NAB has reduced the value and useful life of its capitalised software assets, in part because AI now allows software to be built or replicated quickly and cheaply.
The bank took a $1.3 billion hit to its underlying profit and $949 million to its cash earnings for the first half of FY26 owing to the change in software capitalisation policy.
Financial analysts said it was the third such policy change in seven years,
Group CEO Andrew Irvine attributed the latest changes to “the rapidly changing technology environment”, and in particular, to the impact that AI is having on software value and on development lifecycles.
“I do think there is a macro trend here that over time the value of software assets is likely diminishing as AI advances and the ability to build or replicate software faster and cheaper emerges,” Irvine said.
“This is probably something we’re going to have to continue to look at, not just as a bank but as an industry.”
Group CFO Inder Singh said the bank had made “a reduction in the useful life of capitalised software assets and an increase in the capitalisation threshold from $5 million to $20 million.”
“There has also been a change in the nature of assets capitalised. For example, we will no longer capitalise certain risk and regulatory spend,” Singh said.
While AI had a financial impact on capitalised software, the technology more broadly was delivering benefits within the bank.
The bank was using the “deep experience” of relatively new hire Pete Steel, group executive of digital, data and AI, “to prioritise where we invest in a rapidly changing technology environment.”
“AI opportunities including investments to date are broadly aligned to three strategic outcomes,” Irvine said.
“Growth opportunities will be supported by banker and customer AI solutions that will help drive and deliver more personalised services to our customers at scale, and enable our bankers to spend more time with our customers.
“Productivity opportunities will be supported by AI tools that can undertake routine tasks and increase the speed of delivery. We have already rolled out AI tools to over 7000 software engineers, which has in turn helped improve our change cycle delivery time and significantly increased developer productivity.
“We are also providing colleagues with access to AI tools to help them build the skills they will need in the future.”
He added that, “As this technology evolves quickly, it is important we embed the appropriate risk controls and governance frameworks to keep our customer data safe and ensure transparency of any AI decisions that are taken.”
Irvine said that the foundations to enable NAB to adopt AI, including a multi-cloud infrastructure and data platform, were now bedded down and largely completed.
Technology modernisation efforts have since moved to the bank’s “core product and servicing platforms”.
“This work is now well underway,” Irvine said.
This included the implementation of a “cloud-based real-time payments engine”, which is now complete.
Work is now underway to replace the bank’s transactions switch infrastructure, which “processes 15 million card and acquiring transactions every day across a range of channels.”
“A new transaction switch has now been installed in the cloud and we have commenced building the capability to enable card processing and authorisation,” he said.
“The migration of all credit and debit card transactions is expected to be completed in FY27, with merchant acquiring to follow.”
NAB’s statutory net profit for the half fell to $2.75 billion, largely owing to the software recapitalisation.
