NAB Shares Move Negative On Year: The Latest Look

National Australia Bank shares (ASX: NAB) took a hit on Monday, closing sharply lower at A$39.46, and wiping out any remaining gains for the past year in one swoop. Selling intensified in the stock, after revealing a dramatic slowdown in mortgage demand that overshadowed what was an otherwise resilient quarterly earnings and a strengthening capital position.

The 4.62% decline on the day pushed NAB shares into negative territory over the past twelve months, down 1.91% on the period. Markets focused squarely on a 15% quarter-on-quarter collapse in home loan applications during the three months to June, seemingly catching many off guard heading towards the final quarter. It had already been a difficult couple of weeks for holders, with updates out of big four peers raising fears into the report.

What Did NAB Report?

NAB reported cash earnings of $1.83 billion for the June quarter, up 2% compared with the first-half quarterly average when excluding large notable items. Statutory net profit jumped 32% to $1.81 billion, helped by fewer one-off charges. Revenue climbed 2% from the prior half’s quarterly run rate, while the Common Equity Tier 1 capital ratio improved to 11.93%, comfortably above regulatory minimums and providing scope for capital management.

Yet the positives were quickly eclipsed by mounting pressures across the bank’s mortgage franchise. Net interest margin compressed by another 2 basis points to 1.79%, extending a multi-quarter trend of margin erosion driven by intense competition for deposits and loans. Operating expenses rose 4% in the quarter, outpacing revenue growth and fuelling concerns about cost discipline. Management attributed part of the increase to seasonal factors and the flow-on effects of changes to software capitalisation policies implemented earlier in the financial year.

The standout negative was the sharp retreat in home lending activity. NAB disclosed that Australian home loan applications fell approximately 15% during the June quarter compared with the prior three months, with application values down around 9%. The bank pointed to a confluence of headwinds including higher interest rates, recent capital gains tax and negative gearing reforms introduced by the Albanese government, and weaker housing market sentiment as key drivers of the slowdown.

The mortgage downturn came despite relative strength elsewhere in the loan book. Australian business lending rose 2% in the quarter, with the Business and Private Banking division posting a 4% lift. Deposits increased 2%, with particularly strong growth in transaction accounts, a lower-cost funding source that supports margin stability. NAB also reported that June was the strongest month for its business bank since FY22, underscoring the divergence between corporate and consumer lending trends.

On asset quality, the bank struck a cautiously optimistic tone. The ratio of non-performing loans declined, while collective provisions stood at 1.36% of credit risk-weighted assets, reflecting what management described as prudent allowances for potential future stress. However, the bank flagged a mid-single-digit increase in watch-list loans within its business portfolio, an early-warning indicator that some borrowers are beginning to feel the strain of elevated rates and a softer economic backdrop.

Irvine acknowledged the more uncertain environment created by global conflict, higher interest rates, and recent tax changes, but reaffirmed the bank’s commitment to supporting customers while targeting operating expense growth below the prior year’s 4.6% and productivity savings exceeding $450 million in FY26.

Banks Stuttering

The home loan weakness is not isolated to NAB, with all of Australia’s big four banks have disclosed double-digit declines in mortgage applications since the government’s tax changes took effect, pointing to a structural, policy-driven headwind rather than a temporary sentiment blip. For NAB specifically, the timing is particularly challenging given the bank has spent years lifting its home lending market share through digital channels and broker partnerships.

NAB’s guidance implies management expects the operating environment to remain challenging, with cost discipline and productivity improvements critical to defending margins. The bank’s strong capital position provides optionality for share buybacks or maintaining dividends even if earnings growth slows, a factor that may appeal to income-focused investors as the yield on offer climbs following the share price decline. For growth-oriented investors, the combination of falling mortgage volumes, compressing margins, and rising costs raises more questions than might feel comfortable.

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