Shares of National Australia Bank Limited concluded Friday's trading session marginally higher, maintaining proximity to recent peaks following the release of its first-quarter financial update. The stock closed at A$48.32, representing a gain of 0.1% for the day and extending a weekly advance of approximately 5%.
The bank reported a substantial 15% increase in cash earnings for the quarter ending December 31, compared to the quarterly average from the prior half. On a year-over-year basis, cash earnings climbed 16%. Revenue for the period grew by 6%, while operating expenses remained largely unchanged, contributing to the improved profitability.
Margin and Capital Metrics Under Scrutiny
A key performance indicator, the net interest margin (NIM), saw a modest improvement, rising by 2 basis points to reach 1.80%. The net interest margin represents the difference between the interest income generated from loans and the amount paid out to fund those loans, with each basis point equating to 0.01 percentage point. In terms of lending, Australian business lending volumes increased by 2%. Deposit balances within the Business & Private Banking and Personal Banking divisions grew by 3%.
Credit quality showed a positive trend, with non-performing exposures declining to 1.47%. The bank recorded a credit impairment charge of A$170 million for the quarter. Of significant note to investors, the Common Equity Tier 1 (CET1) capital ratio—a crucial measure of a bank's financial strength and resilience—stood at 11.48% as of December 31. This capital buffer is closely watched as it influences dividend policies and capacity for future growth initiatives.
Broker Reactions and Diverging Views
The financial update prompted several brokerage firms to adjust their valuations. UBS reaffirmed its Buy recommendation on the stock, elevating its price target to A$50.50. JPMorgan also increased its target, moving it to A$47.80, while Morgan Stanley set its target at A$43.50, according to available market data.
However, not all analysts share this optimistic outlook. Nathan Zaia of Morningstar, while raising his fair value estimate to A$34, characterized National Australia Bank shares as "materially overvalued" at current trading levels. This divergence of opinion highlights the ongoing debate regarding the sustainability of the bank's valuation following its recent performance.
Chief Executive Officer Andrew Irvine stated, "We have started FY26 strongly," reflecting management's confidence in the quarterly results. The bank's next scheduled financial event is the release of its half-year results on May 4, with the ex-dividend date for the interim distribution following three days later on May 7.
Macroeconomic Backdrop and Market Context
The broader Australian equity market experienced a slight decline, with the S&P/ASX 200 index dipping approximately 0.1% by the session's close. Attention within the banking sector is gradually shifting from earnings reports back to macroeconomic factors, including the interest rate trajectory, funding costs, and overall credit quality.
National Australia Bank's own economics team has projected that underlying inflation will remain above 3% for much of 2026. Consequently, the bank anticipates the Reserve Bank of Australia will increase the official cash rate to 4.1% at its May policy meeting. The RBA's Monetary Policy Board is next scheduled to convene on March 16–17, with the subsequent meeting set for May 4–5.
Looking ahead, potential headwinds include intense competition for customer deposits, which can pressure net interest margins, and the risk that a "higher-for-longer" interest rate environment could eventually lead to an increase in loan delinquencies, despite currently low arrears. Market participants will be monitoring whether investors maintain their positions in the lead-up to the bank's half-year results in May.
