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Fundamental View
AS OF 28 Mar 2025NAB is a leader in business banking, and has improved product and capability in mortgages and personal lending. It retreated from its overseas and insurance operations between 2014-17, to focus on its core business and consumer banking franchises in Australia and New Zealand.
Andrew Irvine, who previously ran Business & Private Banking for a few years, took over as the new CEO in Apr-24.
Capital is strong, and liquidity comfortable; its 90+ DPD mortgage ratio has been steadily worsening but provisions are strong.
Business Description
AS OF 28 Mar 2025- NAB's business banking unit has for long been strong in the Australian middle market. Institutional banking and markets are important but the group's push into global capital markets activities led to losses on higher risk positions during the 2008 crisis and a winding back of some of its wholesale markets business.
- Following the sale of Great Western Bank and the UK spin-off of Clydesdale and Yorkshire Banks in 2016, NAB is focused on its core business in Australia and New Zealand where it owns Bank of New Zealand.
- It sold to Nippon Life 80% of its insurance business in 2015 (this was de-consolidated in FY2016) followed by the remaining 20% in Dec-24, and its asset and wealth management unit, MLC Wealth, in Aug-20.
- In Australia, NAB has a market share of ~21% of business lending and ~14% for housing loans. Its area of strength is middle-market commercial lending where it has a 27% market share of SME lending, and credit cards, where it has a ~27% marketshare as a result of acquiring Citi's Australian retail business in 2022.
Risk & Catalysts
AS OF 28 Mar 2025Being the leading business bank in Australia, NAB is exposed to the health of Australia’s middle market companies. High interest rates have started affected business lending asset quality, and NAB’s mortgage book 90+ DPD (1.08% at Sep-24) is the worst amongst the majors. However, FY24 collective provisions / credit RWAs were strong at 1.47%.
Competition has intensified in the business banking segment, particularly from CBA; as the largest player NAB has more to lose.
NAB and CBA took mortgage market share from Westpac and ANZ when the latter two had operational issues processing mortgage applications during COVID-19; we expect it to maintain its market share.
Key Metric
AS OF 28 Mar 2025| AUD mn | Y20 | Y21 | Y22 | Y23 | Y24 |
|---|---|---|---|---|---|
| Return on Equity | 6.4% | 10.6% | 11.7% | 12.9% | 11.6% |
| Total Revenues Margin | 2.0% | 1.9% | 1.8% | 2.0% | 1.9% |
| Cost/Income | 44.7% | 46.5% | 45.2% | 43.7% | 46.6% |
| APRA CET1 Ratio | 11.5% | 13.0% | 11.5% | 12.2% | 12.4% |
| International CET1 Ratio | 15.8% | 18.0% | 16.9% | 17.8% | 18.1% |
| APRA Leverage Ratio | 5.8% | 5.8% | 5.1% | 5.2% | 5.1% |
| Impairment Charge/Avg Loans | 0.5% | (0.0%) | 0.0% | 0.1% | 0.1% |
| Gross Impaired Loans/Gross Loans | 0.3% | 0.2% | 0.2% | 0.2% | 0.2% |
| Liquidity Coverage Ratio | 139% | 122% | 131% | 140% | 137% |
| Net Stable Funding Ratio | 127% | 123% | 119% | 116% | 117% |
CreditSight View Comment
AS OF 19 Feb 2025NAB is Australia’s leading mid-market business bank. It stumbled during the global financial crisis and profitability was then held back by its under-performing UK operations. These were spun off in 2016; results now reflect its profitable businesses in ANZ. It managed through the pandemic well despite its SME focus, and took mortgage share vs. ANZ and WSTP who had mortgage processing issues. Asset quality is seeing a mild deterioration but the bank has granular collective provisions. In Aug-21 it announced the acquisition of Citi’s Australian consumer business. In May-22, the bank agreed a settlement with financial crimes agency AUSTRAC to improve its AML/CTF controls. FY22/1H23 results for the bank were strong, followed by a challenging 2H23 and FY24. 1Q25 has been marginally better.
Recommendation Reviewed: February 19, 2025
Recommendation Changed: October 05, 2016
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