👉 Background: NAB is one of the big four banks in Australia, and it's got a long history dating back to 1858

👉 What happened: Last week, NAB reported a record half-year profit of $4.1 billion, which is a 17% increase. But, these results still missed market expectations. It wasn’t specifically the earnings that concerned investors… but actually the mortgage book.

👉 What else: Over the past six months, NAB has faced serious pressure to cut its mortgage rates to existing home loan customers (aka back book repricing). And this has a big impact on NAB’s lending margin.

What's the key learning?

💡When talking mortgages in Australia, the fancy terms "front book" and "back book" are often thrown around.

💡These different ‘books’ are the different segments of a bank's mortgage portfolio:

• A bank’s front book refers to new home loans that the bank is offering to new customers.
• A bank's back book refers to the existing mortgages that a bank already holds on its books. These rates are often higher than the current market offers. Back book customers often get stuck with what many call the ‘loyalty tax’ of not moving.

💡But with so many Australians shopping around and looking to refinance after rate rises, NAB has had to offer some new deals to retain their customers... And it’s reaaaally hurting their margins.