National Australia Bank (ASX: NAB) posted a 13.6% reduction in net profits for 2019, making it the last of the country’s big four lenders to show its financial wounds from the fallout of the Banking Royal Commission.
With a full-year profit of $4.8 billion – down from $5.5 billion in 2018 – the bank has joined ANZ, Commonwealth and Westpac in announcing a big decline in earnings.
They took their biggest hit from customer remediation costs required from the Royal Commission findings into misconduct in the sector, with NAB reporting a $1.1 billion (after tax) bill for refunds relating to wealth, insurance and personal banking matters.
NAB chief executive officer and chairman-elect Philip Chronican said the year had been a challenge as the bank continues to deal with the financial requirements of the remediation process.
“We are determined to move forward by fixing issues of the past and taking actions to meet customer and community expectations,” he said.
“A gap remains between where we are today and where we need to be for customers, but we are making progress.”
With close to 1,000 staff and consultants making up the bank’s remediation team, Mr Chronican said the wheels were in motion to “make things right for customers who had been treated poorly in the past”.
“We now have in place provisions for the estimated costs and payments relating to all known material customer-related remediation matters on information currently available,” he said.
“However until all customer payments have been completed, the final cost of such remediation matters remains uncertain.”
Of the 76 recommendations contained within the Royal Commission’s final report, 39 are in the process of being addressed by NAB.
Improvements implemented ahead of the report include eliminating default interest charges on loans to farmers impacted by drought and removing grandfathered commissions for NAB-employed financial advisers.
NAB announced a fully-franked dividend of $0.83 per share, bringing the total dividend for 2019 to $1.66 per share and representing a 16% reduction on the previous period.
Mr Chronican said the reduction reflected a more challenging operating environment characterised by regulatory change, earnings volatility and customer remediations, combined with higher levels of capital needing to be held by the bank.
He said the bank also plans to raise an additional $1.5 billion through a partially underwritten dividend re-investment plan to boost its regulatory CET1 capital buffer.
NAB’s board of directors has axed short-term bonus rewards and fixed salary reviews for the bank’s executive leadership team.
Mr Chronican said the board had increased rigour in assessing performance across customer, risk, people, transformation and financial goals.
“While underlying business performance was solid, the bank has not achieved benchmarks on some financial and non-financial results,” he said.
“While we have made progress, it is not enough to be recognised in executive short-term variable reward in 2019.”
The maximum short-term variable bonus reward (where individual and group performance scores are set at the highest possible level) was $14.4 million, while the reward opportunity at target was $9.6 million.
In its full-year results presentation, NAB said it was more than halfway through a three-year $1.5 billion transformation strategy launched in September 2017, which targets more robust systems and processes supporting the shift to digital banking.
The focus on becoming simpler, faster and less complex for customers resulted in 30% fewer products, 30% less over-the-counter transactions and a 17% decrease in calls to the bank’s call centres since the program commenced.
The number of IT legacy applications used by the bank also reduced by 11%, while 19% of current IT applications were migrated to more reliable, lower-cost cloud platforms.
“We are increasing the capacity of our banks to support more complex customer needs with revenue per relationship banker 20% higher since 2017,” Mr Chronican said.
“For our small business customers, we are providing better access to banking services via our scalable customer hubs, plus fast digital access to unsecured lending via Quickbiz, now accounting for 47% of all new small business lending accounts compared with 20% in 2017.”