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The National Bank of Australia (NAB) was facing penalty proceedings for reportedly leaving hundreds of financial hardship petitions unaddressed, leading to a drop in its shares by 1.9%.

Following the Australian Securities and Investments Commission (ASIC)'s allegations against the country's second-largest lender, its shares fell to A$38.98 in early trade, tracking a 1.2% decline in the financial sector index, Reuters reported.

The corporate watchdog accused NAB and its subsidiary AFSH Nominees Pty Ltd of violating the regulations between 2018 and 2023, during which the bank failed to respond to 345 customer hardship applications within the mandatory 21-day timeframe, ASIC said in a statement.

ASIC Chair Joe Longo said that "NAB unlawfully ignored its customers' pleas for assistance during their time of need, worsening their struggles."

"These customers included people who were domestic violence victims, battling serious medical conditions, dealing with business closures or job loss. NAB's failures likely compounded the already challenging situation for these people. Amidst rising cost of living pressures, we have seen an increased number of customers reach out to their lenders for relief, and we have seen first-hand the impact on lives and livelihoods when lenders fail to appropriately support customers experiencing financial hardship."

"Compliance with financial hardship obligations is an enforcement priority for ASIC in 2024. Earlier this year, we put the lending industry on notice on the release of our hardship report."

ASIC alleged that NAB violated a law under section 72 allowing a person to request their credit card condition modifications on the grounds of financial hardship. The creditors are also made legally bound to respond to them within a 21-day timeline or otherwise face scrutiny.

"NAB and AFSH Nominees are now considering the detail of the proceedings brought by ASIC and will continue to cooperate fully with the regulator," the Melbourne-headquartered lender said in a separate statement.

Finalized in May 2024, ASIC's thorough review of major lenders' financial hardship policies revealed concerning deficiencies in identifying and assisting vulnerable debtors.