Business, he argues, cannot absorb rising costs forever when they are legally barred from trading while insolvent and still expected to stay competitive. NAB has just posted a $2.63bn interim cash profit yet simultaneously lifted provisions for bad debts, showing how quickly conditions can turn.
Suppliers and growers face soaring input costs but cannot simply hike prices at will because supermarket buyers ultimately shape what shoppers will pay. That squeeze at both ends is where the current tension sits.
NAB is watching how conflict near the Strait of Hormuz travels through global supply chains, feeding sharper inflation that in turn pushes interest rates higher. Rising rates then feed directly into loan repayments, amplifying stress for households and businesses already dealing with cost shocks.
The bank had already told investors in April to expect a $706m impairment charge in its interim result, linked to the impact of the Iran war on borrowers. It has now added another $148m provision to cover a “downside economic scenario” that NAB estimates has a 45% chance of playing out.
Those extra buffers show how seriously the bank treats the risk that inflation stays elevated while demand is deliberately slowed to catch up with constrained supply. Management argues that Australia now faces the uncomfortable task of cooling spending to bring it back into line with what the economy can actually produce.
That adjustment is likely to feel painful for leveraged customers, particularly those exposed to sectors affected by higher transport, energy and financing costs. NAB’s stance suggests the bank is preparing for a tougher environment even if headline profit numbers still look strong for now.
