National Australia Bank has flagged higher provisions due to a rise in credit impairment charges and will discount and partially underwrite its dividend reinvestment plan to raise extra funds.
"In light of the volatility in markets following the conflict in the Middle East, National Australia Bank (NAB) has reviewed its credit provisioning and capital settings to better reflect the risks now inherent in our business," the business-focused bank said.
Last week, Westpac revealed the conflict had dented earnings contributions from its treasury and markets trading division.
The unit's net interest margin contribution will fall to seven basis points in the second quarter of 2025/26, from 15 basis points in the first.
NAB will book a $706 million credit impairment charge when it reports its first-half results on May 4, which would be around 68 per cent higher than the previous first half.
That will include a $152 million "economic adjustment" charge reflecting the changing outlook for Australia's economy, which is expected to weaken as the conflict continues.
The bank will also allocate $201 million in adjustments for potential stress that may emerge in energy-related business sectors likely to be impacted by fuel supply issues and costs related to the conflict.
NAB chief economist Sally Auld warned in March that the macro-economic outlook appeared to be heading for a more treacherous phase and that the impact of large shocks to oil prices would be amplified by tighter financial conditions.
"As forecasters, this development leaves us worried about downside risks to growth," she said.
Ms Auld is predicting Australia's economy to grow by just 1.8 per cent in 2026 and 2027, compared with a previous forecast of two per cent for each year.
The rise in the price of retail fuel is also expected to drive inflation to an annual rate of five per cent in the second quarter, while unemployment could peak at 4.75 per cent in 2027, Ms Auld said.
NAB shares fell more than three per cent in morning trading on Monday to $41.01.
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