NAB's Mortgage Stress Indicators
NAB Reports Falling Mortgage Applications, Rising 'Watch Loans' While Cash Earnings Increase 2%
Key Points
NAB flagged an increase in 'watch loans' across its mortgage book, signaling early signs of financial stress among performing borrowers, while the NPL ratio still eased 2 basis points to 1.5% and impairment charges rose to A$119 million due to growth in business lending and asset-quality concerns.
The origination mix continued to shift in NAB's favor toward its proprietary channels, with drawdowns through NAB's own channels rising to 50.9% in Q3 2026 from 47.7% in H1 2026, leaving brokers with less than half of new drawdowns for the first time in this cycle.
NAB reported stronger quarterly cash earnings despite weaker lending momentum, with cash earnings up 2% to A$1.83 billion and statutory net profit up 32% to A$1.81 billion, underscoring resilience from other areas of the business.
The bank remains well capitalised, with a Common Equity Tier 1 ratio of 11.93% (above an operating target of >11.25%), and it reiterated a FY2026 productivity-savings target of more than A$450 million, expecting expense growth to stay below FY2025’s 4.6% rise.
Looking ahead, NAB flagged a continued weakness in the investor mortgage market with forecasts for investor home lending to fall about 1.4% next financial year, while owner-occupier lending is expected to soften before recovering to around 4.5% growth; interest-rate assumptions even project rates could fall to about 3.6% by end-2027.
National Australia Bank warned of a sharp slowdown in home lending, with mortgage applications falling around 15% in its third quarter update for 2026 MPA Mag. The bank's shares dropped more than 4% on the news, even as quarterly cash earnings rose 2% to A$1.83 billion Investing.com.
NAB also flagged a rise in 'watch loans' — mortgages where borrowers are showing early signs of financial stress but have not yet defaulted. That signal unnerved investors even as the bank's overall numbers held up MPA Mag.
Watch Loans Rise as Mortgage Demand Slumps
NAB's mortgage book is still growing, but the pipeline is weakening fast. Home loan applications fell about 15% in Q3 2026 MPA Mag. Demand dropped for both owner-occupiers — people buying homes to live in — and investors buying property for income.
The bank pointed to higher Australian interest rates, geopolitical tensions in the Middle East, and recent tax changes as key reasons for the slowdown Investing.com. NAB warned that the investor mortgage segment could stay under pressure in the near term. It forecasts investor home lending to fall about 1.4% next financial year MPA Mag.
Stress Signals Emerge Among Performing Borrowers
Watch loans are loans where borrowers are still paying but showing signs they may struggle. NAB's watch loan count rose during the quarter — a red flag for future defaults MPA Mag. At the same time, the non-performing loan ratio — loans where borrowers have stopped paying — actually eased 2 basis points to 1.5%.
Impairment charges, the money banks set aside for bad loans, rose to A$119 million. NAB said growth in its business lending book drove that increase, along with concerns about asset quality Kalkine. The mixed signals suggest stress is building slowly rather than all at once.
NAB Shifts New Loans Away From Brokers
One quiet but significant shift: NAB is writing more loans directly through its own branches and platforms, rather than through mortgage brokers. In Q3 2026, NAB's own channels handled 50.9% of new loan drawdowns, up from 47.7% in the first half of the year MPA Mag. That means brokers now account for less than half of new drawdowns for the first time this cycle.
This shift matters because direct origination typically costs the bank less than paying broker commissions. It gives NAB more control over the quality and pricing of new loans as the market softens.
Earnings Hold Up, Capital Stays Strong Despite Weakness
Despite the gloomier lending outlook, NAB's quarterly results showed resilience. Cash earnings rose 2% to A$1.83 billion. Statutory net profit jumped 32% to A$1.81 billion Investing.com. Cost controls helped offset weaker loan demand, with NAB targeting more than A$450 million in productivity savings for FY2026.
The bank's Common Equity Tier 1 ratio — a key measure of financial strength — stood at 11.93%, above its own target of above 11.25% Kalkine. NAB also said it expects expense growth to stay below the 4.6% rise seen in FY2025. Looking further ahead, the bank projects interest rates could fall to about 3.6% by end-2027, which it hopes will help revive owner-occupier lending toward 4.5% growth MPA Mag.
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