NAB remediation shoots up by $1.18bn

Approximately 92 per cent of the remediation charges are for wealth and insurance-related matters, with the remainder for banking-related matters.

Charges of $832 million after tax for additional customer-related remediation will be included in NAB’s 2H19 result, according to a statement to the ASX.

NAB said the key driver of these additional charges is inclusion of a provision for potential customer refunds of adviser service fees paid to self-employed advisers.

The details behind NAB’s increased remediation costs include:

• Adviser service fees charged by NAB Advice Partnerships. Provisions have been increased to include allowance for customer refunds based on total ongoing advice fees received between 2009 and 2018 of approximately $1.3 billion, with an assumed refund rate of 36 per cent (or approximately 55 per cent including interest costs). Key considerations in estimating a refund rate include assumptions about circumstances where documents are not available or readily accessible, including where advisers are no longer working in the industry;
• Non-compliant advice provided to wealth customers, which is being addressed as part of NAB’s ongoing wealth advice review. Provisions have been increased mainly to cover higher expected costs to undertake the program;
• Adviser service fees charged by NAB Financial Planning. Provisions have been increased to reflect higher expected costs and a higher assumed refund rate of 28 per cent (or approximately 39 per cent including interest costs); and
• Consumer credit insurance sales through certain NAB channels. This relates to a previously disclosed remediation program that arose from an ASIC industry-wide review. Provisions have been increased mainly to reflect higher refund rates based on experience to date.

However, NAB also noted that until all customer payments have been completed, the final cost of the remediation remains uncertain.

“We understand that shareholders will be rightly disappointed. However, we also recognise the need to prioritise dealing with these past issues and fixing them for customers,” said NAB chief executive Philip Chronican.

“We have undertaken to significantly uplift customer remediation practices, as part of a broad program of reform to change the way we operate and ensure NAB meets customer and community expectations.

“We have made approximately 450,000 payments to customer with a total value of $202 million between June 2018 and August 2019, and have a dedicated remediation team of about 400 people helping to bring greater discipline and focus to remediating customers.”

The remediation expected to reduce 2H19 cash earnings by an estimated $1.12 billion after tax, and earnings from discontinued operation by an estimated $57 million after tax.

In combination with provisions raised in 2H18 and 1H19, NAB said this brings total provisions for customer-related remediation at 30 September 2019 to $2.09 billion.

Adrian Flores

Adrian Flores is a deputy editor at Momentum Media, focusing mainly on banking, wealth management and financial services. He has also written for Public Accountant, Accountants Daily and The CEO Magazine.

You can contact him on [email protected].