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National Australia Bank has indicated a sharp rise in credit impairment charges for the first half of the year, driven by global uncertainty linked to the ongoing Iran conflict. The lender expects higher bad debts as economic risks increase, particularly affecting sectors like transport, agriculture, construction and commercial real estate. Additional provisioning and market volatility are likely to impact its capital position. The bank also plans to raise funds through a discounted dividend reinvestment plan. This move follows a similar step by Westpac, highlighting broader stress in the banking sector due to global inflation and interest rate pressures.
Australia’s largest business lender, National Australia Bank, has indicated that it expects credit impairment charges of about AUD 706 million (USD 503 million) for the first half of the year, reflecting rising global uncertainty linked to the ongoing Iran conflict. The bank noted that the chances of a weaker economic environment in Australia have increased, which may lead to a rise in bad loans. Advertisement
Market reaction was immediate, with the bank’s shares falling as much as 3.8% in early trade, underperforming the broader S&P/ASX 200 index, which saw a marginal decline. The financials segment also slipped, weighed down by the lender’s outlook.
The expected impairment charge marks a significant increase compared to AUD 348 million reported a year ago and AUD 485 million in the previous half-year period. The bank plans to raise its total provisioning by around AUD 300 million for the six-month period that ended in March, with results scheduled to be announced on May 1.
A large portion of the additional provisioning, about AUD 201 million, has been allocated to the transport and agriculture sectors. The bank highlighted that fuel and diesel supply constraints, along with sustained high prices, are putting pressure on these industries. It has also increased provisions for borrowers in construction and commercial real estate, indicating broader stress across asset classes.
The lender stated that volatility in interest rates during the second quarter, along with a weaker New Zealand dollar and the increased provisioning, would reduce its common equity tier 1 capital ratio by around 20 basis points as of the end of March.
To strengthen its balance sheet, the bank plans to offer a 1.5% discount on its dividend reinvestment plan for the first half, aiming to raise up to AUD 1.8 billion. This step is part of a broader effort to maintain capital buffers during a period of economic uncertainty.
This development comes shortly after Westpac also indicated an increase in credit impairment charges. Westpac had pointed to high inflation and elevated interest rates as factors creating a more challenging environment for borrowers, suggesting that pressures are building across the banking sector.
In addition, National Australia Bank stated that its first-half results would include an accelerated amortisation charge of AUD 949 million after tax, following a change in its software capitalisation policy. This adjustment is expected to further impact its reported earnings for the period.
Source Reuters
5th Jun, 2025
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