Andrew Thorburn’s NAB goes from also-ran to contender

Andrew Thorburn outlines NAB’s next challenge: becoming the best, particularly in business banking.

NAB chief executive Andrew Thorburn. Picture: Stuart McEvoy

It’s the anger and frustration that Andrew Thorburn recalls most vividly.

“There was a ferocity about it (investor anger),” he tells The Weekend Australian, scribbling the word on a whiteboard as he charts his three-year course as National Australia Bank chief executive.

“It was 10 out of 10. But after the recent half-year result, it was more like: ‘OK, well done. You’re simpler and you’re leaner. You’re doing what you said you’d do.’ ”

In a nutshell, that’s the story of NAB since August 1, 2014, when Thorburn announced his arrival as chief executive by up-ending the bank’s well-ensconced management team.

The phrase catastrophic failure is an inappropriate epitaph for NAB’s pre-2014 generation of leaders, unlike some of their predecessors. Serviceable, however, was always going to be well short of Thorburn’s requirements.

The way he saw it, if NAB were to be jolted from its decade-long hibernation and chronic underperformance, he had to quickly identify a group of executives with the same “humble but hungry” leadership traits he sees in himself.

So he did. Then he did it again in 2016. The upshot is, just on three years since NAB announced Thorburn would succeed Cameron Clyne, and after a frenetic ­period of restructuring and asset sales, the bank has lifted itself from also-ran to a contender on the major bank league table.

In the year to date, NAB’s total shareholder return (share price growth plus reinvested dividends) of 16.2 per cent comfortably exceeds ANZ and Westpac and is marginally ahead of Commonwealth Bank on 15 per cent.

The bank’s three-year TSR, covering the length of Thorburn’s tenure, is 13.9 per cent, behind only CBA on 16.8 per cent.

And just as importantly, the yawning return-on-equity gap to NAB’s peers has been bridged. While NAB again lags sector leader CBA, its ROE is a competitive 14 per cent.

It was enough for NAB’s rusted-on critic for most of the past two decades, CLSA’s Brian Johnson, to get all sentimental at the half-year result.

“I never ever thought that after two results in a row I’d be saying, ‘Congratulations on a great result’,” Johnson told an analysts’ briefing.

“That’s after 24 results where the opposite would be true.”

Thorburn looks back on the last three years and allows himself a sense of accomplishment.

“If you took me back to 2014 and said we’re going to be at the point that we are now in 2017, I’d take that. So I’m pleased,” he says.

“But I feel we’re just stable — we’re in the pack and we’re competitive, but we’re not the best.”

Becoming the best, particularly in NAB’s business banking heartland, is the challenge for the next three years, and Thorburn is clear-eyed about what’s required to get there.

Three years ago, NAB didn’t have the building blocks for future success.

While the NextGen replacement of the core banking system was well under way, it was mostly invisible where it really counted — at the interface with customers.

Certainly, there was no NAB Ventures, the $50 million internal venture capital arm, no NAB Labs hub dedicated to the rapid rollout of customer innovations, and internal thinking hadn’t coalesced around the “customer journeys” initiative to overhaul and improve processes.

It all has a digital vibe, and there’s no doubt that excellence in digital is key.

That’s because a digital transformation, executed well, can lift net promoter scores so that more customers become advocates for the bank, increase revenue and free up resources for deployment on the front line.

But it’s not the be-all and end-all.

“We have to think about what a relationship bank means for us in serving our business customers, for example,” Thorburn says.

“Digital has to be a core part of how we interact with them, but you’re still going to have a relationship banker because not everything is going to be digitised, particularly in business banking where relationships and human advice and wisdom counts.”

NAB is redesigning five customer journeys, a small part of which has been a project to digitally bring business customers on board who are sole practitioners.

Previously, the process would take up to five days, but now it’s only 10 minutes.

It all sounds great, but as has been well documented, the distractions of running troubled, low-returning businesses, such as in Britain, has come at a cost to NAB’s core operations — two of its competitors already have a similar initiative in place.

Thorburn accepts this, but counters that the bank’s rivals will have to confront the need at some point to undertake a NextGen-type core banking overhaul.

“So I don’t think we’ll know for another 10 years if those banks have made the right call,” he says.

There are also cutting-edge initiatives coming out of NAB Labs.

A rival bank CEO once said there has been no sustainable competitive advantage built by an Australian bank on the back of a technological innovation, with one exception — NAB’s healthcare payments platform known as HICAPS.

In the last few weeks, the bank has released a much more advanced, fully digital version of HICAPS called Medipass, which has been under development for some time.

Medipass, in which NAB ­Ventures has taken a stake, is ­expected to give the bank a big boost as its business bank targets higher growth segments, such as healthcare and agribusiness. An indication that the rubber of digital transformation is starting to hit the road is that Medipass has already created discomfort for the HICAPS team.

Why enable Medipass to cannibalise HICAPS when the latter could have innovated itself?

Thorburn attacks the issue on several fronts.

He accepts that tensions will arise, but says they are precisely the kind of challenges that NAB’s business customers routinely face themselves.

“It’s the outcome of trying to grow and transform a big, complex business that’s regulated, where you’ve got a real threat that if you don’t do it you’ll be materially smaller or even go out of business in five years,” he says.

“We’re not going to grow by going up the risk curve, but you have to have everyone feeling that they’re part of the new business. There’s no legacy business and a separate new business. It’s all one business.

“That’s why we don’t have NAB Labs in a special place inventing the new bank. The new bank is being invented inside the bank.”

Thorburn is reluctant to talk about his legacy, believing it should be left to someone else.

That said, the sort of bank he — and, more importantly, his team — wants to build is one that is seen as respectful of the industry’s fundamentals, including the importance of capital, liquidity, funding, asset quality and risk-adjusted ­returns.

It’s Banking 101, and there’s a retro flavour to the path that regulators, politicians and customers want the industry to the take.

“I also want the customer piece embedded so they know we’re obsessed with understanding what they want, not making more profit, or whatever,” Thorburn says.

“NAB should have great leaders, not just in the top few hundred but in the top few thousand, and it should be a truly world-class business bank.

“But people should only talk about their legacy when they’re done, and I don’t feel anywhere near that yet.”