Rising Credit Impairments and Remediation Costs Cloud NAB’s FY25 Gains

• 1% rise in underlying profit, cash earnings broadly stable
• 7% growth in customer deposits, 5.9% increase in gross loans
• 14.4% increase in credit impairment charges, driven by business lending
• Common Equity Tier 1 (CET1) ratio at 11.70%, down 65 basis points
• Final dividend set at 85 cents per share, fully franked

Overview of FY25 Performance

National Australia Bank (NAB) closed its 2025 financial year with a modest 1% increase in underlying profit, reflecting steady momentum despite a challenging operating environment. Cash earnings remained broadly stable compared to the prior year, while statutory net profit declined by 2.9%. The bank’s performance was underpinned by strong growth in deposits and lending, alongside ongoing investments in technology and customer service initiatives.

Deposit and Lending Growth

Customer deposits rose by 7.4% to $658 billion, driven by robust growth across personal and business banking segments. Business and Private Banking deposits increased 6.6%, while Personal Banking deposits grew 9.2%, supported by reinvigorated branch networks and digital channels. Gross loans and advances expanded by 5.9%, with Australian business lending balances up 9%, capturing market share gains in both SME and total business lending sectors. Home lending also saw a lift, with proprietary channel drawdowns increasing to 41% from 38% the previous year.

Credit Impairment and Asset Quality

Credit impairment charges rose 14.4% to $833 million, primarily due to higher individually assessed charges in the business lending portfolio. Despite this increase, key asset quality metrics showed signs of improvement in the second half of the year, aided by a supportive Australian economic backdrop with moderating inflation and easing interest rate pressures. The ratio of non-performing exposures to gross loans increased modestly to 1.55%, reflecting some deterioration in business lending, while mortgage arrears remained stable.

Capital and Funding Position

NAB maintained a strong capital position with a CET1 ratio of 11.70%, down 65 basis points from FY24, influenced by lending growth, investments, and share buybacks. The bank completed a $3 billion on-market share buyback during the year, including $0.6 billion in FY25. Liquidity metrics remained robust, with a Liquidity Coverage Ratio averaging 135% and a Net Stable Funding Ratio of 116%. The bank also continued to diversify its wholesale funding sources across currencies and tenors.

Strategic Initiatives and Outlook

FY25 saw NAB advance its refreshed strategy focused on customer advocacy, speed, simplicity, and technology modernisation. The rollout of the NAB Customer Voices program has begun to deliver meaningful improvements in customer interaction scores, with further expansion planned. Investment spend increased to $1.8 billion, targeting infrastructure, compliance, and customer experience enhancements. CEO Andrew Irvine expressed optimism about the outlook, highlighting the bank’s disciplined approach to growth and commitment to sustainable shareholder returns.

Dividend and Shareholder Returns

The board declared a final dividend of 85 cents per share, fully franked, bringing total dividends for FY25 to 170 cents per share, slightly higher than the previous year. This payout aligns with NAB’s target dividend payout ratio of 65% to 75% of cash earnings, reflecting confidence in the bank’s capital and earnings stability.

Bottom Line?

NAB’s FY25 results underscore steady growth and resilience, but rising credit charges and remediation costs warrant close attention as the bank navigates evolving economic conditions.

Questions in the middle?

• Will credit impairment charges continue to rise amid economic uncertainties?
• How will NAB’s customer advocacy program impact long-term customer retention and growth?
• What are the implications of regulatory capital changes on NAB’s future capital management strategy?