NAB flags new earnings hit in wake of banking royal commission

NAB says first-half earnings will be cut by $325m because of new provisions to repay customers following the royal commission.

NAB interim CEO Philip Chronican. Pic: Kym Smith

National Australia Bank has flagged a $325 million hit to first half cash earnings as it announced an additional $749m in before-tax provisions for its customer remediation program.

It comes in the wake of the banking royal commission, as NAB and other big banks repay customers wrongly charged fees or provided with “non-compliant” advice.

The figure for additional provisions comes to about $525m after tax, adding to about $314m in after-tax provisions in the second half of last year.

Customer-related remediation costs would be excluded from the full-year expense growth guidance of “broadly flat”, NAB said.

Earnings from discontinued operations are predicted to be reduced by $200m for the half year.

That brings NAB’s total provisions for customer-related remediation to $1.1 billion, the lender said.

NAB also said its board would review the bank’s dividend settings.

Investors largely shrugged off the news, however, with NAB shares rising 0.63 per cent to $25.40 following the announcment.

Announcing the additional provisions, acting chief executive Philip Chronican said the bank had made about 360,000 payments to customers totalling $145m since June last year.

“We are putting things right where we have treated our customers poorly and making sure that they are compensated more quickly,” Mr Chronican said.

“There are currently around 350 people dedicated to remediating customers and we will soon have around 500 across NAB as we bring greater focus and discipline to resolving issues and making sure they do not happen again.”

NAB said that about 91 per cent of those charges were for wealth-related matters while the remainder related to banking.

The increased remediation costs are a result of non-compliant advice provided to wealth customers, as well as adviser service fees charged by NAB Financial Planning and NAB Advice Partnerships.

Also making an impact were consumer credit insurance sales relating to a previously disclosed remediation program that arose from an ASIC industry-wide review, as well as provisions for incorrectly charged fees on certain fee-exempt transactions.

The announcement comes ahead of the release of NAB’s half year results on May 2.

The Hayne royal commission last year uncovered numerous examples of dodgy practices by the big four banks, including customers being sold products they did not need and charging fees where no service was provided.

Former NAB chief executive Andrew Thorburn and chairman Ken Henry were forced to resign in the wake of the release of the royal commission’s final report, following scathing criticism of NAB’s leadership team.

Last month, NAB announced it would scrap its controversial mortgage introducer referral program, after the royal commission heard evidence of a fraud ring among NAB employees, who wrote hundreds of millions in dodgy home loans to gain commissions as part of the program.

Mr Chronican will replace Dr Henry as chairman later this year, after Mr Chronican indicated he did not want to be considered for the role of permanent chief executive.

Last year, NAB recorded a net profit of $2.58 billion and cash earnings of $3.29 billion, excluding restructuring costs, for the financial first-half through March.