Key Highlights

• NAB reported third-quarter cash Earnings of $1.83bn, up 2% on the 1H26 quarterly average excluding a large notable item in the first half.

• The quarter's lending picture reflects that mix: Australian Business lending rose 2% and Business and Private Banking rose 4%, while home lending applications fell 15% on the previous quarter.

• The Common Equity Tier 1 (CET1) ratio was 11.93%, higher than in the prior period.

• NAB's quarterly NIM of 1.79% compares with 1.89% reported by Westpac for its own third quarter in the same period, from a separate report.

How does a bank grow earnings when its Margin is slipping and home lending Demand is cooling? National Australia Bank's (ASX:NAB) third-quarter FY26 trading update, released on 17 August 2026, suggests the answer was lower Credit Impairment charges, modest Revenue growth and firm capital, rather than more encouraging lending spreads. The update is unaudited and covers one quarter, so it offers a snapshot of direction rather than a full-year verdict.

The central development: earnings up, margin down

NAB reported third-quarter cash earnings of $1.83bn, up 2% on the 1H26 quarterly average excluding a large notable item in the first half. Revenue rose 2% on the same 1H26 quarterly average basis.

Net interest margin (NIM, the gap between what the bank earns on loans and pays on funding, relative to earning assets) was 1.79%, down 2 basis points. Operating expenses rose 4% excluding large notable items, which the chief executive linked to seasonality and changes to software Capitalisation policy.

Business and revenue drivers

It has an encouraging position in business and private banking, which tends to carry higher margins than mortgages but is more cyclical. The quarter's lending picture reflects that mix: Australian business lending rose 2% and Business and Private Banking rose 4%, while home lending applications fell 15% on the previous quarter.

Deposits grew 2%, with encouraging growth in transaction accounts. Transaction deposits are generally cheaper funding, so growth there helps margin over time, though competition for savings balances remains intense.

Capital and asset quality

The Common Equity Tier 1 (CET1) ratio was 11.93%, higher than in the prior period. CET1 is the main measure of loss-absorbing Capital relative to risk-weighted assets, and a higher figure gives more room for dividends, buy-backs or growth, subject to APRA requirements. Collective provisions were 1.36% of credit risk-weighted assets.

Asset quality was mixed. The non-performing Loan ratio fell, but watch loans increased. Watch loans are exposures that are performing but showing early signs of stress, so an increase can foreshadow later impairments if conditions weaken.

Sector and competitive position

The big four banks compete in a mature market. Commonwealth Bank leads on retail deposits and mortgages, Westpac has a large home lending book, and ANZ has an institutional skew. NAB's differentiator is business banking and a growing private bank.

NAB's quarterly NIM of 1.79% compares with 1.89% reported by Westpac for its own third quarter in the same period, from a separate report. Different business mixes and measurement approaches mean the two are not strictly comparable, but the gap shows NAB is operating at a lower margin than a peer.

What the capital position allows

Surplus capital can fund business lending growth, dividends or buy-backs, and NAB's choices between them will be visible at the full-year result. Capital strength also matters if credit conditions worsen, since provisions of 1.36% of credit risk-weighted Assets are a buffer, not a guarantee.

Costs and productivity

The cost line is the area most within management's control. A 4% rise in operating expenses outpaced the 2% rise in revenue in the quarter, which compresses the cost-to-income ratio. The chief executive attributed the increase partly to seasonality and software capitalisation changes, which are timing and accounting matters. The test for FY27 is whether cost growth moderates once those effects pass, particularly as the sector invests heavily in technology and risk management.

Risks and what to monitor

- Margin: a 2 basis point fall may seem small, but across a large Balance Sheet it matters, and competition for deposits and mortgages could continue.

- Credit quality: lower impairment charges drove the quarter's earnings growth, so a Reversal would remove that support. Rising watch loans Warrant attention.

- Housing: the 15% fall in home lending applications on the previous quarter hints at softer demand, though one quarter does not establish a trend.

- Costs: expense growth above revenue growth is not sustainable indefinitely.

- Regulation and capital: APRA requirements and any changes in capital settings affect distributions.

- Interest rates: changes in the cash rate shape both margin and borrower stress.