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NAB earnings hit by $1.14bn in new costs

The major bank has released new guidance for its first-half 2020 earnings result, realising over $1 billion in new charges relating to customer remediation, software capitalisation, and a write-down of its wealth business.

NAB has announced that its earnings for the first half of the 2020 financial year (1H20) will be impaired by approximately $1.14 billion in new costs and devaluations.

The impairments are made up of:

  • a net increase of $188 million in provisions for customer-related remediation matters, mostly associated with adviser service fees, and wealth and banking-related remediation program costs,
  • a change to the application of NAB’s software capitalisation policy, reducing the group’s capitalised software balance as at 31 March 2020 by $742 million, and
  • a $214 million reduction in the carrying value of NAB’s investment in insurance business MLC Life due to the “challenging operating environment”.

NAB went on to add that $188 million in new remediation expenses would reduce the group’s common equity tier 1 capital (CET1) ratio by approximately 6 basis points.

NAB has not issued guidance relating to the earnings impact of the COVID-19 crisis but noted that it would provide further detail in its 1H20 results presentation, due to be released in May.

However, the group has revealed that from 1H20, NAB’s wealth business will be reported as a separate segment called MLC Wealth and will no longer form part of the consumer banking division.  

NAB noted that its 1H20 results announcement will include individual divisional reviews for both consumer banking and MLC Wealth.

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NAB’s trading update follows last week’s update from Westpac, which announced new and increased provisions (excluding impairment provisions) and asset write-downs totalling around $1.43 billion.

Westpac’s provisions include new costs associated with AUSTRAC proceedings against the bank totalling approximately $1.03 billion, which includes a non-tax deductible $900 million for a potential penalty relating to the investigation.

 [Related: Westpac sets aside $900m for AUSTRAC proceedings]

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