NAB posts AU$5.8b profit, absorbs increased technology costs

The National Australia Bank (NAB) has posted a 15.5 percent year-on-year increase of cash earnings to AU$5.84 billion for the financial year ending September 30, 2015.

With statutory net profit up 22.7 percent over last year to AU$6.36 billion, NAB told shareholders on Wednesday that increased technology costs was a key expense item for the financial year.

"In 2015 we have been focused on delivering against our plan -- driving improved performance in our Australian and New Zealand business, investing for growth, delivering significant technology milestones for our customers, building a stronger balance sheet and exiting our legacy and lower returning assets," NAB Group CEO Andrew Thorburn said.

"We have achieved significant technology milestones this year which will deliver a better experience for our customers."

Thorburn said in the 2015 financial year NAB migrated over 1,000 business applications and 3,500 servers to its new datacentres.

"Our datacentres are the technology backbone of our bank, every customer transaction flows through them, so it's essential we have the most up-to-date infrastructure available," Renée Roberts, NAB group executive for Enterprise Services and Transformation, said.

"We're now running more than AU$250 billion in transactions daily out of Deer Park datacentre, and we've also decommissioned our east Melbourne datacentre that was decades old; NAB's technology team has worked tirelessly to deliver these major technology milestones, which represent one of the biggest transformation projects in our bank's history."

According to Roberts, the Deer Park datacentre is home to more than 900 technology applications and is on track to deliver estimates of AU$22 million in cost savings over the next 10 years.

NAB's modernisation program will continue to remove complexity and legacy technology systems, and ensure the business is future-proofed, the bank added.

Throughout its 2015 financial results, NAB attributed miscellaneous general expenses to "higher technology costs".

"The Personal Banking Origination Platform (PBOP) is currently in pilot with contact centres and select branches originating and fulfilling personal products on the new platform, delivering enhanced customer functionality, and reducing turnaround times," Thorburn said.

In September, NAB launched NAB Prosper to offer its customers personalised financial advice through its online internet banking platform.

NAB Prosper asks customers specific questions relating to their current financial situation and future goals, then based on the information gathered, provides them with a tailored assessment, with the option to seek further advice if they need it.

"We're continuing to look at ways to evolve our business to meet these changing needs. This evolution will continue to include advisers for those life-stage events where a customer wants to sit down and have a face-to-face discussion with their adviser," NAB executive general manager wealth advice Greg Miller said at the time.

In April, NAB partnered with New Zealand-based accounting software firm Xero to enable its small business customers to instantly access Xero's cloud accounting environment via the NAB internet banking function.

For the first half of the financial year, NAB reported that operating expenses reached AU$4.4 billion, up from AU$4.2 billion year-on-year. NAB again attributed this to higher technology costs.

The bank made a cash profit of AU$3.32 billion for the six months to March 31, and recorded that 72 percent of total transactions were via a digital channel. Of the 72 percent, 49 percent were via the bank's internet banking platform, while 23 percent were via the NAB mobile app.

NAB's New Zealand arm raked in NZ$823 million in cash earnings, peaking in December 2014, with expansion since taking a lull, the bank said.

NAB also said in the 2015 financial year it invested in its technology growth strategy in Auckland.

The bank's United Kingdom arm provided ‎£156 million in cash earnings, and was followed by an announcement from NAB on Wednesday morning of the bank's intention to demerge Scotland's Clydesdale Bank (CYBG), which the Australian banking giant scooped up in the late 1980s.

NAB said it expects to pursue a demerger of approximately 75 percent of the troubled CYBG to NAB shareholders and a sale of the balance by way of initial public offering (IPO) -- of up to approximately 25 percent -- to institutional investors. The primary listing will be on the London Stock Exchange, with a CHESS Depositary Interest (CDI) listing on the ASX as well.

Clydesdale's IPO is currently tabled for February next year, with NAB hopeful of attaining shareholder approval by January 2016.

On Wednesday, NAB also announced its intention to sell off 80 percent of NAB Wealth's life insurance business to Japan-based Nippon Life Insurance Company for AU$2.4 billion.

As a result of the transaction tabled for late 2016, NAB said it will enter a 20-year distribution agreement with Nippon Life to provide life insurance products through its established distribution networks. AU$440 million worth of one off, post-tax costs will be absorbed by NAB as a result of the sale, with the bank expecting a loss of AU$1.1 billion in separation costs.

The transaction will occur through the 80 percent sale of MLC Limited which will see NAB retain the MLC brand, although it will be licensed for use by Nippon Life for 10 years.

Looking forward, Thorburn said NAB is well placed to absorb higher regulatory capital requirements in the future.

"In 2016, our business will be stronger and more focused on delivering for our customers and our shareholders," he said. "We know our people are also aligned to achieving these goals."