- Recently Issued Covered Bonds: National Australia Bank Limited (NAB) recently issued 5-year USD-denominated covered bond with a yield to maturity of 4.5%. The bond is secured by a cover pool comprising Australian residential mortgage loans transferred by NAB to the covered bond trust.
- Cover Pool Requirement: Under the bond’s term, the group must maintain the cover pool at least 103% of the outstanding covered bonds. Eligible mortgage asset to be included in the term is subject to maximum loan to value (LTV) ratio of 80% for residential properties and 60% for commercial properties, including any prior or equal ranking loan secured against the property.
- Covered bond features: If the collateral proceeds are insufficient to fully repay bondholders following enforcement, any remaining shortfall would rank as an unsecured claim against NAB, with recovery dependent on ’s ability to meet the outstanding obligation.
- Credit Ratings: NAB is rated Aa2 / AA- / AA- by Moody’s / S&P / Fitch, respectively. The covered bond is rated at a higher rating of Aaa / AAA from Moody’s / Fitch, respectively.
- Company Overview: NAB is the third-largest banking group in Australia, with a market capitalisation of approximately AUD129 billion as of 18 August 2026. The bank maintains a strong franchise in retail banking, supported by leading market positions in residential mortgages and household deposits.
- Strong Earnings Performance: NAB delivered a solid 3Q26 performance, with net interest income increasing 4% YoY to AUD4.6 billion, while net interest margin (NIM) improved by 1bp to 1.79%, supported by 6% YoY loan growth. Non-interest income also increased 13% YoY to AUD0.9 billion. Overall revenue growth was supported by volume growth and well-managed deposit margins, which helped mitigate softer Markets & Treasury (M&T) performance.
- Resilient Asset Quality: Non-performing loan (NPL) ratio improving to 1.50% from 1.54% in 3Q25. This was supported by a 3bps decline in the ratio of impaired assets to gross loans and advances (GLAs), reflecting improved outcomes across the Australian and New Zealand business lending portfolios.
- Prudent Provisioning: NAB increased its total provisions for credit impairment to AUD 6.44 billion in 3Q26, up from AUD 6.15 billion in 3Q25. This supported a total provision coverage ratio of 1.67% of credit risk-weighted assets (CRWAs), up from 1.63% in 3Q25, with approximately AUD2 billion of forward-looking provisions maintained for potential stress in the outlook.
- Robust Capital Position: NAB reported a CET1 capital ratio of 11.93% comfortably above APRA’s minimum regulatory requirement of 10.25%. Capital generation from earnings contributed 41bps, partly offset by Risk-Weighted Assets (RWA) growth of 13bps, reflecting continued loan and balance sheet expansion.
- Strong Liquidity Position: NAB reported a Liquidity Coverage Ratio (LCR) of 134% and a Net Stable Funding Ratio (NSFR) of 115%, both comfortably above the regulatory minimum of 100%. In addition, the bank maintained a substantial LCR surplus of approximately AUD $54 billion, providing a strong liquidity buffer against potential market stress and funding volatility.
- Mortgage Applications Weaken After Federal Budget: 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%. This points to softer housing demand and potential headwinds to mortgage growth in the coming quarters. The moderation is broadly in line with our previous view, as highlighted in our earlier article.
- Housing Loan Growth Expected to Moderate: 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. We echo the same view highlighted in our previous article, as the 2026–27 Federal Budget is expected to curb speculation in established properties while maintaining tax incentives for new residential development.
- Growth Moderation Rather Than Credit Deterioration: Despite weaker mortgage activity following the Federal Budget and in the latest quarter, NAB expects the slowdown to reflect a moderation in lending momentum rather than a deterioration in credit quality. Asset quality remains resilient, supported by prudent provisioning and strong borrower repayment capacity.
- Related Insight: For more on Australia’s property tax reform and its banking sector implications, see our previous article Australia's Proposed Property Tax Reform: What Is the Impact on Australia's Banking Sector | Bondsupermart
- Overall: NAB maintains a strong credit profile, supported by resilient asset quality, prudent provisioning, robust capital and liquidity buffers. While slower housing credit growth and continued lending competition may weigh on earnings momentum, its strong balance sheet and funding profile provide a solid buffer, supporting NAB’s position as a high-quality and defensive credit.
- Bond Recommendation: Investors may consider NAB 4.610% 26Aug2031 Corp (USD), which is supported by AAA/Aaa expected covered bond ratings, providing an additional layer of credit protection compared with NAB’s senior unsecured obligations. The minimum investment amount is USD250,000, with subsequent investments at USD1,000.
For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report holds a NIL position in the abovementioned securities.
