Annual Review 2015

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Annual Review


National Australia Bank Limited

ABN 12 004 044 937 (NAB or the Company).
NAB Group is NAB and its controlled entities.

About this report

This integrated report demonstrates how NAB is working to create value for stakeholders through our business strategy, operating environment, governance, financial and non-financial activities.

We continue to challenge ourselves to look at our business performance as a whole, through a framework set by the International Integrated Reporting Council (IIRC).

The content in this report is the result of extensive engagement with customers, shareholders, our people, analysts, consumer advocacy groups and community organisations, which makes it a strong reflection of what matters most to our stakeholders.

NAB also conducted an annual materiality review to identify the environmental, social and governance (ESG) issues that are most likely to impact our business. Along with a continued focus on workshops and in-depth interviews, we gathered more insight by increasing the size and scope of our annual materiality survey. For more details on the prioritised ESG topics that came out of this review, see pages 16-17.

This report also includes financial summaries and information from NAB’s 2015 Annual Financial Report and 2015 Full Year Results Announcement. This is our sixth year of providing an integrated report on our business.


Annual Review
2015 1

About this report 2

About this report 2

2015 at a glance 4

2015 at a glance 4

Key results 4

Completed 4

Work in progress 5

Chairman’s message 6

Chairman’s message 6

CEO’s message 8

CEO’s message 8

Performance and results 8

Future focus 9

Our business – National Australia Bank 10

Our business – National Australia Bank 10

Our portfolio 11

How we create value 12

Working with our stakeholders 14

Our operating environment 19

Our strategy 22

Our strategy 22

Vision, objective and goals 22

Priority segment focus 23

Customer experience 24

Execute flawlessly and relentlessly 26

Our people 27

Our people 27

Human capital management 27

Board of Directors 33

Executive Leadership Team 33

Our foundations
and governance 35

Our foundations
and governance 35

Governance 35

Balance sheet strength 37

Risk management 38

Technology 41

Our performance 43

Our performance 43

Group financial performance 43

Group non-financial performance 46

Business unit performance 48

Shareholder information 50

Shareholder information 50

2015 Annual Reporting suite 50

Helping convert your shares to benefit Australian charities 50

Annual General Meeting 50

Dividend package 50

Join us in cutting paper use 50

2015 Financial Calendar 50

Contact details 51

Additional information 53

Additional information 53

Being accountable 53

Understanding this report 53

2015 Annual Financial Report 53

Litigation 53

Forward-looking statements 53

Glossary of terms 54

2015 at a glance

Key results

12.0% cash return on equity1, 40 basis points increase from 2014

$5.84bn cash earnings1 2, 15.5% increase from 2014

$1.98 dividend per share, consistent with 2014

$6.34bn net profit attributable to the owners of NAB, 19.7% increase from 2014

-16 priority segments net promoter score3, improvement from -18 in 2014

52% employee engagement score4, 10 percentage point increase from 2014

394,277 low-income Australians assisted with microfinance products and services5

1,084,712 volunteer hours contributed by our Australian employees since 2002


December 2014: Sold a £1.2 billion parcel of higher risk loans from our UK Commercial Real Estate portfolio

April 2015: Reduced the size of our Specialised Group Assets portfolio from $4.1 billion to $2.1 billion in risk weighted assets

June 2015: Successfully completed the largest rights issue in Australian corporate history, raising $5.5 billion of CET1 capital

July 2015: Life reinsurance agreement that resulted in a $0.5 billion CET1 capital release for the NAB Group

July 2015: Completed a full divestment of Great Western Bancorp, Inc.6

Work in progress

Committed to fully divesting our Clydesdale Bank and Yorkshire Bank operations, targeting an exit through a demerger and IPO

Sale of 80% of NAB Wealth’s life insurance business and partnership with Nippon Life

Chairman’s message

As I retire from the Board I am pleased to report that NAB is in good shape. We have a strong balance sheet, are well-positioned for growth and are close to exiting our low-returning legacy assets.

Over the last twelve months, we have made great inroads into repositioning our business to focus on our strengths and our balance sheet.

In anticipation of regulatory changes recommended by the Financial System Inquiry and Basel Committee, we raised $5.5 billion in capital through a rights issue during the year, which has placed NAB in a strong position to withstand future challenges. This was also supported by capital released through the full divestment of our US subsidiary, Great Western Bancorp Inc, the reduction of our UK commercial real estate exposure, and a major life insurance reinsurance transaction. The capital freed up through these measures will enable us to make further investments in our core businesses.

We also announced the sale of 80% of our life insurance business to global life insurer, Nippon Life, and the creation of a long term partnership with that company. This arrangement will allow us to continue to provide innovative insurance solutions to our customers, streamline our wealth business and improve shareholder returns.

The demerger and IPO of our UK operations, Clydesdale Bank and Yorkshire Bank, has been extremely complex but is on track to be completed early next year, subject to shareholder and regulatory approval.

NAB’s Australian and New Zealand businesses performed well in an environment characterised by a subdued economy, increased competition and new regulatory imposts.

We have significantly invested in our Business Bank. We are starting to see the results of this through increased market share in our priority segments7 and are confident that we are well-positioned for growth, despite intense competition from our peers.

Our Personal Bank continues to be a strong performer, with year on year revenue growth of 7.3%.8

Over the last four years we have strongly focused on improving our asset quality, which has made NAB a stronger business.

Cash earnings in 2015 were up 15.5% to $5.84 billion and statutory net profit attributable to the owners of NAB was $6.34 billion, up 19.7% from last year.

The Board declared a final dividend of 99 cents per share, fully franked, which has been maintained whilst additional capital was issued.

Global growth continues to be disappointingly below trend. While the pace of growth in advanced economies has increased somewhat, emerging markets are slowing, with falling global trade volumes and uncertainty about how sharp the slow-down in China will be. We are expecting fairly flat global growth over the next couple of years.

In Australia, the economy remains mixed, with mining investment declining but growing momentum in other sectors, particularly the service and tourism sectors. GDP growth is moderate at 2.3% but we are forecasting a gradual increase to 3.2% in 2017.9 That in part reflects continuing low interest rates, lower currency and expected ramp up in mining exports.

Growth in Australia is increasingly reliant on successful reform of our taxation, workplace and education systems, on improved innovation practices and competition reforms. We urge governments to unite in tackling these issues.

On my retirement from the Board, I pay tribute to the efforts of successive management teams and directors during my 10-year tenure as Chairman, in particular the leadership of CEOs Cameron Clyne and Andrew Thorburn. These efforts have often been overshadowed by significant challenges including the Global Financial Crisis, the UK subdued economic environment and conduct issues.

While I acknowledge that NAB’s shareholder returns have not been at the level we would have liked relative to our competitors, in part because of the time it has taken to deal with our legacy assets, I am confident that NAB is well-positioned and we have the right strategy and management in place for future growth.

In the last twelve months we have seen some changes to the Board.

In December 2014, John Thorn and Geoff Tomlinson retired and I paid tribute to their substantial contributions in last year’s report. John Waller retired in July 2015. He was a great director and representative of BNZ: considered, thoughtful, challenging and supportive. Paul Rizzo will retire at this year’s AGM and brought a wealth of banking and diverse corporate experience to our deliberations. Paul was a diligent chair of the Board’s Risk Committee for much of his tenure and he will be greatly missed.

Peeyush Gupta joined our Board in November 2014. Anne Loveridge will join the Board in December 2015, after retiring as Deputy Chair of PricewaterhouseCoopers in Australia. Doug McKay, who replaced John Waller as the Chairman of BNZ, will join the Board in February 2016. They each bring relevant skills and experience as well as diverse perspectives to the Board.

I am delighted to be succeeded in the Chair in December by Dr Ken Henry AC. Ken joined the Board in November 2011 following a decade as Secretary of the Commonwealth Treasury and was a member of the Board of the Reserve Bank of Australia. Since joining our Board, Ken has demonstrated an exceptionally strong understanding of financial and regulatory environments and of the issues and challenges facing financial institutions in this fast changing world.

In closing, I thank our shareholders, customers, my fellow directors and members of management for their support over the last decade. I also thank our over 40,000 people for their hard work and dedication to the company.

Michael Chaney, Chairman

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