Shares of National Australia Bank Ltd. (NAB) extended their rally on Thursday, closing at a fresh record high after the lender released a stronger-than-expected first-quarter trading update. The stock finished the session up 2.4% at A$48.28, having touched an intraday peak of A$48.68. This marks the second consecutive session of gains, building on a significant 4.0% surge the previous day.
Strong Start to Fiscal 2026
The bank reported a 15% increase in cash earnings compared to the average of the prior half-year period, a key profit metric. Underlying profit rose 12%, supported by a 6% lift in revenue while expenses remained largely stable. Chief Executive Andrew Irvine stated the bank has "started FY26 strongly," signaling confidence in the current financial year's trajectory.
A critical measure of profitability, the net interest margin (NIM), edged higher by 2 basis points to 1.80%. This improvement comes amid intense competition in the Australian lending market for both home loans and deposits, where pricing and funding costs are under constant pressure.
Credit Quality Improves, Capital Ratio Dips
Credit impairment charges for the quarter totaled A$170 million. Meanwhile, the bank's non-performing exposures declined to 1.47% of gross loans and acceptances, indicating an improvement in asset quality. Management highlighted better performance across segments including business lending and the Australian residential mortgage portfolio.
However, the Common Equity Tier 1 (CET1) capital ratio—a key measure of financial strength—slipped to 11.48% from previous levels. This decline in the capital buffer is emerging as a focal point for analysts and investors, who are assessing whether robust earnings can offset the impact of growing risk-weighted assets.
Analyst Reactions and Market Sentiment
The quarterly update drew positive initial reactions from analysts. UBS analyst Jon Storey suggested the robust numbers "could trigger an earnings upgrade." JPMorgan's Angus Triggs noted the capital decline was "no worse than feared" and pointed to the encouraging trends in credit quality.
The rally represents a test of investor appetite for bank stocks following a period of volatility where minor shifts in margins and capital levels have significantly impacted sentiment. With NAB's stock trading near its highs prior to the update, the market had little tolerance for any missteps.
Investor Concerns and Forward Outlook
Despite the positive headline figures, some cautionary notes persist. The dip in the CET1 ratio stands out as a potential concern. If competition continues to pressure pricing or risk-weighted assets keep climbing, investors may begin to question the sustainability of shareholder returns. Furthermore, while overall credit charges were low, NAB indicated that individual impairments were concentrated in Australian business loans and unsecured retail segments—areas historically vulnerable to a deteriorating economic environment.
Traders are now evaluating whether the current quarterly momentum can translate into broader earnings upgrades for the full year. The intense battle for market share among lenders remains a headwind, typically manifesting first in pricing and funding costs.
What Investors Are Watching Next
Attention is now firmly fixed on the bank's capital management strategy and the upcoming half-year results scheduled for May 4. Following the results, the interim dividend will go ex-dividend on May 7, with a record date of May 8. Investors will scrutinize broker revisions for signs of sustained momentum, gauging whether the stock can maintain its record levels. Bank stocks are notorious for sharp reversals following rapid rallies, adding a layer of uncertainty to the outlook.
The market's response to NAB's update suggests a willingness to reward strong operational performance, but the evolving narrative will depend on how the bank navigates the balance between profitability, growth, and capital preservation in the coming months.
