NAB 2017 Third Quarter Trading Update

NAB gave their June 17 quarter update today.  There were no surprises, with an unaudited statutory net profit of $1.6 billion and unaudited cash earnings of $1.7 billion, up 2% versus March 2017 Half Year quarterly average and 5% versus prior corresponding period.

Andrew Thorburn, Group CEO said:

The major bank levy became effective from 1 July 2017 and is estimated to cost NAB approximately $375 million annually, or $265 million post tax, based on our 30 June 2017 liabilities.

Separately, in July, the Australian Prudential Regulation Authority (APRA) announced a CET1 ratio target of at least 10.5% by January 2020 for major banks to be viewed as ‘unquestionably strong’, with finalisation of international capital reforms not expected to require any further increases to Australian requirements. NAB expects to meet APRA’s new capital requirements in an orderly fashion given the existing capital position and the timelines involved.

Revenue was up 2%, with growth in lending and improved Group net interest margin (NIM) partly offset by lower Markets and Treasury income. They reported a higher Group NIM largely reflects loan repricing and more favourable funding conditions. Expenses were up 2%, or 1% excluding redundancies, due to increased investment spend.

The biggest impact was a reduction in the bad debt charges. Bad and doubtful debt charges (B&DDs) fell 12% to $173 million, reflecting improved asset quality trends and non-repeat of the collective provision overlay for commercial real estate raised in the March 2017 Half Year.

The ratio of 90+ days past due (DPD) and gross impaired assets (GIAs) to gross loans and advances (GLAs) of 0.80% declined 5 basis points (bps) from March 2017 mainly reflecting improved conditions for New Zealand dairy customers.

The Group Common Equity Tier 1 (CET1) ratio of 9.7%, compared to 10.1% at March 2017 mainly reflecting the impact of the interim 2017 dividend declaration and 17 bps for higher risk weights due to previously advised mortgage model changes.

The Leverage ratio was 5.3% (APRA basis), the Liquidity coverage ratio (LCR) quarterly average was 127% and the Net Stable Funding Ratio (NSFR) was 108%.

For this full year they remain confident of achieving more than $200 million in productivity savings and, excluding the impact of the bank levy, expect to deliver positive ‘jaws’.




Industry ‘needs to make adjustments’ to commissions: NAB

From The Adviser.

As the latest organisation to reveal the details of its submission to Treasury regarding ASIC’s proposals for broker remuneration, Anthony Waldron, executive general manager of NAB broker partnerships, said that the bank largely agreed with all six proposals, which could “improve the trust and confidence that consumers can have in brokers”.

Mr Waldron said: “Like ASIC, we want to strengthen the positive contribution that brokers provide. We see opportunity to lead by example and grow trust if we take it on ourselves to improve and to embrace change within our industry for consumers. This is because any strong industry needs to earn, retain and continue to build the trust of its consumers. Trust is the most valuable commodity.”

He continued: “We don’t believe that the current standard commission model has resulted in poor consumer outcomes, but we believe it is essential to manage not only actual conflicts but also the potential for perceived conflicts of interest.

“ASIC suggests lenders should not ‘structure their incentives in a way that encourages larger loans that initially have larger offset balances’. We believe the industry needs to make adjustments to the standard commission model by paying up front commissions based on the drawn down amount, not the total facility amount, and by paying up front commission net of offset balances.”

Reiterating that NAB has “never paid any sort of volume bonuses on mortgages” as it recognises that this could create a conflict of interest, Mr Waldron suggested that “the time for such payments has passed”.

Touching on soft dollar benefits, Mr Waldron said that these could be “managed transparently through gifts and conflicts of interest registers”, but suggested that the ongoing education and professional development of brokers was “essential” and that the industry should “continue to focus on this, ensuring it’s conducted in line with community expectations”.

Public reporting regime should be ‘cautious’ in comparing data

Acknowledging that NAB is in a “unique position in the broker market, operating as both a lender, provider of white label lending and having ownership of three of Australia’s leading aggregator groups — PLAN Australia, Choice and FAST”, Mr Waldron said that the bank knew that it needs to “build a more robust industry model, not just to reduce the perception of conflict of interest but for end-to-end governance”.

He elaborated: “We know we need to increase transparency to protect the interests of customers and brokers, and we’re mindful that today’s actions will be judged by tomorrow’s standards. We have already improved disclosure of our ownership of aggregators: PLAN Australia, Choice and FAST.”

However, he suggested that ASIC’s proposal for a new public reporting regime should be “cautious” in comparing some data, such as price, as there “are many factors that impact price and simple comparisons are difficult to make”.

A reporting regime would therefore “require the support of the industry to be successfully and consistently implemented”.

“Our industry needs to come together to get this right,” he said.

Lastly, Mr Waldron said that improving the oversight of brokers by lenders and aggregators will also require industry consultation and would require a “clear delineation between the requirements of brokers, aggregators and lenders to avoid duplication and overlap”.

NAB reportedly believes that the two important areas of any oversight model should cover responsible lending, and the reporting of ACL’s and brokers in the market regardless of licensing agreements.

“If we are focused on good customer outcomes, proving responsible lending guidelines have been followed will be even more important, both at the time of establishing a loan and when ongoing service is provided,” the executive said. “And any governance regime should also consider how lenders and aggregators will report cases of alleged misconduct of mortgage brokers to ASIC.”

In conclusion, Mr Waldron said: “Our industry has an opportunity to lead by example. We need to manage conflicts of interest, pursue self-regulation, proactively manage perceptions and demonstrate how we will continue to improve for the end benefit of customers. This will require consultation and discussion for us as an industry, with brokers, aggregators, Treasury, regulators and other industry participants to work out how this can best be put into practice.”

Noting that it has been “great to see the industry already come together” to form the mortgage industry forum, Mr Waldron went on to thank brokers for their support.

“Our priority is to continue to back [brokers] in delivering the best customer experience by moving forward with the times.

“We have a real opportunity to chart our own course for the interests of consumers and the progress of our industry.”

Major bank mortgages to go digital

From The Adviser.

With the 1 August deadline looming for paperless refinancing, one major lender has explained how technology is reshaping the way it delivers home loans.

Mortgage providers from across Australia are in the process of digitising their back-office operations. The migration to e-conveyancing has been a significant event in the evolution of the Australian mortgage market. More than 120 lenders have now signed up to exchange property online through PEXA’s network, where almost $58 billion worth of property has transacted to date.

From 1 August in NSW and Victoria, commercial standalone mortgages will need to be lodged electronically by ADIs, while in NSW and Victoria, refinance transactions will have to be lodged electronically where both mortgagees are ADIs.

According to Marielle Yeoh, PEXA’s chief financial services officer, the best way for brokers to prepare for the change is to ask lenders if the transaction will be settling on PEXA and to share with customers and borrowers that there is now a new way of settling electronically.

NAB is at the forefront of these changes and sees the property industry moving towards 100 per cent digital settlements. The group’s general manager of customer lending operations, Gary Howard, said that digital settlements have a number of benefits for NAB and its customers.

“It gives us greater flexibility to deliver outcomes quickly for our customers,” Mr Howard said. “It also results in less duplication and cost. Leveraging technology will give our people the opportunity to focus on more personalised service, and for our customers it means increased security and real-time access to funds.”

Improving turnaround times and delivering a better customer experience in home lending are key competitive advantages in a market where rate matching is common.

NAB believes that digital allows for a wide range of opportunities. “Certainly, there are a number of layers and legacy systems and processes within the mortgages process, and many of these processes are geared towards paper,” Mr Howard said.

“To digitise the entire mortgage process, end to end, we need to think differently and look for opportunities to innovate . . . and we are,” the chief said. “PEXA is a great example of what is possible and how we can progress towards delivering a better customer experience by going digital.”

Traditionally, some mortgage brokers have considered elements of digital processes a threat. This appears to be changing, with more and more brokers integrating digital solutions into their own businesses to drive efficiencies and improve productivity.

While NAB remains focused on delivering digital solutions in the mortgage space, Mr Howard recognises that not all areas need an electronic touch.

“We’re focused on delivering digital solutions that are driven by customer needs,” he said, “but that doesn’t mean everything is going to be digitised, particularly where relationships and human advice counts.”

NAB recently strengthened its partnership with REA Group by announcing the sale of Choice Home Loans to the ASX-listed real estate listings giant. A fresh line of white-label mortgages has been tipped to hit the market as part of the NAB/REA deal.

But brokers are firmly on the group’s radar. Speaking at NAB’s Knowledge is Everything road show in Sydney back in April, EGM of broker partnerships Anthony Waldron said that he expects broker market share to exceed 70 per cent over the coming years.

Mr Waldron explained how consultation on the ASIC remuneration review, for example, could further boost third-party share by improving trust.

“It’s the opportunity for more people to understand what brokers do; it’s the opportunity to build trust even further in what you do. And if we can do that then we won’t be talking about 53 or 54 per cent of mortgages going through the broker community. We will be talking about more like the numbers in the UK where it is already in the 72 or 73 per cent.”

Nevertheless, big banks acknowledge that the digital age is here, and NAB’s Mr Howard is confident that the property industry is moving towards “100 per cent” digital settlements.

Mr Howard said: “Within a few years, we expect the majority of transactions will be performed electronically.”

Updated 09 August. Note the statement from WA’s Landgate.

Taking into consideration industry feedback, the Registrar of Titles has revised the information published in CIB289.

The Registrar will now require the move to electronic lodgement of land transfer documents via an Electronic Lodgement Network Operator (ELNO) by regulation.

The regulations are expected to be in place during Q4 2017.

From 1 December 2017, all eligible mortgages, discharges of mortgages and refinances must be lodged electronically.

From 1 May 2018 all eligible, stand-alone transfers, caveats and withdrawal of caveats and any lodgement case consisting of eligible discharges, transfers, mortgages, caveats and withdrawal of caveats must be lodged electronically.

The Registrar of Titles and the Minister for Lands are in agreement that this approach is fair and clear, and provides the necessary legal clarity for government and industry.

With current market conditions, and the extra time allowed to prepare for the changes, the Minister and Registrar encourage all settlement agents to inform themselves on e-conveyancing, register and begin transacting electronically as soon as possible.

Landgate has provided considerable information to industry on the nature of the changes, and has sponsored the Australian Institute of Conveyancers, Western Australian branch to provide its electronic conveyancing accreditation program.  There has also been a series of roadshows presented by Property Exchange Australia (PEXA) to take interested settlement agents through the electronic lodgement process and answer any questions.  Landgate will continue to support industry through this transition.

More Households Worry About Saving For Retirement

An increasing number of Australians believe they will fall far short of being able to fund their retirements, which may be leading to a greater focus on paying down debt and putting more aside in savings, according to the latest research from MLC.

Between the fourth quarter of 2016 and first of 2017, the MLC Wealth Sentiment Survey Q1 2017 recorded an increase in Australians who think they will have “far from enough” in retirement, up from 24 per cent to 32 per cent of respondents.

The research also identified a significant disconnect between the retirement Australians want and the one they expect to have. Most respondents described their ideal retirement with words like “relaxed”, “comfort” and “travel”, while one in five used words like “stressful”, “worried”, and “difficult” to describe how they expect their retirement will be.MLC Wealth Sentiment Survey Q1 2017

“While economic indicators are quite strong, at an individual level it’s apparent that Australians aren’t feeling confident about their finances, and this may be causing anxiety about retirement,” MLC General Manager of Customer Experience, Superannuation, Lara Bourguignon, said.

“What’s interesting is that respondents said they need over $1 million to retire on, but even small super balances help in retirement, so instead of being worried and fearful, people should feel motivated and empowered to take the little steps that make a big difference.”

More Australians paying off debt, saving

The survey also shows Australians are now taking debt and saving more seriously.

Overall, 21 per cent of Australians plan to pay off more debt in the next three months, outweighing those who intend to pay off less debt (13 per cent) than they were previously. Further, 26 per cent intend to save more and 19 per cent save less.

“With people reporting they are concerned about having enough in retirement, it may be that Australians are taking a closer look at debt and implementing savings strategies that will help improve their overall financial position,” Ms Bourguignon said.

“While the catalyst may be a lack of confidence about funding retirement, getting in control of your finances is very empowering, and so we may see people feeling a lot better about their money in the long run.”

Australians don’t feel wealthy enough to seek financial advice

Another key insight from the research was that Australians believe they need to be wealthy in order to seek financial advice, a finding that may be holding many back from reaching their financial goals, Ms Bourguignon said.

“Many respondents said they would visit a financial adviser if their needs were more complicated, or if they earned more or had money to invest. But tackling debt or implementing a savings plan is actually the ideal time to engage a financial adviser.

“We certainly need to start changing our view around advice being only for the wealthy; it’s for all of us.”

Other key findings:

  • Women are more pessimistic than men about having enough for retirement – 62% don’t expect to have enough to retire on, compared with 52% of men.
  • Despite concerns about funding retirement, three in four Australians haven’t seen a financial adviser in the last five years.
  • Only three in ten Australians are comfortable borrowing to invest, with a third of these preferring investing in property.

About the MLC Quarterly Australian Wealth Sentiment Survey

The MLC Quarterly Australian Wealth Sentiment Survey interviews more than 2,000 people each quarter. It aims to assess the investment environment by asking questions related to current financial situation, investment intentions, level of concern related to superannuation and other investments, change in life insurance, and distance to retirement and investment strategy.

NAB Retail Will Align Staff Incentives To Customer Outcomes

NAB is changing the incentives program for its most senior branch and contact centre managers, to reward delivery of great customer outcomes, leadership, and performance.

More than 700 NAB Retail branch managers, assistant branch managers, and sales team leaders in consumer call centres will move from their existing incentive plan to NAB’s Group Short Term Incentive (STI) Plan.

This will take effect from 1 October 2017, well ahead of the 2020 deadline set by Stephen Sedgwick AO for bank remuneration reforms.

NAB Chief Customer Officer of Consumer Banking and Wealth, Andrew Hagger, said the change will see greater emphasis placed on customer outcomes, actions and behaviours, not just product sales, for staff incentives.

“Our branch managers are the respected and trusted face of our business in the community, and their priority is to deliver the best outcomes for customers,” Mr Hagger said.

“This change to our staff incentive program sends a very clear message: that the customer must be at the heart of everything we do, and that great leadership is both valued and rewarded.”

The NAB Group STI Plan has a sharp focus on deep understanding of customer needs, and also links incentives to an overall assessment against a range of factors, including risk management, conduct, and adherence to NAB values.

“We’ve heard the message from our customers and the community, and we’re taking action to make banking better for our customers,” Mr Hagger said.

The move of these employees to the Group STI Plan is consistent with final recommendations made by Stephen Sedgwick AO in April as part of the Australian Bankers’ Association’s Better Banking reform package, which aims to protect consumer interests, increase transparency and accountability, and build trust and confidence in the industry.

“This change is just one of many things we’re doing to ensure we are better serving our customers,” Mr Hagger said.

“Over the coming 12 months we will continue to review our practices – including things that influence our culture, such as performance plans, incentives, visual management, and team meeting structures – to ensure we are consistently delivering great customer outcomes,” Mr Hagger said.

NAB has already made a number of other changes to its employee remuneration structure, including:

  • In 2016, NAB moved away from performance-based, fixed pay increases for customer service and support staff. These staff receive a standard pay rise of 3% per year, under our 2016 NAB Enterprise Agreement;
  • All of our people have a balanced scorecard where demonstration of values is as important as performance metrics;
  • We have introduced higher standards for conduct and compliance; and
  • NAB was the first bank to commit to implementing the Sedgwick reforms and we aim to implement them well ahead of the 2020 deadline.

NAB Sells Down JANA

NAB has today announced that it has agreed to sell a 55 per cent interest in its asset consulting business (JANA) to the JANA senior management team.

NAB Asset Management Executive General Manager, Garry Mulcahy, said “this transition will mark an important evolution for both NAB Asset Management and JANA.”

“As both businesses enter their next phases of growth, we believe the time is right for a new way forward to focus on our respective competitive strengths – NAB Asset Management as a global asset management business, and JANA as an industry-leading asset consulting firm.”

“NAB Asset Management looks forward to partnering with JANA to leverage our complementary capabilities in providing investment advice and portfolio management solutions to our diverse clients.”

JANA Chief Executive Officer, Jim Lamborn, said “this announcement marks an exciting next step in JANA’s 30 year history.”

“The new management ownership structure model will give us greater flexibility to respond to the opportunities and challenges in the marketplace, and importantly will establish greater economic alignment between our clients and employees,” Mr Lamborn said.

“It will also ensure that we continue to have the best talent so that we can continue to provide leading research and investment insights.”

JANA is recognised as Australia’s leading asset consulting firm, with funds under advice of more than $350 billion, as at 30 June 2017.

Mr Mulcahy said NAB Asset Management was focussed on being a leading global asset management business and was pleased with the strong growth momentum in the business.

“Today, the NAB Asset Management business is made up of more than 100 investment professionals, who manage more than $200 billion in funds under management,’’ said Mr Mulcahy.

“We will continue to purposely build our investment and distribution capabilities to deliver better client experiences.’’
The proposed transaction is expected to be completed in September 2017

Advantedge Hikes IO Rates

Advantedge Financial Services (Advantedge) today announced it will increase the interest rate on all new and existing variable rate interest only home loans by 0.35% p.a., effective Tuesday 8 August 2017.

Advantedge is part of the National Australia Bank Group (NAB) and is Australia’s leading wholesale funder and distributor of white-label home loans.  

Australian Broker.  says from today, the interest rate on all new fixed rate interest only home loans will increase by 0.35% p.a.

These changes apply to both owner occupier and residential investor home loans, across all of Advantedge’s white label partners.

Brett Halliwell, general manager of Advantedge, said these changes will ensure Advantedge complies with regulatory requirements, including managing interest only lending for residential mortgages.

“Our products are highly competitive and delivered with exceptional service,” Halliwell said.

“Advantedge is focused on ensuring a positive customer and broker experience, and we continue to offer highly competitive variable rate special offers for new principal and interest lending.”

Currently, Advantedge is offering a special 3.74% p.a. principal and interest variable rate for new owner occupier borrowers, and 4.24% p.a. for new principal and interest investor borrowers. Eligibility criteria apply.

“We encourage all brokers to discuss with customers whether a principal and interest home loan may be more suitable for them,” Halliwell said.

The LTI Light Is Dawning!

NAB has said that they will “start automatically rejecting customers who want to borrow a high multiple of their income and only pay interest on their home loan, amid concerns over the growing risks created by rising household indebtedness.

From this Saturday, the bank will decline any customer applying for an interest-only loan who has a high loan-to-income ratio – an approach that banking sources said was not used by other lenders in the mortgage market”, according to the SMH.

While NAB already calculates loan-to-income ratios when assessing loans, it has not previously used the metric to determine whether a customer gets a loan, and such a blanket approach is understood to be unusual in the industry.

We have maintained for some time that LTI is an important measure. It should be use more widely in Australia, as it is a better indicator of risk than LVR (especially in a rising market).


NAB makes corrective disclosure to customers about relationships within its wealth management business

An ASIC investigation of a number of advice licensees within the National Australia Bank Group (NAB Group), for failing to disclose relationships between advisers, advice licensees, and other members of the NAB Group that issue investment products, has resulted in corrective disclosure being made to customers.

The non-disclosure occurred when customers were advised to acquire products issued by NAB Group-related firms, including MLC-branded products. Customers were provided with Statements of Advice (SoAs) and Financial Services Guides (FSGs) by their financial advisers that did not fully disclose the connection between each customer’s adviser, the advice licensee, and recommended investments.

Disclosing associations or relationships between advisers, employers, authorising licensees and issuers of financial products to customers in FSGs and SoAs is required under the Corporations Act.

At least 150,000 customers received deficient disclosure either in SoAs or FSGs in relation to MLC-branded products and boutique investment manager products.

The defective disclosure occurred following a failure to update template documents due to a process error.

The licensees investigated by ASIC were:

  • National Australia Bank Limited;
  • Godfrey Pembroke Limited;
  • Apogee Financial Planning Limited;
  • GWM Adviser Services Limited;
  • Meritum Financial Group Pty Ltd; and
  • JBWere Limited.

Following discussions between ASIC and the NAB Group, customers who invested in MLC-branded products will receive corrective disclosure when they log in to their accounts on the MLC website for a three month period. NAB has also agreed to write to the remainder of affected customers currently invested in related products, explicitly acknowledging the issue and providing corrective disclosure.

Customers with further concerns can contact NAB’s dedicated hotline on 1800 035 687.

ASIC’s Deputy Chairman Peter Kell said, ‘This investigation is a result of ASIC’s priority of improving compliance and disclosure standards in vertically integrated financial services licensees.’

ASIC acknowledges the cooperation of NAB in this matter.


This outcome is a result of ASIC’s Wealth Management Project.

The Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. The Wealth Management Project focuses on the conduct of the largest financial advice firms (NAB, Westpac, CBA, ANZ, Macquarie and AMP).

ASIC’s work in the Wealth Management Project covers a number of areas including:

  • working with the largest financial advice firms to address the identification and remediation of non-compliant advice; and
  • seeking regulatory outcomes, where appropriate, against licensees and advisers.

What the–Smartline–NAB love triangle means for brokers

From Mortgage Professional Australia.

The deal announced yesterday is a vote of confidence in broking and a new frontier for vertical integration

Property search giant will be entering broking, it was announced yesterday. and NAB are building a mortgage broking business and will launch later this year. All Choice Home Loan brokers will be invited to join the new business, which will benefit from’s near 5.9m unique visitors a month.

Tracy Fellows, CEO of owner REA Group, portrayed the move as a vote of confidence in broking: “we’re excited to be partnering with NAB to build a new mortgage broking solution. The way people want to look for and buy property is changing. We want to make it easier for Australians to access the help and experience of a mortgage broker through the digital channels they’re already using to find their new home.”

Asked by MPA, REA Group claimed consumers would have access to a “broad panel of lenders, including NAB home loans and a branded white label product.” Aggregation support will come from Choice Aggregation Services.

It is unclear what options are available to Choice Home Loans brokers who don’t wish to become part of Home Loans.

How does Smartline fit in?

Yesterday also saw acquire an 80.3% controlling stake in Smartline.

This deal was separate to that between NAB and REA Group. Smartline will keep its branding and continue to operate under its current management, who retain a 19.7% share in the business for at least the next three years.

Commenting on the move, REA Group’s Executive Director of Financial Services Andrew Russell noted: “We’re delivering on our promise to simplify property search and financing by offering genuine choice when it comes to finding the right home loan.”

However, at this stage, it is not confirmed whether Smartline brokers will actually get access to leads from REA Group could only tell MPA that “we will be working with Smartline to explore how both businesses can leverage each other’s scale and capability for the longer term.”

Vertical integration mk.ii

Given broking has recently experienced not one but two reviews, a major brand name such as entering broking can be seen as a major vote of confidence.

Just as interesting is the role of NAB. Vertical integration was covered by ASIC’s Review of Mortgage Broker remuneration, Proposal 4 of which recommended clearer disclosure of ownership structures and has been clear about NAB’s involvement.

ASIC also found that vertical integration through white labelling can raise a lender’s market share. NAB and Advantedge’s share of FAST, Choice and Plan loans was significantly higher than their overall market share (22.3% compared to 13.2%). However, NAB’s share of FAST, Choice and Plan was just 12.7% without Advantedge.

NAB will not own’s home loan business but may be hoping that providing its white label products could have a similar effect as vertical integration.

Also in question is whether other online property groups – specifically Fairfax-owned – will now decide to enter broking.