National Australia Bank (NAB) issued a warning on Monday that bad debts could soon rise, as global instability in the Middle East begins to filter into the Australian economy. The alert follows similar caution from Westpac.
The major bank now expects credit impairment charges of about $706 million for the first half of 2026, roughly $300 million higher than previously forecast. Of that increase, $152 million reflects NAB lifting its assessment of the risk of an economic downturn in Australia. A further $201 million has been set aside for sectors likely to feel the impact of fuel supply disruptions and rising energy costs linked to the Middle East conflict.
"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 bank said in a statement.
NAB is the second major lender to warn of rising bad debts tied to the conflict in the Middle East. Earlier this month, Westpac said it expects loan losses to come in at around 0.10% of its total lending in the first half.
The conflict, which erupted in March, clouded the global outlook, with Australians increasingly feeling the ripple effects. Soon after tensions escalated, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser warned inflation was running hotter than expected, partly driven by rising global oil prices linked to the war.
At home, households were already grappling with persistent cost-of-living pressures. The conflict has only added to the strain, pushing petrol prices higher. Meanwhile, the Strait of Hormuz — a critical gateway for roughly a fifth of the world’s oil supply — remains effectively shut, fuelling further spikes in energy prices.
Even in Australia, brokers and lenders are starting to feel the effects of the conflict.
"How does [the war] not impact the cost of living? Businesses can't not pass it on," Ryan Gair, chief executive officer of non-bank lender Rate Money, told Australian Broker. "Right now buyers aren't buying, and sellers aren't selling," pointing to the recent slump in auction activity, with levels falling to their lowest point since 2022.
Others in the industry, however, say they’ve yet to see any clear impact, or an increase in bad loans.
"Not at all," said Adele Andrews, director and broker at Melbourne-based Australian Property Home Loans. "People are managing .
"But they are definitely thinking about ways to restructure debt," she added. "There are plenty of questions around rates, debt structure and ways of alleviating cash flow from families. I am also getting in front of clients early about budgets and the need to really double down; preparation is everything and I would rather have over-prepared clients than unpleasantly surprised ones."
Australian Broker asked brokers nationwide (and a few lenders too) to assess whether the past quarter has brought any measurable market shifts, how much of that could be linked to global uncertainty versus domestic pressures like interest rates and inflation, and whether these forces are changing consumer and business behaviour.
Director and broker at Melbourne-based Australian Property Home Loans
"At this stage, we're not noticing a lot of bad loans. There are plenty of conversations around the cost of living, and I have started preparing my clients for future headwinds, given the downstream implications of the fuel costs. Agriculture, beef, construction are all industries about to be hit hard and future living costs are going to remain high for quite some time. Those renovating and building need to pay very close attention to how they are going to be impacted. For now though, the mortgage holders I am speaking with are doubling down on their budgets and preparing for the worst. And in many cases, consolidating debt to make way for cash flow. I expect to see more of this from small business owners; a genuine appetite to refinance their business debt into a more manageable structure that takes pressure off their cash flow.
I think both global instability and what's happening domestically have an equal impact on what is driving consumer concern at the moment. My biggest concern personally is how the global instability and fuel crisis will fully impact Australia. That full impact is yet to be felt and the lag effect is going to potentially have upward pressures on both inflation and rates. It could be a pretty rough year."
Bank group executive at AMP
"As we reported to the market in February, we saw a modest increase in both 30- and 90-day mortgage arrears through 2025. That reflected ongoing cost-of-living and interest-rate pressure, affecting a relatively small number of customers, rather than a broad-based deterioration in credit quality. Bad debts and loan impairment expenses continued to be negligible relative to the size of our book, and most customers retained meaningful equity buffers.
We expect those buffers to help our customers manage through the ongoing cost-of-living challenges, which are amplified by the current conflict in the Middle East."
"We're not seeing any meaningful increase in stress at a broker level right now; nothing outside of what I’d consider normal. This could change in the coming months. It usually takes time for this stress to appear at the mortgage level in financial households. Banks give customers time through hardship arrangements and support; so any real issues tend to lag. And households cut all other expenditures first before not being able to repay their mortgage.
What I am seeing is a shift in sentiment. Behaviour is definitely shifting. Clients are more cautious, taking a bit longer to make decisions, and thinking more about cash flow and risk. You can already see it in Sydney clearance rates and volumes, sentiment is changing pretty quickly. We’re seeing earlier refinancing conversations, more focus on buffers and managing cash flow, and some consolidation to simplify things. On the business side, it’s not a full pullback, but there’s definitely more hesitation. People are taking longer before committing to expansion or new debt. Domestic factors are still the main driver. Interest rates and inflation directly hit cash flow. Global events add uncertainty. But they’re more of an amplifier than the root cause."
Founder and director of Brisbane-based Emerge Finance
"We're not seeing a rise in bad credit, not at the moment. But we have been seeing consumer sentiment shift. To date, we haven't seen an increase in arrears or missed repayments or refinancing. But I think there might be a bit coming. I’ve had one [client] reach out this week where they are struggling with their repayments. But it still seems to be isolated cases in the clients we work with in our business. Most Australians are very property proud and pay their mortgage first before they spend on food and entertainment. They will dig deep to make it work, pick up extra shifts, get a night job, start a side hustle, delay or cancel large holidays and analyse their expenditure.
We are starting to see some clients think twice about borrowing amounts, or taking on additional debt at this time. They might have previously been looking at upgrading their home, but now they are staying in their existing home and maybe completing a small renovation instead, rather than buying and selling, and potentially taking on more debt. We’ve also seen a few clients downsizing (not at retirement age) as they are looking consciously about their mortgage repayments, and want to reduce their debt with a cheaper home.
I think a lot of this behaviour is more due to interest rates rising and cost of living. Clients are trying to keep more cash as a buffer and most are looking at their budgets closer than ever before, just to ensure they are in the strongest position to ride out this inflationary environment."
Managing director and mortgage broker at Sydney-based New Vision Financial
"From what we are seeing at present, we have not yet experienced a significant or sudden spike in bad credit or widespread repayment distress that could be directly attributed to global conflicts, such as those in the Middle East. However, there is definitely a noticeable shift in borrower behaviour and sentiment, across both residential and business clients, over the past three to six months. Clients refinancing earlier and more strategically to manage cash flow and secure more competitive rates. There's increased consolidation of personal and business debt to simplify repayments. There is reduced discretionary spending and tighter household budgeting. Investors are taking a more measured approach, with greater focus on yield and risk management. And businesses are becoming more conservative, with some delaying expansion plans or reducing borrowing appetite.
In terms of arrears or missed repayments, there has been no increase from our end, or reported to us from lenders. What we are seeing more prominently is early intervention behaviour. Clients are becoming more proactive in seeking advice before issues arise, which is a positive sign.
The primary drivers of financial pressure continue to be domestic factors rather than global. The recent increase in interest rates (and uncertainty going forward), inflation and overall cost of living pressures are having a far more immediate impact on households and small businesses. These factors are directly affecting cash flow, borrowing capacity and overall financial confidence."
Franchise Owner and mortgage broker at Mortgage Choice, Parkside in South Australia
"I am not noticing [a spike in bad credit] in my business yet at all. If the issues in the Middle East continue long term, then effects will start to show. I think this is a long way off though. If jobs are actually lost and small businesses start to close, adding to a higher cost of living, that's when a bad credit spike may happen. But Australians have room to adjust their spending and will always prioritize paying the mortgage above all else."
