Australia’s NAB expects impairment charges to double from Iran war

By Scott Murdoch and Shivangi Lahiri

April 20 (Reuters) – Australia’s largest business lender, National Australia Bank, said on Monday it expects credit impairment charges to double to A$706 million ($503 million) in the first half, as the Iran war roils the global economy and financial markets.

The bank, one of the first major lenders to quantify the impact of the war now in its eighth week, is predicting more bad debts to occur as the likelihood of an Australian “downside economic scenario” was rising due to the conflict.

The war has created the most severe shock to global energy supplies in history, sending oil prices surging, and casting a long shadow over economic growth prospects, especially in countries that are hugely dependent on imported oil.

The impact of the Iran war is becoming evident among Australia’s blue-chip companies with airlines Qantas and Virgin Australia, among other industrial stocks, warning of the hit from higher fuel and disrupted supplies.

While most Asian lenders have strong balance sheets, a prolonged Middle East conflict and high oil prices could dent their asset qualities and pile pressure on them to raise fresh funds to replenish their capital buffers.

NAB’s expected A$706 million impairment charge in the first half would be up from A$348 million from the year-earlier period and A$485 million in the second half last year. Its loan book stood at A$792.5 billion as of end-December.

The bank’s shares were down 3.38% on Monday in response to the lender’s warning, while the S&P/ASX200 reversed early falls to be flat. The ASX200 financials index was 0.13% lower.

‘MACRO UNCERTAINTY’

Australia’s banks are considered among the most expensive in the world on price-to-earnings multiples, but are heavily exposed to the nation’s housing market due to their large mortgage lending books.

NAB said it would increase its provisioning for impaired assets by A$300 million in the first half of 2026, which ended in March.

Of that increase, it was setting aside A$201 million more to cover new provisioning for the transport and agriculture sectors as fuel and diesel supply remained tight and prices were likely to stay elevated for longer.

The bank was also adding to its provisioning for construction and commercial real estate borrowers, it said.

The bank would report its first-half results on May 1.

“The common theme is clear; banks are proactively building buffers in vulnerable, cyclical sectors and we would expect others to follow this lead by increasing economic overlays as macro uncertainty persists,” said Michael Bell, Solaris Investment Management chief investment officer and NAB shareholder.

NAB said second-quarter interest-rate volatility, a weaker New Zealand dollar and the provisioning increase would cut the group’s common equity tier 1 capital ratio by about 20 basis points as of March 31.

NAB said it also expected to apply a 1.5% discount to the first-half dividend reinvestment plan to raise up to A$1.8 billion to help shore up its balance sheet.

IMPAIRMENT CHARGES

The impairment warning by NAB contrasts with recent results posted by its U.S. peers — Wall Street’s biggest banks still expect 2026 to be a strong year for dealmaking, although turmoil in the Middle East has tempered executive optimism.

NAB is the second major Australian lender to boost its provisioning on the back of the Middle East tensions after Westpac last week said its credit impairment charges would rise.

Westpac said higher inflation and elevated interest rates would create a more challenging operating environment for some of its customers.

Also on Monday, NAB said its first-half result would include an accelerated amortisation charge of A$949 million after tax from changes to its software capitalisation policy.

Despite the warnings, analysts and investors predicted the Australian banks would be able to safeguard against major hits to their margins.

“Driven by the higher energy prices following the war in Iran, we can expect a step-up in bad debts driven by higher essential spending on mortgage and fuel that could potentially eat into savings buffers,” said Michael Haynes, analyst at Atlas Funds Management, which owns Australian bank shares.

“But historically, as interest rates have risen, banks have quickly passed on the extra cost to mortgage holders and have been slow to increase deposit rates, leading to higher net interest margins.”

($1 = 1.4047 Australian dollars)

(Reporting by Scott Murdoch Shivangi Lahiri in Bengaluru; Editing by Neil Fullick, Sumeet Chatterjee, Thomas Derpinghaus and Jacqueline Wong)