The ASX bank share National Australia Bank Ltd (ASX: NAB) has been through a lot already in 2025 and we're not even halfway through the year. Following the RBA rate cut, it's worthwhile asking if the ASX bank share is a buy.
NAB is one of the largest banks in Australia, and it's making large profits. The recent change in the RBA official cash rate and future changes could significantly impact the bank's financials.
The recent RBA rate cut
The Reserve Bank of Australia (RBA) recently decided to cut the cash rate by 25 basis points (0.25%) to 3.85%. Some economists think the RBA could cut rates by another two or three times over the next 12 months.
A rate cut, and future additional cuts, should help reduce the danger of some of NAB's borrowers going into arrears (or worse). But, rate cuts also reduce the ability of NAB to make good (loan) earnings from lending out transaction account balances (which don't pay interest to customers) – a lower RBA rate means a lower loan rate.
Time will tell which has a bigger impact on NAB shares.
A more competitive business banking environment?
One of the main things that investors should keep in mind with NAB is that a significant portion of its earnings comes from business banking. However, in a recent note, the broker UBS recently pointed out the problems that NAB could be facing in the segment:
NAB has a leading franchise in the SME lending market and B&PB continues to earn substantial economic profits. We think competitors appear more committed than in previous cycles to staying the course in business banking, especially with growth and profits in the broader sector difficult to come by and retail at or below cost of capital. This does present a structural headwind for NAB in particular, given their earnings skew.
A number of banks are trying to grow in the sector, including Commonwealth Bank of Australia (ASX: CBA).
In NAB's FY25 half-year result, the bank made cash earnings of $1.63 billion in business and private banking, $576 million in personal banking, $909 million in corporate and institutional banking, and $781 million in New Zealand banking. This shows numerically how important the business banking side of NAB is.
Integral profit growth expected
While NAB faces more competition, overall profitability is expected to rise in the coming years. I think that's essential to helping send the NAB share price higher.
UBS predicts that NAB's net profit after tax (NPAT) will rise slightly to $7.08 billion in FY26 and reach $7.85 billion by FY29.
Using those projections, the NAB share price is valued at 16x FY26's estimated earnings and less than 15x FY29's estimated earnings.
I think the lending space could become increasingly competitive for both residential and business lending as the RBA interest rate lowers.
With that in mind, I don't think it's a good time to invest in NAB shares. More competition could be a sizeable headwind for the business' profit and dividend growth. I believe there are plenty of ASX shares that could make better picks today.
