National Australia Bank Profit Surges on Strong Business Lending Growth

National Australia Bank (NAB) has delivered a resilient performance in its first-half financial results for the six months ending March 31, 2025, with cash earnings rising 1% to A$3.58 billion—outpacing both prior-year results and market expectations. The profit beat underscores the bank’s strategic focus on business lending, which grew at an 8% year-on-year (YoY) rate in Q1 2025, driving core revenue streams amid a challenging economic backdrop.

Key Drivers of Profit Growth

The improvement was fueled by disciplined cost management and robust demand for business loans, which offset margin pressures and macroeconomic headwinds. Notably:
- Business & Private Banking segment: Delivered an 8% YoY increase in lending volumes in Q1 2025, outpacing housing lending’s 3.2% growth. This segment contributed A$1.63 billion to cash profits, highlighting its role as a growth engine.
- Net interest margin (NIM): Held steady at 1.70%, slightly below the prior year but above analyst forecasts of 1.69%, reflecting effective balance sheet management.
- Cost discipline: A productivity program targeting A$400 million in annual savings supported earnings, with FTE staff numbers remaining stable at 39,976.

Navigating Challenges: Competition and Trade Tensions

Despite the positive results, NAB faces stiff competition in its core lending segments. Management acknowledged “tough competition in mortgages and business lending,” with rivals aggressively targeting SMEs and corporate clients. The bank’s ability to maintain an 8% YoY business lending growth rate—while peers like Westpac and ANZ reported slower expansion—suggests its specialized focus on sectors such as agriculture, healthcare, and professional services is paying off.

Global trade tensions, however, remain a wildcard. U.S. tariffs on imports from China and allied nations have disrupted supply chains, prompting businesses to restructure operations. NAB’s Q1 results reflect 190% more tariff-related discussions in corporate earnings calls, signaling heightened uncertainty for borrowers. This could strain loan repayment capacity in sectors exposed to trade volatility.

Dividend Increase and Capital Strength

The bank’s financial health was further bolstered by a CET1 capital ratio of 12%, exceeding the estimated 11.8%, and an interim dividend hike to 85¢ per share—up from 84¢ a year earlier. This dividend increase aligns with NAB’s target to return capital to shareholders while maintaining a robust liquidity buffer.

Outlook: Risks and Opportunities

While NAB’s Q1 performance is encouraging, risks persist. The Reserve Bank of Australia’s (RBA) February rate cut to 4.10%—its first since 2020—hints at a potential easing cycle, with forecasts of three more cuts by year-end. Lower rates could spur business borrowing but may compress net interest margins further.

Equity market data for Q1 2025 also highlights mixed corporate performance: only 58% of Australian companies met or beat earnings expectations, down from 64% previously. This suggests broader economic pressures, including a labor market that saw unemployment stabilize at 4.1% but hiring sentiment turn cautious.

Conclusion: A Resilient Player in a Volatile Landscape

National Australia Bank’s Q1 results demonstrate its ability to navigate a competitive and uncertain environment. The 8% YoY business lending growth and disciplined cost management are clear strengths, supported by a 12% CET1 ratio and dividend hike. However, risks such as trade tensions and margin pressures from RBA rate cuts loom large.

Investors should note that while NAB’s focus on specialized SME lending provides a moat against competition, its success hinges on sustained demand for business credit and effective management of macroeconomic risks. With shares up 4% post-earnings and valuations at 1.2x book value—below its five-year average—the bank presents a cautiously optimistic investment case for those betting on its resilience in tough markets.

In a sector where 60% of analyst ratings remain “Hold” or “Sell,” NAB’s results suggest it may deserve a closer look. But the path to long-term gains will require more than just strong lending metrics—it will demand a stable economic backdrop and strategic agility in an era of trade and policy uncertainty.