National Australia Bank has become the first local bank to join the ranks of global financial institutions reeling from losses on investments in risky US mortgages, booking an $830 million write-down that sent its share plummeting.

Shares in Australia's second biggest bank plunged 13 per cent on Friday, shaving $7 billion from its market value and marking the biggest one-day fall in almost 21 years.

The massive provision, which left investors stunned and frustrated, came with a warning from NAB chief executive John Stewart that the global credit crunch was yet to reach its low point.

Two months ago, Mr Stewart said the worst of

the crisis may have passed in mid-March, when the US Federal Reserve helped rescue US investment bank Bear Stearns.

"It's now apparent that was not the bottom," he said during an often heated teleconference with analysts.

The $830 million charge was on a portfolio of complex collateralised debt obligations (CDOs) partly linked to risky US sub-prime mortgages.

It comes after a $181 million charge on the same portfolio taken in the bank's first half results, announced just two months ago.

NAB, which this week pulled out of a bidding war for investment bank ABN Amro Holdings, warned on July 11 there could be more losses from the $1.2 billion portfolio, which is now provisioned to a level of 90 per cent.

Actual losses on the assets underlying the CDOs only averaged about two per cent, NAB said.

But a detailed analysis, and recent default activity, indicated the portfolio would continue to deteriorate, it added.

"We believe it is prudent to take a full provision now, based on a worst case scenario," Mr Stewart said.

NAB shares plunged $4.14, or 13.49 per cent, to $26.56.

The stock recorded its biggest one-day fall since October 1987, when it fell 18.9 per cent. NAB also lost 12.95 per cent on September 3, 2001.

Other banks fell sharply, with ANZ dropping almost nine per cent and Commonwealth Bank of Australia losing close to seven per cent, despite the latter reiterating it no direct CDO exposures.

Westpac fell 3.6 per cent after telling the market it had a "small, high quality" CDO portfolio.

On an hour-long NAB conference call, investors wanted to know why the level of provisioning had increased so markedly since May, and why they hadn't been warned.

JPMorgan banking analyst Brian Johnston harked back to NAB's disastrous purchase of US lender Homeside, the infamous foreign exchange trading scandal, and an apparent absence of any recent warning from NAB about potential bad credit exposures.

"John, can you explain to us, sitting on this side of the fence, how you guys can expect people to believe what you're saying?

"The evidence would suggest this is not the last of these things to come through."

Mr Stewart said the incident was a direct result of the meltdown in the US housing market and reiterated that the CDOs had high, AAA ratings.

"It's very hard to actually say to people that buying AAA assets, low risk assets with a tiny risk of default, is actually reckless," Mr Stewart said.

Mr Johnston continued to press Mr Stewart about NAB's failure to predict worsening credit conditions despite warnings in April from the International Monetary Fund that problems in the US housing market would spread to prime mortgages.

Mr Stewart said: "Brian, our credit department, along with your own parent's credit department and most of the large (investment) banks, didn't predict this, which is why there has been $415 billion of write-offs across the world.

Analysts were also concerned about the scope for write-offs on a $4.5 billion commercial loan portfolio of NAB's, but nabCapital chief John Hooper said those securities had a safer structure.

"The general level of dislocation that you're seeing in US residential mortgages is miles from the level of dislocation that has ever been seen in the corporate market," he said.

Aequs Securities institutional dealer Ric Klusman said the size of the $830 million provision was unexpected, but added that the rout on NAB shares was overdone.

"Work out NAB's profit and divide it into this and it's only a couple of months worth," he said.

"But it's just another indication that there's a lot of loose stuff around."

In fiscal 2007, NAB booked a $4.6 billion profit.

NAB said its final dividend would be unaffected by the provisioning and that it remained comfortably within its target capital range.