Half Year 2025 National Australia Bank Ltd Earnings Presentation Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Victor German - Macquarie - Analyst : Two questions, if I may. I think first, even though it was so critical about the issue for some time and raised this on previous calls, I think it will be only fair for me to that for the first time since, I think, 2018, you achieved growth in your proprietary channel, so congratulations on that. Are you able to maybe share with us some of the initiatives that worked for you? And if you think you can sustain that improved momentum and trend from here? So that's question number one on Personal Bank. And then secondly, a question on dividend. So if I could assure and maybe ask you to just confirm with respect to your capital targets, 11.25% effectively implies 11.6% to 11.7% given on balance today, given that you usually would drop 30, 40 basis points when you pay the dividend. And so if you look at your capital first particularly in level 1 terms, it's not quite as large. And in that context, maybe you can comment on the dividend? And maybe Andrew, you want to comment on that kind of in broader terms given that your capital position on an underlying basis has deteriorated in the half? And if you can maybe provide some consideration maybe capital tailwinds that we may not be seeing at the moment because as we're looking at it now, it looks like it's going to be difficult to sustain that dividend. And so it'd be interesting to hear your considerations and whether the Board meet when the time comes, would look to potentially issue shares like it has done historically?

Question: Victor German - Macquarie - Analyst : And anything inorganic that you can maybe allude to that potential to make support capital position in the next couple of periods in terms of model optimization and things like that?

Question: Jonathan Mott - Barrenjoey - Analyst : A question, if I could, just quite a lot the present. Flip to Slide 91, which just goes to the Australian business and profit asset quality. If you look at the top right quarter here, and you talked about this a bit earlier on, you can see a pickup in the non housing, non performing exposures which is about now is 3% of the non housing book. If you then took a couple of pages forward where you go through the sector exposures. It looks very broad-based nearly every sector some deterioration in asset quality in this book. The question I've got is the extent has gone up but why are you seeing this when you don't appear to be seeing the same level of deterioration in this book? And then I've got a follow-up question, too.

Question: Jonathan Mott - Barrenjoey - Analyst : And just a second question. Business credit growth have all been very strong running 7% to [8%]. But as you alluded to, if you go to the upper status has been a big slowdown in small and medium-sized credit growth and a sizable [pickup] in large credits. So I think SME is running 2% half on half. And you talked about stronger pipeline. I don't know just for a federal election and if that gets into the certainty but it's sort of 4% of growth in Business & Private data. Business bank in your segment, the SME side of it around what they're expecting? Or do you think that will pick up from these levels?

Question: Andrew Triggs - JP Morgan - Analyst : Thank you. A couple of questions, please. The first one, a lot has been written about competition lately, interested in -- Andrew, what you're seeing on the ground in terms of the efforts you're having to make protective market share. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30AM, NAB.AX - Half Year 2025 National Australia Bank Ltd Earnings Presentation Note that in the [NIM slide], the [NIM walk], there was 1 basis point of headwind from business lending combined, but that does include CIB, and that was the first time such a headwind was called out in the NIM walk, just keen on some of the thoughts there? And then second question is the margin piece. So those mix shift seems to be slowing. There was a slowing impact on the NIM in the period and it looks lower than one of your competitors. Can you unpack sort of what you're seeing in terms of the change in the mix noting that appear to be New Zealand rather than Australia?

Question: Andrew Triggs - JP Morgan - Analyst : And on deposit mix, if you're seeing a slowing this year?

Question: Andrew Triggs - JP Morgan - Analyst : Yeah. Thank you.

Question: Andrew Lyons - Jefferies - Analyst : Just the first question on expenses. You delivered a good cost performance in the first half and reiterated your full year cost guidance for the 25% growth being below the 4.5% from FY24. Consensus is consistent that about 4% to '25 at the moment, which does imply 3.5% half-over-half growth in the second half versus the 1.5% you delivered in the first half. Now just thinking about the moving parts, clearly, investment spend will pick up in the second half. But is it realistic to think half-over-half growth is going to increase by that much in the second half. Can you maybe just talk to some of the moving parts?

Question: Andrew Lyons - Jefferies - Analyst : Yes. No, that's helpful. Just a second question related to one of the earlier ones just around the capital position. Risk-weighted optimization has been a bit of a capital tailwind for NAB really over the last decade. Against that, you've noted that your RWAs are now hitting their capital floors. Now I would have expected that that means it's going to be pretty difficult to see further optimization sort of supporting capital generation from here. But Shaun, it did sound like you think that there is still some opportunity for further optimization despite the fact that you have hit your capital floor. Can you maybe just talk about that just in a little bit more detail, just how we should be thinking about that, please?

Question: John Storey - UBS - Analyst : Hey guys, I've got two questions just on the business and Private Bank. The first one is just around the growth in other operating income. You referenced it this morning that there's reasonable momentum in the franchise with regards to clients and deposit growth. Just want to get an understanding of why you aren't seeing a commensurate increase in other operating income? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30AM, NAB.AX - Half Year 2025 National Australia Bank Ltd Earnings Presentation

Question: John Storey - UBS - Analyst : Okay. That's useful. And just on the second question, Andrew, more directed at you. I mean there's obviously been a lot of focus just around business banking and the increased intensity of competition, certainly over the last 12, 18 months. Just want to get a sense from your side with the benefit of hindsight, what would you have done differently in your time running business banking, knowing what you know now in terms of how competition has played out?

Question: Matthew Dunger - Bank of America - Analyst : If I could just ask a first question on the Citi acquisition. Andrew mentioned the platform migration in December. You had some spending below the line in the period. And you've talked previously about $130 million of synergies over three years at the time of the acquisition. How much will Citi contribute to over $400 million of productivity in FY25? How much in FY26? And any material change to your expectations here?

Question: Matthew Dunger - Bank of America - Analyst : Thank you very much, Andrew. That's comprehensive. And just on the bad debt side, Shaun talked to the provision buffers being prudent at this point of the cycle. You've maintained the scenario weight, but arguably, the trade uncertainties deteriorated in this period. So can you just talk us through how you thought about that scenario weight and why no change?

Question: Richard Wiles - Morgan Stanley - Analyst : I've got a couple of questions. Andrew, you just mentioned that you're pleased with how you're managing the mix of broker versus proprietary in the business bank. I think on Slide 15, you revealed that 70% of business lending is through your proprietary channel. How has that changed over time? Has it fallen in recent years?

Question: Richard Wiles - Morgan Stanley - Analyst : Okay. And my second question just relates to CIB or the Institutional Bank. Your former CEO, Frank Cicutto famously turned pretty bearish and pulled back from large corporate lending in 2002. At the time, he was worried about the outlook for the global economy and what that could mean. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30AM, NAB.AX - Half Year 2025 National Australia Bank Ltd Earnings Presentation So with your stance in CIB at the moment, is it more a function of your view on sort of margin and returns? Or is it driven by risk appetite? Is there the risk that you're pulling back from CIB when you shouldn't be? And does it mean your CIB revenue is going to be pretty difficult to sustain?

Question: Richard Wiles - Morgan Stanley - Analyst : So it sounds like from your answers that the sort of discipline around volume growth in CIB more reflects a view on -- whether you can make a return rather than specific concerns about risks.

Question: Richard Wiles - Morgan Stanley - Analyst : Yeah, okay. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30AM, NAB.AX - Half Year 2025 National Australia Bank Ltd Earnings Presentation

Question: Ed Henning - CLSA - Analyst : Thanks for taking my questions. Just circling back on a couple of things that you've touched on before. Just on your fee income and there are a number of one-offs in the period. But if you look at the credit growth, it was really, really strong in the period. Can you just talk about fee income going forward? Is it decoupling from credit growth? How should we think about fee income going forward from here, please?

Question: Ed Henning - CLSA - Analyst : Okay. So going forward, should we thinking about it more tracking in line with credit growth? Or how should we think about the growth --

Question: Ed Henning - CLSA - Analyst : Fee income going forward or the headwinds still to go maybe coming through your book. Maybe that's a better way of asking it.

Question: Ed Henning - CLSA - Analyst : Okay. All right. Second question, just circling back to [EBITDA] margin you haven't touched on. Can you just talk -- if you look at New Zealand was up 1 basis point in the half. I imagine that was just the movement around the fixed rates and the swaps. Can you talk about what you're seeing there currently? Also the term funding part of your funding costs, you talked about that was the impact of the TFF. Can you just talk about what you're seeing there in wholesale funding markets at the moment? Do you still see that as a headwind going forward?

Question: Thomas Strong - Citi - Analyst : Good morning and thanks for taking my questions. I just wanted to follow up on some comments around the provisioning. Clearly, we've got some pretty considerable uncertainty post March 31, and you talked about how sort of rates might support the economic recovery. I mean if I look at your economic forecast of a cash rate of 2.85%, it obviously implies quite a significant downturn. Is that the sort of policy support that you're factoring into your provisioning assumptions?

Question: Thomas Strong - Citi - Analyst : Yes, that's very clear. And just a second question, if I may, just around investment spend going to $1.8 billion this year. Just in terms of the buckets, I mean, when we look at the customer experience and revenue focused spend, it's been flat for a few halves now. Are you going to have to lift that given the competitive pressure you're seeing in the business bank? And would that be sort of additive to investment spend or would that sort of come at the expense of some of the other buckets within that?

Question: Thomas Strong - Citi - Analyst : That's right. Thanks very much.

Question: Matthew Wilson - Jarden - Analyst : Thank you. Good morning, Matthew Wilson, Jarden. Thank you for taking my questions; I have two. If you analyze the risk-adjusted returns in the business bank, NAB sat above its peers for decades at about 2.6%, 2.7%. That's now completely reversed with CBA entrenching itself at 2.7%, you're at 2.2%. So you're 50 basis points behind them. You responded partly to that in the presentation by admitting you've got a problem with deposits. How can you close the gap and what really went wrong in the business bank? And then secondly, capitalized software balances are up 16% year on year, $3.2 billion, you're 62% or $1.3 billion ahead of your peers. One could argue that your cost base is probably $250 million understated. Do you think you're being a bit aggressive with capitalization of software expenses?

Question: Matthew Wilson - Jarden - Analyst : Yes. I'm not necessarily familiar with the ratio that you talk about from yesteryear. How would you answer that?

Question: Matthew Wilson - Jarden - Analyst : Yes. And capitalized software?

Question: Matthew Wilson - Jarden - Analyst : All right. Thanks, guys.

Question: Brian Johnson - MST - Analyst : Thank you. Thank you so much, and Shaun, fantastic clarity in your answers.

Question: Brian Johnson - MST - Analyst : Really good job. I have two questions mate. So the first one, perhaps, Andrew, is that if we have a look -- and I like really miserable blow so very, very conservative. If I have a look at your downside scenario back when everything was so glum on the ECL in FY20, it was $7.7 billion. March -- September 2024, it was $8.3 billion. It's now $8.9 billion. What's -- how can we wrap our head around the underlying factors doesn't seem to have changed. You've had a little bit of growth come through. But how come your adverse scenario, which you've got a 42.5% weighting to, why does it keep on getting worse as your base case scenario gets better?

Question: Brian Johnson - MST - Analyst : So it's gone from $8.3 billion to $8.9 billion over the last six months. That's quite a bit more than the balance sheet growth. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 07, 2025 / 12:30AM, NAB.AX - Half Year 2025 National Australia Bank Ltd Earnings Presentation

Question: Brian Johnson - MST - Analyst : Well, I would actually commend -- I feel more comfortable personally paying a fee for that. The other one, Andrew, is just on Slide 66. When we have a look at the -- which is the housing slide, when we have a look at the proprietary balance, it's gone from 48% of the book to 47.1%. So the actual proprietary book based on the numbers has declined from $169.4 billion to $169 billion. So it's down a little. When we have a look at the ROE on this, this is a question asked last time around, other things being equal, it looks as though the front book ROE is still below the cost of capital across the sector. How can you turn this around?

Question: Brian Johnson - MST - Analyst : So Andrew, if I kind of summarize where we are, we've got -- we've got [CommBank] saying we've got to hire in more people. Surprise, surprise, we've got [Westpac] saying we're going to hire in more people. We've got Westpac saying they're going to hire in more people. I look forward to hearing what ANZ say on this in coming days. But there's only so many people out there. Can you just talk to us about how easy it is to actually hire business mortgage bankers in when there's something seem to be a hot commodity?

Question: Brian Johnson - MST - Analyst : And Andrew, if I could just push my luck with one final one. Just on the capitalized software, do you think there's any -- the historic messaging has been we don't need to do a big bang approach on refreshing the core and refreshing the IT. We see that now coming through at ANZ and Westpac. Can we still clarify that, that is your thinking? There's no big bang need at some future point?

Question: Brian Johnson - MST - Analyst : Thank you. Well done on the results.