NAB’s Capital Dips 0.5% While Risk-Weighted Assets Climb $6 Billion

• Common Equity Tier 1 capital down 0.5% due to dividends and currency impacts
• Total capital edges up 0.2%, driven by Tier 2 issuances
• Risk-weighted assets rise 1.4%, reflecting corporate and mortgage lending growth
• Leverage ratio dips slightly to 4.86%, liquidity coverage ratio improves to 136%
• Non-performing loans fall 3.5%, signalling better asset quality

Capital Movements and Regulatory Compliance

National Australia Bank (NAB) has released its 2026 First Quarter Pillar 3 Report, providing a detailed snapshot of its capital adequacy, risk exposures, and liquidity as at 31 December 2025. The report, prepared in line with APRA’s APS 330 standard, reveals a nuanced picture of NAB’s financial health amid a dynamic economic environment.

Common Equity Tier 1 (CET1) capital, the highest quality capital buffer, declined by $254 million or 0.5%. This reduction was primarily driven by the payment of a $2.6 billion final dividend for the 2025 financial year and adverse foreign currency translation effects, partially offset by a solid net profit of $2.2 billion and the sale of NAB’s remaining 20% stake in MLC Life. Despite this, total capital increased marginally by $184 million, buoyed by $1.9 billion in Tier 2 capital issuances, which were partly offset by $1.2 billion in maturities and currency headwinds.

Rising Risk-Weighted Assets Reflect Lending Growth

The bank’s risk-weighted assets (RWA) rose by $6 billion or 1.4%, driven mainly by lending expansion in corporate sectors, including small and medium-sized enterprises (SMEs), and residential mortgages. This growth was accompanied by operational risk increases linked to higher net interest and lease income, reflecting the bank’s expanding business activities and a higher interest rate environment. Notably, NAB implemented new probability of default models for its Bank of New Zealand residential mortgages and transitioned certain portfolios from the standardised to internal ratings-based approaches, enhancing risk sensitivity.

Interestingly, the leverage ratio, a non-risk-based measure of capital adequacy, edged down slightly to 4.86%, influenced by a $12 billion increase in total exposures and the CET1 capital decrease. Meanwhile, liquidity metrics showed improvement – the liquidity coverage ratio (LCR) rose to 136%, supported by increased high-quality liquid assets and a strategic rise in short-term wholesale funding to manage elevated cash outflows. The net stable funding ratio (NSFR) also improved to 117%, reflecting growth in stable retail and small business deposits.

Credit Quality and Operational Risk

Credit risk indicators pointed to a healthier asset quality profile, with non-performing exposures falling by 3.5%, largely due to improvements in business lending and mortgage arrears. Provisions for credit impairment remained robust, supporting the bank’s cautious stance amid ongoing economic uncertainties. Operational risk capital requirements increased by 2.9%, driven by an updated business indicator reflecting higher net interest and lease income, consistent with the bank’s growth trajectory.

Overall, NAB’s Pillar 3 disclosures underscore its commitment to transparency and regulatory compliance, offering investors and stakeholders a comprehensive view of its risk management framework and capital resilience. The bank’s ability to balance capital distributions with growth and risk mitigation will be closely watched in the coming quarters.

Bottom Line?

NAB’s steady capital base and improved liquidity position set the stage for navigating evolving market and regulatory challenges ahead.

Questions in the middle?

• How will NAB manage capital buffers amid ongoing lending growth and dividend commitments?
• What impact will rising interest rates have on NAB’s operational risk and credit quality going forward?
• How might foreign currency fluctuations continue to affect NAB’s capital and risk-weighted assets?