NAB – Page 17 – Digital Finance Analytics (DFA) Blog

NAB launches overhauled broker offering

One of Australia’s biggest banks has revealed an overhaul in it broker offering that places a strong emphasis on customer service and reducing channel conflict.

NAB today officially launched its updated broker offering, which now means NAB borrowers introduced through the broker channel will have the same access to NAB services and products as any other customer.

Through the NAB broker platform, brokers now have access to four more home loans; NAB Choice Package, NAB FlexiPlus Mortgage, NAB Tailored Home Loan and NAB Base Variable Rate Home Loan, as well as 10-year interest only periods for investment loans.

Upfront and trail commission is offered on the expanded suite of home loan products, while brokers also have access to a wider range of credit card offerings.

Steve Kane, NAB broker offering general manager, said today’s launch is a significant step for the bank and signifies the final step in an ongoing process to strengthen the connection between it and the broker network.

“We had the Homeside brand that didn’t really resonate and put a hurdle in front of brokers when they were talking to their customers. We made a decision to move to NAB Broker and remove the Homeside brand, but the operation stayed the same,” Kane told Australian Broker.

“This is the final stage of that journey, which is really about using the full power of the NAB brand, all the process and services of NAB and all the channels of NAB to support brokers. This is really as much a statement about launching NAB back into the broker market,” he said.

As well as allowing broker clients access to a wider range of products, Kane said the new NAB Broker offering will have a strong emphasis on customer service, which will hopefully lead to a stronger broker–client relationship.

“The position that brokers are now taking is… more and more a long term relationship, rather than transactional one,” Kane told Australian Broker.

“A significant number of brokers are now looking at the whole lifecycle of the customer and part of this rebrand is talking about the broker as a trusted adviser and we’re talking about broking for life.

“We need to be able to offer a holistic range of products and services to support the brokers in doing that, rather than just a mortgage.”

Kane said a new initiative, where select NAB Branches will have staff dedicated solely to broker introduced customers, will hopefully achieve that goal as well as helping to reduce channel conflict.

Under the initiative, brokers can refer their clients to a NAB branch, where dedicated broker channel staff will ensure their accounts and other facilities are set up properly. Those staff are not on a sales incentive program meaning brokers don’t have to fear losing the client.

“The broker is in charge of the products they want to sell the customer. We’re not trying to say we’ll take it all over. What we’ll be doing is ensuring all their accounts and facilities are set up correctly,” Kane told Australian Broker.

“It’s not about competition between channels; it’s targeted at customer service. But it’s not targeted at customer service to the detriment of the broker channel.

“We will always respect the primacy of the broker-client relationship. If a customer came in and said I want a transaction account, we might set them up for that, but on their file brokers can indicate they have a financial planning business or whatever else we won’t do anything that conflicts with that.”

NAB Announces New Mobile Banking App

NAB says customers will have more control over how, when and where they use their cards, thanks to NAB’s new Mobile Banking App to be launched later this year.

The new App will include world-leading card transaction controls, making it easier for customers to conveniently and instantly self-manage their personal Visa debit and credit cards through their mobile device.

And, in an Australian first, NAB customers will be able to instantly use newly approved personal Visa credit cards, with an innovative digital contract feature in the new App not seen anywhere else in the world.

This means customers will be able to instantly use their new credit card through NAB Pay for contactless transactions less than $100, without having to wait for their physical card to arrive in the mail.

“This is a whole new platform for a new era of NAB mobile banking,” NAB Executive General Manager of Consumer Lending, Angus Gilfillan, said.

“Our new App will be fast and seamless, and has been designed to make banking as convenient and easy as possible for our customers.”

“We want to give our customers more control over their everyday banking, and our new App will help them to do this with the tap of a button.”

NAB announced a strategic partnership with Visa in November last year, which was designed to accelerate the delivery of payments innovation and product development for customers. Through this partnership, and utilising the capabilities Visa made available through its Visa Developer platform, NAB was able to enhance the card transaction control features in its new Mobile Banking App.

“We’re really pleased to have been able to open up our capabilities which is delivering speed to market and innovation,” Global Head of Visa Developer, Mark Jamison, said.

“By directly connecting Visa and NAB developers through the Visa Developer program, the NAB team was able to save around six months of development time.”

These card transaction control features will enable customers to select and modify when and how their Visa debit and credit cards can be used.

“Customers will be able to control what type of payments can be made through the App; for example, if you’ve provided a secondary card to a family member, you can choose “Don’t Allow” for online purchases on that card,” Mr Gilfillan said.

NAB’s new mobile banking experience will include a range of other features, including the ability for customers to place a temporary block on any card that may have been lost or stolen.

“NAB is absolutely focussed on improving the customer experience, and our new App will give customers more control of their cards so it better suits their individual needs,” Mr Gilfillan said.

The new App will also see improvements to existing features and functions in NAB’s current Mobile Banking App, and, with a new look and feel, it will be easier for customers to login, view account balances, and search past transactions.

An open pilot of the new App will commence soon for compatible Android devices, providing thousands of customers the opportunity to provide feedback. Customers who would like to participate in the pilot will be able to visit the Google Play Store and download the new App. Customers with iOS devices will also be piloting the App over coming weeks.

“Our customers have been and will continue to be extensively involved in the development of our new App because we are absolutely committed to delivering our customers the experience they want,” Mr Gilfillan said.

During the pilot and after the App is launched in full later this year, features on the App will be released in stages.

NAB will also this week launch its new NAB PayTag to customers, a sticker which can be attached to mobile devices to enable contactless payments linked to a customer’s Visa debit card.

“We’re always looking for opportunities to provide our customers with innovative products and services, features and functions, to help them do their banking easier and take control of their finances,” Mr Gilfillan said.

Weighing up the risks behind the profits of Australia’s big four banks

From The Conversation.

The biggest Australian banks are fairing well in a year of increased pressure to reform from politicians, international events like the Britain’s exit from the European Union and more regulation from the Australian Prudential Regulation Authority (APRA).

A number of interrelated factors have contributed to the relatively strong performance of the Australian banks. For instance, the banks have limited exposure to the types of securities which led to massive losses for their counterparts in other countries. The banks also heavily rely on domestic loans, particularly the low risk household sector, so better lending standards and a proactive approach to prudential supervision by APRA may have contributed.

The Basel III regulatory requirements, brought in after the 2008 financial crisis, emphasise holding an increased amount of subordinated debt, as a measure of market discipline. However all the big four banks are holding less and less subordinated borrowings. More specifically, it declined by more than 50% from 2007 to 2014, according to our calculations.

APRA limits banks’ holdings of higher risk securitised assets, these are loans packaged into securities, to a maximum of 25% of the banks’ loan portfolio. These are high risk if not properly understood or defined, as happened with United States home loans, blamed for the start of the global financial crisis.

When Australian banks calculate bank capital requirements, they need to fully account for securitised assets. This is a rule from APRA that goes beyond international standards, to reflect the risk inherent in these products.

Inter-bank liquidity tightened significantly with all banks increasing their holdings of Exchange Settlements Accounts at the Reserve Bank, this a form of low risk liquidity. Australian banks have lower interbank deposits compared to their Europe and USA counterparts and are also heavily involved in long term wholesale funding and are required to hold more liquid assets including government debt to deal with liquidity. All of this makes Australian banks less risky in times of crisis because spillover effects from other banks are less likely.

The big four CC BY

There has been a significant increase in concentration in the Australian banking industry since the global financial crisis. For example with Westpac and the Commonwealth Bank of Australia taking over St. George Bank and Bank West, respectively.

Following mergers, the big four account for 88% of the Australian banking system assets. This reinforces the idea that the banks are “too big to fail”.

The banks have also moved to more fee generating activities, which increases risk, but to a lesser extent in Australian banks. Data shows between 1998 and 2014, on average, 1.2% greater interest income was generated relative to non-interest income for Australian banks, according to our analysis. However, there is also similar evidence for the top eight publicly-listed Canadian banks. They exhibit on an average, a 2.5% increase in net interest revenue relative to non-interest income over the same time period.

This reinforces that Australian and Canadian banks demonstrated extra ordinary resilience during the credit turmoil in the global financial crisis. The World Economic Forum in 2008 reported that Australia and Canada were among the top four safest banking systems in the world.

Large banks in Australia are active in international markets through direct ownership of foreign based banks and having offshore operations as a source of capital. Deregulation of banking in countries such as the USA, Canada, Australia and many developing countries has opened up new markets for foreign banks. Australian banks’ largest international exposure is to New Zealand, where all big four banks retain sizeable operations.

Although the growing interdependence among international economies and financial markets is certain to continue, the impact of Brexit on Australian banks remains minimal. It remains to be seen in the long-run how Australian banks will weather the international banking/economic developments.

As a last measure of the bank health, we can measure the domestic systemic risk with a methodology based on one used by the official Basel Committee on Banking Supervision. Based on July 2016 monthly data, the big four banks account for 80.38% of the systemic risk in the financial system and the riskiest, from highest to lowest, are the National Australia Bank, the Commonwealth Bank of Australia, Westpac and ANZ.

Property Market to Cool in 2017?

NAB’s latest Housing Market Report, Winter 2016 edition, suggests indicators painting a mixed picture of market conditions. Any near term strength likely to be temporary, with a more subdued market expected for 2017.

Property prices have continued to prove more resilient than expected in 2016 (to date) which are likely supported by better than expected population growth and the recent RBA cut to interest rates, although different price measures are providing
conflicting signals. An example of this can be seen in the Sydney market where quality adjusted house prices have increased significantly in the past 6 months. There are also a number of other (non-price) indicators that point to more mixed conditions in the housing market, including turnover, time on market and vendor discounts. Consequently, we still expect that overall market fundamentals will become less favourable going forward.

Indeed, the NAB Residential Property Survey has softened with moderation seen in each of the major eastern markets. Consistent with the more difficult environment facing property investors, the Survey showed a fall in the share of foreign buyers of new property as well, although observations on this vary considerably by State – Victoria and NSW saw a surprise lift in demand despite a further deterioration in rental yields and relatively poor affordability. Investor housing credit growth has remained relatively subdued in Q2, with annual growth dipping well below APRA’s imposed ‘speed limit’ of 10% (currently 6%) – although this could suggest some upside potential going forward. In contrast, growth in owner-occupied credit has remained fairly robust.

Our (quality adjusted) price forecasts have been revised higher this month in recognition of the strength seen in prices to date. Nevertheless, we are not convinced that the fundamentals have changed significantly since last quarter, although the near-term risks may have shifted more to the upside. Rather, we expect that once the recent resurgence in prices runs out of steam, we are likely to be left with a market that remains soft for a little longer than previously expected.

Our average national house price forecast in 2016 has been increased significantly to 5.1%, from 1.5%, although this is still a slower pace of growth than in 2015 (7.8%). Our unit price forecasts are also higher, at 3.6%, up from -1% previously – but less than half the rate of growth seen in 2015. The weakness previously expected for 2016 has now been shifted to 2017, with house prices forecast growth to be relatively subdued at 0.5%, while large additions to supply are expected to contribute to a decline in unit prices of 1.9%. The NAB Residential Property Survey showed that respondents actually upgraded their price expectations for the next 2 years – especially in NSW – despite deterioration in market sentiment.

NAB’s 3Q16 Trading Update, NIM Soft?

NAB has released its brief 3Q16 trading update and capital proforma. Unaudited cash earnings were around $1.6 billion, 3% lower than the quarterly average of the March 2016 half year, and 3% lower than the prior corresponding period. Statutory net profit was similar at $1.6 billion.

Revenue was broadly stable, but Net Interest Margin (NIM) was lower. Group NIM was 1.89% in March, no update was given today. Expenses fell 1%. The charge for bad and doubtful debt for the quarter rose 21% to $228 million. This included increased charges from mining and agricultural collective provisions, and changes from the low 1Q16 provision base. The ratio of 90+ days past due and gross impaired assets to gross loans was 0.81%, up from 0.78% in March.

The Group’s CET1 ratio was 9.5% at 30 June 2016, compared with 9.7% at March, reflecting the interim dividend payout. Tier 1 ratio was 11.5%, down from 11.8% in March.

The Group leverage ratio on an APRA basis was 4.9%, down from 5.3% in March and 5.5% last September. The quarterly average liquidity coverage ratio was 125%.

They did not comment specifically on the impact of the 25% IRB mortgage risk weighting, but a quick estimate suggests a circa 9% CET1 outcome.

Overall, not surprises, although growth in revenue was slower than expected, and margin is under pressure, with provisions rising as little.

Of course the bank is now insulated from UK/Brexit issues after the split last year.

NAB Expects More Rate Cuts, And Possibly QE

The latest economic summary from NAB, released today, suggests that the immediate impact of Bexit is more benign than was expected. But NAB says the RBA may need to cut the cash rate to 1%, and even try unconventional policies to try and lift growth in the local economy.

Whilst Australian economic growth is expected to remain resilient at 2.9% in 2016 and 2017, despite significant variation across industries and states, the risks to the outlook going into 2018 are becoming increasingly apparent, as LNG exports flatten off at a high level and the dwelling construction cycle turns down.

Against these headwinds, the economy may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its 2-3% target band. Both global and domestic disinflationary pressures are expected to keep CPI inflation below the target band for an extended period, while structural shifts in the economy and modest economic growth risk upward pressure on the unemployment rate.

The economy is then expected to lose some momentum in 2018, which together with the very low inflation outlook, will prompt the RBA to cut the cash rate in both May and August 2017 by 25bps each to a historic low of 1%. Even with this extra stimulus, growth is expected to slow to 2.6% in 2018, and the unemployment rate remain reasonably elevated at 5.6%. Price and wage pressures will remain subdued.

Our forecasts are also dependent on further depreciation in the AUD, although there are significant risks around our view that the AUD will track down to a low of USD69 cents by mid-2017, not least due to the reliance on either a Fed or a volatility-induced rise in the USD, which cannot be guaranteed. A lower iron ore price (as per our forecasts) would also assist the currency.

The composition of the new Australian parliament suggests that achieving consensus on microeconomic and tax reform will be challenging, while the threat of a rating downgrade by S&P will see continued emphasis on fiscal consolidation. This will continue to place pressure on monetary policy and any further deterioration in the growth outlook following the cuts in May and August 2017 is likely to prompt consideration of non-conventional monetary policy tools such as asset purchases.

We now expect the RBA will need to provide further support through two more 25bp cuts in May and August 2017 (to a new low of 1%), which should be enough to stabilise the unemployment rate at just over 5½% and prevent economic growth from dropping below our forecast of 2.6% in 2018.

Monetary policy deliberations may then turn to the possible use of non-conventional policy measures if the outlook deteriorates further.

Additionally, persistent weakness in CPI inflation could potentially trigger a rate cut even sooner than expected.

NAB Cuts Mortgage Rate by 10 basis point

NAB has announced it will reduce its variable rate on all new and existing variable rate home loans by 0.10% per annum, effective from Friday 19 August 2016. This means NAB’s Variable Rate for Home Loans (Standard Variable Rate) will reduce to 5.25% p.a.

NAB Chief Operating Officer, Antony Cahill, said NAB had carefully considered the needs of customers and shareholders and the current economic and regulatory environment in making this decision.

“We have had to strike the right balance between providing customers with competitive mortgage rates and continuing to generate attractive returns for our 584,000 shareholders, while recognising that NAB’s funding costs have been steadily increasing due to a range of factors, including the need to strengthen our balance sheet,” Mr Cahill said.

“We also need to be able to continue investing in the products and services our customers want.”

As a result of today’s announcement, NAB customers with a standard variable rate home loan will save $18 each month on their home loan principal and interest repayments, or $216 every year (based on a $300,000 loan over a 30-year term).

At 5.25% p.a., NAB’s new Standard Variable Rate will be the lowest it has been for more than 40 years. In November 2010, the average standard variable interest rate across Australian banks was 7.80% per annum*, compared with NAB’s new Standard Variable Rate of 5.25% p.a. and under 4.00% p.a. for some fixed rate products.

Mr Cahill said NAB is committed to providing customers with great value and service. As at March this year, NAB home loan accounts are, on average, almost 15 months ahead on their repayments, and Mr Cahill said NAB has a range of home loan products available to suit customers’ needs.

“We understand some customers want to have certainty about their monthly repayments and that’s why we offer a number of highly competitive fixed-rate terms which allow customers to lock in interest rates for all or part of their home loan,” Mr Cahill said.

NAB is currently offering a suite of “4-under-4” fixed rate home loan offers. For owner-occupier principal and interest borrowers, interest rates ranging from 3.75% p.a. to 3.99% p.a. are now available across 1, 2, 3 and 4 year terms. Competitive offers are also available to those borrowing for investment purposes.

Also, from Monday 8 August, NAB will increase its interest rate on 8-month Term Deposits by 0.85% p.a., introducing a Blackboard Special of 2.90% p.a. (interest paid at maturity).

NAB will also reduce its rate for standard variable business rate lending products by 0.10% per annum, effective from Friday 19 August 2016.

SME Business Confidence On The Rise – NAB

The latest NAB Quarterly SME Survey, to June 2016, suggests the non-mining recovery is broadening to include smaller businesses, with SME business conditions highest in six years, and confidence above long-term average despite some increased pressure on cash flow, and falling forward orders.

Business conditions for SMEs gained further traction in Q2, rising by 2 points to +6 index points, a level not seen since 2010 and comfortably above the long-run average of +4. It is especially encouraging that low and mid-tier firms reported notable improvements in conditions and confidence in the quarter. In particular, low-tier firms reported positive business conditions for the first time in 2 years.

All three components of business conditions rose in the quarter. Trading and profitability conditions surged ahead, reaching levels not seen since 2009. Employment conditions however remain lacklustre. The optics of conditions by firm size were also quite encouraging, with all size categories reporting positive results for trading and profitability conditions, although demand for labour by low-tier firms remains soft.

Meanwhile, SME business confidence rebounded to +5, above the long-term average of +2 index points and more than reversing the fall in the previous quarter. It is worth pointing out that the survey was conducted prior to the Brexit decision and federal election and therefore does not reflect the possible shifts in sentiment due to these political events. However, our latest monthly NAB Business survey for June, which was polled during Brexit (but before the election), did not show an adverse impact on confidence.

In level terms, all SME industries except for construction reported positive business conditions in Q2. The health sector outperformed other industries in the quarter, followed closely by business services, while retail was the weakest after construction. Meanwhile, there has been more evidence of late that the wholesale sector is experiencing a recovery in its business conditions.

All states, except for WA, reported better business conditions in Q2, with QLD showing the biggest improvement again (up 10 points to +11). NSW and VIC continued to outperform, while WA has lagged further behind the national average. All states were more confident in the quarter, with VIC being the standout, while WA was the least confident and the only state to report negative confidence.

Leading indicators were stronger in the quarter as well, with capacity utilisation rising to levels last seen in 2011, while capex reached the highest level since 2007. Overall, SME input price indicators point to relatively contained price pressures, while easing price growth for retailers is consistent with the subdued inflation outlook.

Australia: Residential property index fell to +3, from +6 in Q1 2016 – NAB

In the first NAB Residential Property Survey since the RBA cut the official cash rate in May this year, housing market sentiment amongst property professionals softened.

The NAB Residential Property Index fell to +3, from +6 in Q1 2016, to remain below its long term average of +13.

Sentiment moderated in all states except SA/NT, which rose 19 points, albeit still in negative territory. New South Wales joined Victoria as the best performing state, followed by Queensland.

Confidence has however improved, with the national index rising to +29 next year, and +36 in two years’ time.

The NAB Residential Property Survey for Q2 2016 also found that respondents expect Victoria and Queensland to provide the best capital returns over the next one to two years.

“It’s still a mixed picture across Australia, with house price expectations for the next 12 months holding up well in the eastern states whilst staying flat in SA/NT and continuing to fall sharply in WA,” NAB Chief Economist Alan Oster said.

NAB Economics has also revised its national house price forecasts for 2016 upwards to 5.1% (from 1.5%). Unit price forecasts were revised up to 3.6% for 2016.

“Our upwards revisions in price forecasts reflects the strength in prices to date. Over the last six months, Sydney and Melbourne prices have increased by an annualised rate of nearly 19% and 12% respectively,” Mr Oster said.

“However, while there is significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term.”

Looking out to 2017, NAB forecasts prices to be flat across most capital cities, with falls particularly in Perth, Melbourne and Brisbane.

While the declines in Perth largely reflect economic conditions, the falls in Melbourne and Brisbane can be partly attributed to added supply and weaker investor demand.

“NAB is forecasting a much softer residential property market, with 0.5% growth in house prices and nearly 2% decline in unit prices in 2017,” Mr Oster said.

NAB Economics continues to hold the view that residential property prices are unlikely to experience a sharp ‘correction’ without a trigger from a shock that leaves unemployment or interest rates sharply higher.

The Residential Property Survey series also measures foreign buyer activity in the Australian housing market.

Market share of foreign buyers in new Australian housing markets fell for the third straight quarter in a row – to 10.4%. A sharp fall in foreign buyer activity in Queensland was offset by growth in Victoria and a modest rise in NSW. Market share of foreign buyers in established markets was unchanged at 7.2%.

About 230 property professional participated in the Q2 Survey.

NAB creates Australia’s largest retail super fund

NAB has announced that it has streamlined its superannuation business, merging five of its super funds into one – and, in doing so, creating Australia’s largest retail super fund. The fund is named the MLC Super Fund. This follows the October 2015 announcement it had entered into an agreement to sell 80% of NAB’s life insurance manufacturing business to Nippon Life Insurance Company (Nippon Life), while NAB will retain the remaining 20%.

In October 2015, NAB announced that it is entering into a long term partnership with Nippon Life to create a stand-alone life insurance business. The establishment of this business requires the life business to be structurally separated from the superannuation and investments business, which NAB is retaining. As part of this process, NAB is also simplifying the structure of its superannuation business.

NAB Wealth Group Executive and CEO of MLC, Andrew Hagger explained that one of the key benefits to simplifying our superannuation fund structure is to improve the customer experience.

NAB Superannuation and Investment Platforms, Executive General Manager, Paul Carter, explained the MLC Super Fund will manage superannuation and retirement needs for more than a million Australians, and will have approximately $70 billion in funds under management. The fund includes NAB’s two main super offerings, being the MLC MasterKey and Plum superannuation and pension offerings.

“This $300 million investment will help us deliver an even better customer and adviser experience through digital innovation, product and platform enhancement, and making it simple to navigate our products,” Mr Carter said.

NAB has written to approximately 1.3 million members informing them of the move and explaining the changes.

The merger process was subject to various trustee and regulatory approvals.

On 28 October 2015, NAB announced it had entered into an agreement to sell 80% of NAB’s life insurance manufacturing business to Nippon Life Insurance Company (Nippon Life), while NAB will retain the remaining 20%. NAB retains our existing ownership of our investments businesses, including super, platforms, advice and asset management. NAB will continue to own and use the MLC brand in providing super, investments, advice and life insurance to customers. Nippon Life will have a 10 year license agreement to use the MLC brand for life insurance. The transaction is expected to be completed by the second half of calendar 2016 subject to certain conditions including regulatory approvals.

The sale of the life insurance manufacturing business requires the structural separation of the life insurance manufacturing business from our superannuation and investments business to create a standalone life insurance business. Before the consolidation of the super funds announced today, within the NAB Group there were eight superannuation funds under three Trustees. As part of this consolidation, two Trustees moved their members from their existing funds into one new fund called the MLC Super Fund, under the governance of the remaining Trustee, NULIS Nominees (Australia) Limited.

Based on APRA’s most recent publicly available statistics issued on 10 February 2016, the new MLC Super Fund is Australia’s largest retail super fund, and the second largest fund in Australia’s superannuation sector.

Also on 28 October 2015, NAB announced that it would invest at least $300 million in NAB Wealth in our superannuation, platforms, advice and asset management business.