, underscoring the complex regulatory landscape it navigates.

Leadership changes were announced with the resignation of the Group CFO and the appointment of a new Group Executive for Business and Private Banking, reflecting a period of transition at the executive level.