Time to look at Australia Big 4 bank Bonds. Healthy credit profile over 6% yield from tier 2 bonds

National Australia Bank (NAB)

NAB delivered a solid 1HFY26 performance (as of March 2026), supported by continue loan expansion. Gross loans and acceptances rose by 6.3% YoY, while average interest earning assets grew by 2.0%, reflecting sustained lending momentum. This is supported net interest income which increase by 8.5% YoY to AUD $9.16 billion. 

NAB’s net interest margin (NIM) increased by 11 basis points YoY to 1.81%, driven by higher earnings from deposit and capital replicating portfolios, as well as a lower mix of lower-yielding liquid assets. This reflects improved balance sheet efficiency and stronger interest income stability.

Asset quality remained resilient in 1HFY26, with the non-performing loan (NPL) ratio has slightly increased to 1.53% from 1.50% in 1HFY25, significant driver was the downgrade and impairment of a small number of customers within the Corporate & Institutional Banking (C&IB) portfolio it also an increase in stage 3 exposure. Although this is slightly above the five-year average NPL level of 1.24 %, it remains at a manageable level.  

NAB’s capital and liquidity positions remained robust in 1HFY26. The Common Equity Tier 1 (CET1) ratio declined slightly 11.7%, well above the minimum regulatory requirement of 10.25% and the bank’s post-dividend operating target of above 11.25%. Liquidity metrics also remained resilient, with the Net Stable Funding Ratio (NSFR) at 116% and the Liquidity Coverage Ratio (LCR) at 132%, both well above regulatory minimum regulatory requirement of 100%. In addition, the bank maintained a substantial LCR surplus of approximately AUD 48 billion, providing a strong liquidity buffer against potential market stress and funding volatility.

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Australia and New Zealand Banking Group (ANZ)

ANZ delivered a stable 1HFY26 performance (as of March 2026), with gross loans and acceptances remaining flat, while average interest-earning assets grew by 2.2% year-on-year. This contributed to a slight 0.2% YoY increase in net interest income to AUD $8.89 billion.

ANZ’s net interest margin (NIM) declined by 3 basis points YoY to 1.53%, driven by intense asset pricing competition. on-interest income increased by 8.9% YoY to $2.3 billion, supported by higher realised gains on economic hedges at the group level (bank earned from matured or closed-out derivative contracts used to protect its earnings against fluctuations in foreign exchange rates and interest rates).

Asset quality remained resilient in 1HFY26, with the non-performing loan (NPL) ratio has slightly increase to 0.96% driven by the impairment of a small number of single-name customers is reflected stage 3 exposure has increase. While the NPL is slightly above the five-year average level of 0.92 %, it remains at a manageable level in our view.  

ANZ’s capital and liquidity positions remained robust in 1HFY26. The Common Equity Tier 1 (CET1) ratio increased to 12.4%, well above regulatory minimum requirements of 10.25%. Liquidity metrics also remained resilient, with the Net Stable Funding Ratio (NSFR) at 115% and the average Liquidity Coverage Ratio (LCR) at 132%, both well above the regulatory minimum requirement of 100%. ANZ’s wholesale funding maturities are more concentrated in FY27, FY28, and FY29; however, the bank maintains a substantial LCR surplus of approximately AUD $75 billion, providing a strong liquidity buffer and funding resilience.

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Credit and Capital Comparison - Big 4 Australian Banks

Overall, the Big Four Australian banks continue to maintain strong credit fundamentals, supported by robust capital and liquidity buffers. Among the peers, CBA and ANZ have the strongest capital positions, each reporting a CET1 ratio of 12.4%, providing comfortable buffers above their regulatory minimum requirements. Meanwhile, Westpac and NAB stand out for their stronger funding profiles, with Net Stable Funding Ratios (NSFR) of 117% and 116%, respectively, reflecting stable long-term funding. All four banks reported a Liquidity Coverage Ratio (LCR) of 132%, well above the 100% regulatory requirement, indicating ample high-quality liquid assets to withstand short-term funding stress.

Table 2: Credit Matric Peer Comparison

Mortgage Market Leadership

The Big Four Australian banks of CBA, WAC, NAB, and ANZ together account for 72% of the country’s mortgage market, highlighting their dominant position in housing finance. Mortgages make up a significant portion of their domestic loan books, ranging from 49% to 71%, which underscores the banks’ reliance on housing credit as a core asset class. Despite this concentration, borrowers maintain substantial equity, with current Loan-to-Value Ratios (LTVs) between 37% and 48%, slightly below their 5-year averages of 39%–49%. This strong collateralization provides a buffer against potential property market corrections.

Credit quality remains robust, as reflected in low mortgage non-performing loans (NPLs) of 1.0% to 1.5%, broadly in line with historical averages. Even some bank, which shows a modest increase in NPLs relative to its 5-year average, remains within manageable levels. These metrics indicate that, although the banks are highly exposed to housing, their mortgage portfolios are well-protected by prudent underwriting and borrower equity. Structural factors, such as the Four Pillars Policy (prevents mergers among the Big Four banks) further reinforce resilience by preserving competition and reducing systemic risk. Overall, the combination of dominant market share, high collateral coverage, and low credit losses underpins the stability and attractiveness of the Big Four banks’ mortgage business.

Table 3: Mortgage Market Share and Portfolio Risk Metrics of Australia’s Big Four Banks

Overall, Australia’s Big Four banks of CBA, WBC, NAB, and ANZ remain dominant in the banking and mortgage markets, supported by strong capital, robust liquidity, and policy protections. Together with well-managed credit risk in its mortgage portfolio, the bank is well-positioned to navigate the current tightening cycle and upcoming property tax reforms.

Recommendation

The Reserve Bank of Australia (RBA) has raised interest rates three times in 2026 (February, March, and May), bringing the cash rate to 4.35%, while not ruling out one more potential rate hike. Nonetheless, rates appear to be approaching the terminal level, the current environment may provide an attractive opportunity for investors to lock in relatively high yields.

For investors seeking higher returns and willing to accept moderately higher credit risk, AUD-denominated subordinated Tier 2 bonds issued by the Australian Big Four banks may offer attractive value opportunities, with yields currently above 6% (Table 6).

Table 4: Long Term AUD Tier 2 bonds