National Australia Bank Limited (PNK:NAUBF) Q4 2024 Earnings Call Transcript

National Australia Bank Limited (PNK:NAUBF) Q4 2024 Earnings Call Transcript November 7, 2024

Operator: [Call Starts Abruptly] There will be presentation followed by a question-and-answer session. [Operator Instructions]. Go ahead, please.

Sally Mihell: Thank you, operator. Good morning, everyone and thank you for joining us today for NAB’s Full Year 2024 Results. My name is Sally Mihell, I am the Head of Investor Relations. I would like to acknowledge the traditional owners of the land I am joining you from, the Wurundjeri people of the Kulin Nation. I’d like to pay respect to the elders past, present and emerging and to the elders of the traditional lands in which you are also joining from. Presenting today will be Andrew Irvine, our Group CEO; and Nathan Goonan, our Group CFO. We are also joined in the room by members of NAB’s executive team. Andrew and Nathan will provide an overview of our performance this half. Andrew will also provide some comments on the outlook and his priorities for the second half. Following the presentation, there will be an opportunity to ask questions, but you’ll need to be on the phone line to do so. I’ll now hand to Andrew.

Andrew Irvine: Thank you, Sally, and welcome to our full year 2024 results. We have delivered sound financial results this year with our second half benefiting from a more stable operating environment. The Australian economy has remained resilient. However, the impact of higher interest rates and cost of living is challenging for our customers and we are here to help them. The consistent execution of our strategy over four years has delivered good balance sheet momentum and improved returns for shareholders. We have been equally focused on keeping our bank and our customers safe and have retained prudent balance sheet settings. We are building on these solid foundations, as we evolve our strategic priorities to drive stronger customer advocacy, greater speed and simplification across our business.

We will continue to make deliberate choices about where to invest and where to grow to optimize our returns. This includes an ongoing focus on growing our leading SME franchise, improving our performance in proprietary lending and deposit gathering. While the economy has slowed in 2024, inflationary pressures have eased and we remain confident that Australia is on track for a soft landing. Business conditions have softened over 2024 but remain in line with the long-run averages supported by resilient levels of business activity. Our financial results this year were sound particularly in the context of a strong fiscal ’23, which benefited from a period of rapid rate increases. Cash earnings decreased 8.1% over the year. This mainly reflects a 6.9% decrease in underlying earnings due to lower revenue and higher costs.

Revenue was primarily impacted by competitive pressures in home lending. A more stable operating environment in the second half has seen margin pressures moderate. Nathan will talk more about the drivers of our second half performance shortly. High interest rates and the cost of living have been challenging for many customers and our bankers continue to be there to support them, with measures tailored to their individual circumstances. Over the past 12 months we have seen a significant increase in customers receiving hardship assistance, although this has plateaued in recent months. While it may be difficult to ask for help, we encourage any customer, who is struggling to always contact us as soon as possible. We have also invested in tools to help customers to better manage their money such as our in-app money management and financial well-being products.

This includes our new in-app tool upcoming, which provides a view of predicted bills for the next 30 days to help customers plan ahead for these payments. Providing value to our customers is important in this environment. This year we launched our loyalty program NAB Goodies, which offers personalized cashbacks and discounts for more than 80 brands. Since launching in-app in June we’ve received 2.8 million visits and paid more than $3 million in cashbacks. Over the past four years, we have made deliberate choices about where to invest and where to grow. Consistent investment in our core SME franchise has supported 42% growth in Business and Private Banking, Business Lending balances over this period. Together with a more disciplined approach in home lending, this has seen lending balances increasingly skew to higher-returning business segments.

We have also maintained a consistent focus on growing deposits across our Bank. Over the last four years we have grown at 1.6x system in business deposits and 1.1x system in household deposits. And while the New Zealand economy has been more challenging, BNZ has also grown market share in both lending and deposits. The disciplined execution of our strategy over four years has delivered consistent double-digits return on equity. Our cash return on equity declined from the peak levels seen in FY ’23 to 11.6% this year, broadly in line with the returns achieved in 2022. Growth in cash EPS has supported a sustainable dividend in line with our target payout ratio of 65% to 75% percentage points. The final dividend of $0.85 takes our full year dividends to $1.69, which represents 73.7% of cash earnings for the year.

The delivery of sustainable returns over four years has been achieved, while maintaining prudent balance sheet settings. Our common equity Tier 1 ratio of 12.35% is comfortably above the target range of an 11% to 11.5% percentage points. Consistent with a focus on reducing share count, we have completed $7.4 billion of buybacks over the last three years, improving our fiscal 2024 ROE by around 85 basis points. Not unexpectedly, challenging economic conditions have seen asset quality deteriorate this half across both our business and consumer portfolios. However, our collective provisioning coverage remains strong at 1.47% of credit risk-weighted assets. Our total collective provision balance at September of $5.2 billion, includes around $1.9 billion of forward-looking provisions.

This positions us well for any further deterioration in asset quality. Both the liquidity coverage ratio and net stable funding ratio are well above the minimum requirements. And the share of Lending funded by customer deposits has increased from 70% in 2019 to 83% today, reflecting our consistent focus on growing customer deposits. This will remain a priority for our Bank. Almost five years ago, Ross presented our refreshed Group strategy. This strategy has served our bank well through a period of significant changes in our operating environment. We are building on this progress and lifting our ambition to be a much more customer-centric, simpler and faster organization. This will be achieved through a more granular focus on measuring and improving customer experiences across key interactions and amplifying the voice of the customer through much more consistent feedback loops.

This will also include the simplification of policies, of processes and our systems that underpin these customer interactions. I want to be clear. There will be no change to our focus on keeping the Bank safe. Being customer obsessed does not mean saying, yes, if it’s not in the long term interests of the customer or the Bank. We are building on strong foundations, which include a culture of disciplined execution together with persistent investment in core capabilities and increasingly resilient technology. We remain focused on further progressing key priorities such as our home and business lending, unsecured lending, customer onboarding, and our digital and data capabilities. The completion of these in-flight projects will deliver long-term benefits aligned with our strategic ambition.

To enable us to accelerate initiatives that will drive improved customer advocacy and technology modernization, there will be a modest increase in our investment spend. This will be delivered by maintaining our focus on cost discipline and driving productivity to create greater capacity for investment in the business. Nathan will talk more about our investment spend and cost outlook shortly. The successful execution of our strategy will deliver better outcomes for customers and colleagues, which will in turn drive sustained revenue growth and stronger returns for shareholders over time. This is our refreshed long-term strategy on a page. As you can see, customers and colleagues remain the Twin Peaks and the core areas of focus remain largely unchanged.

However, after almost five years of getting our Bank in a much better place, now is the time to lift the ambition in our purpose to be the most customer-centric company in Australia and New Zealand. This will guide everything we do across the company. We have the right portfolio mix and continue to see good opportunities for growth in each of our businesses. Business and Private Banking is our core franchise and our ambition is to be the clear market leader for SME customers, and I’ll talk more about Business and Private Banking shortly. In Corporate & Institutional Banking, we have a terrific business, based on long-term relationships with customers in our target segments. Our disciplined growth strategy in this business has delivered a 600 basis point improvement of NROE over four years to 15.9%.

Personal Banking has also made good progress on its ambition to deliver a simpler, more-digital banking experience. However, there is an opportunity to deepen our customer relationships to drive more sustainable growth. BNZ is a critical part of our portfolio, generating strong returns and has been steadily gaining market share in its chosen segments of Personal and SME Banking. This has been supported by improved digital capability and simplified products, fees and processes. Finally, UBank’s delivery of new digital tools and features has helped to drive 15% growth in customers in fiscal ’24 with over 60% of new customers in its target demographic of less than 35 years of age. We clearly have much more work to do to be the most customer-centric company in Australia and New Zealand.

We have made good progress in some segments this year, but we need to deliver consistently good experiences for all our customers, especially in the moments that matter most to them. We are #1 in high net worth and mass affluent and equal #1 in large corporate and institutional. However, we are now ranked third in mass consumer and this is simply not good enough. At the first half, I noted our Business Net Promoter Score had declined to #4 which was also deeply disappointing. As foreshadowed, these scores have improved in the second half, but again there is much more for us to do to achieve our ambition of being ranked a clear #1 across all our businesses. At its heart, our new strategy or refresh strategy is about execution. Having engaged colleagues, who are customer obsessed is key to delivering our desired outcomes.

We will focus on the three pillars of culture, talent and leaders to achieve a greater connection between colleague and customer experience. Simplification of tools and processes and the ongoing modernization of our technology will help to enable our colleagues to be better for customers. The work to deliver improved outcomes has already started. Our top 100 senior leaders are in place including some new roles to support alignment to our refreshed strategic priorities. As I mentioned Business and Private Banking is the key differentiator for NAB. There is no change to our ambition to maintain clear market leadership. We will do that by continuing to invest in the business and supporting our bankers with enhanced digital, data and analytics capabilities.

This is a relationship-led business with over 6,000 customer-facing roles across 150 Business Banking Centers and 450 Branches. Simply put, our scale enables us to have deep sector specializations. Our high net worth offering helps SME’s customers build and manage wealth outside their business, by delivering banking, investment and advice through an integrated approach. This is unique amongst our major bank competitors. We have deep expertise in the way we originate credit and manage risk through the cycle. And over the last 12 months, we provided $48 billion to support new Australian business lending through BNPB. Our consistent investment is delivering strong balance sheet outcomes with 35% growth in total lending and 46% growth in deposits over the last four years.

And we continue to see good opportunities to grow this business at attractive returns including through transaction banking and I’ll talk about some of our specific deposit initiatives shortly. Home Lending is an important product for our customers and for NAB. Our home lending strategy is based on delivering a seamless customer, banker and broker experience supported by investment in digital, data and technology. Australian Home Lending returns have gradually improved reflecting more stable pricing and lower cost of funding. However, as you can see in the data published by the Reserve Bank, front book pricing remains well-below historical levels. This market remains dynamic and we will continue to adopt a disciplined approach to manage our long-term returns.

As part of this approach, a key priority for me is to improve our share of lending through proprietary channels. Actions we are taking include investing in our banker sales force and driving greater banker productivity through digital and data tools, such as lead generation and virtual meanings. Over four years, we have progressively been rolling out a digital mortgage platform which has helped deliver better customer experiences and faster turnaround times. Completing this rollout will also support our simplification and technology modernization ambition and remains a key priority. We have made good progress growing deposits over the past four years, and going forward, we are aiming to continue to improve our performance in deposit gathering by investing in target opportunities, where we can leverage strategic capability.

In Personal Banking, we will use our Private Banking expertise to grow and deepen relationships with mass affluent customers. Historically, NAB has primarily focused on mortgage lending in our Premier Banking proposition. This will now be expanded to provide a consistent and premium service offering that meets the needs of all mass affluent customers, including those with greater deposit needs and perhaps limited lending. In Business and Private Banking, we have launched a new payment platform to simplify and streamline property payments for both real estate agents and tenants. Portal Pay integrates with existing major real estate software to make it easier to transfer, to track and to reconcile rent and sale deposit payments. The embedded security features enable the safe transfer of property deposits, addressing a key concern for both property purchasers and real estate agents.

Corporate & Institutional Banking’s Liquidity+ is a treasury solution that offers our corporate customers real time visibility of cash and forecasting. These are just some examples of initiatives, which will be part of a much broader focus on growing deposits across our Group. I will now pass to Nathan who will take you through the results in more detail.

Nathan Goonan: Thanks Andrew and good morning everyone. Let’s start with our usual high-level overview of the result. As Andrew noted, our result this year are lower compared with the strong outcome in FY ’23. However, it has been pleasing to see some improvement over the second half, reflecting good execution and a more-stable operating environment than we experienced in the first six months of the year. On a half-on-half basis, underlying profit declined 1.8% with broadly stable revenue and costs up 1.6%. Markets and Treasury income was weaker over the half, but excluding this, revenue rose 1%. Cash earnings were flat with lower underlying profit, offset by a lower effective tax rate in the second half. Credit impairment charges were stable.

Statutory profit fell 0.8% with a gap to cash earnings mainly reflecting volatility in some of our economic hedges and amortization of acquired intangibles. Stat profit this period also includes a net gain from the sale of our New Zealand Wealth businesses, but this has been offset by costs associated with the Citi migration. From a divisional perspective, our higher returning business banking operations have had a solid half with underlying profit growth of approximately 2% to 2.5% for BNPB and CNIB. In our Personal Bank, it is pleasing to see some growth this half, up 5.6% as margin stabilized after several periods of declining underlying profit. Underlying profit for New Zealand Banking declined 3.5% reflecting a challenging economic environment after strong growth in recent halves.

Turning to revenue. This declined 0.3% over the half. Markets and Treasury was the main drag down $118 million, primarily as a result of realized losses on our Treasury bond portfolio and mark-to-market losses in our New Zealand liquids book. Customer risk management income was fairly stable over the period. Excluding M&T, revenue rose 1%. Volume growth contributed $106 million with good growth in business lending from both BNPB and Corporate & Institutional. The decline from margins was $52 million. As expected, this has moderated considerably this half, reflecting a more stable environment. Fees and commissions were $15 million lower impacted by the sale of our New Zealand Wealth businesses, the runoff of our asset servicing business and higher customer remediation.

Other rose $53 million and includes higher earnings from our investments in MLC Life and the initial period earnings from our New Zealand Wealth joint venture called FirstCape. On NIM, as expected, we have seen ongoing stabilization of NIM trends, consistent with a more stable operating environment. NIM is down two basis points this half. Markets and Treasury was a drag of two basis points, and we had a one basis point benefit from liquid assets. As was the case in first half ’24, both of these items were largely revenue neutral in the second half. Excluding Markets and Treasury, NIM was flat. Lending margin declined one basis point, a materially lower level of compression than in recent periods. This consists of a series of small ups and downs across the portfolio.

Australian home-lending competition remains the main drag, albeit this has moderated significantly versus recent halves. Funding cost attracted one basis point. This mainly relates to the expected higher term funding costs associated with the refinancing of the TFF. Deposits were a drag of two basis points. Mix has again been the key driver, with increased weighting to term deposits along with increased proportions of savings accounts earning bonus and introductory rates. Another drag this period has been turned deposit costs, primarily New Zealand, as customer repricing has lagged the rapid downward move in swap rates in recent months. The overall impact across deposit and capital from higher Australian, replicating portfolio returns has been four basis points this half, with a further one basis point in New Zealand.

Approximately three basis points relates to our capital hedge and two basis points from our deposit hedge. Hedge volumes were broadly stable over the half and our approach to managing these hedges remains unchanged, with a focus on providing earning stability through the cycle. Looking forward, we’ve included a broad outline of some of the key trends expected to form part of the overall margin outcomes in the first half of ’25. Further tailwinds from our deposit and capital replicating portfolios in Australia and New Zealand are estimated at approximately four basis points based on the 30 September swap rate and volumes. Ongoing headwinds are expected from lending margins and deposits. Funding costs are expected to include the full period impact of TFF refinancing of approximately one basis point.

More difficult to predict are items like home lending competition, given the highly dynamic nature of this market and short-term funding costs given recent volatility in the Bills OIS spread. I’ll remind that, every 6 basis point move in this spread impacts NIM by approximately one basis point. Given the outlook for RBA cash rate reduction from early 2025, we have provided some considerations to NIM in a lower rate environment. The impact of the 25 basis points RBA cut on Australian unhedged low rate sensitive deposits is estimated at approximately one basis point annualized. This outcome is less sensitive than the equivalent figure we provided ahead of the rate tightening cycle, with the difference due to changes in our deposit mix. Returns from our replicating portfolios will be impacted by lower three and five year swap rates, but the NIM impact is smooth over time, given the nature of these hedges.

The ultimate impact will depend on customer behavior and competitive dynamics, which are difficult to predict. Before we move to costs, I’m going to spend a bit of time on investment spend. For many years, we’ve had a consistent approach to how we have disclosed investment spend. In simple terms, this isolated it to spend, which was expected to change the Bank. Over time, the persistent focus on core priorities has seen us build more technology assets, which are increasingly being deployed into our business. Once deployed, costs relating to these assets would traditionally fall outside investment spend. However, we have now expanded the scope of our definition to include capitalized software costs relating to continuous improvement of deployed software and technology resilience.

This has seen an additional $187 million dollars included in investment spend for the full year ’24. This definition better reflects spend, which is investment in nature and our sense is that it also improves comparability with peers. Under this expanded scope investment spend was $1.64 billion in FY ’24 up 4% from FY ’23, investment spend under the old definition was $1.45 billion, broadly consistent with the guidance of approximately $1.4 billion. As Andrew noted earlier, to support our evolved strategic priorities, we expect a modest uplift in investment spend to approximately $1.8 billion in FY ’25. This incremental spend will be focused on a range of new and existing initiatives to drive improved customer advocacy along with the gradual replacement of complex and aging technology.

Our focus on productivity remains unchanged and helps us to manage costs by creating headroom for investment. In FY ’25, we are targeting productivity savings in excess of $400 million. Now moving to operating expenses, which grew 4.5% over FY ’24. This is consistent with our guidance for growth less than the 5.6% experienced in FY ’23. Salary related costs growth slowed this year, increasing $260 million in FY ’24. This mainly reflects a lower level of pay increases under our Australian enterprise agreement from 1st January ’24 and the non-repeat of a $30 million one-off enterprise agreement related costs booked in the second half of ’23. Volume related costs rose $99 million. As expected, this is also a slower growth rate than FY ’23. Tech and investment spend rose $157 million.

This includes additional licensing and support costs along with higher cloud and mainframe usage plus technology modernization. While total investment spend rose $64 million over the year, as noted on the previous slide, the OpEx component was $22 million lower with lower OpEx ratio of 38% in FY ’24. This primarily reflects the nature of the technology work this period, which was both CapEx-heavy and had a higher weighting to assets in build phase. D&A charges rose $100 million. Other costs increased $237 million. This includes an $85 million uplift in financial crime related costs. Restructuring related costs were also $80 million higher this year, as a result of a number of initiatives across the business. This also includes a $50 million provision for restructuring activity in FY ’25, some of which has recently commenced.

Helping to offset these headwinds are productivity savings of $453 million, achieved through operational efficiency and process improvements, simplification and digitization as well as synergies associated with Citi. Looking ahead to FY ’25, we are again expecting a slower rate of cost growth compared with FY ’24. Salary related growth should slow given a lower level of pre-determined wage increases under our enterprise agreement and the non-repeat of the payroll tax adjustment in FY ’24. AUSTRAC EU work is due to finalize in December ’24 and subject to final order to sign off in March ’25 and regulatory closure, this should see a much lower level of EU costs of approximately $20 million in FY ’25. Restructuring costs are also expected to be lower.

Technology and D&A are likely to remain headwinds including the impact of investment spend increasing to approximately $1.8 billion and an expected OpEx ratio of approximately 40%. Offsetting these increases is productivity, which again is expected to be greater than $400 million. I will spend a bit of time on asset quality over the next three slides. We have seen expected further deterioration in asset quality over the second half of ’24. The ratio of nonperforming loans to GLAs has increased 19 basis points over the half, with higher arrears in Australian home lending and broad-based impacts in our business lending in BNPB. While the total NPL ratio remains dominated by default but not impaired exposures, we have seen an increase in gross impaired assets this period and also higher watch loans, both largely driven by BNPB.

Credit impairment charges increased over the half to $365 million and remained at 10 basis points of GLAs. The IIP charge of $447 million this period includes $135 million for a small number of larger BNPB customers. The uplift also reflects a lower level of write backs and recoveries compared with the first half. Underlying collective charges of $92 million reflecting asset quality deterioration, partly offset by model changes. There has also been a net release of $174 million from forward-looking collective provisions as stress is increasingly being reflected in actual outcomes. This release also includes the impact of methodology refinements. Some of the main trends we are seeing in our business banking franchise are outlined on Slide 25.

As we move through the economic cycle, not unexpectedly the NPL ratio for BNPB Business Lending portfolio has been increasing and in the second half rose 36 basis points to 2.66%. As can be seen from the bottom chart, NPLs have risen across most sectors, consistent with a tougher macroeconomic environment and broad based pressures felt across the economy. Several of the sectors driving the overall deterioration are also those with FLA provisions in place, as we identified early in the cycle specific challenges facing these industries. A disproportionate amount of the overall movement in recent periods can be attributed to construction, agri and discretionary spend related sectors. We are also seeing growing stress in supply chains, particularly related to the food industry, reflecting challenges recovering higher input COGS through pricing.

This is impacting customers in manufacturing, wholesaling, transport, restaurants and pubs. Some of the larger increases are associated with single name exposures this period, in particular in manufacturing. It is likely we will see Business Lending asset quality outcomes soften further in the near-term. We are well prepared for this situation. Our book is performing within our expectations and remains well diversified and highly secured with prudent provisioning. More broadly, the outlook for the Australian economy remains resilient and Andrew will spend some time on this shortly. Consistent with BNPB, we’re seeing a broad based uplift in Australian home lending arrears across loan type and vintage, reflecting the challenges households have been facing.

The ratio of 90 days past due increased 18 basis points over the second half, while the 30 days past due ratio has risen 17 basis points over the same period. As the chart on the bottom left shows, all vintages have seen some deterioration in performance since interest rates started to increase in mid ’22. Despite higher arrears overall, we are not seeing impairments increase with the GIA ratio stable at five basis points over the half. This reflects the strong security position of our book and further increases in national house prices in the second half ’24. Looking ahead, slowing inflation, tax cuts and the expectation of lower interest rates should all put households in a progressively better position through the course of 2025. However, it is possible near-term outcomes may soften further and we are here to help customers, who need support.

As always, unemployment and house prices remain key to the outlook for Home Lending asset quality. If we go now to provisions, total provisions have remained broadly stable over the half and represent 1.6x our base case. General movements within the key components of total provisions in the half are typical for what we would expect at this point in the cycle. Individually assessed provision balances have increased $756 million, up $210 million from March. Collective provisions declined slightly to $5.2 billion at September from $5.35 billion at March, comprising of two key impacts. Firstly, underlying CP is slightly lower with deteriorating asset quality offset by model changes and collective provisions on derivatives no longer being included.

Secondly, we have released $174 million from forward-looking provisions as stress is increasingly reflected in actual outcomes and downside risk in the economy look to have reduced slightly. At $5.2 billion collective provisions represent 1.47% of credit risk-weighted assets, unchanged from March ’24 and September ’23. Forward-looking provisions within our CP have been maintained at prudent levels at this point in the cycle, reflecting uncertainty over the ability for customers to manage high interest rates and inflationary pressures combined with global instability. Our group CET1 capital ratio stands at 12.35%, a strong outcome and 20 basis points higher than March ’24. Cash earnings added 81 basis points this half, partially offset by 60 basis points for the payment of the interim dividend.

RWA moves were accretive to the CET1 ratio this half. Changes in credit risk-weighted assets added 35 basis points. Volume growth and asset quality deterioration was more than offset by updates to our credit models and methodologies. Other RWA moves added a further 17 basis points primarily related to IRRBB as moves in swap rates have shifted the position from embedded loss to embedded gain during the period. During the half, our on market share buyback reduced CET1 ratio by 25 basis points. Other was a drag of 28 basis points. This comprises of a number of small items including FX impacts and non-cash expenses which can be volatile period-to-period. At 30th September, there was a further $600 million remaining on our on market share buyback.

Adjusting for that, our pro form a CET1 ratio is 12.21% and remains strong relative to our target of 11% to 11.5%. Liquidity and funding have also remained strong during this period. Quarterly average LCR is two percentage points lower over the half at 137% and well above the 100% minimum requirement. Given the structure of our balance sheet, we continue to manage LCR prudently around liquidity and funding events, including current elevated levels of global instability. Consistent with the LCR outcome, NSFR declined one percentage point to 117%. As expected, there has been a two percentage point drag from the impact of removing favorable TFF collateral treatment. This has been effectively offset by deposits. We issued $37 billion of term wholesale funding during the year, of which $14 billion was issued in the second half.

This has supported the repayment of the final TFF tranches along with the continued balance sheet growth. We would expect issuance in FY ’25 to be at broadly similar levels to recent years. I’ll now hand back to Andrew.

Andrew Irvine: Thank you, Nathan. Turning quickly to the Australian economy, Growth has slowed in 2024 as the ongoing impact of higher cost of living and interest rates weigh on households. As inflation moderates, we expect the RBA will commence a gradual easing cycle from early 2025. This together with continued robust employment and income tax cuts should support growth in household incomes over 2025. Overall, while some geopolitical risks are elevated, I am optimistic that, the Australian economy will remain resilient and is on track for a soft landing. Our September business survey highlights that, while business conditions have softened over the year, they remain sound overall and in line with the long run average. Conditions have been supported by consumer demand, reflecting healthy levels of migration along with the resilience of the broader economy.

However, as Nathan has highlighted, we know, there are challenges for businesses and margins are under pressure in some sectors. Despite a challenging environment, business activity levels have remained robust overall with ongoing high levels of capacity utilization. This is expected to underpin continued strong levels of business investment. Business credit has held up well with growth of 7.5% in 2024 and we expect this to moderate to around 5% in 2025, but consistent with the past three years remains stronger than housing credit growth. To conclude, I’m excited by the opportunity to take the solid foundations we have in place at NAB, and make our Bank the most customer-centric company in Australia and New Zealand. This is a good Bank with the right portfolio mix.

We are confident in our ability to manage the business well through the cycles, while finding the right opportunities to deliver long-term growth. Over the next 12 months, we will reinforce our execution disciplines to support delivery of leading customer advocacy, while at the same time becoming a simpler and faster organization. Driving continued momentum in Business Banking and improving performance in proprietary home lending and deposits will enable us to deliver stronger returns to shareholders. Safety remains a core pillar of our strategy and retaining prudent balance sheet and risk settings allows us to continue to support customers through the cycle. There is no change to our disciplined approach to managing costs with a focus on productivity to provide headroom for investment.

And we will continue to prioritize completion of major projects such as the AUSTRAC EU and the migration of the Citi Consumer business to a new platform. We have commenced the new financial year with optimism and with confidence. We have the right strategy and the right people in place to deliver the next stage of growth at NAB. Thank you again for your time today. And I’ll now hand back to Sally for Q&A.

Sally Mihell: Thank you, Andrew. We’ll now go to the Q&A. To give others an opportunity, please remember to limit yourself to no more than two questions. Please go ahead, operator.

Q&A Session

Operator: Thank you. [Operator Instructions] Your first question comes from Andrew Triggs with JPMorgan. Please go ahead.

Andrew Triggs: Thank you and good morning. First question please just around the margin outlook. Deposit costs and mix look to be about a four basis point headwind to NIM in the second half, if you stripped out the replicating portfolio benefit. Could you give us a little bit more detail on the split of that between negative mix shifts and price impacts? And on those two points, how do you see the outlook for deposit price into the next half and also mix noting that the mix shift did appear to pick up again in the second half?

Andrew Irvine: Yes. Hi Andrew. Good morning. On the outlook for margins, we obviously don’t guide too precisely there, but we have tried to be a little bit helpful and just outline a few of the things that you should consider as you go forward. I think from the outset, I would say, overall, it’s a much more stable outlook and so rounding small numbers moving here or there are actually going to be a bit of a feature as you think about the first half. And that’s true of deposits as well. I think if you drill down specifically into your question, we’ve had the four basis point impact from deposits there, probably there is some rounding in that number, so you’ve probably got two which has been deposit mix this half. You’ve probably got about one that’s been TD pricing, a little bit of that has been in New Zealand.

And then outside of that you’ve got a number of things, including rounding as I said that’s been a feature. And I think those trends are things that we’d likely see go forward into the first half around deposits.

Andrew Triggs: Nathan, do you still see turn deposit pressures, because it would appear that things have improved a little bit there from a competitive intensity standpoint?

Nathan Goonan: Yes. I think that TD pricing in Australia has been pretty stable, Andrew. So I would agree with that. I think, we have seen a little bit in New Zealand, which is probably just a lag a little bit in the fourth quarter. You’ve seen some pretty rapid moves in rates in New Zealand and then there’s been a little bit of lag in our pricing. So maybe we saw a little bit of that in the fourth quarter that will flow through, but hopefully over time we can pick that up.

Andrew Triggs: Okay. Thank you. And second question just around credit quality, particularly maybe just to separate it out between Retail and SME Banking. But are you seeing a moderation in arrears deterioration later in the half in home loans? And on SME Banking, how long do you expect credit quality to continue to deteriorate at the current pace?

Andrew Irvine: I might take a couple of cracks there, Nathan, and please follow-up if there’s something for you to add. On housing, I might point first of all to a couple of things. We saw hardship requests from customers accelerate quite significantly in the first half of the year. For us, those requests peaked in the kind of June, July timeframe. Since then, they have plateaued and if anything have started to fall, we’re going to continue to watch for that. But, that’s probably a good leading indicator on asset quality. Times continue to be difficult for customers and households with cash flow challenges, but because employment levels are high and housing prices are still very constructive, even if we do see a little bit of continued degradation on asset quality, we don’t anticipate that moving to impairments on the housing side.

If I move to SME, we’ve been on the record for probably 12 to 18 months now saying, how surprised we were that we weren’t seeing the asset quality deterioration that we expected and had provisioned for. In the final quarter of the year, we did see a handful of single names that we chose to impair our positions on. Those things tend to be quite lumpy in my experience. And so, we’re not yet sure if that will replicate in future periods. We’ll have to wait and see. But what I would say is that, this is a business that we know well. I managed this business for four years and I know the portfolio. It’s very well diversified. It’s well managed. We have terrific bankers, and there’s nothing that we’re seeing in that book at this moment in time that causes us undue cause, undue concern.

I don’t know anything, Nathan, you’d add?

Nathan Goonan: Maybe just one thing Andrew, which you would be aware of as well, and we’re fully prepared for is that, the SME cycle will lag the consumer cycle. So we would expect that, when we hit a point of peak arrears in the home lending books, it’s likely that, the SME cycle will follow that and we’re prepared for that and fully expect it.

Andrew Triggs: Thank you.

Operator: Your next question comes from Richard Wiles with Morgan Stanley. Please go ahead.

Richard Wiles: Good morning. I’ve got a couple of questions. One is on Business Banking margins and the other is just on some of the trends in your deposit mix. So on Business Banking, can you give us a bit more detail on what’s driving the five basis point decline in the Business Bank margin? Has much changed from the previous half? And have you seen an increase in competition for business lines?

Nathan Goonan: Thanks Richard. And maybe I’ll just start with the margin thing and question more specifically, and then Andrew might want to talk about competition more broadly. I think in the Business Bank, the margin degradation has in the half has really predominantly been on the deposit side. And then, I think if you took deposits, home lending, business lending, you’d have deposits would be the biggest. You’ve seen the growth in TDs there, that’s been flowing through. Then, you’d probably have home lending and business lending maybe half and half in that part of the portfolio. So I think those trends as we’ve said, when you bubble that up to the group level, we had one basis point margin compression on lending, the predominant number in that.

When we look at that, there’s lots of small parts, when you’re getting to one basis point. But, home lending is still the predominant when you bubble it up to the group level. But the three factors at BNPB are deposits first and then probably a pretty even split between home lending and business lending this half.

Andrew Irvine: Yes. In terms of competition, we’ve had strong competition in this sector for ever since I’ve come to Australia over four years ago. It’s hard to pick up the papers without someone saying, they’re going to increase their exposure to business lending and there’s no surprise in that. It’s a terrific market. And so, others want what we have. In the year, we still grew business lending in BNPB by 8%, which was in excess of system. We’re really proud of the long-term relationships that we have in this segment. More often than not, there’s less price sensitivity, with these customers, who often are multi-generational in nature. And as long as they’re they know their business banker, you haven’t made a mistake on the serving side or denied credit.

The switching is much, much lower than a consumer portfolio. There has been, on the margin some specific names, where pricing has gotten hot. Again, if we like the customer and we bank them for a long period of time, we’re going to be a tough bank to compete against and we’ll hold on to them. Generally, I would say there’s nothing we’re seeing in competition in the last six months that’s really different from the prior periods. Maybe one thing I might add is that, we have seen a significant reduction in banker attrition in the Business Bank. That’s a really healthy sign for the fact that, they’re enjoying working with us and it’s something we pay a lot of attention to. Maybe a year, year-and-a-half ago, attrition was higher than we would have liked, particularly to brokers and that’s really abated.

Well done to Rachel and the team there.

Richard Wiles: Okay. Thanks for that Andrew. And just my question on deposits. It relates to Slide 83. Can you provide a bit more detail on the mix of the savings accounts in the Retail Bank and the Business Bank? In the Retail Bank you’ve got $45 billion of savings. In business you got $69 billion. Can you give us an idea of sort of what proportion of those savings balances are in high rate accounts like your reward saver in the retail bank?

Andrew Irvine: Thanks Richard. And you’re right on that Page there, the 45 and 69. Predominantly we’ve got two higher rate savings products as you know, both the iSaver product and where you’ve got a higher introductory rate and sometimes a higher negotiated rate, and then you’ve got the reward saver which has got the behavioral higher rate on it. I think it’s fair to say, it’s a healthy majority of those balances are on that higher rate, and so that are in those products. And then I would say, the ones that are earning the higher rate, I think we said at the first half that was probably about two-thirds of them were earning the higher rate. I think we’ve seen that and I think consistent with peers that that’s been drifting up over the half and that number has probably gone from two-thirds. It might be a little bit closer to 70% now that are actually earning it. So I hope that answers the question.

Richard Wiles: Nathan, is that relevant for the Business Bank as well as well as the Retail Bank?

Nathan Goonan: Yes. I would aggregate them together when you think about those. Richard, you’ve got the high net worth offering in the Business Bank which does have that deposit product’s really important for them. So, I’d add them both together, say a sort of healthy majority of those are in those two products. And then, as I said was two-thirds earning the higher rate, it’s probably drifted up a little bit since then.

Richard Wiles: Okay, thank you.

Andrew Irvine: Thanks Richard.

Operator: Your next question comes from Jonathan Mott with Berenjoey. Please go ahead.

Jonathan Mott: Thank you. Can I ask a follow on question about the Business and Private Bank and Business Lending in particular? You called out that you’re the clear market leader. You had solid growth about 4% in the lending book. Solid growth about 4% in the lending book, in the half, 8% year-on-year. But as you called out as well, a lot of the competitors are targeting this space. So of the banks that have reported so far, if we look at CBA Business Bank, they’ve seen 11% growth year-on-year, Westpac Commercial up 10%, Judo to up 20%, even Macquarie BFS Business, 14%. So I know, they’re not exactly directly comparable and how they patterned is slightly different, but they all seem to be growing a little bit faster. So, is this something we should be concerned about?

Because you are calling out the business credit growth will slow from current levels back to around 5% and your competitors are really, if anything, taking a little bit of peace away from you at the moment. Any thoughts around that?

Andrew Irvine: I don’t think I’m concerned. Business credit can be a touch volatile quarter-to-quarter. We’re really happy with the growth that we’re seeing, generally speaking. I expect that, we’ll continue to do well from a market share standpoint over time. One thing to note, and you’ll have seen it in our disclosures is on agri. We slowed down a little bit there. We had some particular concentration issues in a couple of markets and a couple of sectors. And so, we wanted to reposition that portfolio. We have done that and we’re absolutely open for business in that market, but that probably took a couple of points of growth away from us in the year and that was purposeful. Look, I think, we’re going to stand up well to peers going forward, and we can see that hopefully in the next half.

Jonathan Mott: Great. Just a second question for Lisa and Nathan on asset quality. You did call out SME and you gave a bit of detail around where the deterioration is coming. You saw a bit of a jump up in the arrears levels in the June quarter, then another step up in September. Can you give us a little bit more detail on that? I think you said supply chain issues in the manufacturing sector. Any color around that, that you could give us on the single line exposures and what we should be looking out for?

Nathan Goonan: Yes. Thanks John. I think the biggest feature of the asset quality in the last quarter was those single names. And I think they are called out as single names, given that by nature they’ve got sort of some idiosyncratic circumstances to them which doesn’t mean, they don’t — they’re not sort of I guess indicative of what we’re seeing in the rest of the portfolio. So I think, we did see one of — a couple of those single names were in manufacturing, so you can see that that one spiked a little bit in this half and I think if you back that out it’d be a much more normal trend. So the single names have been a bit of the feature of it. I think when we think more broadly about asset quality, in particular in the business bank.

It still is a story where we’re seeing more cash flow stress and so therefore we’re seeing more defaults than we are seeing impaired, although we’ve seen a little bit uptick in the impaired. I think the purpose of this slide was really to show you a few things. The first was, it’s pretty broad based and so you can see upticks in those NPL ratios pretty much across the whole suite of what is a pretty well-diversified book. And then, we just tried to call out that, we’re seeing higher levels in absolute in terms of proportion of NPLs where we’ve got FLAs in place. They were sort of put in place, because we saw challenges in those sectors, whether it be discretionary spending, a little bit more exposed to supply chains, et cetera. And then, there’s just a few things, like supply chains in particular with food where we’ve seen some of those manufacturing, maybe it’s a little bit post farm gate agri, where there is a little bit of a challenge passing on prices to end consumer, whether that be that the consumer not willing to pay or whether it’s that there’s some pressure on people not wanting to pass on those prices to the end consumer and manufacturers may be feeling that a little bit more than other sectors.

Jonathan Mott: Thank you.

Andrew Irvine: Thanks, John.

Operator: Next question comes from Victor German with Macquarie. Please go ahead.

Victor German: Thank you. I was hoping to maybe first ask a comment, ask a question on the retail bank. Andrew your comments about Retail Banking and aspiration of improving proprietary channel and deposit franchise make a lot of sense. But, if we look at sort of more recent months, you have lost share in mortgages. What do you think is driving this and how long will it take to address? Do you think it’s just a matter of price? Are you looking to make improvements in your retention or originations as well?

Andrew Irvine: Yes. No, thanks for the question, Victor. Home lending is unambiguously an important product for us and for our customers. As we said at the half, particularly in the first half of the year, pricing in the home loan channel was below cost of capital, and we did not want to play in that market. Particularly in the broker space, those loans were underwater. So we priced at a premium and that led to growth significantly below system. We would do that again, to be honest with you. We want to be known as a disciplined bank. What we need to change, however, is being much stronger in proprietary home lending, because had we been better in proprietary home lending over the course of the last year, we would have I think held up better in terms of our growth vis-a-vis system, because in proprietary lending these are more relationship-based clients and on the margin less price sensitive.

And so, that’s a real focus for me, for Anna and for the NAB team. So, we need to hire more proprietary bankers and we need to enable those bankers with better digital data and analytics tooling so that they can be effective in the marketplace. So, that’s going to be a real focus for us over the coming months and is really important. But you should expect us to always be disciplined here and we’ve got lots of attractive opportunities to deploy capital in our Bank, and it doesn’t make sense for us to deploy capital at low margins particularly in disintermediated channels. And we’re not going to do that and we’re always going to be really disciplined here, even if it hurts from a share standpoint.

Victor German: That makes a lot of sense. And maybe then second question sort of related on our favorite topic of investment spend. Noting that you increased your investment spend to $1.8 billion, which sounds like you believe is more comparable to peers, maybe Andrew just sort of follow-up from your previous response given the strategy you outlined around the service proposition and focus on deposits as well. Why do you think this is enough, when your competitors are spending more in particularly CBA? It sounds like they’re spending over $2 billion. And also, maybe a question also for Nathan. I mean, why does the capitalization piece remains so large? And when do you think capitalized balances will peak? When do they peak and I guess what’s the duration of that capitalization as well?

Andrew Irvine: I’ll take a stab at the first question and maybe Nathan you can get the second part, Part B. So, we have as you highlight increased our investment spend estimate for next year. The thing about these portfolios is that, there’s a natural cap in terms of how much you can spend, to spend it well. Ross used to be quite clear, I think he would say things like, we can’t spend more than $1.4 billion well. We’ve worked really hard as a Bank and as a Company to improve the quality of our engineering with allocated persistent squads, with persistent business and engineering resources, who are delivering better outcomes for us. We’ve staffed up in India and Vietnam with NAB employees in those captives and we’re getting frankly good outcomes from them.

And right now, we feel that we can increase our collective investment spend to the $1.8 billion that we’ve forecast for next year and do that well. And it’s important to me that, we’re thoughtful about how quickly we increase our spend so that, I can have confidence that I’m going to spend shareholder money well. And if we can continue to prove to ourselves that, we’re getting good outcomes and good returns, I think we’ll progressively and modestly increase our investment envelope as a percentage of our operating expenses. I would like to have more investment spend to change the Bank as a proportion of OpEx than we do today. What that does not mean is that, we’re going to be changing our focus on being very strong cost-conscious managers for our shareholders.

Those things are not mutually exclusive, and you can be a bank that is absolutely focused on productivity and drives that hard, while also creating oxygen for investment. So that’s kind of the strategy. Good companies invest in their franchise. Customer expectations are increasing, and we’re really clear on where we’re going to be putting that increased spend. So I like the returns that, we’re getting in that business. Our resilience has improved significantly. We’re now 85% of all of our apps are in the cloud. Our digital propositions are getting much stronger feedback in the market. So, we’re delivering for shareholders and for ourselves and for our customers and I think that’s a good thing.

Nathan Goonan: Thanks Andrew. Victor, I can just pick up on the D&A point. I guess, the first point just to say is, we’ve had no change to our policies around depreciation and CapEx and how we think about that. So, the underlying movements from period-to-period really do relate to the underlying nature proportion of the spend, which was capitalized than we’ve had in previous periods. That can move around a little bit. But, one of the things just linking to what Andrew said is, as you get better in these portfolios and you’ve got certainly for us as we’ve had multi-year programs that we’ve been at for a long time, where you have a lot of OpEx in your investment spend is, when you’re in the initial planning phase. So you can have a lot of sort of non-build work that then isn’t capitalized.

And then, as you get heavier into the work, you can find that you’re doing a lot more of the software engineering does lead to a higher capitalization rate. So, they’re the types of things that swing it. It’s also true that, the underlying work does change quite significantly. Like, some of the spend here will be on things like data assets, which we believe have got really long useful life for us. We’re building them ourselves. They might have capitalization rates that are very, very high. You take that and contrast it with say a new payroll system, where we’re using a third-party vendor and we’re integrating it, the capitalization rate on those is very low, because we’re not doing the work ourselves. So it’s really a feature of what’s the underlying work that drives the outcome.

I understand that leads to the question about well where does D&A go over time, and I think for us investment in our franchise is going to continue to show up in increased D&A over time as we build more capitalized software on the balance sheet.

Victor German: Thank you.

Andrew Irvine: Thanks Vicky.

Operator: Next question comes from John Storey with UBS. Please go ahead.

John Storey: Thanks very much, and thanks for allowing me the opportunity to ask a few questions. Andrew, I wanted to ask you just about the distribution in Business Banking, and certainly a view out there potentially that commercial brokers could get a lot bigger in terms of new business. Just wanted to get your thoughts on how you see potentially the economics around this playing out? And then, maybe just tied to that, how much business does NAB originate from commercial brokers? And how has that changed in your period at the Bank?

Andrew Irvine: Good question. Thank you, John. We are, I’d say, from a system perspective seeing a greater share of origination through commercial brokers. It’s nowhere near housing right now, but it is growing modestly year-over-year. It’s something that we watch for and manage consistently. What’s pleasing is that, we’re continuing to see really strong proprietary outcomes in the Business Bank and that’s good. So I would say, we want to be a good proprietary lender in business and we are today unlike in home lending. And we also are fine with the right brokers and the right customers doing good quality business lending. One thing that’s interesting and is a contrast again to home lending is that, our NIMs across proprietary and broker channels are broadly similar in commercial broker.

So in effect customers are paying the broker, if you will in the business channel, whereas banks are paying the broker if you will in home lending. ROE isn’t as high in the broker channel, but that’s more a function of lower share of wallet for those clients and less deposits. It’s not a function of lower NIM. It’s something that I think the industry is going to have to look at. I think it’s indisputable that, when you lose intimacy with the client and become less of a trusted advisor that over time that’s probably not good for margin outlook. So we’re a relationship bank at heart and we’re going to want to continue to be a relationship bank in BNPB for a long time to come.

Victor German: Andrew, just on how it’s changed during your four years at the Bank?

Andrew Irvine: Yes. I would say, lending through commercial broker, it would have increased in the time that I ran that business, but less than system. So in the Business Bank, we would originate and our stock of assets would skew to proprietary compared to system outcomes.

Victor German: Okay. That’s it. Thanks very much for that.

Operator: Your next question comes from Matt Dunger with Bank of America. Please go ahead.

Matt Dunger: Yes. Thank you, gentlemen. If I could just ask about the Net Promoter Score. You’ve noted, this has fallen short of the target and the relative positioning in Consumer and Business on Slide 12 appears to have weakened. Just wondering if you could unpack why you think that’s happened, and with your priorities for FY ’25 to improve this, what’s going to drive the improvement?

Andrew Irvine: Yes, I’ll take those in turn. On the business side at the half I mentioned that we had gone to #4 and the big driver of that was a significant KYC effort that our Business Bank had to engage as part of our compliance activities with AUSTRAC EU. Some of that was not as elegant as we would have wanted it to be. Therefore, we caused friction for some of our customers, where we had to KYC them and they didn’t enjoy the experience as much as we would have wanted them to. Thankfully we’re through that and I think you saw an improvement in our NPS scores in the Business Segment to something more like our natural position, which is a good #2. And the reason we’ve redone our strategy is that’s completely unacceptable. We want to be a clear #1 in NPS.

If I turn to our Consumer franchise, there’s no real discernible winner from an NPS standpoint in Consumer Banking right now. At any point in time, we can be number one or two. Right now we’re #3, but we’re all there or thereabouts. We also want to change that. That’s why we’ve set a new ambition to be the most customer-centric company in the country. That’s a powerful purpose statement, but in and of itself would be insufficient. And so, we have to then back that up with a very significant change to our operating system in terms of how we manage the company and we’re doing that. We’ve identified, what we’re calling 20 must win customer battles. We have very significant increases in metrication for each one of those battles, with input metrics as well as output metrics.

We’re building robust feedback loops across every one of those battles. Our teams are going to have huddles, and we’re aligning our investment approach, our recruiting strategy and how we run the company, so that we have a really aligned operating system to do much, much better for our customers. This is hard stuff. Any company can say, we want to be better for customers. But saying it is one thing and doing it is quite another thing entirely. We’ve got a management team that’s aligned and committed to this journey.

Matt Dunger: Thank you very much. If I could just ask a follow-up on capital management, sitting at a 12.2% pro forma CET1 ratio, remaining well above the target. Just wondering what would give you confidence to extend the buyback after this period in six months’ time?

Nathan Goonan: Yes. Hi, Matt. It’s Nathan here. Good morning. I think you’ve called out the right point just at the end there. We’ve got $600 million left on the buyback, we’ll neutralize the DRP coming out of this period. So we think, that’ll take us through pretty much if not the whole way through the half, a really big proportion of it. So it really was a decision that we didn’t have to make this half. I think while we did top-up once, I think our track record here is to be finish our buybacks, get it done, pause the thought, have a look at what the outlook looks like and then sort of make a decision on it with the Board. So, that was just a decision we didn’t have to make today. When we get there what we’ll be looking at, I think, clearly, we’ll be looking at all the things that you would expect.

I think you’ve got to look into the outlook around asset quality, you’ve got to look into the capital track, and where we’ve been able to generate good levels of capital from things like models and methodology. That’s going to moderate as we go forward, and then we’ll just be looking at where we think earnings and other things are going to go. But they’re all the things you would expect us to do at that point in time. We sit in a really healthy level. So we’re a long way above where the 11% to the 11.5% is. I think I said at the half year, we don’t have a buffer over and above our range. We’ve got a plan. We have an expectation will be within our range and we’ll assess it when we get to the half.

Andrew Irvine: To be crystal clear, where we can safely do so, it’s our goal to reduce the share count and buyback stock. So, that doesn’t change and we’ll have a look at that at the half.

Matt Dunger: Great. Thank you very much.

Operator: Your next question comes from Ed Henning with CLSA. Please go ahead.

Ed Henning: Hi. Thanks for taking my questions. If you just go to Slide 51, and you look at the SME market share, that’s been falling. I just want to double check, is that all been the rebalance in agri and what you’re saying now going forward is you want to maintain that market share. If you look at the other divisions on the corporate side, you’re talking about disciplined growth and mortgages, you’re talking about managing the portfolio for returns. As you go forward on this, I’m just thinking about, can you — are you happy to continue to lose market share at least in two of your divisions over the long-term and just really focus on returns is the first question please.

Nathan Goonan: Yes. Good morning, Ed. Why don’t I start and then Andrew can add. I think on SME market share, we absolutely wish it was cleaner, but it is a bit of a messy picture. You really do have to triangulate between SME market share, which has got from the RBA, which does have a fair bit of rebalancing and rebasing happening in it almost every month. We see big movements in that like in terms of what’s classified and what’s not. And then, you’ve got business lending market share which takes in the whole business lending market from APRA. And so, we sort of triangulate a little bit around the SME share, the APRA share and then we do, I guess it’s more internal for us and you don’t get the benefit of seeing it, we do focus really hard on our wins and losses on a weekly basis.

And so, when you triangulate around that, I guess, we feel like, this is a business that has got momentum and net, net, while it shows up there in the market share and we print that for transparency. We don’t feel like we’ve necessarily lost share in the period, albeit the math says, we have. In terms of going forward, I would say, Andrew can comment on this a little bit more. I think for our portfolio when you think about it, our story’s pretty simple. We want to continue to grow our proportion of deposits in the market, so we understand that, we don’t want to be price driven there, but we want to incrementally take a small amount of share in the deposit side. In SME, we do want to accelerate there and we’d like that SME business to at all times be above where system is.

In corporate institutional, as you said, we want to be quite disciplined there, success in that business is not the size of the loan book and we’ve managed that really well over a period of time. And then, as Andrew said, in home lending, we want to sort of be in and about market. That’s where we think we hope returns will be. It’s where we see them at the moment and it’s probably where we’ve got our settings. That’s how we sort of I’d categorize it. Andrew might like to add a little bit on business lending and pipelines and otherwise.

Andrew Irvine: Our pipelines continue to be really robust. At the half I said, they were the biggest they’ve ever been. I think today it’s also fair to say that they’re actually ahead of that. So from a dollar standpoint, pipelines are looking really, really good. We saw those pipelines close and move through the funnel to settlement. And so I think that continues to give us optimism for the year ahead. That’s a great business for us. We’ve addressed the issues in agri, and I’m optimistic that we’re going to continue to see good positive growth in excess of system over the course of ’25.

Ed Henning: Okay. Thank you. Thank you for that. And just a second question just around the Citi acquisition. Can you just talk about how that integration has been going? Have you been seeing runoff in the book and do you see more or if you have seen runoff, do you anticipate more runoff kind of going forward on that book?

Andrew Irvine: Yes. Maybe I’ll take that one. The focus as you know in that business has been on the technology side. We’ve been successful in moving all mortgage deposit and wealth customers off city platforms onto that platforms. And actually in the last few weeks, we moved all of the Diners Club business also onto NAB platform successfully. What’s remaining is the traditional credit card business that continues to be serviced through Citi platforms and our intention is to complete that migration over the course of the next fiscal year. From a business standpoint that business is performing ahead of expectations. We’re seeing customers continue to spend and if anything, the underlying business is doing better than we had planned at the time of the acquisition. So we just got to keep looking after those customers and get them on to us our platforms as soon as we can.

Ed Henning: Thank you very much.

Andrew Irvine: Thanks, Ed.

Operator: Your next question comes from Brendan Sproules with Citi. Please go ahead.

Brendan Sproules: Good morning. Brendan from Citi. I just have a couple of questions. Firstly, on the Business Bank, you just talked about the pipeline particularly being quite full in terms of potential new transactions. But, you’ve also flagged that you think that business credit will slow to sort of 5%. And I think a few months ago, you sort of flagged a similar type slowdown with the economy. Where do you think you’ll see this slowdown emerging, and what are you seeing across your franchise that sort of expects this slowdown to occur in business lending?

Andrew Irvine: Yes. Let’s see if it manifests. We always have a bit of a ding-dong with our economics team on business credit growth expectations, and I’ve actually been right more often than they have, but we won’t go there. Look, we’ll see. I do continue to believe that business credit growth will outperform housing credit. Businesses, while their conditions are at long-term averages, they’re still confident about the future and eager to grow. And we see that in conversations that we have with our customers up and down the country. And our pipelines continue to be pretty elevated. There’s every possibility that, we’ll beat that forecast for Australian SME growth next year. We’ll have to wait and see how it happens. We’re confident that, we will do well and beat system, now that we’ve got that business humming.

So you know we’ll have to wait and see. Obviously there’s going to be an election coming in Australia, that can cause uncertainty and we know that business people don’t like uncertainty. So there’s a possibility that, if that gets confusing that business owners might pause and slow down and wait. That’s certainly a risk for us, but we’ll be there with them and when they’re ready to push the button on their projects, we’ll be there right standing side-by-side with them.

Nathan Goonan: Maybe I’ll just add one thing Brendan, it’s just if you did go to slide 51 and we show the breakdown of business lending for the year. I think it would be true to say, this year we’ve had a much more diversified growth than what you would have seen in prior years in BNPB. That is one of the stronger features of the result. And so, one of the things that that gives us the opportunity is I think we are with a more diversified book, with a lot of growth in other in particular which is sort of all of the smaller industries, where we don’t have as much exposure. We do think that’s giving us an opportunity where we’re seeing more opportunities in a more diversified way. So that’s also helping pipelines.

Brendan Sproules: Fantastic. It’s quite helpful. My second question is just on the Corporate & Institutional Bank, which is obviously your second largest division. I mean, over many years this has been a division of benefiting from rising rates and a shrinking of risk-weighted assets and capital intensity. When you look forward, you’ve described an ambition of disciplined growth. Could you talk around the growth opportunities in this business and/or the improvements in returns that you can expect from here?

Andrew Irvine: Yes. Look, we’ve got a really differentiated offering in Corporate & Institutional. From a peer lead standpoint, this is a part of our business that we want the rest of the bank to follow in terms of customer advocacy. We’re kind of leading that in terms of Australian corporates. We’ve seen significant growth in our funds and sponsor business, as you see the growth in private equity and infrastructure investments around things like data centers and other digital assets, de-carbonization and all the investments in that, as well as our infrastructure where we’ve always been historically good. That’s a business, that we’re good at and like the risk return outcomes around. And then finally, we’re doing much better than historically on the Transaction Banking side and that’s frankly quite important for ROE in a Corporate & Institutional business.

If you just lead with lending and you’re not getting the Transactional Banking mandates or helping on the market side, it’s hard to earn a living. I think the team has done a really good job in broadening our offering. Domestically, we’re doing much better with government as well, which is something we’re continuing to push into. These are high deposit intensity verticals and it’s really important for our Bank that our C&IB segment continues to be a strong net deposit contributor for the rest of the Bank. So we’re really happy with that franchise, and we’re looking forward to what Kath and the team are going to do to keep driving it forward.

Brendan Sproules: And does that mean all those opportunities you just sort of outlined there, which is obviously across quite a number of different skews of business is actually going to drive quite a bit of profit growth in this division in ’25?

Andrew Irvine: Yes. We’ve got big hopes for it. Kath has got a big target and a strong team in place and we’re going to keep pushing. There’s a lot of customers in this space that continue to really want to grow and be constructive. You’ve seen that growth in private client assets and fund assets, and they’re looking for bank partners, as they deploy that capital. We’ve got deep relationships with them and I think there’s going to continue to be opportunities for us across the board there. Climate transition and de-carbonization is going to have a very significant call on capital, over the course of the next few years, as is the digital economy and the move to increase data centers and AI. All of these are highly capital intensive vectors. Our C&I business is really well placed to help enable those transitions.

Brendan Sproules: Thank you.

Operator: Your next question comes from Brian Johnson with MST Marquee. Please go ahead.

Brian Johnson: Hi. Thanks very much for the opportunity to ask a question. I had two, if I may. The first one is that when we have a look on Slide 72. It’s always quite staggering to me, but we can actually see NAB is a really great Bank, seems to be incredibly reliant on the broker channel. But, I’m just wondering with the significant reduction in the regulatory capital intensity, you can see in one of the earlier slides, you can see that, the front book margins seem to be kind of moderating. But that was as that August. I would point out that, it would appear that one of your peers started to discount well and truly again. Could we just get a feel on the economics of the — is home lending right now at the market rate through the broker channel, once you take into account all the costs, is it once again below the cost of capital?

Nathan Goonan: Yes. Hi, Brian. It’s Nathan here. I think when we you look at the home lending portfolio, you do aggregate it up to the overall portfolio. I think as Andrew said, at these levels and we’ve seen stabilization of that and at these levels we’ve got our settings, which would see us much more participating closer to our natural market share. We’re seeing that returns are appropriate there. I would say, within that you clearly have lower returns in the intermediated channels through broker and relative to your proprietary channels and it’s still true in NAB today that the most profitable home loan we write for us is in our Business Banking channel where we support the needs of our Business Banking customers. There would be a mix under that, but at an aggregate level. Yes, we’re participating. It’s returns that we’re willing to participate.

Andrew Irvine: Brian, I want to be very clear, we are intent on reversing the trend that you see on Page 72. We’ve been a really good broker home loan bank, and we haven’t been a good proprietary home loan bank and we need to be and we will be.

Brian Johnson: Can I just go back to the actual question though, Andrew? Andrew, right now, we’ve had a significant reduction in the regulatory capital intensity across many of the banks. Can I just check, previously you’d said through the broker channel, it was below the cost of capital? The chart, we’ve got is as at the end of August. But I’m just interested, has it gotten worse literally over the last six weeks to the point, where through the broker channel, it’s below the cost of capital again, or does the capital relief make it all better?

Andrew Irvine: We believe we’re originating above cost of capital across all of our channels. But it has tightened in the last six weeks. There’s no doubt about it, but we continue to be disciplined. And if that changes, we’ll have to take another look. We’ve been on the record of saying, we’ve got lots of opportunities to deploy shareholder capital and we’re not going to — and we’re going to be disciplined. We’re meeting the market right now, because it’s above cost of capital. But, if that changes, we’re going to have to have a conversation internally. So, to answer your question very specifically, today, we are returning positive cost of capital on all channels on home loans.

Brian Johnson: This one is the correct answer too. Andrew, just a second one. In the slides, you talk about some of the investment going to basically fix up some of the aging infrastructure. Could we get a feel on the long-term IT strategy? We’ve got Westpac doing Project Unite, we’ve got CommBank that did it a long time ago. What is your thinking on the need to kind of like totally reengineer the platforms within NAB?

Andrew Irvine: Yes. Our approach might be a little bit different than a couple of our competitors. We want to move to a place, where we have a persistent strategy to renew and modernize our technology, linked to very clear business priorities and customer journeys. So, this isn’t some technology science project, where they’re leading the way and doing stuff in laboratories with buns and burners. These are business-driven projects that are business led, and we’re going to be doing them persistently, probably forever. So our strategy to modernize the Bank is just very modular, less big projects and just every year improve and outrun the aging of our systems. In the past, we hadn’t done that and our systems were aging a little bit more every year, because we weren’t spending enough to modernize them.

That’s changed in the last two years, and we want to speed that up. We like that approach, deliberate, persistent, less risk, reengineering of our core banking platforms over time, versus having a big project that has a start date and an end date.

Brian Johnson: Fantastic. Thank you, Andrew. I do appreciate it.

Andrew Irvine: Thank you.

Operator: We’ve come to the end of our Q&A. I’ll now hand back for closing remarks.

Andrew Irvine: All right everybody. Thank you for joining us today. We appreciate you for your time. This is a good Bank. We’re going to have a strong 2025 and we’re optimistic about Australia and our part to play in it. So, thanks very much.

Sally Mihell: Thank you. If anyone has any further questions, please feel free to call me or the team.