(Updates to add stock movement in the headline and last paragraph)

National Australia Bank (ASX:NAB) said it expects fiscal first-half credit impairment charges of AU$706 million as it lifts provisions to reflect risks stemming from the Middle East conflict, according to a Monday filing with the Australian bourse.

The bank also plans to discount and partial underwrite its first-half dividend reinvestment plan, and has made changes to its software capitalization policy to align it with an environment of fast technological change.

The AU$300 million net increase in forward-looking collective provisions includes a AU$152 million increase related to economic adjustments, a AU$201 million increase in forward-looking adjustments for potential stress in sectors that are more likely to see an impact from fuel supply and cost issues, as well as a AU$53 million release in forward looking adjustments, the bank said.

The company's ratio of collective provisions to credit risk-weighted assets is expected to be 1.35% as of March, up from 1.31% in December 2025, and underlying provision charges are anticipated to be AU$406 million.

Interest rate volatility and a weakening of the New Zealand dollar in the fiscal second quarter, coupled with the higher provisions, have reduced the bank's common equity Tier 1 ratio at March 31 by about 20 basis points, it said. The bank expects to report a pro forma group CET1 ratio of greater than 12%, including the benefit of a 1.5% discount to the dividend reinvestment plan.

The initiatives to strengthen its capital position and balance sheet are expected to raise up to AU$1.8 billion and contribute up to about 40 basis points to the CET1 ratio in the fiscal second half, the bank said.

National Australia Bank, which is due to report half-year results on May 4, confirmed guidance for fiscal 2026 cash operating expense growth to be less than 4.6%.

The bank's shares fell around 4% in recent Monday trade.