Third-party channel dominates NAB’s mortgage growth

Of the $9 billion increase in the lender’s total book, the broker channel and NAB-owned wholesale funder Advantedge originated $8.4 billion, compared to $900 million growth via NAB’s branch network and its subsidiary UBank.  

NAB’s business and private bank offset the overall portfolio increase with a $600 million decline in its mortgage book.

As at the close of 1H19, brokers alone originated 36.4 per cent of loans in NAB‘s portfolio, up from 34.6 per cent in 1H18.

NAB chairman and interim CEO Phillip Chronican told The Adviser that the group’s increased exposure to the broker channel has come off the back of a shift in market preferences.

“We would prefer to be able to sell more of our home loans through our own branded network, but nonetheless, the market preference has been something like 40 to 50 per cent of all mortgages are currently being originated through the broker channels,” he said.

“We need to be aware of that and position our business around it.”

NAB also reported a shift in the make-up of its mortgage portfolio, with the proportion of owner-occupied loans increasing from 58.6 per cent in 1H18 to 59.7 per cent, while the share of investment loans dropping from 41.4 per cent to 40.3 per cent.

The proportion of interest-only loans also declined, falling from 27 per cent to 22.4 per cent.

The bank’s share of the mortgage market increased over the half, rising from 15.4 per cent to 15.5 per cent.

NAB preparing for changes to broker model

When asked if NAB was preparing for potential changes to the broker remuneration model, Mr Chronican said that the bank is working on “contingencies” but added that the trajectory of broker reforms remains uncertain, particularly considering the positions of both major parties ahead of the federal election.

“Of the 76 recommendations, there were four that we reserved our position on [and] two were related to the way mortgage brokers operate,” he told The Adviser.

“We believe the industry needs to have more of a detailed analysis of what remuneration model is going to work for it, and I don’t think they’re ready for that yet.

“I know that both sides of politics have also reserved their potion on this one, so at the moment, we don’t know where that’s going to land, but we are looking at various contingencies, but I don’t have anything specific to identify.”

NAB has been a vocal advocate of the broker model, with the CEO stating in March that the bank was "[a] strong believe[r]r in the need for the mortgage broking industry to continue to thrive"

Remediation costs weigh on bottom line

NAB has reported a statutory net profit after tax of $2.7 billion, up 4.3 per cent from 1H18.  

However, the bank’s bottom line was hit by an additional $525 million in customer-related remediation costs off the back of the royal commission.

The lender has also slashed its shareholder dividend from 99 cents per share to 83 cents, which Mr Chronican said would “provide greater flexibility to accommodate any future headwinds, including any other further customer remediation that may be required”.

NAB has also announced that all of its remaining board members will be taking a cut to their remuneration – equivalent to 20 per cent of FY18 base fees – in line with the bank’s efforts to rebuild community trust.

The reputational damage caused by NAB’s failings highlighted during the royal commission culminated in the resignations of former chairman Ken Henry and former CEO Andrew Thorburn.

The bank is still on the lookout for a permanent replacement for Mr Thorburn.

“All I can say at this stage is it’s progressing, and we hope in the near future to be getting down to a shortlist that we can make a decision from, but I don’t have anything more I can say at this point,” Mr Chronican said.

Reflecting on NAB’s overall position, Mr Chronican said: “The key messages from the half year result are that the underlying businesses are performing really well and that’s a really strong signal.

“What it says is that with all of the other issues we’re dealing with, our core businesses have stayed focused and are delivering for customers.

“Now, along with that, we’ve had to deal with a whole host of issues coming out of the royal commission, and I think the leadership changes in the organisation and some of the other measures we’ve taken on accountability are an important part of that.”

He added: “We’ve strengthened the capital position, so during the half just gone we’ve raised $750 million of new capital through our conversion of the converting preference shares.

“We are having an underwritten dividend reinvestment plan, which will raise another $1 billion of capital, and we’ve reduced the dividend to make sure we’re in a strong capital generation position.

“The company will be stronger financially, and it’s dealing to the issues that have been highlighted out of the royal commission but continuing to perform at the same time.”

[Related: Broker growth to remain uninterrupted]