New banking era requires fundamental change: NAB CEO

Following the announcement of NAB’s 2018 half-year financial results (HY18), Mr Thorburn claimed that the banking sector is entering a new era.

“The next era for banking will be very different from the last era in terms of growth, business models, accountability and culture,” the CEO told investors.

“It is clear that we need to fundamentally change our approach, in order to achieve a positive NPS [Net Promoter Score] outcome and to win back respect from our customers and from the broader community.”

NAB’s HY18 results revealed that the bank’s loan portfolio grew by $2.7 billion, from $295.1 billion in the second half of the financial year 2017 (2HY17), to $297.8 billion in HY18. 

Its total net profit fell from $2.74 billion to $2.58 billion over the same period.

However, when looking at profit comparing the most recent half to the prior comparative period (HY17), profits increased 1.5 per cent (from $2.54 billion to $2.58 billion).

The CEO claimed that high capital requirements affected NAB’s consumer banking returns, and he attributed the profit loss to an uplift in investment spend and a “significant” reduction in treasury income.

The big four bank’s share of owner-occupied mortgages grew from 58.0 per cent in 2HY17 to 58.6 per cent in HY18, while investor loans fell by the same margin, from 42.0 per cent to 41.6 per cent.

The share of interest-only (IO) loans also fell, dropping by 2.8 per cent, from 29.8 per cent in 2HY17, to 27.0 per cent.

The proportion of fixed rate mortgages rose by 1.7 per cent, from 18.8 per cent in 2H17, to 20.5 per cent in HY18, with the proportion of variable rate home loans falling by 1.2 per cent, from 73.3 per cent, to 72.1 per cent in the same period.

The share of loans submitted through the broker channel grew by 0.9 per cent, from 33.7 per cent to 34.6 per cent over the same period, while mortgages processed through its propriety channel dropped by the same margin, from 66.3 per cent to 65.4 per cent.

Royal commission to cost NAB $40 million

In his HY18 presentation, Mr Thorburn also disclosed the cost incurred by NAB from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The CEO revealed that in HY18, the commission cost NAB $10 million, adding that he expects the inquiry to cost the bank a further $30 million in 2HY18.

Reflecting on the current banking environment, the CEO said: “[I] think this presents a real burning platform for us, and an opportunity for generational change. I think we can really face into some things here, and make our bank and our profession really strong and respected again. And that will happen when we own issues, and we fix them, and we develop our culture, and we act.”

NAB offloads wealth subsidiary

NAB has also announced its decision to sell its wealth subsidiary, MLC.

Mr Thorburn claimed that NAB’s decision to sell MLC was not influenced by the revelations of misconduct in financial advice identified by the royal commission, insisting that the bank was not exiting wealth management.

However, the CEO said that the sale was influenced by NAB’s desire to simplify its operations, stating that complexities were “killing” the bank.

“We need to simplify the bank. The complexity in the bank is just killing us. We need to simplify. And so what MLC divestment will do is enable us to have a simpler bank — and there’s huge opportunities in the bank,” the CEO said.

Speaking to Mortgage Business following the announcement of ANZ’s HY18 results, ANZ CEO Shayne Elliott also noted that the big four bank plans to simplify its operations in order to navigate through increasingly challenging market conditions.

“Our strategy is about doing a few things and doing them well,” Mr Elliott said.

“In those areas where we have a natural competitive advantage, we want to do those things extraordinarily well — helping people buy and own a home; helping people start, run, and grow a small business; and helping institutional customers move goods and money around the region.

“That’s what we want to do and we want to have the right network, people, products and platforms that allow us to do that.

“[We question why anything else would be] part of the ANZ family and that’s why we’ve been selling businesses, shrinking businesses and exiting segments.”

*The first sentence of this article was updated at 3pm on 4/05/2018 to reflect that the bank's profits fell from $2.74 billion to $2.58 billion. 

[Related: ‘Golden age’ of banking is over: ANZ CEO]