The National Australia Bank (NAB) has announced an additional charge of $1.18 billion from customer-related remediation and a change to its software capitalisation policy.
The bank said in an announcement to the Australian Securities Exchange (ASX) that this was expected to reduce 2H19 cash earnings by an estimated $1.1 billion after tax and earnings from discontinued operations by an estimated $57 million after tax.
Customer remediation would account for $832 million after tax ($1.18 billion before tax) and the key driver of these changers was the inclusion of a provision for potential customer refunds of adviser service fees paid to self-employed advisers.
NAB said it had placed provisions for the estimated costs and customer payments relating to all known material customer-related mediation matters. However, until all payments were completed, the final cost remained uncertain.
Of the charges, about 92% were for wealth and insurance-related matters with the remainder for banking-related matters.
Nab chief executive, Philip Chronican, said: “NAB is moving forward with rigour and discipline to make things right for customers”.
“While we previously noted additional customer-related remediation provision were expected in 2H19, the size of these provisions is significant. We understand that shareholders will be rightly disappointed.”
“However, we also recognise the need to prioritise dealing with these past issues and fixing them for customers.”
Chronican said the bank had made about 450,000 payments to customers with a total value of $202 million between June 2018 and August 2019.
Total customer-related remediation as at 30 September was $2.1 billion.
The announcement said the key items for the additional charges included:
- Adviser service fees charged by NAB Advice Partnerships (self-employed advisers) with customer refunds of approximately $1.3 billion, with an assume refund rate of 36%;
- Consumer credit insurance sales through certain NAB channels;
- Non-compliant advice provided to wealth customers; and
- Adviser service fees charged by NAB Financial Planning (salaried advisers) with an assumed refund rate of 28%.
NAB’s software capitalisation was to be increased from $500,000 to $2 million, to reflect the bank’s focus on simplification and the increasingly shorter useful life of smaller software items. This was expected to reduce NAB’s cash earnings in 2H19 by $348 million, after tax.