National Australia Bank shares (ASX: NAB) are facing headwinds, pulling back after encountering persistent resistance at the A$40 level. The stock closed at A$38.27 today, a 3.38% drop on the day, having recently struggled to break through this psychological and technical barrier. While NAB has delivered a 2.77% increase since the start of the year, the relative underperformance to the ASX 200 (+4.40%) is noted.

The A$40 mark represents a potential inflection point for NAB. Repeated attempts to sustain a breakout above this level have come undone, suggesting that it is either being actively defended, or that there is pause to see how a move may unfold, potentially signalling limited near-term upside.

Analyst downgrades this year, notably from BofA Securities in February, have cast a shadow over NAB’s outlook. BofA’s downgrade to ‘Underperform’ with a reduced price target of A$33.50 stemmed from concerns about weaker-than-expected revenues, potential increases in bad debts, and compressed net interest margins (NIM). The analysts highlighted the competitive pressures impacting NIM, driven by heightened competition and rising funding costs. Furthermore, they argued that NAB’s valuation, trading at a premium to its historical price-to-earnings ratio, appeared stretched.

These concerns materialized in NAB’s financial results. The bank reported a 2% decline in cash earnings for the quarter ending December 31, 2024, attributed to a slight NIM contraction. Similarly, the first half of 2025 saw a 3.5% fall in net profit, amounting to A$3.41 billion, with NIM remaining flat despite underlying pressures. Rising operating expenses, driven by increased wholesale funding costs and lending competition, further dampened profitability.

Adding to the uncertainty, recent reports have surfaced regarding investor concerns over CEO Andrew Irvine’s management style and senior executive departures. While these issues haven’t directly triggered a significant sell-off, they contribute to a sense of unease and potentially impact long-term investor confidence.

 

Top Australian Brokers

 

Bull Case:

  • Attractive Dividend Yield: NAB offers a compelling dividend yield, making it attractive for income-seeking investors.
  • Strong Market Position: As one of the “Big Four” banks, NAB benefits from a dominant market share and a diversified revenue base.
  • Potential for NIM Improvement: If interest rates stabilize or rise, NAB could see its net interest margin improve, boosting profitability.
  • Capital Management: Share buybacks can support the share price and enhance shareholder value.

Bear Case:

  • NIM Compression: Ongoing competition and rising funding costs could further compress NAB’s net interest margin.
  • Analyst Downgrades: Negative analyst sentiment could weigh on the share price.
  • Management Concerns: Uncertainty surrounding CEO’s leadership style could undermine investor confidence.
  • Economic Slowdown: A weakening Australian economy could lead to increased bad debts and lower loan growth.
  • Deposit Outflows: Continues outflow of business client deposits could indicate fundamental weakness.

The persistent resistance at A$40, coupled with analyst downgrades and concerns about earnings and management, suggests a cautious outlook. However, the attractive dividend yield and strong market position offer some support. Whilst NAB’s share price drop today was not in isolation, with other major players in the sector such as CBA (-1.22%), ANZ (-0.56%), and WBC (-1.45%) all falling along with the ASX 200 (-0.79%), the level of the pullback outpaced peers.

Don’t Buy Just Yet

You will want to see this before you make any decisions.

Before you decide which shares to add to your portfolio you might want to take a look at this special report we recently published.

Our experts picked out The 5 best ASX shares to buy in 2025.

We’re giving away this valuable research for FREE.

Click below to secure your copy

Secure your FREE copy