15 Nov 2019

Opening Statement to the House of Representatives Economics Standing Committee

Acting Interim Group, CEO Philip Chronican

Last time I was before this Committee, I started by acknowledging that our bank had let down our customers, the community and also our employees, the vast majority of whom who do a great job, day in, day out.

I said then and want to repeat again today that I am sorry that these failures happened and I apologise to everyone impacted by them.

Since March we have been focused on making changes to put things right – because we can only move forward if we deal with the past.

Today I want to bring you up to date with some of the actions we have taken and the issues we are addressing.

In July, we announced the appointment of our Chief Executive Officer Ross McEwan, who will join NAB on December 2.

Ross is a strong and proven leader who will drive the right behaviours and culture and who has a reputation for customer fairness and industry reform.

Today I start as Chairman of NAB, although I appear here as the Interim CEO.

During my time as Interim CEO, my focus has been on driving rigour and discipline in the way NAB operates, and trying to be much clearer on accountability.

A key priority for me has been to compensate our customers. We now have more than 950 people dedicated to this work, making sure that we do it fairly and quickly.

To date, $247 million has been returned to customers through 473,000 separate payments; and we have set aside more than $2 billion to continue to make things right.

Last month we ended our home loan ‘introducer’ payments program because we want customers to come to NAB because they are confident in the products and services we have – not because we have made a payment to a third party who recommended us.

There has rightly been scrutiny of our management of non-financial risk, and last week we provided an update on the work underway to improve our performance in this area.

This includes the 26 actions we are taking following the Board-led Self-Assessment of NAB’s culture, accountabilities and governance.

It is early days and there is much more to be done to achieve sustainable change, however there is intensive effort is underway:

  • We have removed or reduced 185 fees across Australian banking and Wealth business.
  • We have reviewed more than 300 products to ensure that they are right for customers.
  • We have created a Board Customer Committee to provide oversight to customer outcomes and remediation.

We are also addressing the recommendations contained in the Final Report of the Royal Commission.  Of the 76 recommendations, 39 are currently capable of being addressed by NAB and we have completed 5 of these, and 34 are in progress.

While a lot of our work has been on making changes to earn trust and build confidence in NAB, we have not lost sight of our role in helping our customers.

Australians still want to get ahead – to own their homes, or grow their businesses.  We will manage our bank in a way that backs those ambitions, even in an uncertain environment.

Economic trends continue to soften globally, and in Australia we are in unprecedented times with historic lows in the official cash rate, and home loan, deposit and savings rates.

This creates challenges for our business and in considering the impacts of our decisions on all our stakeholders.

These include:

  • Our 930,000 home loan customers who deserve the best possible rate.
  • Our 3 million savings and investment customers who want higher returns.
  • Our shareholders, including 573,000 retail shareholders and millions of Australians who own NAB shares through their superannuation, who rely on consistent dividends.
  • And of course, our more than 34,000 employees

We also want to maintain our investment in better products and services.

We are seeking to do this at a time when competition has never been more intense, profits are declining and while our importance to the Australian economy is critical.

Our Net Interest Margin is a key indicator of competition, and in our Full Year Results we reported a NIM decline of 7 basis points over the year to 1.78%.

That means that for every $100 we lend, our margin – the difference between the rate we lend and what we pay to fund that lending – is $1.78. Out of that $1.78 of course we have to take out our costs, including for loan losses, and taxes.

In 2010, NAB’s NIM was 2.25%. Meaning that margins have effectively fallen by 2 per cent over the last 9 years.

It is a similar trend for profitability. Our Return on Equity is the best measure of this, and five years ago for every $100 of invested equity, the major banks achieved a return of $15.50.

Today, the ROE for the major banks is $12.20.

These challenges are real. We also acknowledge the need to be transparent and to explain the decisions we make, and in that context the ACCC enquiry into home loan pricing will be important part of that process.

To close – we are determined to make the necessary changes at NAB to earn trust and create confidence in our future.

We are also determined to continue our role in supporting customers and the broader economy, particularly through our lending to businesses.

The biggest barrier to business investing is not interest rates, it is business confidence.

Gary and I look forward to your questions.

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