National Australia Bank Ltd (ASX: NAB) shares are under pressure on Thursday, sinking 5% to around $39.05 following the release of its FY26 results.
And it's easy to see why investors are disappointed. But I also found some encouraging developments in the results that make me optimistic about the bank's future.
So, would I take advantage of the sell-off?
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Why are NAB shares falling?
NAB reported statutory net profit of $6.14 billion for FY26, down 9.1% from the previous year.
Cash earnings also declined 13.4%, although this included a $949 million after-tax charge following changes to how the bank accounts for its software investments.
Excluding that charge, cash earnings were broadly flat at $7.09 billion. That's hardly an exciting result, especially considering the growth NAB delivered across its lending operations.
However, the biggest disappointment for me was the increase in credit impairment charges. These rose from $833 million to $1.55 billion, reflecting both additional provisions for a weaker economic outlook and deterioration among some borrowers.
I think this deserves attention because NAB has been growing its lending book strongly. If more customers struggle to repay their loans, higher credit losses could continue eating into the additional income generated from that growth.
There was also some weakness in institutional and New Zealand banking, demonstrating that profitability remains uneven across the group.
Why I still like NAB
Despite those concerns, I think there are good reasons to remain positive. One of the most encouraging aspects of NAB's results was the underlying strength of its operations.
Revenue increased 5.8%, while operating expenses excluding the large software charge rose 4.5%. That helped underlying profit before credit losses increase 6.9%. I think that's a solid result, demonstrating that NAB is making progress with its core banking operations.
And the strongest performance came from its business banking franchise. Australian business lending increased 9.8% during FY26, supported by market share gains.
Meanwhile, earnings from its Business and Private Banking division grew 10.7%, excluding the large charge.
I believe this is encouraging because business banking is one of NAB's greatest strengths. As Australia's businesses grow and require additional financing, I think NAB is well placed to benefit from those relationships.
There was also good progress in deposits, which increased 5.2%, while the proportion of Australian home loans written through NAB's own channels improved from 41% to 50%.
I believe strengthening those direct customer relationships could support further growth over time.
Looking ahead, management expects underlying cost growth to moderate to less than 3% in FY27, excluding certain restructuring and accounting impacts.
If NAB can deliver that improvement while maintaining its lending momentum, I believe profitability could strengthen considerably.
Foolish takeaway
I think the 5% decline in NAB shares creates an attractive buying opportunity.
At around $39.05, the shares trade on a PE ratio of approximately 17 times FY26 cash earnings, excluding the large software charge. I wouldn't describe that as an extraordinary bargain, especially with credit losses increasing.
However, I believe the strength of NAB's business banking operations and its opportunities to improve efficiency could support stronger earnings over the coming years.
For me, the positives outweigh the concerns, and I'd be happy to buy NAB shares at current levels with a long-term outlook.
