CEO stresses bank ‘well placed to manage through this period’ of softening market activity
National Australia Bank (NAB) has flagged an increase in "watch loans" across its mortgage book, a signal that a growing number of otherwise performing customers are showing early signs of financial stress.
The disclosure came in NAB's third-quarter trading update published on Monday, which also outlined a cooling home lending market and a proprietary channel continuing to take share from brokers.
NAB said the combined effects of the Middle East conflict, higher domestic interest rates and recent tax changes in the Federal Budget were creating challenges and uncertainties for its customers.
Despite the increase in watch loans, the ratio of non-performing loans actually declined over the third quarter, suggesting financial stress is yet to materialise in the near term.
Applications fall as rate pressure bites
NAB reported a 15% dip in home loan applications compared with the previous quarter, reflecting three Reserve Bank of Australia rate hikes this year and the Reserve Bank's decision to hold at 4.35% earlier this month.
Non-performing exposures as a proportion of gross loans and acceptances still eased 2 basis points from March 2026 to 1.5%, driven by a three-basis-point improvement in impaired assets tied to better outcomes in the Australian and New Zealand business lending portfolios.
But NAB's collective provision charges rose to $119 million in the quarter, which the bank attributed to business lending volume growth and deterioration in performing book asset quality – the segment where watch loans sit.
Proprietary channel keeps gaining ground
Despite the softer market, NAB's home lending grew in line with system, excluding the wind-down of its white-label Advantedge business.
The bigger story was the continued shift in origination mix: drawdowns through NAB's proprietary channels improved from 47.7% in the first half of 2026 to 50.9% in the third quarter, meaning brokers now account for less than half of new drawdowns for the first time in this reporting cycle.
The shift builds on a trend NAB flagged earlier this year, when it confirmed proprietary lending had surged following a hiring spree of new home lending bankers. NAB is also progressively closing Advantedge, the white-label product sold through major aggregator and broker networks, a decision it flagged as part of its move away from lower-margin white-label mortgages.
Elsewhere, the bank's capital position strengthened, with its Common Equity Tier 1 (CET1) ratio rising to 11.93% on a Level 2 basis, above its operating target of greater than 11.25%.
Group customer deposits rose 2% in the quarter, including 3% growth in transaction account balances within its business and private banking division.
NAB chief executive Andrew Irvine (pictured) said the bank was "well placed to manage through this period and support our customers," pointing to a ratio of collective provisions to credit risk-weighted assets of 1.36%, which includes almost $2 billion of forward-looking provisions for potential stress in the outlook.
"Our long term strategy remains focused on achieving much stronger customer advocacy, greater speed and simplicity, and ongoing technology modernisation. This is expected to deliver sustainable growth and attractive shareholder returns," said Irvine.
