National Australia Bank's cash earnings fell 13.4% to A$6.14 billion in the year to Sept. 30, as the lender nearly doubled its charge for bad and doubtful debts to A$1.55 billion after a year of interest-rate increases and falling house prices in Australia.

The result, released before the Australian market opened on Thursday, gives investors in Asia a full-year look at how rising rates are feeding through to a big bank's loan book. The Reserve Bank of Australia has raised its cash rate by 125 basis points since February, and several Asian central banks have also moved toward tighter policy this year. NAB's corporate and institutional bank serves clients in Asia as well as in Australia, the U.S. and Europe, and the group runs innovation centers in India and Vietnam.

Most of the headline decline came from a one-off charge. Excluding a A$949 million after-tax write-down of software, booked in the first half when NAB shortened the useful life of its capitalized software and tightened what it capitalizes, cash earnings were flat at A$7.09 billion. Statutory net profit fell 9.1% to A$6.14 billion, below the A$6.45 billion consensus compiled by Visible Alpha, according to Capital Brief. The board held the final dividend at 85 Australian cents a share, fully franked, in line with that consensus.

Chief Executive Andrew Irvine said the bank had spent the year "taking deliberate steps to strengthen our resilience."

NAB's bad-debt charge climbs as the RBA tightens

The A$1.55 billion credit impairment charge compares with A$833 million a year earlier. It includes A$1.08 billion of provisions against individual borrowers, mainly business customers in the corporate and business-banking divisions, plus a A$403 million net increase in forward-looking provisions that NAB tied to a more difficult economic outlook. Impaired assets rose 22.2% to A$2.77 billion.

NAB also leaned harder on its gloomy scenario. At Sept. 30 it gave a 45% weighting to a downside case in which Australian house prices fall 26.6% in fiscal 2027 and unemployment reaches 9.5% by September 2028, up from 42.5% a year earlier. Its base case assumes a 4.9% drop in house prices in fiscal 2027. If the downside case were given full weight, the bank's provisions for expected credit losses would total A$9.65 billion, against the A$6.80 billion it held at Sept. 30. In home loans, NAB said arrears worsened over the second half, with the deterioration concentrated in mortgages serviced by business income.

The RBA lifted its cash rate by a quarter point to 4.85% on Tuesday. Its board said housing prices had fallen significantly and unemployment had risen, and it does not expect inflation to reach the top of its 2% to 3% target range until late 2027. NAB's economists expect the cash rate to stay at 4.85% for a while, with economic growth slowing to 1.4% over 2026 and 1% over 2027 and unemployment rising to around 5.5% by early 2028.

Westpac, which reported on Monday, showed the same pressure. Its impairment charge more than doubled to A$864 million from A$424 million, while net profit excluding notable items was little changed at A$6.99 billion. Westpac said it had added new provision overlays for energy-intensive industries and discretionary spending.

Margins widen while jobs go

NAB's operating income rose 5.8% to A$22.01 billion. Its net interest margin widened 6 basis points to 1.80%, helped by higher earnings on the portfolios that invest its deposits and capital, while Westpac's margin narrowed 7 basis points to 1.87%. NAB's Australian business lending grew 9.8% and group deposits rose 5.2%.

Business and private banking lifted cash earnings excluding the write-down by 10.7% to A$3.69 billion. The corporate and institutional division fell 6.1% to A$1.74 billion on higher impairments and lower markets income. Earnings in New Zealand dropped 7% in local currency, mainly because of bigger bad-debt charges. NAB noted that the Reserve Bank of New Zealand has raised its official cash rate by 50 basis points since July, to 2.75%.

Costs excluding the write-down rose 4.5%. On Oct. 20, NAB said it would cut up to 2,500 internal roles, about 6% of the total, in fiscal 2027, with a focus on shrinking corporate functions, and book a restructuring charge of about A$300 million. On Thursday it said underlying costs should grow by less than 3% in fiscal 2027, excluding that charge and the effect of the software accounting change.

NAB's capital ratio rises to 11.87%

NAB's common equity Tier 1 ratio rose 17 basis points to 11.87%, above its target of more than 11.25%. The bank raised A$1.8 billion through its interim dividend reinvestment plan, and the sale of its remaining 20% stake in MLC Life to Japan's Nippon Life Insurance for A$497 million added 11 basis points. A 1.5% discount on the final dividend reinvestment plan is expected to raise about A$0.9 billion and lift the ratio to 12.07% on a pro forma basis.

The group raised A$38.3 billion of term wholesale funding during the year, including A$6.2 billion of Tier 2 debt. NAB said global term funding markets weakened in March as the Middle East conflict lifted energy prices, and that volatility in government bond markets has unsettled them again since the end of August. From Jan. 1, 2027, large internationally active Australian banks such as NAB will replace 1.5 percentage points of Additional Tier 1 capital with 0.25 point of common equity and 1.25 points of Tier 2 debt, leaving total capital requirements unchanged.

NAB's final dividend is payable on Dec. 15, five days after shareholders meet for the annual general meeting in Melbourne.