NAB seeks $1.8 billion in extra capital as economy worsens due to Middle East conflict
The lender warned of rising bad debts and the need to preserve more capital as the shock from rising interest rates hurts Australian borrowers.
National Australia Bank is targeting another $1.8 billion in capital from investors to shield itself from the worsening impact of soaring interest rates and the Middle East war.
On Monday morning the lender said it would extend its dividend reinvestment plan discount to 1.5 per cent and partially underwrite the plan to save on cash it has to pay out to shareholders.
The bank has also raised bad debt debt provisions by $201 million for businesses linked to the Middle East energy shock and by $152m for local borrowers.
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By continuing you agree to our Terms and Privacy Policy.“In light of the volatility in markets following the conflict in the Middle East, National Australia Bank has reviewed its credit provisioning and capital settings to better reflect the risks now inherent in our business,” the bank said.
The bank’s total provisions for bad debts over the six months to March 31 will rise to $706m, up from $485m in the prior half.
More cost hits
The lender’s stock dropped 3.6 per cent to $41.02 at the closing bell on Monday, versus a 0.1 per cent gain for the S&P/ASX 200 Index.
UBS banking analyst John Storey said NAB’s decision to strengthen its cash reserves might create some short-term pain for longer-term benefits.
“Given NAB’s greater exposure to SME and Business Banking, operational performance is always likely to be more cyclical compared to peers with the same holding true if events turn out to be better than feared in the second half of financial 2026 and beyond,” Mr Storey said. “We think NAB enters this potentially more vulnerable period from a much stronger starting point than that seen in previous periods.”
NAB is Australia’s largest lender to businesses, with the sector more exposed to the fallout from the Middle East war than Australia’s residential housing market.
Accounting policy changes
On Monday, the bank also flagged it will book a one-off $1.35b profit hit in its results for the for the six months to March 31 due to a policy change on how it accounts for software development costs. The bank said the shift to AI services means it will now expense more of its tech costs on an upfront basis, rather than amortise them over longer time periods.
“Under the leadership of the new CFO, accounting practices related to capitalised software and investment spending have been adjusted to better align with industry standards,” Mr Storey said.
For the six months to March 31 it still currently expects cash operating expense growth to be 4.6 per cent.
The bank said the shift in dividend payout policy is necessary to bolster the amount of cash it holds in reserve as a proportion of total loans outstanding in a financial metric known as its Risk Weighted Asset base.
NAB’s move comes after, Australia’s second-largest lender Westpac, warned of a growing economic shock from the war in the Middle East and rising interest rates last week.
NAB’s shares have still jumped 22 per cent over the last year as investors bet the banking sector will emerge a net winner from cost efficiencies linked to advances in artificial intelligence. Westpac is up 28 per cent over the past 12 months to $39.85 on Monday.
Other companies to have flagged profit hits on the local share market since the war on Iran; include Qube, Worley, Qantas, Virgin Australia, Cleanaway Waste, Orora, a2 Milk, and EML payments.
