The National Australia Bank Ltd (ASX: NAB) share price has fallen 3% after the bank gave a painful update.
NAB is one of the largest banks in Australia, with a focus on servicing small and large business customers.
HY26 pain revealed
The bank said that it was strengthening its balance sheet amid the volatility in the markets after the conflict in the Middle East.
NAB has reviewed its credit provisioning and capital settings to better reflect the heightened risks (of higher inflation and elevated interest rates).
As a result, it has increased its forward-looking provision.
It also noted the expected discount of partial underwrite of the HY26 dividend re-investment plan (DRP).
The bank also said that it made changes to the software capitalisation policy to more closely align to an environment of rapid technological change. It expects to include an accelerated amortisation charge of $1.35 billion, pre-tax.
But, the bank did say it expects its FY26 cash operating expense growth to be less than 4.6%.
Changes to the provisions
NAB said its credit impairment charges for HY26 are expected to be 4706 million, which includes $300 million related to the following movements in forward-looking collective provisions.
That includes a $153 million increase in the economic adjustment reflecting updates to the base economic forecast, a $201 million increase in forward looking adjustments for potential stress which may emerge in sectors more likely to be impacted by fuel impacts, and a $53 million release in forward looking adjustments where the risk hasn’t eventuated or is reflected in underlying provisioning.
The ratio of collective provisions to credit risk weighted assets (loans) is expected to be 1.35% at March 2026 (up from 1.31% at December 2025).
The underlying provision charge is expected to be $406 million.
Interest rate volatility, a weakening of the New Zealand dollar and the increase in collective provisions has led to a 20 basis point (0.20%) increase in the CET1 ratio.
Improvement of the balance sheet
NAB said that due to all of the above and the ongoing uncertainty, it intends to strengthen its capital position and balance sheet resilience. The bank expects to apply a 1.5% discount to its HY26 DRP and partial underwrite of the DRP.
This is expected to raise up to $1.8 billion and contribution up to approximately 40 basis points (0.40%) in the second half of FY26.
It expects to report a pro forma group CET1 ratio of greater than 12%.
Final thoughts on the NAB share price
The business is doing what it needs to do to remain resilient and strong during whatever happens next.
I’m not sure how strongly businesses are going to perform in the foreseeable future, so NAB’s own growth may be affected, therefore I’m not looking to invest at the current NAB share price. While it’s down 3% today, it’s still up 21% in the past year. It doesn’t look cheap to me.
There are other ASX dividend shares I’d rather buy today.
