National Australia Bank (ASX:NAB) is facing rising asset quality risks as it posted a downbeat half-yearly result, Jefferies said Monday in a note, adding that demand remains resilient and costs are being managed.
The bank reported a 26% decline in fiscal 2026 first-half cash earnings to AU$2.64 billion, missing Jefferies' estimate by 3%.
The investment firm reduced its fiscal 2026 and 2028 EPS estimates by 1%, citing lower earnings from liquid assets and higher impairment charges for potential loan losses, partly offset by stronger profit margins.
Jefferies said that investors are concerned about the bank's exposure to small and medium sized businesses (SMEs) in an uncertain macro environment. NAB is also setting aside more provisions for bad loans than its peers, which is impacting its returns by more than 1%.
However, the brokerage continues to see an attractive risk-reward on the profile. Despite recent share underperformance, margins are expected to improve in the second half of the year.
Jefferies maintained its buy rating on National Australia Bank but cut its price target to AU$46.98 from AU$47.73.