NAB Reports 2% Cash Earnings Growth and 11.93% CET1 Ratio in Q3
National Australia Bank’s June quarter cash earnings edged up 2% excluding a large notable item, supported by lower credit impairments and steady business lending growth despite rising costs and economic headwinds.
- 2% cash earnings growth excluding large notable item
- Business lending up 2%, deposits rise 2%
- CET1 ratio improves to 11.93%, above target
- Non-performing loans decline but watch loans increase
- Productivity savings target of $450 million for FY26
Cash Earnings Growth Driven by Lower Credit Impairments
National Australia Bank (ASX:NAB) reported a 2% increase in cash earnings for the June 2026 quarter compared with the first half 2026 quarterly average, excluding a large notable item (LNI) that weighed on the prior period. This improvement was primarily driven by lower credit impairment charges, which helped offset the impact of higher operating costs influenced by seasonal factors and changes to NAB’s software capitalisation policy earlier in the year.
Lending and Deposits Show Solid Momentum
Australian business lending rose 2% in the quarter, including a 4% increase from the Business & Private Banking division, reflecting NAB’s ongoing focus on this segment. Home lending growth kept pace with the broader market when excluding the run-off of the Advantedge portfolio, with proprietary channel drawdowns improving to 50.9% from 47.7% in the first half. Deposit balances also increased by 2%, supported by a 3% rise in Business & Private Banking transaction accounts (excluding offsets), reinforcing NAB’s strong funding position.
Asset Quality Mixed Amid Economic and Geopolitical Pressures
While the ratio of non-performing loans declined over the quarter, NAB flagged an increase in watch loans, indicating heightened potential stress among performing customers. The bank cited challenges stemming from the Middle East conflict, higher domestic interest rates, and recent federal tax changes as factors impacting customer credit quality. Despite these pressures, business credit growth remained robust, though the Australian home lending market softened with a 15% drop in applications compared to the previous quarter.
Capital and Productivity Targets Support Resilience
NAB’s Common Equity Tier 1 (CET1) capital ratio improved to 11.93%, comfortably above its operating target of 11.25%, supported by strong capital management and liquidity metrics. The bank holds nearly $2 billion in forward-looking provisions for potential credit stress. It reaffirmed its commitment to productivity savings exceeding $450 million for the full year 2026 and aims to keep operating expense growth below the 4.6% increase recorded in 2025.
Strategic Focus on Customer Advocacy and Technology
CEO Andrew Irvine emphasised NAB’s long-term strategy centred on enhancing customer advocacy, accelerating speed and simplicity, and continuing technology modernisation. These initiatives are intended to drive sustainable growth and deliver attractive shareholder returns amid a challenging macroeconomic backdrop.
Bottom Line?
NAB’s steady cash earnings growth and capital strength provide a buffer against rising economic uncertainties, but watch loan increases and softer home lending suggest cautious monitoring ahead.
Questions in the middle?
- How will NAB’s watch loan increase evolve amid ongoing geopolitical tensions?
- Can productivity savings offset rising operating costs in the second half of FY26?
- Will home lending applications rebound as economic conditions stabilise?
