Annual Review 2015




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Technology


We aim to deliver a market leading customer experience through simple, agile, stable and secure technology services.

Strategy and focus


Customers today expect to be able to perform their banking anywhere at any time. Our technology strategy is to enable this experience though simple, agile, stable and secure technology services.

Our focus is to reduce incidents impacting our customers, deliver projects faster and simplify the technology landscape over time. We are making significant investment in agile technologies to remain competitive in this dynamic market, embedding agile and continuous delivery techniques that are founded on automation, customer-centric design and the development of a high performance delivery culture. One key example is the creation of NAB Labs, an innovation hub that is focused on creating new viable offers to meet our customer needs. NAB Ventures is part of this hub, a $50 million fund set up this year to accelerate customer-led innovation, particularly in the digital environment.

In addition to emerging technologies, we continue to invest in technology infrastructure and core banking technology to de-risk aging systems. This includes a core banking replacement and a core infrastructure upgrade that allows for more efficient use of computing hardware. This investment also reduces our environmental impact and allows consolidation of data centres which reduces energy consumption in our facilities.

Our performance


In 2015, we made significant progress in delivering large projects that enhance customer experience, de-risk aging technology, and capabilities that drive efficiency in both the front and back offices. Some of the key deliverables include:

The rollout of the new Personal Banking Origination Platform (PBOP) pilot which will significantly reduce the time for our frontline bankers serving personal banking customers.

Consolidation of data centre facilities into Knox and Deer Park in Victoria to reduce environmental impact and costs, while at the same time transforming our hosted infrastructure to more agile, cloud ready and lower cost hardware.

Significant upgrades to both our business and personal digital banking offerings to build our capabilities, future proof growth in consumer usage and improve performance and resilience.

Deployment of improved Foreign Exchange and Fixed Income trading platforms to enable faster settlement and automation of various backend administration processes.

In 2015, many of NAB’s customers experienced significant issues with our e-commerce service, NAB Transact, including login difficulties, time-outs and slow performance. These issues created significant flow-on disruption for our business customers.

During this period, NAB implemented changes to improve the performance and stability of NAB Transact and communicated to all affected parties in an open and transparent manner, including apologising for any inconvenience and business disruption caused by the issues.

Our challenges with NAB Transact have highlighted the importance of striking the right balance between achieving speed to market for new technology investments, with the need to deliver stability and reliability of our systems. Overall, in FY15 our relentless focus on technology reliability and stability has seen a significant reduction in the total number of customer impacting incidents relative to FY14. This will continue to be a focus moving forward as customers reasonably expect more of our offerings to be available through digital channels, 24x7.



Improving our technology, including provision of remote access solutions, also has a positive impact on the wellbeing and engagement of our employees through supporting our culture of flexible working.45

Workplace Effectiveness Survey

2015

2014

2013

Percentage of employees with remote access to NAB’s systems

70

61

39

Source: Internal.

The future


We continue to make progress on projects that will deliver significant benefits to NAB. We recognise four major technology trends that will influence the way we operate our business:

Digitisation


We see an ongoing integration of in-person and digital services, whereby we need to provide consistency of experience irrespective of whether this happens in stores or online using various devices. PBOP will see new automation and digital tracking tools that complement the banker giving support and advice and the customer progressing with a new product.

Trust and security


We recognise the increasing volumes and sophistication of cyber threats and continue to monitor and invest in new security capabilities to protect our customers and our business.

The cloud


This technology enables us to utilise systems and services on a shared basis with other organisations in a secure, efficient and agile manner.

Data analytics


New, innovative and scalable technology to collect, host and analytically process the vast amount of data gathered to derive real- time business insights that relate to consumers, risk, profit, performance, productivity management and enhanced shareholder value. One example is our recently completed NAB Oracle Customer Hub which enables us to extract valuable insights from over 135 million customer records, to better service our customers.

Our performance

Group financial performance46


2015 Group financial performance - Results ($m)47 48

2015

2014

Net interest income

14,017

13,451

Other operating income

5,262

5,036

IoRE

19

34

Net operating income

19,298

18,521

Operating expenses

(9,899)

(9,987)

Underlying profit

9,399

8,534

Charge to provide for bad and doubtful debts

(823)

(869)

Cash earnings before tax and distributions

8,576

7,665

Income tax expense

(2,562)

(2,430)

Cash earnings before distributions

6,014

5,235

Distributions

(175)

(180)

Cash earnings

5,839

5,055

Reconciliation of cash earnings to statutory net profit49







Non-cash earnings items (after tax):







Distributions

175

180

Treasury shares

4

(43)

Fair value and hedge ineffectiveness

497

83

Life insurance economic assumption variation

13

(20)

Amortisation of acquired intangible assets

(94)

(74)

Sale and demerger transaction costs

(77)

-

Net profit from continuing operations

6,357

5,181

Net (loss)/profit after tax from discontinued operations50

(19)

114

Net profit attributable to owners of NAB

6,338

5,295




Key indicators

2015

2014

Statutory earnings per share (cents) - basic51

252.7

219.0

Statutory earnings per share (cents) – diluted51

245.4

215.4

Cash earnings per share (cents) - basic52

233.7

211.2

Cash earnings per share (cents) – diluted52

227.6

208.0

Statutory return on equity

13.1%

12.1%

Cash return on equity (ROE) 52

12.0%

11.6%




Profitability, performance and efficiency measures

2015

2014

Dividend per share (cents)

198

198

Dividend payout ratio52

84.7%

93.8%

Cash earnings on average assets52

0.62%

0.59%

Banking cost to income (CTI) ratio52

50.8%

53.1%

Net interest margin

1.87%

1.91%




Capital

2015

2014

Common Equity Tier 1 ratio

10.24%

8.63%

Tier 1 ratio

12.44%

10.81%

Total capital ratio

14.15%

12.16%




Asset quality

2015

2014

90+ days past due and gross impaired assets to gross loans and acceptances52

0.71%

1.19%

Specific provision to gross impaired assets52

32.7%

35.5%




Other

2015

2014

Full Time Equivalent Employees (FTE) (spot) 52

41,826

41,420



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