Do You Invest In the Big Four Banks? Here’s How To Read Their Results!

If you invest in the Big Four Banks, it is likely that you are looking for two things: profit and dividends. That instinct is understandable, but it misses most of what actually matters. Banks are structurally unlike any other listed company. They borrow money at one rate and lend it at another, hold vast pools of other people’s capital on their balance sheets, and operate under a regulatory framework that imposes hard constraints on how much risk they can carry.

Reading a bank’s results well means understanding that architecture first, then interrogating the numbers it produces. NAB’s 1H26 results, released yesterday (May 4, 2026), offer a useful case study across virtually every dimension that matters.

Why Banks Are Different

Most companies earn money by selling a product or service. Their income statement is relatively straightforward: revenue minus costs equals profit, and free cash flow broadly tracks that. Banks earn money by deploying other people’s money, which means their balance sheet is the business, not merely a reflection of it.

This distinction has several practical consequences for the investor. First, leverage is structural and enormous. NAB holds hundreds of billions in loans funded predominantly by deposits and wholesale borrowing. A small movement in the cost or quality of that funding, or a modest deterioration in the loan book, can produce an outsized impact on earnings.

Second, regulatory capital sits at the centre of everything. Banks cannot simply reinvest earnings or take on more risk without APRA’s implicit permission, expressed through required capital ratios. Third, profit itself requires translation. The headline statutory net profit figure is almost irrelevant for bank analysis. What matters is cash earnings, a non-IFRS measure that strips out items considered non-representative of ongoing performance.

In NAB’s case, statutory net profit for 1H26 was A$2,750m. Cash earnings were A$2,639m. Cash earnings excluding large notable items (LNIs) were A$3,588m. These three numbers tell three different stories. The statutory figure reflects a large non-cash software amortisation charge. The cash earnings figure includes that charge because it was policy-driven, not truly one-off.

The ex-LNI figure strips it out because NAB judged it an extraordinary accounting consequence of changing its software capitalisation policy, not reflective of trading conditions. Understanding which number to focus on, and why, requires reading the notes and exercising judgement rather than pulling a single line from the P&L.

The Net Interest Margin Is The Engine

For a bank, the equivalent of a gross margin is the Net Interest Margin (NIM), the spread between what the bank earns on its loans and what it pays on its funding. It is expressed in basis points (bps) and is the single most watched metric in the sector.
NAB’s NIM rose 3 bps half-on-half to 1.81%. That sounds trivial, but applied across a loan book of NAB’s scale it is commercially significant.

The drivers matter as much as the number: higher earnings from the deposit replicating portfolio and lower deposit costs were positive contributors, while lending competition applied downward pressure. Stripping out the 2 bps contribution from Markets & Treasury income and a 1 bp liquid assets benefit, the underlying NIM was essentially flat, which suggests competitive mortgage and business lending conditions are still biting.

Why does a bank’s NIM matter so much? Because it is structural. A bank that is growing loans quickly but at the cost of its margin is often sacrificing long-term profitability for short-term volume. Conversely, a bank defending its margin in a competitive environment is demonstrating pricing discipline that tends to compound over time. Revenue at NAB rose 3.1% half-on-half, but roughly half of that came from improved Markets & Treasury income, which is inherently more volatile. Underlying revenue growth of 1.8% is the more reliable signal.

Capital: The Binding Constraint

No metric in banking analysis commands more attention from analysts and regulators than the Common Equity Tier 1 (CET1) ratio, the proportion of risk-weighted assets covered by the bank’s highest quality capital. APRA requires the major banks to operate above a minimum threshold; NAB’s internal target is above 11.25%.

NAB’s Group CET1 ratio as at March 2026 was 11.65% on a Level 2 basis, down 5 bps from September 2025. The key drivers of the reduction, RWA growth of A$13bn (-33 bps), payment of the FY25 final dividend (-59 bps) and foreign exchange translation (-8 bps), were partially offset by cash earnings (+81 bps) and the sale of NAB’s remaining 20% stake in MLC Life (+11 bps).

Crucially, NAB is partially underwriting its 1H26 dividend reinvestment plan (DRP) at a 1.5% discount, expected to raise approximately A$1.8bn of capital and lift the pro forma CET1 ratio to 12.05%. This is not a routine disclosure. It signals that management views the current environment as sufficiently uncertain to warrant an above-target capital buffer, and that the DRP underwrite is the preferred mechanism to build that buffer without cutting the dividend. Understanding that signal requires knowing what CET1 is and why it matters. Investors who only look at the dividend per share (85 cents, unchanged) would miss it entirely.

Asset Quality: The Risk Beneath The Book

Banks earn their returns by extending credit. The question is always whether the loans they make will be repaid. Asset quality metrics track that risk across the cycle, and they are where results can deteriorate quietly before it becomes visible in earnings.

The key line to watch is the credit impairment charge (CIC), the amount the bank sets aside for expected loan losses. NAB’s 1H26 CIC was A$706m, up from A$485m in 2H25. That is a material increase. Individually assessed charges of A$541m reflect actual impairments across business lending and unsecured retail portfolios. The collective charge of A$165m reflects a deliberate A$300m top-up to forward-looking provisions, partially offset by A$135m of underlying write-backs.

That A$300m top-up is telling. It was driven by NAB’s decision to increase the weighting of its downside economic scenario from 42.5% to 45%, and to add new Forward-Looking Adjustments (FLAs) totalling A$201m across Agriculture, Transport & Storage, Manufacturing, Construction and Commercial Property, reflecting risks NAB associates with the Middle East conflict and its impact on fuel supply and costs.

This is the bank exercising conservatism before the losses appear in the book. Whether that conservatism proves prescient or excessive will only be clear in hindsight, but the discipline to provision ahead of observable losses is a hallmark of well-run credit risk management.

Non-performing exposures as a percentage of gross loans and acceptances declined 3 bps to 1.52%, with improvement in the Australian mortgage and B&PB business lending portfolios partially offset by a small number of C&IB customers being impaired. A declining NPE ratio alongside rising provisions is not contradictory; it reflects that the bank is strengthening its forward buffer even as near-term outcomes are improving.

Divisional Performance: Where Exactly Is Growth Coming From?

At the group level, NAB’s cash earnings ex-LNIs rose 2.3% half-on-half. But the group number aggregates very different underlying trajectories. Business & Private Banking (B&PB) delivered cash earnings of A$1,850m, up 9.9%, supported by lending volume growth of 4.6%, deposit growth of 5.9% and productivity savings.

Personal Banking was broadly flat at A$700m (+0.3%), with volume and margin gains offset by higher impairment charges in unsecured retail. Corporate & Institutional Banking earned A$921m, down 2.6%, largely due to credit impairment on a small number of customers. New Zealand Banking contributed NZ$728m, up 3.4% in local currency terms.

This kind of divisional disaggregation is essential. A bank whose earnings growth is concentrated in its highest-returning, relationship-led business (as is the case here with B&PB) is in a structurally different position to one growing through lower-margin channels. NAB’s stated strategy to grow business banking, strengthen proprietary home lending and drive deposit growth is visible in these divisional outcomes.

What This All Means If You Invest In the Big Four Banks

Reading a bank’s results well is a multi-layered exercise. Profit matters, but the quality of that profit, and whether it is sustainable, depends on margin dynamics, capital adequacy, the health of the loan book and the mix of divisional earnings. Dividends matter too, but in NAB’s case the more important signal this period was the decision to partially underwrite the DRP, which says something meaningful about management’s view of the environment ahead.

NAB enters the second half of FY26 with a strengthened balance sheet, A$1.93bn in forward-looking provisions and a CET1 ratio well above its target even before the DRP proceeds. Whether those precautions prove necessary depends largely on factors outside its control. What investors can assess is whether the bank is positioned prudently. On that basis, the case is reasonably clear.