NAB Financial Year 2025 results: steady in a tough environment
National Australia Bank (ASX: NAB) delivered its full-year 2025 (FY25) results on 6 November, posting cash earnings of $7.091 billion – essentially flat on FY24 and a touch below the market’s $7.18 billion consensus.
The share price sold off about two per cent on the day, and we believe the relatively soft trading since is due to investors focusing on two things:
- Higher-than-expected loan impairment charges (up 14 per cent to A$833 million), driven mainly by missed payments, a handful of individual business banking exposures and some unsecured retail lending stress, and
- Relatively flat earnings and final dividend 85 cents per share, bringing the full-year dividend per share (DPS) up one cent to 170 cents, fully franked.
At first glance, it looked like a “miss”, but digging a little deeper reveals NAB is actually executing its refreshed strategy extremely well, even in what is a competitive banking and an uncertain macroeconomic environment.
What the market missed
- Net interest margin expanded +3 basis points in the second half – a solid outcome when most peers are still fighting margin compression.
- Home lending grew at ‘system’ while proprietary (direct-to-customer) origination lifted to 41 per cent of new business (up from 38 per cent in FY24). This is exactly the shift the Big Four banks are all chasing – lower customer acquisition costs and better cross-sell.
- Deposit growth was outstanding – total customer deposits +7 per cent, with Personal Banking deposits +9.2 per cent and an 18 per cent jump in new transaction account openings. NAB funded virtually all of its lending growth with deposits, not wholesale markets.
- Business and private banking remains the engine room – new business lending platform successfully rolled out, corporate/institutional franchises performing strongly.
- Capital remains rock-solid – Common Equity Tier 1 (CET1) 11.70 per cent (comfortably above “unquestionably strong” benchmarks) and liquidity metrics well ahead of requirements.
- Investment spending stepped up to $1.8 billion (from $1.6 billion) – heavily skewed toward frontline bankers, digital capability and artificial intelligence (AI). This is classic “invest through the cycle” behaviour that should drive efficiency and market-share gains over the medium term.
CEO Andrew Irvine (now completing his first full year) is laser-focused on three growth pillars that align perfectly with NAB’s historic strengths:
- Business and private banking – NAB has always been the “business bank”. New digital platforms and more bankers on the ground are widening the moat in small-medium enterprise (SME) and mid-market.
- Customer deposits – the cheapest, stickiest funding there is.
- Proprietary home loans – shifting away from expensive broker channels toward direct and banker-originated mortgages.
Credit quality?
Impairments rose, and non-performing loans ticked up to 1.55 per cent. Almost all of the increase came from business banking – a natural consequence of NAB’s higher exposure to the sector versus peers. Management emphasised the deterioration slowed markedly in the second half of 2025 (2H25) as inflation eased and arrears stabilised. Collective provisions remain conservative at 1.42 per cent of credit risk-weighted assets. In our view this is cyclical noise, rather than structural weakness.
Valuation – still attractive on a 2-3 year view
NAB trades around 2.1 times book and about 18 times forward earnings. While this is a – a decade-high multiple, we believe its justified by:
- A strong balance sheet with Common Equity Tier 1 (CET1) providing capital management optionality
- Clear line-of-sight to mid-teens Return On Equity (ROE) as the new strategy beds down (new CEO targeting “leading peer” returns and focus on higher proportion of internally-generated home loans).
- Progress on the two big self-help opportunities: (a) growing retail/share-of-wallet from a low base, and (b) continuing digitisation driving better jaws and efficiency
Our current target is $54.26, implying 20-25 per cent upside from recent levels plus an attractive 3.2 per cent FY26 grossed-up yield.
Key factors to watch from here
- Capital settings and any on-market buyback signals
- Pace of proprietary mortgage mix improvement
- Business banking credit trends, especially if the Reserve Bank of Australia (RBA) eases
- Cost-out delivery as digitisation investments are implemented
- Performance of the New Zealan (NZ) and remaining (Citi-branded) operations
FY25 wasn’t a blockbuster for NAB, but it was a year of deliberate investment and strategic repositioning. NAB is focused on closing the gap with its stronger peers while maintaining one of the strongest balance sheets in global banking.
For patient investors, the risk/reward still looks compelling and we maintain our position.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
