NAB 3Q26: Strong Credit Profile Supports Resilience Amid Growth Moderation

Key Highlights

• Resilient earnings: Gross loans and acceptances grew 6% YoY to AUD817.4 billion, while net interest and non-interest income rose 4% and 13%, respectively.

• Solid asset quality: Non-performing loan (NPL) ratio improved to 1.50% from 1.54%, supported by better outcomes across Australian and New Zealand business lending.

• Prudent provisioning approach: Impairment provisions rose to AUD6.4 billion, with almost AUD2.0 billion in forward-looking provisions providing a buffer against potential stress.
• Strong capital and liquidity: CET1 ratio remained robust at 11.93%, while LCR and NSFR stood at 134% and 115%, respectively, comfortably above regulatory minimums.

• Moderating loan growth: Housing credit growth is forecast to slow from 6.7% in FY26 to 2.5% in FY27, but this is expected to reflect slower lending momentum rather than a material deterioration in credit quality.
• Recommendation: We remain positive on NAB’s outstanding bonds and recommend bondholders hold.

Following our previous 2Q26 Credit Update, NAB has released its 3Q26 results, providing further insights into its financial performance, asset quality and lending outlook. This update reviews the key developments since our previous assessment.

Previous Article Update: Credit Update: NAB – High-Quality Defensive Credit with Compelling Yield (4.5%–6.1%) | Bondsupermart

NAB’s Robust 3Q26 Performance Amid Economic Uncertainty

As shown in Table 1, NAB delivered a stable 3Q26 performance (June 2026), supported by continued loan growth. Gross loans and acceptances increased by 6% YoY to AUD 817.4 billion, reflecting sustained lending momentum. Net interest margin (NIM) edged up slightly to 1.79%, supporting a 4% YoY increase in net interest income to AUD 4.6 billion. Meanwhile, non-interest income increased by 13% YoY to AUD 0.9 billion (Table 1). Overall revenue growth was supported by volume growth and well-managed deposit margins, which helped mitigate softer Markets & Treasury (M&T) performance.

NAB’s implied cost-to-income ratio remained stable at 47.3%. Credit impairment charges increased to AUD 299 million up from AUD 254 million in 3Q25. The higher impairment charges reflected business volume growth alongside prudent forward-looking adjustments to account for a more challenging economic environment impacted by Middle East tensions, elevated domestic interest rates, and tax adjustments. Overall, NAB’s 3Q26 results highlight resilient underlying performance, with continued loan growth supporting earnings

Table 1: NAB Financial Highlight

Asset Quality Remained Resilient Amid Macro Uncertainty

Asset quality remained resilient in 3Q26, with the non-performing exposure (NPL) ratio improving to 1.50% from 1.54% in 3Q25. This was supported by a 3 bps decline in the ratio of impaired assets to gross loans and acceptances (GLAs), reflecting improved outcomes across the Australian and New Zealand business lending portfolios

Although total provisions for credit impairment increased to AUD 6.44 billion (3Q25: AUD 6.15 billion), this reflects a prudent approach to maintaining strong balance sheet buffers amid geopolitical uncertainty and higher domestic interest rates. NAB retains almost AUD 2.0 billion in forward-looking provisions to absorb potential stress in the economic outlook. This conservative posture is reflected in a provision coverage ratio (collectively assessed provisions to credit risk-weighted assets) increase from 1.63% in 3Q25 to 1.67% in 3Q26 to provide a significant cushion against potential future volatility.

Strong Capital and Liquidity Profile

NAB’s capital and liquidity positions remained robust in 3Q26. The Common Equity Tier 1 (CET1) ratio increased to 11.93% as of June 2026, well above the minimum regulatory requirement of 10.25% and the bank’s post-dividend operating target of above 11.25%. The strong capital position was primarily supported by earnings generation (+41bps), which was partially offset by credit risk-weighted asset expansion (-13 bps) reflecting ongoing loan expansion and balance sheet growth.

Liquidity metrics remained strong, with the quarterly average Liquidity Coverage Ratio (LCR) at 134% and the Net Stable Funding Ratio (NSFR) at 115%, both well above the regulatory minimum requirement of 100% In addition, the bank maintained a substantial LCR surplus of approximately AUD $53.8 billion in excess liquid assets, providing a strong liquidity buffer against potential market stress and funding volatility.

Outlook: Housing Lending Growth Faces Headwinds from Higher Rates and Tax Changes, but Credit Quality Remains Resilient

While 3Q26 loan growth remained strong at 6% YoY, management guidance points to a moderation in growth momentum ahead. Monthly home lending applications declined by 15% following the Federal Budget tax changes and were down 16% YoY. The decline was driven by weaker investor applications, which fell 17%, while owner-occupier applications decreased 14%, suggesting potential headwinds for mortgage growth in the coming quarters.

Accordingly, NAB Economics expects Australian system-wide housing credit growth to slow from 6.7% in FY26 to 2.5% in FY27. Owner-occupier credit growth is expected to slow to 4.5% in FY27, while investor lending system growth is forecast to contract sharply to -1.4% in FY27 as higher interest rates and tax revisions weigh on properties.

NAB's low loan-to-value ratio provides a sizeable buffer against property price declines. As of 3Q26, the average loan to value (adjusted for the property appreciation and principal repayments) stood at 37.9%, below its 5-year average of 39.4%. Assuming loan balances remain unchanged, a 20%, 40% and 60% decline in property values would raise the LTV to 47.4%, 63.2% and 94.8%, respectively. This suggests that the mortgage portfolio has a substantial equity buffer against property price declines.

Overall, we view the expected slowdown as a moderation in lending growth momentum rather than a deterioration in credit quality. This is aligned with our view of the potential implications of the proposed property tax reforms for Australia’s banking sector, as discussed in our previous article: Australia's Proposed Property Tax Reform: What Is the Impact on Australia's Banking Sector | Bondsupermart

Overall, NAB’s 3Q26 results demonstrate strong credit fundamentals, supported by resilient asset quality, robust capital and liquidity buffers. While impairment charges reflect macroeconomic pressures, these remain manageable rather than a material deterioration in asset quality.

Looking ahead, slower housing credit growth and continued lending competition may weigh on earnings momentum. Nevertheless, NAB’s strong balance sheet, asset quality and funding profile continue to support its position as a high-quality and defensive credit.

We recommend existing bondholders to hold and remain positive on NAB’s outstanding bonds (Table 2 and 3).

Among the recommended bonds, we favour NAB 5.100% 16Oct2035 Corp (AUD), a senior unsecured bond offering a yield to maturity of around 6.0%, and NAB 6.558% 12May2041 Corp (AUD), a Tier 2 bond offering a yield to call of around 6.7%. Both bonds currently offer attractive yields above 6% and fit our long-duration preference under the barbell strategy, alongside shorter-duration bonds.

Table 2: NAB’s Senior Unsecured Bond

Table 3: NAB’s Tier 2 Bond