National Australia Bank Limited

Thank you for standing by and welcome to the National Australia Bank first half 2026 results presentation. Go ahead, please.

Good morning and thank you for joining us today for NAB's half year 2026 results. I'm Sally Miles, the Head of Investor Relations. I would like to acknowledge the traditional owners of the land from which I join you today, the Gadigal peoples of the Eora Nation. I'd like to pay respect to their elders past and present and to the elders of the traditional lands from which you join us. Presenting today will be Andrew Irvine, our Group CEO, and Inder Singh, our Group CFO. We're also joined in the room by members of NAB's executive team. Following the presentations, there'll be an opportunity for analysts and investors to ask questions. I'll now hand to Andrew.

Thank you, Sally, and good morning, everyone. I'd also like to welcome Inder, who is presenting his first set of results for NAB. NAB's half-year 2026 results benefited from good momentum across our business, supported by stable margins. We also benefited this half from strong, broad-based credit growth in a supportive economic environment. The outbreak of conflict in the Middle East created more volatile environment, which we do expect to continue for some time. In light of this, we have improved the strength and resilience of our balance sheet, to support our customers. Our customer-centric strategy becomes even more important in the current environment, and we continue to execute the strategy with both focus and discipline. This is helping us deliver better customer experiences, which in turn drives improved customer advocacy. To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we must continue to modernize our technology to build a simple, fast and resilient bank. On this, we are making good progress with more to come. We have three business priorities which aim to deliver stronger returns over time, growing business banking, driving deposit growth and strengthening proprietary home lending. Again, we have continued to make good progress against each of these priorities and I will discuss them in more detail shortly. Looking ahead, while the near-term outlook is more challenging, we are well positioned to navigate this uncertainty with stronger balance sheet settings and good underlying momentum across our business. Cash earnings this half were impacted by changes to our software capitalization policy to reflect the rapidly changing technology environment. Excluding the impact of this large notable item, our cash earnings increased 2.3%. This was mainly driven by a 6.4% improvement in underlying profit, ex-notables, offset by higher credit impairment charges. Revenue growth of 3.1% reflects stronger markets and treasury income and volume growth. Total costs, excluding the impact of the notable item, were down slightly. Our cash return on equity excluding the impact of a large notable item this half was 11.6%. This is slightly higher than fiscal year 25. We have declared an interim dividend of 85 cents and this represents 72.5% of cash earnings excluding notable items which is in line with our target payout policy of between 65 and 75%. Disciplined execution by each of our divisions has contributed to our strong underlying performance in the half. Business and private banking has had a very strong half with a 5.4% increase in underlying profit. The business has good momentum in lending and deposits with a stable margin outcome. I'm particularly pleased with the 10.8% growth in transaction account balances, which reflects our consistent focus on deepening customer relationships. This performance is a strong demonstration of the quality of our business and private bank in a very competitive environment. Corporate and institutional banking delivered underlying profit growth of 1.7%. A disciplined approach to both lending and deposits has helped deliver a 15.2% return on equity. Business credit growth this half was 6.9%, reflecting strong system growth. together with good momentum in corporate lending and higher customer drawdowns in the month of March. Personal banking has also had a very good half, with underlying profit of 3.7%. The focus on strengthening proprietary home lending and growing deposits whilst managing margins has been a key driver, and I'll talk more about these shortly. Finally, in New Zealand, BNZ delivered flat underlying profits in what is a very challenging economic environment. Our continued focus on growing personal deposits has supported good market share growth this half. The ongoing conflict in the Middle East is challenging customers through both higher fuel costs and supply disruptions. These issues, together with inflationary pressures and higher interest rates, are likely to create real cash flow stress for some customers. While the vast majority of our customers are well positioned to manage these impacts, Some will need further support. At our heart, NAB is a relationship bank. Our relationships with customers are particularly important in these times, and our business bankers are on the front foot, contacting customers to discuss their circumstances. Support provided includes increased limits to working capital facilities and overdrafts to manage liquidity issues. We have also provided some zero interest loans to customers as part of the government's economic resilience program. Consumer sentiment has deteriorated sharply. However, overall, our retail customers enter this period with strong buzzers. Across our home loan book, offset and redraw balances have grown by 9% in the last 12 months. In addition, 80% of our customers did not reduce their home loan repayments in 2025 when cash rates fell by 50 basis points. This will help those customers absorb an increase in interest rates from here. In light of the more challenging environment and the ongoing volatility, we have taken proactive steps to increase the resilience of our balance sheet settings. The March common equity tier one capital ratio of 11.65% is modestly lower over the half, reflecting both strong volume growth and market volatility impacts. To further strengthen capital, a 1.5% discount will be applied to our first half dividend reinvestment plan, and we expect to partially underwrite the BRP participation. These actions will raise a total of approximately $1.8 billion, and increase our Group Set 1 ratio by approximately 40 basis points to a pro forma ratio of 12.05%. Forward-looking collective provisions have also been increased by $300 million to a total of $1.93 billion. This includes an increase in our economic adjustment, as well as increased overlays in sectors more likely to be impacted by fuel supply and fuel cost issues. Our total provisioning to credit risk-weight assets has increased to 1.6% and collective provisioning to credit risk-weighted assets has increased to 1.35%. Liquidity and funding metrics remain well above regulatory minimums. The duration and intensity of the current disruption to liquid fuels markets and associated impact on the economy remain highly uncertain. I'm confident the actions we've taken to improve the strength and resilience of our balance sheet will better enable us to continue to deliver the strategic priorities while supporting our customers through this more challenging period. The next slide outlines our strategy based on our ambition to be the most customer-centric company in Australia and New Zealand. To execute this strategy, we are being disciplined and consistent in our focus on doing a few things well. at both scale and at speed to power exceptional customer experiences. Our ambition to improve customer advocacy is anchored in a core belief that this will deliver deeper customer relationships together with improved retention and referrals. This in turn should lead to higher growth and sustainable returns over time. NAB Customer Voices is the foundation of our strategic focus on customers. This program, which we have been progressively rolling out over the last 18 months, enables us to more systematically measure, capture and respond to customer feedback. We continue to see the benefits, including significantly reducing the time required to open a simple business transaction account. While there is more work to do, these improvements will help support our strategic focus on growing at-call deposits. I'm very pleased to say that the progress to date has been recognised with NAB being awarded the Roy Morgan Customer Satisfaction Award for the Major Bank of the Year in 2025. To put this in context, the last time NAB won this award was in 2012. This is a tremendous achievement which recognises the efforts of all our colleagues to improve customer experiences. In addition, we now have positive NPS across all our four segments for the very first time. Our medium and large business NPS has improved by 16 points over 12 months and is ranked equal first of the major banks. Over the same period, both mass consumer and micro and small business improved by five points, with NAB now ranked equal second. Six months ago, you'll remember I highlighted the focus on improving NPS in high net worth and mass affluent. Here, too, our NPS has improved by 14 points, and our ranking has moved from fourth to third. The mass affluent segment and our premier banking strategy remains a key focus in our personal banking division, and in this segment, we are now ranked second. While we certainly have more to do, our strategic focus on customer advocacy is working and can be a key differentiator for our bank. Becoming a simpler, faster and more resilient bank is an ongoing journey and is embedded in how we run NAB. Simplifying the bank is key to our transformation. This means reducing the number of products we offer, eliminating duplication, and simplifying our processes. Since fiscal 22, we have cut the number of products we have by 27%, with an ambition to get this down by 50%. Being faster means improving the speed of delivery to customers by improving the productivity of bankers and support teams. This will increasingly be enabled through the use of AI to support routine tasks and allow colleagues to focus on higher value work and to improve products and systems. Improved resilience is also being delivered through the continued modernization of our core technology programs. The progressive migration to modern cloud-based platforms and decommissioning of legacy systems will continue to keep our customers safe and improve the availability of our services. By becoming simpler, faster, and more resilient, we aim to deliver stronger operating leverage simple real-time banking that our customers love, lower operational risk, and sustainable returns to shareholders over time. Upgrades to our bank's technology infrastructure foundations are now largely complete. This includes multi-cloud infrastructure and the build and migration to a modern data platform. The next phase is the progressive modernization of our core product and servicing platforms, and this work is now well underway. This slide highlights two of these platforms, our real-time payments platform and our transaction switch. In the first half, we completed the migration of all payments to our cloud-based real-time payments engine. A modern payments platform has been key to the development of innovative payment solutions such as Amazon Pay2. Our transaction switch processes 15 million card and acquiring transactions every day across a range of channels. A new transaction switch has now been installed in the cloud, and we have commenced building the capability to enable card processing and authorization. The migration of all credit and debit card transactions is expected to be completed in FY27. with merchant acquiring to follow. Our new Group Executive Digital, Data and AI, Pete Steele, joined us in November and Pete's deep experience is helping us prioritise where we invest in a rapidly changing technology environment. AI opportunities, including investments to date, are broadly aligned to three strategic outcomes. Growth opportunities will be supported by banker AI and customer AI solutions that will help drive and deliver more personalized services to our customers at both scale and enable our bankers to spend more time with our customers. Productivity opportunities will be supported by AI tools that can undertake routine tasks and increase the speed of delivery. We have already rolled out AI tools to over 7,000 software engineers. which has in turn helped improve our change cycle delivery time and significantly increased developer productivity. We are also providing colleagues with access to AI tools to help them build the skills they will need in the future. As this technology evolves quickly, it is important we embed the appropriate risk controls and governance frameworks to keep our customer data safe and ensure transparency of any AI decisions that are taken. NAV has three clear business priorities which will help drive stronger, sustainable returns. The first is continued growth in business banking. Our aim is to be the clear market leader in business and private banking and to pursue disciplined growth in corporate and institutional banking. The second is to continue to drive deposit growth with a focus on at-call transaction accounts. We are investing in innovative payment solutions for business and improved propositions for our target retail segments, including mass affluent and youth. And the third is to strengthen our proprietary home lending. Here we've implemented a number of initiatives to help grow the share of lending through our proprietary channels. This will help manage margins and improve returns on our home lending portfolio. I will now speak to each of these priorities in more detail. We are proud to support Australian businesses through our two business banking divisions, which combined make us the largest business lender in Australia. We have a 22% share of total business lending and a 28% share of lending to small and medium-sized businesses. Sound underlying business activity has supported strong business credit growth at a system level over the 12 months to March. As the largest business lender in Australia, we've continued to see good opportunities to grow. Total business lending GLAs across both business and private banking and corporate and institutional banking increased by 11.5% in the 12 months to March to 306 billion dollars. This is our strongest annual growth in three years and was supported by above-system lending growth in Australian business lending. Business and private banking is the clear market leader in SME banking. This is NAS's heartland and we know it well. Our relationship-led approach, increasingly enabled by digital data and analytics capabilities, continues to deliver good growth and our pipeline remains strong. A focus on digitizing our customers' simple needs and removing work from our bankers is allowing bankers to spend more time with our customers. This includes the continued deployment and development of our business lending platform with over 80% of lending applications in the first half submitted digitally. Competition in this segment has undoubtedly increased. but our scale, our deep expertise, and the quality of our bankers enables us to compete from a position of strength. In recent half, despite strong competitive intensity, we have consistently grown business lending at above system rates while maintaining a stable divisional margin. A holistic approach to retaining high-performing bankers has helped keep turnover rates low. turning to our second priority of driving deposit growth. We continue to see strong growth in transaction and at-call accounts across both our personal and business banking divisions. Over the first half, business and private banking and personal banking grew at-call deposit account balances by $14 billion, which exceeded the growth in lending balances across these divisions. In personal banking, our investment in branch transformations and increasing engagement with customers has supported a 30% increase in new transaction account openings over the last two years. In business and private banking, a continued focus on deepening customer relationships and investments to streamline account opening processes has in turn supported a 31% increase in new transaction account openings over two years. The good growth in at-call deposits across the group this half has also meant we had correspondingly less appetite for larger term deposits. This is reflected in the decline in total deposits in our corporate and institutional banking division. NAB's home lending strategy aims to serve our customers well in the channel of their choice through the delivery of a seamless customer and broker experience. A focus on strengthening our proprietary franchise has seen us grow our share of drawdowns by proprietary channels from 41.4% to 47.7% in the first half. And in the month of March, 50% of our drawdowns were through proprietary channels, a key milestone for our bank. This progress has been supported by investments to improve banker productivity, including an increase in contribution from new bankers appointed in FY25 to uplift capability. Having a strong and growing proprietary home lending business also means we can adopt a more targeted approach to broker distribution. Brokers are an important distribution channel, and we are deepening relationships with value brokers to drive growth in priority segments. the successful execution of this strategy is delivering a bus system growth with improved home lending returns. I'll now pass to Inder, who will take you through the financial results in more detail.

Great. Well, thank you, Andrew, and good morning all. I'll focus on our financial performance as measured on a half-and-half basis compared to the period ending September 25. And to give you the best view of underlying trends, I will exclude the impact of the large notable item that we booked in the first half of 2026. Slide 22 provides an overview of our earnings performance. Underlying profit rose 6.4%, revenue was higher, boosted by improved markets and treasury income, and costs were slightly lower. Cash earnings grew 2.3%, with underlying profit growth partly offset by higher credit impairment charges. We reference these higher credit charges in our pre-announcement, and they include a $300 million top-up to forward-looking provisions to reflect potential downside risk from the Middle East conflict. Statutory profit declined 18%, primarily as a result of the large notable item, partly offset by the gain on disposal of our remaining 20% stake in MLC Life. Before we get into operating trends, I will provide some additional detail on the large notable item. This is set out on slide 23. As Andrew mentioned, we have implemented changes to our software capitalization policy to more closely align to an environment of rapid technological change. This has involved a reduction in the useful life of capitalized software assets and an increase in the capitalization threshold from 5 million to 20 million. There has also been a change in the nature of assets capitalised. For example, we will no longer capitalise certain risk and regulatory spend. These changes have resulted in a one-off accelerated amortisation charge of $1.35 billion, which has been booked through the operating expense line in the first half. These changes are expected to also have impacts moving forward. Firstly, the one-off accelerated amortization charge reduces our software capitalization balance by $1.35 billion, resulting in lower associated amortization charges going forward. Secondly, the remaining software capitalization balance of $2.2 billion will be amortized over a shorter period. These two impacts are expected to be broadly offsetting in the second half of 2026. Finally, moving forward, a higher proportion of investment spend will be expensed, with the OPEX ratio forecast to be approximately 50% in the second half of 2026. Following these changes, we would expect additions to our capitalised software balance to be more closely aligned to armatisation over time. Turning now to slide 24. Revenue rose 3.1%, mainly reflecting volume growth and a strong markets and treasury outcome. The depreciation of the New Zealand dollar had a negative $81 million impact on half-and-half revenue growth. Markets and treasury income increased $147 million over the first half. The key driver here was NAB risk management income, which benefited from improved outcomes in our treasury liquids portfolio. specifically the non-repeat of the real-life losses on bonds that we experienced in the second half of 2025. Customer risk management income also rose over the half, driven by some larger deals in CNIB. The revenue impact of a more broad-based increase in customer hedging activity was relatively limited due to the shorter average tenor of these trades. Excluding markets and Treasury, Revenue rose 1.8%, primarily driven by volume growth, which contributed $167 million. As Andrew mentioned, this was another period of strong lending performance with growth aligned to our strategic priorities. We saw good growth across our business banking franchises of BNPB and CNIB, along with housing growth supported by improved proprietary home lending flows. Margins were broadly stable, and I'll discuss these in more detail shortly. Fees and commissions rose $16 million, benefiting from higher capital market fees. Moving to slide 25. Net interest margin increased three basis points over the half. Excluding markets and treasury and the benefit of lower liquids, both of which are largely revenue neutral, NIM was stable this half, with lower lending margins, mostly offset by higher earnings on our deposit replicating portfolio. Lending margin reduced by four basis points. Within this, Australian home lending contributed two basis points to margin compression, with half of that related to competitive pressures, and this trend is broadly in line with prior periods. The timing difference between changes in cash rates and customer lending rates added a further two basis points of compression as we moved from the benefit of two cash rate reductions in the prior half to a drag from two cash rate increases in the current half. This compression was partly offset by small positive impacts. Australian Business Lending contributed two basis points to NIM compression with one basis points each from BNPB and CNIB. In BNPB, this impact reflects a fairly consistent level of competition with prior periods. In CNIB, we have seen a pickup in competition and also a small change in our business mix. Funding costs were neutral this period with fairly stable spreads. Deposits added one basis point to NIM, reflecting a series of small movements which I'll walk through in turn. Firstly, Mix contributed one basis point with stronger relative growth in lower cost transaction account balances over the period and a lower proportion of savings accounts earning bonus rates due to product refinements in UBank. Secondly, deposit costs contributed a benefit this period of one basis point related to TDs. And lastly, we saw one basis point drag related to the $5 billion increase in the size of our deposit replicating portfolio, which reduced the level of unhedged low rate deposit balances. It is important to note that this impact was largely offset by a higher earned benefit from the replicating portfolio as shown in the next block on this chart. The three basis point replicating portfolio benefit to NIM shown on the chart relates entirely to our five-year deposit hedge. This benefit was higher than our original guidance of two basis points, with the extra basis point driven by the $5 billion top-up to the hedge I referenced earlier. Turning to some considerations for NIM in the second half, replicating portfolio returns are estimated at approximately five basis points. This is based on swap rates as at March 2026. This increase in contribution from the first half reflects the full period impact of the $5 billion top-up to our deposit hedge, plus higher swap rates impacting both deposit and capital hedges. This is the key area through which we are seeing the benefit from the rising rate environment. Our strong deposit growth this period has reduced our sensitivity to changes in the bill's OS spread. An eight basis point move in this spread is now equivalent to a one basis point impact on NIM. Now moving to slide 26. Operating expenses declined half a percent over the period, excluding the large notable item. This includes a $38 million benefit relating to the depreciation of the New Zealand dollar. Salary related growth was $58 million. The majority of this reflects the impact of pay rises from 1 January under the Australian Enterprise Agreement. Volume related costs rose $52 million. The key driver was additional bankers across all of our customer facing divisions. with the largest uplift in personal banking, including increases as part of our strategy to strengthen proprietary home lending. Technology and investment spend rose $51 million. The main drivers were higher technology spend related to cyber security and fraud prevention, increased cloud consumption, technology modernisation and higher software and data costs. Investment spend was modestly lower, consistent with the usual seasonal trends between half years. Productivity savings were $199 million, achieved through continued process improvement and simplification, operational and technology efficiencies, and changes in the composition of our workforce. Other costs were up $16 million this half, with a number of moving parts. Key items included lower remediation costs, offset by higher performance-based compensation. Looking ahead, our considerations for FY26 OPEX remain largely unchanged. We expect year-on-year cost growth to be below the prior year comparative of 4.6%. Investment spend is expected to be approximately 1.8 billion, with around 50% of second-half spend expensed through the P&L. This reflects our changed software capitalization policy. Depreciation and amortization is expected to be high year on year, reflecting the timing of asset deployments. Payroll review and remediation remains ongoing, and we note that $7 million of additional charges were booked in the first half of 2026. We continue to target productivity savings of greater than $450 million for the full financial year. Now turning to asset quality trends on slide 27. We entered the 2026 financial year on the back of several quarters of improving Australian economic trends. Cash rates were declining, nominal GDP was rising to around trend levels, and unemployment remained low. However, with an absence of productivity improvements, it became evident in the second quarter that the economy was hitting capacity constraints with building inflationary pressures. This prompted the Reserve Bank to tighten cash rates in February and March, with an expectation of further cash rate increases and slowing activity. Then in early March, an escalation of the Middle East conflict resulted in a sudden and sharp increase in fuel costs, some supply challenges and a heightened level of uncertainty and market volatility. Against this backdrop and with the typical lags we see between the change in economic conditions and the performance of our book, it wasn't surprising to see improved underlying asset quality outcomes in the first quarter of 2026. The default but not impaired ratio declined eight basis points, supported by broad-based improvements across both our Australian mortgages and BNPB business lending portfolios. However, as we move to the second quarter, these improving trends started to moderate, and whilst Q2 represents only one data point, we are monitoring this very closely. As you're aware, the impaired asset ratio can be lumpy, and we have historically seen this ratio increase towards the later stages of an asset quality cycle. The full basis point increase this half was primarily driven by a small number of CNIB This was similar to what we saw in the second half of 2025. It is very difficult to forecast half and half movements, but given the economic outlook, this impaired asset ratio could remain elevated over the coming months. The credit and payment charge for the first half was $706 million. This equates to 18 basis points of gross loans and advances. This was $221 million higher than the second half of 2025, reflecting the $300 million top-up to forward-looking provisions partly offset by lower individual charges and a write-back in the underlying collective provision. IAP of $541 million included broadly stable charges for unsecured personal lending, modestly lower charges for BNPB business lending in New Zealand, and higher charges in CNIB related to single-name exposures. The underlying collective write-backs of 135 million were primarily driven by the release of provisions held for customers transferred to individually assessed, ratings upgrades for a small number of CNIB customers, and data refinements partially offset by lending growth. The $300 million top-up to forward-looking provisions reflects increased stress in the outlook to the Middle East conflict, which I'll discuss in more detail. Turning now to slide 28. BNPB business lending asset quality trends are broadly consistent with the group profile I discussed on the prior slide, showing an improvement through the first quarter but stabilising in the second quarter. This has seen BNPB's business lending NPL ratio decline 22 basis points over the half, with stable to improving trends across most sectors. While our book is well diversified and highly secured, there is clearly downside risk to asset quality over the coming months. As Andrew highlighted earlier, our large network of relationship bankers is proactively reaching out to customers to understand the impacts of the Middle East conflict on their businesses and discuss support options. During these uncertain and challenging times, our scale and our long history of banking SME customers is really important. We have worked through many cycles, and we know this business and our customers well. I'll now turn to provisioning on slide 29. Total provisions increased $221 million over the first half and now represent 1.7 times our base case scenario and equate to 1.68% of credit risk-weighted assets. Individually assessed provisions have increased $91 million to $1.3 billion reflecting new and increased provisions related to CNIB customers, partly offset by RIDOS in BNPB. Collective provisions increased 130 million to 1.35% of credit risk-weighted assets. Forward-looking collective provisions rose 300 million to reflect the impact of potential stress related to the Middle East conflict. This includes changes in our base case economic assumptions a 2.5% increase in the downside scenario rating to 45% and a net increase in target sector forward-looking adjustments of 148 million. These increased FLA's relate to sectors expected to be most impacted by fuel costs and supply issues including agriculture, transport and storage, manufacturing, construction and commercial real estate. Underlying collective provision reduced by $170 million, with $35 million of that related to FX movements, and the remainder driven by items I referenced in my asset quality remarks on slide 27. Moving now to capital on slide 30. Our group CET1 ratio declined five basis points to 11.65% as of the end of March 2026. This reflected volume growth and market-related impact across credit provisioning, IRRWB, risk-weighted assets and net FX translation. Our Level 1 ratio ended the period at 11.53%. Both this and the Level 2 ratio are above our operating target of greater than 11.25% and well above the regulatory minimum of 10.5%. I'll now walk through the key moving parts of the Level 2 CET1 ratio as shown on the chart on the screen. Cash earnings added 81 basis points, partly offset by 59 basis points for payment of the 2025 final dividend. Credit risk-weighted asset movements reduced the CET1 ratio by 24 basis points, mainly reflecting strong business lending growth. The other RWA bucket includes a range of impacts which overall have reduced the CET1 ratio by 9 basis points. These include Firstly, a 10 basis point reduction related to increased swap rates impacting the embedded loss component of IRRB risk-weighted assets. And secondly, a six basis point benefit from the removal of the standardised floor adjustment in the period which resulted from RWA movements in the second quarter. NetFX translation was a drag of eight basis points relating mainly to the depreciation of the New Zealand dollar. Offsetting these impacts was an 11 basis point benefit from the sale of our remaining 20% stake in MLC Life during the half. As we outlined in our pre-announcement, the first half DRP will include a 1.5% discount, and we expect to partially underwrite this DRP. In combination, these initiatives will raise approximately $1.8 billion, or 40 basis points of CET1 capital, taking our pro-forma ratio to 12.05%. Going forward, we remain focused on disciplined capital allocation to support profitable growth and drive sustainable shareholder outcomes. There is no change to our operating target of greater than 11.25% or our dividend payout policy of 65 to 75% of cash earnings. Liquidity and funding are set out on slide 31. The quarterly LCR ratio is three basis points lower, over the half, at 132%, and NSFR was stable at 116%. Both ratios are well above the minimum requirement. We continue to manage funding and liquidity prudently, and our balance sheet is well positioned for periods of market volatility. Our term funding issuance is well progressed. We issued $19.6 billion over the first six months of the year, supporting repayment of maturities in the period. Over the course of the financial year 26, issuance is expected to be broadly in line with prior years at around $36 billion. I'll hand now back to Andrew.

Thank you, Inder. Look, as Inder mentioned, the impact of inflationary pressures and a tightening rate cycle which emerged at the end of 2025 has been compounded by the outbreak of the Middle East conflict and the associated impacts on both fuel supply and fuel prices. This has made for a far more uncertain and challenging outlook, and it's not surprising that both consumer and business confidence levels have declined sharply. While activity indicators have held up very well to date, elevated uncertainty and cost pressures are expected. to slow economic growth. Business credit, which was growing at an annualized system rate of around 10% in the first half, is expected to moderate in the second half. That said, the longer-term outlook for business investment continues to be very positive, supported by key structural drivers, including ongoing investment in infrastructure, in property, in energy transition, and in supply chain resilience. Looking ahead to the second half, the actions taken to strengthen our balance sheet position as well to manage the uncertain outlook and to continue to support our customers. NAB enters this period with good underlying momentum in our business. The consistent execution of our strategy to deliver improved customer advocacy, supported by a focus on being simpler, faster, and more resilient. We continue to progressively modernize our core tech platforms and we are developing our strategy to deliver value through AI solutions. Everyone at NAB is focused on delivering progress in our three key priorities of growing business banking, driving deposit growth, and strengthening proprietary home lending, and there is no change to our disciplined approach to managing costs and driving productivity, which creates the capacity for ongoing investment. I remain confident in the long-term outlook for our business. We have the right business mix and strategy to deliver sustainable returns to shareholders. Thank you again for your time and I'll now hand back to Sally for Q&A.

Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the Operator will introduce you. Can I please ask that you limit yourselves to one question and we'll come back to you if time permits. Please go ahead, Operator.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you would like to cancel your request, please press star 2. If you are on speakerphone, please pick up the handset to ask your question. Your first question today comes from Richard Wiles from Morgan Stanley. Please go ahead.

Good morning. I just had one question about the credit quality trends in the personal bank. You said that there was an increase in pre-provision profit, but that was offset by higher impairment charges relating to the unsecured retail portfolio. Can you quantify those losses relating to cards and personal loans and maybe comment on why this is happening against the backdrop of a strong labour market and whether you expect trends in consumer unsecured losses to get worse from here?

Yeah, look, good question. I think what we're flagging is a modest uptick. We are seeing a little bit of unseasonality playing through that in the second quarter. It tends to be a little lighter from a repayments point of view. And the second issue is we're just seeing some transitory impacts just from the migration of the city book which we're looking into. We don't think this speaks to a major change in the outlook for unsecured, but those are the couple of items that are driving that trend.

Okay, so in during the half, it was really just seasonality that drove the uptick rather than anything more alarming?

Yeah, that's right, Richard, and also just a couple of transitioning items with the city book, which we'll be able to give you a further update on in the next update.

Thank you.

Thank you. Your next question comes from Andrew Lyons from Jefferies.

Please go ahead. Thanks and good morning. A related question but focusing more on the commercial portfolios. Your IP charge was again elevated at 14 bits of total loans in the half which particularly appears high versus what peers have been reporting over the last couple of halves and you've again put it down to business mix in the stage of the cycle. Andrew, maybe a question for you. Just in light of this relative returns drag and with the benefit of hindsight, are you happy that over the last couple of years you've got the risk settings right across your domestic business portfolios, that's both business and private bank and CNIB?

Yeah, hi Andrew. I think we do. We're very confident that we earn through any losses that we might have in our commercial segments and portfolio. It's also important to note that the quality of the the book domestically actually improved in both the first quarter and the second quarter of the half. What we're flagging is that we had a very small number of international exposures that we took an individual provision for. But, you know, I think when we look at the domestic portfolio, most metrics actually improved half on half. Thank you.

Thank you. Your next question comes from Victor German from Macquarie. Please go ahead.

Thank you. I just wanted to maybe quickly touch on capital. Like Piers, you've done a very impressive job over recent years optimising your risk-weighted assets. And looking ahead, I'd be interested in your views on the likely implication of potentially deteriorating credit quality on risk-weighted assets. In your one-half results, the effective approach, you increase provision, or you increase your provision by 300 mil, and also risk-weighted assets, sorry, I should say overlays, by eight basis points. So it would just be interesting how you think investors should think about this potential risk-weighted assets inflation if credit quality does deteriorate, and whether this relationship that you've kind of put out in this result is a good guide for how we should think about it.

Maybe I'll have a first crack at that one, Inder, and then you can follow up if I missed anything. I'd say, first and foremost, it's going to be hard, I think, to predict what capital will do in the second half. Some things for consideration for you. We do expect credit growth to moderate from very elevated levels in the first half. So, you know, that on the balance will be a positive, but we have to also look at, well, what happens and if there's any PD migration to the negative over the course of the half that, you know, may drive credit risk wave assets. So we'll have to see what those headwinds and tailwinds do on a net basis. But, you know, we did take an increased CP going into this because I think The fact is we don't really know how this is going to transpire and I think we all need to be quite humble with our forecasting accuracy right now. This crisis in the Middle East seems to be continuing on and we just don't know what the duration and intensity of the crisis is, so we wanted to be prudent going into this so that we could continue to participate in credit growth and to support our customers. So I think we'll have to see how this plays out in terms of what happens to the numbers as we go. I don't know, Inder.

Yeah, maybe just to give you one data point, Victor, on your question about RWA trajectory. One way to think about it is if you look at our base case economic projections from here, which call for a moderation of GDP growth and a slight uptick in unemployment, if that actually plays through you know, we would expect our risk-rated assets to increase by around $3 billion over the next 12 to 18 months. Clearly, this is going to be progressive, right? So, as Andrew mentioned, there's going to be a series of other dynamics around the broader capital piece that will play through as well.

Thank you. Your next question comes from Jonathan Mott from Baron Joey. Please go ahead.

Thank you. Andrew, I wanted to go back to your comments on the slowdown in credit growth. Obviously, the business environment's been fantastic for the last couple of years now, and reaching 10% growth in the business bank is a great number. You also said that the pipeline still looks okay. I wanted to get your views on what you're seeing in that pipeline. Have you actually started to see agricultural customers pull back yet? Have you seen that pipeline weekend just in the last couple of weeks given the volatility. Is it actually flowing through at the coalface or is it just your expectation that credit growth will slow?

Yeah look I'd say we're still seeing a material bifurcation between conditions and confidence and so when you look at the actual numbers on a week-to-week basis you're not yet seeing any material slowdown in application volume in how those apps are flowing through to settlement, and the pipeline continues to remain very robust. So if you look at the numbers, and you were not aware that there were a crisis going on, you wouldn't see anything to be worried about, frankly. But at the same time, when we talk to our customers, you can hear from them that confidence has dipped, and they're talking about taking actions to safeguard, you know, their business and to moderate their growth settings. So that is a bifurcation and a disconnect, frankly, that we're seeing that really hasn't kind of unraveled yet. So our expectation is that we'll see a softening, but the truth is we don't see it yet in our numbers.

Great. So is it just too early?

Look, I'm quite surprised, frankly, that we haven't seen any reduction, but that's where we're at. So I think it is too early.

Thank you.

Thank you. Your next question comes from Ed Henning from CLSA. Please go ahead.

Thanks for taking my question. Can I just ask a question on the margin? If you give us a little bit more just the outlook and what you're thinking there, if I kind of run through a few things. What was the rate lag impact in the first half? You saw also on the home loan side, you saw fixed rates lending increase a little bit. Was that a headwind and do you see that as a continuing headwind going forward? On the mix, you talked about the benefit coming through on the deposit side. Can you just talk about do you anticipate a mixed benefit still to come through or are you starting to see some shift to TDs that will be a bit adverse on that and if there are any changes in competition as well, please?

Andrew, do you want to take that?

Yeah, look, obviously, you know, we are cognizant of all of those moving parts. Clearly, you know, we don't provide specific NIM guidance. But, you know, if you look at the impact of rate increases, we obviously had two rate increases in this half compared to two rate decreases in the last half. But if we look forward and we only get, say, one rate increase, we think the rate lag impact is probably half a basis point or thereabouts in terms of NIM. I think the impact in terms of fixed doesn't really play into that materially, to be honest. In terms of deposit mix, look, it's difficult to forecast. We've obviously got strong momentum in a number of parts of the business around transaction accounts, and Andrew spoke to that, both in terms of BNPB and also within the personal bank. And we'll manage, you know, the overall mix in terms of how we express appetite for TDs based on how we see the momentum playing through. But we're pretty pleased with the first half momentum.

And we haven't yet seen any migration to yield-bearing deposits in the mix yet. Is there a potential for that to happen as rates increase and the value to customers of capturing yield is greater? But to date, we haven't really seen that migration.

Thank you. Thank you. Your next question comes from Andrew Triggs from J.P. Morgan. Please go ahead.

Thank you very much. Just a question on capital again. With the Airbnb changes being finalised and coming up in, I think, the 1st of October, can you just talk to the benefit from those changes and its interplay with the pro-cyclicality capital you talked about, noting that you are fairly marginal on the standardised four now? And just with that sort of tide of capital position, just your priority areas for growth and where might you think, even if credit growth does moderate it a little bit, do you think you need to pull back on certain areas like institutional to make sure you have sufficient capital for the emerging economic environment?

Yeah, a good question. I might take the first element of that and then Andrew can talk a bit about the priorities for growth. In terms of the New Zealand regulatory changes, I think two main areas of impact. One is that you'll see the gap between Level 2 and Level 1 close out a little bit, mainly because we have some internally funded Tier 2 in the New Zealand sub that gets a deduction at the top of the house. So you'll see that narrow. I think secondly, probably a combination of the New Zealand changes and what APRA has proposed here, we should see the standardised floor really become less of an issue for us moving forward. And so our focus really is on the advanced impacts as we expect that standardised floor, which has been a bit tight in the last couple of periods, to be less of an issue moving forward. Andrew, do you want to cover the priority areas for growth?

Yeah, I think, look, when I talk to shareholders, they want us to continue to participate in high-quality loan growth, predominantly in our business banking franchise, but also to the extent we can get it in home lending where there are opportunities to grow share above our cost of capital. I think we're going to continue to look at areas where we're not earning a sufficient return on our capital. and continue to tighten the settings to minimize that leakage, really. We've done that, I think, really well across our portfolios, but there's still more that we can do there. You know, we're conscious. We want to be a bank that's generating capital over the course of time, and we know that that's been hard for us over the last little while. Some of that explained by the fact that we had very marked and elevated loan growth. And we have confidence that over time that we will generate positive capital in a normalised market environment.

Thanks, Andrew. So can I read that you'd be happy to have a zero discount DLP attached to the full-year dividend if shareholders were happy for you to grow?

Yeah. I mean, look, I think the other thing to bear in mind is that obviously, you know, the strong growth that we've experienced is going to translate into higher earnings. So as we look forward, you know, we're also mindful of earnings per share growth. Our payout ratio in this half is 72.5%. That's at the upper end of the 65 to 75. So, you know, should we see good opportunities to continue to grow the business strongly, you know, we can manage, I guess, the pace of the EPS growth versus DPS growth, i.e. DPS growth may lag a little bit, right, because if we continue to see good opportunities to invest shareholder capital, we will do that. If the payout ratio lags a little bit, that's perfectly fine. Thanks, Inder.

Thank you. Your next question comes from John Storey from UBS. Please go ahead.

Good morning, Andrew. I've just got a question for you, Andrew. This is obviously the second rate hiking cycle that you've seen in Australia. I just wanted to get your sense if you think the market, in your opinion, is just underestimating the earnings through ability of the business and private bank in particular. Obviously, a very strong set of results today. I appreciate it's backward-looking, but I'd be interested to get your views on how you'd characterize the day versus what you've seen and gone through over the last few years.

Yeah, look, it's... Again, I would say that the... the ability to project into the future now is more uncertain than it normally would be because of the macroeconomic volatility and how that's going to play out for businesses. The Reserve Bank has been clear that they needed to tighten demand because there was a situation in our economy where demand was outstripping supply. That's why they've raised the interest rate by a couple of 25 point increases, and we expect there'll be one more. I think what's hard to then predict is how much supply has been taken out by the migration of spend to fuel. But that's real for many of our customers, particularly in areas like agriculture, manufacturing, transportation, retail trade. So what I will say is that our customers by and large, enter this period in a strong cash position. Deposits at the bank are up meaningfully, and most of our customers have relatively lower leverage and strong cash buffers to, I think, withstand the cycle. And there'll be opportunities for many of them to grow and take advantage of any dislocation. So, look, you know, I think we just have to stay close to our customers as we go here, which we intend to do, but it's really, really difficult, I would say, to project out right now because of that uncertainty in the day-to-day nature of things. Thank you.

Thank you. Your next question comes from Tom Strong from Citi. Please go ahead. Your line is now live. Thank you. The next question will be from Matt Dunger from Bank of America. Please go ahead.

Yeah, thank you for taking my question. I wondered if I could ask about cost growth, significant change to the capitalisation policy and you've been delivering significant productivity, guiding still to cost growth over 4%. Andrew, you've called out the moderating lending growth expectations. Does over 4% cost growth remain acceptable in this environment? Just wondering if you've changed your thoughts at all given the change to software policy.

Yeah, look, we're not at this point looking to change guidance to the market in terms of our expense commitments, but you can be sure that as a management team, we are looking at our cost base and the expenses that we have. and that over time you always need to cut your cloth according to what's happening in the revenue environment. And so to the extent there's a possibility that revenues come under any pressure, we would obviously be looking at what happens over time to our cost growth. It's important, though, to remember that there's lots of areas of cost that our customers value and our shareholders value. have to delineate between those costs that drive outcomes and costs where we can, you know, drive productivity. And I do think the new solutions emerging around AI are going to be helpful for us in that regard as a bank. Anything in there you would add?

Yeah, no, I think just to reaffirm, Andrew, I mean, over time, aspiration of the management team has to be to aim for positive jaws going forward. We have to be cognizant about the fact that we need to balance the underlying level of inflation, the cost base with the need to invest to support growth in the right areas, to make sure we continue to modernise the bank's infrastructure, continue to improve the experience of our customers. So it's something that is very active in our thinking as we get into the planning process for the next couple of years going forward.

Thank you. Thank you. Your next question comes from Matthew Wilson from Jarden. Please go ahead.

Yeah, good morning, Matthew Wilson, Jarden. Just on the software capitalisation that Matt Dunger referred to, this is the third time in seven years you've written off capitalised software. That's $2.9 billion or 600 million per annum, which has effectively understated your cost base by around 8%. When you look at your peers in this space, ANZ's best of breed, they spend 80% of their investment spent. They've got the same tech environment that you confront. You're now only at 50. I don't think you've gone hard enough.

That's an interesting point of view, Matt. I think we're right in the middle of peers now with the new settings. We'll have to continue to watch. I do think there is a macro trend here that over time the value of software assets is likely diminishing as AI advances and the ability to build software or replicate software faster and cheaper emerges. So this is probably something we're going to have to continue to look at, not just as a bank but as an industry. But I think for now our settings are, you know, in the middle of peers, and I think as a board and as a management team we were happy with where we've come to.

This is an opportunity to sort of at least equalize the best of peers and get ahead of the trend that you clearly understand.

Yeah. Look, we'll note your point. And I think the point that we've had three of these in the last seven years is far from ideal. So it's certainly something that we should be looking at. Clearly, we weren't in the right starting position seven years ago as a bank in this area.

Cheers.

Thank you. Your next question comes from Brendan Sprales from Goldman Sachs. Please go ahead.

Good morning. Brendan from Goldman Sachs. I just want to refer to you to slide 28 where you show us the NPLs by sector. You noted today in the presentation that overall asset quality had been improving as the economy picked up and rates were cut over the last 12 months. Could you maybe just talk about a couple of sectors here that over the last 12 months have actually been deteriorating? obviously agri, forestry and fishing, as well as transport and storage. And these are the most impacted, obviously, by the energy pricing dislocations. So can you maybe talk about why these things have been deteriorating while the rest of the economy has been improving?

Yeah, I might call on Sean Dooley, the Bank's Chief Risk Officer, to come and just address that question, Sean, if you don't mind.

So thank you Brendan for the question and you're drawing attention to slide 28 there. So I think what we're seeing in agri, forestry and fishing is probably a couple of single name exposures that have probably had their own idiosyncratic issues associated with their particular businesses. Some of it has been weather related, some of it has been supply chain related as well. So that being said, the portfolio remains a pretty strong portfolio. Its performance over a long period of time has been strong. It's well diversified and it's an industry that we know well and we have deep specialisation both in terms of bankers and credit people. In terms of the transport and storage, as you said, there's some issues associated with probably supply chain, input costs into that. That has been a sector, particularly in the transport side of it, where we've probably experienced more challenges in that part of the portfolio. But I think the main takeaway from this slide is improving performance across the majority of the sectors that we're dealing with in business and private banking. You'll see the same thing deeper in the pack around the whole portfolio as well.

Thank you and I have a second question on the performance of the corporate institutional bank in the half. I'm referring to page 44 of the 4D. We've had very strong lending growth, almost 7% in the half and almost 13.5% over the year, but we've actually seen very weak lending and deposit income growth. Can you maybe talk to some of the drivers of why that's the case and whether, particularly as we're entering probably a period of a slowdown, how you expect that to change over the next 6 to 12 months?

Yeah, look, I mean, overall, I'd say looking at the returns that the CNIB business is producing at around 15%, we're very pleased with the progress that we're making. I think clearly we've seen some impairment charges come through, which we've referenced in Andrew's remarks. I think on net interest margin, it's probably fair to say that we've seen A little bit of NIM compression in the half. You'll pick that up as you get through the backpack of the slides. NIM half and half is off about 14 basis points, which I think contributes about one basis point in lending compression at the company level. But really what's driven that on the deposit side is we've seen the cut in US dollar cash rates impacting the deposit book. That's been about three basis points. We've also lost the benefit of the custody business that we had, which we've now exited, that had given us probably about a two basis point headwind on the deposit margin. So deposit margin is off a bit. On the lending side, we are seeing a little bit of heightened competition, as I referenced in my remarks, albeit the returns remain very strong. We've also had a bit more of a skew towards growing the Australian corporate book, where we've got good momentum. We've now built better capability. in areas like transaction banking, so the overall relationship ROE is very strong. But look, it's a fair point that in the half, you know, the asset growth and the income growth has probably not kept pace, but we expect that to improve a little bit into the second half.

One other point I would make is that I think in the month of March there was material drawdown activity in the top end of town, likely due to concerns at the time regarding the Middle East crisis. And given that that was at the end of the period, we probably didn't get the full benefit of earned income in that asset growth. But, you know, were that to continue, that would normalize and align, I think, over the continuity of time. That's right. Thank you.

Thank you. Your next question comes from Brian Johnson from MST. Please go on. Good morning.

Welcome, Inder. I've got a question just as far as the capital which is kind of summarised on slide 30. If we have a look at NAV historically, you've kind of committed to the 65% to 75% payout ratio and neutralising the dividend reinvestment. The one disappointing aspect I really think of this result, which was effectively pre-flagged, is the DRP issuance. Can we just get some... And the other thing I suppose I'd flag is the 11.65 to 12.05 pro forma, that's assuming you raise the money from the dividend reinvestment, but it actually doesn't take out the dividend itself. So if we were to go through all of that, it comes back to about 11.47 which is a surplus, I think, above the minimum of about $980. Can we just get a feeling on, is that enough surplus capital that we should be confident you can resume neutralising the DRP? Or because of the overlays, has the capital intensity effectively permanently gapped up to the point where you can't neutralise the DRP going forward?

Quite a lot in that question, Brian.

Maybe if I start with... It's one question with 20 hidden there, Inder. LAUGHTER

No, I appreciate it, Brian. If you look at the dividend that you are looking through, the pro forma, we can argue for a long time as to how you roll forward the capital position, but if you start with 11.65, by the time we pay the dividend, we would have probably accreted that by another 30 to 40 basis points of earnings, Brian. So by the 1st of July, if you wanted to proform it at that point, you could say take the dividend off, give us the credit back for the DRP and the underwrite. So 60 basis points of dividend comes off, 40 basis points of the benefits from the DRP actions come back on. We could spend a long time going around the houses on this, but we're sort of seeing the capital position probably being in the high 11s and the low 12s as you roll through the earnings through the course of the year. I think your broader question is a good one, which is how do we think about the sustainability of balancing growth, the dividend where it's at, etc. Look, it's unfortunate on the overlays that we've had two significant overlays. on our RWAs in this half and the previous half. Obviously we don't expect that to be a sustaining trend. We've had a series of recalibrations to do on our models which we are progressing through, so we obviously aspire to have strong models with limited overlays of this type of nature going forward. As I referenced earlier, I think if we can translate the balance sheet growth to earnings growth, we should see the earnings per share grow over time. We have the opportunity to be able to fund higher credit growth by managing down the speed with which the DPS grows at, right? So you should be able to accrete capital going forward. So at the moment, we feel pretty good looking at the second half, that we don't need to put a discount on the DRP, but We're just going to have to execute well, Brian, make sure we're allocating capital sensibly, we're driving the right volume margin trade-off, that we're investing in the right places and driving value from that, managing our costs and driving efficiency. So I think it's as much about the capital generation levers more broadly and how we execute against those, but stock of capital is in a strong position and we feel good about the second half.

But am I right in thinking the formal kind of guidance, if you'd like to call it that, on the DRP neutralisation no longer exists?

No, we're not saying any changes to any of the capital policy settings. We are basically saying here's a series of actions that we're going to take in relation to the first half.

Fantastic. Thank you. Thank you. Your next question comes from Tom Strong from Citi. Please go ahead.

Oh, good morning. Can you hear me okay? Yep, yep. Perfect. Just a question on productivity, if I can. I mean, if we go back 12 months ago to the first half, 25 resulted in about $130 million of productivity for 420 for the full year. Now, you've had quite a strong half this half in terms of 200 mil of productivity. But to what extent is the... the bottom end of that greater than $450 million productivity guidance. To what extent does that compare with given the hard work you've put through in the first half?

Well, look, I'd say, you know, we have fairly meaningful targets. You know, the $450 million plus is an ambitious target. We are making good progress through the course of the first half. As you've picked up from the various comments we've made during this briefing, we've got a real focus on making sure we can drive positive operating jaws as we look forward on a multi-year basis. We've got work to do to continue to not just deliver the current targets, but continue to build on those over the coming years. And we're looking at all options in terms of what we can do around deploying tools to continue to enhance that.

But you can be sure we're running hard as a management team in this area and if we can beat that number, we will.

There you go. Thank you.

Thank you. There are no further questions at this time. I'll now hand back over to the team for any closing remarks.

Thank you. I'd like to thank everyone for joining us today. If you do have any follow-up questions, the Investor Relations team will be available to help. Thank you.