National Australia Bank reported cash earnings growth of 2% in the third quarter of 2026 compared with the first half’s quarterly average, driven primarily by lower credit impairment charges. The result reflects a mixed picture for Australia’s largest bank, with solid momentum in business banking and deposit gathering offset by softening momentum in home lending and the lingering cost impacts of a significant software capitalisation policy change announced in the first half.
The headline earnings improvement masks an underlying profit that remained stable over the period, suggesting NAB’s core business faced headwinds that offset the benefit of reduced credit costs. Volume growth and margin management proved resilient, but operating expenses rose due to both seasonal factors and the structural cost increase from the first half software policy adjustment. This cost inflation represents a material headwind to the profit and loss that management is working to offset through targeted productivity initiatives.
NAB’s progress on strategic priorities showed uneven results. Business lending expanded by 2%, with the higher-margin Business and Private Banking segment growing at 4%, representing tangible traction in a focus area. Deposit balances grew 2%, including 3% growth in Business and Private Banking transaction accounts, suggesting the bank is successfully competing for customer deposits in a competitive market. The proprietary home lending channel improved its market share, with drawdowns via proprietary channels climbing to 50.9% from 47.7% in the previous quarter, indicating NAB is winning business through its own channels rather than through third-party brokers.
However, the home lending market showed clear signs of stress. Applications declined 15% quarter-on-quarter, a sharp drop that reflects the impact of higher domestic interest rates, the Middle East conflict, and recent tax changes announced in the Federal Budget. While the ratio of non-performing loans declined, watch loans increased, suggesting performing customers are experiencing stress that may translate into future credit losses. The bank has provided $2 billion in forward-looking provisions to account for potential stress in the outlook, sitting atop a collective provisions ratio of 1.36% of credit risk weighted assets, which provides some cushion but warrants monitoring.
NAB’s capital position remained strong with a CET1 ratio of 11.93%, comfortably above its operating target of 11.25%, affording the bank scope to continue lending growth or return capital if conditions remain stable. Management reiterated its target for productivity savings of more than $450 million in the current financial year and signalled it expects operating expense growth in 2026 to be lower than the 4.6% growth achieved in 2025, indicating an aggressive cost control agenda.
The path ahead depends heavily on whether home lending applications stabilise or continue declining, and whether watch loans translate into actual defaults or normalise as market conditions settle. The earnings quality also hinges on whether credit impairment charges remain suppressed or rise as the economy faces ongoing uncertainty. This announcement is price sensitive and has been flagged as material by the ASX.
View the full ASX announcement (PDF)
About National Australia Bank Limited (ASX: NAB)
National Australia Bank is one of Australia’s four major banks, offering a range of banking, wealth management, and financial services. It has a significant presence in business and agribusiness lending.
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