Thank you, Operator. Good morning, and thank you for joining us today for NAB's full year 2025 results. I'm Sally Mihell, 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 their 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'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 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 three and a half 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 Refresh 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. 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 three 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 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 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 AUD 0.85, which brings our total dividend for the year to AUD 1.70. This represents 73.3% of cash earnings for the year, which is in line with our target payout policy of 65%-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 one 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 remains strong at 1.64% of credit risk-weighted assets, and our collective provision balance was 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 six months for revenue performance.
This reflects strong volume growth across our priority segments as well as higher 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 Refresh 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 three 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.
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 still have 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 number one 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 five 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.
90% of our apps run on modern infrastructure in the cloud, including 10 product ledgers. We are building on these 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 BNZ and personal banking customers. 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 three years, including at BNZ, we have 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 roadmap. 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 will 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 four 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. 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 three 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. 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 heartland, and we know it and our customers well.
We are proud to support Australian businesses through our two business banking divisions, which combine to 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 three 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 five 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 1.4 times system growth over five years.
In corporate and 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. 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%, including the payroll review and remediation. Cash earnings decreased 2.1%, with underlying profit growth more than offset by higher credit impairment charges. Statutory profit was down 1.6%, similar to cash earnings, with the gap to cash earnings mainly reflecting non-cash 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's 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 and institutional banking, the slower growth over the second half compared with the year reflects stronger markets income and lower costs year on year. Corporate and 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. This was more than offset by higher technology-related costs. Turning to revenue set out on slide 23, this rose 2.7%. It reflects a pickup in volume growth and improved margins. Markets and treasury income was a drag of AUD 124 million over the half after a strong first half performance.
The second half includes the non-repeat of a AUD 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 AUD 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 and Institutional Bank, along with good housing lending growth. Higher margins contributed AUD 216 million following a decline in the first half, and I will discuss this in more detail shortly. Fees and commissions were AUD 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 AUD 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 neutral 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. Excluding the impact of the replicating portfolio, deposits were 1 basis point lower. 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 three-year portfolio fades. The remainder relates to our deposit hedge, which is a five-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 a 25 basis point RBA cash rate cut on Australian unhedged, low-rate sensitive deposits is unchanged at approximately 1 basis point annualized. Bills-oil 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 costs, but is difficult to predict. Every 7 basis point move in this spread impacts our NIM by approximately 1 basis point annualized. 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 2025, 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 AUD 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. Out-of-cycle increases in Australia. Volume-related costs rose AUD 143 million. This includes investments in frontline bankers and 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 AUD 213 million. Key drivers include additional licensing and support costs, higher cloud usage, and higher technology-related spend to support delivery of a number of key strategic initiatives. Investment spend was also higher, reflecting an AUD 150 million increase in the total level of investment to around AUD 1.8 billion over the year and a fairly stable OpEx ratio of 38%.
Productivity savings were AUD 420 million, achieved through continued process improvement and simplification, including operational and technology efficiencies, as well as synergies associated with the city. Other rose AUD 131 million, and this includes higher financial crime-related costs, partly offset by lower restructuring-related costs. EU-related costs were AUD 71 million lower this period, with the team having completed the delivery of the required activities in the first half. This has also been more than offset by payroll review and remediation charges of AUD 130 million. Looking across FY 2026, we expect a slower rate of cost growth compared with what we saw in FY 2025. A couple of considerations. Our expectation for investment spend remains approximately AUD 1.8 billion. The payroll review and remediation program is ongoing, but at this stage, the cost impact in FY 2026 remains uncertain,
and we are targeting productivity benefits of greater than AUD 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 non-performing loans to gross loans and acceptances has increased by 6 basis points in the second half, the pace of increase has slowed compared with recent half years. The increase 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 and Institutional Banking and New Zealand.
While single-name exposures are lumpy and they are hard to predict, it is 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 point, driven by lower Australian home lending arrears in the second half. 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 are down 9 basis points, and this is the first half-yearly reduction we have seen here since the first half of 2023. Credit impairment charges increased over the half to AUD 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 AUD 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. There has also been a net release of AUD 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. 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 six months, the NPL ratio increased 18 basis points, but this is a slower pace than we'd seen in recent halves. Performance this period has been impacted by two large well-secured customers in our agribook, which have driven an increase in the default but not impaired ratio. Excluding these two names, the non-performing loan ratio would have declined 3 basis points. We are also seeing stable to improving non-performing loan trends across most sectors in the second half, consistent with an improving economic environment. This is in contrast to recent periods where deterioration in non-performing 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 non-performing 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. While this can take time, our experience is this achieves the best overall result for our customers and our shareholders. If we could now please go to provisions on slide 28. Total provisions have increased modestly over the half and represent 1.6 x 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 AUD 1.163 billion, up from AUD 920 million at March. The increase mainly relates to higher business lending impairments, including a small number of customers in Corporate and Institutional Banking and New Zealand banking. Collective provisions were broadly stable at AUD 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 AUD 89 million net release from forward-looking provisions, reflecting lower target sector forward-looking adjustments as the outlook for several sectors has improved. This was offset by an increase in the economic adjustment for refreshed scenarios.
At AUD 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 a 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 one ratio is 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. An overlay of AUD 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 non-cash 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 is 11.81% or 11.68% at level one, and both are comfortably above our target of greater than 11.25%. Liquidity and funding are set out on slide 30. The quarterly average LCR 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 AUD 16 billion of term wholesale funding during the second half, and this brings the total for the year to AUD 36 billion. This has supported repayment of maturities as well as balance sheet growth. We continue to expect issuance across FY 2026 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. They are now in positive territory for the first time since 2022. 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 2026, 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 three priorities of growing business banking, of driving deposit growth, and of 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 to support our customers. This year, we successfully migrated two 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 three 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 two questions. Please go ahead, operator.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. Your first question is from Jonathan Mott with Barrenjoey.
Thank you. Could I ask a question on slide 29 that Shaun, you were just running through the capital and the moving 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 to see 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 are utilizing a vast majority of your earnings to pay the dividends, and risk-weighted assets.
Continuing to grow the CET1 going backwards pretty quickly. If you also look at the leverage ratio, which fell further to 4.92, and you have gone through the floor on the credit risk-weighted assets, so effectively, it cannot use models to offset some of the credit risk-weighted asset growth. I wanted to 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 are anticipating?
Thanks, John, for the question. I will take a couple of those points in no 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 are, as a bank, 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 models and methodology component of that, as we've called that out, and we called that out in the third quarter.
That's a number that moves around over time. If you think back to a year ago, we had some pretty strong capital contribution coming out of releases of models and methodology. It's a number that moves from half to half. I think you should think about our capital management around advance and standardize it being around where we're at at the moment. You mentioned the floor. We're three basis points further into the floor than we were at the half, but we'll tend to oscillate around where the floor is. We think that's appropriate for a bank like ours. It's really an outcome of the optimization.
Just a question on the dividend then, because with very strong credit growth continuing, you're going to be utilizing a lot of capital. Are you happy to see your CET1 ratio continue to fall next year, which looks likely if you maintain your dividend at the current level?
Yeah, 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. That is ultimately a decision for the board. Comfortable where we are at this point, it's inside our target range. As I said, I think the growth in the RWA is going to turn up in earnings next year.
That's right.
Thank you.
Your next question comes from Andrew Lyons with Jefferies.
Yeah, thanks and good morning. I am just a question on your NIM. At the third quarter trading update, you reported an eight basis point rise in reported NIMs on the first half 2025 average, or four basis points excluding markets and treasury. Today's results suggest that the fourth quarter was therefore broadly flat. On the third quarter outcome, would 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 2026, please?
Hi, Andrew. It's Andrew Irvine. I'll take the point. I'd say, first of all, that your characterization of what happened in the fourth quarter is accurate. That we saw stable margins in the fourth quarter. And I'll tell you, that was really pleasing t o have, if I take business banking as a segment. To be increasing market share in a highly competitive environment and maintain a strong margin performance at the same time shows a business that's executing well. I think we thread the needle really well in that last half. 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. Andrew's come in, and him and his team are executing well. That gives me real confidence for the future.
Great. Just a second question, really following up on what John just asked around capital. It's really just around the mechanism of your capital target. Your CET1 reported at 11.7 or 11.8, adjusting for 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. 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. 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.
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%?
Thank you. Yes, that's correct.
Your next question comes from Victor German with Macquarie.
Yes, good morning and thank you. I was hoping to get a little bit more color on business bank margin and fees. From your division analysis, it looks like overall business margins are flat, as Andrew alluded. It is partly due to the benefit from replicating portfolio and lower liquids. When it comes to lending margins specifically, what trends are you seeing? Are 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. My second, do you want me to ask the second question now or wait?
Yes, please, Victor.
Yeah. The second question is, obviously, competition can come from both margins and fees. If we look at your d isclosure on fees, it looks that there are some pressures emerging. Just be 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 non-interest income line? Thank you.
Victor, I'll just give a headline update, and then I'll let Shaun answer your two questions in more detail. I would say in terms of market intensity and the pressure on margins, I would say it continued, but it did not 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. We're retaining our bankers. We're managing this business very well. I think that bodes well for 2026. 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.
Yeah. I think, and also to add a comment on the margin, as Andrew talked about, the discipline margin management's really been supported by new tools that we've been bringing into the business. That's given us better transparency and more sophistication around our pricing. I think that's showing up as well in the way that we're managing our margin.
We continue to sort of invest in the service offering that we provide to our clients. 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, yeah, 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. 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. You referred to the review of collection practices. Yeah, 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 resolved at some point. That's where we're at on that one. What I would say is the underlying fees are growing broadly in line with the activity. I think there are also some pointers there around the increase in credit card-related fees that we're seeing. Yeah, it's been disappointing, but it's an area that's actually getting a lot of focus from Andrew and the management team.
Yeah.
Sorry, Shaun, maybe just to make sure that we get this right. If we look at second half non-interest income, excluding markets, which obviously is volatile and moves around from interest and non-interest income, at that core line, it sounds like you're suggesting that there were some issues in the second half which were potentially one-off and shouldn't necessarily be kind of implied going into 2026. 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. There are some one-offs in the second half.
Yeah, we've got to work through those one-offs. Generally speaking, you would want to see fees and commissions growing in line with balances over time.
Okay. Thank you.
Your next question comes from Richard Wiles with Morgan Stanley.
Good morning. 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. Perhaps if you can talk to transaction account balance growth generally, how's it split between sort of offset accounts and other more valuable low-cost transaction accounts, and also how it's split between personal banking and BPB, please?
Will 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. 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 five years. We've been growing materially above system in our business franchise at 1.4 x system consistently year in and year out. 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. 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.
We had, in the past, been focusing on digital origination. Branch activation and branch origination has really taken off under Anna and her team's leadership. That is something that we are really pleased to see because the quality of those accounts is high. In business and private banking and in CNIB, we have 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 have won more than half of the mandates that have come to market in the large end of town in terms of transactional mandates. We have a proposition now that is showing that it is differentiated from peers. That is also really pleasing.
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. 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? Obviously, it was not TD-driven. Was the growth driven in transaction accounts, or was it more savings accounts?
Yeah. We have some detail in slide 79 in the pack there, and you can see the breakdown by each of the divisions. As Andrew said, we are really pleased with both the mix and the underlying growth that is occurring. You can see in personal banking, in terms of transaction and NBIs, they've been up a little bit from last year. We've also seen good growth in savings accounts, and we've seen growth in offsets, which has also been a feature there. Good growth overall across that division and broad-based.
Okay. Thank you
. Your next question comes from Ed Henning with CLSA.
Hi. Thanks for taking my questions. Just the first one on expenses, you've called out expense growth below the 4.6% this year. This year included AUD 130 million of hopefully a one-off, 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 AUD 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 2026?
Yeah. Thanks, Ed. It's Shaun here. I'll take that one. Yeah, you've called out some of the key drivers in our operating expense line this year. 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. 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 good cost for us in terms of the returns that it should generate. You'd expect some of that to persist into next year. The technology spend, as you called out, is up 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. As some of our platforms come online, particularly the new unsecured platform, you'll start to see amortization come through from there. I think what we're 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 a general sense of where you should think about the expense numbers landing.
Thanks, that. Just to clarify, your underlying growth was 3.2%. You're saying below 4.6%, but yet a number of the moving parts from last year will not continue for next year or will not be at the same level. It seems like it is 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 have the EU there of 71. You would not expect that to necessarily repeat as well. I think what we are trying to do is help you think about what you might put into your assumptions rather than necessarily give you a number. We are trying to give you a sense of what those potential drivers might be relative to this year.
Okay. That is great. Thank you. Just the 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 two for next half, but it was up three in the half just gone. Why is that falling away when you have still got that five-year hedge rolling through? Also, if you look at what you talked about, proprietary still going strong and hopefully grow that. 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 2026, please?
Yeah. We will start with the lending margin. It really reflects a whole series of small movements, and that's been pretty consistent with what you've seen in prior halves. 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 a point. About a point, sorry, not consistent with recent halves. The other was a small tailwind from repricing in unsecured lending. I think that's an important one as well. The lending margin's really been a feature of lots of small sort of drivers. 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'll continue to
present some headwinds. There'll 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. They've been offset by some benefits in our consumer savings books. In terms of the outlook, it's really going to be driven by both interest rates and competitive environment. 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 deposits.
I might just add, we don't know what the uncontrollable items are going to be as we go forward. I can tell you that on the controllable items, we're going to be continuing to manage the business well. Pricing discipline in our business franchises, both CNI and BMPB. You should expect that to continue. It's back to the three 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. We're going to keep working hard to improve the penetration of proprietary home lending, which is 20%-30% better returning than the broker book. If we do those three things continuously well, we'll be doing the best job we can at controlling the things that we can control.
Thank you.
Your next question comes from Andrew Triggs with JPMorgan.
Thank you. Good morning. Just a first question on asset quality. Obviously, 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 very granular in the book that you can sort of point to that gives us a bit more insight in predicting those sort of two bookends around asset quality? I note there is the typical probability of default slide in the business book towards the back of the pack shows that the ratio above, I think, 2.5% was pretty stable, half on half. Is there anything you can sort of give us that gives you a little bit more insight on comfort that you will not get the same extent of individual provision issues into the next half?
It is 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. We were clear and guided that we thought second half of this year would be the peak of the asset quality cycle. 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 the 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. In a late-stage economic cycle, single name exposures can pop or not pop. That's one thing that we're going to have to continue to pay attention to.
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'd.
Yeah. Thanks. I'll probably add a couple of things. Firstly, we can't predict what'll happen on individual impairments, right? That's the nature of the business. They will, by their very nature, be somewhat lumpy, right? As I said in earlier comments, this is indicative of what you'd expect to see in the late stage of the cycle. We've seen that transition come out of the collective provision into the individual assessed provision. There are a couple of points I'd probably add. Slide 27, we've got that breakdown on the non-performing loan exposures as a percentage of EAD by each of the regulatory industry categories.
This lines up with the 330 reports. You can see there that there's probably five sectors that have seen an increase in the NPL ratio over the half. The same chart six months ago showed nearly every sector deteriorating. We are seeing, to two of my earlier comments, improving or stable trends in a lot of the sectors that we're dealing with. That is encouraging. We talked about the fact that watch lines had declined, the default non-impaired ratio had declined. The economic conditions support where we're at. The long-run loss rate that we've had over the last 20 years is about 13 basis points. The portfolio is performing as we thought it would and as we'd said previously. I think with improving economic conditions, business confidence, and so on, and our level of provision, we feel okay about where we're at.
Thanks, Shaun. Andrew, just a second question around, I guess, customer franchise metrics. Pleasing to see some reasonably good momentum on NPS across the key target segments. MFI does not generally appear in your pack and does not therefore seem to be as intense an area of focus for strategy as 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. It is something that we are 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 are depositing their paycheck in your account.
They're doing debits and credits. Those metrics are all moving in the right direction for us. That's something we manage on a weekly basis. The 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. I think the metric that gives me good confidence is a 14% increase in transactional account balances in our commercial franchise. De facto, it means we're becoming more of a main bank for our customers, and they're using our systems and services. They're 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.
Thanks, Andrew.
Your next question is from Brian Johnson with MST.
Good morning. Thank you very much for the opportunity to ask a question. 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. If we kind of listen to the nature of the questions today, there are a lot about the capital and the dividend sustainability. It is up to you guys whether you answer this quite clearly or not. If we take the core equity T1 ratio at 11.7%, take out the dividend of AUD 0.59, add back the sale of the life business, which is AUD 0.11, you get to a notional ex-dividend number of 11.21%, which is below the 11.25%. You can say, "We've got three months to earn it," but that is the reality of where you are today. The question I have relates to slide 29.
Shaun, you've mentioned it, but I don't think you've really addressed it. If we probably have a look at one of the things that really dragged on your capital ratio during the period, it's basically, it's that very small number four, which is this AUD 4.8 billion change in the risk-weighted overlay in respect of some methodology. I reckon that costs around 12 basis points, which is pretty significant in the scheme of things. 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, with this change of methodology, does it just grow in line with the risk-weighted assets, and how is it impacted relative to the capital floor?
Yeah. Thanks, Brian. Firstly, on the AUD 4.8 billion overlay, overlays by their very nature are generally temporary and address. Areas that we might identify in the calculation of our RWAs, or they might be an outcome of discussions that we've had with our regulators and so on. It's quite a volatile number. 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. We're actively working on addressing those at the moment.
We're working on that one to be able to eradicate that overlay. There's real work involved in doing that. 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. While the quick maths that you shared w as correct, we are confident that over the course of next year, our capital position will improve, that we'll generate strong earnings from the RWA growth that we delivered this year and will continue to deliver next year. We are confident here.
Yeah. 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. We strike our dividend with a forward-looking view.
Can I go back to that? This AUD 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 would 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. I would not want to be committing to a date on that.
Okay. 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 NAB for a number of years. When NAB has historically kind of blown up is when it's had too much commercial real estate lending. In the AFR interview, it was said that you would not increase your risk tolerance to basically fulfill that objective. 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?
Yeah. 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. 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. We're starting to see really good, high-quality projects that we want to bank and push into. That was what we were disclosing to the market. 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.
The other thing to note is that we are looking to originate AUD 30 billion of construction and development loans, but you should not assume that we'll be holding all of that on our bank balance sheet. 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. It is 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. 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. You should not expect to see that greater than 2.5% probability of default be 8%. That should not rise, other things being equal.
Correct.
Your next question comes from Matthew Wilson with Jarden.
Yeah. Good morning to you, Matthew Wilson with Jarden. Two questions, if I may. Firstly, do you think your investment/OpEx capitalization policy is becoming materially out of whack with your peers now? You're at AUD 3.4 billion. That's AUD 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.
Yeah. Maybe, Andrew. I'll kick off with that. Yeah, the balance has increased in recent years as our additions to that stock have exceeded the amortization. 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. Clearly, in the early phase of a project, you're going to see more OpEx, and then CapEx will increase in the build phase. 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, as is our board. Our spend over the last couple of years has been much more weighted towards our technology modernization, right? That's been a core part of what we've been talking to the market about. 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. We're overall comfortable with both the envelope of the spend we make but also the outcomes of the spend.
Okay. Thank you. Secondly, in late October, you created a new CEO direct report role, a Group Executive Transformation. NAB's generally thought of as a bank that does not need large self-help transformation type projects. It is 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, Patrick Wright's role in technology?
Not at all. It is all about continuing to drive persistent modular transformation in our bank. When we look at the proportion of our technology spend that is going on improving the bank outcomes for customers as well as modernizing our technology, it is increasing.
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 one-time project that we're going to do for two or three 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. I think Shane's going to be a really strong addition to our executive team, working with Patrick to advance that. I wouldn't think of it as adding transformation risk in any way, shape, or form.
I suppose what you're saying is perhaps there's more c hange required on an ongoing basis in the bank than perhaps the market appreciates.
I would not characterize it that way. I think we want to be a winner in Australian and New Zealand banking. You need to be able to effectively understand, architect, design, deliver, and consume change. Do that persistently well, year in, year out, forever. Having a function in our organization focused on managing transformation and doing it in a coordinated way, I think, is a good thing. This is not a project-driven approach. Do not assume that this means that we are becoming a riskier transformation. That is not the case. It is going to continue to be modular, bite-sized changes to how we think about execution.
That is very good. Does it incorporate any changes that may happen from the stablecoins 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, stablecoin going forward. What's Shane's role in that evolution of the financial system?
Yeah. No. Shane's 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 stablecoins are going to shape up. Globally and here in Australia and what the impact might be to our business model.
Thank you. That's great. Cheers.
Your next question comes from Brendan Sproules with Goldman Sachs.
Good morning. Brendan from Goldman Sachs. I've got a set of questions 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 draws between net operating income and operating expenses. Could you maybe talk into 26 and 27? You talked about cost growth a little bit under or under 4.6%. What are you thinking in terms of positive draws and actually being able to turn around the growth in your ROE?
Yeah. 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 2025 was strong. What you don't see is actually that there was an acceleration over the course of the second half. As a bank, we have good tailwinds going into 2026 across all of our businesses, particularly our business franchise. We would look to maintain that. If we can do that with those types of numbers, that should deliver positive operating leverage. That is what we are targeting, but we have to work hard to get it.
Maybe my second question just on the asset quality side. I mean, slide 28 shows your provisioning balances. As you have seen the acceleration in business credit growth, you have seen your coverage ratio fall in terms of CP. Is that a trend that we are going to expect to continue, just given how strong credit growth opportunities are in the market?
If I could take that one. Thanks, Brendan. The CP coverage is doing what we would expect it to do at this point in the cycle. I think one 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. I think the trajectory is playing out in the way we expected it to.
Thank you.
Your next question comes from Tom Strong with Citi.
Hi. Thanks very much for taking my questions. Just two questions on the corporate and institutional bank, please. Just the first is around the revenue. I mean, you saw annualized GLA growth of 12% and NIM expansion. Can you just talk to, I guess, what you're seeing from a competitive standpoint in CNIB in particular, given there's probably fearing appetite from your peers to deploy capital into this space at the moment?
Yeah. I'm happy to take that one. What we saw from a market standpoint over the course of the whole year was that the big end of town, capital—sorry, credit growth has been very strong, in the double-digit range. What was pleasing for us is that 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. If you do not get the deposits or the debt capital markets or the foreign exchange, it is hard to make a quid. We just have to be really, really diligent and thoughtful around which opportunities that we want to pursue versus not pursue. 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. That has been pretty pleasing.
Thanks for that. That is very clear. I guess just as a follow-up question, if we look at the GLA growth of 6% in CNIB in the half, but the risk-weighted intensity was a lot lower at only 2%. Is that just relating to the mix of business that is skewing to that larger end?
Yes. That's right, Tom.
Yep. Okay. Thank you.
Your next question comes from Matt Dunger with Bank of America.
Yeah. Thank you for taking my questions, gentlemen. Just understand the strong progress you've made on transaction accounts, but the total deposit growth slowed in the half, excluding CNIB particularly. You've showed that on slide 79. Business bank and term deposits. Showing some slower growth. We know the TDs have been competitive. Just wondering to what extent does the lower TD growth reflect current pricing versus the planned shift you've been talking about in the franchise? At what point do you start to worry about franchise momentum in the private bank?
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. It's been a judicious decision to grow that portfolio at a lower rate than we're doing as long as we're getting the transactional deposits that we needed to fund our GLA growth. We've been able to be less aggressive in TDs because of the success of our deposit gathering in transactional. My hope would be that that continues because when you're not getting the deposits in transactional, then you have to get them from TDs, and it's more expensive to do. The fact that we were so successful in transactional accounts meant that we didn't need to go to TDs to fund our GLA growth.
As I mentioned at the top, we fully funded our GLA growth this year with customer deposits.
Great. Thank you. That's all for me.
There are no further questions at this time. That does conclude our conference for today. Thank you for participating. You may now disconnect.