2019 Annual Financial Report - NAB Personal Banking
Our vision is to beAustralia’s leading bank,trusted by customers forexceptional service.ANNUAL FINANCIAL REPORT 2019National Australia Bank Limited ABN 12 004 044 937
National Australia Bank LimitedABN 12 004 044 937This 2019 Annual Financial Report (Report) is lodged with the Australian Securitiesand Investments Commission and ASX Limited. National Australia Bank Limited (NAB)is publicly listed in Australia. The Report contains information prepared on the basisof the Banking Act 1959 (Cth), Corporations Act 2001 (Cth), Accounting Standards andinterpretations issued by the Australian Accounting Standards Board and InternationalFinancial Reporting Standards and interpretations issued by the International AccountingStandards Board. NAB also produces a non-statutory Annual Review which can be viewedonline at www.nab.com.au/annualreports.To view the Report online, visit www.nab.com.au/annualreports. Alternatively, to arrangefor a copy to be sent to you free of charge, call Shareholder Services on 1300 367 647from within Australia, or 61 3 9415 4299 from outside Australia.Nothing in the Report is, or should be taken as, an offer of securities in NAB for issueor sale, or an invitation to apply for the purchase of such securities.All figures in the Report are in Australian dollars unless otherwise stated.
ANNUAL FINANCIAL REPORT 2019REPORT OF THE DIRECTORS22019 at a glance2Chairman's message3Operating and financial review5Directors’ information29Other Information34Other matters35Auditor’s independence declaration41Remuneration report43CORPORATE GOVERNANCE72Governance72FINANCIAL STATEMENTS73Income statements74Statements of comprehensive income75Balance sheets76Cash flow statements77Statements of changes in equity79NOTES TO THE FINANCIAL STATEMENTS81DIRECTORS' DECLARATION165INDEPENDENT AUDITOR'S REPORT166SHAREHOLDER INFORMATION174GLOSSARY1792019 Annual Financial Report1
REPORT OF THE DIRECTORS2019 AT A GLANCE1.669.9% Dividend per share (for the full year)cash return on equity——32 cents lower than 2018180 basis points decrease from 201854-14%Employee engagement score—Compared to top quartile globalbenchmark of 69%4.80bn Statutory net profitPriority segments netpromoter score—2 point increase from 2018, rankedequal #1 amongst major banks5.10bn Cash earnings—10.6% decrease from 2018 6.55bn cash earningsex large notables of 1,448m0.8% increase from 2018271,81719,673Australians assisted withmicrofinance products and servicesNumber of customers assistedexperiencing financial hardship——1% increase from 20187% increase from 2018National Australia Bank
REPORT OF THE DIRECTORSCHAIRMAN’SMESSAGEThe release of National Australia Bank’s annual reportscoincides with my first day as Chairman. I have taken thisposition after eight months as interim Group CEO, morethan three years as a Director and more than 37 yearsworking in financial services.This has been an extraordinarily challenging year for theorganisation, in which it was clear that significant changeswere necessary. We required a different approach.The Board understands what has gone wrong within thebank and that we can only move forward if we deal with thepast. We are determined to make things right, earn trustand build confidence in the future of our business.We are pleased with the calibre of the incoming Group CEO,Ross McEwan, who is commencing on 2 December 2019.Ross is an experienced and proven CEO with a strongreputation for customer fairness, cost management,reputation recovery and leading industry reform. The Boardstands ready to help Ross take the organisation forward tobecome the bank you want us to be.At no stage will we seek to brush past the events andfindings of the Royal Commission. We were rightly calledout for failing to meet customer expectations and, in somecases, breaching their trust. We faced challenges andrevelations that ultimately led to our outgoing Chairmanand former Group CEO resigning.The shareholders’ first strike against our 2018Remuneration Report at our Annual General Meeting (AGM)last year also sent a clear message. We needed to reshapeour remuneration framework, including how we appliedoutcomes for executives.Along the way, we lost trust with customers and thebroader community. As interim Group CEO, I haveresponded to these disappointments by being clear onaccountability and driving rigour and discipline in the wayNAB operates.Lifting performanceWe are addressing the issues of the past and preparing thebank for the future. We have taken clear actions designedto ensure we meet customer and community expectations.The Board has increased rigour in assessing performance,with a clear focus to reward longer-term, sustainablecustomer and shareholder outcomes.While 2019 underlying business performance was solid,NAB did not achieve some financial and non-financialtargets. The Remuneration Report reflects the Board’sdecision that the Executive Leadership Team will receive noshort-term variable reward and no fixed remunerationincrease for the financial year.We have strengthened our financial settings. We haveincreased customer-related remediation provisions. Wehave lowered our dividend payout, by 16% from financialyear 2018, and we have raised a significant amount ofcapital to ensure we are on track to meet APRA’s‘Unquestionably Strong’ requirements for 1 January nextyear.Our transformation, which has been underway for over twoyears, is delivering real benefits in terms of productivity andsupporting business growth in a challenging, low-rateenvironment. It is also improving the resilience of ourtechnology and enabling us to adapt to a new digital future.Our focus on becoming simpler, faster and less complex forcustomers and employees has resulted in 30% fewerproducts, 30% fewer over the counter transactions and a17% decrease in calls to our call centres.We are making things right where we have made mistakes.We have improved processes to remediate customers fairly,consistently and more quickly, with a dedicated remediationteam of more than 950 people driving this work.2019 Annual Financial Report3
REPORT OF THE DIRECTORSA comprehensive program of work is well underway toimprove non-financial risk management at NAB. We arefocused on driving effective change to improve outcomesfor customers and achieve sustainable, long-termperformance.We have begun an extensive and considered reformprogram to achieve cultural and risk transformation, arisingout of the Self-Assessment and sitting alongside our RoyalCommission response.We take full accountability for our failings and have beentransparent on our progress to address them. Intensiveeffort is underway to continue to overhaul processes andpractices, but it is early days and there is more work to bedone to achieve sustainable change.We are determined to ensure NAB meets the higheststandards and to build a culture that puts customers at thecentre of everything we do.Supporting customers and the broader communityNAB exists to serve customers, to keep their money safe andto facilitate borrowing and enable investment. In doing so,our core banking activities play an important role in theeconomy and the broader community – including 5 billionpaid in dividends to our mostly Australian-basedshareholders and 3.1 billion paid in taxes this year.We are absolutely committed to doing our part to supportgrowth for business and households. We know thatincreased prosperity in Australia relies heavily on businessinvestment and the current caution in the private sectorreflects broader global uncertainty.The RBA cash rate is sitting at historic lows, which presentsnew challenges for our industry. We are determined toaddress the needs of depositors, borrowers and ourshareholders in this dynamic environment – and remainvery much open for business. This year we provided 61billion in new lending for our Australian and New Zealandcustomers to buy or renovate their homes.This year we enhanced our standing as Australia’s largestbusiness bank, growing market share in the small tomedium sector. With NAB financing one in three dollars lentto Australian farmers, we are also the leading agribusinessbank.We also want to make a positive impact on the lives of ourcustomers, people, shareholders, communities and theenvironment in which we operate. Our employees took13,464 volunteer days to support the community this yearand in our 16th year of partnership with Good Shepherd, wehave now funded 293.6 million in loans to more than halfa million Australians unable to access mainstream finance.In a unique collaboration with the CSIRO, we launched theAustralian National Outlook report in June, outlining abroad and compelling view about Australia’s roadmap to2060. We are committed to the communities in which weoperate and understand we have an important role to playin Australia’s economy.4National Australia BankWe have more than 34,000 people and are equally focusedon caring for them; the bankers and teams across the bankwho strive to deliver the best possible financial services toour customers every day. I am proud that our customersoften call out their local branch employees as the highlightof their banking relationship with us.We are working to foster a culture of inclusion andaccessibility, enabled by leaders and employee-ledvolunteer groups. In our survey of NAB employees this year,74% told us they experienced an inclusive workplace in2019. Our aim is to reach the top quartile of organisationsin Australia and New Zealand, which would require a resultaround 77% for inclusion.The future of your businessAs Chairman, I am acutely aware of what is expected of meand the Board in coming years. We will continue to activelypursue Board renewal, following the resignation of formerChairman Ken Henry, effective November 2019 and theplanned retirement of Anthony Yuen after our AGM inDecember 2019.I take this opportunity to formally thank Ken and Anthonyfor their contributions and service since they joined theBoard in 2011 and 2010 respectively, and wish them well forthe future. I also thank our former Group CEO, AndrewThorburn, who led the organisation for more than fouryears and whose passion for customers is well known.I would also like to welcome Kathryn Fagg as a new directoron our Board, effective 16 December 2019. Kathryn is ahighly respected director with extensive leadershipexperience across several industries, including banking, andwill stand for election at our AGM in December 2019.The Board understands we are at the service ofshareholders, as well as customers and the community. Ascustomers and shareholders ourselves, we have a sharedexperience and perspective on NAB’s performance.After a year in which we were found to have fallen short inseveral areas, we look forward to demonstrating to allstakeholders that we are a company worthy of yoursupport.Philip Chronican, Chairman
REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEWThe directors of National Australia Bank Limited (NAB)present their report, together with the financial statementsof the Group, being NAB and its controlled entities, for theyear ended 30 September 2019.Certain definitionsThe Group’s financial year ends on 30 September. Thefinancial year ended 30 September 2019 is referred to as2019 and other financial years are referred to in acorresponding manner. Reference in this document to theSeptember 2019 full year are references to the twelvemonths ended 30 September 2019. The abbreviations mand bn represent millions and thousands of millions (i.e.billions) of Australian dollars respectively.Key terms used in this report are contained in the Glossary.Forward looking statementsThis report contains statements that are, or may be deemedto be, forward looking statements. These forward lookingstatements may be identified by the use of forward lookingterminology, including the terms "believe", "estimate","plan", "project", "anticipate", "expect", "target", "intend","likely", "may", "will", "could" or "should" or, in each case,their negative or other variations or other similarexpressions, or by discussions of strategy, plans, objectives,targets, goals, future events or intentions. Indications of,and guidance on, future earnings and financial position andperformance are also forward looking statements. Users ofthis report are cautioned not to place undue reliance onsuch forward looking statements.Such forward looking statements are not guarantees offuture performance and involve known and unknown risks,uncertainties and other factors, many of which are beyondthe control of the Group, which may cause actual results todiffer materially from those expressed or implied in suchstatements. There can be no assurance that actual outcomeswill not differ materially from these statements.The Operating and Financial Review describes certaininitiatives relating to the Group’s strategic agenda(“Program”), including certain forward looking statements.These statements are subject to a number of risks,assumptions and qualifications, including: Detailed business plans have not been developed for theentirety of the Program, and the full scope and cost ofthe Program may vary as plans are developed and thirdparties engaged. The Group’s ability to execute and manage the Programin a sequenced, controlled and effective manner and inaccordance with the relevant project and business plan(once developed). The Group’s ability to execute productivity initiatives andrealise operational synergies, cost savings and revenuebenefits in accordance with the Program plan (including,in relation to CTI and ROE targets, the extension ofimprovements beyond the current Program plan). The Group’s ability to meet its internal net FTE reductiontargets. The Group’s ability to recruit and retain FTE andcontractors with the requisite skills and experience todeliver Program initiatives. There being no significant change in the Group’sfinancial performance or operating environment,including the economic conditions in Australia and NewZealand, changes to financial markets and the Group’sability to raise funding and the cost of such funding,increased competition, changes in interest rates andchanges in customer behaviour. There being no material change to law or regulation orchanges to regulatory policy or interpretation, includingrelating to the capital and liquidity requirements of theGroup. For the purpose of calculating FTE cost savings andredundancy costs, the Group has assumed an averageFTE cost based on Group-wide averages, and such costsare not calculated by reference to specific productivityinitiatives or individual employee entitlements. NAB's proposed divestment of its wealth managementbusinesses (excluding JBWere and nabtrade) may have animpact on the timing, scope and cost of the Program,however the impact cannot be quantified at this time.Further information on important factors that could causeactual results to differ materially from those projected insuch statements is contained on page 18 under“Disclosure on Risk Factors”.Financial performance summaryThe following financial discussion and analysis is based onstatutory information unless otherwise stated. The statutoryinformation is presented in accordance with theCorporations Act 2001 (Cth) and Australian AccountingStandards and is audited by the auditors in accordance withAustralian Auditing Standards.Non-IFRS key financial performance measures used by theGroupCertain financial measures detailed in the Report of theDirectors are not accounting measures within the scope ofInternational Financial Reporting Standards (IFRS).Management review these financial metrics in order tomeasure the Group’s overall financial performance andposition and believe the presentation of these industrystandard financial measures provides useful information toanalysts and investors regarding the results of the Group'soperations and allows ready comparison with otherindustry participants. These financial performance measuresinclude: cash earnings cash earnings (excluding large notable items) statutory ROE cash ROE net interest margin average equity (adjusted)2019 Annual Financial Report5
REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW (CONTINUED) average interest earning assets average assets.The Group regularly reviews the non-IFRS measuresincluded in its Report of the Directors to ensure that onlyrelevant financial measures are incorporated. Certain otherfinancial performance measures detailed in the Report ofthe Directors are derived from IFRS measures and aresimilarly used by analysts and investors to assess theGroup’s performance. These measures are defined in theGlossary.Any non-IFRS measures included in this document are not asubstitute for IFRS measures and readers should considerthe IFRS measures as well. The non-IFRS financial measuresreferred to above have not been presented in accordancewith Australian Accounting Standards nor audited orreviewed in accordance with Australian Auditing Standardsunless they are included in the financial statements.Further information in relation to these financial measuresis set out below and in the Glossary.Information about cash earningsCash earnings is a non-IFRS key financial performancemeasure used by the Group, the investment community andNAB’s Australian peers with similar business portfolios. TheGroup also uses cash earnings for its internal managementreporting as it better reflects what it considers to be theunderlying performance of the Group.Cash earnings is calculated by excluding discontinuedoperations, fair value and hedge ineffectiveness and othernon-cash earnings items which are included within thestatutory net profit attributable to owners of NAB.Cash earnings does not purport to represent the cash flows,funding or liquidity position of the Group, nor any amountrepresented on a cash flow statement. A reconciliationbetween statutory net profit and cash earnings is includedin Note 2 Segment information of the financial statements.Information about net interest marginNet interest margin (NIM) is a non-IFRS key financialperformance measure that is calculated as net interestincome (derived on a cash earnings basis, which in thisfinancial report is not materially different from statutory netinterest income) expressed as a percentage of averageinterest earning assets.Information about average balancesAverage balances, including average equity (adjusted), totalaverage assets and average interest earning assets arebased on daily statutory average balances derived frominternally generated trial balances from the Group's generalledger.This methodology produces numbers that more accuratelyreflect seasonality, timing of accruals (such as dividends)and restructures (including discontinued operations), whichwould otherwise not be reflected in a simple average.6National Australia BankRefer to page 7 for a five-year summary of the Group’saverage equity (adjusted), total average assets and averageinterest earning assets.Information about large notable itemsLarge notable items included in the net profit attributableto owners of NAB are described below:Customer-related remediationCharges associated with customer-related remediationmatters. These include: refunds and compensation to customers impacted byissues in the Wealth business, including adviser servicefees charged by NAB Financial Planning and NAB AdvicePartnerships, combined with the Wealth advice reviewand consumer credit insurance sales (within discontinuedoperations) banking-related matters, including matters wherecustomers were incorrectly charged fees on certain feeexempt transactions costs for implementing remediation processes.Capitalised software policy changeCharge associated with a change in the application of thesoftware capitalisation policy by increasing thecapitalisation threshold from 0.5 million to 2 million.Restructuring-related costsCosts associated with the acceleration of the Group'sstrategic agenda announced on 2 Nove
The directors of National Australia Bank Limited (NAB) present their report, together with the financial statements of the Group, being NAB and its controlled entities, for the year ended 30 September 2019. Certain definitions The Group’s financial year ends on 30 September. The financial year ended 30 September 2019 is referred to as 2019 .
NAB ANNUAL SOCIAL BOND REPORT Page 2 1. INTRODUCTION 1.1 Purpose National Australia Bank Limited ABN 12 004 044 937 (NAB), is pleased to present its third NAB Annual Social Bond Report (Report), for the financial year ended 30 andSeptember 2019. This Report relates to our NAB Social Bonds outstanding as
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the Corporations Act 2001 (Cth) and Australian Accounting Standards, are set out in NAB’s 2019 Annual Financial Report. Full detail on how cash earnings is defined, a discussion of non-cash earnings items and a full reconciliation of statutory net profit attributable to owners of NAB is set out in Note 2 of NAB’s 2019 Annual Financial Report.
NAB ANNUAL GREEN BOND REPORT Page 1 INTRODUCTION National Australia Bank Limited ABN 12 004 044 937 (‘NAB’), is pleased to present its Annual Green Bond Report (‘Report’), for the financial year ended 30 September 2019. This report relates to our Green Bond Portfolio (four NAB Green Bonds1 and our
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