NAB's 13% profit fall was mostly accounting — the bad-debt line wasn't

Mitrade Insights — Three numbers explain National Australia Bank's full-year result, and only one of them is about credit. Cash earnings fell 13% to A$6.1bn, roughly 4% below Macquarie's forecast. An A$1.3bn software amortisation charge sits inside that figure — a non-cash accounting item. Strip it out and earnings were flat at A$7.1bn, with the final dividend held at A$1.70.

The shares did not read it that way. NAB fell as much as 7.9% to A$37.91 and was trading 6.19% lower at A$38.62 in afternoon Sydney trade, against a prior close of A$41.17.

* Chart source: TradingView (ASX: NAB, daily)

Two things stand out on the chart. The gap from A$41.17 leaves the whole October rally stranded above the current price, and the RSI is at 42.22 — well above the 30 line. This is not an oversold bounce setup; momentum has room to keep falling before it looks stretched.

The distinction between a non-cash charge and a bad-debt charge is the difference between a bookkeeping decision and a statement about the economy. Amortisation is a schedule. Bad debts are borrowers who cannot pay, and they arrive on the P&L long after the cash rate has already moved.

The rest of the Big Four did not follow

Westpac fell around 2.4% and ANZ about 2.0%. Commonwealth Bank was roughly flat. If this were a sector-wide credit event, all four would have repriced together. The market instead singled out NAB's book — which is the correct response when one bank reports a deteriorating credit line before the others have reported theirs.

The strongest case against the accounting defence

Even after removing the A$1.3bn charge, earnings were flat, not higher — in a year when the cash rate sat at 4.85%, an 18-year high. A bank holding rates that high should be earning more on its deposit base. Flat ex-charge earnings is therefore not a clean result being misread; it is a result where the clean number already shows no growth.

One-off case. The amortisation schedule is a reclassification, ex-charge earnings held, the dividend held at A$1.70, and the bad-debt commentary is backward-looking. In that world the shares should reclaim A$41.17 within a few sessions, and the September-October floor of A$37.29 is never tested.

Cycle case. The bad-debt line is the leading indicator, not the trailing one. Cash rate at 4.85% with employment softening means arrears keep building for another two quarters. Westpac and ANZ report similar language at their own updates, and the market stops pricing NAB alone — the whole sector de-rates, and A$37.29 becomes the level that decides whether this is a de-rating or a trend.

The two cases are separated by one disclosure: the size and composition of the bad-debt charge. Until that is quantified, the ex-charge A$7.1bn is the number the bulls need to defend, and A$41.17 is the print that tells you which case the market has picked.