NAB flags $314m in remediation costs

NAB is the latest big bank to compensate wrongly charged customers, booking an additional $314m in remediation costs.

NAB CEO Andrew Thorburn.

NAB has announced that it will book an additional $314 million in costs related to customer remediation programs, a figure that will cut its cash earnings for the second half of 2018 by $261 million.

Most of the charges relate to NBA’s wealth business, including refunds and compensation for customers for matters including adviser service fees, plan service fees, a wealth advice review and other issues.

NAB (NAB) also flagged costs for implementing the remediation and “other costs associated with regulatory compliance matters”.

NAB chief executive Andrew Thorburn said the bank wanted to pay compensation to customers as quickly as possible.

“Where we have let customers down we are determined to put things right,” he said in a statement that echoed a refrain now familiar among Australia’s bank chiefs.

The remediation programs would continue into the 2019 financial year, NAB said.

NAB said 69 per cent of the additional costs would affect revenue, with the remaining 31 per cent to be reported as expenses. NAB already said in its third-quarter trading update that the costs are excluded from full-year expense growth guidance of betweenfive and eight per cent.

NAB revealed last week that, along with ANZ, it was one of two banks that corporate regulators had discovered were referring to customer remediation payments as a “distraction” in internal documents.

The revelation came as ANZ’s Shayne Elliot answered questions before the House of Representatives economics committee in Canberra. Asked if he stood by his 2016 statement that the banking royal commission would be a “distraction,” Mr Elliot conceded he had been wrong.

NAB’s Mr Thorburn is set to be questioned by the standing parliamentary committee on Friday morning.

ANZ shares tumbled last week after the bank announced that it faced an additional $374 million in second-half costs related to repaying customers charged fees for no service, as well a the cost of administering its remediation programs, and other regulatory costs.

Two weeks before, Westpac announced a $235 million full-year writedown attributed to the cost of repaying customers for a range of financial advice and product-related issues.

In its full-year 2018 financial results in August, Commonwealth Bank revealed it had spent $389 million on “regulatory and compliance” matters in addition to the $700 million fine it paid over money laundering, and last week announced that it would end grandfathered commissions for financial planning customers, bringing it into line with the other major banks.

NAB and its peers are facing headwinds as Australia’s once-booming property market cools and after a spike in wholesale funding costs in 2018 that has put pressure on pending margins.

Morgan Stanley estimated the overall costs for refunds and remediation efforts for the four largest banks will amount to justunder $2 billion this financial year, and that they could face another $2 billion in refunds, fines, penalties and othercosts next year and $875 million the following financial year.

With Dow Jones, AAP