NAB Earnings Thursday: Will Australia’s Most Expensive Bank Stock Justify Its Valuation?

National Australia Bank (ASX: NAB) reports full-year earnings on Thursday, November 6, and investors have good reason to pay close attention. The bank is currently trading at its most expensive valuation in over a decade, with shares priced at around 2.1 times book value, a hefty 38% premium to its 10-year average. That’s quite a price tag for a business facing margin pressure from expected rate cuts and intense competition in home lending.
So here’s the question investors need answered: can NAB’s earnings justify this premium, or are shareholders paying too much for what might be a cyclical peak?

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What to Expect from NAB’s Results

Thursday’s results will reveal whether NAB can maintain its strong business banking franchise while navigating a challenging environment. NAB reported a cash profit of A$3.58 billion for the six months ended March 31, 2025, beating analyst expectations of A$3.47 billion.

The market will be watching several key metrics closely:

● Net interest margin (NIM): This is the big one. NAB’s NIM came in at around 1.71% in the most recent half-year results, down from previous periods due to fierce competition in home lending and higher deposit costs. With three rate cuts expected by year-end, the pressure on margins could intensify.

● Credit growth: The bright spot remains loan growth, which has been running at around 10% across the banking sector. NAB’s strength in business lending, where it commands roughly 21% market share, should help support volumes even if margins compress.

● Asset quality: Bad debts remain low by historical standards, with credit impairment charges sitting at just 10 basis points of gross loans. The question is whether this remains sustainable if economic conditions soften further.

● Capital position: Expect NAB’s Common Equity Tier 1 (CET1) ratio to come in around 11.6%, comfortably above regulatory requirements and providing flexibility for dividends and potential buybacks.

The Valuation Question: Premium or Trap?

Here’s where things get interesting. NAB’s price-to-book ratio of 2.1 times puts it at a significant premium to its long-term average. For context, during the past 13 years, NAB’s median price-to-book has been just 1.5 times, with the ratio dropping as low as 0.8 times during periods of stress.
What’s driving this premium valuation? Part of the story is the strong performance across the banking sector this year. Bank stocks have rallied hard, with the sector benefiting from stable credit conditions and improving sentiment around peak interest rates. But there’s a catch: much of the share price gains have come from valuation expansion rather than earnings growth.
The market appears to be pricing in a relatively benign outlook: modest credit growth, stable margins, and low bad debts. That’s a lot to get right, especially with rate cuts on the horizon that could squeeze profitability.

Rate Cuts: Headwind or Opportunity?

The Reserve Bank of Australia has held the cash rate steady at 3.6% as of 30 September 2025. No rate cuts have been delivered this year, although economists expect easing may begin in November.
For NAB, rate cuts present a double-edged sword. On the one hand, lower rates should boost credit demand as borrowing becomes more affordable. NAB’s business banking franchise stands to benefit if companies resume investment and expansion. On the other hand, falling rates typically compress net interest margins as the bank earns less on its deposits and capital while competition forces down lending rates.
The key question is whether volume growth can offset margin compression. Based on NAB’s half-year results, business lending grew 8%, outpacing system growth, which suggests the bank is winning market share in its core strength area. If that momentum continues, it could help cushion the blow from tighter margins.

What Could Go Right

Let’s consider the bull case for NAB at current levels:

● Business banking strength: NAB’s leadership position in business lending gives it exposure to economic recovery as rate cuts eventually translate into stronger corporate confidence and borrowing activity.

● Digital transformation gains: The bank has been investing heavily in technology and customer experience improvements, which could drive efficiency gains and help offset revenue pressure.

● Stable credit environment: If bad debts remain contained, and there’s evidence that they will give strong collateral values and low unemployment, earnings quality should remain solid.

● Dividend reliability: NAB declared an interim dividend of 84 cents per share for the half-year ended March 2025. The final dividend will be announced with full-year results on November 6. For income investors, that’s still attractive compared to term deposit rates.

The Risks You Need to Know

NAB’s strong share price comes with risks that investors should watch closely. If interest rates fall faster or competition heats up, the bank’s profit margins could shrink more than expected. A worsening economy could also lead to more bad loans and slower credit growth, especially in business lending. Since NAB is trading at a high valuation, any slip in performance or weaker forecasts could cause its share price to drop. On top of that, NAB has been losing ground in the mortgage market, with rivals taking about $5 billion in business loans over the past year; if that continues, it could miss out on future growth in housing credit.