National Australia Bank Limited (ASX: NAB), one of the country’s Big Four banks, has reported a rise in first-half cash profit, supported by solid lending activity, cost discipline, and ongoing digital transformation. The result comes as market attention turns to the Reserve Bank of Australia’s next moves, with expectations for interest rate cuts emerging amid softening inflation data and economic headwinds.

While the bank’s near-term performance remains strong, NAB has adopted a prudent tone in its outlook, citing ongoing pressure on margins, mortgage competition, and shifting customer behaviour.

Half-Year Profit Supported by Core Banking Strength

NAB posted a cash profit of $4.05 billion for the six months to March 2024, up 3.2% from the same period last year. This was underpinned by stable lending volumes across business and home loans, as well as a focus on maintaining asset quality and operational efficiency.

The bank saw strong momentum in small and medium enterprise (SME) lending, as well as improved credit demand in business banking—long regarded as NAB’s core strength. Home lending remained resilient despite rate-driven affordability constraints, with NAB gaining modest market share in key metro areas.

Operating income increased by 4.5% year-on-year, reflecting steady customer activity and transaction volumes, despite moderating consumer sentiment.

Net Interest Margin and Cost Management

NAB’s net interest margin (NIM) was reported at 1.67%, down slightly from the prior period, reflecting continued pricing pressure and the impact of rising deposit costs and refinancing activity. The bank highlighted that margin compression remains a challenge, particularly as competition intensifies in both mortgage and business lending markets.

However, NAB continues to offset some of the margin headwinds through disciplined cost control, with operating expenses increasing by just 1.8%—well below inflation. Investment in technology, compliance, and cybersecurity remained a priority, but efficiency initiatives helped contain growth in staff and overhead costs.

The bank’s cost-to-income ratio remained steady at 46.2%, positioning NAB well to maintain profitability even in a lower-rate environment.

Preparing for a Softer Rate Outlook

With interest rate cuts now expected by late 2024 or early 2025, NAB is preparing for a more competitive and margin-sensitive banking landscape. The bank acknowledged that recent economic indicators—including softer inflation and slowing retail demand—suggest monetary policy may soon shift toward normalisation.

NAB’s management stated that while rate reductions may provide relief to households and stimulate credit growth, they could also further pressure margins, particularly in the deposit-heavy retail segment.
The bank continues to run a disciplined balance sheet, maintaining a strong capital position (CET1 ratio at 12.2%) and ample liquidity to support customer lending and dividend sustainability through the next phase of the cycle.

Customer Focus and Digital Transformation

NAB continues to invest in customer experience, technology platforms, and digital service channels as part of its long-term strategy to modernise banking delivery and reduce friction across products. Over the half-year, the bank expanded digital onboarding tools, enhanced fraud protection systems, and improved app functionality for both personal and business customers.

Customer satisfaction scores remain among the highest of the major banks, supported by NAB’s focus on service personalisation, rapid dispute resolution, and integrated small business banking tools.

In parallel, the bank is also investing in AI-driven insights to support better risk assessment, customer engagement, and productivity.

Credit Quality and Economic Resilience

Despite macroeconomic uncertainty, NAB reported a low loan impairment charge of $204 million, with asset quality metrics remaining stable across both retail and business portfolios. Mortgage arrears and commercial loan delinquencies remain below long-term averages, although NAB flagged some emerging signs of stress in discretionary consumer spending segments.

The bank noted that most borrowers are adapting well to higher rates, aided by savings buffers, wage growth, and government cost-of-living support. Nonetheless, NAB continues to closely monitor vulnerable sectors and maintains conservative provisioning to navigate potential economic shocks.

Dividends and Capital Management

NAB declared an interim dividend of 84 cents per share, fully franked, reflecting a payout ratio of approximately 70% of cash earnings. This maintains the bank’s commitment to delivering reliable returns to shareholders while retaining capital flexibility.

The board indicated that capital management remains a priority, with no immediate plans for buybacks, but room to consider further shareholder distributions depending on the pace of lending growth and regulatory capital changes.

The bank’s strong CET1 capital ratio and conservative funding profile provide room to navigate future regulatory shifts and strategic investments.