How NAB’s Strategy and Capital Strength Are Steering Through Economic Headwinds

Steady Earnings Amidst Economic Uncertainty

National Australia Bank (NAB) reported a modest 0.8% increase in cash earnings for the half year ending March 2025 compared to the prior half year, reaching $3.58 billion. This growth was supported by improved underlying profits and a reduction in credit impairment charges, despite a higher effective tax rate. The bank’s Chief Executive Andrew Irvine highlighted the resilience of NAB’s business model in a challenging operating environment marked by global trade tensions and economic uncertainty.

The bank’s capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 12.01%, down 34 basis points from September 2024. This slight decline was primarily driven by credit risk weighted asset growth of $9.6 billion and the completion of a $3 billion on-market share buy-back program. NAB’s proforma CET1 ratio, factoring in the pending sale of its remaining 20% stake in MLC Life, stands at 12.13%, comfortably above regulatory targets.

Mixed Divisional Performance Reflects Strategic Focus

The bank’s key divisions delivered varied results. Business and Private Banking (B&PB) saw earnings rise 1.4%, buoyed by lower credit impairment charges and modest revenue growth despite higher expenses related to business growth investments. Corporate and Institutional Banking (C&IB) posted a 4.1% earnings increase, driven by strong volume growth and higher Markets and Treasury income.

Conversely, Personal Banking earnings declined 6.8%, reflecting weaker margins and higher credit impairments, although deposit balances grew 4.8% supported by branch network investments and increased transaction account openings. New Zealand Banking delivered a robust 12.5% earnings increase, benefiting from credit impairment write-backs and volume growth despite ongoing economic challenges.

Strategic Execution and Customer Advocacy

NAB is advancing a refreshed strategy focused on enhancing customer advocacy, simplifying banking experiences, and modernizing technology. The bank reported a 25% increase in proprietary home lending drawdowns and a 32% rise in retail transaction account openings via branches compared to the prior year. Investments include $41 million in branch renovations, installation of 39 new ATMs, and expanded Saturday branch openings, underscoring NAB’s commitment to improving customer convenience.

Technology initiatives such as the integration of NAB’s Portal Pay with MRI’s Property Tree platform and the launch of 'PayTo' for Amazon.com.au customers aim to streamline payments and enhance security. These efforts align with NAB’s ambition to be the most customer-centric bank in Australia and New Zealand, although challenges remain in delivering consistent service across all customer segments.

Prudent Risk Management Amid Global Uncertainty

Despite an improving outlook for the Australian and New Zealand economies, NAB remains cautious given escalating global trade tensions. The bank maintains a prudent provisioning approach, with collective provisions representing 1.42% of credit risk weighted assets. Non-performing exposures increased slightly to 1.49%, mainly driven by business lending and home lending arrears.

NAB’s liquidity and funding metrics remain strong, with a leverage ratio of 5.02%, a Liquidity Coverage Ratio averaging 139%, and a Net Stable Funding Ratio of 119%. These robust balance sheet settings position the bank well to manage ongoing uncertainties and support sustainable growth.