National Australia Bank’s (ASX: NAB) first-half fiscal 2026 profit increased 2% on the second half of last year to $3.6 billion. Solid loan growth, a modest net interest margin uplift, and lower expenses increased profit before bad debts by 6%. Interim dividend is flat at $0.85, fully franked.

Why it matters: After already announcing additional bad-debt provisions and plans to bolster capital, the result is devoid of real surprise, and our forecasts are largely unchanged. Over the medium term, we expect NIM to remain around current levels, with single-digit loan growth.

  • We expect the benefits of higher interest rates to be competed away, particularly in an environment of higher refinancing activity and weaker credit growth. Household and business confidence has been shaken by high inflation, global events, and proposed tax increases on investors.
  • Lifting lending volumes to customers directly (not via brokers) has been a focus for the bank, and additional bankers likely supported volume and margin improvement in the half. NIM in personal banking rose 5 basis points, with brokers accounting for 52% of Australian home loans from 60% last year.

The bottom line: We retain our $34 fair value estimate for wide-moat National Australia Bank with shares overvalued. A forward P/E of 16.5 times and dividend yield of 4.3% look demanding given our expectation for 5% average EPS growth per year to fiscal 2030.

  • Competitors have made business lending a priority, but we expect customer relationships and ongoing investment in specialist lenders and digital capability to help National Australia Bank defend its position. Business and corporate lending grew 4% and 7% respectively in the half.

Between the lines: The balance sheet is sound, with a pro forma common equity Tier 1 ratio of 12.1%, bolstered by an underwritten DRP expected to raise around $1.8 billion. We forecast a final dividend of $0.87, implying a full-year payout ratio of 71%.

National Australia Bank’s profitability remains robust as it defends business-lending market share

National Australia Bank is one of four major banks operating in oligopolistic Australia and New Zealand markets. It is Australia’s biggest business bank, offering a full range of banking and financial services to the consumer, small business, and corporate sectors, with significant operations in New Zealand.

The bank has consistently held onto its large share of business loans, and continued investment shows a clear intention to retain this position. The banks greater investment into specialist credit teams across areas such as agriculture, health, education, franchising, as well as business banking centers, sets the bank apart. This ultimately gives the bank a better understanding of the customers’ requirements, faster turnaround times, and higher approval rates. Capacity to make investments into digital onboarding and fast access to unsecured lending ensure the bank retains high satisfaction amongst small business customers.

In home lending, lifting lending volumes to customers directly (not via brokers) is a focus for the bank, being tackled by investing in technology to improve efficiency and customer experience, and by also adding more bankers.

The main current influences on earnings growth are modest credit growth, steady margins as the banks adjust lending and deposit prices for changes in the cash rate, and investments in digital offerings. Operating expenses will continue to rise as the bank invests to capture growth opportunities, this despite productivity improvements being realized.

We expect a return to a midcycle loan impairment expense/loan ratio of around 0.17% in fiscal 2029. Earnings could weaken in the near term if the economic outlook deteriorates and the bank materially lifts provisions.

Bulls say

  • Management focus is on the successful, lower-risk, and profitable domestic banking. Economies of scale, pricing power, a strong balance sheet, and high credit ratings provide a robust platform to drive growth.
  • As Australia’s biggest business bank, National Australia Bank has the most to gain from strong demand for business credit.
  • NAB has the ability to achieve cost savings and drive operational efficiency improvements,

Bears say

  • A slowdown in core earnings growth could come from slower business loan growth, margin compression, falling fee income, and a worse-than-expected loan loss outcome.
  • If stress returns to global credit markets wholesale funding costs could increase materially.
  • Regulatory, compliance, remediation, and customer refund risk are difficult to predict.