Banking News

Core business a strong focus for NAB this year

(19 June 2015 – Australia) The focus for National Australia Bank (NAB) has been to build a stronger Australian and New Zealand businesses, focusing on the core business to close the return on equity (ROE) gap and improve shareholder returns, Group executive, Finance and Strategy Craig Drummond told a Trans-Tasman Business Circle luncheon.

Drummond said the bank has built a clear strategy to deliver superior returns to shareholders through three key focus areas.

“The first component is removing the legacy, low returning and what I’d call strategically inconsistent assets that exist within National Australia Bank.

“The second component is building a premier- what I call a premier balance sheet, or what David Murray might call an unquestionably strong balance sheet.

“Thirdly, to focus on what NAB does best for customers and shareholders, and do more of it by investing in the priority segments that we’ve identified … inside our core Australian and New Zealand business” Drummond said.

As part of this plan, NAB has sold 71.5 percent of Great Western Bank in the past nine months, currently only owning 28.5 percent of that bank, which should be sold in due course.

The bank has also sold over £5 billion (A$10.2 billion) of distressed and low returning commercial real estate in the United Kingdom, and that business has now been closed.

In the past 12 months, NAB has sold or run off about A$7 billion of risk-weighted assets in what was previously the legacy business called Specialised Group Assets.

In the past six months Drummond also said there had been Project Crown, which was a reinsurance transaction where the bank released about half a billion dollars of capital off the back of reinsuring 21 percent of NAB’s in-force retail insurance business.

There has also been clear plans to exit Clydesdale and Yorkshire Bank in the UK via a demerger and partial IPO.

The second component of the financial strategy is to build the premier balance sheet, which is already strong with an AA rating and a peer-leading common equity Tier 1 ratio following a A$5.5 billion capital raising.

“We have peer leading liquidity metrics, as measured by our LCR – or liquidity coverage ratio – at just over 120 per cent.

“And something that we couldn’t have said as little as a year ago, we now have leading industry asset quality.

“Our asset quality, just a year ago, our impaired assets and 90 day past due loans were about one and a half per cent of our loan book.

“Today, they’re about 0.7. So this is a significant change in the shape of NAB’s balance sheet,” Drummond said.

He said the third component was to focus on the core business by refining the strategy back to Australia and New Zealand, where they see their competitive advantage is.

The bank will also focus on priority segments to generate sound returns for shareholders, including consumer and business segments.

Drummond said NAB will reinvest into areas where the bank has some competitive advantage, like leveraging its position as Australia’s preeminent business bank, investing for growth in the priority business and consumer banking segments, and skewing technology and human resources into these core markets.

As part of this shift, the bank invested an additional A$40 million over the past six months, hired 150 new business bankers, with plans for another 70 and NAB has invested in innovative products and solutions including technology and a new sales system.

“And we’re investing also in our personal bank” Drummond said.

“This is a large technology investment that the bank has made over the last five years, and that will go into pilot in the current half.

“And this will make banking for our customers considerably more automated, which means one application process; it means acceptance of contracts and loan documentation online; it means that customers will be able to track progress of their applications via the internet, and via the internet banking portal.

“And in personal banking, we’ve also made some additional investment in frontline bankers. We’ve added just on 30 percent more to our mobile banker numbers in the personal bank over the last six months” he said.