National Australia Bank Aktie

Thank you for standing by, and welcome to the National Australia Bank 2026 Full Year Results Presentation. [Operator Instructions]

I would now like to hand the conference over to Sally Mihell, Head of Investor Relations. Please go ahead.

Thank you, operator. Good morning, and thank you for joining us today for NAB's full year 2026 results. Before we start, I'd like to acknowledge the traditional owners of the land from which I join you today, the Gadigal people of the Eora Nation. I'd like to pay respect to the elders past and present and to the elders of the traditional lands from which you join us.

Presenting today will be Andrew Irvine, our Group CEO; and Inder Singh, our Group CFO and Group Executive strategy. We're also joined in the room by members of NAB's executive team. Following the presentations, there will be an opportunity for analysts and investors to ask questions.

I'll now hand to Andrew.

Thank you, Sally, and good morning, everyone. NAB's full year 2026 results reflect strong growth in underlying profit, supported by good volume growth and higher margins. These results have been delivered in an evolving environment, which has required customers to adapt to inflationary pressures to higher cash rates and to continued geopolitical uncertainty. We are supporting those customers who need our help. We've continued to make progress on our 3 business priorities, namely to grow Business Banking to drive deposit growth and to strengthen proprietary home lending. And these priorities aim to improve returns over time and pleasingly, each of our divisions has contributed to that progress.

To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we're continuing to modernize our technology to build a bank that's simple, that is fast and that is resilient.

Looking ahead, the near-term outlook is more challenging. We have taken steps to simplify our operating model, including announcing we would reduce our internal workforce by up to 2,500 roles by September of 2027. These are difficult decisions, and we are showing care, dignity and respect to all of our colleagues who are impacted. At the same time, these actions will help make NAB a stronger bank, better place to navigate both the risks and the opportunities that we see ahead.

Focusing first on our key numbers. Both our underlying profit and cash earnings were impacted by the changes we made to our software capitalization policy in the first half. Excluding the impact of the large notable items, underlying profit increased 6.9% over the year. This is a strong performance, led by good revenue growth. Cash earnings, again, excluding the notable item were flat as the higher underlying profit was offset by higher credit impairment charges, which Inder will take you through shortly.

Our cash return on equity, including the impact of the notable item was stable at 11.4%. And we have declared a final dividend of $0.85, which brings our total fiscal '26 dividend to $1.70 and this represents 73.7% of fiscal '26 cash earnings, excluding the [ North of Wayland ].

Turning to the economy and what we're doing to support our customers. Persistent inflation, tied to monetary policy and geopolitical uncertainty has seen a number of key economic indicators deteriorate over the past 12 months. We currently expect the RBA to keep rates on hold from here, but uncertainty remains high and cost pressures continue to propose a risk to economic growth in the near term. Longer term, Australia has many advantages which position our country well. However, realizing our potential requires a sustained focus on productivity to improve living standards and to support sustainable economic growth. While the economic environment has been challenging this year, our customers have remained resilient overall, household buffers remain strong, and many of our business customers are seeing opportunities in the current environment to both grow and to invest.

Despite the resilience, the vast majority of our customers are showing, it is not surprising that an increased number of customers do need our support, and this can be seen in an increase in both watch loans as well as early-stage home loan arrears. Experience shows that the sooner we get on to problems, the better the resolution outcome tends to be for both our customers and for our bank. Our relationships with business customers are particularly important in these times as our bankers proactively reach out to customers to understand their circumstances.

This year, we have improved our management disciplines relating to emerging customer stress. This includes better early warning tools to make it easier for business bankers to identify and support customers in need. Earlier, engagement by bankers has also contributed to an increase in customers in lower risk bands being referred to our watch loan list, which is managed by specialist business bankers. We're also investing to support our retail customers, including new community hubs in [ Warby and Cans ] that offer a wide range of in-branch support in conjunction with local community partners. And finally, we've expanded our NAB Goody's program, which has now delivered over $11.6 million of cash back and discounts to our customers.

Turning to our balance sheet. In order for us to grow and support our customers, particularly during these more challenging times, a resilient balance sheet is critical. In the first half of '26, we raised capital via partially underwritten dividend reinvestment plan and increased our forward-looking provisions. In light of today's economic outlook, we have again taken steps to further strengthen our balance sheet. The September Common Equity Tier 1 ratio of 11.87% is 22 basis points higher over the half including the benefit of $1.8 billion of capital [indiscernible] by the partial underwrite of the first half dividend reinvestment plan.

To further strengthen capital, a 1.5% discount will be applied to our full year dividend reinvestment plan. This is expected to increase our group CET1 ratio by approximately 20 basis points to a pro forma of 12.07%. At the first half of '26, we increased forward-looking collective provisions by $300 million including increased overlays in sectors more likely to be impacted by fuel supply and fuel cost issues. In this result, we have added another $103 million to our forward-looking collective provisions bringing the total collective provision balance to $5.4 billion. This represents 1.4% of credit risk-weighted assets with our total provision ratio increased to 1.76%. Liquidity and funding metrics remain well above regulatory minimums.

And now I'd like to take a moment to emphasize our long-term strategy centered on our ambition to be the most customer-centric company in Australia and New Zealand remains unchanged. Now to achieve this ambition in an evolving operating environment, we need to be simpler and more efficient. And we recently announced actions to simplify our model and better align our workforce to strategic priorities. As part of these actions, we expect to reduce our internal workforce by 2,500 roles or about 6% over fiscal '27. And we will also materially reduce the use of consultants and external contractors. This will improve outcomes for customers by removing duplication and speeding up our decision-making.

I am pleased to note that our focus on delivering better customer experiences, including through our NAB customer voices program has helped increase the share of customers who see NAB as their main financial institution this year. Our business MFI has increased by 210 basis points to 18.8%, while our consumer MFI has increased by 80 basis points to 11.7%. Our strategic NPS outcomes have also generally improved this year. However, rankings versus peers have been more mixed. The standout for NAB has been medium and large business NPS and which has improved by 11 points over the last 12 months and is ranked first of all the banks.

Continuing to improve the experience for all our customers remains an ongoing focus for everyone at NAB. Our 3 key business priorities have been in place for some time now and are critical to our ability to drive such stronger, sustainable returns. The first is continued growth in Business Banking, and across Corporate and Institutional Banking and Business and Private Banking, NAB is the largest business lender in Australia with customers ranging from small traders to our largest corporates and institutions. These are strong businesses getting stronger despite competition, strategic disruption and challenging economic environment.

Together, they now account for 75% of the group's underlying profit and we are determined to keep investing in and growing these businesses. Our aim is to be the clear market leader in Business and Private Banking and to pursue disciplined growth in Corporate and Institutional Banking.

The second is to drive deposit growth with a clear focus on transactional accounts. And finally, the third is to strengthen our proprietary home lending. This supports deeper customer relationships and helps manage margins and improve returns across our home lending portfolio. Pleasingly, again, each of our divisions has contributed to our progress in these 3 strategic priorities.

I'll now turn to each of our divisions, starting with our Business and Private Banking, which supports around 1 million Australian businesses and plays an important role in supporting the Australian economy more broadly. Competition in this segment has undoubtedly increased over recent years, but B&PB continues to compete from a position of strength and we have navigated this economic environment well. Our relationship-led approach increasingly enabled by digital data and analytics capabilities continues to deliver good volume growth with broadly stable divisional margins and attractive shareholder returns.

Over fiscal '26, B&PB's business lending balances rose 10.5% with growth across a diverse range of sectors. Deposit balances grew 6.1%, and our long-term focus on growing business transaction accounts has delivered a 22% increase imbalances over the last 2 years. Strong growth in JV net inflows reflects the strength of our high net worth offering in the private bank, and this is helping us meet both personal and business banking needs of our SME customers. The deep expertise and quality of our bankers is a key market differentiator for NAB and the [indiscernible] approach to retaining these bankers including continued investment in initiatives to enable bankers to spend more time with customers has helped keep our turnover rates low.

Turning to Corporate & Institutional Banking. This division plays a key role as part of our broader business banking franchise. C&IB strategy is focused on deepening long-term relationships with target sector customers and leveraging strong capability and leading expertise in core products and services. This is recognized and consistently high customer advocacy scores, including NAB ranking as the #1 bank for Australian corporate and institutional relationships.

C&IB achieved lending growth of 9% and deposit growth of 5.5% over the year. And our investment in payment and liquidity management tools together with our focus on deeper customer relationships, has supported a 23% increase in transactional deposit balances over the last 2 years. Together with ongoing simplification and disciplined balance sheet usage, this has driven strong returns.

Turning to Personal Banking. We are concentrating on deepening customer relationships in target segments through consistent and personalized experiences. A clear focus for us on mass affluent customers through our Premier Banking strategy has supported a 54% increase in new premier customers over the past 2 years and we have launched a distinct digital experience for our premier customers, including more personalized interactions.

In Australian Home Lending, the proportion of flow through proprietary channels increased to 53% in the second half, and this is helping us manage what has become a more challenging market in recent months, and I'll cover that shortly.

Personal Banking's deposit performance has been strong with balances 7% higher over fiscal '26. An ongoing investment in branches has helped deliver a 39% increase in branch originated transaction account openings over the past 2 years.

Turning more specifically to the housing market, which has clearly softened in recent months as both interest rate increases and budget changes have weighed on sentiment. The resultant slowdown in credit growth has seen an increase in competition, placing pressure on system returns. This is an important product for that, but we will be disciplined in how we deploy our capital to support growth and just optimize returns. And this includes making deliberate choices and taking a more segmented approach to where and how we will compete.

Our continued focus on strengthening proprietary distributions means we can adopt a more targeted approach to broker distribution. Brokers are an important distribution channel for NAB, and we are deepening relationships with our premium brokers through the launch of a more differentiated service proposition to a targeted cohort of high-value brokers to our bank.

In a more challenging second half period, our home loan book grew below system, including the impact of the Advantage runoff, which has been a material headwind. Consistent with our long-term strategy, our total proprietary book grew above system over this period, with the shares of drawdowns via prop channels also increasing to over 50% in the second half, a major milestone for our bank.

Looking now at New Zealand banking, the economy there continues to be challenging. Pleasingly, against this backdrop, New Zealand banking achieved good momentum in its target segments of Personal and Business Banking throughout the year. This has been supported by a focus on perfecting the basics, building strong foundations and delivering market-leading customer experiences. New Zealand Banking has delivered consistent growth in customers over time. And over fiscal '26, we grew above system in both household deposits and improved home lending market share at attractive returns. Over the same period, we also gained share in business lending where BNZ remains the largest lender in New Zealand.

Turning now to how we are changing the bank. We are continuing to transform our bank to be simpler, faster and more resilient, and this is embedded in how we run NAB. Simplifying the bank means reducing the number of products we offer, eliminating duplication and streamlining our processes. Over the past 4 years, we've cut the number of products by 32% with an ambition to get up to 50%. Being faster means leveraging digital data and AI to improve delivery speed to customers and to help our bankers be more productive. Over the past year, an 18% increase in the change delivery cycle has enabled us to deliver more features and benefits to customers from our investment slate.

Improved resilience is being achieved through continued modernization of our core technology platforms to reduce technology risk. We have strong technology foundations, including a modern cloud infrastructure and single data platform. AI technology is developing rapidly and will be increasingly important to how we serve customers and to how we run our bank.

Over the last 12 months, NAV has set up our key AI squads and establish clear frameworks and foundations to govern and manage AI activities, including a single AI platform. More than 40,000 colleagues now have access to approved AI tools. And we've also established around 50 business-led squads of cross divisional teams working alongside global strategic partners such as Anthropic and AWS. We have prioritized use cases with clear alignment to our strategic priorities of business lending, prop home growth and deposits. And our approach is based on agile product delivery, allowing us to test and learn quickly and safely.

This page highlights some of the early value outcomes for our group using Agentic AI tools and we are excited by the opportunity to deploy these technologies responsibly to improve customer and colleague experiences, drive productivity and help colleagues spend more time serving our customers.

I'll now pass to Inder, who will take you through the financial results in more detail.

Thank you, Andrew, and good morning all. I'll focus on our financial performance as measured on a half-on-half basis compared to the period ending March' '26. And to give you the best view of underlying trends, I'll exclude the impact of the large notable item that we booked in the first half of 2026.

Slide 21 provides an overview of our earnings performance. Underlying profit was broadly stable. Revenue was higher despite lower markets and treasury income, mostly offset by seasonally higher costs. Cash earnings declined 2.4% with higher credit impairment charges, including $103 million top-up to forward-looking provisions to reflect a more challenging outlook. Statutory profit rose 23.4% primarily reflecting the non-repeat of the L&I in the first half.

Turning now to Slide 22. While at a group level, underlying profit was fairly stable, we are particularly pleased with the earnings momentum in our Business Banking franchises. Business and Private Banking was a standout with 6.8% growth in underlying profit, reflecting strong business lending growth and higher margins. Corporate and Institutional Banking underlying profit ex markets was up 3.9% benefiting from improved margins. Both Personal Banking and New Zealand banking are performing well given their more challenging market context. Personal Banking did well to hold underlying profit fairly stable with flat margins and disciplined cost control. New Zealand banking held underlying profit broadly stable with pleasing volume momentum.

Turning now to Slide 23. Revenue rose 2.5% and excluding markets and treasury, was up 3.6%. As Andrew mentioned, this was another period of strong lending performance with growth aligned to our strategic priorities of business lending and proprietary home lending. Underlying margins also improved, and I'll discuss these in more detail shortly. Fees and commissions rose $7 million with lower customer remediation and higher wealth and lending fees, partly offset by seasonally lower capital markets fees. The key drivers of lower markets and treasury income were lower trading outcomes in markets and softer customer revenue, including the non-repeat of some larger C&IB deals in the first half. The depreciation of the New Zealand dollar had a modest impact on revenue growth in the half.

Moving to Slide 24. Net interest margin decreased 2 basis points over the half. Excluding the impact of Markets and Treasury, which is largely revenue neutral, underlying NIM increased 2 basis points this half, with higher earnings from our replicating portfolios, partly offset by lower lending margins and deposit mix. Lending margins contributed 2 basis points to NIM compression in the second half with 1 basis point each from Australian Home Lending and Australian business lending primarily reflecting ongoing competitive pressures. Funding costs were fairly neutral this period with stable spreads. The deposit book contributed 2 basis points to NIM compression over the half with a couple of key drivers.

Firstly, mix contributed a drag of 2 basis points mostly related to stronger growth in TD balances over the period. There was also a higher proportion of savings accounts earning bonus rates. These trends are consistent with what we would expect in a higher interest rate environment. Secondly, deposit costs contributed a benefit of 1 basis point. There were a number of small moving parts, but the main driver was the impact of cash rate increases on unhedged deposits. The 6 basis points replicating portfolio benefit to NIM is higher than our guidance of 5 basis points due to higher swap rates. Most of the benefit of this period relates to our 5-year deposit hedge.

Turning to some considerations for NIM in the first half of 2027. Lending competition is expected to continue to impact margins. Replicating portfolio tailwinds are estimated at approximately 3 basis points based on swap rates as at September 2026. This remains the key area through which we are seeing the benefit from the rising rate environment. Our continued strong deposit growth this period has further reduced our sensitivity to changes in the builds oil spread, a 9 basis point move in this spread is now equivalent to 1 basis point impact on NIM.

Now moving to Slide 25 on operating expenses. Given timing and seasonality impacts between half years, my comments here will focus on full year drivers. Operating expenses rose 4.5% over the year, consistent with our guidance of less than 4.6%. As you can see on the right-hand side of this chart, this expense growth included a headwind of $150 million from changes to our software capitalization policy, which was largely offset by benefits relating to the depreciation of the New Zealand dollar and lower remediation costs. Excluding these impacts, underlying cost growth was around 5%. The impact of salary and inflation was 3.2%. The majority of this reflects pay rises from 1 January under the final year of our Australian enterprise agreement.

It also includes $47 million of inflation relating to third-party IT contracts. The combination of costs related to investment in our business was 5%, which includes volumes, technology and investment and depreciation and amortization. Volume-related costs rose $193 million mostly reflecting a full period impact of previous banker hires in Personal Banking and to a lesser extent, in New Zealand banking. Technology and Investments then rose $233 million. This includes increased clock consumption, data ingestion and technology modernization. Total investment spend $1.8 billion, which is fairly stable on the prior period. Depreciation and amortization of $64 million reflects the timing of deployment of software assets. As flagged at the first half, the combined amortization impacts arising from the change in our software capitalization policy have been broadly offsetting in this period.

Other spend rose $139 million over the year. This includes a $40 million increase in short-term incentive payments and $40 million for higher fraud and financial crime costs. Productivity savings were $463 million. Approximately 70% of these were personnel-related, arising from changes in the composition of our workforce and from insourcing. There are also benefits realized through continued process improvement and simplification, operational and technology efficiencies.

Moving now to the cost outlook for FY '27 on Slide 26. We expect underlying cost growth of less than 3% in FY '27 compared with reported costs in FY '26. In our view, this is an appropriate balance between investing in the business, funding growth and driving productivity and efficiency. It excludes the impact of 2 items that you can see on the right-hand side of the chart.

Firstly, as previously announced, we are taking a restructuring charge of $300 million, which we expect to book in the first quarter of 2027. Secondly, the change to our software capitalization policy will impact costs by $125 million given a higher OpEx ratio. I'll briefly touch on some of the drivers of our underlying cost guidance.

Salary and inflation impacts are expected to be broadly in line with FY '26. Volume-related cost growth is expected to be lower than FY '26, which included the impact of bankers hired in prior periods. This is consistent with an expected moderation in volume growth. Technology and investment is expected to remain a headwind, consistent with our ongoing focus on being a simpler, faster and more resilient bank.

Investment spend is expected to be approximately $1.8 billion with an OpEx ratio of around 55% to 60%.

Depreciation and amortization will reflect the timing of assets deployed and is expected to remain a headwind in FY '27 before stabilizing into FY '28 as additions should more closely match the amortization profile. We continue to focus on driving sustainable productivity savings to offset inflationary pressures and create capacity for investment. This remains an important focus for us to achieve our targeted cost growth in FY '27 and will include the impact of announced changes to our workforce. Remediation remains ongoing, and it's difficult to forecast noting that $80 million of charges were booked in FY '26 for customer and payroll remediation matters.

Now turning to asset quality trends on Slide 27. As Andrew noted, the economic environment became more challenging over the second half. We are starting to see some signs of stress, including liquidity pressures impacting asset values. This tougher operating environment and outlook has contributed to an uplift in credit impairment charges this half to $841 million or 20 basis points of GLAs. The charges include $103 million top-up to forward-looking collective provisions. This is in addition to the $300 million we added in the first half. The underlying collective charge in the period was $196 million in the second half. This included 3 key components, net of transfers to [indiscernible].

Firstly, continued strong business lending growth in B&PB, had a sizable impact. Secondly, we saw a modest deterioration in customer credit ratings. And finally, lower house prices have driven higher loss given default assumptions. The migration in customer credit ratings mainly reflects cash flow challenges, and these have contributed to the deterioration in watch and nonperforming loan ratios compared with the improvement we saw in the first half. At this stage, transition rates from watch into nonperforming remain fairly stable.

IAP charges were broadly consistent over the half and remain elevated at $542 million. The business lending portfolio was a primary contributor, reflecting tighter secondary market liquidity and refinancing options. The charge also included some additional impairment for a small number of larger offshore customers in C&IB's utilities portfolio. Unsecured personal lending charges remained broadly stable. It is also worth referencing mortgage arrears, which are higher this period. The ratio of 90 days past due increased 9 basis points over the second half for the Australian home lending portfolio. The key driver here has been cash flow pressures with the deterioration materially skewed to mortgages serviced by business income.

I'll now turn to provisioning on Slide 28. Total provisions increased $415 million over the half and now represent 1.6x our base case scenario and equate to 1.76% of credit risk-weighted assets. Collective provisions rose $278 million to 1.4% of credit risk-weighted assets. This includes an increase in forward-looking collective provisions of $103 million, primarily reflecting changes in our base case economic assumptions given the more challenging economic outlook. Total target sector forward-looking adjustments remained largely unchanged over the half. We added a new $75 million sector overlay for the utilities exposures I referenced earlier. These relate to broadband customers in Europe and the U.K., where the sector continues to face a number of challenges. This has been offset by a partial releases across all other sectors as more stress is now captured in our base case assumptions.

Given the economic outlook, asset quality may deteriorate further in coming periods, but we are well provided for this.

Moving now to capital on Slide 29. Our group CET1 ratio increased 22 basis points to 11.87% at year-end. Key moving parts are shown on the chart on screen. Cash earnings added 78 basis points partly offset by 58 basis points for payment of the 2026 interim dividend. Credit risk-weighted asset movements reduced the CET1 ratio by 21 basis points mainly reflecting strong business lending growth, partially offset by the removal of certain model overlays related to off-balance sheet exposures. The other RWA bucket reduced CET1 by 7 basis points, primarily reflecting an 11 basis point reduction from higher swap rates impacting [ IRRBB ] risk-weighted assets. This was partially offset by lower market risk.

Net FX translation was a drag of 3 basis points relating to the depreciation of the New Zealand dollar. And finally, the benefit of capital actions related to our interim dividend contributed 40 basis points. The final 2026 DRP will include a 1.5% discount expected to raise approximately $900 million or 20 basis points of CET1 capital taking our pro forma ratio to 12.07%.

I will now turn to Slide 30 to provide some further context around how we are thinking about our capital settings in FY '27. Over the past year, our CET1 ratio increased from a pro forma 11.81% as of September 2025 to a pro forma 12.07% at September 2026 and an increase of 26 basis points. The key drivers of this increase are set out on this slide. Lending growth consumed 55 basis points of capital including 42 basis points from nonretail credit growth. This is consistent with our strategy and is expected to support earnings growth over coming periods. Capital was also impacted by elevated volatility, both in higher rates and in foreign exchange markets as well as by the deteriorating economic outlook where we have responded by increasing our forward-looking credit provisions by $403 million. New capital issuance totaled 60 basis points, including the expected impact of the FY '26 discounted DRP.

Going forward, we are starting FY '27 with a much stronger capital position, which we believe is appropriate in the current environment. We are also taking actions to improve organic capital generation. These include, firstly, more deliberate portfolio positioning to allocate capital to higher returning segments. Second, targeting lower growth in our underlying costs to deliver sustainable improvements in efficiency. And lastly, driving a much stronger link between our investment spend and value creation for customers and shareholders. The expected moderation of business credit growth in FY '27 will also support improved capital generation.

As I have flagged earlier, asset quality may deteriorate further, and our capital plans include credit migration assumptions aligned to our base case economic scenario. Overall, we are confident that a stronger starting position and a focus on improved capital generation will support continued growth and sustainable shareholder returns.

Liquidity and funding are set out on Slide 31. The quarterly LCI ratio is 3 basis points higher over the half at 135%, and NSFR was stable at 116%. Both ratios are well above the minimum requirement. We continue to manage funding and liquidity prudently, and our balance sheet is well positioned for periods of market volatility. We issued $38 billion of term funding during the year, supporting repayment of maturities in the period. Over the course of financial year 2027, issuance is expected to be broadly in line with prior years.

I'll now hand back to Andrew.

Thank you, Inder. As Inder and I have outlined today, we have taken actions which make NAB a stronger and more efficient bank. Our capital has been further strengthened and collective provisions as a ratio of credit risk-weighted assets has now increased to 1.4%. Same time, we've updated our software capitalization policy at the first half to reflect the more rapid pace of technology change, and we are reshaping our workforce to be both more efficient and to support better customer outcomes.

While each of these actions create short-term headwinds to performance, we are confident that they better position NAB to navigate a more dynamic near-term operating environment and deliver improved shareholder returns in the medium term.

Business credit growth has been resilient and above long-term averages in recent years. And while we expect business credit growth to moderate to 8% in 2027, the long-term outlook remains positive, supported by key structural thematics, including ongoing investment in infrastructure, including digital infrastructure, property, energy transition and supply chain resilience. This outlook is expected to provide good opportunities for growth in Business Banking at attractive returns. NAB is the largest business leader in -- lender in Australia and Business Banking is our core and this focus has been a key driver of our earnings growth and shareholder outcomes.

The share of underlying profits from business banking, including in New Zealand, has now increased from 70% in fiscal '22 to 80% today. Over the same period, the cash earnings on risk-weighted assets for B&PB and C&IB combined have improved by 15 basis points. This all supports our view that even with a more challenging year ahead where the cost of risk could remain elevated, our business bank can continue to earn through that and generate better returns than we would see in retail banking.

Looking ahead to fiscal '27, we will maintain resilient balance sheet settings and a disciplined approach to risk management. Our customers are managing an evolving environment, and we will support those that need us. We continue to focus on our 3 strategic priorities of growing business banking, driving deposit growth and strengthening proprietary home lending and this will be supported by increased alignment across all of our divisions. The announced changes in our workforce, together with ongoing investment in tech modernization will also help drive our efficiency.

With strong tech foundations in place, we will scale AI safely to support our growth and productivity goals. I remain confident in the long-term outlook of our business. the actions we have taken to improve our resilience and efficiency, together with our business mix and strong underlying momentum position NAB to deliver sustainable growth and return for shareholders over time.

Thank you again for your time this morning, and I'll now hand back to Sally for Q&A.

Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the operator will introduce you. There are quite a few of you on the line today, so we would appreciate it if you could limit yourselves to 1 question. Please go ahead, operator.

[Operator Instructions] Your first question today comes from Victor German with Macquarie.

Thank you very much. I was hoping maybe Inder question for you, and maybe Andrew can also provide some context. But mindful that you haven't provided specific guidance on expected benefits from the restructuring charge. And so any color would be useful. But if I look at your expense walk. It appears that underlying cost growth is something in the order of 5% to 6%, even after allowing for the benefits that you're likely to get from the restructuring.

So just be keen to understand if that is right. And also, to the extent you can, if you can provide maybe a little bit of guidance and color on how you're thinking about your cost going into 2028 given that your underlying cost growth appears to be still fairly elevated in this environment.

Yes. Let me maybe just take a higher level crack and then you can go through some of the details and if that works, Victor.

What I would say is we're seeking to reduce the kind of long-term recurring expense profile of our bank and of our business from something that was in the mid to high force to something under 3%. So we think we're taking a very significant structural reduction in the ongoing pace of cost pressure in the bank. And we're doing that while being very thoughtful to maintain the muscle in the bank and the productive capacity for our bank to win and compete, particularly in our business banking franchise. And so we just don't want to make sure that we hurt that productive momentum, and we've been really, really mindful of that.

What I would also say is that next -- while we haven't given specific productivity guidance, I would expect that we will deliver productivity in '27 that will be more than we have ever done as a bank and significantly above what we would have done in recent years. Part of that will be from the workforce adjustments that we announced and part of that will be driven by the productivity -- long-term productivity agenda that we have around simplification and modernization.

So they would be my point, Inder, if you want to just follow up.

Yes, I think just to maybe respond to your specific question about the impact of the workforce changes we've announced. Clearly, we're still working through the specifics of many of those changes. We've obviously made some announcements in relation to Wave 1. So it's difficult to give you a specific number, but we're broadly assuming around $250 million to $300 million of P&L impact booked in 2027 benefit from that, and we'd expect the run rate to be a little higher into '28. One thing you've got to be mindful of is not all the changes relate to run costs. So some of that will come through in terms of change costs. So the profile in terms of CapEx, OpEx will then apply to that.

But just to reiterate Andrew's point, we are focused very heavily on driving sustainable productivity. And to your point about the underlying run rate, we've been very clear on Slide 26, setting out that the underlying run rate will be less than 3% in '27. And we would expect the restructuring charge and the cap software policy changes, which we've clearly called out on the slide is largely nonrecurring. So that gives you a sense of what we think the exit into '28 would look like.

Your next question comes from Richard Wiles with Morgan Stanley.

I'd like to ask a question about the outlook for loan losses. Even if you exclude the pretty meaningful collective provision top-ups, you took in the half, the underlying loan loss charge is about 15 basis points of loans. You flagged signs of emerging customer stress. Your watch loans have increased 15% or something like $1.4 billion in the past 3 months. And we've now had 2 rate hikes since the end of the half.

So it suggests credit quality should get worse. What -- how should we think about your watch lines as a lead indicator of loan losses? And what do you think will happen to the loan loss charge in FY '27, please?

A couple of comments, first for me, Rich, and then I'll let Inder elaborate. But one thing that we have purposefully done as a management team in the half is improve our early warning signals and then speed up the transition of customers to watch and to our specialist business bankers in that part of our bank.

And so I would say about half of the increase in our watch loans was not due to underlying credit deterioration per se, but a change in our speed to move those customers into the watch book because we think it will deliver better outcomes for us and better outcomes for them. But maybe Inder.

Yes. I think in terms of commentary into 2027, I think the key moving parts. Obviously, we start with strong provision coverage at 1.4% of credit risk-weighted assets. We have taken some actions to uplift forward-looking provisions, both through sector-specific FLAs we've taken through the year and also through the adjustments to our economic assumptions and the weightings. So we feel that we're in a good position sort of exiting 2026, given the outlook we're facing into.

In terms of underlying CP, there's a few drivers of that. One is volume growth, and we would expect volume growth whilst moderating still to be pretty healthy in -- particularly in Business Banking as we look forward. And then on credit quality, some of that watch list that Andrew was referencing earlier, we will see likely some transition into NPLs, but our transition rates, as I mentioned in my prepared remarks, still remain broadly consistent. And then the individual IPs are very difficult to predict. So -- but that's kind of the -- as we think about the component parts of the outlook, I think your points are fair, and I think we're just trying to give you a little bit of color around each of the moving parts.

Your next question comes from Jonathan Mott with Barrenjoey.

Just follow up with good from Wiles' question then, especially around the early warning tools, I think you mentioned this as well at the last result. Where you said you're encouraging your bank is to bring forward these watch list what specifically are you talking about? Are you looking through the transaction accounts of your customers, are you looking through the accounting software to try and see where it's getting on? And do you think you're ahead of your peers by doing this by picking up more watch list earlier in the cycle than you peers are.

I mean it's difficult to tell where peers are at, but I can certainly tell you that we have significantly enhanced our focus on exactly that, looking at transaction account balances comparing them to either historic examples of prior periods for a customer to compare them and understand their cyclicality or seasonality and then also compare them to peer industry peers. So we're doing that very proactively.

And the reason for that is we feel that we want to get customers with emerging signs of stress into the right place so we can work with them to best manage their business. And importantly, most of these customers are still performing. So I think our view here is the sooner we get them into watch, the sooner we can work with them to address the cash flow issues that they might be thinking, then hopefully, we can actually reduce the transition to delinquency and into impairment that we would have seen in the past.

Yes. Just one data point that's worth referencing is that the vast majority of exposures, I'd say, more than 70% of exposure is transferred to specialist business restructuring teams tend to be remediated and returned. And that's a really important focus for us as we manage and work closely with customers, particularly in this type of environment.

Your next question comes from Brendan Sproules with Goldman Sachs.

I have some questions around your organic capital generation, and I'm referring to Slide 30. I mean just looking into the organic capital generation in '27. There looks to be some challenging things emerging. So obviously, you're going to have almost 6% cost growth and a backdrop of signing revenue on the cash earnings line. Volumes are still going to be reasonably elevated, as you said, 8% in the business lending. And you're seeing deterioration in the asset quality as you have flagged here.

In terms of, I guess, how you sort of plan to manage that, if you get another 35 basis points decline, would we expect that you would again want to top up the capital just given the environment?

Yes, Brendan, it's a good question. And obviously, we've tried to make sure that we are very clear with the market on what the key drivers of capital generation are. And we're also talking to the fact that we're taking a lot of deliberate action around how we allocate capital across the business, how we position each of our portfolios. And you see some of that discipline kind of expressed through our positioning in home lending, for example, that Andrew talked through in his prepared remarks.

We are also trying to make sure that the run rate of underlying cost does come down. So yes, we've got some one-off charges in '27, but we feel pretty good about the trajectory into '28. And then an important area of focus for us is really to make sure we can drive greater value from the investment portfolio to make sure that, that's driving improvements in revenue, reductions in cost, reduction in risk and better customer outcomes. So I think there's a lot of focus internally in the organization on improving capital generation, and I think we're making some good progress.

As you say, when you look at 2027, I'd say one thing to bear in mind is that '26 look back does have quite a skew first half, second half. I'd say second half with somewhat moderating growth. Organic capital generation was broadly neutral in the second half of 2026. So that gives us some good confidence as we've looked at the outlook. And obviously, we're starting with a good credit provisioning position. Clearly, asset quality could be a risk from here. We have factored in, as I mentioned in my prepared remarks that we will see some credit quality migration even if the economic base case that we've set out plays out. And so within our forecast assumptions, absent really material deterioration in credit conditions, we believe that credit capital generation should be healthy into '27, and we feel the dividend settings remain appropriate.

Your next question comes from Andrew Triggs with JPMorgan.

Inder, you just used the word discipline in response to that question. But NAB has been quite top line focused in recent periods, which I think most would see the merit in. But I mean you are the major bank, the lowest capital ratio you have a more macro sensitive book and the growth settings are leading to quite a few -- quite a bit of cost pressure within the bank.

Are you not worried that the settings are -- maybe this is more for Andrew, like to growth focus. A cut in the dividend would provide you with arguably more discipline, and NAB has had to have it in the past of showing that discipline with constraints around capital.

Yes. Look, I'll take that one if I could, Andrew. First of all, we are taking capital actions, and you can see us being incredibly rational and deliberate in our home lending book. I know there's lower RWA density there, but we've been very uninterested in booking low ROE lending onto the balance sheet, and that's going to continue. And we're -- we feel very good about the fact that the business lending that we're originating and putting on the book in both our Corporate Institutional Bank and in our Business Bank will deliver really good in excess of cost of capital returns to our shareholders.

And so we feel that, that's a good reason to originate and that shareholders would want us to do that versus to constrict that. And we had a good discussion on our capital projections over the next kind of 2 or 3 years with our Board, and we are confident that in the medium term, we can maintain the growth settings that we have as well as sustain the dividend payout ratio. We do clearly have more near-term headwinds around that, which is why we have chosen to raise capital now as well as at the first half, but we think those are temporary and that we'll be able to earn through that over time.

Your next question comes from Andrew Lyons with Jefferies.

Just a question on your [indiscernible] provisioning. Your unemployment assumption appears to be 4.7% in September '27 and then 5% 12 months later. But you compare that to your macro team's assumptions that peak at 5.5%, which is a fair whack above the assumptions used in ACL. I do consider there are year-end timing differences. But just accounting for that, the gap does seem large. So can you please maybe explain why there is that gap? And also perhaps what sensitivity of your ACL outcomes are to your unemployment assumptions?

Yes. Look, it's a good question. Obviously, it's a very dynamic environment, Andrew, in terms of where we think the outlook is heading. When we look at our overall provisioning, we obviously look at it all together, I clearly appreciate that the economics team has just recently published an update. You could look at that in isolation. It's unlikely to be a material delta to kind of our provisioning basis. But the way we'd look at it at period end is bring it all together because some of that stress that we're projecting through the forward-looking provisions might have already have come through some of the underlying components, whether it be through [ IP ] or some of the credit migration in the underlying collective provision.

So I think the way we would look at it is those 3 component parts I walked through earlier on, which is we'd bake in clearly the updated economic outlook. But within that, we would look at where our forward-looking settings at both in terms of FLAs and EAs. We'd have a look at what's come through in terms of IAPs and then a top-up if required. But having taken a look at the economics team's most recent update, we don't think it's a material shift in our provisioning basis as we reported it.

Your next question comes from Brian Johnson with MST.

Some really good disclosures in the pack. But just looking at Slide 60, what I'm intrigued about is just that if we have a look at the profit delta in New Zealand year-on-year and half and half, if we were to think about it, what do you think the outlook for New Zealand is where we can see the margin collapsing the loan loss charge increasing the operating earnings falling. Could we just get a feeling on the forward expectation there? Is it going to get better or worse?

Thank you, Brian, and we will take any positive feedback on the disclosures. So I appreciate that. On New Zealand, so slightly different economic outlook there. I think they're probably seeing a somewhat better outlook next 12, 18 months than maybe they've experienced last 12, 18 months. Dan and the team have done a great job in building stronger foundations in the organization, investing and simplifying their product base. So I think the business is very well set up.

Clearly, we're seeing quite a bit of competitive intensity in both asset margins and deposit margins. But when you look at our net interest margin walk, you'll notice that we didn't call out any impacts from New Zealand. So whilst we've seen probably about a 5 basis point impact in New Zealand stand-alone, that really hasn't lifted to a level that has impacted the broader NAB result overall. So we actually feel pretty cautiously optimistic about New Zealand in terms of the trajectory on underlying profit and overall profit going forward, '26 into '27. So the foundations are strong. I think the team is managing really well. through some of the competitive intensity. We are growing both lending and deposits in mid-single-digit run rates. And we feel that will start to really translate through to better profit growth into '27.

Your next question comes from Matt Dunger with Bank of America.

I wanted to ask about B&PB. The 6% half-on-half income growth you saw included both margin expansion volume growth. So wondering how sustainable you think this is given the front book economics. And Andrew, you're talking about allocating more capital to higher returning businesses. Assumedly, this is B&PB, and can you talk to existing versus new to bank client opportunities there?

Yes. Look, thanks for the question. And we are continuing to see good opportunities to deploy capital at attractive returns in the Business Bank. We're consciously also working to increase our share of proprietary lending in business and private banking, which we actually were able to do over the half. And that provides us with better opportunities to increase share of wallet with those customers, which we feel is important.

So look, at this stage, while we do expect credit growth to moderate from very high levels this year, there'll still be 7% or 8% next year, which is, I think, very constructive. And we will make sure that we compete on proposition, not just price. We, I think, have really good pricing processes in the Business and Private Bank. And when things get a little too rich for our liking, we are prepared to walk away. But more often than not, where we have banked a customer for a long period of time, they don't leave the bank on price and price alone. And they need to have had a service failure or a credit underwriting issue or a poorly managed change or banker episode to want to leave us.

And lastly, you asked the question on where we're seeing the opportunities. I'd say the vast majority of growth would be within our existing franchise clients and backing them to continue to grow.

Your next question comes from Tom Strong with Citi.

Perhaps a question for you Inder, I mean, another very solid year for markets and treasury income with revenue of $1.9 billion, led by the treasury side in particular. Can you just give us a guide into '27, do you think the revenue base of this side is structurally higher? Or is still there is an element of mid-cycle that we should factor in?

Yes. Good question, Tom. So obviously, very pleased with the performance in Markets and Treasury for the full year. And as we look back, that business has really stepped up from an average run rate of around $1.5 billion if you look at it on a 5-year average. So I'd probably say that as we look into '27, we feel pretty good around a run rate of around that $1.7 billion, $1.8 billion a year as being relatively sustainable going forward.

But look, there's clearly always one-offs in any single year, but I'd probably point more to some level of step-up from the average that we've seen over the last 5 years as we get into next year.

Your next question comes from Matthew Wilson with Jarden.

Matt Wilson, Jarden. Going back on asset quality, I think it's pretty clear we're going into a cycle and we haven't seen one of these for a long time. How do you see the risk emanating out of the private credit space the slowdown there impacting your ability to manage your watch list down further, that escape valve seems to have closed. Is there a warehouse exposure that we should be aware of in the private credit space? Is that there will be the contagion effect of lower asset values as they move through workouts in the coming months?

And then linked to that, you touched on it, but you didn't give a sensitivity. NAB has given sensitivities in the past. I remember you giving us one back in the COVID time. So talking about risk weight inflation in core equity Tier 1 if we saw nonperforming loans go from 0.34% to 0.5%, still very low levels, how would that actually impact core equity Tier 1. We need to see some sensitivities now.

Well, I'll take the first question around private credit, and I'll let Inder respond on the capital sensitivities from the second part of your question.

Look, on private credit, there is no doubt that we have seen private credit become much more judicious in their origination patterns in the last few weeks and months. And so liquidity has dried up. We are seeing much less refinancing out of our watch or stress credit positions to private credit. That was a source of, you could argue, good quality refi out activity, and that has slowed. We'll have to see whether or not that picks up going forward.

I think the thing that I do worry about is customers that have material exposure to private credit and how they will have to act in terms of managing their asset positions and if they're forced to divest assets, low asset values, what can that do to kind of create a further downward pressure on property prices in particular. And so that's something we are actively watching.

On the asset quality and the credit migration, what we can share with you, Matt, is that if the economic base case that we've set out plays out, we would expect related RWA increases to be around $6.5 billion through the course of FY '27.

So to give you some sense, in the last half, we probably saw RWA impacts from AQ of around $2.5 billion. That number is netted off in some of the other movements we've shown on the chart. But we expect that to be higher when you look at FY '27, both half-on-half and for the full year.

Your next question comes from Ed Henning with CLSA.

[indiscernible] ask one on margins. Can you just go through a little bit more detail on some of the outlook comments on the margin in the half you called out 1 basis point benefit from rate rises. We've had one at the end of September 1. Again this week, is there 2 basis points there, so you've got kind of 5 basis points, including your replicating portfolio. Is that included in the deposit and replicating portfolio?

And then also, if you look at the headwinds on the lending margin. Last half, it was 2 basis points in housing and 2 basis points in business. This half was one and one, you talked about ongoing competition, kind of what levels of competition you're thinking about just ongoing from kind of this half. And also, mix again was a headwind in this period. You haven't called out in the considerations. Do you think that's still going to be a headwind going forward as well, please?

Yes. Look, good question, and happy to walk through some of the component parts. So I think let's take the 3 basis points tailwind on replicating portfolio as a starting point. I think on your point about cash rate movements, we are not that sensitive to cash rate increases coming through in the P&L because most of that really comes through our replicating portfolio. So whilst we have seen some cash rate increases, you can even see the impact on the current half is that the benefit coming through the unhedged deposit book is modest. And there's obviously also a cash rate lag on the lending side.

So I'd probably say on overall cash rate increases, we're probably more neutral net-net when you look forward to the outlook. I think on lending margins, we've said 1 basis point each from Business Lending and Home Lending in the current half. We've sort of felt that the competitive intensity has been broadly stable, particularly in business lending. We've probably seen an uptick in home lending and after the budget changes have been announced and we'd expect that to probably continue, although we are being thoughtful about how we participate in that space. So how much of that really translates to our book is to be seen.

And on the deposits, I think the key call out for us has been that, yes, we are seeing a shift to TDs and we called out that mix impact in the second half, and we'd probably expect that 1 basis point or so to be relatively reflective of what we see going forward. We're not seeing a material impact in terms of overall cost of deposits at this point.

Thank you. There are no further questions at this time. I'll now hand back to Sally Mihell.

Just like to thank everyone for joining. The Investor Relations team will be available throughout the day if you have any follow-up questions. Thanks.

Thank you for standing by, and welcome to the National Australia Bank First Half 2026 Results Presentation. Go ahead, please.

Good morning, and thank you for joining us today for NAB's Half Year 2026 results. I'm Sally Mihell, the Head of Investor Relations. I would like to acknowledge the traditional owners of the land from which I join you today, the Gadigal peoples of the Eora Nation. I'd like to pay respect to the elders past and present and to the elders of the traditional lands from which you join us.

Presenting today will be Andrew Irvine, our Group CEO; and Inder Singh, our Group CFO. We are also joined in the room by members of NAB's executive team. Following the presentations, there will be an opportunity for analysts and investors to ask questions.

I'll now hand to Andrew.

Thank you, Sally, and good morning, everyone. I'd also like to welcome Inder, who is presenting his first set of results for NAB. NAB's half year 2026 results benefited from good momentum across our business, supported by stable margins. We also benefited this half from strong broad-based credit growth in a supportive economic environment. The outbreak of conflict in the Middle East have created more volatile environment, which we do expect to continue for some time. In light of this, we have improved the strength and resilience of our balance sheet to support our customers.

Our customer-centric strategy becomes even more important in the current environment, and we continue to execute this strategy with both focus and discipline. This is helping us deliver better customer experiences, which in turn drives improved customer advocacy. To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we must continue to modernize our technology to build a simple, fast and resilient bank. On this, we are making good progress with more to come. We have 3 business priorities, which aim to deliver stronger returns over time, growing business banking, driving deposit growth and strengthening proprietary home lending. Again, we have continued to make good progress against each of these priorities, and I will discuss them in more detail shortly.

Looking ahead, while the near-term outlook is more challenging, we are well positioned to navigate this uncertainty with stronger balance sheet settings and good underlying momentum across our business. Cash earnings this half were impacted by changes to our software capitalization policy to reflect the rapidly changing technology environment. Excluding the impact of this large notable item, our cash earnings increased 2.3%. This was mainly driven by a 6.4% improvement in underlying profit ex notables, offset by higher credit impairment charges. Revenue growth of 3.1% reflects stronger markets and treasury income and volume growth. Total costs, excluding the impact of the notable item were down slightly.

Our cash return on equity, excluding the impact of the large notable item this half was 11.6%. This is slightly higher than fiscal year '25. We have declared an interim dividend of $0.85, and this represents 72.5% of cash earnings, excluding notable items, which is in line with our target payout policy of between 65% and 75%. Disciplined execution by each of our divisions has contributed to our strong underlying performance in the half. Business and Private Banking has had a very strong half with a 5.4% increase in underlying profit. The business has good momentum in lending and deposits with a stable margin outcome. I'm particularly pleased with the 10.8% growth in transaction account balances, which reflects our consistent focus on deepening customer relationships. This performance is a strong demonstration of the quality of our business in Private Bank in a very competitive environment.

Corporate and Institutional Banking delivered underlying profit growth of 1.7%. A disciplined approach to both lending and deposits has helped deliver a 15.2% return on equity. Business credit growth this half was 6.9%, reflecting strong system growth together with good momentum in corporate lending and higher customer drawdowns in the month of March. Personal Banking has also had a very good half with underlying profit of 3.7%. The focus on strengthening proprietary home lending and growing deposits whilst managing margins has been a key driver, and I'll talk more about these shortly. Finally, in New Zealand, BNZ delivered flat underlying profits in what is a very challenging economic environment. Our continued focus on growing personal deposits has supported good market share growth this half.

The ongoing conflict in the Middle East is challenging customers through both higher fuel costs and supply disruptions. These issues, together with inflationary pressures and higher interest rates are likely to create real cash flow stress for some customers. While the vast majority of our customers are well positioned to manage these impacts, some will need further support. At our heart, NAB is a relationship bank. Our relationships with customers are particularly important in these times, and our business bankers are on the front foot contacting customers to discuss their circumstances. Support provided includes increased limits to working capital facilities and overdrafts to manage liquidity issues. We have also provided some zero interest loans to customers as part of the government's economic resilience program.

Consumer sentiment has deteriorated sharply. However, overall, our retail customers enter this period with strong buffers. Across our home loan book, offset and redraw balances have grown by 9% in the last 12 months. In addition, 80% of our customers did not reduce their home loan repayments in 2025 when cash rates fell by 50 basis points. This will help those customers absorb an increase in interest rates from here. In light of the more challenging environment and the ongoing volatility, we have taken proactive steps to increase the resilience of our balance sheet settings. The March common equity Tier 1 capital ratio of 11.65% is modestly lower over the half, reflecting both strong volume growth and market volatility impacts. To further strengthen capital, a 1.5% discount will be applied to our first half dividend reinvestment plan, and we expect to partially underwrite the DRP participation. These actions will raise a total of approximately $1.8 billion and increase our group CET1 ratio by approximately 40 basis points to a pro forma ratio of 12.05%.

Forward-looking collective provisions have also been increased by $300 million to a total of $1.93 billion. This includes an increase in our economic adjustment as well as increased overlays in sectors more likely to be impacted by fuel supply and fuel cost issues. Our total provisioning to credit risk-weighted assets has increased to 1.6% and collective provisioning to credit risk-weighted assets has increased to 1.35%. Liquidity and funding metrics remain well above regulatory minimums. The duration and intensity of the current disruption to liquid fuels markets and associated impact on the economy remain highly uncertain. I'm confident the actions we've taken to improve the strength and resilience of our balance sheet will better enable us to continue to deliver the strategic priorities while supporting our customers through this more challenging period.

The next slide outlines our strategy based on our ambition to be the most customer-centric company in Australia and New Zealand. To execute this strategy, we are being disciplined and consistent in our focus on doing a few things well at both scale and at speed to power exceptional customer experiences. Our ambition to improve customer advocacy is anchored in a core belief that this will deliver deeper customer relationships together with improved retention and referrals. This, in turn, should lead to higher growth and sustainable returns over time.

NAB customer voices is the foundation of our strategic focus on customers. This program, which we have been progressively rolling out over the last 18 months, enables us to more systematically measure, capture and respond to customer feedback. We continue to see the benefits, including significantly reducing the time required to open a simple business transaction account. While there is more work to do, these improvements will help support our strategic focus on growing our core deposits. I'm very pleased to say that the progress to date has been recognized with NAB being awarded the Roy Morgan Customer Satisfaction Award for the Major Bank of the Year in 2025. To put this in context, the last time NAB won this award was in 2012. This is a tremendous achievement, which recognizes the efforts of all our colleagues to improve customer experiences.

In addition, we now have positive NPS across all our 4 segments for the very first time. Our medium and large business NPS has improved by 16 points over 12 months and is ranked equal first of the major banks. Over the same period, both mass consumer and micro and small business improved by 5 points with NAB now ranked equal second. Six months ago, you'll remember, I highlighted the focus on improving NPS in high net worth and mass affluent. Here, too, our NPS has improved by 14 points, and our ranking has moved from fourth to third. The mass affluent segment and our premier banking strategy remains a key focus in our Personal Banking division. And in this segment, we are now ranked second.

While we certainly have more to do, our strategic focus on customer advocacy is working and can be a key differentiator for our bank. Becoming a simpler, faster and more resilient bank is an ongoing journey and is embedded in how we run NAB. Simplifying the bank is key to our transformation. This means reducing the number of products we offer, eliminating duplication and simplifying our processes. Since fiscal '22, we have cut the number of products we have by 27% with an ambition to get this down by 50%. Being faster means improving the speed of delivery to customers by improving the productivity of bankers and support teams. This will increasingly be enabled through the use of AI to support routine tasks and allow colleagues to focus on higher-value work and to improve products and systems.

Improved resilience is also being delivered through the continued modernization of our core technology programs. The progressive migration to modern cloud-based platforms and decommissioning of legacy systems will continue to keep our customers safe and improve the availability of our services. By becoming simpler, faster and more resilient, we aim to deliver stronger operating leverage, simple real-time banking that our customers love, lower operational risk and sustainable returns to shareholders over time. Upgrades to our bank's technology infrastructure foundations are now largely complete. This includes multi-cloud infrastructure and the build and migration to a modern data platform. The next phase is the progressive modernization of our core product and servicing platforms, and this work is now well underway.

This slide highlights 2 of these platforms, our real-time payments platform and our transaction switch. In the first half, we completed the migration of all payments to our cloud-based real-time payments engine. A modern payments platform has been key to the development of innovative payment solutions such as Amazon PayTo. Our transaction switch processes 15 million card and acquiring transactions every day across a range of channels. A new transaction switch has now been installed in the cloud, and we have commenced building the capability to enable card processing and authorization. The migration of all credit and debit card transactions is expected to be completed in FY '27 with merchant acquiring to follow.

Our new Group Executive Digital Data and AI, Pete Steel, joined us in November, and Pete's deep experience is helping us prioritize where we invest in a rapidly changing technology environment. AI opportunities, including investments to date are broadly aligned to 3 strategic outcomes. Growth opportunities will be supported by banker AI and customer AI solutions that will help drive and deliver more personalized services to our customers at both scale and enable our bankers to spend more time with our customers. Productivity opportunities will be supported by AI tools that can undertake routine tasks and increase the speed of delivery. We have already rolled out AI tools to over 7,000 software engineers, which has, in turn, helped improve our change cycle delivery time and significantly increased developer productivity. We are also providing colleagues with access to AI tools to help them build the skills they will need in the future.

As this technology evolves quickly, it is important we embed the appropriate risk controls and governance frameworks to keep our customer data safe and ensure transparency of any AI decisions that are taken. NAB has 3 clear business priorities, which will help drive stronger sustainable returns. The first is continued growth in business banking. Our aim is to be the clear market leader in business and private banking and to pursue disciplined growth in corporate and institutional banking. The second is to continue to drive deposit growth with a focus on at-call transaction accounts. We are investing in innovative payment solutions for business and improved propositions for our target retail segments, including mass affluent and youth. And the third is to strengthen our proprietary home lending. Here, we've implemented a number of initiatives to help grow the share of lending through our proprietary channels. This will help manage margins and improve returns on our home lending portfolio.

I will now speak to each of these priorities in more detail. We are proud to support Australian businesses through our 2 business banking divisions, which combined make us the largest business lender in Australia. We have a 22% share of total business lending and a 28% share of lending to small- and medium-sized businesses. Sound underlying business activity has supported strong business credit growth at a system level over the 12 months to March. As the largest business lender in Australia, we've continued to see good opportunities to grow. Total business lending GLAs across both Business and Private Banking and Corporate and Institutional Banking increased by 11.5% in the 12 months to March to $306 billion. This is our strongest annual growth in 3 years and was supported by above-system lending growth in Australian business lending.

Business and Private Banking is the clear market leader in SME banking. This is NAB's heartland, and we know it well. Our relationship-led approach increasingly enabled by digital, data and analytics capabilities continues to deliver good growth, and our pipeline remains strong. A focus on digitizing our customers' simple needs and removing work from our bankers is allowing bankers to spend more time with our customers. This includes the continued deployment and development of our business lending platform with over 80% of lending applications in the first half submitted digitally. Competition in this segment has undoubtedly increased, but our scale, our deep expertise and the quality of our bankers enables us to compete from a position of strength. In recent halves, despite strong competitive intensity, we have consistently grown business lending at above system rates while maintaining a stable divisional margin. A holistic approach to retaining high-performing bankers has helped keep turnover rates low.

Turning to our second priority of driving deposit growth. We continue to see strong growth in transaction and at-call accounts across both our Personal and Business Banking divisions. Over the first half, Business and Private Banking and Personal Banking grew at-call deposit account balances by $14 billion, but which exceeded the growth in lending balances across these divisions. In Personal Banking, our investment in branch transformations and increasing engagement with customers has supported a 30% increase in new transaction account openings over the last 2 years. In Business and Private Banking, a continued focus on deepening customer relationships and investments to streamline account opening processes has in turn supported a 31% increase in new transaction account openings over 2 years. The good growth in at-call deposits across the group this half has also meant we had correspondingly less appetite for larger term deposits. This is reflected in the decline in total deposits in our Corporate and Institutional Banking division.

NAB's home lending strategy aims to serve our customers well in the channel of their choice through the delivery of a seamless customer and broker experience. A focus on strengthening our proprietary franchise has seen us grow our share of drawdowns by proprietary channels from 41.4% to 47.7% in the first half. And in the month of March, 50% of our drawdowns were through proprietary channels, a key milestone for our bank. This progress has been supported by investments to improve banker productivity, including an increasing contribution from new bankers appointed in FY '25 to uplift capability. Having a strong and growing proprietary home lending business also means we can adopt a more targeted approach to broker distribution. Brokers are an important distribution channel, and we are deepening relationships with value brokers to drive growth in priority segments. The successful execution of this strategy is delivering above system growth with improved home lending returns.

I'll now pass to Inder, who will take you through the financial results in more detail.

Great. Well, thank you, Andrew, and good morning all. I'll focus on our financial performance as measured on a half-on-half basis compared to the period ending September '25. And to give you the best view of underlying trends, I will exclude the impact of the large notable item that we booked in the first half of 2026. Slide 22 provides an overview of our earnings performance. Underlying profit rose 6.4%. Revenue was higher, boosted by improved markets and treasury income and costs were slightly lower. Cash earnings grew 2.3% with underlying profit growth partly offset by higher credit impairment charges. We referenced these higher credit charges in our pre-announcement, and they include a $300 million top-up to forward-looking provisions to reflect potential downside risk from the Middle East conflict.

Statutory profit declined 18%, primarily as a result of the large notable item, partly offset by the gain on disposal of our remaining 20% stake in MLC Life. Before we get into operating trends, I will provide some additional detail on the large notable item. This is set out on Slide 23. As Andrew mentioned, we have implemented changes to our software capitalization policy to more closely align to an environment of rapid technological change. This has involved a reduction in the useful life of capitalized software assets and an increase in the capitalization threshold from $5 million to $20 million. There has also been a change in the nature of assets capitalized. For example, we will no longer capitalize certain risk and regulatory spend. These changes have resulted in a one-off accelerated amortization charge of $1.35 billion, which has been booked through the operating expense line in the first half. These changes are expected to also have impacts moving forward.

Firstly, the one-off accelerated amortization charge reduces our software capitalization balance by $1.35 billion, resulting in lower associated amortization charges going forward. Secondly, the remaining software capitalization balance of $2.2 billion will be amortized over a shorter period. These 2 impacts are expected to be broadly offsetting in the second half of 2026. Finally, moving forward, a higher proportion of investment spend will be expensed with the OpEx ratio forecast to be approximately 50% in the second half of 2026. Following these changes, we would expect additions to our capitalized software balance to be more closely aligned to amortization over time.

Turning now to Slide 24. Revenue rose 3.1%, mainly reflecting volume growth and a strong markets and treasury outcome. The depreciation of the New Zealand dollar had a negative $81 million impact on half-on-half revenue growth. Markets and Treasury income increased $147 million over the first half. The key driver here was NAB risk management income, which benefited from improved outcomes in our treasury liquids portfolio, specifically the non-repeat of the realized losses on bonds that we experienced in the second half of 2025. Customer risk management income also rose over the half, driven by some larger deals in C&IB. The revenue impact of a more broad-based increase in customer hedging activity was relatively limited due to the shorter average tenor of these trades.

Excluding Markets and Treasury, revenue rose 1.8%, primarily driven by volume growth, which contributed $167 million. As Andrew mentioned, this was another period of strong lending performance with growth aligned to our strategic priorities. We saw good growth across our business banking franchises of B&PB and C&IB, along with housing growth supported by improved proprietary home lending flows. Margins were broadly stable, and I'll discuss these in more detail shortly. Fees and commissions rose $16 million, benefiting from higher capital markets fees. Moving to Slide 25. Net interest margin increased 3 basis points over the half. Excluding Markets and Treasury and the benefit of lower liquids, both of which are largely revenue neutral, NIM was stable this half with lower lending margins, mostly offset by higher earnings on our deposit replicating portfolio.

Lending margin reduced by 4 basis points. Within this, Australian home lending contributed 2 basis points to margin compression with half of that related to competitive pressures, and this trend is broadly in line with prior periods. The timing difference between cash -- changes in cash rates and customer lending rates added a further 2 basis points of compression as we move from the benefit of 2 cash rate reductions in the prior half to a drag from 2 cash rate increases in the current half. This compression was partly offset by small positive impacts. Australian business lending contributed 2 basis points to NIM compression with 1 basis point each from B&PB and C&IB. In B&PB, this impact reflects a fairly consistent level of competition with prior periods. In C&IB, we have seen a pickup in competition and also a small change in our business mix. Funding costs were neutral this period with fairly stable spreads.

Deposits added 1 basis point to NIM, reflecting a series of small movements, which I'll walk through in turn. Firstly, mix contributed 1 basis point with stronger relative growth in lower cost transaction account balances over the period and a lower proportion of savings accounts earning bonus rates due to product refinements in ubank. Secondly, deposit costs contributed a benefit this period of 1 basis point related to TDs. And lastly, we saw a 1 basis point drag related to the $5 billion increase in the size of our deposit replicating portfolio, which reduced the level of unhedged low-rate deposit balances. It is important to note that this impact was largely offset by a higher earned benefit from the replicating portfolio as shown in the next block on this chart. The 3 basis point replicating portfolio benefit to NIM shown on the chart relates entirely to our 5-year deposit hedge. This benefit was higher than our original guidance of 2 basis points with the extra basis point driven by the $5 billion top-up to the hedge I referenced earlier.

Turning to some considerations for NIM in the second half. Replicating portfolio returns are estimated at approximately 5 basis points. This is based on swap rates as at March 2026. This increase in contribution from the first half reflects the full period impact of the $5 billion top-up to our deposit hedge plus higher swap rates impacting both deposit and capital hedges. This is a key area through which we are seeing the benefit from the rising rate environment. Our strong deposit growth this period has reduced our sensitivity to changes in the Bills/OIS spread. An 8 basis point move in this spread is now equivalent to a 1 basis point impact on NIM.

Now moving to Slide 26. Operating expenses declined 0.5% over the period, excluding the large notable item. This includes a $38 million benefit relating to the depreciation of the New Zealand dollar. Salary-related growth was $58 million. The majority of this reflects the impact of pay rises from 1 January under the Australian enterprise agreement. Volume-related costs rose $52 million. The key driver was additional bankers across all of our customer-facing divisions, with the largest uplift in Personal Banking, including increases as part of our strategy to strengthen proprietary home lending. Technology and investment spend rose $51 million. The main drivers were higher technology spend related to cybersecurity and fraud prevention, increased cloud consumption, technology modernization and higher software and data costs. Investment spend was modestly lower, consistent with the usual seasonal trends between half years.

Productivity savings were $199 million, achieved through continued process improvement and simplification, operational and technology efficiencies and changes in the composition of our workforce. Other costs were up $16 million this half with a number of moving parts. Key items included lower remediation costs, offset by higher performance-based compensation. Looking ahead, our considerations for FY '26 OpEx remain largely unchanged. We expect year-on-year cost growth to be below the prior year comparative of 4.6%. Investment spend is expected to be approximately $1.8 billion with around 50% of second half spend expensed through the P&L. This reflects our changed software capitalization policy.

Depreciation and amortization is expected to be higher year-on-year, reflecting the timing of asset deployments. Payroll review and remediation remains ongoing, and we note that $7 million of additional charges were booked in the first half of 2026. We continue to target productivity savings of greater than $450 million for the full financial year.

Now turning to asset quality trends on Slide 27. We entered the 2026 financial year on the back of several quarters of improving Australian economic trends. Cash rates were declining, normal GDP was rising to around trend levels and unemployment remained low. However, with an absence of productivity improvements, it became evident in the second quarter that the economy was hitting capacity constraints with building inflationary pressures. This prompted the Reserve Bank to tighten cash rates in February and March with an expectation of further cash rate increases and slowing activity. Then in early March, an escalation of the Middle East conflict resulted in a sudden and sharp increase in fuel costs, some supply challenges and a heightened level of uncertainty and market volatility. Against this backdrop and with the typical lags we see between a change in economic conditions and the performance of our book, it wasn't surprising to see improved underlying asset quality outcomes in the first quarter of 2026.

The default but not impaired ratio declined 8 basis points, supported by broad-based improvements across both our Australian mortgages and B&PB business lending portfolios. However, as we move through the second quarter, these improving trends started to moderate. And whilst Q2 represents only one data point, we are monitoring this very closely. As you're aware, the impaired asset ratio can be lumpy, and we have historically seen this ratio increase towards the later stages of an asset quality cycle. The 4 basis point increase this half was primarily driven by a small number of C&IB customers. This was similar to what we saw in the second half of 2025. It is very difficult to forecast half-on-half movements. But given the economic outlook, this impaired asset ratio could remain elevated over the coming months. The credit impairment charge for the first half was $706 million. This equates to 18 basis points of gross loans and advances. This was $221 million higher than the second half of 2025, reflecting the $300 million top-up to forward-looking provisions, partly offset by lower individual charges and a write-back in the underlying collective provision.

IAP of $541 million included broadly stable charges for unsecured personal lending, modestly lower charges for B&PB business lending in New Zealand and higher charges in C&IB related to single name exposures. The underlying collective write-backs of $135 million were primarily driven by the release of provisions held for customers transferred to individually assessed, ratings upgrades for a small number of C&IB customers and data refinements, partially offset by lending growth. The $300 million top-up to forward-looking provisions reflects increased stress in the outlook to the Middle East conflict, which I'll discuss in more detail.

Turning now to Slide 28. B&PB business lending asset quality trends are broadly consistent with the group profile I discussed on the prior slide, showing an improvement through the first quarter, but stabilizing in the second quarter. This has seen B&PB's business lending NPL ratio declined 22 basis points over the half with stable to improving trends across most sectors. While our book is well diversified and highly secured, there is clearly downside risk to asset quality over the coming months. As Andrew highlighted earlier, our large network of relationship bankers is proactively reaching out to customers to understand the impact of the Middle East conflict on their businesses and discuss support options. During these uncertain and challenging times, our scale and our long history of banking SME customers is really important. We have worked through many cycles, and we know this business and our customers well.

I'll now turn to provisioning on Slide 29. Total provisions increased $221 million over the first half and now represent 1.7x our base case scenario and equate to 1.68% of credit risk-weighted assets. Individually assessed provisions have increased $91 million to $1.3 billion, reflecting new and increased provisions related to C&IB customers, partly offset by write-offs in B&PB. Collective provisions increased $130 million to 1.35% of credit risk-weighted assets. Forward-looking collective provisions rose $300 million to reflect the impact of potential stress related to the Middle East conflict. This includes changes in our base case economic assumptions, a 2.5% increase in the downside scenario weighting to 45% and a net increase in target sector forward-looking adjustments of $148 million. These increased FLAs relate to sectors expected to be most impacted by fuel costs and supply issues, including agriculture, transport and storage, manufacturing, construction and commercial real estate. Underlying collective provision reduced by $170 million with $35 million of that related to FX movements and the remainder driven by items I referenced in my asset quality remarks on Slide 27.

Moving now to capital on Slide 30. Our group CET1 ratio declined 5 basis points to 11.65% as of the end of March 2026. This reflected volume growth and market-related impacts across credit provisioning, IRRBB risk-weighted assets and net FX translation. Our Level 1 ratio ended the period at 11.53%. Both this and the Level 2 ratio are above our operating target of greater than 11.25% and well above the regulatory minimum of 10.5%.

I'll now walk through the key moving parts of the Level 2 CET1 ratio as shown on the chart on the screen. Cash earnings added 81 basis points, partly offset by 59 basis points for payment of the 2025 final dividend. Credit risk-weighted asset movements reduced the CET1 ratio by 24 basis points, mainly reflecting strong business lending growth. The other RWA bucket includes a range of impacts, which overall have reduced the CET1 ratio by 9 basis points. These include: firstly, a 10 basis point reduction related to increased swap rates impacting the embedded loss component of IRRBB risk-weighted assets; and secondly, a 6 basis point benefit from the removal of the standardized floor adjustment in the period, which resulted from RWA movements in the second quarter. Net FX translation was a drag of 8 basis points relating mainly to the depreciation of the New Zealand dollar. Offsetting these impacts was an 11 basis point benefit from the sale of our remaining 20% stake in MLC Life during the half.

As we outlined in our pre-announcement, the first half DRP will include a 1.5% discount, and we expect to partially underwrite this DRP. In combination, these initiatives will raise approximately $1.8 billion or 40 basis points of CET1 capital, taking our pro forma ratio to 12.05%. Going forward, we remain focused on disciplined capital allocation to support profitable growth and drive sustainable shareholder outcomes. There is no change to our operating target of greater than 11.25% or our dividend payout policy of 65% to 75% of cash earnings. Liquidity and funding are set out on Slide 31. The quarterly LCR ratio is 3 basis points lower over the half at 132% and NSFR was stable at 116%. Both ratios are well above the minimum requirement. We continue to manage funding and liquidity prudently, and our balance sheet is well positioned for periods of market volatility.

Our term funding issuance is well progressed. We issued $19.6 billion over the first 6 months of the year, supporting repayment of maturities in the period. Over the course of the financial year '26, issuance is expected to be broadly in line with prior years at around $36 billion.

I'll hand now back to Andrew.

Thank you, Inder. Look, as Inder mentioned, the impact of inflationary pressures and a tightening rate cycle, which emerged at the end of 2025 has been compounded by the outbreak of the Middle East conflict and the associated impacts on both fuel supply and fuel prices. This has made for a far more uncertain and challenging outlook, and it's not surprising that both consumer and business confidence levels have declined sharply. While activity indicators have held up very well to date, elevated uncertainty and cost pressures are expected to slow economic growth. Business credit, which was growing at an annualized system rate of around 10% in the first half is expected to moderate in the second half. That said, the longer-term outlook for business investment continues to be very positive, supported by key structural drivers, including ongoing investment in infrastructure, in property, in energy transition and in supply chain resilience.

Looking ahead to the second half, the actions taken to strengthen our balance sheet position us well to manage the uncertain outlook and to continue to support our customers. NAB enters this period with good underlying momentum in our business. The consistent execution of our strategy to deliver improved customer advocacy, supported by a focus on being simpler, faster and more resilient. We continue to progressively modernize our core tech platforms, and we are developing our strategy to deliver value through AI solutions. Everyone at NAB is focused on delivering progress in our 3 key priorities of growing business banking, driving deposit growth and strengthening proprietary home lending. And there is no change to our disciplined approach to managing costs and driving productivity, which creates the capacity for ongoing investment. I remain confident in the long-term outlook for our business. We have the right business mix and strategy to deliver sustainable returns to shareholders.

Thank you again for your time, and I'll now hand back to Sally for Q&A.

Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the operator will introduce you. Can I please ask that you limit yourself to one question and we'll come back to you if time permits. Please go ahead, operator.

[Operator Instructions]

Your first question today comes from Richard Wiles from Morgan Stanley.

I just had one question about the credit quality trends in the Personal Bank. You said that there was an increase in pre-provision profit, but that was offset by higher impairment charges relating to the unsecured retail portfolio. Can you quantify those losses relating to cards and personal loans? And maybe comment on why this is happening against the backdrop of a strong labor market and whether you expect trends in consumer unsecured losses to get worse from here?

Yes. Look, good question. I think what we're flagging is a modest uptick. We are seeing a little bit of seasonality playing through that in the second quarter tends to be a little lighter from a repayments point of view. And the second issue is we're just seeing some transitory impacts just from the migration of the Citi book, which we're looking into. So we don't think this speaks to a major change in the outlook for unsecured, but those are the couple of items that are driving that trend.

Okay. So Inder in the half, it was really just seasonality that drove the uptick rather than anything more alarming.

Yes, that's right, Richard. And also just a couple of transitioning items with the Citi book, which we'll be able to give you a further update on in the next update.

Your next question comes from Andrew Lyons from Jefferies.

A related question, but focusing more on the commercial portfolios. Your IP charge was again elevated at 14 bps of total loans in the half, which particularly appears high versus what peers have been reporting over the last couple of halves. And you'd again put it down to business mix in the stage of the cycle. Andrew, maybe a question for you. Just in light of this relative returns drag and with the benefit of hindsight, are you happy that over the last couple of years, you've got the risk settings right across your domestic business portfolios, that's both Business and Private Bank and C&IB.

Andrew, I think we do. We're very confident that we earn through any losses that we might have in our commercial segments and portfolio. It's also important to note that the quality of the book in -- domestically actually improved in both the first quarter and the second quarter of the half. What we're flagging is that we had a very small number of international exposures that we took an individual provision for. But I think when we look at the domestic portfolio, most metrics actually improved half-on-half.

Your next question comes from Victor German from Macquarie.

I just wanted to maybe quickly touch on capital. Like peers, you've done a very impressive job over recent years, optimizing your risk-weighted assets. And looking ahead, I'd be interested in your views on the likely implication of potentially deteriorating credit quality on risk-weighted assets. In your 1 half results, you effectively approached, you increased provision or you increased your provision by $300 million and also risk-weighted assets -- sorry, I should say, overlays by 8 basis points. So I'd just be interested in how you think investors should think about this potential risk-weighted asset inflation if credit quality does deteriorate and whether this relationship that you kind of put out in this result is a good guide for how we should think about it?

Maybe I'll have a first crack at that one, Inder, and then you can follow up if I missed anything. I'd say, first and foremost, it's going to be hard, I think, to predict what capital will do in the second half. We -- some things for consideration for you, we do expect credit growth to moderate from very elevated levels in the first half. So that on the balance will be a positive, but we have to also look at well, what happens and if there's any PD migration to the negative over the course of the half that may drive credit risk-weighted assets. So we'll have to see what those headwinds and tailwinds do on a net basis. But we did take an increased CP going into this because I think the fact is we don't really know how this is going to transpire. And I think we all need to be quite humble with our forecasting accuracy right now. This crisis in the Middle East seems to be continuing on, and we just don't know what the duration and intensity of the crisis is. So we wanted to be prudent going into this so that we could continue to participate in credit growth and to support our customers. So I think we'll have to see how this plays out in terms of what happens to the numbers as we go.

I don't know, Inder.

Yes. Maybe just to give you one data point, Victor, on your question about RWA trajectory. One way to think about it is if you look at our base case economic projections from here, which call for a moderation of GDP growth and a slight uptick in unemployment. If that actually plays through, we would expect our risk-weighted assets to increase by around $3 billion over the next 12 to 18 months. Clearly, this is going to be progressive, right? So -- and as Andrew mentioned, there's going to be a series of other dynamics around the broader capital piece that will play through as well.

Your next question comes from Jonathan Mott from Barrenjoey.

Andrew, I wanted to go back to your comments on the slowdown in credit growth. Obviously, the business environment has been fantastic for the last couple of years now and reaching 10% growth in the business bank is a great number. You also said that the pipeline still looks okay. I wanted to get your views on what you're seeing in that pipeline. Have you actually started to see agricultural customers pull back yet? Have you seen that pipeline weaken just in the last couple of weeks given the volatility? Is it actually flowing through at the coal phase? Or is it just your expectation that credit growth will slow?

Yes. Look, I'd say we're still seeing a material bifurcation between conditions and confidence. And so when you look at the actual numbers on a week-to-week basis, you're not yet seeing any material slowdown in application volume and how those apps are flowing through to settlement and the pipeline continues to remain very robust. So if you look at the numbers, and you were not aware that there were a crisis going on, you wouldn't see anything to be worried about, frankly. But at the same time, when we talk to our customers, you can hear from them that confidence has dipped and they're talking about taking actions to safeguard their business and to moderate their growth settings. So that is a bifurcation and a disconnect, frankly, that we're seeing that really hasn't kind of unraveled yet. So our expectation is that we'll see a softening, but the truth is we don't see it yet in our numbers.

Great. So is it just too early?

Yes. Look, I'm quite surprised, frankly, that we haven't seen any reduction, but that's where we're at. So I think it is too early.

Your next question comes from Ed Henning from CLSA.

Can I just ask a question on the margin. If you give us a little bit more just the outlook and what you're thinking there. If I kind of run through a few things. What was the rate lag impact in the first half? You saw also on the home loan side, you saw fixed rate lending increase a little bit. Was that a headwind? And do you see that as a continuing headwind going forward? On the mix, you talked about the benefit coming through on the deposit side. Can you just talk about do you anticipate a mix benefit still to come through? Or are you starting to see some shift to TDs that will be a bit adverse on that? And if there are any changes in competition as well, please?

Inder, do you want to take that?

Yes. Look, obviously, we are cognizant of all of those moving parts. Clearly, we don't provide specific NIM guidance. But if you look at the impact of rate increases, we obviously had 2 rate increases in this half compared to 2 rate decreases in the last half. But if we look forward and we only get, say, 1 rate increase, we think the rate lag impact is probably 0.5 basis points or thereabouts in terms of NIM. I think the impact in terms of fixed doesn't really play into that materially, to be honest. In terms of deposit mix, look, it's difficult to sort of forecast. We've obviously got strong momentum in a number of parts of the business around transaction accounts, and Andrew spoke to that, both in terms of B&PB and also within the personal bank. And we'll manage the overall mix in terms of how we express appetite for TDs based on how we see the momentum playing through, but we're pretty pleased with the first half momentum.

And we haven't yet seen any migration to yield-bearing deposits in the mix. Is there a potential for that to happen as rates increase and the value to customers of capturing yield is greater. But to date, we haven't really seen that migration.

Your next question comes from Andrew Triggs from JPMorgan.

Just a question on a capital again. With the RBNZ changes being finalized and coming up in, I think, the 1st of October, can you just talk to the benefit from those changes and its interplay with the pro-cyclicality capital you talked about, noting that you are fairly marginal on the standardized for now? And just with that sort of tighter capital position, just your priority areas for growth and where might you think even if credit growth does moderate a little bit, do you think you need to pull back on certain areas like institutional to make sure you have sufficient capital for the emerging economic environment?

Yes. Good question. I might take the first element of that, and then Andrew can talk a bit about the priorities for growth. In terms of the New Zealand regulatory changes, I think 2 main areas of impact. One is that you'll see the gap between Level 2 and Level 1 close out a little bit, mainly because we have some internally funded Tier 2 in the New Zealand sub that gets a deduction at the top of the house. So you'll see that narrow. I think secondly, probably a combination of the New Zealand changes and what APRA has proposed here, we should see the standardized floor really become less of an issue for us moving forward. And so our focus really is on the advanced impacts as we expect that standardized floor, which has been a bit tight in the last couple of periods to be less of an issue moving forward.

Andrew, do you want to cover the priority areas for growth?

Yes. I think, look, when I talk to shareholders, they want us to continue to participate in high-quality loan growth, predominantly in our business banking franchise, but also to the extent we can get it in home lending where there are opportunities to grow share above our cost of capital. I think we're going to continue to look at areas where we're not earning a sufficient return on our capital and continue to tighten the settings to minimize that leakage really. We've done that, I think, really well across our portfolios, but there's still more that we can do there. We're conscious. We want to be a bank that's generating capital over the course of time, and we know that, that's been hard for us over the last little while. Some of that explained by the fact that we had very marked and elevated loan growth. And we have confidence that over time that we will generate positive capital in a normalized market environment.

Thanks, Andrew. So can I read that you'd be happy to have a zero discount DRP attached to the full year dividend if shareholders were happy for you to grow.

Yes. I mean, look, I think the other thing to bear in mind is that, obviously, the strong growth that we've experienced is going to translate into higher earnings. So as we look forward, we're also mindful of earnings per share growth. Our payout ratio in this half is 72.5%. That's at the upper end of the 65% to 75%. So should we see good opportunities to continue to grow the business strongly, we can manage, I guess, the pace of the EPS growth versus DPS growth, i.e., DPS growth may lag a little bit, right? Because if we continue to see good opportunities to invest shareholder capital, we will do that. If the payout ratio lags a little bit, that's perfectly fine.

Your next question comes from John Storey from UBS.

I've just got a question for you, Andrew. It's obviously the second rate hiking cycle that you've seen in Australia. I just wanted to get your sense if you think the market, in your opinion, is just underestimating the earnings durability of the business and private bank in particular. Obviously, a very strong set of results, but I appreciate it's backward looking, but interested to get your views on how you characterize today versus what you've seen and gone through over the last few years.

Yes. Look, it's -- again, I would say that the ability to project into the future now is more uncertain than it normally would be because of the macroeconomic volatility. And how that's going to play out for businesses. The Reserve Bank has been clear that they needed to tighten demand because there was a situation in our economy where demand was outstripping supply. That's why they've raised the interest rate by a couple of 25-point increases, and we expect there'll be one more. I think what's hard to then predict is how much supply has been taken out by the migration of spend to fuel, but that's real for many of our customers, particularly in areas like agriculture, manufacturing, transportation, retail trade. So what I will say is that our customers, by and large, enter this period in a strong cash position.

Deposit at the bank are up meaningfully and most of our customers have relatively lower leverage and strong cash buffers to, I think, withstand the cycle. And there'll be opportunities for many of them to grow and take advantage of any dislocation. So look, I think we just have to stay close to our customers as we go here, which we intend to do. But it's really, really difficult, I would say, to project out right now because of that uncertainty in the day-to-day nature of things.

Your next question comes from Tom Strong from Citi.

Your next question will be from Matt Dunger from Bank of America.

I wondered if I could ask about cost growth, significant change to the capitalization policy. And you've been delivering significant productivity, guiding still to cost growth over 4%. Andrew, you've called out the moderating lending growth expectations. Does over 4% cost growth remain acceptable in this environment? Just wondering if you've changed your thoughts at all given the change to software policy?

Yes. Look, we're not, at this point, looking to change guidance to the market in terms of our expense commitments. But you can be sure that as a management team, we are looking at our cost base and the expenses that we have and that over time, you always need to cut your cost according to what's happening in the revenue environment. And so to the extent there's a possibility that revenues come under any pressure, we would obviously be looking at what happens over time to our cost growth. It's important, though, to remember that there's lots of areas of cost that our customers value and our shareholders value. So we have to delineate between those costs that drive outcomes and costs where we can drive productivity. And I do think the new solutions emerging around AI are going to be helpful for us in that regard as a bank.

Anything Inder you would add?

Yes. No, I think just to reaffirm, Andrew, I mean, over time, our aspiration as a management team has to be to aim for positive jaws going forward. We have to be cognizant about the fact that we need to balance the underlying level of inflation in the cost base with the need to invest to support growth in the right areas to make sure we continue to modernize the bank's infrastructure, continue to improve the experience of our customers. So it's something that is very active in our thinking as we get into the planning process for the next couple of years going forward.

Your next question comes from Matthew Wilson from Jarden.

Matthew Wilson, Jarden. Just on the software capitalization that Matt Dunger referred to. This is the third time in 7 years you've written off capitalized software. That's $2.9 billion or $600 million per annum, which has effectively understated your cost base by around 8%. When you look at your peers in this space, ANZ's best of breed, they expense 80% of their investment spend. They've got the same tech environment that you confront. You're now only at 50%. I don't think you've gone hard enough.

That's an interesting point of view, Matt. I think we're right in the middle of peers now with the new settings and we'll have to continue to watch. I do think there is a macro trend here that over time, the value of software assets is likely diminishing as AI advances and the ability to build software or replicate software faster and cheaper emerges. So this is probably something we're going to have to continue to look at, not just as a bank, but as an industry. But I think for now, our settings are in the middle of peers. And I think as a Board and as a management team, we were happy with where we've come to.

This was an opportunity to sort of at least equalize the best of peers and get ahead of the trend that you clearly understand.

Yes. Look, we'll note your point. And I think the point that we've had 3 of these in the last 7 years is far from ideal. So -- it's certainly something that we should be looking at. Clearly, we weren't in the right starting position 7 years ago as a bank in this area.

Your next question comes from Brendan Sproules from Goldman Sachs.

Brendan from Goldman Sachs. I just want to refer to you to Slide 28, where you show us the NPLs by sector. You noted today in the presentation that overall asset quality had been improving as the economy picked up and rates were cut over the last 12 months. Could you maybe just talk about a couple of sectors here that over the last 12 months have actually been deteriorating, Obviously, agri, forestry and fishing as well as transport and storage. And these are the most impacted, obviously, by the energy pricing dislocations. So can you maybe talk about why these things have been deteriorating while the rest of the economy has been improving?

Yes. I might call on Shaun Dooley, the bank's Chief Risk Officer, to come and just address that question. Shaun, if you don't mind.

Shaun Dooley speaking. So thank you, Brendan, for the question and you're drawing attention to Slide 28 there. So I think what we're seeing in agri, forestry and fishing is probably a couple of single name exposures that have probably had their own idiosyncratic issues associated with their particular businesses. Some of it has been weather-related, some of it has been supply chain related as well. So that being said, the portfolio remains a pretty strong portfolio. Its performance over a long period of time has been strong. It's well diversified and it's industry that we know well, and we have deep specialization, both in terms of bankers and credit people.

In terms of the transport and storage, as you said, there's some issues associated with probably supply chain input costs into that. And that has been a sector, particularly in the transport side of it, where we've probably experienced more challenges in that part of the portfolio. But I think the main takeaway from this slide is the improving performance across the majority of the sectors that we're dealing with in business and private bank. And you'll see the same thing deeper in the pack around the whole portfolio as well.

And I have a second question on the performance of the Corporate Institutional Bank in the half. I'm referring to Page 44 of the 4D. You've had very strong lending growth, almost 7% in the half and almost 13.5% over the year. But we're actually seeing very weak lending and deposit income growth. Can you maybe talk to some of the drivers of why that's the case and whether -- particularly as we're entering probably a period of a slowdown, how you expect that to change over the next 6 to 12 months?

Yes. Look, I mean, overall, I'd say, looking at the returns that the C&IB business is producing at around 15%, we're very pleased with the progress that we're making. I think clearly, we've seen some impairment charges come through, which we've referenced in Andrew's remarks. I think on net interest margin, it's probably fair to say that we've seen a little bit of NIM compression in the half. You'll pick that up as you get through the back pack of the slides. NIM half-on-half is off about 14 basis points, which I think contributes about 1 basis point in lending compression at the company level. But really, what's driven that on the deposit side is we've seen the cut in U.S. dollar cash rates impacting the deposit book. That's been about 3 basis points. We've also lost the benefit of the custody business that we had, which we've now exited that had given us probably about a 2 basis point headwind on the deposit margin. So deposit margin is off a bit.

On the lending side, we are seeing a little bit of heightened competition, as I referenced in my remarks albeit the returns remain very strong. We've also had a bit more of a skew towards growing the Australian corporate book where we've got good momentum. We've now built better capability in areas like transaction banking. So the overall relationship ROE is very strong. But look, it's a fair point that in the half, the asset growth and the income growth has probably not kept pace, but we expect that to improve a little bit into the second half.

One other point I would make is that I think in the month of March, there was material drawdown activity in the top end of town, likely due to concerns at the time regarding the Middle East crisis. And given that, that was at the end of the period, we probably didn't get the full benefit of earned income in those -- in that asset growth. But were that to continue, that would normalize and align, I think, over the continuity of time.

Your next question comes from Brian Johnson from MST.

Just I've got a question just as far as the capital, which is kind of summarized on Slide 30. If we have a look at NAV historically, you've kind of committed to the 65% to 75% payout ratio and neutralizing the dividend reinvestment. The one disappointing aspect I really think of this result, which was effectively pre-flagged is the DRP issuance. Could we just get some comment -- and the other thing I suppose I'd flag is the 11.65% to 12.05% pro forma, that's assuming you raise the money from the dividend reinvestment, but it actually doesn't take out the dividend itself. So if we were to go through all of that, it comes back to about 11.47%, which is a surplus, I think, above the minimum of about $980 million. Can we just get a feeling on, is that enough surplus capital that we should be confident you can resume neutralizing the DRP? Or has -- or because of the overlays, has the capital intensity effectively permanently gapped up to the point where you can't neutralize the DRP going forward?

Quite a lot in that question, Brian. Maybe if I start with.

It's one question with 20 hidden there, Inder.

No, I appreciate it, Brian. On the -- if you look at the dividend that you are looking through the pro forma, we can argue for a long time as to how you roll forward the capital position. But if you start with 11.65%, by the time we pay the dividend, we would have probably accreted that by another 30 to 40 basis points of earnings, Brian. So by the 1st of July, if you wanted to pro forma it at that point, you could say, take the dividend off, give us the credit back for the DRP and the underwrite. So 60 basis points of dividend comes off, 40 basis points of the benefits from the DRP actions come back on. So we could spend a long time going around the houses on this, but we're sort of seeing the capital position probably being in the high 11s and the low 12s as you roll through the earnings through the course of the year.

I think your broader question is a good one, which is how do we think about the sustainability of balancing growth, the dividend where it's at, et cetera. And look, it's unfortunate on the overlays that we've had 2 significant overlays on our RWAs in this half and the previous half. Obviously, we don't expect that to be a sustaining trend. We've had a series of recalibrations to do on our models, which we are progressing through. So we obviously aspire to have strong models with limited overlays of this type of nature going forward. But as I referenced earlier, I think if we can translate the balance sheet growth to earnings growth, we should see the earnings per share grow over time. We have the opportunity to be able to fund higher credit growth by managing down the speed with which the DPS grows at, right? So you should be able to accrete capital going forward. So at the moment, we feel pretty good looking at the second half that we don't need to put a discount on the DRP. But we're just going to have to execute well, Brian, make sure we're allocating capital sensibly. We're driving the right volume margin trade-off that we're investing in the right places and driving value from that, managing our costs and driving efficiencies. So I think it's as much about the capital generation levers more broadly and how we execute against those. But stock of capital is in a strong position, and we feel good about the second half.

So Inder -- but am I right in thinking the formal kind of guidance, if you'd like to call it that on the DRP neutralization no longer exists?

No, we're not seeing any changes to any of the capital policy settings. We are basically saying here's a series of actions that we're going to take in relation to the first half.

Your next question comes from Tom Strong from Citi.

Can you hear me okay?

Yes.

Perfect. Just a question on productivity, if I can. I mean if we go back 12 months ago to the first half '25 results, you did about $130 million of productivity for $420 million for the full year. Now you've had quite a strong half this half in terms of $200 million of productivity. So to what extent is the bottom end of that greater than $450 million of productivity guidance? And to what extent is that conservative given the hard work you've put through in the first half?

Well, look, I'd say we have fairly meaningful targets. The $450 million plus is an ambitious target. We are making good progress through it through the course of the first half. As you picked up from the various comments we've made during this briefing, we've got a real focus on making sure we can drive operating -- positive operating jaws as we look forward on a multiyear basis. We've got work to do to continue to not just deliver the current targets, but continue to build on those over the coming years. So -- and we're looking at all options in terms of what we can do around deploying tools to continue to enhance that.

But you can be sure we're running hard as a management team in this area. And if we can beat that number, we will.

There are no further questions at this time. I'll now hand back over to the team for any closing remarks.

Thank you. I'd like to thank everyone for joining us today. If you do have any follow-up questions, the Investor Relations team will be available to help. Thank you.

Thank you for standing by, and welcome to the National Australia Bank Full Year 2025 Results Presentation. Go ahead, please.

Thank you, operator. Good morning, and thank you for joining us today for NAB's full year 2025 results. I'm Sally Mihell. Thank you for standing by, and I'm the Head of Investor Relations.

I would like to acknowledge the traditional owners of the land from which I join you today, the Gadigal people of the Eora Nation. I'd like to respect to the elders past and present and to the elders of the traditional lands from which you join us. .

Presenting today will be Andrew Irvine, our Group CEO; and Shaun Dooley, our Group CFO. We are also joined in the room by members of NAB's executive team. Following the presentations, there will be an opportunity for analysts and investors to ask questions.

I'll now hand to Andrew.

Thank you, Sally, and good morning, everyone. NAB's full year 2025 results reflect a higher underlying profit, supported by strong balance sheet and revenue growth in the second half. Cash earnings and return on equity over the year were broadly stable. We have seen good growth opportunities for our business. Strong balance sheet settings enabled us to increase our Australian business lending balances by 5.8% in the second half. This was the strongest half yearly improvement in 3.5 years and comes as we work to not just defend our leading business banking position but extend it.

This was also the first year of implementing our refreshed strategy, which aims to strengthen customer advocacy. Our strategy is generating positive outcomes for customers and for colleagues. To achieve our ambition to be the most customer-centric company in Australia and New Zealand, we must become a simpler, safer and more resilient bank. And to do this, we must simplify our products and processes and continue to modernize our technology in order to take advantage of the AI revolution.

We have 3 clear business priorities to drive stronger returns over time, growing our business banking franchise, driving deposit growth and strengthening proprietary home lending. This year, we have made clear progress against each of these priorities, and I'll discuss them more in more detail shortly.

Cash earnings were stable over the year. This was mainly driven by an improvement in underlying profit, offset by higher impairment charges. Revenue growth of 2.9% reflects good volume growth and stronger market and treasury income. However, total costs were impacted by the charges associated with the review and remediation of payroll issues. These issues are disappointing and they must be fixed. Higher impairment charges primarily relate to an increase in individually assessed charges which are not unusual in late in the cycle and can be difficult to predict.

Pleasingly, though, we saw a number of key asset quality ratios improve over the second half. Shaun will talk more about the drivers of our financial performance shortly. Our cash return on equity of 11.4% is down slightly relative to 2024. We have declared a final dividend of $0.85, which brings our total dividend for the year to $1.70. This represents 73.3% of cash earnings for the year, which is in line with our target payout policy of 65% to 75% of cash earnings.

Balance sheet strength remains a key focus for us and is core to our long-term strategy. Our common equity Tier 1 capital ratio of 11.7% remains comfortably above our target. The pro forma ratio of 11.81% reflects the sale of our remaining 20% interest in MLC Life, which was completed on the 31st of October.

There is no change to our practice in recent years of neutralizing the DRP for our dividend. Our total provisioning remained strong at 1.6.4% of credit risk-weighted assets and our collective provision balance were broadly stable over the second half, but the coverage ratio has decreased to 1.33%, primarily reflecting growth in credit risk-weighted assets. Our liquidity coverage ratio and net stable funding ratio are well above minimum requirements.

A continued focus on driving deposit growth has resulted in deposits fully funding our GLA growth this year and the share of total lending funded by customer deposits has increased to 84%. This is a meaningful improvement from 70% in 2019.

It's been a good 6 months for revenue performance. This reflects strong volume growth across our priority segments as well as high margins. A strengthening Australian economy has supported favorable conditions for business credit growth this year. As the largest business lender in Australia, we have seen good opportunities to grow while maintaining discipline on margins. Our strong second half momentum provides a good tailwind to revenue as we head into the first half of 2026.

This slide outlines our refreshed strategy announced this time last year. Our ambition is to be the most customer-centric company in Australia and New Zealand. To execute this strategy, we intend to be disciplined and consistent in our focus of doing a few things well at scale and at speed to power exceptional customer experiences. I expect all of our colleagues to contribute to achieving our strategic ambition in the work they do every day for our customers.

At our first half results, I spoke about 3 key actions which underpin our ambition to improve customer advocacy. Firstly, we identified 20 must-win battles that represent our customers' most important experiences and interactions with NAB that we simply must do well in. Secondly, we are implementing a more systematic approach to listen, to learn and to act on customer feedback. This involves embedding new operating rhythms across our customer-facing teams to support continuous improvement in customer experiences. These improvements are also supported by investment and prioritization of effort and of resources.

Finally, our performance across these interactions is tracked using more granular metrics which drive accountability and alignment. Our ambition to improve customer advocacy is anchored in a belief that this will deliver deeper customer relationships together with improved retention and referrals. All of these should lead to higher growth and sustainable returns over time. And we are already seeing the benefit.

Customer feedback loops have been embedded in 20% of the priority frontline teams and 400,000 points of customer feedback have been captured so far. This program has supported improvement of 750 experiences by frontline teams and more than 120 issues have so far been resolved at an enterprise level. Across our 20 must-win battles, 12 have reported improved outcomes. The continued rollout in 2026 is expected to support better customer experiences across all of our must win battles.

Over time, we expect our customer advocacy strategy to drive material improvement in strategic NPS scores, but we're still a long way to go from where we aspire to be. Our mass consumer and business NPS have both improved slightly this half, and I'm also pleased that in our core medium business franchise, we are now ranked the #1 bank. At the same time, I'm disappointed by our performance in high net worth and mass affluent, where we continue to lean in to improve.

While our corporate and institutional NPS has been broadly stable this year, we have dropped back to second position. Pleasingly, BNZ continues to be ranked first for consumer NPS and has extended its lead across the 5 major banks in New Zealand. To achieve our customer-centric ambition and to make us a simpler, safer and more resilient bank, we must continue to modernize our technology. This is an ongoing journey, which is embedded in how we run NAB.

Since 2018, we've made substantial progress in modernizing components of our technology foundations, and investing in skills and in capabilities. 71% of our technology and enterprise operations workforce are now NAB colleagues, reducing our reliance on third parties. Of our apps run on modern infrastructure in the cloud, including 10 product ledgers.

We are building on the strong foundations to progressively modernize our legacy customer and colleague systems. For example, we now have a single cloud-based customer master for 90% of BMPB and Personal Banking customers and 84% of our bankers use a single sales platform.

To reduce the cost and complexity of migrating to modern systems, we have also been progressively simplifying our products and our processes. Over the past 3 years, including at BNZ, we've cut the number of products we have by 24% with more to come.

Our approach to technology modernization is based on progressive, modular and incremental delivery of a long-term road map. This enables us to gradually deliver value to customers and to the business with more efficiency and lower risk.

Together with technology, AI solutions and tools are helping us deliver better experiences for customers and for colleagues. We have been using generative and other forms of AI at NAB for many years, but this technology is changing at a rapid pace, and we continue to evolve quickly. As we look to deploy new tools and solutions such as agentic AI to deliver value, we will continue to adopt a business-led approach to ensure the work we are doing is aligned to our strategic ambitions and solves real business challenges.

We will continue to use AI safely and responsibly and we'll continue to invest in the key foundational requirements to ensure this. This includes the ongoing cloud migration of our technology infrastructure and of our data. We are also investing in broader AI literacy to equip our colleagues with the skills they need. We are embedding the appropriate risk controls and governance frameworks into our broader planning to keep our customer data safe and ensure transparency of any AI decisions.

Importantly, we have identified 4 broad priority areas to focus for GenAI and agentic AI tools: customers, colleagues, software development and operations. Each of these areas will deliver improved customer experience and provide significant productivity benefits.

Our new executive digital data and AI, [ Pete Steel ] will join us on November 19 and Pete's deep experience in digital and technology solutions will be a valuable addition to NAB's leadership team as we navigate this period of rapid technological change.

NAB has 3 clear business priorities, which will help drive stronger sustainable returns. While these priorities are not surprising, they require disciplined execution and ongoing focus. Since launching them, we've made sure everyone at the bank understands their importance and what is needed to deliver. Pleasingly, on each priority, we are making good progress with more to come. The first is continued growth in business banking. Our aim is to be the clear market leader in business and private banking and to pursue disciplined growth in Corporate and Institutional Banking.

The second is to continue to drive deposit growth with a focus on transactional account balances. We are investing in innovative payment solutions for business and propositions for our target retail segments including mass affluent and youth. And the third is to strengthen our performance in proprietary home lending. Here, we have implemented a number of initiatives to improve the share of lending through our proprietary channels, while continuing to manage margins and returns across the portfolio. I will now speak to each of these priorities in more detail.

Business banking is NAB's hot land, and we know it and our customers well. We are proud to support Australian businesses through our 2 business banking divisions, which combined make us the largest business lender in Australia. We have a 22% share of total business lending and a 28% share of lending to small and medium-sized business. Our scale has allowed us to invest consistently over many years to support growth with business lending balances increasing 17% over 3 years, including 26% growth from business and private banking.

Business banking has generated attractive returns for us, and we continue to focus on managing margins and returns well. We are not surprised that competition has increased but NAB competes from a position of strength. As I said earlier, we are not aiming to just defend our position but to extend it. We continue to see opportunities for growth across both corporate and institutional banking and business and private banking. This includes both divisions working more closely together to better support the needs of medium and large customers.

Our new business lending platform is an example of investing to support our growth ambition and making sure our bankers have the right tools and the right capabilities to excel at their jobs. For the past 5 years, we have been building an end-to-end digital business lending platform in Business and Private Banking. Over this period, we have progressively released enhancements such as digital documentation and automated customer reviews.

In 2025, we reached an important milestone with the migration of the bulk of the flows of our core secured business lending origination onto a new platform. This is supporting faster, more seamless lending experiences, which means our bankers get to spend more time in market with their customers. Our focus now is to continue to build out the platform, including enhancements for more complex products.

Turning to our second priority. We have continued to see strong growth in transaction accounts across both our personal and business banking customers. In Personal Banking, total deposits grew by 9%. Our investment in frontline capabilities and increasing engagement with customers has delivered a 33% increase in transaction accounts opened in branches and a 40% increase in the average balances on those accounts. We are also growing customers in our target use segment with ubank growing by more than 200,000 customers this year to more than 1 million customers across that bank. A consistent focus on growing business deposits has delivered 1.4x system growth over 5 years.

In Corporate & Institutional Banking, our investment in innovative payment solutions and improved transaction banking capability has helped us win mandates and grow our transaction banking relationships. Pleasingly, we achieved 14% growth in business transaction account balances across both of our business divisions in 2025.

NAB's home lending strategy aims to serve our customers well in the channel of their choice through the delivery of a seamless customer and broker experience. Australian Home Lending is an intensely competitive market, which makes it essential that we manage our returns through a disciplined approach. And this includes strengthening our performance in proprietary home loan origination.

Since the first half of 2024, we have achieved a 46% increase in proprietary drawdowns. This is significant and shows our approach is working. We're optimistic we can further improve this mix, supported by investments to improve banker productivity and the hiring of new bankers to uplift capability.

I'll now pass to Shaun, who will take you through the financial results in more detail.

Thanks, Andrew, and good morning, everyone. If I could please direct you to Slide 21. Our underlying profit rose 0.7% this half, reflecting strong underlying revenue growth as highlighted by Andrew. This was offset by softer markets and treasury income and higher costs, which rose 5% and including the payroll review and remediation. Cash earnings decreased 2.1% with underlying profit growth more than offset by higher credit impairment charges. And statutory profit was down 1.6%, similar to cash earnings with the GAAP to cash earnings, mainly reflecting noncash costs relating to the Citi integration.

As set out on Slide 22, all our Australian divisions reported higher underlying profit growth, both over the year and also half-on-half supported by good volume and revenue momentum in the second half. Personal Banking had the standout growth this period with a 14.7% lift in underlying profit half-on-half. Revenue growth strengthened over the second half with improved volume momentum and better margin performance. Personal Banking held costs broadly flat with the productivity benefits offsetting investments in our franchise, which Andrew outlined earlier.

Our Business Banking divisions also performed well over the second half with underlying profit up around 4% for both. Similar to Personal Banking, this has been revenue-driven with accelerating volume growth half-on-half and good margin outcomes. In Business and Private Banking case, this volume momentum includes a pickup in agri lending after a softer performance in the first half, along with the typical seasonal bias to growth in the second half.

In the case of Corporate & Institutional Banking, the slower growth over the second half compared with the year reflects stronger markets income and lower costs year-on-year. Corporate & Institutional Banking continues to manage costs with discipline and is benefiting from ongoing simplification of its business. While New Zealand Banking performance was broadly lower over both periods, the business did well to hold revenue broadly stable despite a continued challenging economic environment, and this was more than offset by higher technology-related costs.

Turning to revenue set out on Slide 23. This rose 2.7% and reflects a pickup in volume growth and improved margins. Markets & Treasury income was a drag of $124 million over the half after a strong first half performance. The second half includes the nonrepeat of a $54 million gain on insignia notes relating to the disposal of our wealth business, along with less favorable interest rate positioning. Excluding markets and treasury, revenue was 4.3% higher. Volume growth was pleasing, contributing $203 million and aligned with our strategic priorities, as Andrew highlighted.

We had strong growth in business lending across both Business and Private Bank and Corporate & Institutional Bank, along with good housing lending growth. Higher margins contributed $216 million following a decline in the first half, and I will discuss this in more detail shortly. Fees and commissions were $9 million higher, a relatively subdued outcome.

Strong volume growth and lower customer remediation was offset by lower business lending fees in the Business and Private Bank as we work through a period of reviewing our practices for charging fees. There have also been some lower capital markets and structuring and underwriting fees in Corporate and Institutional Banking this period. The other category is down $27 million and reflects a series of small items, including the impact of MLC Life, which was moved to the held-for-sale treatment from December 2024.

Now moving to net interest margin, which is set out on Slide 24. Our NIM increased 8 basis points over the half, a pleasing performance. Excluding markets and treasury and the benefit of lower liquids, which are both largely revenue neutral this half, our net interest margin rose 4 basis points. Lending margin was flat, again, comprising a series of small movements across the portfolio. Overall, the impact of home lending was new to this period with a 1 basis point decrease from competition in Australia, offset by a benefit in New Zealand.

Business lending was a drag of 1 basis point, consistent with the first half and reflects good margin management by Business and Private Banking in a competitive environment. Funding added 1 basis point relating to lower short-term costs. And excluding the impact of the replicating portfolio, deposits were 1 basis point lower. And this comprises a number of small impacts. Deposit costs were slightly higher, primarily relating to competition in New Zealand, and there were small impacts from cash rate cuts partly offset by some pricing adjustments.

Mix was also a small drag reflecting ongoing growth in the proportion of deposits in higher rate at call accounts, partly offset by a lower proportion in term deposits. The overall impact from higher returns in our deposit and capital replicating portfolios has been 4 basis points this half. Approximately 1 basis point relates to our capital hedge, which is lower than recent halves as the benefit of higher rates in this 3-year portfolio fades. And the remainder relates to our deposit hedge, which is a 5-year portfolio.

Turning to the outlook for the first half of 2026 in respect of margins. We've included a broad outline of some key considerations. Firstly, further tailwinds from our replicating portfolios in Australia and New Zealand are estimated at approximately 2 basis points based on the swap rates and volumes at the 30th of September this year. Secondly, the impact of the 25 basis point RBA cash rate cut on Australian unhedged low rate incentive deposits is unchanged at approximately 1 basis point annualized. And Bills/OI spreads have been fairly stable since September after a period of volatility.

How this plays out over the first half of 2026 will have an impact on funding cost but is difficult to predict. Every 7 basis point move in this spread impacts our NIM by approximately 1 basis point annualized. And while there may be some further tailwinds from liquids, including the full period impact of the lower liquid asset mix in the second half, this is neutral to revenue.

Now moving to operating expenses, which is set out on Slide 25. These grew 4.6% over financial year '25, in line with the guidance that we provided in our third quarter trading update or 3.2% ex the payroll review and remediation costs. Salary-related cost growth was $267 million. The majority of this reflects the impact of pay rises under our Australian enterprise agreement from January 2025 and associated costs like super and payroll tax. There've also been a series of individually small impacts, including pay rises in New Zealand, India and Vietnam and out-of-cycle increases in Australia.

Volume-related costs rose $143 million, and this includes investments in frontline bankers, growth initiatives across all of our customer-facing divisions in order to support our key priorities, which Andrew has outlined. The biggest uplift was in Personal Banking, including the addition of new proprietary home lenders. Technology and investment spend rose to $113 million. Key drivers include additional licensing and support costs, higher cloud usage, higher technology-related spend to support delivery of a number of key strategic initiatives.

Investment spend was also higher, reflecting a $150 million increase in the total level of investment to around $1.8 billion over the year and a fairly stable OpEx ratio of 38%. Productivity savings were $420 million achieved through continued process improvement and simplification, including operational and technology efficiencies as well as synergies associated with the city. Other rose $131 million, and this includes higher financial crime-related costs, partly offset by lower restructuring related costs. EU-related costs were $71 million lower this period with the team having completed the delivery of the required activities in the first half. But this has also been more than offset by payroll review and remediation charges of $130 million.

Looking across FY '26, we expect a slower rate of cost growth compared with what we saw in FY '25. A couple of considerations. Our expectation for investment spend remains approximately $1.8 billion. The payroll review and remediation program is ongoing, but at this stage, the cost impact in FY '26 remains uncertain, and we are targeting productivity benefits of greater than $450 million.

Now turning to asset quality set out on Slide 26. As we move through the economic cycle, our book has continued to perform as we expected. We typically see asset quality trends lag economic cycles and retail tends to improve ahead of business. Asset quality outcomes this half include some positive signs that we may be approaching the end of this cycle and consistent with the improving economic environment here in Australia. While the ratio of nonperforming loans to gross loans and acceptances increased by 6 basis points in the second half, the pace of increase has slowed compared with recent half years.

The increase in this period all relates to the impaired asset ratio, which rose 7 basis points, primarily due to a small number of business lending customers in Corporate & Institutional Banking and New Zealand. And while single name exposures are lumpy, and they're hard to predict. It's not unusual to see some increase in impairments towards the end of an asset quality cycle. The default but not impaired ratio reduced 1 basis points, driven by lower Australian home lending arrears in the second half. And this is the first half year reduction we have seen in this ratio since the second half of 2022.

Watch loans are also lower over the period. They're down 9 basis points, and this is the first half yearly reduction we've seen here since the first half of 2023. Credit impairment charges increased over the half to $485 million, representing 12 basis points of GLAs. Consistent with the underlying asset quality trends, this reflects higher individually assessed provision charges, offset by a collective provision write-back.

The individually assessed provision charge of $574 million comprises a broadly consistent level of charges for unsecured personal lending, a handful of large single name exposures in corporate and institutional banking and New Zealand Banking and increased charges for the business lending portfolio in business and private banking. There were no underlying collective charges this period with volume growth and reducing asset quality impacts offset by transfers to individual provisions. And there has also been a net release of $89 million from forward-looking collective provisions.

I'd like to turn to the key asset quality trends that we are seeing in our Business and Private Banks -- Business Lending portfolio, and these are set out in Slide 27. And this portfolio has been a key driver of group asset quality in recent times. Pleasingly, we've seen some encouraging underlying outcomes this period, which suggests this portfolio may be in the early stages of stabilizing to improving asset quality trends. In the past 6 months, the NPL ratio increased 18 basis points, but this is a slower pace than we've seen in recent halves.

Performance this period has been impacted by 2 large well-secured customers in our agri book, which have driven an increase in the default but not impaired ratio. Excluding these 2 names, the nonperforming loan ratio would have declined 3 basis points. We are also seeing stable to improving nonperforming loan trends across most sectors in the second half, consistent with an improving economic environment. And this is in contrast to recent periods where deterioration in nonperforming loans was far more broad-based across our book given general cash flow challenges.

This portfolio is well diversified and highly secured with prudent provisioning. Despite strong lending growth in recent periods, the risk profile of our performing book has remained stable. In common with the group ratio, Business and Private Banks business lending nonperforming loan ratio remains dominated by default but not impaired exposures where we do not expect to incur actual losses. Our approach over a long period has been to work with our customers through difficulties. And while this can take time, our experience is this achieves the best overall results for our customers and our shareholders.

If we could now please go to provisions on Slide 28. And Total provisions have increased modestly over the half and represent 1.6x our base case and 1.64% of credit risk-weighted assets. General movements within the key components of total provisions are typical of what we would expect at this point in the cycle. Individually assessed provision balances have increased to $1.163 billion, up from $920 million at March. And the increase mainly relates to higher business lending impairments, including a small number of customers in Corporate & Institutional Banking and New Zealand Banking.

Collective provisions were broadly stable at $5 billion at September, and this represents 1.33% of credit risk-weighted assets which are 9 basis points lower than the March 2025 number and due mainly to growth in credit risk-weighted assets. There were only very minor movements in the key components of the collective provision this period. There was a small $89 million net release from forward-looking provisions, reflecting lower target sector forward-looking adjustments as the outlook for several sectors has improved. And this was offset by an increase in the economic adjustment for refreshed scenarios.

At $1.6 billion, forward-looking provisions have been maintained at prudent levels at this point in the cycle, including a 42.5% weighting to the downside economic scenario. Underlying collective provisions are fairly stable with volume growth and the slowing in the pace of asset quality deterioration offset by transfers to individual provisions.

Now turning to capital on Slide 29. Our group CET1 ratio stands at 11.7%, down 31 basis points from March 2025, and our Level 1 ratio was 11.6%. Cash earnings added 82 basis points this half, partly offset by 61 basis points for the payment of the interim dividend. Credit risk-weighted asset moves reduced the CET1 ratio by 45 basis points, mainly reflecting business lending volume growth and an overlay of $4.8 billion related to the measurement of off-balance sheet exposures.

Other risk-weighted assets includes an increase in the capital floor adjustment this period, equivalent to 3 basis points of common equity Tier 1. Other was an 8 basis point negative impact, and this comprises a number of items, including FX and noncash expenses, and these can be volatile from period to period. Adjusting for the sale of MLC Life, which has now been completed, our pro forma CET1 ratio was 11.81% or 11.68% at Level 1 and both are comfortably above our target of greater than 11.25%.

Liquidity and funding is set out on Slide 30. The quarterly average is 4 percentage points lower over the half at 135%, well above the 100% minimum requirement. We continue to manage liquidity prudently in order to be well placed for any potential market volatility. Consistent with the LCR outcome, our NSFR ratio decreased 3% to 116%. We issued $16 billion of term wholesale funding during the second half, and this brings the total for the year to $36 billion. And this has supported repayment of maturities as well as balance sheet growth. And we continue to expect issuance across FY '26 to be at broadly similar levels to recent years.

On that note, I'll now hand back to Andrew.

Thank you, Shaun. Australian economic growth has continued to improve and is gradually returning to trend rate growth levels. Real GDP is forecast to improve to 2% over 2025 and to 2.3% over 2026. Household incomes are benefiting from moderating inflation and cash rate cuts delivered in February, May and August of this year. We expect monetary policy to remain on hold at 3.6% for a while with further cash rate reductions not expected until May of next year.

Our recent quarterly business survey shows business confidence and business conditions have continued to improve through 2025 and are now in positive territory for the first time since 2022. We Lead indicators point to ongoing momentum. This outlook is expected to support robust credit growth with business credit forecast to grow by 7.5% in '26, slightly ahead of housing credit growth of 6%.

Looking ahead to 2026, we will continue to execute our strategy to deliver improved customer advocacy, speed and simplification. This will be supported by ongoing technology modernization and AI solutions. We remain focused on delivering progress in our 3 priorities of growing business banking of driving deposit growth and our strengthening proprietary home lending. There is no change to our disciplined approach to managing costs and driving persistent productivity. This is important to provide headroom for the investment required to support execution of our strategy. We will retain prudent balance sheet settings as this allows us to continue to grow and support our customers.

This year, we successfully migrated 2 cohorts of Citi white label customers onto our modern unsecured lending platform. We remain on track to complete this migration by December of this year. NAB enters 2026 with strong momentum across our bank a consistent strategy and an experienced and disciplined leadership team that is executing well. This, together with our business mix and the progress we've made in our 3 priorities, gives me confidence we can continue to deliver and grab the opportunities that will present in a more supportive economic environment.

Thank you again for your time, and I'll now hand back to Sally for Q&A.

Thank you, Andrew. We'll now take questions from analysts and investors. When it's your turn, the operator will introduce you and please limit yourself to no more than 2 questions. Please go ahead, operator.

[Operator Instructions] And first question is from Jonathan Mott with Barrenjoey.

Could I ask a question on Slide 29, that Shaun, you were just running through the capital and emerging parts there. And I just wanted to add to that, the view for credit growth remaining strong. So I think you were saying that you want a business credit growth at a system level of 7.5% housing at 6% next year and winning market share. So assuming very strong growth continuing. If you look at the moving parts in the second half, you were utilizing a vast majority of your earnings to pay the dividend and risk-weighted assets continuing to grow the CET1 going backwards pretty quickly.

And if you also look at the leverage ratio, which fell further to 4.92% in and you've gone through the floor on the credit risk-weighted assets. So effectively, it can't use models to offset some of the credit-related asset growth. So what do you think about how you plan for capital and how you plan for dividend into next year? Will you need to turn the DRP back on and not neutralize it? Or will the dividend come under pressure just given the strong volume growth that you're anticipating?

Thanks, Jon, for the question. And I'll take a couple of those points in a particular order, if I can. Firstly, on the DRP, we continue to neutralize that, and there's no change in our approach on the DRP. In terms of the leverage ratio, you've called that out. I mean we're still well above where we need to be on leverage ratio. And we as a bank are pretty well inside those expectations. If I think about the capital ratio and what's happened this year, A lot of that consumption in capital has been credit RWA, and we think that's a good use of capital.

That sets us up in terms of the future in terms of earnings. It's reflecting the good growth that we're getting in the business. So you'd expect that to turn up in our numbers. There's also a model and methodology component of that as we've called that out and we called that out in the in the third quarter. That's a number that moves around over time. And if you think back to a year ago, we had some pretty strong capital contribution coming out of releases of models and methodology.

So it's a number that moves from half to half. But I think you should think about our capital management around advanced and standardized it being around where we're at, at the moment. You mentioned the floor were 3 basis points further into the floor than we were at the half. But we'll tend to oscillate around the around where the floor is. And we think that's appropriate for a bank like ours. It's really an outcome of the optimization.

Just a question on the dividend because with very strong credit growth continuing. You're going to be utilizing a lot of capital. Are you happy to see CET1 ratio to continue to fall next year, which looks likely if you maintain your dividend at the current level?

Yes. We'll be looking to maintain strength in our CET1 ratio when we consider the dividend we look at the interplay between risk-weighted asset growth and the returns, and that helps us set what our dividend payout ratio is, and that's ultimately a decision for the Board, but comfortable where we're at this point, it's inside our target range. And as I said, I think the growth in the RWA is going to turn up in earnings in next year.

Your next question comes from Andrew Lyons with Jefferies.

Just a question on your NIM. At the third quarter trading update, you reported an 8 basis point rise in reported NIMs on the first half 25 average or 4 bps, excluding loan treasury. Today's results suggest that the fourth quarter was therefore broadly flat. On the third quarter outcome, you firstly say that that's a fair characterization of the situation? And perhaps just in light of that, can you just talk about the competitive environment. There's obviously a lot made of the competitive environment in business lending. But can you maybe just talk to how that's evolved over the half and into the first half of 2016, please?

Andrew, it's Andrew Irvine. I'll take the point. I'd say, first of all, a characterization of what happened in the fourth quarter is accurate. So that we saw stable margins in the fourth quarter. And I'll tell you that was really pleasing. To have a -- if I take business banking as a segment, to be increasing market share in a highly competitive environment and maintain strong margin performance at the same time. shows a business that's executing well, and I think we thread the needle really well in that last half.

And pleasingly, I'm optimistic that, that will continue. We know competitors are coming into this space. and competitive intensity is increasing, but we've got strong relationships. We know this business well. And Andrew has come in and him and his team are executing well. So that gives me real confidence for the future.

Great. And then just a second question really following up on what John just asked around capital, and it's really just around the mechanism of your capital target. Your CET reported at 117 or 118 adjusting to the MLC sale that would appear to be below your greater than 11.25% target if you adjust for the dividend, which reduces your ratio by 60 basis points. So just in light of that, how should we think about your CET1 ratio target? Are you aiming to be greater than 11.25% at all stages of the year or only on the 31st of March and the 30th of September when you report results?

We're aiming to be above that at all stages. So I think that's why we set the minimum capital target to make that very clear. We intend to be above that at all times.

So you're saying that you've had enough capital accretion between now and when you go ex dividend such that less 60 basis points on the reported number of 11.7%, you'll still be above 11.25%.

That's correct.

Your next question comes from Victor German with Macquarie.

Yes. Good morning thank you I was hoping to get a little bit more color on business bank margin and fees. From your divisionary analysis, it looks like overall business margins are flat, as Andrew alluded, but it's partly due to the benefit from replicating portfolio and lower liquids. When it comes from to lending margins specifically, what trends are you seeing? And lending margins declining? Or is the decline moderating or accelerating? Just a little bit more color on that and what it means for 2026 margins in that space. And then my second -- do you want me to ask the second question now or wait?

Yes please, Victor. .

Yes. And the second question is, obviously, competition can come from both margins and fees. And if we look at your disclosure on fees, it looks that there are some pressures emerging. So just a little bit more color on that, if possible. And how significant are those fee pressures when we're thinking about sort of going into 2026? Should we be taking your second half fee line as a base? Or are there other considerations for that noninterest income line?

Victor, I'll just give a headline update, and then I'll let Shaun answer your 2 questions in more detail. But I would say in terms of market intensity and the pressure on margins, I would say it continued, but it didn't accelerate or even decelerate. It was consistent across what we've seen over the last few halves. Competitors are coming into this market, and they're seeking to grow. As I said, I'm really pleased with how our team has executed in that context. We're holding on to our customers. We're growing with our customers. 70% of our loan growth was with existing customers.

So we're retaining our bankers we're managing this business very well. And I think that bodes well for 2026. And we're winning by not giving it away on price, which I think is really, really important. There are some things that we're working through on the fee side, and I'll let Shaun go into that now.

Yes. And I think -- and also to add a comment on the margin. As Andrew talked about, the disciplined margin management has really been supported by new tools that we've been bringing into the business, and that's given us better transparency and more sophistication around our pricing. And I think that's showing up as well in the way that we're managing margin. We continue to sort of invest in the service offering that we provide to our clients. And overall, I think we've been managing that very well, and it's shown up in that margin volume sort of trade-off.

In terms of the fees and commissions, Victor, yes, look, it is a disappointing line for us, but there are a couple of things to take into account. Firstly, it includes the impact of some business restructures and closures that we've had. So firstly, the asset servicing business is one contributor to that. We've also had some customer remediation that is treated as a negative against that line and that can be a bit volatile and lumpy.

And then you referred to the review of collection practices. Yes, it is true that there's some aspects of our business fees that we've had a good look at. We're working through those at the moment, and we think we'll have those result at some point. That's where we're at on that one. But what I would say is the underlying fees are growing broadly in line with the activity. And I think there are also some pointers there around the increase in credit card-related fees that we're seeing. So yes, it's been disappointing, but it's an area that's actually getting a lot of focus from Andrew and the management team.

Sorry, Shaun, maybe just to make sure that we get this right. So if we look at second half noninterest income, excluding markets, which obviously is volatile and moves around from interest in enter noninterest income. And that core line, it sounds like you're suggesting that there were some issues in the second half, which were potentially a one-off and shouldn't necessarily be kind of implied going into 2026? Or is that kind of baseline the right line to grow from as we think about the future?

I think there are a couple of factors. There are some one-offs in that second half, but we will still want to continue to grow that line into the second half, but there are some one-offs in the second half.

Yes, we've got to work through those one-offs. But generally speaking, you would want to see fees and commissions growing in line with balances over time.

Your next question comes from Richard Wiles with Morgan Stanley.

Andrew, can you talk to us a little bit more about transaction accounts? In your prepared comments, you referred to the growth in new transaction accounts through the branch network. But perhaps if you can talk to a transaction account balanced growth generally, house split between sort of offset accounts and other more valuable low-cost transaction accounts and also how split between Personal Banking and BPB, please?

We'll do and, Shaun, back me up if I miss anything. Look, I would say this is probably one of the standout metrics in our year, and we saw acceleration in the second half. And all of our businesses are doing well in deposit gathering with a focus on transactional account balances. We've been clear that this was an opportunity for our bank that we've been working on year in, year out for the last 5 years. And we've been growing materially above system in our business franchise at 1.4x system consistently year in and year out.

And again, I think this year, we were the only major bank in business banking across both of our businesses to actually increase share. What I particularly like about our result this year is that TD volumes were pretty flat year-over-year, and that all the growth that we delivered this year was in higher value balances, particularly transactional balances. And that reflects the delivery of hard work to improve our propositions across all of our businesses.

In Personal Banking, we've worked really, really hard to bring back to life origination in our core branch footprint, which I think had dropped off, and we had, in the past, been focusing on digital origination. And so branch activation and branch origination has really taken off under [ Arno ] and her team's leadership. And that's something that we're really pleased to see because the quality of those accounts are high.

In Business and Private Banking and in C&IB, we've been focusing on improving propositions and solutions and innovating on things like account-to-account payments and portal Pay, our new rent roll solution that is driving high-quality deposits to the bank. Really pleasingly, too, we've won more than half of the mandates that have come to market in the large end of town in terms of transactional mandates. And so we've got a proposition now that is showing that it's differentiated from peers. And that's also really pleasing.

So this is a culmination of a lot of hard work over a number of years, and hopefully, it sets us up well to continue to fund our GLA growth in future years and to improve the mix of the quality of our deposit portfolio to transactional.

Okay. So a lot of good trends there, Andrew. In Personal Banking in the division, deposits were up 9% for the year. Can you tell us what was the growth in sort of transaction accounts or obviously wasn't TD driven, was the growth driven in transaction accounts or was it more savings accounts?

Yes. So we've got some detail on Slide 79 in the pack there, and you can see the breakdown by each of the divisions. And as Andrew said, we're really pleased with it, but with both the mix and the underlying growth that's occurring. And you can see in Personal Banking, in terms of transaction and BIs. They've been up a little bit from last year, but we've also seen good growth in savings accounts, and we've seen growth in offsets, which has also been a feature there, but good growth overall across that division and broad-based.

Your next question comes from Ed Henning with CLSA.

Just the first one on expenses. You've called out expense growth below the 4.6% this year. This year included $130 million of hopefully, a one-off or hopefully be a little bit less next year going forward. You've also called out higher productivity. You've also called out investment spend flat where it was up $150 million last year. Just why aren't you saying below 3.2%, which was your underlying growth or a number below that 4.6%? What are you seeing coming through your cost line with a lot of the numbers going down or flat on last year that you're seeing coming through your expense line for '26?

Yes. Thanks, Ed. It's Shaun here. I'll take that one. So Yes, you've called out some of the key drivers in our operating expense line this year. And if we think about next year, as you've called out, we expect greater productivity to come through. We'll see some moderation of some of the financial crime headwinds that we've seen in recent years. And then you also touched on the payroll number as well. There are a couple of things that we'll continue to think about. It's obviously volume-related costs will persist. We've increased the number of bankers that we've got facing into our customers, and that's really a good cost for us in terms of the returns that it should generate.

So you would expect some of that to persist into next year. The technology spend, as you called out, is up on year-on-year, but we'll be expected to be stable into next year. we'll see depreciation and amortization continue to be an ongoing headwind. And as some of our platforms come online, particularly the new unsecured platform, you'll start to see amortization come through from there. But I think what we trying to say is that our costs will moderate from this year. We're not trying to put a target. We don't put a target there, either a cost-to-income ratio or both absolute or relative, we're just giving the general sense of where you should think about the expense numbers landing.

But just to clarify, like your underlying growth was 3.2%. You're saying below 4.6% but yet a number of the moving parts from last year won't continue for next year, it won't be at the same level. So it seems like it's better and better than 3.2%, but yet you're saying below 4.6%?

We look at the underlying as being 3.2% ex the payroll review. I mean if you look at that waterfall chart, you've got the EU there of 71, you wouldn't expect that to necessarily repeat as well. But I think what we're trying to do is sort of help you think about what you might put into your assumptions rather than necessarily give you a number. We're trying to give you a sense of what those potential drivers might be relative to this year.

Okay. That's great. And just a second one quickly on the margin. Can you just talk about some of the moving parts a little bit more? You talked about the deposit hedge is now up to for next half, but it was up 3% in the half just gone. Why that's falling away when you've still got that 5-year hedge rolling through? And then also, if you look at what you talked about proprietary still going strong and hopefully grow that. So the lending should be a bit better there. You grew investor lending, credit cards are up. Can you just talk a little bit more on the lending side as well just some of those moving parts rolling into first half '26, please?

Yes. So we'll start with the lending margin. So it really reflects a whole series of small movements, and that's been pretty consistent with what you've seen in prior halves. And I think that's what we've tried to show in the slide the overall impact from home lending was pretty flat with a small headwind from competition in Australia, which was offset by a tailwind in New Zealand. Our business lending margin was also up about 1 point system was about 1 point, sorry, not consistent with recent halves. And then the other was a small tailwind from repricing in unsecured lending. And I think that's an important one as well.

So the lending margin has really been a feature of lots of small sort of drivers, and I don't think you'd expect that to change much. going to next year other than taking into account the fact that we've got a very competitive environment that will continue to present some headwinds. There will be some tailwinds this half, that may not repeat into next year in New Zealand, particularly if I kept going through the waterfall on deposits, I think we've sort of covered that in terms of the number of drivers.

Again, very small movements, some drags from mixed costs and cash rate cuts coming through, and they've been offset by some benefits in our consumer savings books. But in terms of the outlook, it's really going to be driven by both interest rates and competitive environment. But given we've got expectations of a pretty stable rate environment in the first half I wouldn't expect to see much change in the overall drivers of deposit.

I might just add. We don't know what the uncontrollable items are going to be as we go forward. But I can tell you that on the controllable items, we're going to be continuing to manage the business well. So pricing discipline in our business franchises, both C&I and B&PB, you should expect that to continue. It's back to the 3 priorities that we've outlined. We're going to continue to focus on being a better deposit gatherer with a skew to high-quality transactional accounts over the course of the year. and we're going to keep working hard to improve the penetration of proprietary home lending, which is 20% to 30% better returning than the broker book. And so if we do those 3 things continuously well, we'll be doing the best job we can at controlling the things that we can control.

Your next question comes from Andrew Triggs with JPMorgan.

Just a first question on asset quality. Obviously, you're starting to see a turn in the broader book trends, but you did see a number of single names. Is there anything you can sort of like very granular in the book that you can sort of point to that gives us a bit more insight in predicting those sort of 2 bookends around asset quality. I note there's the typical product -- sorry, probability of topside in the business book towards the back shows the ratio above I think 2.5% was pretty stable half-on-half. But there anything you can sort of give us -- it gives you a little bit more insight on comfort that you won't get the same extent of individual provision issues into the next half?

Look, let me -- it's Andrew here, Andrew. I'll take just a high-level view on how we're seeing things, and then I'll hand it to Shaun to address the more detailed component of your question. So we were clear and guided that we thought second half of this year would be the peak of the asset quality cycle, and we think that, that's occurring as we would have expected it to occur. We're optimistic that given the improvement in the economic environment and improved cash flow position of our customers, that over the course of next year, delinquency is going to improve from here on in.

What we don't know is what's going to happen on impairment and in a late-stage economic cycle, single name exposures can pop or not pop. And so that's one thing that we're going to have to continue to pay attention to. But we're optimistic that delinquency and the overall health of the portfolio is going to improve next year. We'll just have to wait and see how the impairment experience translates at the same time. I don't know, Shaun, if you... Yes. Thanks. I'll

Probably add a couple of things. Firstly, we can't predict what will happen on individual impairments, right? That's the nature of the business. So -- and they will buy the very nature be somewhat lumpy, right? So -- but as I said in earlier comments, this is indicative of what you'd expect to see in the late stage of the cycle. And we've seen that transition come out of the collective provision into the individual SaaS provision. There are a couple of points I'd -- Slide 27, we've got that breakdown on the nonperforming loan exposures as a percentage of EAD by each of the regulatory industry categories. And this lines up with the 330 reports.

But you can see there that there's probably 5 sectors that have seen an increase in the NPL ratio over the half. The same chart 6 months ago showed nearly every sector deteriorating. And so we're seeing that 2 of my earlier comments, improving all stable trends in a lot of the sectors that we're dealing with. So that is encouraging. We talked about the fact that what lines have declined, the default nonimpaired ratio had declined. The economic conditions to support where we're at the long-run loss rate that we've had over the last 20 years is about 13 basis points where the portfolio is performing as we thought it would and as we have said previously.

So I think with improving economic conditions, business confidence and so on and our level of provision, we feel okay about where we're at.

And Andrew, just a second question around I guess, customer franchise metrics. Pleasing to see some reasonably good momentum on MPS across the key target segments. MFI doesn't generally appear in your pack and doesn't therefore, seem to be as intense an area of focus or strategy of some of your competitors. Can you talk to where you think you are at on MFI trends and maybe segment that across consumer and SME?

Look, MFI is one of many metrics that we use to manage our business. And so it's something that we're watching, and we want to be the main bank for our customers in all of our businesses: Personal Banking, Business Banking and Corporate and Institutional. We measure things like bank of choice where you have what proportion of your customers in your personal and business bank are transacting through you, they're depositing their paycheck in your account, and they're doing debits and credits. And those metrics are all moving in the right direction for us, and that's something we manage on a weekly basis.

And same is true in business and private banking, you wouldn't be getting the transactional account balances if you weren't becoming the main bank for your customers. And so I think the metric that gives me good confidence is 14% increase in transactional account balances in our commercial franchise. De facto means we're becoming more of a main bank for our customers, and they're using our systems and services. So they are the things that we're looking at. Maybe we'll take away the point around MFI disclosure, but it's one of many metrics that we use to run our business.

Our next question is from Brian Johnson with MST.

As I'm looking at the screen, your share price is down about 2.5% in a market that is up on a small earnings miss. And if we kind of listen to the nature of the questions today are a lot about the capital and the dividend sustainability. I just -- and so it's up to you guys whether you answer this quite clearly or not. But if we take the core equity Tier 1 ratio at 11.7%, take out the dividend of $59 million, add back the sale of the life business, which is $11, you get to a notional ex dividend number of 11.21, which is below the 11.25. And you can say, we've got 3 months to earn it, but that's the reality of where you are today. So the question I've got relates to Slide 29.

And Shaun, you've mentioned it, but I don't think you've really addressed it. But if we probably have a look at 1 of the things that really dragged on your capital ratio during the period, it's basically -- it's a very small note #4, which is this $4.8 billion change in the risk-weighted overlay in respect of some methodology. So that, I reckon that costs around 12 basis points, which is pretty significant in the scheme of things. So could we find out -- is this an overlay that reverses really quickly? Or what are the things that drive it up or down? Or does it just -- would this change in methodology, does it just grow in line with the risk-weighted assets? And how is it impacted relative to the capital for?

Yes. Thanks, Brian. So firstly, on the $4.8 billion overlay overlays by their very nature, generally temporary and address areas that we might identify in the calculation of our RWAs or there might be an outcome of discussions that we've had with our regulators and so on. And it's got a volatile number, and you've seen that move around over time. when we put an overlay in place, we generally look to get a resolution on that overlay within a reasonable period of time. Generally, it requires either a technology fix or something like that, but we're actively working on addressing those at the moment.

So look, we're working on that one to be able to eradicate that overly and there's real work involved in doing that. And we have other optimization levers that we continue to pursue all the time. to refine and reduce overlays and adjustments to how we think about RWAs and capital generation. So while the quick math that you shared was correct. We are confident that over the course of next year, our capital position will improve that will generate strong earnings from the RWA growth that we delivered this year and will continue to deliver next year. And we're confident here.

Yes. And what I'd also add to that, Brian, is as the Board approves our dividend, they do it in full consideration through the management recommendations on the outlook for both RWA consumption and on revenue. So we strike our dividend with a forward-looking view.

Can I go back to that? So this $4.8 billion in the outlook, you've got it reversing, could we get a feeling as to how quickly you think it reverses?

I wouldn't like to commit a time on that one, Brian. I don't think that wouldn't be appropriate for us to lock in on a time. We will with all of our risk-weighted asset calculations continue to work on improving those, making sure that we're holding the right amount of capital, but I wouldn't want to be committing to a date on that.

Okay. And then the second question, if I may. Recently, Andrew, you've come out with a statement with an aspiration on basically resi property development. having followed NAV for a number of years, when that was historically kind of blown up is when it's had too much commercial real estate lending. In the AFR interview, we said that you wouldn't increase your risk tolerance to basically fulfill the fill that objective. But it kind of feels to me like that would suggest that the greater than 2.5% probability that you've got to take on board a little bit more risk relative to the portfolio to deliver it. Could you just walk us through why we should feel comfortable that this is not something to watch?

Yes. Look, our commercial real estate exposure has reduced markedly over the last number of years. as a percentage of our total book. We're a really good bank for construction and development. And it's an area where we have specialty teams both in our business and private bank as well as in our corporate and institutional bank. And we are starting to see really good high-quality projects that we want to bank and push into. And that was what we were disclosing to the market, and we're really excited about our ambition in this space.

The other thing that we've been really successful at is executing a number of partnerships with third-party capital providers. So the other thing to note is that we are looking to originate of construction and development loans, but you should not assume that we'll be holding all of that on our bank balance sheet. So we have a number of capital partners, that we'll also be distributing growth loans to over the course of time. We think that's actually a unique thing for our bank. And it's certainly helping us win deals from other institutions because we can do larger holds because we're distributing at the back and managing our risk effectively. And so you should not, in any way, assume that we're going to be taking on higher levels of risk as we seek to grow in this space. That's not the case.

We should not expect to see that greater than 2.5% probability to 48%. That should not rise other things being equal.

Your next question comes from Matthew Wilson with Jarden.

Matthew Wilson, Jarden. Two questions, if I may. Firstly, do you think your investments/OpEx capitalization policy is becoming materially out of whack with your peers now you're at $3.4 billion. That's $1.5 billion higher than the peer average. It's materially understating your cost base and your CTI ratio. Can you comment on the level of capitalization? Then I have a second question.

Yes. Maybe Andrew, I'll kick off with that. Yes, the balance has increased in recent years as our additions to the stock have exceeded the amortization. But the nature of our capitalized investment is it's driven by the nature of what we spend each year. and also including the maturity of the project. So clearly, in the early phase of a project, you're going to see more OpEx and then CapEx will increase in the build phase. And we talked about the unsecured platform in our earlier comments.as that sort of reaches its maturity.

I think there's also some just differences in approach that some of the peers take as well, and that will drive some differences. That's okay. We're fine with our policy. And as is as is our board. But our spend over the last couple of years has been much more weighted towards our technology modernization, right? And that's been a core part of what we what we've been talking to the market about. And some of the examples of that are our strategic state for our financial crime onboarding systems, our core ledger migration. In New Zealand, the migration of our data centers, and as I said before, the unsecured platform. So we're overall comfortable with both the envelope of the spend we make but also the outcomes that they spend.

Okay. And then secondly, in late October, you created a new CEO direct report role at group executive transformation. And NAB's generally thought of as a bank that doesn't need large self-help transformation type projects. It's more akin to CBA, but that role seems to contradict that perspective. Can you talk more on why that role is necessary? Does it clash with your very effective CTO p Patrick Wright's ] role in technology?

Not at all. It's all about continuing to drive persistent modular transformation in our bank. When we look at the proportion of our technology spend that's going on improving the bank outcomes for customers as well as modernizing our technology, it's increasing. And so I wanted to have a new direct report on the team who knows our systems really, really well and is going to work with Patrick and the rest of the ELT to advance the agenda. This is not some onetime project that we're going to do for 2 or 3 years. This is persistent spend that we want to do thoughtfully and well.

We've done a significant amount of transformation in our bank already, but some of the things that are now coming up are becoming some of the tougher ones. Some of the horizontal platforms that we use across the bank. And I think Shane is going to be a really strong addition to our executive team working with Patrick to advance that. So I wouldn't think of it as adding transformation, risk in any way, shape or form.

But I suppose what you're saying is perhaps there's more change required on an ongoing basis in the bank than perhaps the market appreciates?

I wouldn't characterize it that way. I think we want to be a winner in Australian and New Zealand banking. And so you need to be able to effectively understand architect, design, deliver and consume change and do that persistently well year in, year out forever. And so having a function in our organization focused on managing transformation and doing it in a coordinated way, I think, is a good thing. But this is not a project-driven approach. This is not -- don't assume that this means that we're becoming a riskier transformation. That's not the case. It's going to continue to be modular, bite-size changes to how we think about execution.

That's right. And does that incorporate any changes that may happen from the stable coins of becoming a feature around the globe. You talk about transaction accounts today as being very important. They're likely to be replaced by some form factor of digital money, stable coin going forward. What's Shane's role and that evolution of the financial system?

Yes. No, Shane has also been deeply involved in managing all of our payment capabilities. So he's deep, deep payments. And so he's going to be a critical leader for us in looking around the corner around how things like stable coins are going to shape up. globally and here in Australia and what the impact might be to our business model.

Your next question comes from Brendan Sproules with Goldman Sachs.

Brendan from Goldman Sachs. I just had a question on some of the statements that you made in response to BJ's question around the capital position. You talked about the confidence you've got in the profit that will come out of this risk-weighted asset growth that you've had in the last 12 months. If I look on Slide 21, the thing that's held back your profit growth has been this large negative jaws between net operating income and operating expenses. Could you maybe talk into '26 and '27 talked about cost growth at a little bit under or under 4.6%. What are you thinking in terms of positive jaws and actually been able to turn around the growth in your ROE?

Yes. We target positive draws over the cycle. And what's pleasing is, as you saw in one of the upfront pages around momentum, our momentum in the second half of '25 was strong. What you don't see is actually that there was an acceleration over the course of the second half. And so as a bank, we have good tailwinds going into 2026 across all of our businesses, particularly our business franchise. -- and we would look to maintain that. And if we can do that with those types of numbers, that should deliver positive operating leverage. That's what we're targeting, but we've got to work hard to get it.

And maybe my second question, just on the asset quality side. I mean Slide 28 shows your provisioning balances. And as you've seen the acceleration in business credit growth, you've seen your coverage ratio fall in terms of CP. Is that a trend that we're going to expect to continue just given how strong credit growth opportunities are in the market?

If I could take that one. Thanks, Brendan. So the CP coverage is doing what we would expect it to do at this point in the cycle. I think 1 point to continue to focus on is the total provisioning coverage, and that's come down a little bit, but it's broadly stable and it has been over a period of time now. We sort of went through a build phase. And what you're seeing really is the outcomings of that build phase as we move through the cycle, and it's behaving in line with what we expected that to do. So I think the trajectory is playing out in the way we expected it to.

Your next question comes from Tom Strong with Citi.

Just 2 questions on the Corporate and Institutional Bank please. Just the first around the revenue. I mean you saw annualized GLA growth of 12% in NIM expansion. Can you just talk to, I guess, what you're seeing from a competitive standpoint in C&I in particular, given there's probably faring appetite from your peers to deploy capital into this space at the moment?

Yes, I'm happy to take that one. What we saw from a market standpoint over the course of the whole year was at the big end of town, capital -- sorry, credit which has been very strong. in the double-digit range. What was pleasing for us is the SME credit growth improved in the second half compared to the first half because it was pretty asymmetric in the first half. all the growth was in the big end of town. We're playing in the areas where we both have real capability but where we can also generate a fair return and an attractive return.

Some of the credit growth that you see in the big end of town is really thin. And if you don't get the deposits or the debt capital markets or the foreign exchange, it's hard to make a quid. So we just have to be really, really diligent and thoughtful around which opportunities that we want to pursue versus not pursue. But thankfully, over the course of the year, there were sufficient opportunities for us to be judicious and still put on good volume growth at attractive margins. So that's been pretty pleasing.

That's very clear. And I guess just as a follow-up question. If we look at the GLA growth in CIB in the half, but the risk-weighted intensity was a lot lower than the 2%. Is that just relating to the mix of business that's skewing to that larger end?

Yes, that's right, Tom.

Your next question comes from Matt Dunger with BofA.

Just understand the strong progress you've made on transaction accounts, but the total deposit growth slowed in the half, excluding C&IB particularly. You've showed that on Slide 79, Business Bank and term deposits showing some slower growth. We know that TDs have been competitive. So just wondering to what extent the lower TD growth reflects current pricing versus the planned shift you've been talking about in the franchise? And at what point do you start to worry about franchise momentum in the private bank?

Our momentum in the private bank is really solid, and it's an area where we're seeing good outcomes. TD exposure for us was something that we wanted to kind of reduce the exposure to over time. So it's been a judicious decision to grow that portfolio at a lower rate than we are doing as long as we're getting the transactional deposits that we needed to fund our GLA growth. So we've had -- we have been able to be less aggressive in TVs because of the success of our data gathering and transactional.

And my hope would be that, that continues because when you're not getting the deposits in transactional, then you have to get them from TD and it's more expensive to do. So the fact that we were so successful in transaction accounts meant that we didn't need to go to TD to fund our GLA growth. And as I mentioned at the top, we fully funded our GLA growth this year with customer deposits

There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.