At first sight, NAB’s credit quality looks to be in good shape, with a drop in its credit impairment charge in the March half-year and a reduction in the charge as a proportion of gross loans and acceptances. But there is more to it.

The bank’s credit impairment charge rose from $393 million in the March half last year to $409 million in the September half and then fell back to $363 million in the latest half. 

The charge was made up of $189 million of specific provisions, which were up 50 per cent over the previous corresponding period, and $174 million of collective charges - down 34.8 per cent on the previous corresponding period.

Without that reduction in the collective provision, the impairment charge would have looked very different. The bank said there was a deterioration in the asset quality of the Australian retail portfolio but this was partially offset by the impact of house price increases and a net release of forward looking provisions.

The value of assets past due by 90 days or more rose from $3.4 billion in in the March half last year to $4 billion in the September half and $4.6 billion in the latest half – an increase of 36.4 per cent over 12 months. 

Assets past due by 90 days or more as a proportion of gross loans and advances rose 15 bps year-on-year to 64 bps. In the Australian home loan book, the increase was from 67 bps to 90 bps.

Total non-performing exposures rose 29 per cent to $8.7 billion over the same period, representing 1.2 per cent of gross loans an acceptances.