NAB Faces Rising Credit Costs and Payroll Remediation Risks in Latest Quarter

Steady Revenue Growth Amid Rising Costs

National Australia Bank (NAB) reported a 1% decline in cash earnings for the June 2025 quarter compared to the average of the March half-year, primarily due to a significant increase in credit impairment charges. Despite this, underlying profit grew by 2%, supported by a 3% rise in revenue. This revenue growth was underpinned by higher margins and volume expansion, with the net interest margin (NIM) increasing by 8 basis points, reflecting improved earnings on replicating portfolios and lower short-term funding costs.

Lending and Deposits Show Positive Momentum

The bank’s business and private banking lending portfolio expanded by 4%, marking NAB’s strongest June monthly business lending growth on record. Australian home lending also grew by 2%, with a gradual uptick in proprietary channel drawdowns. Deposits remained broadly stable over the quarter but rose 6% over the past nine months, signaling a successful focus on deposit performance improvement.

Credit Quality and Asset Risk Management

Credit impairment charges jumped to $254 million in the quarter, a sharp increase from $81 million in the previous quarter. This was driven mainly by individually assessed charges related to business lending in Australia and New Zealand, as well as unsecured Australian retail portfolios. The ratio of non-performing exposures to gross loans increased slightly to 1.54%, reflecting some downgrades in New Zealand business lending and early signs of stabilising arrears in the mortgage portfolio.

Capital Position and Regulatory Compliance

NAB’s Common Equity Tier 1 (CET1) capital ratio improved modestly to 12.14%, despite risk-weighted assets growing by $10.4 billion, driven largely by credit risk-weighted asset increases. The bank’s leverage ratio stood at 5.1%, supported by $30.5 billion in term wholesale funding raised over nine months. Notably, NAB’s ongoing efforts to enhance compliance with anti-money laundering regulations led to the cancellation of its enforceable undertaking with AUSTRAC, marking a significant regulatory milestone.

Operational Efficiency and Community Initiatives

Operating expenses rose 3%, influenced by higher personnel costs, including a $130 million payroll remediation program that remains ongoing. NAB continues to target productivity savings exceeding $400 million for the full year. The bank also invested in community support, refurbishing 100 branches since October 2024 and providing nearly $6 million in disaster relief grants to customers and employees facing emergencies. Additionally, NAB launched PayID Receivables, a streamlined digital payment solution aimed at simplifying business transactions.

Looking Ahead

While the bank faces challenges from elevated credit charges and remediation costs, its strategic focus on sustainable growth, operational efficiency, and regulatory compliance positions it well for the future. CEO Andrew Irvine expressed optimism about NAB’s long-term prospects, emphasizing the bank’s commitment to delivering shareholder returns amid a cautious but constructive economic backdrop.