ANNUALFINANCIALREPORT2021National Australia Bank Limited ABN 12 004 044 937 National Australia Bank Limited ABN 12 004 044 937This 2021 Annual Financial Report (Report) is lodged with the Australian Securities and Investments Commission and ASX Limited. National Australia Bank Limited (NAB) is publicly listed in Australia. The Report contains information prepared on the basis of the Banking Act 1959 (Cth), Corporations Act 2001 (Cth), Accounting Standards and interpretations issued by the Australian Accounting Standards Board and International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board. NAB also produces a non-statutory Annual Review which can be viewed online at www.nab.com.au/annualreports.To view the Report online, visit www.nab.com.au/annualreports. Alternatively, to arrange for a copy to be sent to you free of charge, call the shareholder information line on 1300 367 647 from within Australia or +61 3 9415 4299 from outside Australia.Nothing in the Report is, or should be taken as, an offer of securities in NAB for issue or sale, or an invitation to apply for the purchase of such securities. All figures in the Report are in Australian dollars unless otherwise stated. ANNUAL FINANCIAL REPORT 2021
REPORT OF THE DIRECTORS
2021 at a glance
Chair's message
Operating and financial review
Directors’ information
Other information
Other matters
Auditor’s independence declaration
Remuneration report
FINANCIAL STATEMENTS
Income statements
Statements of comprehensive income
Balance sheets
Statement of cash flows
Statements of changes in equity
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS’ DECLARATION
INDEPENDENT AUDITOR’S REPORT
SHAREHOLDER INFORMATION
GLOSSARY
2
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38
50
52
85
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89
91
93
192
193
201
204
Annual Financial Report 2021
1
REPORT OF THE DIRECTORS
2
National Australia Bank
2021 AT A GLANCEKEY FINANCIAL PERFORMANCE MEASURESStatutory net profit$6.36BNCash Earnings1$6.56BN76.8% increase from 2020Dividend per share (for the full year)$1.27$0.67 higher than 2020Cash return on equity110.7%420 basis points increase from 2020Common Equity Tier 1 capital ratio13.00%153 basis points increase from 2020OTHER KEY PERFORMANCE MEASURESStrategic Net Promoter Score2-74 point increase from 2020, equal #1 among major banksNumber of customers assisted experiencing financial hardship331,04717% increase from 2020Colleague engagement score477Achieving our top quartile target score of 77Financing provided to drive positive social impact$56.3BNCumulative environmental financing(towards $70BN target by 2025)5$1.8BNCumulative affordable and specialist housing financing (towards $2BN target by 2023)6Supporting communities before, during and after natural disasters$5.6MProvided in grants and support to customers, colleagues and communities.1.Amounts presented are on a cash earnings and a continuing operations basis. 2.Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld. Strategic NPS: Sourced from DBM Atlas, measured on a six month rolling average. The overall Strategic NPS result combines Consumer and Business segments within Australia, using a weighting of 50% for each segment. Data is presented comparing September 2020 to September 2021 Strategic NPS figures. 3.Number of unique primary customers approved with hardship assistance for home loans, credit cards and personal loans in Australia. Note this number reflects customers who have been referred to NAB Assist, and is not inclusive of customers with an active deferral as at 30 September 2021.4.2021 Heartbeat Survey conducted by Glint, score based on July 2021 survey. Includes Australia and New Zealand colleagues, excludes external contractors, consultants and temporary colleagues.5.Represents total cumulative new flow of environmental financing from 1 October 2015. Refer to our 2021 Sustainability Data Pack for a further breakdown of this number and reference to how progress towards our environmental finance target is calculated.6.Affordable and specialist housing includes affordable housing, specialist disability accommodation and sustainable housing. This includes loans made under the First Home Loan Deposit Scheme for properties under the national median house price, and for borrowers with taxable income below the national median household income. Progress is based on total lending facilities committed, where first drawdown occurred during the target period. This number does not reflect debt balance. REPORT OF THE DIRECTORS
Restoring stability and driving performance
Delivering results in a challenging environment
NAB finishes 2021 as a better bank, well placed to
deliver improved performance over the long-term. In
a year characterised by continued challenges, NAB has
demonstrated a strong focus on customers and colleagues,
as well as its resilience and ability to grow safely.
While there is more to do, Ross McEwan and the Executive
Leadership Team have created stability and clarity of
strategy within the organisation, with stronger discipline
and execution. This is enabling us to deliver against
our ambition to serve customers well and help our
communities prosper.
Meaningful and sustainable change has been made to the
way the bank operates as a result of reforms put in place
following the Financial Services Royal Commission and in
response to NAB’s own self-assessment into governance,
accountability and culture.
The Board is observing tighter operating disciplines across
the bank, including faster identification and response to
issues. While remediation continues in financial crime
risk, the Board recognises the focus and diligence shown
by management.
Products and services have been reviewed to ensure the
needs of customers are put first. Processes are in place to
ensure any complaints are resolved faster.
The number of outstanding regulatory issues has been
materially reduced and we are making things right for our
customers where we have let them down. This year NAB has
returned $575 million to customers and we are on track to
have the bulk of these legacy issues behind us by the end
of 2022.
The successful exit of MLC Wealth has simplified the bank
and enabled greater investment in core markets where the
bank can grow. NAB’s acquisition of 86 400 and proposed
acquisition of Citigroup’s Australian consumer business will
enable the bank to quickly build scale in our digital and
consumer bank offerings.
The Board is encouraged by the 2021 full year results,
which reflect good momentum across all businesses, capital
strength and sound credit quality.
We are pleased to have increased dividends across the
full year to 127 cents per share, compared to a reduced
level in 2020. This outcome is closer to the level of
shareholder return the Board is targeting going forward,
with future dividends to be guided by a target payout ratio
range of 65-75% of sustainable cash earnings, subject to
circumstances at the time.
The Board has set executive and employee remuneration
outcomes for 2021 at a level which reflects the strong
progress made in resolving legacy issues, the strategic
repositioning of the business and major improvements to
customer outcomes, evidenced by NPS and market share
measures. This is in contrast to last year when the CEO and
ELT did not receive any short-term incentive payments.
Importantly, remuneration outcomes reflect an assessment
of performance against the targets set in the 2021 financial
year plan, as well as greater colleague engagement and
better outcomes for customers.
In a challenging environment, the bank provided flexibility
and repayment relief to customers in need, while continuing
to lend to businesses and homeowners to grow investment
and support the broader recovery.
Building for the long-term
Looking ahead, I am cautiously optimistic that the worst of
the economic impact of COVID-19 is behind us and that the
Australian economy will rebound to pre-COVID-19 levels by
the middle of 2022.
The pandemic accelerated generational shifts in technology.
Today, 94 per cent of customer transaction activities are
online and 48 per cent of our home lending appointments
are by video, a clear shift away from face-to-face banking.
We are supporting our customers as they make this change.
Annual Financial Report 2021
3
CHAIR’S MESSAGEPhilip ChronicanNon-Executive Director & Chair
REPORT OF THE DIRECTORS
NAB has stronger technology foundations in place and
a greater emphasis is being placed on digital, data
and analytics.
This will enable NAB to deliver faster, better and
more personalised experiences to customers. It will also
strengthen defences against the growing, global threat of
financial and cyber-crime.
More broadly, new technologies will be central
to the decarbonisation of the Australian and New
Zealand economies.
NAB was the first Australian member bank of the
United Nations’ Environment Programme Finance Initiative’s
(UNEPFI) Collective Commitment to Climate Action.
Aligned with this membership, NAB is working with 100
of our largest greenhouse-gas emitting customers as they
develop or improve their low carbon transition plans
by 2023.
NAB has capped oil and gas exposure at default at
USD$2.4 billion and will reduce the Group’s exposure from
2026 through to 2050, aligned to the International Energy
Agency (IEA) Net Zero Emissions 2050 scenario.
However, for Australia to play its part and become a
stronger and more efficient economy, we need to tackle
climate change as a whole-of-economy issue. Every industry,
organisation and individual will have a role to play in
our decarbonisation.
NAB’s role is clear. We will work with our customers to
support their transition plans and we will support the
investment required to realise the significant economic
opportunity for Australia in a low emissions economy.
The NAB Board will continue to evolve, to reflect the
skills and diversity of experience required to guide the
bank through changes in our operating environment. Anne
Loveridge will stand for re-election at the AGM with our
full support.
On behalf of the Board, thank you for your ongoing support
as shareholders. To NAB’s 32,000 employees, thank you for
your hard work in serving our customers well and helping
our communities prosper, particularly as you navigated the
impacts of COVID-19 on your own lives.
I am proud of the progress the bank has made in the past
year and the tangible momentum for the future.
Philip Chronican, Chair.
4
National Australia Bank
OPERATING AND FINANCIAL REVIEW
The directors of National Australia Bank Limited (NAB or the
Company) present their report, together with the financial
statements of the Group, being NAB and its controlled
entities, for the year ended 30 September 2021.
Certain definitions
The Group’s financial year ends on 30 September. The
financial year ended 30 September 2021 is referred to
as 2021 and other financial years are referred to in a
corresponding manner. Reference in this document to the
year ended September 2021 are references to the twelve
months ended 30 September 2021. The abbreviations $m
and $bn represent millions and thousands of millions
(i.e. billions) of Australian dollars respectively.
Key terms used in this report are contained in the Glossary.
Forward looking statements
This report contains statements that are, or may be deemed
to be, forward looking statements. These forward looking
statements may be identified by the use of forward looking
terminology, including the terms "believe", "estimate",
"plan", "project", "anticipate", "expect", “target”, "intend",
“likely”, "may", "will", “could” or "should" or, in each
case, their negative or other variations or other similar
expressions, or by discussions of strategy, plans, objectives,
targets, goals, future events or intentions. Indications of,
and guidance on, future earnings and financial position and
performance are also forward looking statements. You are
cautioned not to place undue reliance on such forward
looking statements. Such forward looking statements are
not guarantees of future performance and involve known
and unknown risks, uncertainties and other factors, many
of which are beyond the control of the Group, which
may cause actual results to differ materially from those
expressed or implied in such statements. There can be no
assurance that actual outcomes will not differ materially
from these statements.
There are a number of other important factors that
could cause actual results to differ materially from
those projected in such statements, including (without
limitation) a significant change in the Group’s financial
performance or operating environment, a material change
to law or regulation or changes to regulatory policy or
interpretation, and risks and uncertainties associated with
the ongoing impacts of COVID-19, the Australian and
global economic environment and capital market conditions.
Further information is contained on page 19 under
Disclosure on risk factors.
Financial performance summary
The following financial discussion and analysis is based
on statutory information unless otherwise stated. The
statutory information is presented in accordance with the
Corporations Act 2001 (Cth) and Australian Accounting
Standards and is audited by the Group's auditors in
accordance with Australian Auditing Standards.
REPORT OF THE DIRECTORS
Non-IFRS key financial performance measures used by
the Group
Certain financial measures detailed in the Report of
the Directors are not accounting measures within the
scope of International Financial Reporting Standards (IFRS).
Management use these financial metrics to measure the
Group’s overall financial performance and position and
believe the presentation of these financial measures provide
useful information to analysts and investors regarding
the results of the Group's operations. These financial
performance measures include:
• cash earnings
• cash earnings (excluding large notable items)
• statutory return on equity
• cash return on equity
• net interest margin
• average equity (adjusted)
• average interest earning assets
• total average assets.
The Group regularly reviews the non-IFRS measures included
in the Report of the Directors to ensure that only relevant
financial measures are incorporated. Certain other financial
performance measures detailed in the Report of the
Directors are derived from IFRS measures and are similarly
used by analysts and investors to assess the Group’s
performance. These measures are defined in the Glossary.
Any non-IFRS measures included in this document are not
a substitute for IFRS measures and readers should consider
the IFRS measures as well. The non-IFRS measures referred
to above have not been presented in accordance with
Australian Accounting Standards, nor audited or reviewed in
accordance with Australian Auditing Standards unless they
are included in the financial statements.
Further information in relation to these financial measures is
set out below and in the Glossary.
Information about cash earnings
Cash earnings is a non-IFRS key financial performance
measure used by the Group and the investment community.
The Group also uses cash earnings for its internal
management reporting as it better reflects what is
considered to be the underlying performance of the Group.
Cash earnings is calculated by adjusting statutory profit
from continuing operations for certain non-cash earnings
items. Non-cash earnings items are those items which are
considered separately when assessing performance and
analysing the underlying trends in the business. These
include items such as hedging and fair value volatility and
gains or losses and certain other items associated with the
acquisition, disposal, and closure of businesses.
Cash earnings for the year ended 30 September 2021 has
been adjusted for distributions, hedging and fair value
volatility, amortisation of acquired intangible assets, and
acquisition, integration and transaction costs.
Cash earnings does not purport to represent the cash flows,
funding or liquidity position of the Group, nor any amount
represented on a statement of cash flows.
Annual Financial Report 2021
5
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Information about net interest margin
Net interest margin (NIM) is a non-IFRS key financial
performance measure that is calculated as net interest
income (derived on a cash earnings basis) expressed as a
percentage of average interest earning assets.
Information about average balances
Average balances, including average equity (adjusted), total
average assets and average interest earning assets are based
on daily statutory average balances.
This methodology produces numbers that NAB believes
more accurately reflect seasonality, timing of accruals
and restructures (including discontinued operations), which
would otherwise not be reflected in a simple average.
Refer to page 7 for a five-year summary of the Group’s
average equity (adjusted), total average assets and average
interest earning assets.
Rounding of amounts
In accordance with ASIC Corporations (Rounding in
Financial / Directors' Reports) Instrument 2016/191, all
amounts have been rounded to the nearest million dollars,
except where indicated. Any discrepancies between total
and sums of components in tables contained in this report
are due to rounding.
6
National Australia Bank
OPERATING AND FINANCIAL REVIEW (CONTINUED)
5 Year Financial Performance Summary
Net interest income
Other income(2)(3)
Operating expenses(2)(3)
Credit impairment (charge) / write-back
Profit before income tax
Income tax expense
Net profit for the year from continuing operations
Net loss after tax for the year from discontinued operations
Net profit for the year
Profit attributable to non-controlling interests
Net profit attributable to owners of NAB
REPORT OF THE DIRECTORS
2021
$m
13,793
2,936
(7,863)
202
9,068
(2,597)
6,471
(104)
6,367
3
6,364
Group(1)
2019
$m
13,555
3,980
(8,263)
(927)
8,345
(2,440)
5,905
(1,104)
4,801
3
4,798
2020
$m
13,877
3,259
(9,221)
(2,752)
5,163
(1,665)
3,498
(935)
2,563
4
2,559
2018
$m
13,505
5,596
(9,910)
(791)
8,400
(2,455)
5,945
(388)
5,557
3
5,554
2017
$m
13,182
4,842
(8,539)
(824)
8,661
(2,480)
6,181
(893)
5,288
3
5,285
(1)
Information is presented on a continuing operations basis, unless otherwise stated. 2019 has been restated for the presentation of MLC Wealth as a
discontinued operation. No other comparative periods have been restated.
(2) Comparative information in 2020 has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation. No other
comparative periods have been restated.
(3) Comparative information in 2020 has been restated to reflect product reclassification in the Group's BNZ Life business. No other comparative periods have
been restated.
5 Year Key Performance Indicators
Key indicators
Statutory earnings per share (cents) - basic
Statutory earnings per share (cents) - diluted
Statutory return on equity
Cash return on equity(1)
Profitability, performance and efficiency measures
Dividend per share (cents)
Net interest margin(1)
Total Group capital
Common Equity Tier 1 (CET1) capital ratio
Tier 1 capital ratio
Total capital ratio
Risk-weighted assets ($bn)
Volumes ($bn)
Gross loans and acceptances(2)
Average interest earning assets
Total average assets
Total customer deposits
Average equity (adjusted) - statutory
Average equity (adjusted) - cash
Asset quality
2021
2020
2019
2018
2017
Group
193.0
185.2
10.4%
10.7%
127
1.71%
13.00%
14.64%
18.91%
417.2
629.1
805.0
889.6
500.3
61.2
61.2
82.1
80.5
4.4%
6.5%
60
1.77%
11.47%
13.20%
16.62%
425.1
594.1
781.7
877.0
468.2
56.7
56.7
168.6
164.4
9.1%
11.4%
166
1.78%
10.38%
12.36%
14.68%
415.8
601.4
758.8
835.9
424.6
51.6
51.6
201.3
194.0
11.2%
11.7%
198
1.85%
10.20%
12.38%
14.12%
389.7
585.6
726.7
807.0
409.0
48.7
48.7
194.7
189.1
10.9%
14.0%
198
1.85%
10.06%
12.41%
14.58%
382.1
565.1
711.3
798.8
407.6
47.5
47.5
90+ days past due and gross impaired assets to gross loans and acceptances
0.94%
1.03%
0.93%
0.71%
0.70%
Full-time equivalent employees (FTE)(3)
FTE (spot)
FTE (average)
33,275
34,217
34,944
34,841
34,370
33,950
33,283
33,747
33,422
33,746
(1)
Information is presented on a continuing operations basis, unless otherwise stated. 2019 has been restated for the presentation of MLC Wealth as a
discontinued operation. No other comparative periods have been restated.
Including loans and advances at fair value.
(2)
(3) Excluding discontinued operations, FTE (spot) is 32,741 (2020: 31,372) and FTE (average) is 31,897 (2020: 31,204).
Annual Financial Report 2021
7
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Principal activities
Significant change in the state of affairs
The principal activities of the Group during the year
were banking services, credit and access card facilities,
leasing, housing and general finance, international banking,
investment banking, wealth management services, funds
management and custodian, trustee and nominee services.
The Group’s business
The Group is a financial services organisation with more
than 32,000 colleagues, over 618,000 shareholders and
serving approximately eight million customers.
The majority of the Group's financial services businesses
operate in Australia and New Zealand, with branches located
in Asia, the United Kingdom and the United States.
The Group operates the following divisions:
• Business and Private Banking focuses on NAB's
priority small and medium (SME) customer segments.
This includes the leading NAB Business franchise,
specialised Agriculture, Health, Government, Education
and Community services, along with Private Banking
and JBWere, as well as the micro and small
business segments.
• Personal Banking provides customers with products
and services through proprietary networks in NAB, as
well as third party and mortgage brokers. Customers
are served through the Personal Banking network
to secure home loans or manage personal finances
through deposit, credit or personal loan facilities. The
network also provides servicing support to individuals
and business customers.
• Corporate and Institutional Banking provides a range
of products and services including client coverage,
corporate finance, markets, asset servicing, transactional
banking and enterprise payments. The division services
its customers in Australia and globally, including
branches in the United Kingdom, United States and
Asia, with specialised industry relationships and product
teams. It includes Bank of New Zealand's Markets
Trading operations.
• New Zealand Banking provides banking and financial
services across customer segments in New Zealand. It
consists of Partnership Banking, servicing retail, business
and private customers; Corporate and Institutional
Banking, servicing corporate and institutional customers,
and includes Markets Sales operations in New Zealand.
New Zealand Banking also includes the Wealth and
Insurance franchises operating under the ‘Bank of New
Zealand’ brand but excludes the Bank of New Zealand’s
Markets Trading operations.
• Corporate Functions and Other division includes
UBank, 86 400 and enabling units that support all
businesses including Treasury, Technology and Enterprise
Operations, Strategy and Innovation, Support Units
and eliminations.
8
National Australia Bank
• On 16 December 2020 the Group announced it had
entered into an agreement to sell BNZ Life, its New
Zealand life insurance business, to New Zealand life
insurance provider Partners Life for NZ$290 million. The
parties are continuing to progress towards completion,
including separation activities required to effect the sale.
Subject to the timing of regulatory approvals, completion
is expected to occur in 2022.
• On 15 February 2021, the Group redeemed the
$2,000 million of National Income Securities issued on
29 June 1999. The National Income Securities were
redeemed for cash at their par value ($100) plus the final
interest payment. The unpaid preference shares forming
part of the National Income Securities were bought back
for no consideration and cancelled.
• On 19 May 2021 the Group completed the acquisition of
86 400 Holdings Ltd, the holding company of Australian
digital bank, 86 400 (“86 400”) for a total consideration of
$261 million. Refer to Note 38 Acquisition of subsidiary.
• On 31 May 2021 the Group completed the sale of
MLC Wealth to IOOF Holdings Limited (IOOF) for a
purchase price of $1,440 million. Refer to Note 37
Discontinued operations.
• On 30 July 2021 the Group announced its intention
to buy-back up to $2.5 billion of NAB ordinary shares
on-market to progress managing its CET1 capital ratio
towards its target range of 10.75–11.25%. The Group
commenced the buy-back in mid-August 2021 and has
bought back and cancelled $486 million of ordinary
shares in 2021.
• On 9 August 2021 NAB announced it had entered into
an agreement with Citigroup to purchase Citigroup’s
Australian consumer business. The proposed acquisition,
which remains subject to regulatory approvals, is
structured primarily as an asset and liability transfer,
with NAB to pay Citigroup cash for the net assets of
Citigroup's Australian consumer business plus a premium
of $250 million. Subject to the timing of regulatory
approvals, completion is expected to occur by the middle
of next calendar year.
• Changes to the composition of the Executive Leadership
Team have occurred or were announced during 2021 and
up until the date of this report, namely:
– Mr Les Matheson commenced as Chief Operating
Officer, with responsibility for digital banks UBank and
86 400, Group Marketing, Corporate Affairs, Product
Improvement, Governance and other key strategic
initiatives, effective 11 January 2021.
– Ms Angela Mentis, previously Bank of New Zealand
Managing Director and Chief Executive Officer, was
appointed Group Chief Digital, Data & Analytics
Officer. Mr Dan Huggins, previously BNZ’s Executive
- Customer, Products & Services, was appointed
Bank of New Zealand Managing Director and Chief
Executive Officer. Both appointments were effective
1 October 2021.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
There were no other significant changes in the state of
affairs of the Group that occurred during the financial year
under review that are not otherwise disclosed in this report.
• Launched a pilot workplace vaccination program, in
partnership with health authorities and the Group's
corporate flu vaccination provider.
REPORT OF THE DIRECTORS
Responding to COVID-19
COVID-19 continues to challenge the Group and
its customers, with varied impacts across industries,
communities and states. NAB has remained open for
business, and continues to work alongside state and
federal governments, regulators and the broader industry to
support customers and the community.
Support for customers
With the impact of COVID-19 continuing to be felt by
customers in many parts of Australia for long periods
during 2021, NAB continued to work with those affected
to understand their circumstances and provide them the
appropriate support.
For the Group's business customers, this included:
• Access to a NAB Business Recovery Loan (the Group's SME
Recovery Loan Scheme offering).
• When appropriate, repayment deferrals for up to a three
month period.
• Waiver of merchant terminal fees for up to a three
month period.
• Waiver of early withdrawal fees and notice periods on
Cash Deposit and Farm Management Deposit accounts.
For the Group's personal customers, this included:
• Home loan repayment deferrals on a month-to-month
basis, access to redraw facilities and offset accounts.
• Temporarily reduced payments or a temporary payment
break on loans and credit cards.
• Waiving fees and charges to access term deposits early.
Support for colleagues
Ways of working for the Group's colleagues were also
dramatically impacted by COVID-19, with lockdowns and
border closures forcing many colleagues to work from home
– often whilst juggling home schooling and other family
commitments. The physical and psychological wellbeing of
colleagues is critical. Colleagues who are safe and well can
perform at their best, be resilient in times of change and
focus on better customer outcomes.
In order to support the Group's colleagues manage these
challenging circumstances, we have:
• Supported a hybrid model of working, with many
colleagues splitting time working at a NAB location and
at home.
• Provided safety measures such as personal protective
equipment and social distancing protocols to protect
colleagues in banking centres.
• Developed a Hybrid Handbook and a ‘How to Hybrid
Leaders guide’ to support leaders and colleagues through
this ongoing transition.
• Provided colleagues with time off work to get
COVID-19 vaccines.
• Offered paid pandemic leave.
• Delivered wellbeing webinars and programs.
• Provided access to MyCoach, NAB’s employee
assistance program.
The pilot vaccination program provided colleagues and their
adult household members in many of the most impacted
areas in Sydney the opportunity to be vaccinated. The
program was subsequently expanded in September 2021 to
more NAB colleagues across Australia.
NAB's response to supporting customers and colleagues is
further detailed in the 2021 Annual Review.
Fighting financial crime
The Group has an important role in monitoring and
reporting suspicious activity and keeping Australia’s financial
system, the bank and its customers safe. The Group takes
its financial crime obligations seriously and therefore has
made, and continues to make, significant investments in the
ability to detect, deter and prevent financial crime.
As announced in June 2021, AUSTRAC has commenced an
enforcement investigation of five Group entities.
In confirming the commencement of the investigation,
AUSTRAC advised that it was not considering civil penalty
proceedings at that stage. That position is subject to change.
Refer to Note 30 Commitments and contingent liabilities of
the Financial statements for further details.
Governance and accountability
NAB’s approach to corporate governance and
governance practices
NAB continually strives to improve its governance,
accountability and risk management practices.
As a fundamental element of NAB’s culture and business
practices, its Corporate Governance Framework guides
effective decision making in all areas of the Group through:
• Strategic and operational planning
• Culture, purpose, values and conduct
• Risk management and compliance
• Customer outcomes
• Financial management
• External reporting
• People and remuneration.
For more information on NAB’s Corporate Governance
Framework please refer to NAB’s Corporate
Governance Statement.
NAB remains dedicated to building a culture that maintains
the trust of its customers and community.
Implementation of APRA self-assessment actions and Royal
Commission recommendations
Since the Banking & Financial Services Royal Commission
and undertaking a Self-Assessment in 2018 on governance,
accountability and culture, meaningful change has been
made to the way NAB operates. A significant and wide-
Annual Financial Report 2021
9
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
reaching reform program has driven improvement in
governance, accountability and culture, to address the root
causes of past failings.
technology. It recognises the need to go further to create a
simpler, more streamlined business with clear accountability,
which is more productive, resilient and efficient.
The voice of the customer is now firmly represented in
NAB. Products and services have been reviewed to ensure
they put the needs of the customer first. New complaint
handling processes have been implemented to make it
easier for customers to raise concerns and issues and as
at 30 September 2021 99% of all complaints are resolved
within 30 days. Improved process, controls and compliance
capabilities have led to faster identification and resolution of
issues, with the aim of reducing and preventing detrimental
impacts to customers. NAB has refunded $575 million to
597,000 customers in 2021 through remediation programs.
Changes to NAB’s operating model in early 2020 have
delivered greater clarity of executive accountabilities,
in conjunction with the focus on the Banking
Executive Accountability Regime (BEAR) accountabilities. The
operating model is supported by changes to the structure,
composition and scope of risk committee governance at an
executive-level. This has resulted in a greater demonstration
of first line ownership and accountability for risks and
issues, with clearer paths to mitigation and resolution when
risks and issues arise.
The Board continues to have oversight of management’s
ongoing efforts to improve outcomes for customers and
colleagues and get the basics right, including a strong
focus on the remediation work required in financial crime
risk management.
Of the 26 actions identified in NAB’s 2018 Self-Assessment,
all but three are now embedded and closed, with those
remaining relating to reviews that are ongoing in nature.
NAB will engage with APRA to determine whether related
issues identified in NAB’s Self-Assessment have been
addressed to the satisfaction of the regulator.
NAB has actively implemented the applicable and actionable
changes resulting from the 76 recommendations made
by Commissioner Hayne. Of the 55 recommendations
applicable to NAB, 21 are complete or well advanced, and
the work to implement a further 10 is underway. The
remaining 24 recommendations require no action from NAB
at this time because they are related to other third-party
participants including industry associations and regulators,
or are due to be reviewed in the future.
Strategic highlights(1)
In April 2020, the Group announced a refresh of its long-
term strategy. The strategy builds on progress achieved
over previous years in reducing complexity, uplifting digital
and data capability and establishing strong foundations in
The Group exists to serve customers well and help its
communities prosper. To achieve this, the Group has
narrowed its focus on a smaller number of key priorities
that it believes will make a real difference to its customers
and colleagues, and support over time its aim to be known
for being:
• Relationship-led; building on market leading expertise,
data and insights.
• Easy; a simpler, more seamless and digitally enabled bank
that gets things done faster.
• Safe; protect customers and colleagues through financial
and operational resilience.
• Long-term; deliver sustainable outcomes for stakeholders.
Over time, a simpler, more streamlined business with clear
accountabilities is expected to deliver better customer
outcomes, more engaged colleagues and improved
shareholder value. The Group will measure the success
of its refreshed strategy according to four key ambitions
over the three to five years from the period ending
30 September 2020:
• Colleague engagement; top quartile.
• Customer net promoter score (NPS); strategic NPS(2)
positive and first of major banks.
• Cash earnings per share growth; focus on market
share growth in target segments while managing risk
and pricing disciplines, and a disciplined approach to
managing costs and investment with absolute costs (on
a cash basis, excluding large notable items)(3) targeted to
be lower relative to costs in the year ended September
2020 of $7.7 billion.
• Return on Equity; targeting double digit cash return
on equity.
The close of 2021 marks the first full year under the
Group’s refreshed long-term strategy. Despite the challenges
associated with COVID-19, progress has been made against
strategic objectives through disciplined execution and by
focusing on doing the basics well and supporting the needs
of customers and colleagues. But there is more to do.
The Group’s strategy provides clarity about where and how
it will grow and improve returns for shareholders. Key to
this are important shifts in focus and priorities across its
businesses outlined below:
• Business and Private Banking will remain a key
differentiator for the Group, with the objective
of extending clear market leadership by investing
in industry-leading bankers, enabled by data and
insight capabilities, continued sector specialisation,
increased focus on transactional banking and leveraging
partnerships, combined with a more integrated high
(1) Amounts presented in this section are based on cash earnings.
(2) Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems
and Fred Reichheld. Sourced from DBM Consultants Business and Consumer Atlas, measured on 6 month rolling average. Net Promoter Score (NPS) is based
on all customers’ likelihood to recommend on a scale of 0 (not at all likely) to 10 (extremely likely). Definition has been updated to give all customers in the
Business and Consumer segments equal voice. The overall Strategic NPS result combines the Consumer (18+) and Business segments using a 50% weighting
for each. History has been restated. Ranking based on absolute scores, not statistically significant differences.
(3) Excluding large notable items, the impact of the proposed acquisition of Citigroup's Australian consumer business and any potential non-recurring AML/KYC
related costs including those incurred in addressing the issues subject to investigation by AUSTRAC, such as file remediation and other associated costs.
10
National Australia Bank
OPERATING AND FINANCIAL REVIEW (CONTINUED)
net worth offering. Importantly, the Group has also
prioritised delivery of a simpler end-to-end business
lending process.
• Personal Banking will invest in delivering simpler
products and services, with digital-first propositions,
flexible and professional bankers, easy customer
experiences, simpler unsecured lending offers, and
the delivery of simple home loans via a single
mortgage factory.
• Corporate and Institutional Banking will continue its
strategy of disciplined growth, with highly professional
relationship managers and specialists, and leadership
in infrastructure (including renewables) and investor
sectors, targeting improved financial performance by
further building out transactional banking and asset
distribution capabilities.
• Bank of New Zealand intends to continue its portfolio
shift towards SME and personal customer segments to
deliver a simpler business with lower capital intensity,
while also investing to create a step change increase in
digital capability.
• UBank will invest in market leading digital experiences
and new propositions to drive customer acquisition.
The Group took action in 2021 to reshape its portfolio
consistent with the Group’s strategy to simplify its business
and focus on key priority areas. The sale of MLC Wealth
was completed, and the Group finalised the acquisition of 86
400 and announced the proposed acquisition of Citigroup’s
Australian consumer business to accelerate growth in UBank
and Personal Banking respectively.
Investments and actions undertaken are delivering improved
outcomes for customers and colleagues. On the customer
front, strategic NPS rose 4 points over the year to
30 September 2021 to -7 and is equal highest of major
banks(1), but there is more to do to drive a positive NPS score
and fully achieve the Group’s customer ambition. Based
on the latest survey in July 2021, the Group’s colleague
engagement score has improved to 77, up from 75 in April
2021 and 66 in 2019(2) and is now consistent with its ambition
of achieving a top quartile colleague engagement score.
Improving the experiences for customers and colleagues is
driving growth momentum across the Group’s business.
The Group is investing in its leading SME franchise,
Business and Private Banking, to grow by delivering
differentiated and better banking experiences for customers
and colleagues. Embedding performance disciplines and
adding approximately 550 new customer facing roles have
been important initiatives in 2021. Alongside this is an
increasing focus on simplifying, automating and digitising
REPORT OF THE DIRECTORS
to provide faster, more seamless banking experiences. This
includes transforming small business lending via Quickbiz(3)
with straight-through processing enabling application
through to cash disbursement within 20 minutes. Leveraging
opportunities in data and analytics to provide insights,
more personalised experiences and faster decisioning is
underway including the launch of new facility renewal and
annual review processes which allow bankers to make faster
assessments based on customer behavioural drivers. These
investments and initiatives are driving growth. In 2021, SME
business lending rose 7% compared with 2020, market share
in both SME and Agri lending increased over the year(4), and
business transactional account openings were 18% above
2020 levels.
In Australia, improving growth in home lending by
increasingly simplifying and digitising the experience is a
key focus. During 2021 the Group simplified and streamlined
its home lending policies, rolled out digital application and
decisioning tools and enhanced the ability for customers to
self serve via the NAB App. These initiatives are delivering
quicker, better outcomes for customers and colleagues. This
includes a 50% reduction in the time taken for bankers to
submit home loan applications in 2021 compared with 2020,
and approximately 30% faster unconditional approval times,
in the six months to September 2021 compared with the
six months to September 2020, despite a significant increase
in application volumes during the year. The Group’s Simple
Home Loans digital application platform has been a key
driver of these outcomes, enabling simple lending to be
originated far more seamlessly. Applications eligible to be
submitted through the platform have risen to approximately
80% for the proprietary network over 2021, with rollout to
mortgage broker and Business & Private Banking channels
planned for 2022. These initiatives are making a difference
with Australian home lending balances increasing 4% over
2021 and growing ahead of system over the six months
ended 30 September 2021.
Digital, data and analytics are critical enablers of the Group’s
ability to achieve its strategic ambitions. By increasingly
leveraging these enablers, the Group is able to deliver
simpler, faster, safer and more personalised customer and
colleague outcomes more efficiently. Good progress is
underway across all divisions on this front. To ensure
the Group is maximising the potential upside from these
opportunities, Angela Mentis has been appointed to the
newly created Executive Leadership Role of Group Chief
Data, Digital & Analytics Officer. This appointment elevates
the strategic importance and growth potential of the
Group’s data and digital strategies and aims to better
position customers and colleagues for an increasingly
(1) Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems
and Fred Reichheld. Sourced from DBM Consultants Business and Consumer Atlas, measured on 6 month rolling average. Net Promoter Score (NPS) is based
on all customers’ likelihood to recommend on a scale of 0 (not at all likely) to 10 (extremely likely). Definition has been updated to give all customers in the
Business and Consumer segments equal voice. The overall Strategic NPS result combines the Consumer (18+) and Business segments using a 50% weighting
for each. History has been restated. Ranking based on absolute scores, not statistically significant differences.
(2) The 2019 score of 66 represents a restated score of the AON survey into a Glint ‘Heartbeat’ score methodology.
(3)
(4) Based on RBA Lending to Business – Business Finance Outstanding by Business Size and Industry data as at August 2021.
Launching late calendar year 2021 initially for unsecured lending and existing customers only.
Annual Financial Report 2021
11
should result in a proforma CET1 reduction of approximately
75(4) basis points.
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
digital and automated world, leveraging the strength
of the Group’s core banking businesses and strong
technology foundations.
As the Group increasingly simplifies, automates and
digitises, it is improving outcomes for customers and
colleagues and should also be able to operate more
efficiently. This, in conjunction with clearer accountabilities
and performance disciplines, has seen cost growth in 2021
of 1.8%(1) compared with 2020 (on a cash basis, excluding
large notable items in 2020) with investment at similar
levels to 2020, reflecting a balanced approach to investing
for sustainable growth while maintaining cost discipline.
For 2022, the Group is targeting broadly flat costs(2) (on
a cash basis) and investment spend compared with 2021.
Investment underpins the Group’s ability to deliver on its
strategy and grow while remaining safe and resilient. Key
focus areas of spend for 2022 include developing a single
mortgage factory, continued cloud migration, uplifting the
Group’s merchant offering, enhanced use of data and
analytics and further uplifting systems, processes and the
control environment. The Group also plans to continue
investing in cyber and financial crime prevention.
Critical to the Group’s success and ambition of being
safe is balance sheet strength. This is a key requirement
of its ability to serve customers well and help
communities prosper.
During 2021 the Group adjusted its capital and dividend
settings to better support its long term strategy and reflect
the importance of maintaining a strong balance sheet
through the cycle while also driving improved shareholder
returns. The Group plans to manage CET1 capital over
time towards a target range of 10.75-11.25% and for
dividends to be guided by a payout ratio range of 65-75%
of cash earnings, subject to Board determination based on
circumstances at the time.
Over 2021 the Group has achieved improved shareholder
returns while retaining balance sheet strength. Cash
earnings per share increased 44%(3) compared with 2020.
Cash return on equity increased to 10.7% compared with
8.3% in 2020, and the final 2021 dividend has been set at 67
cents per share (cps), representing a cash earnings payout
ratio of 68.6%. This brings the total dividend for the year
ended 30 September 2021 to 127 cps which is 112% higher
than 2020.
While September 2021 Group CET1 of 13.00% is above
the top end of the Group’s target range and 153 basis
points higher over the year, actions underway are expected
to progressively manage CET1 towards the target range,
including completion of the remaining $2.o billion on-
market share buy-back. This, along with completion of the
proposed acquisition of the Citigroup’s Australian consumer
business (less proceeds from the announced sale of BNZ Life)
(1) On a statutory basis, expenses in 2021 decreased by 0.4% compared with 2020 (excluding large notable items in 2020).
(2) Excluding large notable items, the impact of the proposed acquisition of Citigroup's Australian consumer business and any potential non-recurring AML/KYC
related costs including those incurred in addressing the issues subject to investigation by AUSTRAC, such as file remediation and other associated costs.
(3) Cash EPS on a diluted basis excluding large notable items in 2020.
(4) Both the proposed acquisition of the Citigroup’s Australian consumer business and the sale of BNZ Life are expected to complete in 2022 subject to relevant
approvals. The final capital impact will be determined following completion of both transactions. NAB’s share buy-back commenced in August 2021, and is
expected to be undertaken over approximately 12 months.
12
National Australia Bank
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Financial performance
Net interest income
Other income(2)(3)
Net operating income
Operating expenses(2)(3)
Credit impairment (charge) / write-back
Profit before income tax
Income tax expense
Net profit for the year from continuing operations
Net loss after tax for the year from
discontinued operations
Net profit for the year
Profit attributable to non-controlling interests
Net profit attributable to owners of NAB
2021
$m
13,793
2,936
16,729
(7,863)
202
9,068
(2,597)
6,471
(104)
6,367
3
6,364
Large
Notable
Items
$m
-
-
-
-
-
-
-
-
-
-
-
-
Group(1)
2021
ex Large
Notable
Items
$m
13,793
2,936
16,729
(7,863)
202
9,068
(2,597)
6,471
(104)
6,367
3
6,364
2020
$m
13,877
3,259
17,136
(9,221)
(2,752)
5,163
(1,665)
3,498
(935)
2,563
4
2,559
Large
Notable
Items
2020
ex Large
Notable
$m
(49)
(80)
(129)
(1,328)
-
(1,457)
434
(1,023)
(357)
(1,380)
-
(1,380)
Items
$m
13,926
3,339
17,265
(7,893)
(2,752)
6,620
(2,099)
4,521
(578)
3,943
4
3,939
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(3) Comparative information has been restated to reflect product reclassification in the Group's BNZ Life business.
September 2021 v September 2020
Net profit attributable to owners of NAB (statutory net
profit) increased by $3,805 million.
Net interest income decreased by $84 million or 0.6%.
Excluding large notable items of $49 million in 2020,
net interest income decreased $133 million or 1.0%. This
includes an increase of $192 million due to movements
in economic hedges, offset in other operating income.
Excluding these movements, the underlying decrease of
$325 million or 2.3% was driven by lower earnings
rates on deposits and capital due to the low interest
rate environment, competitive pressures and product
mix impacting housing lending margins, lower NAB risk
management income in Markets and Treasury and lower
average lending volumes. These movements were partially
offset by the impact of lower term deposit costs, deposit
repricing and favourable deposit mix, combined with
repricing in the housing lending portfolio and lower
wholesale funding costs.
Other income decreased by $323 million or 9.9%. Excluding
large notable items of $80 million in 2020, other operating
income decreased by $403 million or 12.0%. This includes a
decrease of $192 million due to movements in economic
hedges, offset in net interest income. Excluding these
movements, the underlying decrease of $131 million or
4.0% was driven by lower NAB risk management income in
Markets and Treasury, partially offset by a positive derivative
valuation adjustment.
Operating expenses decreased by $1,358 million or 14.7%.
Excluding large notable items of $1,328 million in 2020,
total operating expenses decreased by $30 million or 0.4%.
The decrease was driven by productivity benefits achieved
through simplification of the Group's operations and third
party savings, combined with lower restructuring-related
costs, and the impairment loss relating to the Group's
investment in MLC Limited (MLC Life) in 2020. These were
partially offset by higher personnel expenses including
provisions for higher performance-based compensation,
additional bankers and resources to support growth and
to support customers in response to COVID-19, combined
with salary increases and additional costs associated with
the investment in technology capabilities.
Credit impairment charge decreased by $2,954 million
driven primarily by a $1,846 million reduction in charges
for forward looking provisions as a result of COVID-19.
Excluding forward looking provisions, underlying charges
have decreased $1,108 million due to lower levels of
individual impaired exposures and collective provision
charges across the Group's lending portfolio.
Income tax expense increased by $932 million or 56.0%
largely due to a higher profit before tax.
Discontinued operations primarily relate to the net results
of MLC Wealth and Wealth-related items, combined with a
re-assessment of customer-related remediation.
Annual Financial Report 2021
13
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Review of Group and divisional results
Group balance sheet review
Business and Private Banking
Personal Banking
Corporate and Institutional Banking
New Zealand Banking
Group(1)(2)
2021
$m
2,480
1,650
1,207
1,154
2020
$m
2,472
1,442
1,416
977
Assets
Cash and liquid assets
Due from other banks(1)
Collateral placed(1)
Corporate Functions and Other(3)
67
(2,597)
Trading securities(1)
Cash earnings
Cash earnings (excluding large notable items)
Non-cash earnings items
Net loss from discontinued operations
6,558
6,558
(87)
(107)
3,710
4,733
(212)
(939)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
Net profit attributable to the owners of NAB
6,364
2,559
All other assets(1)
Group
2021
$m
50,832
107,546
6,430
50,020
41,878
2,794
27,474
2020
$m
64,388
47,333
8,579
64,937
40,355
3,860
34,744
621,156
583,962
17,838
-
16,928
1,479
925,968
866,565
74,160
4,664
27,046
24,031
605,043
109,154
6,831
12,260
46,773
5,327
29,971
32,276
546,176
126,384
6,191
11,953
-
221
863,189
805,272
62,779
61,293
925,968
866,565
Assets held for sale
Total assets
Liabilities
Due to other banks(1)
Collateral received(1)
Other financial liabilities
Derivative liabilities(1)
Deposits and other borrowings
Bonds, notes and subordinated debt
Other debt issues
All other liabilities(1)
Liabilities directly associated with assets
held for sale
Total liabilities
Total equity
Total liabilities and equity
(1) Comparative information has been restated to align to the presentation
in the current period. Refer to Note 1 Basis of preparation.
September 2021 v September 2020
Total assets increased by $59,403 million or 6.9%. The
increase was mainly due to a net increase of $31,740 million
or 18.0% in cash and liquid assets, due from other banks
(including the Exchange Settlement Account with the RBA)
and trading securities, reflecting the Group's management
of liquidity during the period. Loans and advances increased
by $37,194 million or 6.4% as a result of growth in
both housing and non-housing lending. These increases
were partially offset by a decrease in derivative assets of
$7,270 million or 20.9% driven by exchange rate and interest
rate movements.
Total liabilities increased by $57,917 million or 7.2%. The
increase was mainly due to an increase in deposits and
other borrowings of $58,867 million or 10.8% reflecting the
impact of government and central bank stimulus measures
in response to COVID-19. Amounts due to other banks
increased by $27,387 million or 58.6% predominantly as
a result of further drawdowns of the RBA Term Funding
Facility. These increases were partially offset by a decrease
in bonds, notes and subordinated debt and other financial
liabilities of $20,155 million or 12.9% in line with Group
funding requirements and a decrease in derivative liabilities
(1) Amounts presented in this section are based on cash earnings.
(2) Comparative information has been restated to reflect a reallocation of
operating expenses between business units to better align with the
Group’s new organisational structure.
Includes large notable items. In the 2021, the Group did not recognise
any amounts as large notable items.
(3)
September 2021 v September 2020
Group
Cash earnings increased by $2,848 million or 76.8%.
Excluding large notable items of $1,023 million in the
September 2020 full year, cash earnings increased by
$1,825 million or 38.6%.
Business and Private Banking
Cash earnings increased by $8 million or 0.3%, driven by a
reduction in credit impairment charges, partially offset by
higher operating expenses and lower revenue.
Personal Banking
Cash earnings increased by $208 million or 14.4%, driven by
a reduction in credit impairment charges.
Corporate and Institutional Banking
Cash earnings decreased by $209 million or 14.8%, driven by
lower Markets income and an increase in credit impairment
charges, partially offset by lower operating expenses.
New Zealand Banking
Cash earnings increased by $177 million or 18.1% driven
by higher revenue and lower credit impairment charges,
partially offset by higher operating expenses.
Corporate Functions and Other
Cash earnings increased by $2,664 million including a
decrease of $1,023 million in large notable items in the
September 2020 full year. Cash earnings (excluding large
notable items) increased by $1,641 million, driven by a
reduction in credit impairment charges and distributions,
partially offset by lower net operating income and higher
operating expenses.
14
National Australia Bank
OPERATING AND FINANCIAL REVIEW (CONTINUED)
of $8,245 million or 25.5% driven by exchange rate and
interest rate movements.
Total equity increased by $1,486 million or 2.4%. The
increase was mainly due to an increase in retained
earnings of $3,265 million or 20.8% reflecting current
period statutory profits after the payment of dividends. This
increase was partially offset by a decrease in contributed
equity of $2,229 million or 4.9% predominantly attributable
to the redemption of National Income Securities and
payments for share buy-back.
Capital management and funding review
Balance sheet management overview
The Group has a strong capital and liquidity position,
consistent with its commitment to balance sheet strength
and its proactive response to the significant economic
challenges associated with the impacts of COVID-19.
Regulatory reform
The Group remains focused on areas of regulatory change.
Key reforms that may affect the Group's capital and
funding include:
Revisions to the capital framework
• APRA is in the final stages of its consultations on the
revised Authorised Deposit-taking Institution (ADI) capital
framework with final prudential standards expected
in November 2021. Implementation of the prudential
standards relating to the risk-weighting framework and
other capital requirements is proposed for 1 January
2023, consistent with the internationally agreed timelines
for Basel III reforms by the Basel Committee on Banking
Supervision. APRA is seeking to make improvements to
the capital adequacy framework through:
– Improving flexibility via increasing regulatory
capital buffers.
– Implementing more risk-sensitive risk-weights.
– Enhancing competition via a capital floor for internal
ratings-based (IRB) ADIs.
– Improving transparency and comparability through
the disclosure of capital ratios under the
standardised approach.
APRA has reiterated its view that it is not seeking
to further increase the overall level of capital in the
banking system.
• In August 2021, APRA released its revised Prudential
Standard APS 111 Capital Adequacy: Measurement of
Capital, including changes to the treatment of equity
investments in subsidiaries for the purpose of calculating
Level 1 regulatory capital. The revised standard will be
implemented from 1 January 2022. In line with APRA’s
announcement in November 2020, the changes apply to
any new or additional equity investments in subsidiaries
in the interim period prior to 1 January 2022. The
revisions to the standard are expected to increase the
Group's Level 1 CET1 capital ratio by approximately 20-25
basis points.
REPORT OF THE DIRECTORS
• APRA has also proposed a minimum leverage ratio
requirement of 3.5% for IRB ADIs and a revised
leverage ratio exposure measurement methodology to be
implemented from 1 January 2023. The Level 2 Group's
leverage ratio as at 30 September 2021 is 5.83% (under
the current methodology).
Increased loss-absorbing capacity for ADIs
• In July 2019, APRA released its framework for the
implementation of an Australian loss-absorbing capacity
regime, requiring an increase in Total capital of 3% of
risk-weighted assets for domestic systemically important
banks (D-SIBs) by 1 January 2024. APRA has maintained
its overall target calibration of 4% to 5% of risk-weighted
assets and will consult on alternative methods for raising
the additional loss-absorbing capacity equal to 1% to 2%
of risk-weighted assets over the next two years, including
consideration of how Reserve Bank of New Zealand
(RBNZ) capital instruments could be used in supporting
overall loss-absorbing capacity.
RBNZ capital review
• In December 2019, the RBNZ finalised its review of the
capital adequacy framework applied to registered banks
incorporated in New Zealand. The RBNZ amendments
to the amount of regulatory capital required of locally
incorporated banks include:
– An increase in credit risk-weighted assets for banks
that use the RBNZ's internal ratings-based approach
due to an increase in the scalar, prescribed use of
the standardised approach for bank and sovereign
exposures, and the introduction of an overall minimum
standardised floor.
– An increase in the Tier 1 capital requirement to 16%
of risk-weighted assets, and an increase in the Total
capital requirement to 18% of risk-weighted assets.
• Due to uncertainties arising from the impacts of
COVID-19, the RBNZ delayed the start of the new capital
requirements. The increases to risk-weighted assets will
commence from 1 January 2022, while the required level
of capital increases will commence from 1 July 2022 and
be phased in through to July 2028.
Dividends
• In its updated December 2020 guidance, APRA removed
specific restrictions on capital distributions that were
introduced in response to COVID-19, but advised banks
to moderate dividend payout ratios and consider the
use of capital management initiatives to offset the
impact on capital from distributions. APRA has reiterated
that Boards need to carefully consider the sustainable
rate for dividends, taking into account the outlook for
profitability, capital and the economic environment.
• The RBNZ has eased restrictions on dividend payments,
allowing banks to pay up to 50% of their earnings as
dividends to shareholders, and has noted its expectation
that banks exercise prudence when determining dividend
payments. The 50% restriction will remain in place until
1 July 2022, at which point the RBNZ intends to remove
the restriction, subject to economic conditions.
Annual Financial Report 2021
15
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Term Funding Facility (TFF)
• On 19 March 2020, the RBA announced the establishment
of the TFF, a collateralised funding facility for the
Australian banking system to support ADIs in providing
credit into the economy at a low funding cost. The TFF
was available to be drawn down until 30 June 2021.
As at 30 September 2021, NAB’s total TFF allowance
was $31.9 billion, comprising $14.3 billion of Initial
Allowance, $9.6 billion of Supplementary Allowance and
$8.0 billion of Additional Allowance. NAB drew down the
full Initial Allowance of the TFF during the year ended
30 September 2020, and the full Additional Allowance
and Supplementary Allowance of the TFF during the
year ended 30 September 2021. The TFF is an efficient
source of three-year term funding, providing flexibility
to manage refinancing and execution risk, while also
reducing funding costs.
Contingent liquidity consultation
• On 14 July 2021, APRA released a consultation letter on
contingent liquidity to locally incorporated ADIs subject
to Liquidity Coverage Ratio (LCR) requirements. APRA
considers that it would be prudent for an ADI subject
to LCR requirements to maintain surplus self-securitised
assets as contingent liquidity equal to at least 30% of its
LCR net cash outflows.
on 17 December 2013, in accordance with the redemption
notice issued on 5 November 2020.
On 17 December 2020, the Group issued $2,386 million
of NAB Capital Notes 5, which will mandatorily convert
into NAB ordinary shares on 17 December 2029, provided
certain conditions are met. With prior written approval from
APRA, NAB may elect to convert, redeem or resell these NAB
Capital Notes 5 on 17 December 2027, or on the occurrence
of particular events, provided certain conditions are met.
On 15 February 2021, the Group redeemed the
$2,000 million of National Income Securities issued on
29 June 1999. The National Income Securities were
redeemed for cash at their par value ($100) plus the final
interest payment. The unpaid preference shares forming
part of the National Income Securities were bought back for
no consideration and cancelled.
Tier 2 capital initiatives
The Group’s Tier 2 capital initiatives during the September
2021 full year included the following:
• On 18 November 2020, NAB issued $1.25 billion of
Subordinated Notes.
• On 14 January 2021, NAB issued US$1.25 billion of
Subordinated Notes.
• On 17 May 2021, NAB redeemed HK$1,137 million of
Subordinated Notes.
Committed Liquidity Facility (CLF) reduction
• On 21 May 2021, NAB issued US$1.25 billion of
• On 10 September 2021, APRA announced that the CLF will
be reduced to zero by the end of 2022 subject to financial
market conditions. The CLF reduction is expected to be
offset by ADIs increasing holdings of high-quality liquid
assets (HQLA).
Further detail on the regulatory changes impacting the
Group is outlined in the September 2021 Pillar 3 Report.
Capital management
The Group’s capital management strategy is focused on
adequacy, efficiency and flexibility. The capital adequacy
objective seeks to ensure sufficient capital is held in excess
of IRB capital assessments and regulatory requirements,
and is within the Group’s balance sheet risk appetite. This
approach is consistent across the Group’s subsidiaries.
The Group’s capital ratio operating targets are regularly
reviewed in the context of the external economic and
regulatory outlook with the objective of maintaining
balance sheet strength.
On 30 July 2021, the Group announced its intention to buy
back up to $2.5 billion of NAB ordinary shares on-market
to progressively manage its CET1 capital ratio towards its
target range of 10.75–11.25%. NAB commenced the buy-
back in mid-August 2021 and has bought back and cancelled
$486 million of ordinary shares in the full year ended
30 September 2021.
Additional Tier 1 capital initiatives
On 17 December 2020, the Group redeemed the
$1,717 million of Convertible Preference Shares II issued
16
National Australia Bank
Subordinated Notes.
• On 17 June 2021, BNZ redeemed NZ$550 million of BNZ
Subordinated Notes.
• On 15 September 2021, NAB issued £600 million of
Subordinated Notes.
• On 16 September 2021, NAB redeemed JPY10 billion of
Subordinated Notes.
• On 21 September 2021, NAB redeemed $800 million of
Subordinated Notes.
• The Group repurchased and cancelled US$11 million
of the perpetual floating rate notes issued on
9 October 1986.
Funding and liquidity
The Group monitors the composition and stability of
funding and liquidity through the Board approved risk
appetite which includes compliance with the regulatory
requirements of APRA's LCR and Net Stable Funding
Ratio (NSFR).
Funding
The Group employs a range of metrics to set its risk appetite
and measure balance sheet strength. The NSFR measures
the extent to which assets are funded with stable sources
of funding to mitigate the risk of future funding stress. At
30 September 2021, the Group’s NSFR was 123%, compared
to 127% at 30 September 2020, largely driven by the
reduction in the CLF from $55.1 billion to $31.0 billion. The
NSFR remains well above regulatory minimums.
Another key structural measure for balance sheet strength
is the Stable Funding Index (SFI), which is comprised of the
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Customer Funding Index (CFI) and the Term Funding Index
(TFI). The CFI represents the proportion of the Group’s core
assets that is funded by customer deposits. Similarly, the TFI
represents the proportion of the Group’s core assets that is
funded by term wholesale funding with a remaining term
to maturity of greater than 12 months, including TFF, Term
Lending Facility (TLF) and Funding for Lending Programme
(FLP) drawdowns.
The Group's deposit strategy is to grow a stable and reliable
deposit base informed by market conditions, funding
requirements and customer relationships.
Over the year ended 30 September 2021, the SFI remained
at 101% as the increase in CFI was largely offset by
a reduction in the TFI, mainly due to deposits inflows
outpacing lending growth.
Term wholesale funding
The Group maintains a well-diversified funding profile across
issuance type, currency, investor location and tenor.
Through the financial year, global term funding conditions
were generally supportive for issuance with the limited
periods of volatility in the March 2021 half year largely
absent in the September 2021 half year. This reflects
continued central bank and government stimulus which has
underpinned investor sentiment, resulting in credit spreads
in most major markets being at or near post-Global Financial
Crisis lows.
The Group raised $12.5 billion of term wholesale funding
during the year ended 30 September 2021. NAB raised
$9.7 billion of term wholesale funding, including $5.6 billion
of Tier 2 subordinated debt, and BNZ raised $2.8 billion of
senior unsecured debt.
The weighted average maturity of term wholesale funding
issued by the Group in the September 2021 full year was
approximately 8.1(1) years to the maturity date, supported
by the issuance of long-dated Tier 2 subordinated debt. The
weighted average remaining maturity of the Group’s term
wholesale funding portfolio is 3.5(1) years.
Term funding markets continue to be influenced by the
economic environment, investor sentiment, and monetary
and fiscal policy settings.
Short-term wholesale funding
During the year ended 30 September 2021, the Group
accessed international and domestic short-term funding
through wholesale markets when required. In addition,
secured short-term funding in the form of repurchase
agreements has been accessed primarily to support markets
and trading activities. Repurchase agreements entered into,
excluding those associated with the TFF, TLF and FLP, are
materially offset by reverse repurchase agreements with
similar tenors.
Liquidity Coverage Ratio
The LCR measures the adequacy of HQLA available to meet
net cash outflows over a 30-day period during a severe
REPORT OF THE DIRECTORS
liquidity stress scenario. HQLA consist of cash, central bank
reserves along with highly rated government and central
bank issuance. In addition to HQLA, other regulatory liquid
assets include the CLF.
The Group maintains a well-diversified liquid asset portfolio
to support regulatory and internal requirements in the
regions in which it operates. The average value of regulatory
liquid assets held through the September 2021 quarter
was $191 billion and included $163 billion of HQLA. The
increase in HQLA during 2021 was a result of deposit
inflows and TFF drawdowns which were partially offset by
a reduction in the Group Alternative Liquid Assets (ALA).
ALA comprise pools of internally securitised mortgages, and
other non-HQLA securities used to collateralise the reduced
CLF or are securities that are repo-eligible with the RBNZ.
Quarterly average ALA for September 2021 were $28 billion
and comprise unencumbered assets available to the CLF of
$27 billion, and RBNZ securities of $1 billion.
A detailed breakdown of quarterly average net cash
outflows is provided in the September 2021 Pillar 3 Report.
Dividends
Dividend and Dividend Reinvestment Plan (DRP)
The final dividend in respect of the year ended
30 September 2021 has been increased to 67 cents, 100%
franked, payable on 15 December 2021.
The extent to which future dividends on ordinary shares
and distributions on frankable hybrids will be franked is
not guaranteed and will depend on a number of factors,
including capital management activities and the level of
profits generated by the Group that will be subject to tax
in Australia.
The Group periodically adjusts its DRP to reflect its capital
position and outlook. In respect of the final dividend for
the year ending 30 September 2021, the DRP discount is nil,
with no participation limit. The Group expects to satisfy the
DRP in full by an on-market purchase of shares.
Review of, and outlook for, the Group
operating environment
Global business environment
The global economy has rebounded strongly in calendar
year 2021, following the steep downturn in 2020
associated with restrictions to control the spread of
COVID-19 ("lockdowns").
The recovery has been disrupted by further COVID-19
outbreaks in a wide range of countries, as well as delays
in the rollout of vaccines. Therefore the recovery is likely to
continue into 2022, with global economic growth expected
to remain above its long-term trend.
To this point, the recovery has been uneven. Some sectors,
such as international transport and tourism, are still
struggling, while access to vaccines varies considerably
between countries.
(1) Weighted average maturity excludes Additional Tier 1, Residential Mortgage Backed Securities, RBA Term Funding Facility and RBNZ funding facilities.
Annual Financial Report 2021
17
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Various central banks loosened monetary policy at the
start of the pandemic, implementing a range of measures
including policy rate cuts, asset purchases, funding
programs and loan guarantees. With the recovery underway,
central banks are starting (or have announced that they
may start) to unwind unconventional monetary policy. Policy
rates for major central banks are expected to remain
historically low for some time.
Governments have implemented a broad range of fiscal
programs to support businesses and households. Some
governments have started to unwind support, and fiscal
spending is likely to contract significantly in 2022.
COVID-19 remains the main risk to the global economic
outlook, with emerging market economies more exposed to
the risk of outbreaks due to their typically lower vaccination
rates than advanced economies.
Other near term risks include geopolitical tensions
between China and other countries including Australia, and
uncertainty in the Middle East, the South China Sea and the
Korean Peninsula.
Australian economy
The Australian economy staged a strong recovery from the
recession in the first half of calendar year 2020, before
the introduction, around the middle of calendar year 2021,
of lockdowns in some jurisdictions to control the spread
of COVID-19.
GDP declined by 7.3% between the December 2019 and
June 2020 quarters. By the June quarter 2021, GDP had
recovered to 1.6% above its pre-COVID-19 level, but with
progress mixed across industries and locations. Compared to
December quarter 2019, in the June quarter 2021:
• Household consumption was marginally down but
with some sectors, such as furnishings and household
equipment and car purchases, having experienced large
gains while other segments, including hospitality and
transport services, were still depressed.
• Private business investment was broadly the same but
dwelling investment was almost 10% higher.
• Public consumption and investment were higher (8% and
13% respectively).
• State final demand was higher in all states and territories,
with the strongest recoveries occurring in the Northern
Territory and Western Australia, and the weakest in NSW
and, in particular, Victoria.
The recovery has been set-back by extended lockdowns in
NSW, Victoria and the ACT. Retail sales for Australia declined
by 4.8% between May and September 2021, and GDP in
the September quarter 2021 is expected to record a large
fall. With restrictions easing in October 2021, and given
the considerable Government policy support in place, a
bounce back in domestic activity is expected, which should
lead to solid GDP growth over calendar year 2022 before
it moderates towards a more trend like pace in calendar
year 2023.
Strict controls on international border movements have
continued to weigh on the education and tourism sectors.
18
National Australia Bank
While activity in the sectors most affected by COVID-19 may
normalise as vaccine targets are met, lockdowns become
less frequent and international borders start to re-open, how
quickly this occurs is uncertain. There may also be longer
lasting impacts on some sectors due to more permanent
changes in behaviour arising from the pandemic, such as
greater working from home.
The agriculture sector has benefited from generally high
prices and seasonal conditions have also been good. A
strong national 2021–22 winter crop is expected.
Lockdowns have significant impacts on the labour market,
but the experience has been that it can recover quickly once
restrictions ease:
• Between February and May 2020 employment declined
6.6% but in May 2021 it was 1.1% above its February
2020 level.
• The most recent lockdowns saw employment, and total
hours worked decline by 1.9% and 4.8% respectively
between May and September 2021.
Dwelling prices have been growing strongly. Between
September 2020 and September 2021:
• The eight capital city CoreLogic Hedonic Home Value
Index rose by 19.5%, with broad based growth across
capital cities, and with houses seeing stronger gains
than units.
• Growth in regional dwelling prices was even stronger.
• Concerned about rising home lending risks, in October
2021 APRA increased the minimum interest rate buffer for
banks to use in assessing home loan applications.
Annual total system credit growth has strengthened. After
increasing by 1.9% over the year to September 2020,
between September 2020 and September 2021 system credit
increased by 5.3%. Over this period:
• Housing credit strengthened to 6.5%, driven by owner-
occupied credit, and business credit to 4.6% year on year.
• Other personal credit continued to fall (-5.3%).
Monetary policy remains very supportive of the economy.
The cash rate target is only 0.10%. At its November 2021
meeting the RBA indicated that it will likely take some time
before the conditions needed for there to be an increase in
the cash rate are met. NAB’s expectation is that there will
be an increase in the cash rate in mid-calendar year 2023.
While the RBA continues to purchase government bonds,
it tapered the amount of its monthly asset purchases in
September 2021 and the asset purchase program is likely
to end by February 2022.
New Zealand economy
New Zealand's recovery from the COVID-19 induced
recession in the first half of calendar 2020 was rapid. By
the June quarter 2021, GDP was 4.3% higher that its pre-
COVID-19 (December quarter 2019) level. This reflected:
• Strong growth in household consumption and, in
particular, residential investment and central government
spending. However, business investment has struggled
and remains below its pre-COVID-19 level.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
• An uneven recovery by industry. There was an above
Disclosure on risk factors
REPORT OF THE DIRECTORS
average recovery in sectors such as accommodation and
food services, wholesale and retail trade, construction
and health care, while mining, administrative and support
services, arts and recreation, transport and education and
training are yet to return to their pre-COVID-19 level.
New Zealand entered lockdown on 17 August 2021.
Restrictions began to ease, effectively starting in September
2021, in a series of steps but with differences by region (with
the easing of restrictions in Auckland lagging the rest of
the country).
The domestic restrictions put in place, as well as the
suspension of the Australia-New Zealand travel bubble in
July 2021, are likely to lead to a large fall in GDP in the
September quarter. The value of electronic card transactions
(a consumption indicator) declined by 21.9% between July
and August 2021 but recovered slightly in September 2021,
rising 1.6%, as restrictions eased. An easing in restrictions
should see a rebound in GDP over the December 2021 and
March 2022 quarters. Beyond this, growth is likely to be
constrained by capacity limits, arising from difficulties in
obtaining staff and supply bottlenecks.
Annual inflation, as measured by the CPI was 4.9% in the
September quarter 2021, its highest level in over a decade.
Indicators are pointing to a tight labour market. In the
September quarter 2021:
• The unemployment rate was 3.4%, well below its pre-
COVID 19 level and its lowest level in almost 14 years.
• There was a large (6.6%) fall in hours worked reflecting
the lockdown that started in the middle of the quarter.
The RBNZ ended the Large Scale Asset Purchase Program
of Government bonds in July 2021. In October 2021, it
increased the Official Cash Rate from 0.25% to 0.50%. It also
noted that a further tightening in monetary policy over time
was expected.
Commodity prices have strengthened, boosting income
and providing support to the economy. In September
2021, commodity export prices were 23.6% higher than in
September 2020 in world price terms.
Starting in the June quarter 2020, there has also been
a substantial decline in population growth. This reflects
restrictions on international movement and a large fall in
net migration to New Zealand.
Overall system credit growth has accelerated and grew by
7.3% over the year to September 2021, with housing credit
growth particularly strong at 11.6%, reflecting the strength
of the property market.
Outlook
The outlook for the Group’s financial performance and
outcomes is closely linked to the levels of economic activity
in each of the Group’s key markets that are outlined above.
Risks specific to the Group
Set out below are the principal risks and uncertainties
associated with the Company and its controlled entities (the
Group). It is not possible to determine the likelihood of
these risks occurring with any certainty. However, the risk
in each category that the Company considers most material
is listed first, based on the information available at the
date of this Report and the Company’s best assessment
of the likelihood of each risk occurring and the potential
magnitude of the negative impact to the Group should such
risk materialise. In the event that one or more of these
risks materialise, the Group’s reputation, strategy, business,
operations, financial condition and future performance
could be materially and adversely impacted.
The Group’s Risk Management Framework and internal
controls may not be adequate or effective in accurately
identifying, evaluating or addressing risks faced by the
Group. There may be other risks that are currently unknown
or are deemed immaterial, but which may subsequently
become known or material. These may individually, or
in aggregate, adversely impact the Group. Accordingly,
no assurances or guarantees of future performance,
profitability, distributions or returns of capital are given by
the Group.
Strategic risk
Strategic risk is the risk associated with the pursuit of
the Group’s strategic objectives, including the risk that the
Group fails to execute its chosen strategy effectively or in a
timely manner.
Strategic initiatives may fail to be executed, may not
deliver all anticipated benefits and may change the
Group’s risk profile.
The Group’s corporate strategy sets its purpose, ambition
and objectives.
The Group prioritises, and invests significant resources
in, the execution of initiatives that are aligned to its
chosen strategy, including transformation and change
programs. These programs focus on technology, digital and
data assets, infrastructure, business improvement, cultural
transformation and changes to associated controls. There
is a risk that these programs may not realise some or
all of their anticipated benefits. These programs may also
increase operational, compliance and other risks, and new
or existing risks may not be appropriately controlled. Any
failure by the Group to deliver in accordance with its
strategy or to deliver these strategic programs effectively,
may result in material losses to the Group, or a failure to
achieve anticipated benefits, and ultimately, may materially
and adversely impact the Group’s operations and financial
performance and position.
The Group faces intense competition.
There is substantial competition across the markets in
which the Group operates. The Group faces competition
from established financial services providers as well as
new market entrants, including foreign banks and non-bank
Annual Financial Report 2021
19
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
competitors such as FinTech's and digital platforms some
of which have lower costs and/or operating and business
models or products that differ or are more competitive
than the Group. Intense competition also increases the
risk of a price war, especially in commoditised lines of
business, where the players with the lowest unit cost
may win share and industry profit pools may erode.
In addition, evolving industry trends, rapid technology
changes and environmental factors may impact customer
needs and preferences and the Group may not predict
these changes accurately or quickly enough, or have the
resources and flexibility to adapt in sufficient time to meet
customer expectations and keep pace with competitors.
These risks are heightened in the current context where
the Group must prioritise responses to new regulation,
identified weaknesses and initiatives to support customers
through COVID-19.
Competition in the banking sector is expected to increase as
the ‘Consumer Data Right (CDR),’ known as ‘Open Banking’
continues to be implemented. The CDR seeks to increase
competition between banks by mandating and standardising
the sharing of data relating to their products and services.
It will also increase competition and innovation between
service providers (accredited data recipients) that use data
received under the CDR to provide products and services to
consumers. Giving consumers greater access to, and control
over, their data will improve consumers’ ability to compare
and switch between products and services, and increase the
risk of customer attrition.
In September 2021, the Company became an accredited
data recipient and, accordingly, will now also be able
to receive data from other participants under the CDR.
Currently, the CDR requires the Company to share data
on individuals and sole traders, allowing these customers
to direct the Company to share their data with accredited
data recipients (applicable products include credit and debit
cards, deposit accounts, and transaction ‘current’ accounts,
mortgages, personal loans, asset finance, and business
finance). The mandated scope of the CDR will be extended
to business customers from November 2021. In July 2021,
the New Zealand Government similarly made the decision
to implement a CDR legislative framework with the aim to
introduce CDR legislation in 2022. It is expected that the
adoption of Open Banking in New Zealand will increase
competition in the New Zealand banking industry.
In 2020, the Australian Government also commissioned
a review of the regulatory architecture of the payments
system to ensure it is responsive to the rapid acceleration
in payments technologies and new business models. The
review called for the Australian Government Treasurer
to have increased oversight of, and ability to regulate,
payments systems, and for the powers of the Reserve Bank
of Australia (RBA) to be widened. It is currently not certain
whether, or to what extent, the Australian Government will
adopt the recommendations of the review.
Cryptocurrencies, and other digital assets, have become
increasingly popular over the last 12 months. Regulation of
digital assets is nascent but emerging, and is expected to
20
National Australia Bank
shape the future of the sector and its impact on the Group,
including the possibility of the RBA issuing a Central Bank
Digital Currency.
Ongoing competition for customers can lead to compression
in profit margins and loss of market share, which may
ultimately impact the Group’s financial performance and
position, profitability and returns to investors.
Risks may arise from pursuing acquisitions
and divestments.
The Group regularly considers a range of corporate
opportunities, including acquisitions, divestments, joint
ventures and investments.
Pursuit of corporate opportunities inherently involves
transaction risks, including the risk that the Group over-
values an acquisition or investment or under-values a
divestment, as well as exposure to reputational damage.
The Group may encounter difficulties in integrating
or separating businesses, including failure to realise
expected synergies, disruption to operations, diversion of
management resources or higher than expected costs. These
risks and difficulties may ultimately have an adverse impact
on the Group’s financial performance and position.
The Group may incur unexpected financial losses following
an acquisition, joint venture or investment if the
business it invests in does not perform as planned
or causes unanticipated changes to the Group’s risk
profile. Additionally, there can be no assurance that
customers, employees, suppliers, counterparties and other
relevant stakeholders will remain with an acquired business
following the transaction and any failure to retain such
stakeholders may have an adverse impact on the Group’s
overall financial performance and position.
In particular, specific risks exist in connection with the
Company’s proposed acquisition of Citigroup’s Australian
consumer banking business, announced on 9 August
2021. The successful completion of this transaction is
subject to a number of conditions precedent including
regulatory approvals. Timing of completion will depend on a
number of factors, including receipt of regulatory approvals,
satisfaction of other conditions precedent, and execution of
transition activities.
Further, the Company will rely on Citigroup’s regional
shared technology infrastructure for transitional services
from completion of the proposed acquisition, as well as
Citigroup’s support for data migration activities after the
development of technology systems within the Group. There
is a risk that completion and integration costs may be higher
than anticipated, require more internal resourcing than
anticipated, or that key employees, customers, suppliers or
other stakeholders required for a successful transition will
not be retained.
Citigroup has provided the Company with indemnities
relating to certain pre-completion matters as well as
covenants and warranties in favour of the Company. There
is a risk that these protections may be insufficient to fully
cover liabilities relating to these matters, which may have
OPERATING AND FINANCIAL REVIEW (CONTINUED)
an adverse impact on the Group’s financial performance
and position.
In addition to the proposed acquisition of Citigroup’s
Australian consumer banking business, NAB completed the
previously announced acquisition of 86 400 on 19 May
2021. The Company continues to work through integration
and migration activities required to be undertaken to
integrate the 86 400 business with the UBank division.
This includes revoking 86 400’s ADI authorisation which
remains subject to APRA approval. There is a risk that
integration costs may be higher than anticipated, require
more internal resourcing than anticipated, or that key
employees, customers, suppliers or other stakeholders
required for a successful integration will not be retained.
The Group may also have ongoing exposures to divested
businesses, including through a residual shareholding,
the provision of continued services and infrastructure or
an agreement to retain certain liabilities of the divested
businesses through warranties and indemnities, which
may have an adverse impact on the Group’s business
and financial performance and position. The Group may
also enter into non-compete arrangements as part of
divestments, which may limit the future operations of
the Group.
As announced on 31 May 2021, the Company completed
the sale of its advice, platforms, superannuation and
investments and asset management businesses to IOOF
(the MLC Wealth Transaction). As part of the MLC Wealth
Transaction, the Company provided IOOF with indemnities
relating to certain pre-completion matters, including a
remediation program relating to workplace superannuation,
breaches of anti-money laundering laws and regulations,
regulatory fines and penalties and certain litigation and
regulatory investigations. The Company also provided
covenants and warranties in favour of IOOF. A breach or
triggering of these contractual protections may result in the
Company being liable to IOOF.
As part of the MLC Wealth Transaction, the Company
retained the companies that operate the advice businesses,
such that the Group has retained all liabilities associated
with the conduct of these businesses pre-completion.
From completion, the Company agreed to provide IOOF
with certain transitional services and continuing access to
records, as well as support for data migration activities.
The Company may be liable to IOOF if it fails to perform
its obligations. There is a risk that costs associated with
separation activities and the costs incurred by the Company
in satisfying its obligations may be higher than anticipated.
If these costs are higher than expected, or if the Company
fails to perform its obligations, there may be an adverse
impact on the Group’s financial performance and position.
Credit risk
Credit risk is the risk that a customer will fail to meet their
obligations to the Group in accordance with agreed terms.
Credit risk arises from both the Group’s lending activities
and markets and trading activities.
REPORT OF THE DIRECTORS
Despite vaccination programs globally gaining traction,
the full extent of the economic impact of COVID-19 on the
Group’s credit risk profile remains uncertain.
COVID-19 has created economic and financial disruptions
that have adversely affected, and will continue to adversely
affect, the Group’s business, financial conditions, liquidity
and results of operations. The extent and duration of
these continuing negative effects will depend on future
developments, which remain highly uncertain. Increased
credit risk can result in both an increase in losses when
customers default on their loan obligations and/or higher
capital requirements through an increase in the probability
of default.
Although vaccination programs are underway globally, the
distribution of vaccines is uneven and the long-term efficacy
of vaccines remains uncertain (particularly against new
variants of the virus). There is a risk that this could prolong
COVID-19 and the associated negative economic impacts.
In Australia and globally, measures to control the spread
of COVID-19, including restrictions on public gatherings,
business closures (particularly impacting small businesses)
and travel and trade restrictions have had, and continue
to have, a substantial negative impact on economic and
business activity. Certain sectors, including tourism and
transport, hospitality, education, retail, personal services and
commercial property, have experienced, and may continue
to experience significant financial stress. This includes a
heightened risk of corporate and business bankruptcies, and
an increase in household financial stress.
Globally, governments and central banks (including in
Australia and New Zealand) introduced fiscal and monetary
stimulus packages designed to counter the negative
impacts of COVID-19. The unwinding of these stimulatory
policies and measures over time presents downside risk
to economies, with the potential to exacerbate existing
negative effects on businesses and households (including
higher unemployment) which may lead to increased credit
losses for the Group.
The duration and magnitude of COVID-19 and its potential
impacts on the global economy remain unclear. Even
after COVID-19 subsides, the Australian and New Zealand
economies, as well as most other major economies,
may continue to experience stress, including the risk
of recessions. Such an outcome has the potential to
increase customer defaults and materially adversely impact
the Group’s financial performance and position, and
its profitability.
A decline in property market valuations may give rise to
higher losses on defaulting loans.
Lending activities account for most of the Group’s credit risk.
The Group’s lending portfolio is largely based in Australia
and New Zealand. Residential housing loans and commercial
real estate loans constitute a material component of the
Group’s total gross loans and acceptances. The social and
economic impacts of the spread of COVID-19 and the
measures in place to control it, have the potential to drive
a material change in residential property prices. The full
Annual Financial Report 2021
21
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
impact of COVID-19 on the residential and commercial
property markets may be delayed, in part, by governmental
support measures and other actions that the Group
and other financial institutions have taken, for example
permitting loan payment deferrals in certain cases.
Residential property prices in Australia and New
Zealand have continued to increase recently. There is a
possibility that regulatory authorities may introduce further
macroprudential controls in the future if house prices
continue to increase. These changes have the potential
to increase volatility in house price movements. A decline
in the value of the residential property used as collateral
(including in business lending) may give rise to greater
losses to the Group resulting from customer defaults, which,
in turn, may impact the Group’s financial performance and
position, profitability and returns to investors. The most
significant impact is likely to come through residential
mortgage customers in high loan-to-value-ratio brackets.
Adverse business conditions in Australia and New Zealand,
particularly in the agriculture sector, may give rise to
increasing customer defaults.
The Group has a large market share among lenders to the
Australian and New Zealand agricultural sectors. Volatility
in commodity prices, foreign exchange rate movements,
disease and introduction of pathogens and pests, export
and quarantine restrictions and supply chain constraints,
extreme weather events, increasing weather volatility and
longer-term changes in climatic conditions, may negatively
impact these sectors. This may result in increased losses to
the Group from customer defaults, and ultimately may have
an adverse impact on the Group’s financial performance
and position. More broadly, physical and transition risks
associated with climate change may also increase current
levels of customer defaults in other sectors.
Market declines and increased volatility may result in the
Group incurring losses.
Some of the Group’s assets and liabilities comprise financial
instruments that are carried at fair value, with changes
in fair value recognised in the Group’s income statement.
Market declines and increased volatility could negatively
impact the value of such financial instruments and cause the
Group to incur losses.
The Group may be adversely impacted by macro-economic
and geopolitical risks, and climate, social and financial
market conditions which pose a credit risk.
The majority of the Group's businesses operate in Australia
and New Zealand, with branches currently located in Asia,
the United Kingdom and the United States. Levels of
borrowing are heavily dependent on customer confidence,
employment trends, market interest rates, and other
economic and financial market conditions and forecasts
most relevant for the Group in Australia and New Zealand,
but also in the global locations in which the Group operates.
Domestic and international economic conditions and
forecasts are influenced by a number of macro-economic
factors, such as: economic growth rates; environmental and
social issues (including emerging issues such as payroll
22
National Australia Bank
compliance and modern slavery risk); cost and availability
of capital; central bank intervention; inflation and deflation
rates; level of interest rates; yield curves; market volatility;
and uncertainty. Deterioration in any of these factors may
lead to the following negative impacts on the Group:
• Deterioration in the value and liquidity of assets
(including collateral).
• Inability to price certain assets.
• Environmental conditions and social issues impacting the
value of customers’ security or business operations.
• An increase in customer or counterparty default and
credit losses.
• Higher provisions for credit impairment.
• Mark-to-market losses in equity and trading
positions, including the Company's high quality-liquid
asset portfolios.
• Lack of available or suitable derivative instruments for
hedging purposes.
• Increased cost of insurance, lack of available or suitable
insurance, or failure of the insurance underwriter.
Economic conditions may also be negatively impacted by
climate change and major shock events, such as natural
disasters, epidemics and pandemics, war and terrorism,
political and social unrest, and sovereign debt restructuring
and defaults.
The following macro-economic and financial market
conditions are currently of most relevance to the credit risk
facing the Group, and may affect revenue growth and/or
customer balance sheets:
• Global economic growth has rebounded in calendar
year 2021 and is expected to record above trend
growth in calendar year 2022, as activity in major
economies gradually returns to normal. However, the
unequal distribution of vaccines and uncertainty relating
to COVID-19 means that there may be considerable
variation in recovery between different countries and
within different industry segments (with international
tourism likely to lag). Global growth is expected to
return to its long-term trend in calendar year 2023. There
is uncertainty around these forecasts given ongoing
concerns related to COVID-19.
• Globally, central bank monetary policy rates (including in
Australia and New Zealand) are at extremely low levels
by historical standards, with a broad range of these
institutions implementing unconventional monetary
policy (such as quantitative easing) to provide additional
stimulus during COVID-19. Reducing (and eventually
ending) asset purchases is expected to be part of
the first stages in normalising monetary policy – with
Canada and New Zealand already starting this process,
while the US Federal Reserve is expected to start
tapering purchases early in calendar year 2022. Although
prolonged accommodative monetary policy is providing
support to the economic recovery post COVID-19, it risks
building on existing imbalances in various asset classes
across regions which could correct as policy support is
unwound. Low rates may also reduce the impetus for
highly geared borrowers to deleverage, increasing the
OPERATING AND FINANCIAL REVIEW (CONTINUED)
credit risk posed to the Group. More generally, low policy
rates may adversely affect the Group’s cost of funds,
trading income, margins and the value of the Group’s
lending and investments.
• Inflationary pressures have increased since the start
of calendar year 2021, reflecting the impact of loose
monetary policy, large scale fiscal stimulus in many
countries, supply disruptions and shortages in some
key markets. This is despite unemployment generally
remaining above pre-COVID-19 levels. Major central bank
commentary indicates that some of this pressure is
transitory, however persistent above target inflation could
lead to abrupt increases in policy rates, which could slow
economic growth and affect borrowers’ ability to service
their debts.
• China is a major trading partner for Australia and New
Zealand, with export incomes and business investment
exposed to changes in China’s economic growth or trade
policies. China’s economic growth in the first half of
calendar year 2021 was highly imbalanced by historical
standards, weighted towards industrial production, with
domestic consumption subdued. A range of medium
to longer term risks remain, including high corporate
debt levels and demographic pressures from its ageing
population. Diplomatic tensions between the Chinese and
Australian governments have risen over the past year,
with China imposing trade restrictions on a broad range
of Australian exports (including coal, barley, wine, beef,
lamb and cotton among others). This may have a negative
impact on the Group’s customers who are exposed to
these sectors and may give rise to increasing levels of
customer defaults.
• Geopolitical risks continue to present uncertainty to
the global economic outlook, with negative impacts on
consumption and business investment. Tensions between
the US and China around China's trade and technology
policies (among other areas) persist, which could impact
global economic growth and global chains. Similarly,
geopolitical tensions in the Asia-Pacific region could
increase as a result of the agreed AUKUS pact or other
similar agreements. An increasing fragmentation of, and
a rise in populism in, many major democratic economies
have led to difficulties in policy implementation and an
increase in anti-globalisation sentiment. Following the
United Kingdom’s departure from the European Union,
the legal framework underpinning cross-border provision
of financial services between the United Kingdom
and EU remains subject to change. Political tensions
between the Hong Kong Special Administrative Region
and the People’s Republic of China remain high. China
is exerting greater political power over the region – by
reducing the number of directly elected members of
Hong Kong’s Legislative Council and vetting candidates
– following the 2019-20 protests. In addition, there
are a range of other geopolitical risks, particularly
given the ongoing uncertainty around the Middle East
(including Afghanistan), the Korean Peninsula and the
South China Sea.
REPORT OF THE DIRECTORS
• As commodity exporting economies, Australia and New
Zealand are exposed to shifts in global commodity
prices that can be sudden, sizeable and difficult to
predict. Fluctuations in commodity markets can affect
key economic variables like national income tax receipts
and exchange rates. Commodity price volatility remains
substantial and given the Group’s sizeable exposures
to commodity producing and trading businesses, this
volatility poses a significant source of credit risk to
the Group.
Market risk
The Group may suffer losses as a result of a change in
the value of the Group’s positions in financial instruments,
bank assets and liabilities, or their hedges due to adverse
movements in market prices. Adverse price movements
impacting the Group may occur in credit spreads, interest
rates, foreign exchange rates, commodity and equity prices,
particularly during periods of heightened market volatility
or reduced liquidity. While the initial market volatility due to
the impact of COVID-19 has subsided, there is potential for
further market volatility as the global economy recovers.
The occurrence of any event giving rise to material market
risk losses may have a negative impact on the Group’s
financial performance and financial position.
The Group is exposed to credit spread risk.
Credit spread risk is a significant risk type in the Group’s
trading and banking books. Credit spread risk is the risk
that the Group may suffer losses from adverse movements in
credit spreads.
The Group’s trading book is exposed to credit risk
movements in the value of securities and derivatives
as a result of changes in the perceived credit quality
of the underlying company or issuer. Credit spread risk
accumulates in the Group’s trading book when it provides
risk transfer services to customers seeking to buy or
sell fixed income securities (such as corporate bonds).
The Group may also be exposed to credit spread risk
when holding an inventory of fixed income securities
in anticipation of customer demand or undertaking
market-making activity (i.e. quoting buy and sell prices
to customers) in fixed income securities. The Group’s
trading book is also exposed to credit spread risk
through credit valuation adjustments. A widening of credit
spreads could negatively impact the value of the Credit
Valuation Adjustment.
The Group’s banking book houses the Group’s liquidity
portfolio which is also subject to credit spread risk through
changes in spreads on its holdings of semi-government
and bank issued bonds. These positions form part of the
required holdings of HQLA’s used in managing the Group’s
liquidity risk and can give rise to material profit and loss
volatility within Group Treasury during periods of adverse
credit spread movements. Positions in Residential Mortgage
Backed Securities (RMBS) that arise through the Group’s
warehousing, underwriting and syndication operations also
form part of the banking book and are exposed to changes
in credit spreads.
Annual Financial Report 2021
23
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
The Group is exposed to interest rate risk.
The Group's financial performance and capital position are
impacted by changes in interest rates. The Group’s trading
book is exposed to changes in the value of securities
and derivatives as a result of changes in interest rates.
The Group’s trading book accumulates interest rate risk
when the Group provides interest rate hedging solutions
for customers, holds interest rate risk in anticipation
of customer requirements, or undertakes market-making
activity in fixed income securities or interest rate derivatives.
Balance sheet and off-balance sheet items can create an
interest rate risk exposure within the Group. As interest
rates and yield curves change over time, including negative
interest rates in certain countries in which the Group
operates, the Group may be exposed to a loss in earnings
and economic value due to the interest rate profile of its
balance sheet. Such exposure may arise from a mismatch
between the maturity profile of the Group’s lending
portfolio compared to its deposit portfolio (and other
funding sources), as well as the extent to which lending
and deposit products can be repriced should interest rates
change, thereby impacting the Group’s net interest margin.
The Group is exposed to foreign exchange risk.
Foreign exchange risks are evident in the Group’s trading
and banking books.
Foreign exchange and translation risk arise from the impact
of currency movements on the value of the Group’s
positions in financial instruments, profits and losses, and
assets and liabilities due to participation in global financial
markets and international operations.
The Group’s ownership structure includes investment in
overseas subsidiaries and associates which gives rise
to foreign currency exposures, including through the
repatriation of capital and dividends. The Group’s businesses
may therefore be affected by a change in currency exchange
rates, and movements in the mark-to-market valuation of
derivatives and hedging contracts.
The Group’s financial statements are prepared and
presented in Australian dollars, and any adverse fluctuations
in the Australian dollar against other currencies in which
the Group invests or transacts and generates profits (or
incurs losses) may adversely impact its financial performance
and position.
investor interest in the Group’s securities and/or reduced
customer deposits, may adversely affect the Group’s funding
and liquidity position, increase the cost of obtaining funds
or impose unfavourable terms on the Group’s access to
funds, constrain the volume of new lending, or adversely
affect the Group’s capital position.
Liquidity risk is the risk that the Group is unable to meet
its financial obligations as they fall due. These obligations
include the repayment of deposits on demand or at
their contractual maturity, the repayment of wholesale
borrowings and loan capital as they mature, the payment
of interest on borrowings and the payment of operational
expenses and taxes. The Group must also comply with
prudential and regulatory liquidity obligations across
the jurisdictions in which it operates. Any significant
deterioration in the Group’s liquidity position may lead to an
increase in the Group’s funding costs, constrain the volume
of new lending, result in the Group drawing upon its CLF
with the RBA or cause the Group to breach its prudential
or regulatory liquidity obligations. This may adversely
impact the Group’s reputation and financial performance
and position.
The Group’s reliance on the CLF is expected to
continue to decline throughout 2022, following the APRA
announcement that ADI’s should reduce usage of the CLF to
zero by the end of December 2022. The removal of the CLF
presents potential risks for the Group with the likely need to
access additional funding to purchase HQLA in place of the
CLF, ensuring the Group’s liquidity position remains strong.
The Group’s capital position may be constrained by
prudential requirements.
Capital risk is the risk that the Group does not hold sufficient
capital and reserves to cover exposures and to protect
against unexpected losses. Capital is the cornerstone of the
Group’s financial strength. It supports an ADI’s operations
by providing a buffer to absorb unanticipated losses from
its activities.
The Group must comply with prudential requirements in
relation to capital across the jurisdictions in which it
operates. Compliance with these requirements and any
further changes to these requirements may:
• Limit the Group’s ability to manage capital across the
entities within the Group.
• Limit payment of dividends or distributions on shares and
Capital, funding and liquidity risk
hybrid instruments.
The Group is exposed to funding and liquidity risk.
• Require the Group to raise more capital (in an absolute
Funding risk is the risk that the Group is unable to
raise short and long-term funding to support its ongoing
operations, regulatory requirements, strategic plans and
objectives. The Group accesses domestic and global capital
markets to help fund its business, along with using customer
deposits. In addition, by 30 June 2021, the Company had
fully drawn its allocation of the TFF, a three-year facility
established by the RBA to provide an efficient source of
funding for eligible ADI's within Australia. Final maturity
dates of drawn TFF allocations are concentrated across all
participating ADIs. Dislocation in capital markets, reduced
sense) or raise more capital of higher quality.
• Restrict balance sheet growth.
In response to the impacts of COVID-19, APRA outlined
expectations for ADIs, limiting dividend payments to 50% of
earnings in 2020. While specific restrictions were removed
in its updated December 2020 guidance, APRA could
reintroduce similar requirements in the future.
The RBNZ has implemented a restriction limiting banks
to pay dividends up to a maximum of 50% of prior
financial year earnings and has outlined its expectation that
New Zealand banks will exercise prudence in determining
24
National Australia Bank
OPERATING AND FINANCIAL REVIEW (CONTINUED)
dividends. This restriction will remain in place until 1 July
2022, subject to economic conditions at that time.
the Group’s competitive position and financial performance
and position.
REPORT OF THE DIRECTORS
Current regulatory changes that could present a risk to the
Group’s capital position include APRA’s various reforms in
relation to loss-absorbing capacity and revisions to the ADI
capital framework.
• Existing loss-absorbing requirements for D-SIBs such as
the Company, to increase total capital by 3% of risk
weighted assets (RWA) by 1 January 2024 are expected
to be satisfied primarily through the issue of additional
Tier 2 Capital. APRA will consider “feasible alternative
methods” for raising an additional 1% to 2% of RWA in
loss-absorbing capacity, in consultation with industry and
other interested stakeholders. This potential incremental
requirement could further increase the Group’s funding
costs due to the higher cost of Tier 2 Capital issuance
relative to senior debt.
• The major Australian banks (including the Company)
have been subject to APRA’s ‘unquestionably strong’
target benchmark capital ratios since January 2020.
APRA has recommenced its consultations on the revised
ADI capital framework. Final prudential standards, draft
prudential practice guides and initial details of reporting
requirements in relation to the risk-weighting framework
and other capital requirements are expected to be
released by the end of 2021, with implementation
of revised prudential standards in relation to the risk-
weighting framework and other capital requirements
from 1 January 2023. While the capital reforms do not
propose an additional increase to the quantum of capital
required across the system, the implementation of these
reforms may require the Group to hold additional capital.
If the information or the assumptions upon which
the Group’s capital requirements are assessed prove to
be inaccurate, this may adversely impact the Group’s
operations, financial performance and financial position.
A significant downgrade in the Group’s credit ratings
may adversely impact its cost of funds and capital
market access.
Credit ratings are an assessment of a borrower’s
creditworthiness and may be used by market participants
in evaluating the Group and its products, services and
securities. Credit rating agencies conduct ongoing review
activities, which can result in changes to credit rating
settings and outlooks for the Group, or credit ratings
of sovereign jurisdictions where the Group conducts
business. Credit ratings may be affected by operational and
market factors, or changes in the credit rating agency’s
rating methodologies.
A downgrade in the credit ratings or outlook of the Group,
the Group’s securities, or the sovereign rating of one
or more of the countries in which the Group operates,
may increase the Group’s cost of funds or limit access
to capital markets. This may also cause a deterioration
of the Group’s liquidity position and trigger additional
collateral requirements in derivative contracts and other
secured funding arrangements. A downgrade to the Group’s
credit ratings relative to peers may also adversely impact
The Group may fail to, or be unable to, sell down its
underwriting risk.
As financial intermediaries, members of the Group
underwrite or guarantee different types of transactions,
risks and outcomes, including the placement of listed
and unlisted debt, equity-linked and equity securities. The
underwriting obligation or guarantee may be over the
pricing and placement of these securities, and the Group
may therefore be exposed to potential losses, which may be
significant, if it fails to sell down some or all of this risk to
other market participants.
Operational risk
Operational risk is the risk of loss resulting from inadequate
or failed internal processes, people and systems or external
events. This includes legal risk but excludes strategic risk.
Disruption to technology may adversely impact the
Group’s reputation and operations.
Most of the Group’s operations depend on technology,
and therefore the reliability, resilience and security of
the Group’s (and its third-party vendors’) information
technology systems and infrastructure are essential to the
effective operation of its business and consequently to
its financial performance and position. The reliability and
resilience of the Group’s technology may be impacted
by the complex technology environment, failure to keep
technology systems up-to-date, an inability to restore or
recover systems and data in acceptable timeframes, or a
physical or cyber-attack.
The rapid evolution of technology in the financial services
industry and the increased expectation of customers for
internet and mobile services on demand expose the Group
to changing operational scenarios.
Any disruption to the Group’s technology (including
disruption to the technology systems of the Group’s external
providers) may be wholly or partially beyond the Group’s
control and may result in operational disruption, regulatory
enforcement actions, customer redress, litigation, financial
losses, theft or loss of customer data, loss of market share,
loss of property or information, or may adversely impact
the Group’s speed and agility in the delivery of change
and innovation.
In addition, any such disruption may adversely affect the
Group’s reputation, including the view of regulators or
ratings agencies, which may result in loss of customers, a
reduction in share price, ratings downgrades and regulatory
censure or penalties. Social media commentary may further
exacerbate such adverse outcomes for the Group and
negatively impact the Group’s reputation.
The Group’s colleagues and customers have been and may
continue to be impacted by COVID-19.
The continuing disruption of COVID-19 has impacted, and
continues to impact the usual operations of the Group, its
customers and suppliers. Steps taken by the Group’s Crisis
Management Team have included alternate work locations
Annual Financial Report 2021
25
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
and arrangements implemented for Group colleagues, a
decreased reliance on property infrastructure, and an
increased reliance on mobile technology and business
process changes to support customers, colleagues and
suppliers and ensure continuity of the Group’s business
operations. These operational changes could lead to direct
financial loss or impact the Group’s ability to operate
effectively and efficiently.
It is difficult to predict the extent to which each colleague’s
ability to provide customer support and service and
maintain their own health will be affected over an extended
period. No assurance can be given that the precautions
being taken by the Group to protect its colleagues and
customers will be adequate nor can the Group predict the
level of further disruption which may occur.
The Group continues to monitor the situation closely as
the domestic and global business environment changes,
including progress of vaccination programs, and it is unclear
how this will further evolve or if the Group will need to
continue to re-activate the response teams and plans. Other
epidemics or pandemics may arise in future which may
again activate a crisis response causing disruption to the
Group’s operations.
Privacy, information security and data breaches may
adversely impact the Group’s reputation and operations.
The Group processes, stores and transmits large amounts
of personal and confidential information through its
technology systems and networks. Threats to information
security are constantly evolving and techniques used to
perpetrate cyber-attacks are increasingly sophisticated.
Although the Group invests in protecting the confidentiality
and integrity of this information, the Group may not
always be able to anticipate a security threat, or be
able to implement effective information security policies,
procedures and controls to prevent or minimise the
resulting damage. The Group uses select external providers
(in Australia and overseas) to process and store confidential
data and to develop and provide its technology services,
including the increasing use of cloud infrastructure. The
Group may also submit confidential information to its
key regulators under a legal obligation and as part of
regulatory reporting.
A breach of security at any of these external providers,
regulators or within the Group may result in operational
disruption, theft or loss of customer data, a breach of
privacy laws, regulatory enforcement actions, customer
redress, litigation, financial losses, or loss of market share,
property or information. This may be wholly or partially
beyond the control of the Group and may adversely impact
its financial performance and position.
In addition, any such event may give rise to increased
regulatory scrutiny or adversely affect the view of ratings
agencies. Social media commentary and the Group’s
responses to the relevant event may exacerbate the impact
on the Group’s reputation.
26
National Australia Bank
Complexity of infrastructure, processes and models, gives
rise to a significant risk to the Group's operations.
The Group’s business involves the execution of many
processes and transactions with varying degrees of
complexity. The Group is reliant on its policies, processes,
controls and supporting infrastructure functioning as
designed, along with third parties appropriately managing
their own operational risk and delivering services to the
Group as required. A failure in the design or operation of
these policies, processes, controls and infrastructure, failure
of the Group to manage external service providers, or the
disablement of a supporting system all pose a significant
risk to the Group’s operations and consequently its financial
performance and reputation.
Models are used extensively in the conduct of the Group’s
business, for example, in calculating capital requirements
or customer compensation payments and measuring and
stressing exposures. If the models used prove to be
inadequate or are based on incorrect or invalid assumptions,
judgements or inputs, this may adversely affect the
Group’s customers and the Group’s financial performance
and position.
The Group is exposed to the risk of human error.
The Group’s business, including the internal processes
and systems that support business decisions, relies on
inputs from its employees, agents and external providers.
The Group is exposed to operational risk due to process
or human errors including incorrect or incomplete data
capture and records maintenance, incorrect or incomplete
documentation to support activities, or inadequate design
of processes or controls. The Group uses select external
providers (in Australia and overseas) to provide services
to the Group and is exposed to similar risks arising from
such failures in the operating environment of its external
providers. The materialisation of any of these risks could
lead to direct financial loss, loss of customer, employee
or commercially sensitive data, regulatory penalties and
reputational damage.
The Group may not be able to attract and retain
suitable talent.
The Group is dependent on its ability to attract and retain
key executives, colleagues and Board members with a
deep understanding of banking and technology, who are
qualified to execute the Group’s strategy, as well as the
technology transformation the Group is undertaking to
meet the changing needs of its customers. Weaknesses in
employment practices, including diversity, discrimination,
workplace flexibility, payroll compliance and workplace
health and safety, are sources of operational risk that can
impact the Group’s ability to attract and retain qualified
personnel with the requisite knowledge, skills and capability.
COVID-19 has resulted in international border closures
limiting access to international talent markets. In countries
where COVID-19 restrictions are eased or removed,
academic research indicates an increased level of voluntary
attrition. These factors may impact the Group’s capacity to
attract and retain key talent.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
The Group’s capacity to attract and retain key talent is
also dependent on its ability to design and implement
effective remuneration structures. This may be constrained
by regulatory requirements (particularly in the highly
regulated financial services sector), as well as investor and
community expectations.
The unexpected loss of key resources or the inability to
attract personnel with suitable experience may adversely
impact the Group’s ability to operate effectively and
efficiently, or to meet the Group’s strategic objectives.
External events may adversely impact the
Group’s operations.
Operational risk can arise from external events such
as biological hazards, climate change, natural disasters,
widespread disease or pandemics, or acts of terrorism.
The Group has branches in regional areas in Australia
that are prone to seasonal natural disasters, including fires
and floods.
In addition, the Group has branches and office buildings
in New Zealand, which have experienced significant
earthquakes and aftershocks in recent years, and which may
be exposed to the risk of future earthquakes.
Given the Group’s physical presence in major cities in
Australia, New Zealand and other countries where it has, or
is intending to establish, offshore operations, it may also be
exposed to the risk of a terrorist attack.
External events such as extreme weather, natural disasters,
biological hazards and acts of terrorism may cause property
damage and business disruption, which may adversely
impact the Group’s financial performance. In addition, if
the Group is unable to manage the impacts of such
external events, it may lead to reputational damage and
compromise the Group’s ability to provide a safe workplace
for its personnel.
The environment the Group is operating in has become
more complex and more uncertain and could create
operational risks that are yet to be identified.
Sustainability risk
Sustainability risk is the risk that events or conditions
(which includes Environmental, Social or Governance (ESG)
issues) arise that could negatively impact the sustainability,
resilience, risk and return profile, value or reputation of the
Group or its customers and suppliers.
Physical and transition risks arising from climate change
and other environmental impacts may lead to increasing
customer defaults and decrease the value of collateral.
Extreme weather, increasing weather volatility and longer-
term changes in climatic conditions, as well as other
environmental impacts such as biodiversity loss and
ecosystem degradation, may affect property and asset values
or cause customer losses due to damage, crop losses,
existing land use ceasing to be viable, and/or interruptions
to, or impacts on, business operations and supply chains.
Parts of Australia are prone to, and have recently
experienced, physical climate events such as severe drought
REPORT OF THE DIRECTORS
conditions and bushfires over the 2019/2020 summer
period, followed by record-breaking floods in Eastern
Australia in early 2021. The impact of these extreme weather
events can be widespread, extending beyond primary
producers to customers of the Group who are suppliers
to the agricultural sector, and to those who reside in,
and operate businesses within, impacted communities. The
impact of these losses on the Group may be exacerbated
by a decline in the value and liquidity of assets held as
collateral, which may impact the Group’s ability to recover its
funds when loans default.
Climate-related transition risks are also increasing as
economies, governments and companies seek to transition
to low-carbon alternatives and adapt to climate change.
Certain customer segments may be adversely impacted
as the economy transitions to renewable and low-
emissions technology. Decreasing investor appetite and
customer demand for carbon intensive products and
services, increasing climate-related litigation, and changing
regulations and government policies designed to mitigate
climate change, may negatively impact revenue and access
to capital for some businesses.
These physical and transition risk impacts may increase
current levels of customer defaults, thereby increasing the
credit risk facing the Group and adversely impacting the
Group’s financial performance and position, profitability and
returns to investors.
The Group, its customers, or its suppliers may fail to
comply with legal, regulatory or voluntary standards
or broader shareholder, community and stakeholder
expectations concerning ESG risk performance.
ESG issues have been subject to increasing legal, regulatory,
voluntary and prudential standards and increasing
(and sometimes conflicting) community and stakeholder
expectations. These include:
• Environmental issues – such as climate change,
biodiversity loss, ecosystem degradation and pollution.
There have been recent changes in supervisory and
regulatory guidance and requirements for banks where
regulators seek to understand and manage system-wide
climate-related risks. This focus is evolving to broader
environmental issues over time as the links between
nature and economic prosperity and societal wellbeing
are becoming better understood.
• Social issues – such as human rights (including modern
slavery), compliance with recognised labour standards
and fair working conditions, unfair and inequitable
treatment of people including discrimination, product
responsibility, appropriate remuneration and the impact
of projects on local and Indigenous communities.
• Governance issues – such as bribery and corruption, tax
avoidance, poor governance, lack of transparency and
diminishing of accountabilities.
As certain issues become better understood and the
associated risks can be more accurately quantified,
corporate ESG commitments, and performance against
those commitments, may be more closely monitored by
external stakeholders.
Annual Financial Report 2021
27
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
Failure by the Group to comply with ESG-related standards
or meet community and stakeholder expectations, or the
failure to apply appropriate standards to its customers, or to
entities in the Group’s supply chain, may adversely impact
the Group’s reputation, and shareholder, customer and
employee sentiment towards the Group, or may increase the
risk of ESG-related litigation against the Group.
Certain products, services or industries may become subject
to heightened public scrutiny, either generally or following
a specific adverse event, or as a result of activism by
shareholders, investors or special interest groups. This can
result in a sudden and significant decrease in demand for
these products or services and a negative impact on revenue
and access to capital for some businesses, and increasing
litigation risk. Reputational damage to impacted suppliers,
customers or customer sectors may give rise to associated
reputational damage to the Group. In addition, levels of
customer defaults in an impacted sector may increase,
adversely impacting the Group’s financial performance and
position, profitability and returns to investors.
Conduct risk
Conduct risk is the risk that any action of the Group, or
those acting on behalf of the Group, will result in unfair
outcomes for any of the Group’s customers.
The Group is heavily reliant on its employees, contractors
and external suppliers acting in an appropriate and
ethical way.
Organisational culture can greatly influence individual and
group behaviours which can expose an organisation and
lead to unfair customer outcomes. The behaviours that
could expose the Group to conduct risk include:
• Selling, providing or unduly influencing customers to
purchase or receive products or services that may not
meet their existing needs or that place the customer at
risk of future hardship.
• Being a party to fraud.
• Non-adherence to applicable requirements or providing
financial advice which is not appropriate or in the
customers’ interests.
• Delays in appropriately escalating regulatory and
compliance issues.
• Failure to resolve issues and remediate customers
in a timely manner and in accordance with
community expectations.
• Failure to deliver on product and service commitments.
• Failure to remediate business processes and stop re-
occurrence of issues in a timely manner.
In addition, events such as COVID-19 can result in rapid
changes to the internal and external business environment
and subsequent changes to business processes to support
customers. This may impact both the likelihood and the
consequence of unfair outcomes to customers, including
through decisions and actions where the trade-offs or tail
risks may not be immediately apparent or quantifiable.
The Group is continuing to support its customers in an
appropriate way during COVID-19 including through regular
customer communications. However, no assurance can be
28
National Australia Bank
given that the steps being taken will not have unintended
consequences in the future or that they will meet the future
expectations of the Group’s regulators. COVID-19 has led
to increased risk of scams and fraud against the Group’s
customers. The Group cannot predict the level of further
disruption which may occur.
If the Group’s conduct related controls were to fail
significantly, be set inappropriately, or not meet legal,
regulatory or community expectations, then the Group may
be exposed to:
• Increased costs of compliance, fines, additional
capital requirements, public censure, loss of customer
confidence, class actions and other litigation, settlements
and restitution to customers or communities.
• Increased supervision, oversight or enforcement by
regulators or other stakeholders.
• Unenforceability of contracts such as loans, guarantees
and other security documents.
• Enforced suspension of operations, amendments to
licence conditions or loss of licence to operate all or part
of the Group’s businesses.
• Other enforcement or administrative action or
agreements, including legal proceedings.
A failure of the Group’s conduct controls to accurately
reflect relevant legal, regulatory or community expectations
may adversely impact the Group’s reputation, financial
performance and position, profitability, operations and
returns to investors.
Compliance risk
Compliance risk is the risk of failing to understand and
comply with relevant laws, regulations, licence conditions,
supervisory requirements, self-regulatory industry codes of
conduct and voluntary initiatives as well as the internal
policies, standards, procedures and frameworks that support
sustainable compliance.
The Group may be involved in a breach or alleged breach
of laws governing bribery, corruption and financial crime.
Supervision and regulation of financial crime and
enforcement of anti-bribery and corruption, anti-money
laundering and counter-terrorism financing laws has
increased. In September 2020, the Federal Court of Australia
ordered another major Australian bank to pay a civil
penalty of A$1.3 billion in relation to proceedings brought
by AUSTRAC alleging significant breaches of Anti-Money
Laundering (AML) /Counter-Terrorism Financing (CTF) laws.
In June 2021, AUSTRAC notified the Company that it had
commenced an enforcement investigation into potential
non-compliance with the Anti-Money Laundering and
Counter-Terrorism Financing Act 2006 and the Anti-Money
Laundering Counter-Terrorism Financing Rules 2007 by five
Group entities, including the Company. While the regulator
indicated by letter to the Company dated 4 June 2021 that it
was not (at that time) considering civil penalty proceedings,
AUSTRAC’s investigation is ongoing. AUSTRAC’s enforcement
powers include infringement notices, remedial directions,
enforceable undertakings and civil penalty orders.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
The Group has reported a number of AML/CTF compliance
issues to relevant regulators. The Group continues to
investigate and remediate a number of known AML/CTF
compliance issues and weaknesses. As this work progresses,
further compliance issues may be identified and reported to
AUSTRAC or equivalent foreign regulators, and additional
uplifting and strengthening of the Group’s systems and
processes may be required. The potential outcome and total
costs associated with the investigations and remediation
processes for specific issues identified to date, and for any
issues identified in future, remain uncertain. A negative
outcome to any investigation or remediation process
may adversely impact the Group’s reputation, business
operations, financial position and results. Further, given
the large volume of transactions that the Group processes,
the undetected failure of internal AML/CTF controls, or the
ineffective remediation of compliance issues, could result in
a significant number of breaches of AML/CTF obligations
and significant civil penalties for the Group.
As a bank engaged in global finance and trade, the
Company also faces risks relating to compliance with
financial sanctions laws across multiple jurisdictions.
Should the Company’s sanctions controls fail, this could
lead to sanctions violations, resulting in potentially
significant monetary and regulatory penalties. This, in turn,
may adversely impact the Group’s reputation, financial
performance and position.
Refer to Note 30 Commitments and contingent liabilities
on page 170 ‘Regulatory activity, compliance investigations
and associated proceedings - Anti-Money Laundering and
Counter-Terrorism Financing program uplift and compliance
issues’ for more information.
The Group may fail to comply with applicable laws and
regulations, or may incur significant compliance costs.
The Group is highly regulated and subject to various
regulatory regimes which differ across the jurisdictions in
which it operates, trades and raises funds.
Ensuring compliance with all applicable laws is complex.
There is a risk the Group will be unable to implement
the processes and controls required by relevant laws and
regulations in a timely manner, or that the Group’s internal
controls will prove to be inadequate or ineffective in
ensuring compliance. There is also a potential risk of
misinterpreting new or existing regulations.
In addition, there is significant cost associated with the
systems, processes, controls and personnel required to
ensure compliance with applicable laws and regulations.
Such costs may negatively impact the Group’s financial
performance and position. Any failure to comply with
relevant laws and regulations may have a negative impact
on the Group’s reputation and financial performance and
position, and may give rise to class actions, litigation and
regulatory enforcement, which may in turn, result in the
imposition of civil or criminal penalties on the Group.
REPORT OF THE DIRECTORS
Extensive regulatory change poses a significant risk to
the Group.
Globally, the financial services and banking industries are
subject to a significant and increasing level of regulatory
reviews and political scrutiny, including in Australia, New
Zealand and other countries where the Group has, or is
intending to establish, offshore operations. Changes to laws
and regulations or their interpretation and application can
be unpredictable, are beyond the Group’s control, and may
not be harmonised across the jurisdictions in which the
Group operates.
Regulatory change may result in significant capital and
compliance costs, changes to the Group’s corporate
structure and increasing demands on management,
colleagues and information technology systems. This may
also impact the viability of the Group’s participation in
certain markets or require the divestment of a part of the
Group’s business.
The Royal Commission made a considerable number
of recommendations. The Australian Government has
committed to take action on all of the recommendations
and has announced further commitments to address
issues raised in the final report of the Royal Commission.
Some commitments have been actioned by the Australian
Government and regulators, with a number of legislative
changes being passed by the Australian Parliament in
December 2020 relating to anti-hawking, enforceable codes
of conduct, deferred sales of add-on insurance, reference
checking and breach reporting.
Many of these reforms came into effect in October 2021.
These legislative and regulatory changes have resulted in
significant policy, system and operational changes across the
Group. Considerable resources were redirected to deliver
compliant solutions within the required timeframes and
maintain compliance.
The volume of changes and implementation timeframes
combined with the complexities created by COVID-19 may
increase the risk associated with the implementation of
these changes.
Operationalising large volumes of regulatory change
presents ongoing risks for the Group. Whilst extensive work
is done to assess proposed design solutions and to test
design effectiveness of controls for each regulatory change
before the effective date, the operating effectiveness of
some controls cannot be tested until the go-live date for
the regulatory change has occurred. There are also inherent
risks associated with the dependency on third parties for the
effectiveness of some controls.
Further inquiries and regulatory reviews impacting the
financial services industry may be commissioned by
the Australian and New Zealand Governments, which,
depending on their scope, findings and recommendations,
may adversely impact the Group.
Other reviews and regulatory reforms currently relevant to
the Group which present a potential regulatory risk include:
• APRA has a number of in-flight regulatory changes,
including both the introduction of new prudential
Annual Financial Report 2021
29
REPORT OF THE DIRECTORS
OPERATING AND FINANCIAL REVIEW (CONTINUED)
standards and amendments to existing prudential
standards. The changes cover a range of themes
including risk management, governance, remuneration
and recovery and resolution planning.
• In 2018 and 2019, the New Zealand Financial Markets
Authority and the RBNZ undertook a review that led to
the New Zealand Government introducing the Financial
Markets (Conduct of Institutions) Amendment Bill to the
New Zealand Parliament in December 2019 to create an
oversight and licensing regime for regulating conduct
in the banking, non-bank deposit taking and insurance
sectors. The bill is expected to pass in early 2022.
• The Australian BEAR applies to the Group. On 16 July
2021, the Australian Government Treasury released
exposure draft legislation for the new Financial
Accountability Regime (FAR). This regime has been
developed in response to a number of Royal Commission
recommendations and is intended to extend and replace
BEAR. Once implemented, the FAR legislation is likely
to include new prescribed responsibilities, additional
accountability obligations, and increased maximum civil
penalties for the Group. The regime is expected to apply
to the Group from as early as 1 July 2022.
• The regulatory timeframes for the implementation of
the CDR require significant changes to the Group’s
operations and technology. There is a risk that the
Group may not achieve compliance with set milestones
for the complete implementation of Open Banking.
Furthermore, in September 2021 the Group became
accredited to receive data (that is, as an ‘accredited
data recipient’) from other participants under the Open
Banking regime. This means that the Group is now
subject to further obligations under the CDR legal
framework. Open Banking may also lead to cyber
and fraud risks in the CDR ecosystem. Governance
mechanisms including accountabilities, controls and
frameworks are still evolving and, under the Open
Banking regime, customer data will be shared with, and
received from, a broader range of stakeholders. The
significant resources and management time required to
implement Open Banking may also have a flow-on effect,
impacting other regulatory reforms across the Group.
• There are a number of other ongoing or proposed
regulatory changes and inquiries relevant to the Group,
such as new requirements for the design and distribution
of financial products, responsible lending reforms, uplift
to the complaints management framework, consumer
and small business protection enhancements, ASX
CHESS replacement, LIBOR cessation, changes to the
Group entities eligible for inclusion in the Level 1
group for prudential supervisory purposes, operational
resilience, market abuse or conduct related regulations,
changes to financial benchmarks, derivatives reform,
replacement of the Reserve Bank of New Zealand
Act 1989 (New Zealand), payments, data protection
and privacy laws, data quality, competition inquiries,
financial crime legislation, increasing modern slavery,
climate and other sustainability risk related regulatory
30
National Australia Bank
and reporting requirements, accounting and financial
reporting requirements, and tax reform.
• Additionally, continued focus on COVID-19 related
impacts (such as loan deferrals) has led to an increase
in regulatory reporting requirements and data collection
and publication by regulators.
The full scope, timeline and impact of current and potential
inquiries and regulatory reforms such as those mentioned
above, or how they will be implemented (if at all in
some cases), is not known. The challenges raised by
COVID-19 and the associated focus on economic recovery
have caused a number of regulators to postpone or
suspend planned policy and supervision initiatives, public
consultations and the implementation dates of a number of
regulatory reforms.
The ongoing impact of COVID-19 on the Group’s operations
may result in delays in its ability to implement regulatory
change. The extent of any delays will be dependent
on how regulators choose to adjust the prioritisation,
timing and deployment of their supervisory mandate or
legislative change.
Depending on the specific nature of the regulatory change
requirements and how and when they are implemented or
enforced, they may have an adverse impact on the Group’s
business, operations, structure, compliance costs or capital
requirements, and ultimately its reputation, and financial
performance and position.
Failure to comply with laws or regulatory requirements
may expose the Group to remediation costs, regulatory
enforcement action or litigation, including class actions.
There have been several domestic and international
institutions facing high profile regulatory enforcement
actions for alleged instances of non-compliance with laws
or regulatory requirements. In some cases, class actions
have been brought in respect of the matters to which these
enforcement actions relate.
Entities within the Group have been and may continue to
be involved from time to time in regulatory enforcement
and other legal proceedings arising from the conduct of
their business. There is inherent uncertainty regarding the
possible outcome of any legal or regulatory proceedings
involving the Group. It is also possible that further class
actions, regulatory investigations, compliance reviews, civil
or criminal proceedings or the imposition of new licence
conditions could arise in relation to known matters or
other matters of which the Group is not yet aware. The
aggregate potential liability and costs associated with legal
proceedings cannot be estimated with any certainty.
A negative outcome to regulatory investigations or litigation
involving the Group may impact the Group’s reputation,
divert management time from operations and affect the
Group’s financial performance and position, profitability and
returns to investors. Refer to Note 30 Commitments and
contingent liabilities on pages 167 to 172 for details in
relation to certain current legal and regulatory proceedings,
compliance reviews and associated remediation, and other
contingent liabilities which may impact the Group.
OPERATING AND FINANCIAL REVIEW (CONTINUED)
The Group may be exposed to losses if critical accounting
judgements and estimates are subsequently found to
be incorrect.
Preparation of the Group’s financial statements requires
management to make estimates and assumptions and
to exercise judgement in applying relevant accounting
policies, each of which may directly impact the reported
amounts of assets, liabilities, income and expenses. A higher
degree of judgement is required for the recognition and
estimates used in the measurement of provisions (including
for customer-related remediation and other regulatory
matters), the determination of income tax, the valuation of
financial assets and liabilities (including fair value and credit
impairment of loans and advances), and the valuation of
goodwill and intangible assets. Changes in the methodology
or assumptions on which the assessment of goodwill and
intangible balances is based, together with changes in
expected future cash flows (including changes flowing from
current and potential regulatory reforms), could result in the
potential write-off of a part or all of that goodwill or the
intangible balances.
If the judgements, estimates and assumptions used by
the Group in preparing the financial statements are
subsequently found to be incorrect, there could be a
significant loss to the Group beyond that anticipated or
provided for, which may adversely impact the Group’s
reputation, financial performance and financial position.
REPORT OF THE DIRECTORS
Annual Financial Report 2021
31
REPORT OF THE DIRECTORS
DIRECTORS’ INFORMATION
Directors
Details of NAB directors in office at the date of this
report (or holding office during the year), and each
director’s qualifications, experience and other directorships
and interests are below.
The Board acknowledges that directors benefit from being
involved in a broad range of governance roles provided
directors have the capacity to devote sufficient time and
effort to fulfil their NAB responsibilities. The Chair, with the
assistance of the Nomination & Governance Committee, has
determined each director meets this requirement.
Mr Philip Chronican
BCom (Hons), MBA
(Dist),GAICD, SF Fin
Age: 65
Term of office: Non-executive director since May 2016.
Chair of the Board and Chair of the Board’s Nomination &
Governance Committee since 15 November 2019.
Independent: Yes
Skills & experience: Mr Chronican has more than 39 years
of experience in banking and finance in Australia and
New Zealand, including as NAB's interim Group CEO from
1 March 2019 to 14 November 2019. Mr Chronican was
responsible for the Retail and Commercial business of the
Australia and New Zealand Banking Group Limited (ANZ)
in Australia. Prior to joining ANZ, Mr Chronican had a
long career at Westpac Banking Corporation, where he
established his role in Australian banking as Group Executive
Westpac Institutional Bank and Chief Financial Officer.
Mr Chronican has broad experience in M&A activity and
post-merger integration, and has taken an active and public
role in advocating for greater transparency and ethics in
banking and promoting workforce diversity.
Directorships of other listed entities:
Woolworths Group Limited (since October 2021)
Mr Chronican’s other directorships and interests include The
Westmead Institute for Medical Research (Chair) and the
National Foundation for Australia-China Relations Advisory
Board (Member).
Mr Ross McEwan CBE
BBus
Age: 64
Term of office: Group Chief Executive Officer and Managing
Director since December 2019.
Independent: No
Skills & experience Mr McEwan has more than 30 years
of experience in the finance, insurance and investment
industries. Mr McEwan is a senior global financial services
32
National Australia Bank
executive with deep experience in international markets
and long-standing knowledge of the Australian banking
environment. Mr McEwan also has extensive experience
in leading organisations through significant change and
recovery. Prior to joining NAB, Mr McEwan held executive
roles at the Royal Bank of Scotland as CEO UK Retail
from 2012 to 2013 and Group CEO from 2013 to
2019. Mr McEwan's experience includes executive roles at
Commonwealth Bank of Australia, First NZ Capital Securities
and National Mutual Life Association of Australasia / AXA
New Zealand.
Mr McEwan's other directorships include Australian
Banking Association and the Financial Markets Foundation
for Children.
Mr David Armstrong
BBus, FCA, MAICD
Age: 63
Term of office: Non-executive director since August 2014. He
is Chair of the Board's Audit Committee and a member of
the Board's Risk & Compliance Committee.
Independent: Yes
Skills & experience: Mr Armstrong has more than 30
years of experience in professional services, including as
a partner at PricewaterhouseCoopers (PwC). Mr Armstrong
has significant knowledge and understanding of banking
and capital markets, real estate and infrastructure and is
well-versed in the reporting, regulatory and risk challenges
faced by the industry.
Directorships of other listed entities:
IAG Limited (since September 2021)
Mr Armstrong's other directorships and interests include The
George Institute for Global Health (Chair), Opera Australia
Capital Fund Limited, Australian Museum (President) and
Lizard Island Reef Research Foundation.
Ms Kathryn Fagg AO
FTSE, BE(Hons),
MCom(Hons)
Age: 60
Term of office: Non-executive director since December
2019. Member of the Board's Audit and Risk &
Compliance Committees.
Independent: Yes
Skills & experience: Ms Fagg has more than 25 years
of senior commercial and operational experience and is
a respected and experienced director and Chair, with
extensive leadership experience across a range of industries,
including banking. Ms Fagg was previously Chair of Boral,
non-executive director of Incitec Pivot Limited, a board
member of the Reserve Bank of Australia and has held
DIRECTORS’ INFORMATION (CONTINUED)
executive roles with Linfox Logistics, Bluescope Steel and
ANZ. Ms Fagg has a deep understanding of strategy,
leadership, governance and risk, operations, investments,
decision- making and corporate development.
Directorships of other listed entities:
Djerriwarrh Investments Limited (since May 2014)
Ms Fagg’s other directorships include Breast Cancer Network
Australia (Chair), CSIRO (Chair), Watertrust Australia Limited
(Chair), The Grattan Institute, The Myer Foundation,
Champions of Change Coalition and a member of the
Independent Panel for the Australian Public Service
Commission’s 'Hierarchy and Classification' Review.
Mr Peeyush Gupta AM
BA, MBA, AMP (Harvard)
Age: 62
Term of office: Non-executive director since November 2014.
Member of the Board's Risk & Compliance and People
& Remuneration Committees. Director of BNZ Insurance
Services Limited and BNZ Life Insurance Limited, subsidiaries
of NAB.
Independent: Yes
Skills & experience: Mr Gupta has more than 30 years of
experience in wealth management. Mr Gupta was a co-
founder and the inaugural CEO of IPAC Securities, a pre-
eminent wealth management firm spanning financial advice
and institutional portfolio management, which was acquired
by AXA.
Mr Gupta has extensive corporate governance experience,
having served as a director on many corporate, government,
not-for-profit, trustee and responsible entity boards since
the 1990s, including experience on audit, risk, and
remuneration committees.
Directorships of other listed entities:
Link Administration Holdings Limited (Link Group) (since
November 2016)
Charter Hall WALE Limited (since May 2016)
Mr Gupta’s other directorships include Charter Hall Direct
Property Management Limited (Chair), Insurance & Care
NSW (iCare) and Special Broadcasting Service Corporation.
Ms Anne Loveridge
BA (Hons), FCA, GAICD
Age: 60
Term of office: Non-executive director since December 2015.
Chair of the Board's People & Remuneration Committee and
a member of the Board's Nomination & Governance and
Customer Committees.
Independent: Yes
REPORT OF THE DIRECTORS
Skills & experience: Ms Loveridge has more than 30 years
of experience in professional services, providing advice and
other services to the financial services sector and ASX-listed
companies. Up to her retirement in 2015, Ms Loveridge
held senior leadership roles as Partner and Deputy Chair at
PwC where, in addition to client advisory and audit roles,
she had responsibilities within the firm for governance,
leadership development, mentoring and remuneration of
senior executives and Partners.
Directorships of other listed entities:
nib Holdings Limited (since February 2017)
Platinum Asset Management Limited (since September 2016)
Ms Loveridge's other directorships and interests include The
Bell Shakespeare Company Limited (Chair), Destination NSW
and member of Chief Executive Women (CEW).
Mr Douglas McKay ONZM
BA, AMP (Harvard) CMinstD
(NZ)
Age: 66
Term of office: Non-executive director since February 2016.
Member of the Board's Audit and Customer Committees.
Chair of Bank of New Zealand (a subsidiary of NAB).
Independent: Yes
Skills & experience: Mr McKay has more than 30 years
of senior commercial and operational experience, together
with marketing and private equity experience. Mr McKay
has a deep understanding of New Zealand and Australian
markets having held CEO and Managing Director positions
within major trans-Tasman companies and organisations
including Auckland Council, Lion Nathan, Carter Holt Harvey,
Goodman Fielder, Sealord and Independent Liquor.
Directorships of other listed entities:
Genesis Energy Limited* (since June 2014)
Fletcher Building Limited* (since September 2018)
*Dual-listed on the New Zealand and Australian
stock exchanges
Mr McKay's other directorships include Eden Park Trust
(Chair) and IAG (NZ) Holdings Limited.
Mr Simon McKeon AO
BCom, LLB, FAICD
Age: 65
Term of office: Non-executive director since February
2020. Chair of the Board’s Risk & Compliance
Committee and a member of the Board's Nomination &
Governance Committee.
Independent: Yes
Skills & experience: Mr McKeon has more than 40 years of
experience in financial services, law, government and the
Annual Financial Report 2021
33
REPORT OF THE DIRECTORS
DIRECTORS’ INFORMATION (CONTINUED)
not for profit sector. He held a range of senior executive
roles with Macquarie Group, including as Executive Chair of
its business in the State of Victoria. He previously served as
Chairman of AMP Limited, MYOB Limited and CSIRO and was
Founding President of the Federal Government’s Australian
Takeovers Panel.
Mr McKeon also served as Founding Chair of MS Research
Australia and as Chair of the Federal Government’s Panel
that completed a strategic review of health and medical
research in 2013. Mr McKeon is an active philanthropist
and has been a significant contributor over many years to
charitable, educational, public health and other community-
based organisations and causes. Mr McKeon was Australian
of the Year in 2011.
Directorships of other listed entities:
Rio Tinto Group (since January 2019)
Mr McKeon’s other directorships and interests include
Summer Housing (Chair), South East Melbourne (Chair),
Monash University (Chancellor), The Big Issue (Member of
the Advisory Board) and GFG Alliance Australia (Member of
the Advisory Board).
Ms Ann Sherry AO
BA, Grad Dip IR, FAICD,
FIPAA
Age: 67
Term of office: Non-executive director since November 2017.
Chair of the Board's Customer Committee and a member of
the Board's People & Remuneration Committee. Ms Sherry is
Co-Chair of NAB's Indigenous Advisory Group.
Independent: Yes
Skills & experience: Ms Sherry has more than 20 years of
experience in executive roles within the banking, tourism
and transport industries in Australia and New Zealand,
together with significant experience in government and
public service. She was Chairman of Carnival Australia,
having previously served as CEO and as Executive Chairman.
Prior to joining Carnival Australia, Ms Sherry had 12 years
experience with Westpac Banking Corporation (Westpac)
where she held executive roles including CEO, Westpac New
Zealand, CEO, Bank of Melbourne and Group Executive,
People & Performance.
Directorships of other listed entities:
Sydney Airport (since May 2014)
Enero Group Limited (Chairman since January 2020)
Ms Sherry’s other directorships and interests include
UNICEF Australia (Chair), Port of Townsville (Chair), Cape
York Partnership, Museum of Contemporary Art and
Infrastructure Victoria.
34
National Australia Bank
Former director
Ms McBride resigned from the Board effective
18 December 2020.
Ms Geraldine McBride BSc
Age: 60
Term of office: Non-executive director from March 2014
to December 2020. Member of the Board's Audit and
Customer Committees.
Independent: Yes
Skills & experience: Ms McBride has more than 30 years
of experience in the technology industry and international
business. Ms McBride is a former President of global
software company SAP for North America, as well as
roles with Dell and IBM. Ms McBride is CEO and Director
of MyWave.
Directorships of listed entities:
Sky Network Television Limited (since August 2013)
Fisher and Paykel Healthcare Corporation Limited (since
July 2013)
Company secretaries
Details of company secretaries of NAB in office at the
date of this report (or holding office during the year)
and each company secretary’s qualifications and experience
are below.
Mrs Louise Thomson BBus (Dist), FGIA joined the Group in
2000 and was appointed Group Company Secretary in May
2013. She has experience in a wide range of finance, risk,
regulatory and governance matters. The Group Company
Secretary supports the Board to enable the Board to fulfil
its role.
Ms Penelope MacRae BA (Hons), LLB (Hons) joined the
Group in 2011 as a Senior Corporate Lawyer and was
appointed Company Secretary in December 2016. She is
the Secretary of the Board's Risk & Compliance Committee,
manages the Group’s Risk Management Committees and has
experience in a wide range of corporate, legal, governance,
risk and regulatory matters.
Ms Tricia Conte BCom, LLB (Hons) joined the Group in
2006 and was appointed Company Secretary in November
2018. She is the Secretary to the Board Audit Committee
and a Senior Legal Counsel who advises the Group
on a wide range of legal, corporate, governance and
regulatory matters.
Mr Ricardo Vasquez BSc, LLB, ACIS joined the Group in
2020 and was appointed Company Secretary in March
2021. He is the Secretary to the Board's People &
Remuneration Committee and has extensive experience in
legal and governance matters having worked in various
industries, including large banking groups both domestic
and international.
DIRECTORS’ INFORMATION (CONTINUED)
Directors' and officers' indemnity
NAB’s constitution
Article 20.1 of NAB's constitution provides that, to the
maximum extent permitted by law, NAB may indemnify any
current or former officer out of the property of NAB against:
• Any liability incurred by the person in the capacity as an
officer (except a liability for legal costs).
• Legal costs incurred in defending or resisting (or
otherwise in connection with) proceedings, whether
civil or criminal or of an administrative or investigatory
nature, in which the officer becomes involved because of
that capacity.
• Legal costs incurred in connection with any investigation
or inquiry of any nature (including, without limitation, a
royal commission) in which the officer becomes involved
(including, without limitation, appearing as a witness or
producing documents) because of that capacity.
• Legal costs incurred in good faith in obtaining legal
advice on issues relevant to the performance of their
functions and discharge of their duties as an officer, if
that expenditure has been approved in accordance with
the Board’s charter, except to the extent that:
– NAB is forbidden by law to indemnify the person
against the liability or legal costs, or
– An indemnity by NAB of the person against the liability
or legal costs, if given, would be made void by law.
Under Article 20.2, NAB may pay or agree to pay, whether
directly or through an interposed entity, a premium for a
contract insuring a person who is or has been an officer
against liability incurred by the person in that capacity,
including a liability for legal costs, unless:
• NAB is forbidden by law to pay or agree to pay the
premium, or
• The contract would, if NAB paid the premium, be made
void by law.
NAB may enter into an agreement with a person referred to
in Articles 20.1 and 20.2 with respect to the subject matter
of those Articles. Such an agreement may include provisions
relating to rights of access to the books of NAB. In the
context of Article 20, ‘officer’ means a director, secretary
or senior manager of NAB or of a related body corporate
of NAB.
NAB has executed deeds of indemnity in favour of each
director of NAB and certain directors of related bodies
corporate of NAB. Some companies within the Group
have extended equivalent deeds of indemnity in favour of
directors of those companies.
Directors' and officers' insurance
During the year, NAB, pursuant to Article 20, paid a premium
for a contract insuring all directors, secretaries, executive
officers and officers of NAB and of each related body
corporate of NAB. The contract does not provide cover
for the independent auditors of NAB or of a related body
corporate of NAB. In accordance with usual commercial
REPORT OF THE DIRECTORS
practice, the insurance contract prohibits disclosure of
details of the nature of the liabilities covered.
Annual Financial Report 2021
35
REPORT OF THE DIRECTORS
DIRECTORS’ INFORMATION (CONTINUED)
Directors and directors meeting
The NAB Board met 19 times during the year ended 30 September 2021.
The following table includes:
• The names of the directors holding office at any time during the financial year.
• The number of Board and Committee meetings held during the financial year and the number of meetings actually attended
by each director. Where a director joined or left the Board or a Committee during the reporting period, only the number of
meetings they were eligible to attend is shown.
All directors may attend Committee meetings even if they are not a member of a relevant Committee. The table below excludes
the attendance of those directors at Committee meetings where they were not a Committee member.
Some directors also attended special purpose ad hoc committee meetings during the year, which is not included in the
table below:
Board meetings
Committee meetings
Scheduled(1) Unscheduled(2)
Audit(3)
Compliance(3)
Remuneration(3)
Customer(3)
Governance
Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended Held Attended
Risk &
People &
Nomination &
9
9
9
9
9
9
9
9
9
4
9
9
9
9
9
9
9
9
9
4
10
10
10
10
10
10
10
10
10
10
10
10
10
10
9
10
10
9
2
2
-
-
8
8
-
-
8
-
-
4
-
-
8
8
-
-
8
-
-
4
-
-
6
6
6
-
-
6
-
-
-
-
6
6
6
-
-
6
-
-
-
-
-
-
12
12
-
-
12
-
-
-
-
12
12
-
-
12
-
-
-
-
-
-
-
6
6
-
6
2
-
-
-
-
-
5
6
-
6
2
5
-
-
-
-
5
-
5
-
-
5
-
-
-
-
5
-
5
-
-
Current directors
Phil Chronican
Ross McEwan
David Armstrong
Kathryn Fagg
Peeyush Gupta
Anne Loveridge
Doug McKay
Simon McKeon
Ann Sherry
Former directors
Geraldine
McBride (resigned
December 2020)
(1) The number of meetings scheduled in the Board’s approved annual calendar. When workshops form part of a scheduled Board program, they are not
additive to the Board meeting count.
(2) The number of out-of-cycle Board meetings convened during the year for a special purpose that do not form part of the Board’s approved annual calendar.
Out-of-cycle meetings were held for the Board to receive updates on time sensitive matters, including mergers and acquisitions and capital transactions.
(3) The number of Committee meetings both scheduled in the Board’s approved annual calendar and any convened out-of-cycle for time sensitive matters or due
to members’ availability. When a Committee workshop forms part of a scheduled Board program, it is not additive to that Committee meeting count. The
Board Audit Committee held two out-of-cycle meetings. The People & Remuneration Committee held five out-of-cycle meetings. The Customer Committee
held two out-of-cycle meetings.
36
National Australia Bank
REPORT OF THE DIRECTORS
OTHER INFORMATION
Directors' and executives' interests
Particulars of shares, rights and other relevant interests held directly and indirectly by directors and executives are set out in the
Remuneration report.
Rights
As at the date of this report, there are 1,866,363 rights outstanding in relation to NAB fully paid ordinary shares. No exercise
price is payable for rights. The latest dates for exercise of the rights range between 15 February 2022 and 15 February 2029.
Persons holding rights are not entitled to participate in capital actions by NAB (such as rights issues or bonus issues).
For the period from 1 October 2021 to the date of this report, no fully paid NAB ordinary shares were issued as a result of the
exercise of a right.
For further details on rights refer to Note 34 Equity-based plans of the financial statements and Section 5.4 of the
Remuneration report.
Annual Financial Report 2021
37
REPORT OF THE DIRECTORS
OTHER MATTERS
Litigation and disputes
From time to time entities within the Group may be involved
in disputes or legal proceedings arising from the conduct
of their business. The outcomes and total costs associated
with such disputes and proceedings are typically uncertain.
Any material legal proceedings may adversely impact the
Group's reputation and financial performance and position.
Refer to Note 30 Commitments and contingent liabilities of
the financial statements for details of the Group's material
legal proceedings and contingent liabilities.
Future developments
In the opinion of the directors, discussion or disclosure
of any further future developments including the Group’s
business strategies and its prospects for future financial
years would be likely to result in unreasonable prejudice to
the interests of the Group.
Proceedings on behalf of NAB
There are no proceedings brought or intervened in, or
applications to bring or intervene in proceedings, on behalf
of NAB by a member or other person entitled to do so under
section 237 of the Corporations Act 2001 (Cth).
Events subsequent to reporting date
There are no items, transactions or events of a material
or unusual nature that have arisen in the period between
30 September 2021 and the date of this report that, in the
opinion of the directors, have significantly affected or may
significantly affect the operations of the Group, the results
of those operations or the state of affairs of the Group in
future years.
Integrity of reporting
The directors of NAB have a responsibility with respect to
the integrity of external reporting. This involves reviewing
and monitoring, with the assistance of the Board Audit
Committee and management, the processes, controls and
procedures which are in place to maintain the integrity of
the Group’s financial statements.
Further details on the role of the Board and its committees
can be found in NAB's 2021 Corporate Governance
Statement which is available online at www.nab.com.au/
about-us/corporate-governance.
Environmental and social regulation, risk
and opportunities
Regulatory Disclosures
The Group’s operations are not subject to any site-
specific environmental licences or permits which would
be considered particular or significant environmental
regulation under the laws of the Australian Commonwealth
Government or of an Australian state or territory.
As a lender, the Group may incur environmental liabilities
in circumstances where it takes possession of a borrower’s
assets and those assets have associated environmental risks.
The Group has developed and implemented credit policies
that aim to ensure that these risks are minimised and
managed appropriately.
The Group’s operations are subject to the National
Greenhouse and Energy Reporting Act 2007 (Cth) (NGER
Act) and the Streamlined Energy & Carbon Reporting
(SECR) requirements which are implemented through
the Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018
(United Kingdom) as part of the legislative response to
climate change in Australia and the United Kingdom
respectively. While this legislation is not particular to the
Group or significant in its impact, the Group complied with
its requirements. The NGER Act requires the Group to report
on the period from 1 July to 30 June (the environmental
reporting year), therefore, all of the Group's energy and
greenhouse gas (GHG) emissions reporting is aligned to this
reporting period.
The Group’s Australian vehicle fleet and building-related
net energy use reported under the NGER Act for the 2021
environmental reporting year was 407,670 gigajoules (GJ)
(2020: 517,446 GJ), which is approximately 83% of the
Group’s measured total net energy use. The associated
total GHG emissions from fuel combustion (Scope 1) and
from electricity use (Scope 2) were 79,651 tCO2-e (2020:
89,402 tCO2-e).
The Group's United Kingdom-based (London Branch) energy
use(1) reported under the SECR for the 2021 environmental
reporting year was 419,667 Kilowatt hours (KWh) (2020:
1,248,735 KWh). The associated total GHG emissions from
fuel combustion (Scope 1) and from electricity use(2) (Scope
2) were 87 tCO2-e (2020: 273 tCO2-e). This equates to
144 KWh and 0.03 tCO2-e per metre squared of property
space occupied by the Group's London Branch. Further
London Branch and Group energy and GHG emissions data is
provided in Table 1 to satisfy SECR requirements.
During the 2021 environmental reporting year, the Group’s
total market-based GHG emissions (Scope 1, 2 and 3(3)) were
(1) The Group's energy use and GHG emissions reported for SECR purposes are associated with building-related gas and electricity use only. The Group does not
have a vehicle fleet associated with its United Kingdom operations.
(2) 100% of the Group's United Kingdom-based (London Branch) electricity is renewable electricity.
(3) Scope 1 GHG emissions are direct emissions from sources that are owned or controlled by an organisation including on-site fossil fuel combustion and
vehicle fleet fuel consumption. Scope 2 emissions are indirect emissions from purchased electricity. Scope 3 emissions relate to all other indirect emissions
that occur outside the boundary of the organisation as a result of the activities of the organisation. However, the Group’s Scope 3 emissions reported here
are operationally-related and do not include Scope 3 emissions associated with the Group’s financing activities. The Group commenced reporting on Scope 3
attributable financed emissions in 2021. Attributable financed emissions are not included in the Group’s carbon neutral position.
38
National Australia Bank
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
110,934 tCO2-e (2020: 149,479(1) tCO2-e), after accounting
for use of certified renewable energy in Australia and the
United Kingdom.
The Group continues to implement an energy
efficiency program, including energy efficiency opportunity
assessments and sustainable building design. This helps
to produce GHG emissions savings and contributes to the
Group’s carbon neutral status and delivery of the Group's
climate change strategy and targets. From 1 July 2006 to
30 June 2021, the Group identified a total of 1,323 energy
efficiency and renewable energy opportunities in Australia
alone. A further seven efficiency energy opportunities have
been completed or commenced in environmental reporting
year 2021. These additional opportunities are estimated to
save an additional 3,623 GJ of energy, reduce 51,859 tCO2-
e of GHG emissions and a cost saving of $776,507 per
annum. Significantly fewer energy saving initiatives were
implemented this year due to re-focusing activities towards
bringing three new major commercial buildings online and
as a result of COVID-19 related property shutdowns.
Additional detail on the Group’s environmental
and climate-related performance is provided in the
2021 Annual Review and 2021 Sustainability Data
Pack available at https://www.nab.com.au/about-us/social-
impact/shareholders/performance-and-reporting. Further
information on the methodologies used to calculate the
emissions in Table 1 is also available on the Group website(2).
The Group’s main Melbourne-based data centre is subject to
National Environment Protection Measure (National Pollutant
Inventory) (NPI) reporting requirements in Australia. The NPI
provides a public database of emissions and transfers of
specified NPI substances from various facilities. The Group is
required to report on these emissions because the volume
of natural gas used to run the tri-generation plant at this
facility triggers the NPI threshold. The Group has complied
with this requirement.
In 2014, the Group’s United Kingdom-based operations
became subject to the Energy Savings Opportunities Scheme
(ESOS), introduced by the United Kingdom ESOS Regulations
2014 which came into force in July 2014. The ESOS requires
mandatory energy assessments (audits) of organisations
buildings and transport to be conducted every four years.
The Group fulfilled its most recent ESOS obligation in
December 2019 and will resubmit as required in December
2023, if it continues to meet the ESOS qualification
requirements at 31 December 2022.
(1) This amount has been restated to account for additional electricty charges received in 2021 for BNZ that related to 2020.
(2) Refer to 'How we calculate our carbon emissions' on https://www.nab.com.au/about-us/social-impact/environment/climate-change.
Annual Financial Report 2021
39
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
Table 1: Key GHG emissions and energy use (1 July - 30 June)(1)
Energy from gas consumption (KWh)
Energy from vehicle fleet fuel use (KWh)
Energy from electricity consumption (KWh)
Total energy for SECR reporting (KWh) (tCO2-e)(3)
GHG emissions from energy use (Scope 1 – Gas) (tCO2-e)
GHG emissions from vehicle fleet (Scope 1) (tCO2-e)
GHG emissions from energy use (Scope 2, location-based –
electricity) (tCO2-e)
Total gross Scope 1 & 2 GHG emissions for SECR reporting (tCO2-e)(3)
Total gross Scope 3 emissions (tCO2-e)
Intensity ratio: Energy (KWh)/$ Financial metric(4)
Intensity ratio: Gross Scope 1 & 2 GHG (tCO2-e)/ $ Financial Metric(4)
Intensity ratio: Energy (KWh)/ m2
Intensity ratio: GHG (tCO2-e)/ m2
Intensity ratio: Energy (KWh)/ FTE
Intensity ratio: GHG (tCO2-e)/ FTE
Emissions from electricity use (Scope 2, market-based –
electricity) (tCO2-e)
Total net Scope 1,2 and 3 GHG emissions (after accounting for UK
and Australian renewable energy)(3)
Carbon Offsets Retired
Net carbon emissions (carbon neutral)
Methodology
London Branch
2021
64,131
0
355,536
419,667
12
0
75
87
477
0.0014
2020
377,813
0
870,922
1,248,735
70
0
203
273
1,975
0.004
Group (excluding
London Branch)
2021
16,773,264
23,261,807
96,216,129
2020(2)
41,484,826
27,568,578
100,977,908
136,251,200
170,031,312
3,118
5,818
74,774
83,710
45,438
0.016
7,701
6,885
79,508
94,094
59,676
0.022
0.0000003
0.000001
0.00001
0.000012
144
0.03
1,506
0.31
0
339
339
0
236
0.05
4,024
0.88
195
0.12
3,906
2.40
246
0.14
4,919
2.72
0
57,287
71,938
2,253
2,253
0
110,595
110,595
0
147,226
147,226
0
• Refer to 'How we calculate our carbon emissions' on www.nab.com.au/about-us/social- impact/environment/climate-change.
• The Group reports its energy and GHG data based on operational control.
• Energy consumption data is captured through utility billing; meter reads or estimates.
• The Group has applied the latest emission factors available at the time of reporting to the current year. Refer to methodology documents
on the Group website at www.nab.com.au/about-us/social-impact/environment/climate-change for a full list of the emissions factor sources.
Prior year figures reflect the emissions reported in that year, unless otherwise stated. United Kingdom-based emissions were calculated
using factors provided by the United Kingdom Department for Business, Energy & Industrial Strategy.
• Intensity ratio calculations have been calculated using location-based emission factors.
• The financial intensity metrics in Table 1 use an activity data numerator which is reported for the Group’s environmental reporting year
(1 July – 30 June) and a financial metric denominator which is reported for the Group’s financial year (1 October– 30 September). This
is to ensure that the Group uses metrics which are publicly available as much as possible and because of the difference in the Group's
environmental reporting and financial years.
(1) This data is an extract of the Group’s full energy and GHG emissions inventory data to satisfy SECR requirements. A full set of the Group’s assured energy use
and emissions data is available in the Group’s 2021 Sustainability Data Pack.
(2) Amounts have been restated to account for additional electricty charges received in 2021 for BNZ that related to 2020.
(3)
London Branch operations consume no Scope 1 diesel for stationary energy purposes (backup generators). The Group (excluding London Branch) figures
include diesel used for backup generators (2020: KWh – 159,167 and tCO2-e – 40; 2021: KWh – 273,925 and tCO2-e – 69). The Total net Scope 1, 2 and 3 GHG
emissions (after accounting for UK and Australian renewable energy) figures also includes Scope 1 refrigerant gases from our Australian and New Zealand
vehicle fleets and heating, ventilation, and air conditioning systems and domestic refrigeration in offices and branches.
(4) The Group has used ‘Underlying profit’ as a financial metric (rather than other financial measures of profit or economic activity) for normalisation of
its environmental performance as this allows for meaningful comparison to prior years’ data and to financial intensity measures used in the Group's
Sustainability Data Pack and CDP disclosures due to the nature of its underlying business activities.
Climate change
The Group recognises that climate change is one of the
most significant challenges to society and the economy, and
that it is a source of significant risk and opportunity for the
Group. Therefore, the Group is aligning its business to help
achieve the temperature goals of the Paris Agreement(1) and
supporting a just transition to a net zero emissions economy
by 2050. This includes working with the Group's customers
to achieve the Group’s goal of aligning its lending portfolio
to net zero emissions by 2050.
The Group considers the response to climate change
requires collective action and that the Group needs to
be part of the solution and support its customers as
they take action too. This is aligned with the Group’s
(1) The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties at COP 21 in Paris, on 12 December
2015 and entered into force on 4 November 2016. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to
pre-industrial levels.
40
National Australia Bank
OTHER MATTERS (CONTINUED)
strategic ambition – to serve customers well and help our
communities prosper.
Financial regulators have identified that climate-related risks
are a potential source of systemic financial risk that needs to
be addressed to ensure the future stability and resilience of
the financial system. This is leading to changing supervisory
expectations of banks and to regulatory change.
In addition to responding to regulatory requirements and
change, the Group is actively working to decarbonise its
own operations and seeking to play a key role in supporting
the low-carbon transition and green growth(1). In doing so,
the Group aims to make a real and positive contribution
to the environmental sustainability of the communities in
which it operates.
In working to achieve the Group’s goal of aligning its
lending portfolio to net zero emissions by 2050, the
Group acknowledges the limitations of current data and
the need to regularly review, and update work, targets
and methodologies used. The Group continues to work
on understanding its total Scope 3 attributable emissions
exposure so customers who reduce carbon emissions
faster can be recognised and rewarded. Similar to other
international and Australian banks, NAB continues work to
develop its emissions-based modelling to better monitor
progress against its goal to align its lending portfolio to net
zero emissions by 2050.
The following is a summary of the Group’s approach to
climate change governance, strategy, risk management, and
metrics and targets consistent with the Financial Stability
Board's Task Force on Climate-Related Financial Disclosures'
(TCFD) recommendations.
Governance
The Board retains ultimate oversight for ESG risks and issues,
including climate change.
The Board receives regular reports on a range of
climate change-related issues, including progress against
the Group’s climate change strategy, ESG-related credit
policy and risk settings, commitments, goals, targets and
initiatives, environmental operational performance, carbon
neutral status, and concerns raised by stakeholders. It also
receives updates on regulatory change and greenhouse
and energy reporting returns that require noting by the
Board before submission to regulators. The Board Risk &
Compliance Committee (BRCC) receives periodic reports on
climate risk, regulatory developments and other related
matters that fall under its charter, particularly matters such
as emerging risk, risk appetite, scenarios and stress testing.
In 2021, the Group established a Sustainability Council
to formalise and facilitate work across the enterprise on
sustainability and to align activity to support key focus areas
of the Group’s climate change strategy, and to oversee and
report progress. The Sustainability Council, chaired by the
Chief Operating Officer, is comprised of Executive Leadership
Group members from key business areas.
REPORT OF THE DIRECTORS
The Sustainability Council oversees the implementation of
the Group’s Sustainability Action Plan (SAP). Development
of the SAP in 2021 was supported by a number of
action groups which focused on: (1) sustainable business
practices; (2) climate change; and (3) commercial responses
to society’s biggest challenges. The Climate Change Action
Group (CCAG) is on-going and replaces the Group’s Climate
Change Working Group. The CCAG drives implementation of
the Group’s climate strategy, particularly work in progress
to meet the Group’s CCCA obligations, net zero by 2050
goal and development of climate-related product and
service offerings.
Updates on implementation of the Group's climate change
strategy are reported periodically to management and the
Sustainability Council and as required to the Executive
Leadership Team, relevant risk committees, BRCC and
the Board.
Climate change strategy
A key pillar of the Group’s business strategy is a long-term
sustainable approach consisting of:
• Commercial responses to society's biggest challenges
• Resilient and sustainable business practices
• Innovating for the future.
The Group’s action to address climate change sits within
this context.
In 2021, the Group refreshed its climate change strategy. The
Group’s main role in climate action is through the provision
of financing. While the Group recognises the impact it can
make by reducing its own GHG emissions, a far greater
impact will be achieved by financing the actions needed
by others.
The Group’s updated climate strategy therefore covers:
• A goal of aligning our lending portfolio to net zero
emissions by 2050
• Working with customers to decarbonise and build
climate-related resilience
• Managing climate risk.
Supported by:
• Actively reducing the Group’s own emissions
• Developing the climate capability of colleagues
• Research, partnerships and engagement.
The Group identifies and prioritises current and future
business opportunities, including those related to climate
change (for example, financing low-carbon technology like
renewable power generation or water security projects
which help deliver resilience to drought). This occurs
through strategic planning processes both at a Group and
business line level.
The Group’s climate change strategy has been integrated
into the Group’s business strategy. The Group is using its
experience in clean energy financing and natural value
to provide innovative, low-carbon solutions for customers
across the Group’s key sectors and markets.
(1) Green growth describes a path of economic growth that uses natural resources in a sustainable manner.
Annual Financial Report 2021
41
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
Highlights from delivering on opportunities within the
Group’s climate change strategy in 2021 included:
• Providing a further $1,085 million in financing for
renewable energy projects, taking the cumulative value
of financing provided for renewable energy projects since
2003 to $11.5 billion. This included financing the Group’s
150th renewable energy financing transaction.
• Progressing the Group’s work with 100 of its largest
greenhouse gas emitting customers to support them
as they develop or improve their low-carbon transition
plans by 30 September 2023. To support this target, the
Group developed a transition framework to assess the
transition maturity of in scope customers. In 2021, the
Group evaluated 34 customers using this framework.
• Joining together with a group of international peers –
British bank NatWest Group, Canadian Imperial Bank of
Commerce and Brazil’s Itaú Unibanco to develop a global
carbon platform using distributed ledger technology
known as ‘Project Carbon’. Its purpose is to create a
transparent and liquid marketplace for voluntary carbon
credits. Since the project was publicly announced in
July 2021, it has completed a successful pilot trade;
with further pilot trades to be executed over the
coming months.
• Working with researchers from the Food Agility
Cooperative Research Centre to develop a tool that
catalogues and reviews investment opportunities for
Australian farmers that support them to mitigate
emissions and to adapt to the physical risks of
climate change.
• Supporting ClimateWorks Australia’s development of a
natural capital catalogue which defines what natural
capital metrics can be measured across Australian farms
and how they can be measured. The next phase of
this work in 2022 will involve piloting the metrics on
participating farms.
• Continuing to provide environmental finance (refer
Metrics and targets (see page 47)) to support customers’
low-carbon transition.
Building climate-related capability
To support better understanding and implementation of
climate risk management and identification and execution
of climate-related opportunities, the Group has developed
and rolled out a series of climate-related training
opportunities for colleagues.
In 2021, the Board incorporated two climate change sessions
into its development agenda. Session one covered: (1)
best practice climate risk management in banking; and
(2) the changing regulatory and supervisory response to
climate change risk. Session two covered: (1) evolving
international practice by peer banks in implementing
climate commitments and the recommendations of the
TFCD; (2) key findings from IEA's Net Zero by 2050: A
Roadmap for the Global Energy Sector Report; (3) climate
and environment-related litigation risks ; and (4) the Group’s
Corporate and Institutional Bank’s ‘Bank for Transition’
initiative and the Group’s Project Carbon partnership.
The Group’s 2021 annual Risk Awareness training
included a refreshed climate risk module to help
colleagues understand:
• Highlights from the latest climate science.
• The goals of the Paris Agreement.
• The key elements of the TCFD’s framework for managing
climate risk.
• Actions being taken by the Group to address
climate change.
The training also provided examples of climate-related
physical and transition risks to help colleagues understand
the impacts of climate change on our business, customers
and the communities in which the Group operates.
Additionally, in 2021, the Group engaged Melbourne
Business School (MBS) to help develop and deliver targeted
climate training for colleagues supporting the low-carbon
transition plans of the Group’s biggest greenhouse-gas
emitting customers. The training is expected to help bankers
to identify climate-related risks and understand transition
planning so they can better work with and support
customers. During 2021, 75 relationship management
bankers completed or commenced this training.
Following its release in May 2021, the Group also arranged
for a specific session to be conducted by the International
Energy Agency (IEA) with the Group’s Executive Leadership
Team to discuss the IEA’s Net Zero by 2050: A Roadmap for
the Global Energy Sector Report.
Risk management
ESG risks, including climate change, are identified,
measured, monitored, reported and overseen in accordance
with the Group’s Risk Management Framework (as described
in the Group’s Risk Management Strategy).
During 2021, Sustainability Risk(1), which includes
consideration of climate risk, was added as a material
risk category within the Risk Management Framework. This
change became effective on 1 October 2021. Additionally,
consideration of climate risk is incorporated within the
Group Risk Appetite Statement (RAS). This was reviewed and
updated in 2021 as part of the development of the Group’s
2022 RAS. Credit risk tolerances within the RAS include a
decreasing cap on thermal coal lending to ensure the Group
is on track to reduce thermal coal mining exposures by
50% by 30 September 2026, intended to be effectively zero
by 30 September 2030, apart from residual performance
guarantees to rehabilitate existing coal assets. The oil and
gas review, discussed in the section below, has resulted
in an additional cap which has been included in the RAS
for 2022.
Two key risk committees are involved in the oversight of
climate-related risk:
(1) Sustainability Risk is defined as “the risk that Environmental, Social or Governance (ESG) events or conditions negatively impact the risk and return profile,
value or reputation of the Group or its customers and suppliers.”.
42
National Australia Bank
OTHER MATTERS (CONTINUED)
• The Group Non-Financial Risk Committee – which has
oversight of non-financial risks, including climate-related
risks, and the Group’s environmental performance
• The Group Credit and Market Risk Committee – which
has oversight of financial risk and ESG risks, including
climate-related risks, in the context of the credit risk
portfolio. This includes ESG-related credit policy and risk
settings for climate intensive, low-carbon and climate
sensitive sectors.
Matters are escalated to the Executive Risk & Compliance
Committee, BRCC and the Board as required.
Phased review of carbon intensive, climate sensitive and
low-carbon sectors
The Group's phased review of carbon intensive, climate
sensitive and low-carbon sectors commenced in 2017 and
is ongoing. These reviews consider a range of factors
including: (i) various climate change scenarios for both
transition(1) and physical risk(2); (ii) customer strategies
and plans and their alignment to the Paris Agreement
temperature goals; (iii) industry trends; and (iv) trends in
Group exposures to these sectors. To date, this review
process has led to implementation of the following ESG-
related credit policy and risk settings. The Group will
not finance:
• New thermal coal mining projects or new-to-bank
thermal coal mining customers.
• Oil / tar sands extraction projects.
• Oil and gas projects within or impacting the
Arctic National Wildlife Refuge area and any similar
Antarctic Refuge.
• New, or material expansions of, coal-fired power
generation facilities.
In 2021, the Group completed its risk review of the oil
and gas sector(3). The International Energy Agency’s Net
Zero Emissions (IEA NZE 2050) scenario was used as a
key reference point to guide the Group’s oil and gas
decarbonisation pathway. This scenario outlines a path
to limit temperature rise from pre-industrial levels to 1.5
degrees Celsius by 2050. The Group is using the IEA NZE
2050 scenario because this modelling has international
credibility, is regularly updated and is familiar to customers.
While oil and gas lending represents about 0.3% of
the Group’s Exposure at Default (EAD) at 30 September
2021, it (along with coal) attracts significant attention
from stakeholders focused on climate action because these
fossil fuels make up around 80%(4) of Australia’s current
greenhouse gas emissions. Australia’s current reliance on
fossil fuels needs to be reduced to achieve net zero
emissions by 2050, whilst having regard to national
energy security, Australian jobs and communities. These
considerations are important to the Group, as it supports
customers’ low-carbon transition. Orderly transition is
REPORT OF THE DIRECTORS
critical to limit the disruption to the global economy
and the people and communities who depend on jobs
in transitioning industries. The Group fully appreciates
community needs and expectations in this way and is
particularly mindful of the role that gas will play as a
transition fuel in the medium term.
The oil and gas review resulted in an oil and gas exposure
cap (refer Metrics and targets (see page 47)) and the
following changes to the Group’s ESG-related credit policy
and risk settings – the Group:
• Will only consider directly financing greenfield gas
extraction in Australia where it plays a role in
underpinning national energy security.
• Will not directly finance greenfield gas extraction projects
outside Australia.
• Will continue to support integrated liquefied natural
gas (LNG) in Australia, New Zealand, Papua New Guinea
and selected LNG infrastructure in other regions, with
such exposures to be included within the oil and gas
exposure cap.
• Will not directly finance greenfield oil extraction projects
or onboard new customers with a predominant focus on
oil extraction.
• Will not directly finance ultra-deep water oil and gas
extraction projects.
Additionally, the Group updated its ESG-related credit
risk policy setting related to oil and gas projects within
or impacting the Arctic and Antarctic refuge areas to
the following: the Group will not finance oil and gas
extraction, production or pipeline projects within or impacting
the Arctic National Wildlife Refuge area or any similar
Antarctic Refuge.
Participation in industry climate risk initiatives
Recognising that climate change as an issue cannot be
addressed by the Group alone, in 2021, the Group continued
to collaborate and participate in climate-related risk industry
activities and projects to better understand, and implement,
methodologies to assess, and manage, climate risk. This
included the following:
• Participating in the Australian Prudential Regulatory
Authority (APRA)-led Climate Vulnerability Assessment
– In 2021, the Group commenced work on a Climate
Vulnerability Assessment (CVA), a Council of Financial
Regulators (CFR) initiative led by APRA. The CVA is taking
a scenario analysis approach to assessing the nature
and extent of the financial risks that large banks in
Australia, like NAB, may face due to climate change.
Refer Climate vulnerability assessment (see page 44) for
further details.
(1) For the purpose of this work, transition risk was defined as the impact of low-carbon policy and transition to low-carbon technology on markets
and industries.
(2) For the purpose of this work, physical risk was defined as the risk resulting from climate variability, extreme weather events and longer-term changes in
climate patterns.
(3) For the purposes of this review oil and gas included: oil and gas extraction (upstream); liquefied natural gas (LNG) production (not at refineries –
downstream LNG); and LNG production at wellhead (integrated LNG).
(4) Source: National Greenhouse Gas Inventory Quarterly Update: March 2021, Department of Industry, Science, Energy and Resources chart - Annual emissions
data by sector. Sum of electricity, stationary energy, transport, and fugitive emissions.
Annual Financial Report 2021
43
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
• Principles for Responsible Banking Collective
Commitment to Climate Action (CCCA) – During 2021,
the Group participated in CCCA working groups and
contributed to the development of the CCCA’s Guidelines
for Climate Target Setting for Banks, which were
published in April 2021(1). The CCCA requires the Group
to align its lending portfolio to "reflect and finance
the low-carbon, climate-resilient economy required to
limit global warming to well-below two degrees Celsius,
striving for 1.5 degrees Celsius", from pre-industrial
levels. The Group has submitted its second annual report
on progress to United Nations Environment Programme
Finance Initiative (UNEP FI) as part of meeting its CCCA
obligations. Further detail on how the Group is meeting
its CCCA obligations is available on page 24 of the Group’s
2021 Annual Review.
• Completing work on physical risk assessment with the
Energy Transitions Hub – In 2021, the Group completed
work commenced in 2020 on physical climate risk,
with the Energy Transitions Hub at the University
of Melbourne. The aim of this work was to better
understand the impacts of physical climate risk on
key parts of the Group’s lending portfolio. The work
examined the potential impact of cyclones and extreme
temperatures under three different future warming
scenarios (1.5°C, 2°C, and 3°C). This work has helped
inform the Group’s approach to physical risk assessments
for its lending portfolio and individual customers, as part
of the CVA.
• Participating in UNEP FI’s TCFD Phase 3 pilot project
– In 2021, the Group continued its involvement, with
more than 40 other UNEP FI member banks, in UNEP
FI’s TCFD phase 3 pilot. This pilot aims to help banks
understand and test methodologies and approaches to
climate risk assessment, data selection and to support
implementation of the TCFD recommendations. The
Phase 3 work included a review of climate scenarios,
including Phase 2 scenarios provided by the Network for
Greening the Financial System(2) (NGFS), and testing of
new tools and frameworks produced by UNEP FI and its
partners to help banks better understand climate risks
and prepare TCFD disclosures. Work also included:
- Exploring banks’ climate-risk management practices.
- Reviewing current industry approaches to portfolio
alignment and their application to bank portfolios.
- A piloting exercise for the evaluation of transition risks
and alignment to the goals of the Paris Agreement for
real estate (refer UNEP FI TCFD Phase 3 – Evaluating real
estate transition risks (see page 45) for further details).
- Understanding the key assumptions and limitations of
current climate models for assessing sectoral and regional
risks and perspectives on the major risk drivers.
- Understanding the universe of data and tool providers
to help banks identify where key gaps exist in the
landscape. Further details of the Phase 1, 2 and 3
project outputs can be found at: https://www.unepfi.org/
banking/tcfd/.
• Climate Measurement Standards Initiative (CMSI) –
In 2021, the CMSI Secretariat engaged with member
financial organisations and other participants to develop
a program of work for CMSI Phase 2, which will
commence late in the 2021 calendar year. The Group
has supported this cross-sector industry initiative since it
formed in 2020. The CMSI includes representatives from
across the banking, insurance and investment sectors
alongside pre-eminent Australian climate scientists
working together under the auspices of the National
Environmental Science Program’s Earth Systems and
Climate Change (ESCC) Hub, professional services firms
and finance sector industry bodies. The objective of the
CMSI is to provide opensource voluntary guidance(3) on
climate risk.
• Resilience Investment Vehicle (RIV) – In 2021, the
Group continued working with Insurance Australia Group,
the Commonwealth Scientific and Industrial Research
Organisation (CSIRO) and a number of other government
agencies, industry groups and not-for-profit organisations
on a RIV(4). The focus of 2021 was supporting the
development of the Bushfire Building Council of
Australia’s Bushfire Resilience Star Rating tool.
• The Australian Industry Energy Transitions Initiative
(Australian Industry ETI) – The Australian Industry ETI
aims to accelerate action towards achieving net zero
emissions in hard-to-abate supply chains by 2050 while
managing the transition to thrive in a decarbonised
global economy. The Group continued to support this
collaborative industry initiative led by ClimateWorks
Australia and Climate-KIC Australia. The Australian
Industry ETI released a technical report(5) in 2021 outlining
the energy transition needs to help heavy industry (Steel;
Aluminium; LNG; Other metals (copper, lithium, nickel);
and Chemicals (fertilisers and explosives) to reach net
zero by 2050.
Climate vulnerability assessment
The Group is currently participating in an APRA-led CVA.
The three key objectives of the CVA are to assess potential
financial exposure to climate risk, to understand how banks
may adjust business models and implement management
actions in response to different scenarios, and to foster
improvement in climate risk management capabilities. The
CVA is consistent with similar exercises being undertaken by
regulators and banks in a number of other jurisdictions.
The CVA uses two climate scenarios as the foundation for
assessing potential climate risk impacts described below.
(1) A copy of the Guidelines for Climate Target setting for Banks is available here: unepfi.org/wordpress/wp-content/uploads/2021/04/UNEP-FI-Guidelines-for-
Climate-Change-Target-Setting.pdf
(2) https://www.ngfs.net/
(3) Two key reports were published in 2020 – a finance report and a science report – both provide technical guidance on how to assess and understand physical
climate risk. These reports are available at: https://www.cmsi.org.au/reports
(4) A RIV is a fund to direct capital (public and private) to finance new and/or adapt existing infrastructure to build resilience, reduce disaster risk and derive a
financial return for investors.
(5) australian-industry-energy-transitions-initiative-technical-report.pdf (arena.gov.au)
44
National Australia Bank
OTHER MATTERS (CONTINUED)
These scenarios set out different potential pathways for
decarbonisation of the economy and changes in the physical
climate between 2020 and 2050. They are aligned to the
internationally accepted scenarios developed by the NGFS.
Scenario 1 – a Disorderly Transition – involves a delayed but
rapid reduction in emissions by 2050. This scenario explores
a future with higher transition risks, arising from a delayed
transition to a lower emissions global economy. This NGFS
scenario assumes:
• Current climate policies apply until 2030; and
• Rapid reduction in global GHG emissions after 2030,
consistent with limiting global warming to less than 2oC.
Scenario 2 – a Hot House World – is largely based on a
continuation of current global policies and forecasts which
result in increasing global emissions and temperatures. This
scenario explores a future with higher physical risks, arising
from a continued increase in global GHG emissions. The
NGFS scenario assumes that only currently implemented
policies are preserved.
Figure 1: Emissions trajectories to 2050 for the two
NGFS scenarios(1)
Scenario 1 uses Representative Concentration Pathway(2)
(RCP) 2.6 and Shared Socioeconomic Pathway 2(3)(SSP2).
Scenario 2 uses RCP 4.5 for Transition risk and RCP 8.5 for
Physical risk, alongside SSP2.
The CVA involves two key activities – (i) counterparty
assessment for a small group of 25 current and material
non-finance sector customers; and (ii) climate stress testing
at a portfolio level for mortgages and business lending. It
also involves a data quality assessment of the data used in
these activities. The scenarios are being used to examine
climate-related physical and transition impacts over a 30-
year period from 2020 through to 2050 at 5-year intervals.
APRA has selected credit risk as the primary lens through
which the quantitative outputs of the CVA are to be viewed
as credit risk is considered to be the most readily measured
REPORT OF THE DIRECTORS
and observed transmission channel of climate risk to the
financial risk of banks.
The counterparty assessments involve undertaking an
analysis of customer level impacts (qualitative and
quantitative) of climate risks from the two key scenarios,
particularly using key scenario variables that can be
translated into financial analysis of counterparties. The
key sectors covered by the counterparty analysis include
customers from both emissions intensive (e.g. power
generation, mining, heavy industry, transport) and climate
sensitive (e.g. agriculture) sectors. APRA’s objective for
these assessments is to “provide insights into current
bank approaches to understanding the financial risks of
climate change in their counterparties, the data available
(or otherwise) to support this understanding, the viability
of carrying out multi-sector counterparty analysis, as well as
providing a more specific assessment of a select number of
counterparties’ exposure to climate risks”(4).
The portfolio-level climate stress testing is examining the
physical and transitions risks impacts on: (i) Australian-
based residential mortgage exposures; and (ii) Australian-
based business exposures. The analysis for business
exposures is separated into two classifications, agriculture-
focused lending, and non-agriculture focused lending and
will involve different physical risk assessment approaches
reflecting the differing risk profiles and impacts.
The data quality assessment is required to capture learnings
which will help better understand how to manage the
challenge of limited availability of current data to support
this type of analysis. This is a recognised issue both here in
Australia and globally.
The Group will submit its results from the CVA to APRA in
2022. APRA has stated that it intends to publish aggregated
results. Individual banks results, including counterparty
assessments, will not be published. APRA also intends
to compare and contrast findings from the CVA with
international peers that have similar timelines for climate-
related stress testing and assessments.
To date, the Group’s work on the CVA, including client
engagement to assist the counterparty analysis, has been
insightful. It is challenging to undertake financial modelling
30 years into the future given the uncertainties in the
climate modelling.
The CVA exercise is involving collaboration across multiple
teams (including representatives from stress testing, credit
and credit modelling, client facing teams and ESG and
industry subject matter experts).
UNEP FI TCFD Phase 3 – Evaluating real estate
transition risks
The Group requires access to industry-specific tools that
are science-based, regionally relevant and user-friendly to
monitor the decarbonisation of the Group’s commercial real
(1) Net GHG emissions trajectories from NGFS Phase II GCAM 5.3 model, Delayed Transition Scenario and Current Policies Scenario.
(2) Representative Concentration Pathways (RCP) describe different trajectories for future greenhouse gas concentrations as a result of human activities.
(3) Shared Socioeconomic Pathways (SSPs) describe potential future socioeconomic changes.
(4) Description is taken from APRA’s Climate Vulnerability Assessment Information Paper: 3 September 2021. See: https://www.apra.gov.au/climate-vulnerability-
assessment.
Annual Financial Report 2021
45
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
estate (CRE) portfolio towards its goal of net zero emissions
by 2050.
In collaboration with the Carbon Risk Real Estate Monitor(1)
(CRREM) project, the Group piloted the use of the CRREM
tool which models and evaluates transition risks and
alignment with the goals of the Paris Agreement(2) for
specific real estate assets and portfolios.
The Group selected 38 office properties from its CRE
customers’ portfolios where GHG emissions data was
publicly available through NABERS(3). Properties were
selected from five states to provide geographic diversity in
the data set.
The tool outputs provided a view of the degree to which
the overall CRE sample portfolio and each building within
the portfolio had energy and GHG emissions performance
aligned to a 1.5-degree decarbonisation pathway through
to 2050. It also models the impacts of potential building
retrofits that might be undertaken by customers to improve
the performance of each asset. The Group tested the use
of the tool to help deliver on the Group’s CCCA obligations.
The tool also provides a range of resources to help align
portfolio reporting and target setting for commercial real
estate portfolios to the TCFD requirements.
The pilot highlighted a key challenge of data capture
across the CRE portfolio – both in terms of quality and
coverage. Additional data granularity for each building
would also improve the accuracy of future modelling.
This additional data includes a breakdown of energy
consumption by energy type, emissions from additional
sources such as refrigerant leakage and information on
percentage building occupancy.
Understanding financed emissions
The Group is connected to all parts of the economy through
its lending and other banking activities and considers
it has an important role to play in financing the low-
carbon transition. In order to understand the low-carbon
transition there is a need to calculate a baseline estimate of
attributable financed emissions at a portfolio and sectoral
level as this forms the basis of monitoring.
In 2020, the Group undertook an initial estimate of
attributable financed emissions which included five key
sectors of the Group’s Australian lending portfolio
(residential mortgages, agriculture, commercial real
estate (office and retail)(4), power generation (covers
power generation, gentailers, electricity transmission and
distribution) and resources (including coal, oil & gas)
which resulted in estimated attributable financed emissions
of 18,437,681 tCO2-e. In 2021, the Group expanded this
estimate of baseline attributable financed emissions to
include an additional three portfolio sectors – transport
(covers road freight, air, rail and international sea transport);
heavy manufacturing (covers cement, lime, plaster, concrete,
bricks, iron and steel and aluminium) and SME (Commercial
and Services) which resulted in total estimated attributable
financed emissions of 10,885,840 tCO2-e. The reduction in
estimated attributable financed emissions between 2020
and 2021, is primarily due to methodological change
in the calculation of attributable financed emissions for
residential mortgages to align to the residential mortgages
methodology published by the Partnership for Carbon
Accounting Financials.
The portfolio and sectoral level estimated attributable
emissions baselines will be used to develop decarbonisation
pathways and targets against which the Group can
monitor: (i) alignment of its portfolio over time to its
net zero emissions goal; and, (ii) at a sectoral level –
to assist monitoring sectoral decarbonisation in line with
CCCA obligations.
This quantitative estimate of attributable financed emissions
is currently limited to the Group’s Australian customers and
is based on:
(i) reported emissions data – Corporate & Institutional
exposures to commercial real estate (office and retail),
power generation (covers power generation, gentailers,
electricity transmission and distribution), transport (covers
road freight, air, rail and international sea transport),
heavy manufacturing (covers cement, lime, plaster, concrete,
bricks, iron and steel and aluminium), resources (including
coal, oil & gas). Emissions estimates for these sectors
have been calculated based on bottom up reported and
verified emissions data from customers where available. This
means coverage across these sectors varies and is less than
100%; and
(ii) estimated emissions data – residential mortgages,
SME (Commercial and Services) and agriculture. Emissions
estimates for these sectors have 100% coverage
because they are based on a sector-wide intensity
methodology. Therefore, these sectors currently make up a
disproportionate amount of the total estimated attributable
emissions shown in Table 2.
A more detailed description of the methodology and data
quality assessment used for this estimate is available on our
website at: https://www.nab.com.au/about-us/social-impact/
environment/climate-change.
Calculating estimated attributable Scope 3 emissions
associated with the Group’s financing activities has helped
build the Group’s understanding of the relative carbon
intensity of key sectors in its Australian lending portfolio.
The aggregated estimate of attributable emissions for the
eight selected sectors of the Group’s Australian lending
portfolio was 10,885,840 tCO2-e and represents a coverage
of 50.7% of Group EAD(5) as at 30 June 2021(6). This represents
(1) http://www.crrem.org
(2) The CRREM tool uses a Friends of the Earth 1.5°C pathway and International Energy Agency 2°C Scenario pathway for alignment purposes.
(3) NABERS (the National Australian Built Environment Rating System) provides a comparable sustainability measurement for building performance, including
energy and GHG emissions, across a range of building types in the building sector. NABERS is a national initiative managed by the NSW Department of
Planning, Industry and Environment on behalf of the Federal, State and Territory governments of Australia.
(4) Corporate & Institutional exposures to commercial real estate (office and retail).
(5) An estimate of the credit exposure amount outstanding if an obligor defaults. EAD is presented net of eligible financial collateral.
(6) The attributable emissions data was calculated as at 30 June 2021 to align to the end of the Australian financial year to match company valuations.
46
National Australia Bank
OTHER MATTERS (CONTINUED)
an average intensity of 24.1 tonnes of GHG emissions
emitted for every $1 million AUD financed across the eight
portfolio sectors included. The data in Table 2 provides
the percentage coverage, estimated attributable absolute
emissions and intensities for each of the eight sectors.
Table 2: Estimated percentage coverage, attributable absolute
emissions and intensities per sector
% of Sector
Absolute
EAD
covered
22%
69%
22%
9%
emissions
(tCO2-e)
2,036,484
185,727
536,921
101,347
100%
3,929,316
100%
100%
990,005
3,072,195
19%
33,844
Emissions
intensity
(tCO2-e /
AUD$M
EAD)
1,018
267
261
135
115
24
8
6
Sector
Power generation(1)
Heavy manufacturing(2)
Resources(3)
Transport(4)
Agriculture
SME (Commercial and
Services)(5)
Residential mortgages
Commercial real estate
(office and retail)
(1) Power generation (covers power generation, gentailers, electricity
transmission and distribution).
(2) Heavy manufacturing (covers cement, lime, plaster, concrete, bricks,
iron and steel and aluminium).
(3) Resources (including coal, oil & gas).
(4) Transport (covers road freight, air, rail, and international sea transport).
(5) Based on Australian Energy Statistics data for Commercial and Services
sectors and aligned to 1993 ANZSIC classifications F, G, H, J, K, L, M, N, O,
P and Q.
Importantly, the Group recognises that each individual
portfolio sector is likely to follow a different low-carbon
transition pathway, as they are each dependent on the
different technology opportunities, to both reduce and
remove or capture carbon emissions. To complement this
attributable financed emissions and low-carbon scenario
work, the Group has developed a transition framework
and built internal capability. In developing the Group’s
transition framework, the Group conducted a review of
a range of frameworks, including the United Nations
Principles for Responsible Investment Transition Pathways
Initiative and the Cambridge Institute for Sustainable
Leadership’s ClimateWise Transition Risk framework. The
Group’s transition framework is being used to evaluate the
transition maturity of companies. The Group’s next step
is to publish sector-specific trajectories and targets in its
2022 annual reporting suite for the Australian portfolio
sectors covered.
Metrics and targets
Supporting the low-carbon transition
The Group’s assessment of climate change-related risks
REPORT OF THE DIRECTORS
and opportunities has led to two key targets associated
with: (1) decarbonisation of the Group's operations; and (2)
supporting customers through the low-carbon transition.
The Group’s progress on these targets includes:
• Decarbonising operations - Delivering on the Group's
RE100(1) target to source 100% of its electricity
consumption from renewable sources by 30 June 2025,
using on-site solar generation at the Group’s main data
centre, power purchase agreements for Victorian and
South Australian retail sites and contracts for renewable
energy certificates. These renewable energy purchasing
arrangements are expected to increase the Group’s
proportion of renewable electricity consumed to ~65%
by 30 June 2023. The proportion of electricity sourced
which was renewable electricity increased from 7% in the
2020 environmental reporting year to 31.4% in the 2021
environmental reporting year.
• Supporting customers - Reaching a total(2) of: (i)
$31.7 billion against the Group's target to provide
$35 billion in finance to support green infrastructure,
capital markets and asset finance by 30 September
2025; and (ii) $24.6 billion against the Group's target
to provide $35 billion in new mortgage lending flow
for 6-Star residential housing in Australia (new dwellings
and significant renovations) by 30 September 2025. This
represents combined progress of $56.3 billion towards
the Group’s $70 billion environmental financing target by
30 September 2025.
Tracking the Group's portfolio alignment
The Group is monitoring its exposure to carbon
intensive, climate sensitive and low-carbon sectors to track
decarbonisation in its lending portfolio in line with its goal
to align its lending portfolio to net zero emissions by 2050.
Some of this data is reported to investors in half year and
full year financial results presentations, as well as in the
Group's 2021 Annual Review.
The Group has two coal-related portfolio
transition commitments:
• Supporting current coal-fired power generation
customers implementing their transition pathways to be
aligned with the Paris Agreement goal of 45% reduction
in emissions by 2030 and net zero emissions by 2050.
• Thermal coal mining exposures capped at 30 September
2019 levels and reducing by 50% by 30 September
2026, intended to be effectively zero by 30 September
2030, apart from residual performance guarantees to
rehabilitate existing coal assets.
In 2021, the Group decreased its thermal coal mining
exposure by 23.7%.
In 2021, the Group completed its risk review of the oil
and gas sector, as part of its ongoing, phased review of
carbon-intensive, climate sensitive and low-carbon sectors.
An outcome of this review was a decision to align to the IEA
(1) RE100 is a global corporate leadership initiative bringing together businesses committed to 100% renewable electricity.
(2) Represented as a cumulative amount of new environmental finance since 1 October 2015. Refer to the Group's 2021 Sustainability Data Pack for a further
breakdown of this number and reference to how the environmental financing commitment is calculated.
Annual Financial Report 2021
47
Modern slavery
The Group is subject to modern slavery Acts in Australia
and the United Kingdom. The Group has prepared a
Modern Slavery Act statement which sets out actions taken
by the Group during 2021 to ensure that its business
operations, and its supply chain, are free from slavery
and human trafficking. This statement is available online
at www.nab.com.au/modernslaverystatement in accordance
with both the UK Modern Slavery Act and the Modern Slavery
Act 2018 (Cth).
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
NZE 2050 scenario by capping the Group’s oil and gas EAD at
USD2.4 billion(1), and to reducing the Group’s exposure from
2026 through to 2050. This measured re-orientation of client
activity will ensure the Group can continue to support clients
actively working on their transition strategies and plans.
As at 30 September 2021, the Group's exposures (as EAD)
to key low-carbon and carbon intensive sub-sectors were
as follows:
• Renewable energy represented 71.4% of the Group’s
power generation portfolio (down marginally from 71.5%
at 30 September 2020)
• Coal-fired power generation represented 1.2% of the
Group’s power generation portfolio (up marginally from
1.1% at 30 September 2020)
• Thermal coal mining exposure decreased from
$0.67 billion at 30 September 2020 to $0.52 billion at
30 September 2021(2)
• Oil and gas exposure increased from $2.74 billion at
30 September 2020 to $2.9 billion at 30 September 2021.
In 2022, the Group will separately report rehabilitation
performance guarantees within its thermal coal exposures.
Operational decarbonisation
In the 2021 environmental reporting year, the Group’s
performance against its energy and science-based emissions
reduction targets was as follows:
• A 32% reduction in energy use against a 30 June 2019
baseline (against a target of a 30% reduction in energy
use by 30 June 2025).
• A 55% reduction in the Scope 1 and 2 GHG emissions
included in its science-based target as at 30 June 2021
against a 30 June 2015 baseline (against a target of a 51%
reduction by 30 June 2025).
The GHG emissions reductions in environmental reporting
year 2021 have been greater than expected partly due to
the impacts of COVID-19 which have restricted business
activities. This was despite the Group taking into account the
emissions generated by employees working from home. It
is expected that some of these emission reductions will not
be permanent when the Group’s normal business activities
resume. However, the Group’s energy efficiency initiatives,
including the move into new more energy efficient buildings
and the inclusion of electric vehicles in our car fleets, are
expected to result in permanent GHG emissions reductions.
Further information about the Group’s environmental
performance, climate change governance, strategy,
risk management and metrics, commitments, goals,
operational greenhouse reduction and resource efficiency
targets and management approach can be found
in the Group’s 2021 Annual Review available online
at www.nab.com.au/annualreports. Detailed GHG and
environmental performance data is also available in the
Group's 2021 Sustainability Data Pack.
(1) The cap of USD2.4 billion was determined giving consideration to the three year average exposure up to 30 September 2021 due to COVID-19 impacts. Use
of USD for the purposes of this cap is to account for currency movement because the majority of the portfolio is USD denominated. From 2022, oil and gas
Exposure at Default will be reported in USD.
(2) ~20% of thermal coal exposures is exposure to rehabilitation guarantees.
48
National Australia Bank
REPORT OF THE DIRECTORS
OTHER MATTERS (CONTINUED)
External auditor
Ernst & Young (EY) were appointed as the Group external auditor on 31 January 2005 and have provided the audit opinion
on the Financial Report for 17 years. Ms Sarah Lowe was appointed on 15 December 2017 and as at 30 September 2021 has
completed four years as the Group's lead auditor. There is no person who has acted as an officer of the Group during the 2021
financial year who has previously been a partner at EY when that firm conducted the Group's audit.
Audit-related and taxation-related services
EY provided audit-related and taxation-related services to the Group during 2021. The fees paid or due and payable to EY for
these services during the year to 30 September 2021 are as follows:
Total Audit services
Comfort letters
Regulatory
Non-regulatory
Total Audit-related services
Taxation-related services
Non-audit services
Total audit services, audit-related, taxation-related and non-audit services
Services to non-consolidated trusts of which a Group entity is a trustee, manager or responsible entity and non-
consolidated Group superannuation funds
Total remuneration paid to the external auditor
ASIC disclosures
Group
2021
$’000
15,648
516
5,145
261
5,922
169
-
21,739
1,134
22,873
The Joint Parliamentary Committee inquiry into the Regulation of Auditing in Australia highlighted the disparity and lack of
comparability of the external auditor fee remuneration disclosure for ASX Listed Corporates. ASIC are proposing four categories
to define external auditor services as the basis of the proposed future disclosure requirements as set out below:
Consolidated and non-consolidated entities
Audit services for the statutory financial report of the parent and any of its' controlled entities
Assurance services that are required by legislation to be provided by the external auditor
Other assurance and agreed-upon-procedures under other legislation or contractual arrangements
Comfort letters
Regulatory
Non-regulatory
Other services
Total consolidated remuneration paid to the external auditor
Other assurance and agreed-upon-procedures under other legislation or contractual arrangements
Non-consolidated
Total remuneration paid to the external auditor
Group
2021
$'000
15,648
213
516
4,932
261
169
21,739
1,134
22,873
In accordance with advice received from the Board Audit Committee, the directors are satisfied that the provision of audit-
related and taxation-related services during the year to 30 September 2021 by EY is compatible with the general standard of
independence for auditors imposed by the Corporations Act 2001 (Cth). The directors are satisfied because the Board Audit
Committee or its delegate has assessed each service, having regard to auditor independence requirements of applicable laws,
rules and regulations, and concluded that the provision of each service or type of service would not impair the independence
of EY.
A description of the Board Audit Committee’s pre-approval policies and procedures is set out in the NAB 2021 Corporate
Governance Statement which is available online at www.nab.com.au/about-us/corporate-governance. Details of the services
provided by EY to the Group during 2021 and the fees paid or due and payable for those services are set out in Note
33 Remuneration of external auditor of the financial statements. A copy of EY’s independence declaration is set out on the
following page.
Annual Financial Report 2021
49
REPORT OF THE DIRECTORS
AUDITOR’S INDEPENDENCE DECLARATION
50
National Australia Bank
Ernst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auAuditor’s Independence Declaration to the Directors of NationalAustralia Bank LimitedAs lead auditor for the audit of the financial report of National Australia Bank Limited for the financialyear ended 30 September 2021, I declare to the best of my knowledge and belief, there have been:a)no contraventions of the auditor independence requirements of theCorporations Act 2001inrelation to the audit;b)no contraventions of any applicable code of professional conduct in relation to the audit; andc)no non-audit services provided that contravene any applicable code of professional conduct inrelation to the audit.This declaration is in respect of National Australia Bank Limited and the entities it controlled during thefinancial year.Ernst & YoungSarah LowePartner9 November 2021A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation DIRECTORS’ SIGNATURES
This report of directors is signed in accordance with a resolution of the directors:
REPORT OF THE DIRECTORS
Philip Chronican
Chair
9 November 2021
Ross McEwan
Group Chief Executive Officer
9 November 2021
Annual Financial Report 2021
51
REPORT OF THE DIRECTORS
REMUNERATION REPORT
Letter from the People & Remuneration Committee Chair, Anne Loveridge
Dear Fellow Shareholders,
On behalf of the Board, I am pleased to present the
Remuneration report for 2021.
This year has seen the disciplined execution of the
Group's strategy, to serve customers well and help our
communities prosper. The Group CEO and Group Executives
have maintained their strong leadership addressing the
challenges arising from the ongoing impacts of COVID-19.
As a major Australian bank, the economic impact of
COVID-19 to customers and communities has been at
the forefront of the Group's actions. NAB has remained
open for business, serving customers as they navigated
those impacts.
Colleagues have worked tirelessly for customers, including
those in the Group's more than 740 branches and business
banking centres, and extended customer support network.
The Group CEO and Group Executives led the focus on
the wellbeing of our colleagues, providing support and
flexibility through remote and flexible work arrangements,
safe return to office and active mental health support. The
Board is pleased to report colleague engagement increased
by one point to 77 from July 2020 to July 2021(1). For 2021,
this outcome was in the top quartile.
Performance in 2021
Progress on strategic objectives
The refreshed Group strategy and operating model
established in 2020 is delivering results for customers and
shareholders. Progress has been made against strategic
objectives through disciplined execution, focusing on doing
the basics well and supporting the needs of customers
and colleagues.
The Group CEO and Group Executives have established
momentum in simplifying and digitising the business,
delivering faster, more seamless banking experiences.
In 2021, the team took decisive action to reshape
the business portfolio, completing the sales of MLC
Wealth and broker aggregation businesses, acquiring the
digital bank 86 400 and entering into an agreement to
acquire Citigroup’s Australian consumer business (subject to
regulatory approvals).
Momentum has been established to remove customer pain
points, introduce new ways of working and strengthen the
Group's position in digital and data services. In 2021, the
Group has prioritised investment into strategic initiatives
while maintaining cost discipline to deliver a simpler, more
streamlined bank that benefits customers and colleagues.
While there is more to be achieved in 2022 and beyond,
the Board is pleased with the results and momentum
delivered through 2021 which have translated into improved
shareholder returns. The Strategic Highlights section in the
Remuneration report provides further information.
Delivery against our business plan
The Board established 2021 Group Performance Indicators
(GPI) to drive the refreshed strategy and support sustainable
returns for shareholders and positive customer outcomes.
The GPI are a key input to performance and reward
processes that recognise the importance of both financial
and non-financial performance.
Financial performance was pleasing in what we expected
would be a difficult year with low interest rates and the
uncertainty of COVID-19. This was led by overall system
credit growth accelerating in BNZ, and annual total system
growth strengthening in Australia.
The results reflect business momentum, strong credit
quality, balance sheet strength, and disciplined investment
in strategic initiatives while maintaining cost discipline. The
Group exceeded plan for both cash earnings and Return on
Total Allocated Equity (ROTAE). This business performance
has enabled the Group to support the economy and
communities through COVID-19 and deliver improving
returns to our shareholders through a total dividend for
the year ended 30 September 2021 of 127 cents per share,
fully franked.
Improving customer experience
Strategic NPS(2) improved by 5 points maintaining our
position as #1 of the major domestic banks (as at
August 2021). While below target, progress is being made
including the digitisation of products, improved self-service,
a reduction in system outages, improved resolution of
complaints and easier and faster approval processes. The
Group has added capacity and flexibility through the
addition of 2,800 frontline bankers this year to help
them serve our customers and providing an accredited
qualification for all colleagues.
Enhanced control environment
The Group CEO and Group Executives continued to drive
sustainable change by addressing the underlying issues
from the Royal Commission and NAB's self-assessment
into governance, accountability and culture. Improvements
in processes to remediate customers fairly, consistently,
and more quickly have been implemented. A significant
uplift has been achieved in management of the Group's
obligations, risk and the controls environment. Compliance
and Operational Risk profiles have improved due to better
obligation management practices and improved business
ownership of the control environment achieving NAB’s
Intelligent Control Score (ICS) target.
(1) 2021 Heartbeat Survey conducted by Glint, score based on July 2021 survey. Includes Australia and New Zealand colleagues, excludes external contractors,
consultants and temporary colleagues.
(2) Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Satmetrix Systems
and Fred Reichheld. Strategic NPS: Sourced from DBM Atlas, measured on a six month rolling average. The overall Strategic NPS result combines Consumer
and Business segment within Australia, using a weighting of 50% for each segment.
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REMUNERATION REPORT (CONTINUED)
The Group will continue to invest in cyber and financial
crime prevention, including progressing the AUSTRAC
enforcement investigation where the outcome is not yet
known. No adjustment to 2021 remuneration outcomes
were made specifically in connection with the AUSTRAC
matter. Section 3.2 of the Remuneration report provides
further information on our approach to risk and
remuneration consequence.
Remuneration in 2021
The executive remuneration framework delivers an
appropriate portion of remuneration linked to performance
outcomes. Under the Annual Variable Reward (VR) plan,
performance is assessed by the People & Remuneration
Committee and the Board, informed by the measures in the
GPI, together with a qualitative assessment of other relevant
factors, and individual performance.
The Board spent a significant amount of time balancing
customer, community, and shareholder interests, while at
the same time appropriately recognising the achievements
of the Group CEO and Group Executives.
The Board considered performance in 2021 demonstrated
a momentum shift in delivery against the Group's strategy
and business plan. The Board is confident the Group is well
positioned to support economic recovery in Australia and
New Zealand in 2022.
Based on the performance over 2021, the Group CEO’s
Annual VR outcome is 121% of fixed remuneration (81% of
the maximum opportunity). Annual VR outcomes for Group
Executives ranged between 105% to 149% of Annual VR
target (70% and 99% of the maximum opportunity). Details
of all remuneration matters for the Group CEO and Group
Executives are provided in the Remuneration report.
REPORT OF THE DIRECTORS
Remuneration in 2022
The Board is confident that our remuneration framework
is effective in rewarding sustainable performance and
the execution of the Group's strategy. The Board will
consider enhancements over the coming year to ensure the
remuneration framework continues to support the delivery
of the Group's strategy and meet regulatory requirements.
We will continue to balance these requirements with an
effective remuneration framework that is competitive and
appropriately rewards our Group CEO and Group Executives.
On behalf of your Board’s People & Remuneration
Committee I would like to invite you to read the full
Remuneration report in detail which will be presented for
adoption at NAB's 2021 Annual General Meeting.
Anne Loveridge
People & Remuneration Committee Chair
9 November 2021
Contents
Section 1 - Summary
54
Section 2 - Our 2021 executive variable remuneration plans 60
Section 3 - Governance, risk and consequence
Section 4 - Remuneration outcomes
Section 5 - Executive statutory remuneration disclosures
Section 6 - Non-executive director remuneration
Section 7 - Loans, other transactions and other interests
64
67
74
80
83
Annual Financial Report 2021
53
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Section 1 - Summary
1.1 Strategic context for remuneration at NAB
Our Group and colleague strategies
Our Group strategy focuses on the 'Twin Peaks' of customers and colleagues.
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National Australia Bank
REMUNERATION REPORT (CONTINUED)
Our remuneration principles and 2021 executive remuneration framework
Our remuneration principles have been created to deliver on this ambition.
REPORT OF THE DIRECTORS
These principles have been used to develop our executive remuneration framework. Its purpose is to motivate and reward our
most senior executives for delivery of our strategy.
Annual Financial Report 2021
55
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
1.2 Key remuneration outcomes for 2021
Fixed
From 1 October 2020, the Group CEO returned to receiving his full Fixed Remuneration (FR), as determined on appointment in
remuneration
December 2019. The Group CEO volunteered to reduce his FR by 20% for the period 1 April 2020 to 30 September 2020 to align
with shareholder and customer impacts of COVID-19. No increase in FR was provided in 2021.
The Board determined a FR increase from $1,000,000 to $1,100,000 during 2021 for Shaun Dooley, Group Chief Risk Officer. The
increase reflects the responsibilities of the position and appropriate external peer parity.
2021
Individual Annual Variable Reward (VR) outcomes were determined by the Board based upon the individual's target Annual VR
performance
opportunity, assessment of the GPI, qualitative performance factors and individual performance.
and Annual
Variable
Reward
outcomes
The Board determined a GPI outcome of 105% with performance above expectations across many of the financial and
non-financial measures. The qualitative and individual executive performance assessment reflected the execution of strategic
initiatives and the business momentum achieved in a challenging environment. Further details on the Annual VR outcomes are
provided in Section 4.
The 2021 Annual VR outcomes were:
Position
Group CEO
Group Executives
Individual Annual VR outcomes
% of FR
121%
105% - 149%
% of Maximum Opportunity
81%
70% - 99%
The four year overview of reward outcomes under the Annual VR is:
Position
Group CEO
Group Executives
% of Annual VR maximum opportunity(1)
2021
81%
70% - 99%
2020
0%
0%
2019
0%
0%
2018
12%
0% - 70%
(1) The maximum opportunity was reduced in 2019 for the Group CEO and Group Executives when the current Annual VR and LTVR replaced the single VR plan in place for 2018.
For colleagues who participate in the Group VR Plan, the Board determined annual variable reward funding of 105% of target
(see Section 4.1).
Long-Term
The Board approves Long-Term Variable Reward (LTVR) awards annually to encourage long-term decision making critical to
Variable
Reward
outcomes
creating long-term value for shareholders. The quantum of the award and eligibility to participate is determined by the Board
independently from Annual VR decisions.
2021 LTVR award
• For the Group CEO, a 2021 LTVR award of 118,010 performance rights having a face value of 130% of his FR is proposed
to be granted in February 2022. The grant of this award is subject to shareholder approval at NAB's 2021 Annual
General Meeting.
• The Board assessed all Group Executives as meeting the individual performance and conduct requirements for 2021 and
determined that each be awarded a 2021 LTVR with a face value of 130% of their FR. LTVR awards will be granted in February
2022 (see Section 2.2).
2020 LTVR eligibility and award
Prior to granting the 2020 LTVR, the Board determined that all Group Executives who commenced in their Group Executive
role prior to the LTVR allocation date would participate in the award, supporting the long-term aspect of the award with
performance measured over four years to 15 November 2024.
The Board noted that in the previous period, Susan Ferrier, Group Executive, People & Culture commenced in her current
role on 1 October 2019, but did not participate in the 2019 LTVR granted after her commencement. Consistent with our
remuneration principles of being focused on driving long-term performance and the approach taken for the 2020 LTVR award,
the Board approved a long-term share award for Susan, in the absence of her being awarded the 2019 LTVR grant. The award of
11,150 shares granted in February 2021, is restricted until November 2023 (aligned with the equivalent 2019 LTVR performance
period) and subject to minimum performance and service conditions.
The Board also confirmed that the quantum of the 2020 LTVR would be set at 130% of FR for the Group CEO and Group
Executives. A standardised level of participation better reflects the responsibilities of the Group Executives for delivering the
business plan and Group strategy over the 2020 LTVR performance periods and appropriate pay relativities.
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National Australia Bank
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Long-Term
2016 Long-Term Incentive plan outcome
Variable
Reward
outcomes
(Continued)
The performance conditions for the Long-Term Incentive (LTI) award granted in December 2016 were tested in November 2020.
The 2016 LTI award was granted subject to two performance hurdles (1) Return on Equity and (2) Relative TSR, each measured
over a four-year performance period. The Board also assessed qualitative performance factors and individual performance prior
to determining that 55.8% of the total performance rights should vest. The following table provides a four-year overview of
Executive vesting outcomes from LTI awards. Further details on LTI awards are provided in Section 4.4.
Plan Terms
Performance period
Date of testing
2016
4 years
2015
4 years
2014
5 years
2013
5 years
November 2020
November 2019
November 2019
November 2018
Number of current Group
3
Executives who held the award
% of award vested
% of award lapsed
55.8%
44.2%
2
37.6%
62.4%
4
34.5%
65.5%
4
0%
100%
Non-
executive
directors
• From 1 October 2020, the Board Chair and non-executive directors returned to receiving full base fees. This followed the
20% reduction in base fees applied for the period 1 April 2020 to 30 September 2020 to align with shareholder and
customer impacts of COVID-19.
• No increase to Board fees were applied during 2021 (see Section 6.1).
1.3 Group Executive appointment
The following table outlines the remuneration arrangements related to the Group Executive who commenced as KMP
during 2021.
Group Executive
Remuneration arrangement
Les Matheson,
• Commenced employment on 11 January 2021.
Group Chief
• Annual FR of $1.05 million with Annual VR target of 100% of FR (maximum of 150% of FR) and an LTVR maximum
Operating Officer
opportunity of 130% of FR.
• A 2020 LTVR award of 75,875 performance rights, having a face value equivalent to 130% of his FR, was granted in
February 2021.
• Relocation benefits provided to support moving to Australia.
Annual Financial Report 2021
57
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
1.4 Looking ahead to 2022
The Board continues to monitor the effectiveness of the executive remuneration framework and policy. The Board will
determine any changes to the framework required to address regulatory requirements while remaining competitive to attract
and retain the calibre of executives required to deliver on the Group's strategy during 2022.
The Board has considered current remuneration requirements based upon our existing executive remuneration framework and
determined a number of changes for 2022 as summarised below.
Feature
Fixed
Description
The Board considers increases to FR upon appointment or promotion to a new role, where there is a significant increase
Remuneration
in accountabilities or where it is required as a result of regulatory expectations for the composition of reward. The Board
determined FR increases for 2022 for:
• Shaun Dooley, Group Chief Risk Officer from $1,100,000 to $1,200,000. The increase sets an appropriate balance between
FR and variable remuneration (see Annual Variable Reward Opportunity below) for this role aligned with regulatory
expectations and internal and external pay relativities.
• Sharon Cook, Group Executive Legal and Commercial Services from $900,000 to $950,000. The increase reflects Sharon's
increased accountabilities for customer remediation across the Group.
Annual Variable
The Board considered the Annual VR opportunity for Control Roles in the context of delivering on our strategy,
Reward
performance, regulatory requirements and providing appropriately competitive reward. The Board determined a
opportunity
standardised approach for all Group Executives, except for the Group Chief Risk Officer, was appropriate and consistent
with our remuneration principles. For 2022 the Board determined:
• The Annual variable reward opportunity for Shaun Dooley, Group Chief Risk Officer would increase from the 2021 range
of 0% to 105% of FR, to 0% to 112.5% of FR.
• The Annual variable reward opportunity for the Group Executive Legal and Commercial Services, Group Executive People
and Culture and Group Executive Strategy and Innovation would increase from the 2021 range of 0% to 105% of FR, to
0% to 150% of FR.
• No change has been made to the Annual VR opportunity for the Group CEO or any other Group Executives.
Non- executive
On an annual basis, the Board conducts a review of the quantum of Board fees. The Board noted that base fees had
directors
not been adjusted since 1 January 2016 despite increased regulatory requirements and performance monitoring. From
1 October 2021, the Board has determined to:
• Increase the Board Chair fee from $790,000 to $825,000 and non-executive director Board fee from $230,000 to $240,000
to continue to attract and retain high quality non-executive directors.
• Increase the Risk and Compliance Committee Chair fee from $60,000 to $65,000 and the fee for being a member of that
Committee from $30,000 to $32,500 due to the increased workload for this Committee over recent years.
• Increase the minimum shareholding requirement for the Chair to one times the annual chair base fee to more closely
align with shareholder interests.
Other colleagues The Board has approved changes to the Group’s remuneration framework for other colleagues to create simplicity and more
consistency and fairness in our remuneration framework. The changes:
• Remove or reduce variable reward for many employees, placing more emphasis on fortnightly pay to give colleagues
more certainty and encourage more focus on customers.
• Standardise target variable reward participation to create more consistency and fairness.
These changes set an appropriate balance between FR and VR and will allow colleagues to focus on serving customers
well. Implementation will be a phased approach over the next 12 to 18 months starting on 1 October 2021 with customer-
facing businesses.
The Board considers that the changes support the Group’s purpose, strategic objectives and risk appetite, and reflect the
expectations of customers, regulators and shareholders.
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REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
1.5 Key Management Personnel
The list of NAB's Key Management Personnel (KMP) is assessed each year and comprises the non-executive directors of NAB,
the Group CEO (an executive director of NAB) and those employees of the Group who have authority and responsibility for
planning, directing and controlling the activities of both NAB and the Group. KMP during 2021 were:
Name
Non-executive directors
Philip Chronican
David Armstrong
Kathryn Fagg
Peeyush Gupta
Anne Loveridge
Douglas McKay
Simon McKeon
Ann Sherry
Former non-executive director
Position
Chair
Director
Director
Director
Director
Director
Director
Director
Geraldine McBride
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis(1)(2)
Rachel Slade
Patrick Wright
Director (to 18 December 2020)
Group Chief Executive Officer and Managing Director
Group Executive, Legal and Commercial Services
Group Chief Risk Officer
Group Executive, People and Culture
Group Executive, Corporate and Institutional Banking
Group Executive, Strategy and Innovation
Group Executive, Business and Private Banking
Group Chief Financial Officer
Chief Operating Officer (from 11 January 2021)
Managing Director and CEO of Bank of New Zealand
Group Executive, Personal Banking
Group Executive, Technology and Enterprise Operations
Term as KMP
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Part year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Full year
Part year
Full year
Full year
Full year
(1) All matters relating to the remuneration of Angela Mentis including variable reward, have been approved by the BNZ Board as required under BNZ's
Conditions of Registration which are set by the Reserve Bank of New Zealand.
(2) As announced on 25 August 2021, Angela Mentis ceased as the Managing Director and CEO of Bank of New Zealand on 30 September 2021 and commenced
as Group Chief Digital, Data & Analytics Officer. Dan Huggins commenced as Managing Director and CEO of Bank of New Zealand from 1 October 2021.
Annual Financial Report 2021
59
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Section 2 - Our 2021 executive variable remuneration plans
2.1 Annual Variable Reward for 2021
This section outlines the key features of the 2021 Annual VR plan for the Group CEO and Group Executives.
Purpose
Annual VR aims to reward the Group CEO and Group Executives for delivery of annual goals that drive long-term sustainable
performance. It provides an appropriate level of remuneration that varies based on the Board’s determination of Group and
individual performance over the financial year measured against agreed targets for financial and non-financial measures that
are set to drive delivery of the Group's strategy. The plan is not wholly formulaic. Judgement is applied through qualitative
assessment as determined by the Board.
Feature
Annual VR
opportunity
Description
Annual VR opportunity is expressed as a percentage of FR. It is set by the Board following the recommendation of the
People & Remuneration Committee, which considers a range of factors including the scope and accountabilities of the
Group CEO's or Group Executive's role, and market competitiveness.
Position
Group CEO & Group Executives (excluding Control Roles)
Control Roles
2021 Annual VR opportunity
(% of FR)
0% to 150%
0% to 105%
Group
Group performance is assessed on achievement of financial and non-financial measures (GPI) linked to the Group’s key
performance
strategic priorities, overlaid by a qualitative assessment to support any adjustments to the outcome. The qualitative
assessment is integral to the outcome and may result in the outcome being adjusted upwards or downwards (including to
zero), for risk, quality of performance (including consideration of financial, sustainability, environmental and social impact
matters, and progress made against strategy) and any other matters as determined by the Board. Further information on the
2021 GPI and outcome are provided in Section 4.1.
Individual
Individual performance is assessed against a scorecard. The scorecard for each individual is comprised of key financial and
performance
non-financial goals. The weighting of measures was set to reflect the responsibilities for their role. The Group CEO's 2021
and measures
scorecard is aligned to the GPI.
Individual modifiers: The Board considers the individual's conduct and the extent to which they demonstrated NAB’s values
(How We Work). The Board also considers the Group CEO's risk management performance.
Individual Annual VR awards for the Group CEO and Group Executives(1) are calculated as:
Annual VR
calculation
Discretionary adjustments: Annual VR is discretionary and will vary in line with Group and individual performance and
available funding. The Board may determine any amount be awarded from zero up to the maximum VR opportunity.
The Group CEO's 2021 scorecard, assessment and outcomes are provided in Section 4.2.
(1) All matters relating to the remuneration of Angela Mentis, Managing Director and CEO of BNZ, including scorecard measures and performance assessment,
have been approved by the BNZ Board as required under BNZ's Conditions of Registration which are set by the Reserve Bank of New Zealand. Angela Mentis'
Annual VR is calculated as: (50% Group performance + 50% BNZ performance) x Individual Score x VR Target Opportunity. BNZ performance is assessed based
on Customer 25%; Colleagues 12.5%; Safe Growth 12.5% and Financial 50%. The assessed overall BNZ performance for 2021 was 107.7%.
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National Australia Bank
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Feature
Description
Award delivery
Annual VR is delivered as a combination of cash and deferred rights. Cash components of any Annual VR are paid following
and deferral
the performance year to which they relate.
Any deferred rights granted are scheduled to vest pro-rata over four years from grant. The proportion of deferral and
vesting periods are structured so that, in combination with any LTVR award, the proportion of variable pay that is deferred,
and the period for which it is deferred, is no less than that required by regulation. Deferred rights are granted and vested by
the Board at its discretion, subject to the relevant plan rules including malus and clawback provisions.
A dividend equivalent payment for any vested deferred rights is paid at the end of each deferral period.
The Board has extensive discretion in respect to the Annual VR. Further information on governance of Annual VR is outlined
in Sections 3.1.
Board
discretion
Annual Financial Report 2021
61
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
2.2 Long-Term Variable Reward for 2021
This section outlines the key features of the LTVR award in respect of 2021 for the Group CEO and Group Executives.
Purpose
LTVR awards are granted by the Board to encourage long-term decision making critical to creating long-term value for
shareholders. They are determined and awarded independently from Annual VR decisions.
Feature
Participants
Award value
Description
Group CEO and Group Executives as determined by the Board.
The maximum face value of the LTVR award is 130% of FR for the Group CEO and Group Executives.
The value of the LTVR granted is determined by the Board annually. The Board considered the Group's and the
relevant participant's performance during 2021 when determining the LTVR to be granted to the participant.
The actual value delivered to the Group CEO or a Group Executive is subject to the level of achievement against
the performance hurdle and NAB's share price at the time of vesting. This may be zero if the performance hurdle
Instrument
The LTVR award is provided as performance rights.
is not achieved.
Each performance right entitles its holder to receive one NAB share at the end of the four-year performance
period, subject to the performance hurdle being satisfied.
Allocation approach
The number of performance rights to be granted is calculated by dividing the LTVR award face value by NAB's
weighted average share price over the last five trading days of the financial year. The weighted average share
Grant date
The award is scheduled to be granted in February 2022.
Performance period
Four years from 15 November 2021 to 15 November 2025.
price used for 2021 is $27.54.
Performance hurdle
TSR measures the return that a shareholder receives through dividends (and any other distributions) together
with capital gains over a specific period. For the purposes of calculating TSR over the performance period, the
value of the relevant shares on the start date and the end date of the performance period are based on the
volume weighted average price of those shares over the 30 trading days up to and including the relevant date.
NAB's TSR is measured against the TSR peer group to determine the level of vesting:
NAB's relative TSR outcome
Level of vesting
Below 50th percentile
At 50th percentile
0%
50%
Between 50th and 75th percentiles
Pro-rata vesting from 50% to 100%
At or above 75th percentile
100%
The TSR peer group for the 2021 LTVR is: AMP Limited, Australia and New Zealand Banking Group Limited, Bank
of Queensland Limited, Bendigo & Adelaide Bank Limited, Commonwealth Bank of Australia, Macquarie Group
Limited, Suncorp Group Limited, Westpac Banking Corporation.
TSR outcomes are calculated by an independent provider.
The performance hurdle is not retested. Any performance rights that have not vested after the end of
performance period will lapse in December 2025.
Testing
No retesting
Dividends
No dividends are paid.
Board discretion
The Board has extensive discretion in respect of the LTVR, including the initial value to be granted, the
amount of performance rights that vest, any forfeiture or clawback applied. Further information is provided
in Section 3.1.
Section 4.4 explains the 2016 LTI award outcome that was tested during 2021.
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2.3 Remuneration mix
The 2021 remuneration mix for the Group CEO and Group Executives (excluding Control Roles), at maximum opportunity,
delivers approximately three-quarters of total remuneration as variable and 'at risk' remuneration. For 2022, the framework
will be simplified further, with Control Roles (except the Group Chief Risk Officer) moving to the same Annual VR maximum
opportunity as the other Group Executives. The Group Chief Risk Officer's Annual VR maximum opportunity will be set
at 112.5% of FR. The changes align with peer practice and will provide fair and appropriate remuneration. The actual
remuneration mix for the Group CEO and each Group Executive is subject to Group(1) and individual performance each year.
2.4 Long-term alignment of remuneration
There is a strong focus on alignment of executive remuneration with sustainable performance through deferral. A proportion
of remuneration is deferred in the form of equity for up to four years. This encourages long-term decisions which are critical to
creating sustainable value for customers and shareholders.
The Board retains discretion to determine whether all or some variable reward (unvested, vested or paid) may be subject to
malus and clawback. See Section 3.1 for more detail.
(1) The outcome for the Managing Director and CEO BNZ will vary depending on overall Group and BNZ performance.
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Section 3 - Governance, risk and consequence
3.1 Remuneration governance
Governance and oversight
The People & Remuneration Committee assists the Board in discharging its responsibilities relating to people and remuneration
strategies, policies and practices of the Group. On behalf of the Board, the People & Remuneration Committee is responsible for
developing and maintaining an effective remuneration policy. The People & Remuneration Committee governs the application
of the policy resulting in responsible remuneration outcomes that are consistent with the Group's strategy and risk appetite.
The People & Remuneration Committee has oversight and governance of people related risks, culture, inclusion and diversity,
talent and succession matters. The remit emphasises the People & Remuneration Committee’s focus on long-term sustainable
policy settings that foster desired culture while reinforcing compliance with NAB's Code of Conduct and fulfilling regulatory
requirements across jurisdictions in which the Group operates.
Members of the People & Remuneration Committee are independent non-executive directors. Further information about the
People & Remuneration Committee is provided in our Corporate Governance Statement and in the People & Remuneration
Committee Charter, both of which are available on NAB's website.
Performance, risk and remuneration assessment
The People & Remuneration Committee oversees Group performance outcomes by establishing robust performance measures
and targets that support delivery of the Group's strategy and conduct aligned to NAB's Code of Conduct.
The People & Remuneration Committee also makes recommendations to the Board in relation to the assessment of
performance and remuneration outcomes for the Group CEO, Group Executives and other persons as determined by the
Board. In establishing and assessing performance for recommendation to the Board, the People & Remuneration Committee is
supported by all other Board Committees who provide expert, independent reports, and information as required. The Board
receives the recommendations, challenges, and applies appropriate judgement in determining the outcome.
Board discretion
The Board regularly reviews Group performance during the year for risk, reputation, conduct and performance considerations.
The Board's review includes the Group's quality of financial results, shareholder experience and other sustainability metrics
relevant at the time.
The Board has absolute discretion to adjust Rewards(1) down, or to zero, where appropriate. The Board may exercise those
discretions in relation to any employee across the Group, by division, by role or individual, depending on circumstances,
including if Group or individual performance outcomes have changed over time since the Reward was provided, including for
an act or omission that has impacted performance outcomes. Adjustments include, but are not limited to:
• determining the initial value of Rewards
• varying the terms and conditions of Rewards, including performance measures and their weightings
• reducing the value of deferred Rewards (including to zero) during the deferral or performance period, including at vesting
• determining that some, or all, of the unvested Rewards be forfeited on cessation of employment with the Group
(1)
In this Section, the term 'Rewards' refers to all forms of variable reward including cash provided under a variable reward plan, deferred variable rewards (cash
and equity) to be paid or granted, LTVR performance rights, and any variable rewards granted in previous years.
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• determining that unvested Rewards should be forfeited due to conduct standards not being met, including as set out in
NAB's Code of Conduct
• determining that unvested Rewards will be forfeited (including following the occurrence of a Malus Event(1))
• extending the deferral period at any time for any Rewards(2)
• clawing back of paid and vested Rewards (to the extent legally permissible).
3.2 Risk and consequence management
The People & Remuneration Committee regularly reviews the Group and individual outcomes for risk, reputation, conduct
and performance considerations. This includes oversight of the Group's Employee Conduct Management framework. Effective
consequence management supports an appropriate risk culture across the Group.
Risk is the responsibility of all employees of the Group. A sound risk culture is where the mindset, decisions and behaviour
of employees are aligned to the Group's strategy and contribute to sustainable outcomes for customers, shareholders and
external stakeholders. The Board, Group CEO and Group Executives influence culture by focusing on leadership behaviour,
systems and colleagues, reinforced through performance and remuneration outcomes.
How risk is integraged in our remuneration framework
(1) Examples include where the executive has failed to comply with their accountability obligations under the Banking Act 1959 (Cth); has engaged in fraud,
dishonesty, gross misconduct, behaviour that may negatively impact the Group’s long-term financial soundness or prudential standing or behaviour that
brings NAB into disrepute; or has materially breached a representation, warranty, undertaking or obligation to the Group.
(2) For example, the Board may do so if the Board has reason to believe that an employee may not meet conduct standards or comply with their accountability
obligations under the Banking Act 1959 (Cth) or any other analogous or similar legislation or regulations.
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Risk and conduct
Effective consequence management supports an appropriate
risk culture across the Group. NAB has enhanced its focus on
risk and conduct management in 2020 and 2021:
• NAB's Code of Conduct (the Code) (available on NAB's
website) was revised and approved by the Board in 2020.
The Code outlines what is expected of directors, leaders,
colleagues and contractors who perform services on
NAB’s behalf. It captures not only NAB’s legal and
regulatory obligations, but also an expectation to act
ethically and responsibly towards customers, colleagues
and communities.
• The Code emphasises ‘How We Work’ and the key
policies and guidelines which must be followed to
achieve expected outcomes. There is a strong emphasis
on speaking up about concerns and a guide to ethical
decision making.
• The Code is supported by a renewed approach to
conduct and consequence management that focuses
on fair, consistent and proportionate consequence
outcomes. Consequence is informed by the severity of
the matter, including an assessment of intention or
repetitive conduct.
• Each business and enabling unit has established
Professional Standards Forums to review or note
breaches of the Code at least quarterly, taking action
to set the tone and reinforce NAB’s standards of
conduct and culture. Any material breaches or conduct
that is materially inconsistent with the expected
outcomes in the Code are reported to the People and
Remuneration Committee.
• Speak Up training deployed to every colleague, and
a network of 128 Whistleblower champions foster
psychological safety to speak up about concerns.
• NAB's performance framework (Peak performance) was
enhanced in 2021 to further embed non-financial metrics
with a stronger focus on risk, customer outcomes, and
leadership and culture goals to align with Group strategy
and values.
• Enhancements on regular reporting, insights and data
to support informed decision-making on risk and
remuneration outcomes.
Assessing consequence
No remuneration adjustments were applied to the Group
CEO or current Group Executives in 2021. Remuneration
adjustments and consequence outcomes applied during
2021 are provided in the table below.
Employees recognised for their positive contribution to risk culture
Employees identified as not having met risk expectations and accountabilities
Code of Conduct breaches identified that resulted in formal consequences(2)
Employees leaving due to consequence outcomes
Employees receiving coaching or other remedial actions(2)
Employees receiving in-year performance rating and variable reward reduction of 5% to 100%(3)
2021
5,139
2,499
4,843
209
4,427
220
2020(1)
4,666
2,390
1,271
254
1,017
597
Equity forfeitures as a result of Code of Conduct breaches and revisiting previous variable reward decisions
$0.33m
$1.12m
(1) 2020 has been restated to include BNZ data.
(2) The increase in cases does not reflect worse behaviour but more complete data. Processes were enhanced to allow all minor and mild matters independently
managed by people leaders to be captured for 2021. This did not lead to an increase in employees leaving employment with the Group or in people receiving
a remuneration reduction.
(3) VR reductions were managed through application of conduct gates in Australia for 2020. Conduct gates were removed from 1 October 2020 in Australia and
replaced with a more fair, consistent and proportionate approach to applying consequences.
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Section 4 - Remuneration outcomes
4.1 Group performance
The Board determined Group performance for 2021 based on achievement against the GPI outlined below that are linked to
the Group’s key strategic priorities, and having regard to a qualitative assessment of risk, quality of performance (including
consideration of financial, sustainability, environmental and social impact matters, and progress made against strategy) and any
other matters as determined by the Board.
The qualitative assessment included the AUSTRAC enforcement investigation of Group entities announced on 7 June 2021. The
outcome of that investigation is not yet known. The Board considers that the Group is working to improve the underlying issues
that are the subject of the investigation. Adjustments were made in prior years to variable remuneration for current and former
executives for shortcomings in the AML program and processes. No adjustment was made in 2021 for any potential adverse
outcomes from the investigation but potential adjustments will be considered for new and deferred awards once the outcome
of the investigation is known.
The 2021 GPI outcomes are:
The Board determined the GPI outcome at 105% based on the level of achievement and their assessment of the
qualitative overlay.
Historical Group performance
The table below shows the Group's annual financial performance over the last five years and its impact on shareholder value,
taking into account dividend payments, share price changes, and other capital adjustments during the period.
Financial performance measure
Basic earnings per share (cents)(1)
Cash earnings ($m)(1)
Dividends paid per share ($)
Company share price at start of year ($)
Company share price at end of year ($)
2021
196.3
6,558
0.90
17.75
27.83
2020
112.7
3,710
1.13
29.70
17.75
2019
208.2
5,853
1.82
27.81
29.70
2018
215.6
5,702
1.98
31.50
27.81
2017
228.2
6,642
1.98
27.87
31.50
Absolute Total Shareholder Return for the year
61.9%
(36.4%)
13.3%
(5.4%)
20.1%
(1)
Information is presented on a continuing operations basis, unless otherwise stated. 2019 has been restated for the presentation of MLC Wealth as a
discontinued operation. No other comparative periods have been restated.
The table below summarises the variable reward outcomes for the Group CEO and Group Executives over the last five years,
including vesting of LTVR awards relating to prior periods.
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Group CEO Annual VR (% of max. Annual VR)(1)
Average Group Executives Annual VR (% of max. Annual VR)(1)
LTVR award - four year performance period (% of total award vested)(2)
LTVR award - five year performance period (% of total award vested)(3)
NAB's four year relative TSR (S&P/ASX50)(4)
NAB's four year relative TSR (Top Financial Services peer group)(4)(5)
NAB's five year relative TSR (S&P/ASX50)(4)
NAB's five year relative TSR (Top Financial Services peer group)(4)(5)
2021
2020
2019
2018
81%
83%
56%
n/a
n/a
71st
n/a
n/a
0%
0%
38%
35%
23rd
57th
22nd
57th
0%
0%
0%
0%
20th
43rd
35th
43rd
12%
30%
0%
65%
42nd
29th
58th
57th
2017
36%
49%
0%
n/a
42nd
29th
n/a
n/a
(1) The maximum Annual VR opportunity has changed over time, consistent with the relevant Annual VR plan.
(2) The amount shown for 2021 is the portion of the total 2016 LTI award that vested and for 2020 is the portion of the total 2015 LTI award that vested. Both
awards were measured over a four year performance period, against relevant peer groups.
(3) The amount shown for 2020 is the percentage of the total 2014 LTI award that vested. The amount shown for 2018 is the portion of the total 2012 award that
vested. Both awards were measured over a five year performance period against relevant peer groups.
(4) Measured over the performance period of the relevant LTVR award.
(5) The Top Financial Services peer group for all awards is: AMP Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited,
Bendigo & Adelaide Bank Limited, Commonwealth Bank of Australia, Suncorp Group Limited and Westpac Banking Corporation.
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4.2 Group CEO and Group Executives' performance
The table below shows the key 2021 performance measures for the Group CEO and the Board's assessment of the Group CEO's
performance against those measures. The measures have been selected to support the Group strategy. The Board considers that
the Group CEO and Group Executives have executed well on the refreshed Group strategy and are building momentum, and
growth in the Group's core business while delivering against the business plan.
Goal, objective and assessment
Customers: Deliver a great customer experience and grow customer advocacy
Weighting
15%
Rating
Achieved
• Strategic NPS up 5 points from August 2020 to -6 in August 2021, with NAB ranked first of the Australian
major banks. This was slightly below the 6 point target increase.
• Supporting customers with 280 remote working and regional/rural roles combined with 134 new regional
small business bankers.
• Extending support to SME customers impacted by COVID-19 with the NAB Business Support Loan and
helping customers impacted by flooding in NSW and the WA cyclone with emergency grants.
• Provided ~$2.2bn in deferrals during COVID-19.
• Bolstering our ability to work with customers on climate risk and transition pathways by building a team
highly qualified climate bankers.
• Reducing 'time to yes'.
Colleagues: Lead cultural change through energy, positivity and simplicity
15%
Achieved
• The Group's overall colleague engagement score of 77 (July 2021) achieved the 2021 target of top quartile
engagement and the Group's 2021 target.
• Leadership score of 88 for July 2021 increased from 85 at October 2020.
• Continued leadership of the representation of women in leadership roles.
• The Group CEO and each Group Executive and their direct reports completing the Distinctive Leadership
program building leadership and strategy execution discipline.
• Delivered Career Qualified in Banking accredited by the Financial Services Institute of Australasia (FINSIA),
to over 2,000 colleagues with a further 7,000 commencements.
Safe Growth: Deliver with focus and discipline on our new Group strategy
20%
Highly Achieved
• Overall market share (composite growth across Business Lending, Home Lending and BNZ) was 0.21% (as
at 31 August 2021) slightly above the 2021 target of 0.20%.
• Lending market share continues to grow driven by Australian SME Lending and New Zealand
Home Lending.
• Business Lending portfolio continues to grow with share of 26.56% (57 basis points above
September 2020).
• Investment spend shifted to initiatives which will deliver better colleague and customer outcomes at
lower cost.
• The proposed acquisition of Citigroup’s Australian consumer business, subject to regulatory approvals, and
the integration of 86,400’s leading technology platform into UBank.
• The successful sale of MLC Wealth to IOOF.
• Significant improvement in management of the Group's obligations, risk and controls environment.
Achieved an ICS (internal measure of the Group's control environment) of 70 against a target of 63.
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Goal, objective and assessment
Financial(1)(2): Deliver attractive returns, safe growth and financial plan
Weighting
Rating
50%
Highly Achieved
• The Group's 2021 plan was set during a period of high economic uncertainty. This took into account the
negative revenue impact of a historically low cash rate and ongoing competition in the housing market. In
assessing the Group's financial performance, the Board has considered the actions taken by management
to mitigate these impacts.
• Cash earnings (expected loss basis) of $5,770 million was $415 million or 7.7% higher than plan.
• Cash earnings as reported of $6,558 million was also materially higher than plan.
• Net operating income exceeded plan by $433 million or 2.6%. The plan assumed net operating income
would be lower than 2020 by 4.7%, reflecting lower earnings rates on deposits and capital due to the
low interest rate environment together with competitive pressures and product mix impacting housing
lending margins.
• Operating expenses were $45 million or 0.6% unfavourable to plan. Expenses were $138 million or
1.8% higher than 2020, primarily driven by higher personnel expenses, including provisions for higher
performance-based compensation.
• Credit impairment charge (expected loss basis) was $155 million or 14.9% favourable to plan primarily due
to underlying asset quality and volume mix.
• Return on Total Allocated Equity (expected loss basis) of 10.36% was 127bps higher than plan reflecting an
increase in cash earnings and lower allocated equity benefitting from the improved operating conditions
and better than expected asset quality outcomes.
• Balance sheet settings were maintained at prudent levels including a CET1 capital ratio as at 30 September
2021 of 13.00%, above the top end of the Group's target range and 153 basis points higher over the year.
• The Group has maintained strong liquidity through 2021 with surpluses above regulatory minimums. The
NSFR was 123% and the LCR was 126%, both above the APRA regulatory requirement of 100%.
Overall Outcome
Risk modifier: Regulatory, breach management, progress on matters of interest, losses associated with
operational events and remediation costs, reputation
• The Group CEO has shown effective leadership in driving greater ownership and accountability for risk
across his direct reports.
• Reduction in risk events and regulatory breaches.
• Faster and safe simplification of risk policies and processes.
Highly Achieved
Achieved
How we Work modifier: Individual conduct and demonstration of NAB's values
Highly Achieved
• The Board considers the Group CEO has strongly demonstrated the Group's values and supported the
Group's desired culture.
Overall Outcome
121% of target
81% of maximum
opportunity
Information is submitted on a continuing operations basis, unless otherwise stated and excludes large notable items.
(1)
(2) Calculation on an expected loss basis provides a view that is reflective of long-term underlying business performance and is less volatile than the Credit
Impairment Charge view which in individual years can be impacted by large movements in economic adjustments and forward looking adjustments. Return
on Total Allocated Equity on an expected loss basis remains sensitive to changes in the risk profile of the Group's portfolio.
The Group Executives' scorecards have relevant individual measures aligned with the Group CEO's performance measures
outlined above. The Group Executives received overall outcomes ranging from 70% to 99% of maximum opportunity, with an
average (excluding the Group CEO) of 83% of the maximum opportunity.
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4.3 In-year variable reward outcomes
Group CEO and Group Executives
The table below outlines the actual VR outcome for the Group CEO and each of the Group Executives for 2021 and how that
outcome compares to their maximum VR opportunity. The variance in the individual scores reflects the differences in the Group
CEO's and each Group Executive’s performance against the key areas of their individual scorecard. Individual outcomes for the
Group Executives varied between 70% and 99% of maximum opportunity.
Maximum
% of
Annual VR
Total Annual
Annual VR
VR deferred
maximum Annual
opportunity
$
VR
$
cash
$
$
rights
VR opportunity
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis
Rachel Slade
Patrick Wright
Total
3,750,000
3,018,750
1,509,375
1,509,375
945,000
1,155,000
945,000
793,800
848,926
694,576
1,800,000
1,638,000
945,000
1,800,000
1,650,000
1,134,863
1,800,000
1,800,000
2,250,000
793,800
1,575,000
1,155,000
794,404
1,786,680
1,575,000
1,968,750
396,900
424,463
347,288
819,000
396,900
787,500
577,500
397,202
893,340
787,500
984,375
396,900
424,463
347,288
819,000
396,900
787,500
577,500
397,202
893,340
787,500
984,375
19,974,863
16,642,686
8,321,343
8,321,343
%
81
84
74
74
91
84
88
70
70
99
88
88
82
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4.4 Prior year long-term incentive awards
(a) 2016 LTI award testing
The performance hurdles for the 2016 LTI award were tested during 2021. The performance hurdles for the 2016 LTI award,
measured over the relevant four-year performance period, were partially achieved resulting in 55.8% of the total performance
rights vesting. This was the only test of the performance hurdles and all performance rights that did not vest were lapsed. The
table below sets out details of the outcomes.
Performance hurdle
Performance period
NAB's Cash Return On
2017 to 2020 financial years
Equity growth(1)
NAB's TSR relative to Top
9/11/2016 to 9/11/2020
Financial Services peer group(2)(3)
% of
award
40
60
% of rights
% of rights
% of rights
Result
vested
lapsed
remaining
Ranked 4th
71st
percentile ranking
-
93
100
7
-
-
(1) Assessed against Australia and New Zealand Banking Group Limited, Commonwealth Bank of Australia, Westpac Banking Corporation. For Commonwealth
Bank of Australia the financial year is from July to June and for NAB and the other banks, from October to September.
(2) The peer group for this performance hurdle is: AMP Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited, Bendigo &
Adelaide Bank Limited, Commonwealth Bank of Australia, Suncorp Group Limited and Westpac Banking Corporation.
(3) TSR is based on the 30 trading day volume weighted average price of the relevant shares up to and including the start and end of the performance period.
The following matters were considered by the Board in determining the level of vesting for the 2016 LTI award.
Performance hurdle
Vesting schedule
Performance assessment considerations
NAB's cash Return on
• Ranked 4th - no vesting
A framework has been approved by the Board to assess relative cash Return
Equity growth
• Ranked 3rd - 25% vesting
on Equity performance for the peer group companies. Consistent with the
• Ranked 2nd - 50% vesting
framework, the Board decided not to make any adjustments to NAB or the
• Ranked 1st - 100% vesting
peer group companies in assessing the performance hurdle.
NAB's TSR relative to
• No vesting below the 50th percentile
• TSR measures the return that a shareholder receives through dividends
Top Financial Services
• 50% vesting at the 50th percentile
(and any other distributions) together with capital gains over a specific
peer group
on a straight line scale up to 100%
period. For the purposes of calculating TSR over the performance period,
vesting at the 75th percentile
the value of the relevant shares on the start date and the end date of the
• No further vesting for better than
performance period are based on the volume weighted average price of
the 75th percentile
those shares over the 30 trading days up to and including the relevant date.
• The Board exercised its discretion under the LTI plan and approved the
measurement of the TSR for companies in the peer group be adjusted
to ensure the impact of changes in the timing of their ex-dividend date,
did not have an unintended consequence and to achieve an outcome
consistent with the original intent of the award to measure relative TSR
performance over the performance period.
• As a result of the Board exercising its discretion and adjusting the TSR
calculation for the change in the timing of the ex-dividend date, NAB
achieved a 71st percentile ranking. If the TSR calculation had not been
adjusted as described, NAB would have achieved a 57th percentile ranking.
(b) Overview of unvested long-term awards
The following is a summary of the unvested long-term awards held by the Group CEO and Group Executives.
Award
Grant date
Performance period
Vesting date Performance hurdles
2017 LTI
19/12/2017 • 2018 to 2021 financial years
20/12/2021
• NAB's cash ROE growth against Australia and New Zealand
Banking Group Limited, Commonwealth Bank of Australia,
Westpac Banking Corporation
• 14/11/2017 to 14/11/2021
• NAB's TSR performance against a financial services peer group
2019 LTVR 26/02/2020 • 15/11/2019 to 15/11/2023
22/12/2023
• NAB's TSR performance against a financial services peer group
2020 LTVR 24/02/2021 • 15/11/2020 to 15/11/2024
22/12/2024
• NAB's TSR performance against a financial services peer group
Details of LTI and LTVR awards granted in respect of previous years can be found in NAB's previous remuneration
reports which are available at www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-
and-presentations.
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4.5 Realised remuneration
The table below is a voluntary non-statutory disclosure that shows the realised remuneration the Group CEO and each Group
Executive received for the period in 2021 during which they were a Group Executive. The amounts shown include fixed
remuneration, previous years' deferred variable reward which vested in 2021, and other equity and cash based awards that
vested in 2021. The value of equity awards is calculated using NAB's closing share price on the vesting or forfeiture or lapsing
date. Not all amounts have been prepared in accordance with Australian Accounting Standards and this information differs from
the statutory remuneration table (in Section 5.1) which shows the expense for vested and unvested awards in accordance with
Australian Accounting Standards.
2021
Prior years
Fixed
Annual VR
Total 2021
Vested / paid
Total realised
Equity
remuneration(1)
cash
remuneration
remuneration(2)
remuneration
forfeited /
$
$
$
2,503,866
1,837,165
1,509,375
-
4,013,241
1,837,165
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis
Rachel Slade
Patrick Wright
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2021
2020
2021
2020
2021
2020
903,514
903,449
1,079,637
1,003,831
900,988
903,449
1,209,534
1,204,597
904,279
303,448
1,201,430
101,149
1,109,009
1,106,235
761,178
1,346,827
1,366,499
1,203,746
1,033,334
1,503,141
1,505,746
$
-
-
8,865
58,340
202,252
236,545
6,942
-
595,888
884,267
204,660
-
396,900
1,300,414
-
424,463
-
347,288
-
819,000
-
396,900
-
903,449
1,504,100
1,003,831
1,248,276
903,449
2,028,534
1,204,597
1,301,179
303,448
787,500
1,988,930
1,492,093
-
577,500
-
397,202
893,340
-
787,500
-
984,375
-
101,149
1,686,509
1,106,235
1,158,380
2,240,167
1,366,499
1,991,246
1,033,334
2,487,516
1,505,746
-
755,082
360,575
-
772,787
1,454,442
212,400
113,940
52,329
739,962
$
lapsed(3)
$
4,013,241
1,837,165
1,309,279
961,789
1,706,352
1,240,376
1,255,218
903,449
2,624,422
2,088,864
1,505,839
303,448
3,481,023
101,149
2,441,591
1,466,810
1,158,380
3,012,954
2,820,941
2,203,646
1,147,274
2,539,845
2,245,708
-
-
-
-
(201,543)
(224,607)
-
-
(472,097)
(1,490,936)
(201,543)
-
-
-
(590,116)
(249,597)
-
(590,116)
(1,822,197)
(201,543)
-
-
-
(1)
Includes cash salary and superannuation consistent with the statutory remuneration table in Section 5.1, excluding accrued annual leave entitlements. The
2020 comparative amount has been adjusted for Angela Mentis’ annual leave entitlement accrual, arising from changes in BNZ's leave policy.
(2) Amounts related to prior year vested equity or cash based remuneration. This includes LTI performance rights, Transformation performance rights,
commencement awards, shares received under the General Employee Share Offer and dividends paid during 2021 in relation to any deferred share awards.
Details of the vested equity awards are provided in Section 5.2.
(3) Awards or remuneration lapsed or forfeited during 2021. Details of the awards are provided in Section 5.2.
Annual Financial Report 2021
73
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Section 5 - Group CEO and Group Executive statutory remuneration disclosures
5.1 Statutory remuneration
The following table has been prepared in accordance with Australian Accounting Standards and Section 300A of the Corporations Act 2001 (Cth). The table shows details of the nature and
amount of each element of remuneration paid or awarded to the Group CEO and Group Executives for services provided during the year while they were KMP (including variable reward
amounts in respect of performance during the year which are paid following the end of the year). In addition to the remuneration benefits below, NAB paid an insurance premium for
a contract insuring the Group CEO and Group Executives as officers. It is not possible to allocate the benefit of this premium between individuals. In accordance with usual commercial
practice, the insurance contract prohibits disclosure of details of the premium paid.
Short-term benefits
Annual VR
Post-
employment
benefits
Equity-based benefits
Other long-
Other
Cash salary (1)
cash(2)
Non-monetary(3)
Superannuation(4)
term benefits(5)
Shares(6)
Rights(7)
remuneration(8)
$
-
$
$
2,480,543
1,865,204
1,509,375
-
160,189
873,563
886,553
396,900
-
1,043,862
424,463
991,429
874,489
897,838
1,183,492
1,182,823
801,835
306,719
1,201,292
102,876
1,081,673
1,086,448
777,665
1,443,847
1,339,989
-
347,288
-
819,000
-
396,900
-
787,500
-
577,500
-
397,202
893,340
-
-
-
-
583
-
4,433
2,257
2,840
-
-
378,543
14,042
-
583
261,174
238,391
261,177
$
$
23,323
22,852
23,047
20,344
23,117
20,065
23,047
22,852
26,042
21,774
23,047
5,994
23,152
5,994
23,117
19,787
17,676
35,816
33,573
14,278
7,664
7,289
6,083
39,280
35,752
5,140
4,152
21,384
21,221
13,982
4,188
5,577
361
19,670
19,481
3,516
34,284
32,361
$
-
-
53,093
53,238
43
6,270
62,310
-
-
-
17,405
5,874
1,033,703
203,525
61,286
61,454
-
167,333
167,791
$
$
1,265,716
255,279
555,234
127,349
324,667
179,572
383,864
82,347
535,355
400,689
219,729
81,397
584,174
-
346,078
419,383
354,116
518,543
513,167
-
-
-
-
-
-
-
-
-
-
-
-
870,000
210,000
-
-
-
-
-
Total(9)
$
5,293,235
2,311,188
1,909,126
1,093,567
1,855,432
1,233,671
1,696,138
1,011,622
2,587,530
1,629,347
1,472,898
404,172
4,883,941
536,798
2,109,324
1,607,136
1,811,349
3,331,554
2,348,058
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson (for part year)
Angela Mentis
74
National Australia Bank
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2021
2020
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Short-term benefits
Annual VR
Post-
employment
benefits
Equity-based benefits
Other long-
Other
Cash salary (1)
cash(2)
Non-monetary(3)
Superannuation(4)
term benefits(5)
Shares(6)
Rights(7)
remuneration(8)
Name
Rachel Slade
Patrick Wright
Former Group Executives
Mike Baird (for part year)
Anthony Healy (for part year)
Michael Saadie (for part year)
Anthony Waldron (for part year)
Total
Total
2021
2020
2021
2020
2020
2020
2020
2020
2021
2020
$
1,139,169
1,022,185
1,520,158
1,556,040
677,791
702,254
290,316
105,454
14,421,588
13,013,919
$
787,500
-
984,375
-
-
-
55,703
13,480
8,321,343
69,183
$
-
583
274,890
130,201
2,730
12,399
2,863
-
1,155,255
592,623
$
23,152
20,344
23,257
18,672
13,514
13,514
5,994
1,868
287,793
247,141
$
11,224
9,697
12,148
10,139
4,388
12,348
4,552
1,236
187,772
173,623
$
60,817
64,660
313,399
314,257
261,467
304,461
19,239
5,394
$
524,602
220,320
1,137,646
299,613
(142,010)
4,446
60,365
18,825
$
-
-
-
7,835
1,109,701
1,169,701
-
-
1,769,389
6,749,724
1,467,630
2,520,742
870,000
2,497,237
Total(9)
$
2,546,464
1,337,789
4,265,873
2,336,757
1,927,581
2,219,123
439,032
146,257
33,762,864
20,582,098
(1)
Includes cash allowances, payroll remediation payments, motor vehicle benefits, parking and short-term compensated absences, such as annual leave entitlements accrued. Any related fringe benefits tax is included. The 2020
comparative amount has been adjusted for Angela Mentis’ annual leave entitlement accrual, arising from changes in BNZ's leave policy.
(2) The VR cash received in respect of 2021 is scheduled to be paid on 22 December 2021 in Australia and 27 November 2021 in New Zealand.
(3)
Includes relocation costs considered to provide a benefit to the individual (including temporary accommodation, furniture rental, utility costs, dependant travel costs, insurance, stamp duty, associated fringe benefit tax and other
benefits). For international assignees this may also include the provision of health fund benefits and tax advisory services. The 2020 comparative amount has been adjusted for Ross McEwan as fringe benefits tax is not payable on
certain amounts associated with his relocation to Australia and for Angela Mentis an additional amount has been included for motor vehicle benefits.
Includes company contributions to superannuation and allocations by employees made by way of salary sacrifice of fixed remuneration. Superannuation contributions are not required to be paid to individuals based in New Zealand
but such payments may be made as part of cash salary.
Includes long service leave entitlements accrued based on an actuarial calculation.
(5)
(6) 2021 expense based on the grant date fair value, amortised on a straight line basis over the vesting period for: (a) General Employee shares granted in December 2017 to Shaun Dooley, Nathan Goonan and Rachel Slade, and in
(4)
December 2018 to Nathan Goonan and Angela Mentis. (b) Long-term shares granted to Susan Ferrier in February 2021, restricted until December 2023. The shares are subject to continued employment, malus and clawback provisions.
(c) Commencement shares granted to Andrew Irvine in November 2020. 21% of the shares were restricted until December 2020, 21% until December 2021, 24% until December 2022, 31% until December 2023 and 3% in December
2024. The shares are subject to continued employment, malus and clawback provisions. (d) 2018 VR deferred shares granted in February 2019 to Sharon Cook, Gary Lennon, Angela Mentis, Rachel Slade and Patrick Wright. The shares
are restricted for approximately four years, subject to performance and service conditions. 2019 VR deferred shares granted in February 2020 to Nathan Goonan for performance in his previous role. The shares are restricted for
approximately three years, subject to performance and service conditions.
(7) 2021 expense based on the grant date fair value, amortised on a straight line basis over the vesting period for: (a) 2021 VR deferred rights scheduled to be granted in February 2022. The VR deferred rights are restricted for up to
four years, with 25% scheduled to vest in November 2022, 25% in November 2023, 25% in November 2024 and 25% in November 2025. The deferred rights are subject to continued employment, malus and clawback. (b) 2016 and
2017 LTI performance rights granted in December 2016 and December 2017 respectively under the Group’s previous LTI program. The 2016 LTI was tested in 2020 and 55.8% of the performance rights vested and the remaining 44.2%
lapsed. Tranche 1 of the 2016 LTI fully lapsed and the associated expense reversed. (c) 2019 and 2020 LTVR performance rights granted in February 2020 and February 2021 respectively and 2021 LTVR performance rights scheduled to
be granted in February 2022 as described in Section 1.2 and Section 2.2. (d) Transformation performance rights granted to Shaun Dooley, Nathan Goonan and Rachel Slade in February 2018 for performance in their prior roles. The
performance rights were restricted for 3 years and subject to achievement of customer and cost savings performance and service hurdles. The performance hurdles were tested during 2020 and 50% of the award vested. The remaining
50% of the award lapsed and the associated expense reversed.
(8) For Andrew Irvine, the 2021 amount shown is a portion of his commencement award paid in cash in December 2020. In accordance with Australian Accounting Standards this amount has been expensed in 2020 and 2021. Andrew
received a commencement award to compensate for the loss of deferred benefits and current year variable reward on leaving his former employer. The award consists of $630,000 cash paid in December 2020 and $2,060,000 in
restricted shares (see 6(c) above). The remaining $450,000 was paid in May 2021 to compensate Andrew for an incentive related pension entitlement lost on leaving his former Canadian employer.
(9) The percentage of 2021 total remuneration related to performance-based remuneration was: Ross McEwan 52%, Sharon Cook 53%, Shaun Dooley 40%, Susan Ferrier 47%, David Gall 52%, Nathan Goonan 43%, Andrew Irvine 49%, Gary
Lennon 47%, Les Matheson 41%, Angela Mentis 47%, Rachel Slade 54%, Patrick Wright 57%.
Annual Financial Report 2021
75
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
5.2 Value of shares and rights
The following table shows the number and value of shares and rights that were granted by NAB, forfeited, lapsed or vested
for the Group CEO and each Group Executive during the year to 30 September 2021. Rights refers to VR deferred rights, LTI
performance rights, LTVR performance rights and any other deferred rights or performance rights provided under a current or
previous VR plan. A right is a right to receive one NAB share subject to the satisfaction of the relevant performance and service
conditions. The value shown is the full accounting value to be expensed over the vesting period, which is generally longer
than the current year. The Group CEO and Group Executives did not pay any amounts for rights that vested and were exercised
during 2021. There are no amounts unpaid on any of the shares exercised.
There have been no changes to the terms and conditions of these awards, or any other awards since the awards were granted.
All rights that vest are automatically exercised when they vest. For the awards allocated during the year to 30 September 2021,
the maximum number of shares or rights that may vest is shown for the Group CEO and each Group Executive. The maximum
value of the equity awards is the number of shares or rights subject to NAB’s share price at the time of vesting. The minimum
number of shares or rights and the value of the equity awards is zero if the equity is fully forfeited or lapsed.
Granted(1) Grant date
lapsed(2)
Vested(3) Granted
lapsed(4)
Vested
Forfeited /
Forfeited /
No.
No.
No.
$
$
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
LTVR rights
180,655
24/02/2021
LTVR rights
65,036
24/02/2021
General employee shares
30
13/12/2017
-
-
-
Transformation rights
17,248
21/02/2018
(8,624)
8,624
- 2,077,533
-
30
747,914
-
-
Gary Lennon
Les Matheson
Angela Mentis
LTVR rights
LTI rights
LTVR rights
LTVR rights
LTI rights
LTVR rights
Susan Ferrier
Long-term shares
LTVR rights
David Gall
LTVR rights
LTI rights
LTVR rights
72,262
24/02/2021
11,570
24/02/2021
65,036
24/02/2021
-
-
-
-
-
-
831,013
294,688
747,914
45,699
14/12/2016
(20,201)
25,498
-
(472,097)
272,064
86,714
24/02/2021
Nathan Goonan
General employee shares
30
13/12/2017
Transformation rights
17,248
21/02/2018
(8,624)
8,624
Andrew Irvine
Commencement shares
109,694
6/11/2020
LTVR rights
65,036
24/02/2021
-
-
-
30
997,211
-
-
-
-
-
886
(201,543)
211,374
-
-
-
-
747,914
23,323 2,060,053
-
997,211
-
-
-
-
438,006
-
86,714
24/02/2021
57,123
14/12/2016
(25,251)
31,872
-
(590,116)
340,074
79,488
24/02/2021
75,875
24/02/2021
-
-
-
-
914,112
872,563
-
-
-
-
57,123
14/12/2016
(25,251)
31,872
-
(590,116)
340,074
86,714
24/02/2021
-
-
-
30
997,211
-
-
-
-
-
886
(201,543)
211,374
Rachel Slade
General employee shares
30
13/12/2017
Transformation rights
17,248
21/02/2018
(8,624)
8,624
Patrick Wright
LTVR rights
LTVR rights
86,714
24/02/2021
108,393
24/02/2021
-
-
-
997,211
- 1,246,520
-
-
-
-
(1) The following securities have been granted during 2021: a) LTVR performance rights allocated in February 2021 (in respect of 2020) to the Group CEO and all
Group Executives. The performance rights are restricted until December 2024 and subject to service and performance hurdles. b) Long-term shares allocated
to Susan Ferrier in February 2021. See Section 5.1 for more details. c) Commencement shares allocated to Andrew Irvine in November 2020. See Section 5.1
for more details.
(2) The following securities have lapsed during 2021: a) Transformation performance rights allocated in February 2018 were partially lapsed in December 2020
for Shaun Dooley, Nathan Goonan and Rachel Slade. The award relates to their role prior to becoming a Group Executive. Further details are provided in
Section 4.4. b) LTI performance rights allocated in December 2016 were partially lapsed in December 2020 for David Gall, Gary Lennon and Angela Mentis.
Further details are provided in Section 4.4.
(3) The following securities have vested during 2021: a) General employee shares granted to Shaun Dooley, Nathan Goonan and Rachel Slade in December
2017, fully vested in December 2020. b) Transformation performance rights allocated in February 2018 partially vested in December 2020 for Shaun Dooley,
Nathan Goonan and Rachel Slade. The award relates to their role prior to becoming a Group Executive. Further details are provided in Section 5.1. c)
LTI performance rights allocated in December 2016 partially vested in December 2020 for David Gall, Gary Lennon and Angela Mentis. Further details are
provided in Section 4.4.
(4) Calculated using NAB's closing share price on the forfeiture / lapsing date.
76
National Australia Bank
$
-
-
886
-
-
-
(201,543)
211,374
-
-
-
-
-
-
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
5.3 Determining the value of equity remuneration
The number of shares and rights provided to the Group CEO and Group Executives by NAB are determined using a face value
methodology. The table below shows the fair value of shares and rights granted by NAB during 2021 in accordance with
statutory requirements. The grant date fair value of each share is determined by the market value of NAB shares and is generally
a five day weighted average share price. The grant date fair value of shares and rights with market performance hurdles is
determined using a simulated version of the Black-Scholes model.
No performance options have been granted during the year. Shares and rights granted during 2021 were granted at no cost to
the Group CEO or Group Executive and have a zero exercise price.
Award type
Grant date
price(1)
value
Grant
share
Fair
Type of allocation
Commencement shares(3)
Commencement shares(3)
Commencement shares(3)
Commencement shares(3)
Commencement shares(3)
Long-term share award(4)
Shares
Shares
Shares
Shares
Shares
Shares
$
6 November 2020
6 November 2020
6 November 2020
6 November 2020
6 November 2020
24 February 2021
Long-Term Variable Reward(5)
Performance rights
24 February 2021
24.90
$
18.78
18.78
18.78
18.78
18.78
25.47
11.50
Restriction
period end(2)
1 December 2020
31 December 2021
31 December 2022
31 December 2023
31 December 2024
22 December 2023
22 December 2024
(1) The Grant share price is NAB's closing share price at the date of valuation (being the grant date of the relevant award). The Grant share price was used to
determine the fair value.
(2) Any performance rights that vest are automatically exercised at the end of the restriction period. The end of the restriction period for the LTVR performance
rights is also the expiry date for those performance rights.
(3) Andrew Irvine received commencement shares on joining NAB. Details of the awards are provided in section 5.1, footnote 8.
(4)
(5) The number of LTVR performance rights allocated to each eligible participant was calculated using the weighted average share price over the five trading
Long-term shares were provided to Susan Ferrier. Details of the award are provided in section 1.2.
days up to 30 September 2020, inclusive, being $17.99.
Hedging policy
Directors and employees are prohibited from protecting the value of their equity awards by hedging. Further details are
available in the Group Securities Trading Policy.
NAB’s Group Securities Trading Policy explains the law and the Policy for our colleagues to comply with when trading in
NAB securities. All employees are prohibited from using derivatives in relation to elements of their remuneration that are
unvested. In addition, closely related parties of KMP are prohibited from using derivatives or otherwise entering into hedging
arrangements in relation to elements of their remuneration that are unvested or which have vested but remain subject to
forfeiture conditions.
The Group Securities Trading Policy is available at https://www.nab.com.au/content/dam/nabrwd/documents/policy/
corporate/group-securities-trading-policy.pdf.
Annual Financial Report 2021
77
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
5.4 Rights holdings
No rights or performance options (i.e. entitlements to NAB shares) are granted to the Group CEO or Group Executives'
related parties.
No performance options (i.e. a right requiring payment of a subscription price on vesting) are currently held by the Group
CEO or Group Executives. The number of rights that vested during the year was equivalent to the number of rights that were
exercised during the year. At 30 September 2021, no rights held by the Group CEO or Group Executives were: (i) vested and
exercisable; nor (ii) vested but not exercisable.
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis
Rachel Slade
Patrick Wright
Balance at
Granted during
Forfeited /
beginning of
year as
Exercised
lapsed or expired
Balance at end
year(1)
remuneration
during year
during year
No.
No.
No.
No.
-
180,655
59,875
50,748
-
146,262
17,248
-
158,109
-
173,079
56,443
134,329
65,036
72,262
65,036
86,714
65,036
86,714
79,488
75,875
86,714
86,714
108,393
-
-
(8,624)
-
(25,498)
(8,624)
-
(31,872)
-
(31,872)
(8,624)
-
-
-
(8,624)
-
(20,201)
(8,624)
-
(25,251)
-
(25,251)
(8,624)
-
of year
No.
180,655
124,911
105,762
65,036
187,277
65,036
86,714
180,474
75,875
202,670
125,909
242,722
(1) Balance may include rights granted prior to individuals becoming KMP. For individuals who became KMP during 2021, the balance is at the date they
became KMP.
78
National Australia Bank
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
5.5 Group CEO and Group Executives' share ownership
The number of NAB shares held (directly and nominally) by the Group CEO and each Group Executive or their related parties
(their close family members or any entity they, or their close family members, control, jointly control or significantly influence)
are set out below:
Name
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Shaun Dooley
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis
Rachel Slade
Patrick Wright
Balance at
Granted
Received during
beginning of
during year as
year on exercise
Other changes
Balance at end
year(1)
remuneration
of rights
during year
No.
No.
No.
No.
53,897
13,446
62,480
-
94,350
3,590
-
-
-
11,570
-
-
-
109,694
120,213
-
154,096
39,811
79,818
-
-
-
-
-
-
-
8,624
-
25,498
8,624
-
31,872
-
31,872
8,624
-
-
-
-
-
-
(8,624)
(23,323)
(15,172)
-
(31,500)
-
-
of year
No.
53,897
13,446
71,104
11,570
119,848
3,590
86,371
136,913
-
154,468
48,435
79,818
(1) Balance may include shares held prior to individuals becoming KMP. For individuals who became KMP during 2021, the balance is at the date they
became KMP.
Minimum shareholding requirements
The Group CEO and Group Executives are required to accumulate and retain NAB equity over a five year period from
commencement as KMP to an amount equal to:
• two times fixed remuneration for the Group CEO
• one times fixed remuneration for Group Executives.
Additionally, the Group CEO must hold at least 2,000 NAB ordinary shares within six months of appointment.
Holdings included in meeting the minimum shareholding requirements for each of the Group CEO or a Group Executive are
NAB shares held, equity received under NAB’s employee equity plans that has vested and is retained, and unvested VR deferred
shares and VR deferred rights.
The Group CEO and Group Executives have met their current shareholding requirements.
5.6 Group CEO and Group Executive contract terms
The Group CEO and Group Executives are employed on the following contractual terms:
Contractual term
Arrangement
Duration
• Permanent ongoing employment
Notice period(1)
• 26 weeks(2)
Other key arrangements
• If the Group CEO or Group Executive resigns or is dismissed by NAB they do not receive any annual or
on separation
long-term variable reward in that year and any unvested awards are forfeited.
• Unvested awards may be retained on separation in other circumstances such as retrenchment or retirement.
Where unvested awards do not lapse on cessation of employment, they will continue to be held by the
individual on the same terms.
• All statutory entitlements are paid.
Post-
• Non-compete and non-solicitation obligations apply.
employment obligations
(1) Payment in lieu of notice for some or all of the notice period may be approved by the Board in certain circumstances. Termination payments are not paid on
resignation, summary termination or termination for unsatisfactory performance, although the Board may determine exceptions to this.
(2) Subject to the terms of the NAB Enterprise Agreement 2016.
Annual Financial Report 2021
79
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Section 6 - Non-executive director remuneration
6.1 Fee policy and pool
Non-executive directors receive fees to recognise their contribution to the work of the Board. Additional fees are paid, where
applicable, for serving on Board Committees, on Boards of controlled entities and internal advisory boards. Fees include
NAB’s compulsory contributions to superannuation. Fees are set to reflect the time commitment and responsibilities of the
role. To maintain independence and objectivity, non-executive directors do not receive any performance related remuneration.
Non-executive directors do not receive any termination payments.
The total amount of non-executive directors' remuneration is capped at a maximum aggregate fee pool that is approved by
shareholders. The current aggregate fee pool of $4.5 million per annum was approved by shareholders at NAB's 2008 Annual
General Meeting. The total Board and Committee fees, including superannuation, paid to non-executive directors in 2021 is
within the approved aggregate fee pool.
The following table shows the 2021 non-executive director Board and Committee fee policy structure.
Board
Audit Committee
Risk & Compliance Committee
People & Remuneration Committee
Customer Committee
Nomination & Governance Committee
Changes for 2022
Chair ($pa) Non-executive director ($pa)
790,000
65,000
60,000
55,000
40,000
-
230,000
32,500
30,000
27,500
20,000
10,000
Non-executive director fees are generally reviewed annually, including against fee levels paid to board members of other major
Australian corporations. As a result of the 2021 fee review, the Board determined to make the following changes effective from
1 October 2021:
• Increase the Board Chair fee from $790,000 to $825,000 and non-executive director Board fee from $230,000 to $240,000 to
continue to attract and retain high quality non-executive directors.
• Increase the Risk and Compliance Committee Chair fee from $60,000 to $65,000 and the fee for being a member of that
Committee from $30,000 to $32,500 due to the increased workload for this Committee over recent years.
80
National Australia Bank
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
6.2 Statutory remuneration
The 2021 fees paid to the non-executive directors are set out below. The 2020 fees paid take into account the 20% reduction
to the chairman fee and non-executive director base fee from 1 April 2020 to 30 September 2020 and changes in the directors'
duties and responsibilities during the year. In 2020, there was a Special Duties fee paid to Philip Chronican while interim Group
CEO (an executive director role).
Short-term benefits
Post-employment benefits
Cash salary and fees(1)
Special duties
Superannuation(2)
Name
Non-executive directors
Philip Chronican (Chair)
David Armstrong
Kathryn Fagg
Peeyush Gupta(3)
Anne Loveridge
Douglas McKay(4)
Simon McKeon
Ann Sherry
Former non-executive directors
Geraldine McBride (for part year)
Ken Henry (for part year)
Anthony Yuen (for part year)
Total
Total
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2020
2020
2021
2020
$
767,837
595,226
302,837
304,325
270,337
176,907
467,801
506,426
308,333
261,349
541,693
492,782
277,837
149,553
275,337
253,325
56,085
238,740
91,932
62,280
3,268,097
3,132,845
$
-
224,764
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
224,764
$
22,163
21,176
22,163
21,175
22,163
16,381
22,163
21,176
-
10,651
22,163
20,882
22,163
14,114
22,163
21,176
5,328
20,760
5,251
873
160,469
173,615
Total
$
790,000
841,166
325,000
325,500
292,500
193,288
489,964
527,602
308,333
272,000
563,856
513,664
300,000
163,667
297,500
274,501
61,413
259,500
97,183
63,153
3,428,566
3,531,224
(1) The portion of fees in connection with their roles, duties and responsibilities as a non-executive director, and includes attendance at meetings of the Board,
and of Board committees and boards of controlled entities, received as cash.
(2) Reflects compulsory company contributions to superannuation.
(3) Peeyush Gupta received fees of $202,463 in his capacity as a non-executive director on the board of a number of Group subsidiaries, including as a
non-executive director of a number of Wealth Boards and BNZ Life. Peeyush resigned from the Wealth Boards on 31 May 2021, upon completion of the sale
of MLC Wealth to IOOF. The director fees relating to BNZ Life were paid in NZD.
(4) Douglas McKay received fees of $281,355 in his capacity as Chair of Bank of New Zealand, which were paid in NZD.
Annual Financial Report 2021
81
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
6.3 Minimum shareholding policy
To align with shareholders interests, non-executive directors are required to hold, within five years of their appointment,
NAB ordinary shares to the value of the annual base fee for non-executive directors. To meet the minimum requirement,
non-executive directors must:
• hold at least 2,000 NAB ordinary shares within six months of their appointment
• acquire NAB ordinary shares to the value of at least 20% of the annual base fee each year until the minimum holding
requirement is met.
The value of a non-executive director's shareholding is based on the share price at the time shares were acquired. All current
non-executive directors' shareholding requirements have been met.
From 1 October 2021, the minimum requirement for the Chair's shareholding has increased to equal the value of the Chair's
annual fee. The current Chair already meets this requirement.
6.4 Non-executive directors' share ownership and other interests
The number of NAB shares held (directly and nominally) by each non-executive director of NAB and the Group or their related
parties (their close family members or any entity they, or their close family members, control, jointly control or significantly
influence) are set out below. No rights or performance options are granted to non-executive directors or their related parties.
Name
Non-executive directors
Philip Chronican (Chair)
David Armstrong
Kathryn Fagg
Peeyush Gupta
Anne Loveridge
Douglas McKay
Simon McKeon
Ann Sherry
Former non-executive directors
Geraldine McBride
Balance at
beginning of
year(1)
No.
42,120
19,110
8,700
9,571
12,120
11,972
12,120
12,698
7,703
Other changes
Balance at end
Acquired
during year
No.
-
685
726
-
-
-
2,880
-
-
No.
-
-
-
-
-
-
-
-
-
of year(2)
No.
42,120
19,795
9,426
9,571
12,120
11,972
15,000
12,698
7,703
(1) Balance may include shares held prior to individuals becoming a non-executive director.
(2) For non-executive directors who ceased their directorship during 2021, the balance is as at the date they ceased being a director.
82
National Australia Bank
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
Section 7 - Loans, other transactions and other interests
7.1 Loans
Loans made to non-executive directors of NAB are made in the ordinary course of business on terms equivalent to those
that prevail in arm's length transactions. Loans to the Group CEO and Group Executives may be made on similar terms and
conditions generally available to other employees of the Group. Loans to KMP of NAB and the Group may be subject to
restrictions under applicable laws and regulations including the Corporations Act 2001 (Cth). The opening balance is 1 October
and closing balance is 30 September, or the date of commencement or cessation of a KMP.
Total aggregated loans provided to KMP and their related parties
NAB and the Group
KMP(2)
Other related parties(3)
Balance at
Terms and
beginning of
Interest
Interest not
Balance at
conditions
year
$
Normal
Employee
3,375,290
4,333,332
Normal
14,054,470
charged(1)
charged(1)
Write-off(1)
end of year
$
255,694
270,795
283,694
$
-
-
-
$
-
-
-
$
13,702,702
17,274,318
14,199,104
(1) Relates to the period during which the Group Executive was KMP.
(2) The aggregated loan balance at the end of the year includes loans issued to 16 KMP.
(3)
Includes the KMP's related parties, which includes their close family members or any entity they or their close family members control, jointly control or
significantly influence.
Aggregated loans to KMP and their related parties above $100,000
Balance at
KMP highest
beginning of
Interest
Interest not
Balance at
indebtedness
charged(1)
charged
Write-off
end of year
during year(2)
$
$
$
$
NAB and the Group
Non-executive directors
David Armstrong
Kathryn Fagg
Douglas McKay
Group CEO
Ross McEwan
Group Executives
Sharon Cook
Susan Ferrier
David Gall
Nathan Goonan
Andrew Irvine
Gary Lennon
Les Matheson
Angela Mentis
Rachel Slade
Patrick Wright
year
$
1,078,592
1,388,818
1,638,112
28,821
34,365
44,920
1,830,899
25,334
1,102,482
3,095,097
4,699,033
-
715
3,122,483
-
442,183
989
3,320,357
18,207
21,472
55,654
156,144
158,057
95,849
46,823
18,678
47,682
57,640
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
-
2,957,420
4,165
1,040,373
2,930,750
1,282,862
1,736,289
1,230,013
1,035,595
1,080,388
820,175
4,392,579
6,493,470
492,175
859,062
8,770,398
11,831,913
12,026,495
2,956,470
4,413,206
525,935
2,391,907
3,235,693
3,184,679
727,916
25,428
2,512,866
52,784
(1) The interest charged may include the impact of interest offset facilities and only relates to the period during which the non-executive director, Group CEO or
Group Executive was KMP.
(2) Represents aggregate highest indebtedness of the KMP during 2021. All other items in this table relate to the KMP and their related parties.
7.2 Other transactions
From time to time various KMP and their related parties will hold investments in funds that are either managed, related to or
controlled by the Group. All such transactions with KMP and their related parties are made on terms equivalent to those that
prevail in arm's length transactions.
All other transactions that have occurred with KMP are made on terms equivalent to those that prevail in arm's length
transactions. These transactions generally involve the provision of financial and investment services including services to
eligible international assignees ensuring they are neither financially advantaged nor disadvantaged by their relocation. All such
Annual Financial Report 2021
83
REPORT OF THE DIRECTORS
REMUNERATION REPORT (CONTINUED)
transactions that have occurred with KMP and their related parties have been trivial or domestic in nature. In this context,
transactions are trivial in nature when they are considered of little or no interest to the users of the Remuneration report in
making and evaluating decisions about the allocation of scarce resources. Transactions are domestic in nature when they relate
to personal household activities.
7.3 Other equity instrument holdings
Holdings and transactions involving equity instruments (held directly or indirectly), other than NAB shares and equity-based
compensation, with each KMP or their related parties and NAB and the Group are set out below:
Name
Non-executive directors
Philip Chronican
Group Executives
Susan Ferrier
David Gall
Equity instrument
National Income Securities(1)
NAB Convertible Preference Shares II
NAB Convertible Preference Shares II
Balance at
beginning of
Changes during
Balance at end
year
No.
982
104
700
year
No.
(982)
(104)
(700)
of year
No.
-
-
-
(1) On 15 February 2021, the Group redeemed the $2,000 million of National Income Securities issued on 29 June 1999. The National Income Securities were
redeemed for cash at their par value ($100) plus the final interest payment. The unpaid preference shares forming part of the National Income Securities
were bought back for no consideration and cancelled.
7.4 Other relevant interests
Each KMP or their related parties from time to time invest in various debentures, registered schemes and securities offered by
NAB and certain subsidiaries of NAB. The level of interests held directly and indirectly as at 30 September 2021 were:
Name
Non-executive directors
Ann Sherry
Group Executives
Sharon Cook
David Gall
Nature of product
NAB Capital Notes 3
NAB Subordinated Notes 2
NAB Capital Notes 3
NAB Capital Notes 5
Relevant Interest (Units)
1,500
820
2,000
700
There are no contracts, other than those disclosed in the level of interests held table immediately above, to which directors
are a party, or under which the directors are entitled to a benefit and that confer the right to call for, or deliver shares in,
debentures of, or interests in, a registered scheme made available by NAB or a related body corporate. All of the directors have
disclosed interests in organisations not related to the Group and are to be regarded as interested in any contract or proposed
contract that may be made between NAB and any such organisations.
84
National Australia Bank
FINANCIAL STATEMENTS
Income statements
Statements of comprehensive income
Balance sheets
Statement of cash flows
Statements of changes in equity
INTRODUCTION
Note 1 Basis of preparation
FINANCIAL PERFORMANCE
Note 2 Segment information
Note 3 Net interest income
Note 4 Other income
Note 5 Operating expenses
Note 6 Income tax
Note 7 Earnings per share
FINANCIAL INSTRUMENTS
Assets
Note 8 Cash and balances with other banks
Note 9 Trading securities
Note 10 Debt instruments
Note 11 Other financial assets
Note 12 Loans and advances
Liabilities
Note 13 Deposits and other borrowings
Note 14 Bonds, notes and subordinated debt
Note 15 Other debt issues
Note 16 Other financial liabilities
Risk management
Note 17 Provision for credit impairment on loans at
amortised cost
Note 18 Derivatives and hedge accounting
Note 19 Financial risk management
Note 20 Fair value of financial instruments
Note 21 Financial asset transfers
86
87
88
89
91
93
93
96
97
99
100
102
104
107
108
111
111
112
112
113
113
114
116
117
118
125
135
149
154
OTHER ASSETS AND LIABILITIES
Note 22 Goodwill and other intangible assets
Note 23 Other assets
Note 24 Provisions
Note 25 Other liabilities
Note 26 Leases
CAPITAL MANAGEMENT
Note 27 Contributed equity
Note 28 Reserves
Note 29 Dividends and distributions
UNRECOGNISED ITEMS
Note 30 Commitments and contingent liabilities
OTHER DISCLOSURES
Note 31 Interest in subsidiaries and other entities
Note 32 Related party disclosures
Note 33 Remuneration of external auditor
Note 34 Equity-based plans
Note 35 Capital adequacy
Note 36 Notes to the statement of cash flows
Note 37 Discontinued operations
Note 38 Acquisition of subsidiary
Note 39 Events subsequent to reporting date
155
155
157
158
159
160
162
162
164
165
167
167
173
173
177
179
180
185
186
189
191
191
Annual Financial Report 2021
85
N
O
T
E
S
T
O
T
H
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
9
3
FINANCIAL STATEMENTS
INCOME STATEMENTS
For the year ended 30 September
Interest income
Effective interest income(2)
Fair value through profit or loss
Interest expense(2)
Net interest income
Other income(2)(3)
Operating expenses(2)(3)
Credit impairment write-back / (charge)
Profit before income tax
Income tax expense
Net profit / (loss) for the year from continuing operations
Net loss after tax for the year from discontinued operations
Net profit / (loss) for the year
Attributable to non-controlling interests
Attributable to owners of NAB
Earnings per share
Basic
Diluted
Basic from continuing operations
Diluted from continuing operations
Group(1)
Company
Note
2021
$m
2020
$m
17,148
886
20,921
2,190
2021
$m
15,433
815
2020
$m
19,030
2,017
(4,241)
(9,234)
(6,241)
(10,905)
10,007
3,506
10,142
3,992
(6,946)
(11,314)
192
6,759
(1,696)
5,063
-
5,063
-
5,063
(2,462)
358
(885)
(527)
-
(527)
-
(527)
3
4
5
17
6
37
7
7
7
7
13,793
2,936
(7,863)
202
9,068
(2,597)
6,471
(104)
6,367
3
6,364
cents
193.0
185.2
196.3
188.2
13,877
3,259
(9,221)
(2,752)
5,163
(1,665)
3,498
(935)
2,563
4
2,559
cents
82.1
80.5
112.7
108.6
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(3) Comparative information has been restated to reflect product reclassification in the Group's BNZ Life business.
86
National Australia Bank
STATEMENTS OF COMPREHENSIVE INCOME
For the year ended 30 September
Note
Net profit / (loss) for the year from continuing operations
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit superannuation plans
Fair value changes on financial liabilities designated at fair value attributable to
the Group's own credit risk
Revaluation of land and buildings
Equity instruments at fair value through other comprehensive income reserve:
Revaluation gains / (losses)
Tax on items transferred directly to equity
Total items that will not be reclassified to profit or loss
Items that will be reclassified subsequently to profit or loss
Cash flow hedge reserve:
(Losses) / gains on cash flow hedging instruments
Cost of hedging reserve
Foreign currency translation reserve:
Currency adjustments on translation of foreign operations, net of hedging
Transfer to the income statement on disposal or partial disposal of
foreign operations(2)
Debt instruments at fair value through other comprehensive income reserve:
Revaluation gains
Transferred to the income statement
Tax on items transferred directly to equity
Total items that will be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of income tax
Total comprehensive income for the year from continuing operations
Net loss after tax for the year from discontinued operations
Other comprehensive income for the year from discontinued operations, net of
income tax
Total comprehensive income for the year
Attributable to non-controlling interests
Total comprehensive income attributable to owners of NAB
37
37
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Partial disposals of foreign operations include returns of capital made by foreign branches.
FINANCIAL STATEMENTS
Group(1)
Company
2021
$m
6,471
2020
$m
3,498
2021
$m
5,063
2020
$m
(527)
1
(78)
-
3
22
(52)
(318)
185
301
(14)
377
(102)
(47)
382
330
6,801
(104)
8
6,705
3
6,702
1
-
-
(118)
(1)
(1)
32
(87)
121
(234)
(37)
(22)
40
3
29
(100)
(187)
3,311
(935)
(2)
2,374
4
2,370
(63)
(56)
-
-
18
(45)
(395)
127
27
(14)
377
(102)
(6)
14
(31)
5,032
-
-
5,032
-
5,032
-
-
14
(42)
161
(171)
(7)
(22)
40
3
(8)
(4)
(46)
(573)
-
-
(573)
-
(573)
Annual Financial Report 2021
87
FINANCIAL STATEMENTS
BALANCE SHEETS
As at 30 September
Assets
Cash and liquid assets
Due from other banks(1)
Collateral placed(1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
Current tax assets
Due from controlled entities(1)
Deferred tax assets
Property, plant and equipment
Investments in controlled entities
Goodwill and other intangible assets
Other assets(1)
Assets held for sale
Total assets
Liabilities
Due to other banks(1)
Collateral received(1)
Other financial liabilities
Derivative liabilities(1)
Deposits and other borrowings
Current tax liabilities
Provisions
Due to controlled entities(1)
Bonds, notes and subordinated debt
Other debt issues
Deferred tax liabilities
Other liabilities(1)
Liabilities directly associated with assets held for sale
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained profits
Total equity (parent entity interest)
Non-controlling interest in controlled entities
Total equity
Note
Group
2021
$m
8
8
9
10
11
18
12
6
22
23
37
8
16
18
13
24
14
15
6
25
37
27
28
2020
$m
64,388
47,333
8,579
64,937
40,355
3,860
34,744
Company
2021
$m
50,336
98,207
5,919
42,916
41,849
3,305
26,811
2020
$m
63,555
44,185
7,413
54,924
40,324
3,885
34,214
50,832
107,546
6,430
50,020
41,878
2,794
27,474
621,156
583,962
529,546
502,819
36
-
2,953
2,814
-
4,113
7,922
-
-
-
3,647
2,374
-
3,809
7,098
1,479
36
38,599
2,454
1,838
4,402
1,757
6,858
-
-
41,847
2,895
1,486
3,806
1,757
6,164
1,837
925,968
866,565
854,833
811,111
74,160
4,664
27,046
24,031
46,773
5,327
29,971
32,276
605,043
546,176
271
2,834
-
192
3,820
-
109,154
126,384
6,831
29
9,126
-
6,191
25
7,916
221
863,189
62,779
805,272
61,293
43,247
550
18,982
62,779
-
45,476
99
15,717
61,292
1
68,715
4,120
7,136
26,178
535,551
115
2,620
38,682
102,501
6,831
-
7,925
-
800,374
54,459
42,461
99
11,899
54,459
-
44,449
4,721
8,911
35,171
484,338
150
3,628
41,467
120,297
6,191
-
7,146
-
756,469
54,642
44,690
34
9,918
54,642
-
62,779
61,293
54,459
54,642
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
88
National Australia Bank
STATEMENT OF CASH FLOWS
For the year ended 30 September(1)
Cash flows from operating activities
Interest received(2)
Interest paid(2)
Dividends received
Net trading income received / (paid)
Other income received(2)
Operating expenses paid
Income tax paid
FINANCIAL STATEMENTS
Group
Company
Note
2021
$m
2020
$m
18,194
23,160
(4,589)
(10,151)
22
107
3,210
(6,130)
(1,833)
43
(2,114)
3,164
(7,167)
(2,580)
2021
$m
16,429
(6,489)
1,573
964
2,047
(4,873)
(1,251)
2020
$m
21,073
(11,675)
1,329
(1,341)
985
(5,462)
(1,975)
Cash flows from operating activities before changes in operating assets
and liabilities
Changes in operating assets and liabilities
Net (increase) / decrease in
Collateral placed(2)
Deposits with central banks and other regulatory authorities
Trading securities
Other financial assets designated at fair value
Loans and advances(2)
Other assets(2)
Net increase / (decrease) in
Collateral received(2)
Deposits and other borrowings
Other financial liabilities designated at fair value
Other liabilities(2)
Net funds advanced to and receipts from other banks
Net movement in derivative assets and liabilities
Changes in operating assets and liabilities arising from cash flow movements
Net cash provided by / (used in) operating activities
36
Cash flows from investing activities
Movement in debt instruments
Purchases
Proceeds from disposal and maturity
Net movement in other debt and equity instruments
Net movement in amounts due from / (to) controlled entities
Net movement in shares in controlled entities
Net movement in shares in associates and joint ventures
Purchase of controlled entities and business combinations, net of cash acquired
Proceeds from sale of controlled entities, net of costs and cash disposed
Purchase of property, plant, equipment and software
Proceeds from sale of property, plant, equipment and software, net of costs
Net cash provided by / (used in) investing activities
8,981
4,355
8,400
2,934
(2,813)
(62,430)
12,453
1,166
(34,370)
(985)
3,100
55,944
1,173
(1,133)
21,027
(1,354)
(8,222)
759
492
(9,943)
(3,860)
2,861
3,067
342
(569)
25,890
66
(3,438)
11,006
3,623
29,537
33,892
(3,217)
(62,430)
10,167
680
(26,385)
(564)
2,578
50,682
(1,374)
(1,527)
18,965
(1,844)
(14,269)
(5,869)
667
(9,943)
(1,405)
2,181
3,499
99
(566)
22,977
838
(2,686)
10,971
2,558
29,190
32,124
(29,740)
(21,066)
(29,724)
(21,037)
26,301
21,411
26,284
21,374
190
-
-
(124)
(211)
747
(858)
1
(3,694)
(10)
-
-
(138)
-
-
(972)
73
(702)
(685)
434
62
(106)
(216)
1,132
(589)
-
-
(1,486)
(29)
(138)
-
-
(721)
7
(3,408)
(2,030)
(1) The statement of cash flows include net cash inflows / (outflows) from operating, investing and financing activities on discontinued operations. Refer to Note
37 Discontinued operations for further information.
(2) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Annual Financial Report 2021
89
FINANCIAL STATEMENTS
STATEMENT OF CASH FLOWS (CONTINUED)
For the year ended 30 September(1)
Cash flows from financing activities
Group
Company
2021
$m
2020
$m
2021
$m
2020
$m
Repayments of bonds‚ notes and subordinated debt
(30,062)
(34,524)
(24,813)
(29,800)
Proceeds from issue of bonds‚ notes and subordinated debt‚ net of costs
Proceeds from issue of ordinary shares, net of costs
Payments for share buy-back
Purchase of shares for dividend reinvestment plan neutralisation
Repayments of other contributed equity
Proceeds from other debt issues, net of costs
Repayments of other debt issues
Dividends and distributions paid (excluding dividend reinvestment plan)
Repayments of other financing activities
Net cash provided by / (used in) financing activities
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of exchange rate changes on balance of cash held in foreign currencies
Cash and cash equivalents at end of year
36
13,098
-
(486)
(164)
(2,000)
2,365
(1,731)
(2,682)
(383)
(22,045)
(24,980)
62,041
820
37,881
14,996
4,904
-
-
-
1,098
(649)
(2,323)
(322)
(16,820)
16,370
47,026
(1,355)
62,041
10,053
-
(486)
(164)
(2,000)
2,365
(1,731)
(2,678)
(337)
(19,791)
(29,068)
58,806
724
30,462
12,939
4,904
-
-
-
1,098
(649)
(2,319)
(278)
(14,105)
15,989
44,164
(1,347)
58,806
(1) The statement of cash flows include net cash inflows / (outflows) from operating, investing and financing activities on discontinued operations. Refer to Note
37 Discontinued operations for further information.
90
National Australia Bank
STATEMENTS OF CHANGES IN EQUITY
Group(3)
Year to 30 September 2020
Balance at 1 October 2019
Net profit for the year from continuing operations
Net profit / (loss) for the year from discontinued operations
Other comprehensive income for the year from continuing operations
Other comprehensive income for the year from discontinued operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares
Conversion of convertible notes
Transfer from / (to) retained profits
Transfer from equity-based compensation reserve
Equity-based compensation
Dividends paid(4)
Distributions on other equity instruments(4)
Changes in ownership interests(5)
Movement of non-controlling interest in controlled entities
Balance as at 30 September 2020
Year to 30 September 2021
Net profit for the year from continuing operations
Net profit / (loss) for the year from discontinued operations
Other comprehensive income for the year from continuing operations
Other comprehensive income for the year from discontinued operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares
Tax on deductible transaction costs
On-market purchase of shares for dividend reinvestment
plan neutralisation
Share buy-back
Transfer from / (to) retained profits
Transfer from equity-based compensation reserve
Equity-based compensation
Dividends paid
Distributions on other equity instruments
Redemption of National Income Securities
Balance as at 30 September 2021
FINANCIAL STATEMENTS
Non-
controlling
interest
in
Contributed
Retained
controlled
equity(1) Reserves(2)
profits
Total
entities
$m
$m
$m
$m
$m
Total
equity
$m
55,521
3,498
(935)
(187)
(2)
2,374
5,880
750
-
-
74
(3,260)
(39)
(7)
61,293
6,471
(104)
330
8
6,705
274
13
(164)
(486)
-
-
100
8
-
4
-
-
4
-
-
-
-
-
(4)
-
(7)
1
-
3
-
-
3
-
-
-
-
-
-
-
38,707
306
16,500
55,513
-
-
-
-
-
-
-
(104)
1
3,498
(939)
(83)
(3)
3,498
(939)
(187)
(2)
(103)
2,473
2,370
5,880
750
-
139
-
-
-
-
-
-
(39)
(139)
74
-
-
-
-
-
39
-
-
5,880
750
-
-
74
(3,256)
(3,256)
(39)
(39)
-
-
45,476
99
15,717
61,292
6,471
6,471
(107)
(55)
5
(107)
330
8
6,314
6,702
-
-
-
-
(27)
-
-
274
13
(164)
(486)
-
-
100
-
-
-
-
-
274
13
(164)
(486)
-
79
-
-
-
(1,945)
43,247
-
-
385
3
388
-
-
-
-
27
(79)
100
-
-
15
550
(1) Refer to Note 27 Contributed equity for further details.
(2) Refer to Note 28 Reserves for further details.
(3)
(4) Refer to Note 29 Dividends and distributions for further details.
(5) Changes in ownership interests in controlled entities that do not result in a loss of control.
Information is presented on a continuing operations basis, unless otherwise stated.
(2,939)
(2,939)
(4)
(2,943)
(13)
(70)
(13)
(2,000)
18,982
62,779
-
-
-
(13)
(2,000)
62,779
Annual Financial Report 2021
91
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
Company
Year to 30 September 2020
Balance at 1 October 2019
Net loss for the year from continuing operations
Other comprehensive income for the year from continuing operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares
Conversion of convertible notes
Transfer from / (to) retained profits
Transfer from equity-based compensation reserve
Equity-based compensation
Dividends paid
Distributions on other equity instruments
Balance as at 30 September 2020
Year to 30 September 2021
Net profit for the year from continuing operations
Other comprehensive income for the year from continuing operations
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Issue of ordinary shares
Tax on deductible transaction costs
On-market purchase of shares for dividend reinvestment plan neutralisation
Share buy-back
Transfer from / (to) retained profits
Transfer from equity-based compensation reserve
Equity-based compensation
Dividends paid(3)
Distributions on other equity instruments(3)
Redemption of National Income Securities
Balance as at 30 September 2021
(1) Refer to Note 27 Contributed equity for further details.
(2) Refer to Note 28 Reserves for further details.
(3) Refer to Note 29 Dividends and distributions for further details.
Contributed
Retained
equity(1)
Reserves(2)
profits
$m
$m
$m
Total
equity
$m
37,921
113
13,772
51,806
-
-
-
5,880
750
-
139
-
-
-
44,690
-
-
-
274
13
(164)
(486)
-
79
-
-
-
(1,945)
42,461
-
(7)
(7)
-
-
(7)
(139)
74
-
-
34
-
14
14
-
-
-
-
15
(79)
100
-
-
15
99
(527)
(39)
(566)
-
-
7
-
-
(3,256)
(39)
9,918
5,063
(45)
5,018
-
-
-
-
(15)
-
-
(2,939)
(13)
(70)
11,899
(527)
(46)
(573)
5,880
750
-
-
74
(3,256)
(39)
54,642
5,063
(31)
5,032
274
13
(164)
(486)
-
-
100
(2,939)
(13)
(2,000)
54,459
92
National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
INTRODUCTION
NOTE 1
BASIS OF PREPARATION
These are the financial statements of National Australia Bank Limited (NAB or the Company) together with its controlled entities
(Group) for the year ended 30 September 2021. National Australia Bank Limited, incorporated and domiciled in Australia, is a
for-profit company limited by shares which are publicly traded on the Australian Securities Exchange.
The directors resolved to authorise the issue of these financial statements on 9 November 2021. The directors have the power
to amend and reissue the financial statements.
The financial statements include information to the extent the Group considers it material and relevant to the understanding of
users. Disclosed information is considered material and relevant if, for example:
• The dollar amount is significant in size or by nature.
• The Group’s results cannot be understood by users without the specific disclosure.
• The information is important to help users understand the impact of significant changes in the Group’s business during the
financial year, for example, a business acquisition, disposal, or an impairment / write-down.
• The information relates to an aspect of the Group’s operations which is important to its future performance.
• The information is required under legislative requirements of the Corporations Act 2001 (Cth), the Banking Act 1959 (Cth) or
by the Group’s principal regulators, including the Australian Securities and Investments Commission (ASIC) and the Australian
Prudential Regulation Authority (APRA).
Basis of preparation
This general purpose financial report has been prepared by a for-profit company, in accordance with the requirements of the
Corporations Act 2001 (Cth) and accounting standards and interpretations issued by the Australian Accounting Standards Board
(AASB). Compliance with standards and interpretations issued by the AASB ensures that this financial report complies with
International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
Amounts are presented in Australian dollars (unless otherwise stated), which is the Company’s functional and presentation
currency. These amounts have been rounded to the nearest million dollars ($m), except where indicated, as allowed by ASIC
Corporations Instrument 2016/191.
Unless otherwise stated, comparative information has been restated for any changes to presentation made in the current year.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount in the
Group's income statement and statement of comprehensive income with comparative information restated accordingly. Balance
sheets are not required to be restated for the effect of discontinued operations. Refer to Note 37 Discontinued operations for
further detail.
To comply with its obligations as an Australian Financial Services Licence holder, the Group includes the separate financial
statements of the Company in this financial report, which is permitted by ASIC Corporations (Parent Entity Financial Statements)
Instrument 2021/195.
Basis of measurement
The financial report has been prepared under the historical cost convention, except for:
• Certain assets and liabilities (including derivative instruments) measured at fair value through profit or loss or other
comprehensive income.
• Financial assets and liabilities that are otherwise measured on an amortised cost basis but adjusted for changes in fair value
attributable to the risk being hedged in qualifying fair value hedge relationships.
New and amended accounting standards and interpretations
Interest rate benchmark reform
The Group has early adopted AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform –
Phase 2 released by the AASB in September 2020 and mandatorily effective for the Group from 1 October 2021. AASB 2020-8
amends AASB 7 Financial Instruments: Disclosures, AASB 9 Financial Instruments, AASB 4 Insurance Contracts and AASB 16 Leases
to address various accounting issues arising from the cessation of some Inter-Bank Offered Rates (IBOR) and the transition
to Alternative Reference Rates (ARRs). AASB 2020-8 provides relief from certain accounting requirements, including hedge
accounting and the modification of financial assets and liabilities, to facilitate the transition to ARRs.
In accordance with the transitional provisions, the amendments have been applied retrospectively to impacted assets and
liabilities for the financial year commencing 1 October 2020. No assets or liabilities were restated as a result of the transition.
Additional information about the Group’s exposure to IBOR reform is presented in Note 18 Derivatives and hedge accounting.
Annual Financial Report 2021
93
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 BASIS OF PREPARATION (CONTINUED)
IFRIC agenda decision on Software as a Service arrangements
In April 2021 the IFRS Interpretations Committee (IFRIC) issued its final agenda decision on Configuration or Customisation
Costs in a Cloud Computing Arrangement. The decision provides additional guidance on the treatment of costs for configuring
or customising a supplier’s application software in a Software as a Service (SaaS) arrangement and requires entities to assess
whether any configuration or customisation costs incurred result in the recognition of an intangible asset. If these costs are
incurred in an arrangement where the Group controls the underlying software, they can be capitalised as part of an intangible
asset. If no intangible asset can be recognised because the software provider controls the underlying software, then these costs
are expensed as the services are received. The implementation of this agenda decision did not have a material effect on the
Group’s financial statements.
There were no other new or amended accounting standards or interpretations adopted during the period that have a material
impact on the Group.
Change in accounting policy
Intragroup transactions with consolidated securitisation entities
During the current year the Company amended its accounting policy in respect of certain intragroup transactions with
consolidated securitisation entities. The accounting policy change applies only to securitisation entities where the Company
holds all of the issued securities, such as internal residential mortgage backed securities (RMBS) transactions. Previously these
transactions were accounted for as debt securities held by the Company (asset) and a loan to the structured entity (liability).
The revised accounting policy recognises that there is no impact to the overall financial position of the Company as a result of
these internal RMBS transactions. The change in accounting policy provides reliable and more relevant information as it more
fairly represents the economic substance of the transactions, while also aligning to current market practice in accounting for
such structures.
The change in accounting policy had no impact on the financial statements of the Group. The change has been applied
retrospectively and impacted the prior period financial statements of the Company as follows:
• A decrease of $135,955 million in ‘Due from controlled entities’ as at 30 September 2020 (30 September 2019:
$75,585 million)
• A decrease of $135,955 million in ‘Due to controlled entities’ as at 30 September 2020 (30 September 2019:
$75,585 million)
• A decrease of $1,484 million in ‘Interest income’ for the year ended 30 September 2020
• A decrease of $1,484 million in ‘Interest expense’ for the year ended 30 September 2020
Changes in comparatives
Presentation of investment management income
During the current year the Group updated the presentation of expenses related to its investment management businesses. A
separate subtotal relating to 'Total net investment management income' is now presented within ‘Other income’ in the Income
Statement. 'Investment management expense' is comprised of expenses that are direct and incremental to earning income from
the provision of investment management services and is presented together with 'Investment management income'. Previously
these expenses were included within 'Operating expenses' in the income statement.
Presenting subtotals of 'Investment management income' and ‘Investment management expense’ together in 'Other income'
better reflects the results of the Group's investment management activities.
The change has been applied retrospectively and impacted the prior period financial statements of the Group as follows:
• A decrease of $137 million in 'Other income' and 'Operating expenses’ for the year ended 30 September 2020
The change in presentation had no impact on the financial statements of the Company.
Refer to Note 4 Other income for the disclosure of 'Net investment management income'.
Presentation of derivatives
During the current year the Group updated the balance sheet presentation of derivatives. Previously trading derivatives were
presented together with trading securities as ‘Trading instruments’ on the balance sheet while ‘Hedging derivatives’ were
separately presented on the balance sheet. In the current year trading derivatives are presented together with hedging
derivatives as ‘Derivatives’ on the balance sheet. This presentation allows users to understand the Group's full exposure
to derivatives.
The change has been applied retrospectively and impacted the prior period financial statements of the Group and Company.
Refer to Note 18 Derivatives and hedge accounting for the disclosures relating to trading derivatives previously included as part
of Note 9 Trading securities.
94
National Australia Bank
NOTE 1 BASIS OF PREPARATION (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Presentation of collateral placed and collateral received
During the current year the Group updated the balance sheet presentation of collateral balances placed with and received
from financial institutions and other counterparties. The revised presentation results in two new balance sheet line items
for 'Collateral placed' and 'Collateral received' which now include all collateral balances across the Group. This presentation
enhances the ability of users of the financial statements to understand collateral balances within the Group.
The change has been applied retrospectively and impacted the prior period financial statements of the Group and Company as
detailed below.
‘Collateral placed’ comprises the following amounts:
• $5,018 million previously presented in ‘Due from other banks’ as at 30 September 2020 (Company: $4,710 million)
• $3,561 million previously presented in ‘Other assets’ as at 30 September 2020 (Company: $2,703 million)
‘Collateral received’ comprises the following amounts:
• $3,783 million previously presented in ‘Due to other banks’ as at 30 September 2020 (Company: $3,179 million)
• $1,544 million previously presented in ‘Other liabilities’ as at 30 September 2020 (Company: $1,542 million)
Presentation of amounts due from customers on acceptances
During the current year the Group updated the balance sheet presentation of amounts due from customers on acceptances.
Previously these amounts were separately presented on the balance sheet. In the current year these amounts are included in
'Loans and advances' on the balance sheet, given the reduced significance of these balances to the Group's financial position.
The change has been applied retrospectively and resulted in an increase of $1,477 million in 'Loans and advances' for both the
Group and Company as at 30 September 2020.
Where relevant, comparative information has been restated throughout the financial statements as indicated by footnotes.
Critical accounting judgements and estimates
In the process of applying the Group’s accounting policies, management have made a number of judgements and assumptions
and applied estimates of future events. Some of these areas include:
• impairment charges on loans and advances
• fair value of financial assets and liabilities
• impairment assessment of goodwill and other intangible assets
• determination of income tax
• provisions for customer-related remediation and other regulatory matters.
Further details of these critical accounting judgements and estimates are provided in the respective notes to the
financial statements.
COVID-19
The COVID-19 pandemic continues to have an impact on global economies and remains a source of uncertainty. Certain sectors,
including tourism and transport, hospitality, education, retail, personal services and commercial property, are not expected to
return to pre-COVID-19 activity levels in the short-term. The Group has considered the impact of COVID-19 in determining the
estimates, assumptions and judgements used to prepare the financial statements.
The most significant areas impacted by the uncertainties related to COVID-19 are the measurement of expected credit losses
and the impairment assessment of goodwill.
Measurement of expected credit losses
While the methodologies applied in the expected credit loss (ECL) calculations remained unchanged from those applied in the
prior period financial statements, the Group has incorporated estimates, assumptions and judgements specific to the impact
of COVID-19 and the associated support packages in the measurement of ECL through forward looking economic adjustments.
These are explained further in Note 17 Provision for credit impairment on loans at amortised cost.
Goodwill
The Group’s cash-generating units (CGUs) are impacted by the risks associated with COVID-19. The Group has utilised estimates,
assumptions and judgements that reflect this uncertainty.
The key assumptions used in determining the recoverable amounts of CGUs are disclosed in Note 22 Goodwill and other
intangible assets.
Future accounting developments
There are no new standards or amendments to existing standards that are not yet effective which are expected to have a
material impact on the Group’s financial statements.
Annual Financial Report 2021
95
NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL PERFORMANCE
OVERVIEW
The Group’s reportable segments are unchanged from the 2020 Annual Financial Report, with the exception of the Corporate
Functions and Other segment which now includes 86 400 following its acquisition by the Group in May 2021.
The Group's segment information is presented based on the following reportable segments:
• Business and Private Banking
• Personal Banking
• Corporate and Institutional Banking
• New Zealand Banking
• Corporate Functions and Other, including UBank, 86 400 and eliminations
• MLC Wealth (presented as a discontinued operation).
Refer to The Group's business section in the Report of the Directors for a description of the operating activities of each
business unit.
Comparative information has been restated to reflect a reallocation of operating expenses between reportable segments in the
current year to better align with the Group’s organisational restructure. These changes have not impacted the Group’s net profit
but have resulted in reallocations of net profit between the reportable segments.
The Group evaluates performance on the basis of cash earnings as it better reflects what is considered to be the underlying
performance of the Group. Cash earnings is a non-IFRS key financial performance measure used by the Group and the
investment community.
Cash earnings is calculated by adjusting statutory net profit from continuing operations for certain non-cash earnings items.
Non-cash earnings items are those items which are considered separately when assessing performance and analysing the
underlying trends in the business. Cash earnings for the year ended 30 September 2021 has been adjusted for distributions,
hedging and fair value volatility, amortisation of acquired intangible assets, and costs related to the acquisition, integration and
disposal of Group businesses. Cash earnings does not purport to represent the cash flows, funding or liquidity position of the
Group, nor any amount represented on a statement of cash flows.
The Group earns the vast majority of its revenue in the form of net interest income (NII). NII is the difference between interest
earned on financial assets and interest paid on financial liabilities and other financing costs.
96
National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2
SEGMENT INFORMATION
2021(1)
Corporate
Business
and
New
Corporate
and Private
Personal
Institutional
Zealand
Functions
MLC
Banking
Banking
Banking
Banking
and Other(2)
Wealth
Total Group
$m
$m
$m
$m
$m
$m
$m
Reportable segment information
Net interest income
Other income
Net operating income
Operating expenses
Underlying profit / (loss)
Credit impairment (charge) / write-back
Cash earnings before tax
and distributions
Income tax (expense) / benefit
Cash earnings before distributions
Distributions
Cash earnings
Fair value and hedge ineffectiveness
Other non-cash earnings items
Net profit / (loss) for the year from
5,339
877
6,216
(2,547)
3,669
(109)
3,560
(1,080)
2,480
-
2,480
(4)
-
3,962
483
4,445
(2,197)
2,248
95
2,343
(693)
1,650
-
1,650
-
-
1,918
1,304
3,222
(1,369)
1,853
(186)
1,667
(460)
1,207
-
1,207
22
-
2,017
505
2,522
(933)
1,589
12
1,601
(447)
1,154
-
1,154
18
(1)
continuing operations
2,476
1,650
1,229
1,171
Net loss attributable to the owners of
561
(160)
401
(771)
(370)
405
35
45
80
(13)
67
(99)
(23)
(55)
NAB from discontinued operations
-
-
-
-
(131)
Net profit / (loss) attributable to the
owners of NAB
2,476
1,650
1,229
1,171
(186)
Reportable segment assets(3)
208,189
222,510
276,448
96,734
122,087
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Corporate Functions and Other includes eliminations.
(3) Reportable segment assets include inter-company balances which are eliminated within the Corporate Functions and Other segment.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24
24
-
13,797
3,009
16,806
(7,817)
8,989
217
9,206
(2,635)
6,571
(13)
6,558
(63)
(24)
6,471
(107)
6,364
925,968
Annual Financial Report 2021
97
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2 SEGMENT INFORMATION (CONTINUED)
2020(1)
Corporate
Business
and
New
Corporate
and Private
Personal
Institutional
Zealand
Functions
MLC
Banking
Banking
Banking
Banking
and Other(2)
Wealth
Total Group
$m
$m
$m
$m
$m
$m
$m
Reportable segment information
Net interest income
Other income
Net operating income
Operating expenses(3)
Underlying profit / (loss)
Credit impairment (charge) / write-back
Cash earnings / (loss) before tax
and distributions
Income tax (expense) / benefit
Cash earnings / (loss)
before distributions
Distributions
Cash earnings / (loss)
Fair value and hedge ineffectiveness
Other non-cash earnings items
Net profit / (loss) for the year from
5,400
878
6,278
(2,429)
3,849
(322)
3,527
(1,055)
2,472
-
2,472
(9)
-
4,017
514
4,531
(2,204)
2,327
(256)
2,071
(629)
1,442
-
1,442
(1)
-
2,075
1,382
3,457
(1,388)
2,069
(170)
1,899
(483)
1,416
-
1,416
(31)
-
1,872
520
2,392
(894)
1,498
(140)
1,358
(381)
977
-
977
(20)
-
507
25
532
(2,092)
(1,560)
(1,874)
(3,434)
876
(2,558)
(39)
(2,597)
27
(178)
continuing operations
2,463
1,441
1,385
957
(2,748)
Net loss attributable to the owners of
-
-
-
-
-
-
-
-
-
-
-
-
-
-
13,871
3,319
17,190
(9,007)
8,183
(2,762)
5,421
(1,672)
3,749
(39)
3,710
(34)
(178)
3,498
NAB from discontinued operations
-
-
-
-
(788)
(151)
(939)
Net profit / (loss) attributable to the
owners of NAB
2,463
1,441
1,385
957
(3,536)
(151)
2,559
Reportable segment assets(4)
196,772
217,712
317,342
86,413
46,214
2,112
866,565
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Corporate Functions and Other includes eliminations.
(3) Comparative information has been restated to reflect a reallocation of operating expenses between business units to better align with the Group’s new
organisational structure.
(4) Reportable segment assets include inter-company balances which are eliminated within the Corporate Functions and Other segment.
Major customers
No single customer contributes revenue greater than 10% of the Group’s revenues.
Geographical information
The Group has operations in Australia (the Company’s country of domicile), New Zealand, Europe, the United Kingdom, the
United States and Asia. The allocation of income and non-current assets is based on the geographical location in which
transactions are booked.
Australia
New Zealand
Other International
Total before inter-geographic eliminations
Elimination of inter-geographic items
Total
Group
Income(1)(2)
Non-current assets(3)
2021
$m
13,206
2,741
843
16,790
2020
$m
13,859
2,431
929
17,219
(61)
(83)
16,729
17,136
2021
$m
6,363
982
97
7,442
-
7,442
2020
$m
5,618
862
133
6,613
-
6,613
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(2) Comparative information has been restated to reflect product reclassification in the Group's BNZ Life business.
(3) Consists of goodwill and other intangible assets, property, plant and equipment and investments in joint ventures and associates.
98
National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3
NET INTEREST INCOME
Accounting policy
Interest income and expense are recognised in the income statement using the effective interest method. The effective
interest method measures the amortised cost of a financial asset or financial liability using the effective interest rate. The
effective interest rate discounts the estimated stream of future cash payments or receipts over the expected life of the
financial instrument to the net carrying amount of the financial instrument.
Fees and costs which form an integral part of the effective interest rate of a financial instrument (for example,
loan origination fees) are recognised using the effective interest method and recorded in interest income or expense
depending on whether the underlying instrument is a financial asset or liability.
Included in net interest income are interest income and expense on trading securities, hedging instruments and financial
instruments measured at fair value through profit or loss.
Interest income
Effective interest method
Amortised cost
Due from other banks
Loans and advances(2)
Due from controlled entities(2)
Other interest income(3)
Fair value through other comprehensive income
Debt instruments
Total effective interest method
Fair value through profit or loss
Due from other banks
Trading instruments
Other financial assets
Total fair value through profit or loss
Total interest income
Interest expense
Effective interest method
Due to other banks
Deposits and other borrowings
Bonds, notes and subordinated debt
Due to controlled entities(2)
Other debt issues
Other interest expense
Total effective interest method
Fair value through profit or loss
Trading instruments
Other financial liabilities
Total fair value through profit or loss
Bank levy
Total interest expense
Net interest income
Group(1)
Company
2021
$m
2020
$m
2021
$m
2020
$m
60
16,754
-
148
186
17,148
-
733
153
886
265
19,538
-
738
380
20,921
11
1,214
965
2,190
38
14,122
987
101
185
15,433
-
692
123
815
240
16,366
1,367
678
379
19,030
-
1,125
892
2,017
18,034
23,111
16,248
21,047
91
1,662
1,157
-
195
329
268
5,102
2,118
-
202
458
3,434
8,148
17
426
443
364
54
620
674
412
4,241
13,793
9,234
13,877
86
1,269
1,084
2,700
195
324
5,658
17
202
219
364
6,241
10,007
261
4,166
2,014
3,110
202
455
10,208
54
231
285
412
10,905
10,142
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(3)
In the 2021 financial year, the Group and Company recognised customer-related remediation charges of $18 million (2020: $49 million) as a reduction in
other interest income. These costs mainly relate to the refund of interest from various banking-related matters.
Annual Financial Report 2021
99
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4
OTHER INCOME
Accounting policy
Classes of other income are measured as follows:
Item
Trading instruments
Measurement basis
Trading derivatives - Total fair value change (including interest income or expense), with
the exception of some instruments that form part of an economic hedge relationship.
Hedge ineffectiveness
Financial instruments
designated at fair value
Dividend revenue
Banking fees, money
transfer fees and fees
and commissions
Net investment
management income
Trading securities - All fair value changes except for interest income or expense, which is
recognised within net interest income.
Represents hedge ineffectiveness arising from hedge accounting, which are the fair value
movements (excluding interest income or expense) that do not offset the hedged risk.
Includes fair value movements on such items, other than interest income or expense and
movements attributable to the Group’s own credit risk.
Dividend revenue is recognised in the income statement on an accruals basis when the
Group’s right to receive the dividend is established.
Unless included in the effective interest rate, fees and commissions are recognised on an
accruals basis when the service has been provided or on completion of the underlying
transaction. Fees charged for providing ongoing services (for example, maintaining and
administering existing facilities) are recognised as income over the period the service
is provided.
When a third party is involved in providing goods or services to the Group's customer, the
Group assesses whether the nature of the arrangement with its customer is as a principal
or an agent of the third party. When the Group is not acting in a principal capacity, the
income earned by the Group is net of the amounts paid to the third party provider. The net
consideration represents the Group's income for facilitating the transaction.
Investment management income is recognised on an accruals basis as the services are
provided and is presented net of direct and incremental investment management expenses
incurred in the provision of these services.
100 National Australia Bank
NOTE 4 OTHER INCOME (CONTINUED)
Gains less losses on financial instruments at fair value
Trading instruments
Hedge ineffectiveness(2)
Financial instruments designated at fair value
Total gains less losses on financial instruments at fair value
Other operating income
Dividend revenue
Controlled entities(3)
Other entities
Banking fees
Money transfer fees
Fees and commissions(4)(5)
Other income(6)
Total other operating income
Net investment management income(4)
Investment management income
Investment management expense
Total net investment management income
Total other income
NOTES TO THE FINANCIAL STATEMENTS
Group(1)
Company
2021
$m
472
(233)
372
611
2020
$m
1,279
26
(217)
1,088
2021
$m
393
(19)
107
481
2020
$m
1,305
16
(116)
1,205
-
12
-
36
1,054
1,020
473
434
226
440
452
122
1,561
1,294
12
872
333
111
136
35
835
325
222
76
2,199
2,070
3,025
2,787
278
(152)
126
2,936
238
(137)
101
3,259
-
-
-
-
-
-
3,506
3,992
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Represents hedge ineffectiveness of designated hedging relationships. In the 2021 financial year, operational enhancements were implemented to reduce
future volatility in earnings related to hedge accounting. This resulted in a one-off $245 million charge.
Includes $45 million net pre-completion dividend income received from MLC Wealth.
(3)
(4) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(5)
In the 2021 financial year, the Group recognised customer-related remediation charges of $60 million (2020: $80 million) and the Company recognised
customer-related remediation charges of $211 million (2020: $162 million) as a reduction in fees and commissions. Customer-related remediation charges of
the Company includes MLC Wealth-related matters which are presented in discontinued operations at a Group level. Refer to Note 37 Discontinued operations
for further information.
(6) Comparative information has been restated to reflect product reclassification in the Group's BNZ Life business.
Annual Financial Report 2021
101
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5
OPERATING EXPENSES
Accounting policy
Operating expenses are recognised as services are provided to the Group, over the period in which an asset is consumed
or once a liability is created.
Amounts received by the Group as a reimbursement for costs incurred are recognised as a reduction of the
related expense.
Annual leave, long service leave and other personnel expenses
Salaries, annual leave and other employee entitlements expected to be paid or settled within 12 months of employees
rendering service are measured at their nominal amounts using remuneration rates that the Group expects to pay when
the liabilities are settled. A liability is recognised for the amount expected to be paid under short-term cash bonuses
when the Group has a present legal or constructive obligation to pay this amount as a result of past service provided
by the employee and the obligation can be estimated reliably. All other employee entitlements that are not expected
to be paid or settled within 12 months of the reporting date are measured at the present value of net future cash
flows. Employee entitlements to long service leave are accrued using an actuarial calculation, which includes assumptions
regarding employee departures, leave utilisation and future salary increases.
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic
possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or
to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for
voluntary redundancy are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable
that the offer will be accepted, and the number of acceptances can be estimated reliably.
Refer to Note 24 Provisions for balances of provisions for employee entitlements.
102 National Australia Bank
NOTE 5 OPERATING EXPENSES (CONTINUED)
Personnel expenses
Salaries and related on-costs(3)
Superannuation costs-defined contribution plans
Performance-based compensation(3)
Other expenses(4)
Total personnel expenses
Occupancy and depreciation expenses
Rental expense
Depreciation and impairment
Other expenses
Total occupancy and depreciation expenses
General expenses
Fees and commissions expense(3)
Amortisation of intangible assets
Advertising and marketing
Charge to provide for operational risk event losses
Communications, postage and stationery
Computer equipment and software
Data communication and processing charges
Professional fees(3)
Impairment losses recognised
Other expenses(3)(4)
Total general expenses
Total operating expenses
NOTES TO THE FINANCIAL STATEMENTS
Group(1)
Company(2)
2021
$m
2020
$m
2021
$m
2020
$m
3,483
3,402
2,956
3,150
302
590
202
285
214
452
288
561
195
269
234
462
4,577
4,353
4,000
4,115
64
628
70
762
47
417
160
85
152
740
77
558
16
272
92
776
95
963
43
1,263
162
257
171
741
84
663
225
296
158
461
59
678
46
417
135
4
126
656
65
539
89
191
2,524
7,863
3,905
9,221
2,268
6,946
193
554
85
832
44
1,101
138
625
141
684
60
724
2,578
272
6,367
11,314
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) Operating expenses of the Company includes amounts which are presented in discontinued operations at a Group level. These include customer-related
and payroll remediation charges, MLC Wealth separation charges, and changes in the provision for litigation. Refer to Note 37 Discontinued operations for
further information.
(3) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(4) Comparative information has been restated to reflect product reclassification in the Group's BNZ Life business.
Customer-related and payroll remediation
Customer-related remediation recognised by the Group relates to costs for executing the remediation programs for banking-
related matters. Payroll remediation relates to costs to address potential payroll issues relating to both current and former
Australian colleagues, comprising payments to colleagues and costs to execute the remediation program. The charges
recognised by the Company include both costs related to the remediation programs for banking and MLC Wealth-related
matters. Further information about MLC Wealth-related matters is included in Note 37 Discontinued operations.
In the 2021 financial year, included in the losses for operational risk events is $5 million of write-back for the Group and
$20 million charges for the Company (2020: $244 million charges for the Group and $531 million charges for the Company).
Capitalised software policy change
In the 2020 financial year, the Group made a change to the application of the software capitalisation policy by increasing
the threshold for capitalisation of software from $2 million to $5 million. This reflected a change in approach to managing
projects which was intended to improve business accountability for projects less than $5 million. This resulted in an accelerated
amortisation charge in the Group of $950 million ($806 million in the Company) for the 2020 financial year.
Annual Financial Report 2021
103
NOTES TO THE FINANCIAL STATEMENTS
NOTE 5 OPERATING EXPENSES (CONTINUED)
Impairment of property-related assets
In 2020 the Group recognised a charge of $134 million for the impairment of property-related assets which is reflected within
depreciation and impairment. This was primarily related to plans to consolidate NAB's Melbourne office space with more
colleagues expected to adopt a flexible and hybrid approach to working over the longer term.
Impairment losses recognised
The Company recognised an impairment loss of $70 million (2020: $239 million) in respect of its investment in MLC Life as a
result of the ongoing challenges facing the life insurance industry. The Group did not recognise any impairment in 2021 (2020:
$214 million). The recoverable amount of the investment has been determined with reference to its value in use.
In 2020 when the investment in NWMH was classified as held for sale the Company recognised an impairment loss of
$2,339 million. Refer to Note 37 Discontinued operations for the impact of the discontinued operation on the Group results.
NOTE 6
INCOME TAX
Accounting policy
Income tax expense (or benefit) is the tax payable (or receivable) on the current year's taxable income based on
the applicable tax rate in each jurisdiction, adjusted by changes in deferred tax assets and liabilities. Income tax
expense is recognised in the income statement except to the extent that it relates to items recognised directly in other
comprehensive income, in which case it is recognised in the statement of comprehensive income. The tax associated with
these transactions will be recognised in the income statement at the same time as the underlying transaction.
The income tax benefit related to research and development expenditure is recognised as a reduction in the related asset
or operating expense, depending on the nature of the expenditure.
Deferred tax assets and liabilities are recognised for temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts. Deferred tax is determined using tax rates (and laws) that have been enacted or
substantively enacted as at the reporting date and are expected to apply when the related deferred tax asset is realised or
the deferred tax liability is settled.
Deferred tax assets are only recognised for temporary differences, unused tax losses and unused tax credits if it is
probable that future taxable amounts will arise to utilise those temporary differences and losses. Deferred tax assets are
reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will
be realised.
Deferred tax assets and deferred tax liabilities are offset where there is a legally enforceable right to offset current tax
assets and current tax liabilities and they relate to income taxes levied by the same tax authority on the same taxable
entity, or on different tax entities which intend either to settle current tax liabilities and assets on a net basis or to realise
the assets and settle the liabilities simultaneously.
The Company and its wholly owned Australian subsidiaries are part of a tax consolidated group. The Company is the
head entity in the tax consolidated group. The members of the tax consolidated group have entered into tax funding
and tax sharing agreements, which set out the funding obligations of members. Any current tax liabilities / assets and
deferred tax assets from unused tax losses of subsidiaries in the tax consolidated group are recognised by the Company
and funded in line with the tax funding arrangements.
Critical accounting judgements and estimates
The Group undertakes transactions in the ordinary course of business where the income tax treatment requires the
exercise of judgement. The Group estimates the amount expected to be paid to tax authorities based on its understanding
and interpretation of relevant tax laws. The effect of uncertainty over income tax treatments is reflected in determining
the relevant taxable profit or tax loss, tax bases, unused tax losses and unused tax credits or tax rates. Uncertain tax
positions are presented as current or deferred tax assets or liabilities as appropriate.
104 National Australia Bank
NOTE 6 INCOME TAX (CONTINUED)
Income tax expense
The income tax expense for the year reconciles to the profit before income tax as follows:
NOTES TO THE FINANCIAL STATEMENTS
Profit before income tax
Prima facie income tax expense at 30%
Tax effect of permanent differences:
Assessable foreign income
Foreign tax rate differences
Losses not tax effected
Foreign branch income not assessable
Over provision in prior years
Offshore banking unit adjustment
Restatement of deferred tax balances for tax rate changes
Non-deductible interest on convertible instruments
Dividend income adjustments
Impairment of investment in MLC Life
Impairment of investment in NWMH
Other
Income tax expense
Current tax expense
Deferred tax expense/ (benefit)
Total income tax expense
(1)
Information is presented on a continuing operations basis, unless otherwise stated.
Group(1)
Company
2021
$m
9,068
2,720
7
(78)
(13)
(35)
(8)
(46)
(1)
58
-
-
-
(7)
2,597
1,986
611
2,597
2020
$m
5,163
1,549
5
(60)
32
(56)
3
23
10
61
-
64
-
34
1,665
2,544
(879)
1,665
2021
$m
6,759
2,028
7
(37)
(15)
(35)
3
(37)
(11)
58
(181)
21
-
(105)
1,696
1,273
423
1,696
2020
$m
358
107
5
(32)
32
(56)
(3)
40
2
61
(135)
72
702
90
885
1,574
(689)
885
Annual Financial Report 2021
105
NOTES TO THE FINANCIAL STATEMENTS
NOTE 6 INCOME TAX (CONTINUED)
Deferred tax assets and liabilities
The balance comprises temporary differences attributable to:
Deferred tax assets
Specific provision for credit impairment
Collective provision for credit impairment
Employee entitlements
Tax losses
Unrealised derivatives in funding vehicles
Other provisions
Depreciation
Reserves
Other
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
Deferred tax liabilities
Intangible assets
Depreciation
Defined benefit superannuation plan assets
Reserves
Cash flow hedge reserve
Other reserves
Other
Total deferred tax liabilities
Deferred tax liabilities set-off against deferred tax assets pursuant to set-off provisions
Net deferred tax liability
Group
Company
2021
$m
187
1,276
306
42
149
373
360
126
352
3,171
(218)
2,953
5
71
11
26
114
20
247
(218)
29
2020
$m
219
1,447
232
25
294
674
496
161
393
3,941
(294)
3,647
5
62
9
133
22
88
319
(294)
25
2021
$m
154
1,091
290
28
-
371
284
91
312
2,621
(167)
2,454
-
-
9
30
113
15
167
(167)
-
2020
$m
162
1,264
218
25
-
659
358
105
355
3,146
(251)
2,895
-
-
7
148
22
74
251
(251)
-
Deferred tax assets not brought to account
Deferred tax assets have not been brought to account for the following realised losses as the utilisation of the losses is not
regarded as probable:
Capital gains tax losses
Income tax losses
Group
Company
2021
$m
1,829
314
2020
$m
1,684
351
2021
$m
1,829
314
2020
$m
1,684
351
106 National Australia Bank
NOTE 7
EARNINGS PER SHARE
Earnings ($m)
Net profit attributable to owners of NAB
Distributions on other equity instruments
Potential dilutive adjustments (after tax)
Interest expense on convertible notes
Interest expense on convertible preference shares(2)(3)
Adjusted earnings
Net loss attributable to owners of NAB from discontinued operations
Adjusted earnings from continuing operations
Weighted average number of ordinary shares (millions)
NOTES TO THE FINANCIAL STATEMENTS
Group(1)
Basic
Diluted
2021
2020
2021
2020
6,364
(13)
-
-
6,351
107
6,458
2,559
(39)
-
-
2,520
939
3,459
6,364
(13)
194
9
6,554
107
6,661
2,559
(39)
162
-
2,682
939
3,621
Weighted average number of ordinary shares (net of treasury shares)
3,290
3,068
3,290
3,068
Potential dilutive weighted average number of ordinary shares
Convertible notes
Convertible preference shares(2)(3)
Share-based payments
-
-
-
-
-
-
229
16
5
258
-
7
Total weighted average number of ordinary shares
3,290
3,068
3,540
3,333
Earnings per share (cents) attributable to owners of NAB
Earnings per share (cents) from continuing operations
Earnings per share (cents) from discontinued operations
193.0
196.3
(3.3)
82.1
112.7
(30.6)
185.2
188.2
(3.0)
80.5
108.6
(28.1)
Information is presented on a continuing operations basis, unless otherwise stated.
(1)
(2) On 17 December 2020, the Group redeemed the $1,717 million Convertible Preference Shares II issued on 17 December 2013, in accordance with the
redemption notice issued on 5 November 2020.
(3) Convertible preference shares were excluded from the calculation of diluted earnings per share in the September 2020 full year as the conversion conditions
had not been met as at 30 September 2020.
Annual Financial Report 2021
107
NOTES TO THE FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS
OVERVIEW
Financial instruments represent the majority of the Group's balance sheet, including loans and advances, deposits, trading
securities and derivatives.
Initial recognition of financial instruments
A financial asset or financial liability is recognised on the balance sheet when the Group becomes a party to the contractual
provisions of the instrument. The Group recognises regular way transactions on the trade date.
All financial instruments are initially recognised at fair value. Directly attributable transaction costs are added to or deducted
from the carrying value of the asset or liability on initial recognition, unless the instrument is measured at fair value through
profit or loss, in which case they are recognised in profit or loss.
Classification
Subsequently, financial instruments are measured either at amortised cost or fair value depending on their classification.
Classification of financial assets is driven by the Group's business model for managing the asset and the contractual cash flows
of the asset. The Group uses the following flowchart to determine the appropriate classification for financial assets.
Non-derivative financial liabilities are measured at amortised cost unless the Group elects to measure the financial liability at
fair value through profit or loss. The Group will elect to measure a financial liability at fair value through profit or loss if such
measurement significantly reduces or eliminates an accounting mismatch.
Refer to the table at the end of this section for a summary of the classification of the Group's financial instruments.
108 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
OVERVIEW (CONTINUED)
Measurement
Financial instruments measured at amortised cost
Amortised cost is the amount at which a financial asset or financial liability is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortisation of transaction costs, premiums or discounts using the effective interest
method, and for financial assets, adjusted for any loss allowance.
Financial assets measured at fair value through other comprehensive income
Gains or losses arising from changes in the fair value of debt instruments measured at fair value through other comprehensive
income are recognised in other comprehensive income and accumulated in a separate component of equity. Upon disposal,
the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the
income statement.
Investments in equity instruments that are neither held for trading nor contingent consideration recognised by the Group in a
business combination to which AASB 3 Business Combinations applies, are measured at fair value through other comprehensive
income, where an irrevocable election has been made by management. Amounts recognised in other comprehensive income
are not subsequently transferred to profit or loss. Dividends on such investments are recognised in profit or loss unless the
dividend clearly represents a recovery of part of the cost of the investment.
Financial instruments at fair value through profit or loss
Changes in the fair value of financial assets are recognised in profit or loss.
Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in
the Group’s own credit risk is calculated by determining the changes in own credit spreads and is recognised separately in other
comprehensive income.
Derivative financial instruments and hedge accounting
Derivative financial instruments are contracts whose value is derived from an underlying price, index or other variable, and
include instruments such as swaps, forward rate agreements, futures and options.
All derivatives are recognised initially on the balance sheet at fair value and are subsequently measured at fair value through
profit or loss, except where they are designated as a part of an effective hedge relationship and classified as hedging
derivatives. Derivatives are presented as assets when their fair value is positive and as liabilities when their fair value
is negative.
The method of recognising the resulting fair value gain or loss on a derivative depends on whether the derivative is designated
as a hedging instrument, and if so, the nature of the item being hedged. Refer to Note 18 Derivatives and hedge accounting.
Derecognition of financial instruments
The Group derecognises a financial asset when the contractual cash flows from the asset expire or it transfers its rights to
receive contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of
ownership are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a
separate asset or liability.
The Group removes a financial liability from the balance sheet when the obligation specified in the contract is discharged,
cancelled or expires.
Annual Financial Report 2021
109
NOTES TO THE FINANCIAL STATEMENTS
OVERVIEW (CONTINUED)
Summary of classification and measurement basis
Type of instrument
Financial assets
Classification and
measurement
Reason
Note
Loans and advances (customer loans
Amortised cost
Cash flows represent solely payments of
Note 12 Loans
and facilities)
principal and interest, held with the objective
and advances
Trading securities (bonds, notes or securities
issued by government, financial institutions or
other corporates)
Other financial assets
Fair value through
profit or loss
to collect contractual cash flows
Principal purpose is selling or repurchasing in
Note 9
the near term, or part of a portfolio of financial
Trading securities
instruments that are managed together and
for which there is evidence of short-term
profit taking
Cash flows are not solely payments of
Note 11 Other
principal and interest or designated at fair
financial assets
value through profit or loss to eliminate an
accounting mismatch
Debt instruments (bonds, notes or securities
Fair value through
Cash flows represent solely payments of
Note 10
issued by government, financial institutions or
other corporates)
other
comprehensive
principal and interest, held with the objective
to both collect contractual cash flows or to sell
Debt instruments
income
Derivatives (forwards, swaps, futures, options)
Fair value(1)
Trading derivatives - not in a qualifying
Note 18 Derivatives
hedging relationship
and hedge accounting
Hedging derivatives - designated in a qualifying
hedging relationship
(1) Fair value movements on trading derivatives are recognised in profit or loss. The recognition of the fair value movements on hedging derivatives will depend
on the type of hedge (i.e. fair value hedge, cash flow hedge, or hedge of a net investment). Refer to Note 18 Derivatives and hedge accounting.
Financial liabilities
Type of instrument
Financial liabilities
Deposits and other borrowings (deposits,
commercial paper, repurchase agreements)
Bonds and notes
Perpetual notes, convertible preference shares
and convertible notes
Classification and
measurement
Reason
Note
Not designated at fair value through profit
Note 13 Deposits and
or loss
Amortised cost
other borrowings
Note 14 Bonds,
notes and
subordinated debt
Note 15 Other
debt issues
Certain bonds, notes and deposits
Fair value through
Designated at fair value through profit or loss
Note 16 Other
profit or loss(1)
to eliminate an accounting mismatch
financial liabilities
Derivatives (forwards, swaps, futures, options)
Fair value(2)
Trading derivatives - not in a qualifying
Note 18 Derivatives
hedging relationship
and hedge accounting
Hedging derivatives - designated in a qualifying
hedging relationship
(1) Except for changes in own credit risk which are recognised in other comprehensive income.
(2) Fair value movements on trading derivatives are recognised in profit or loss. The recognition of the fair value movements on hedging derivatives will depend
on the type of hedge (i.e. fair value hedge, cash flow hedge, or hedge of a net investment). Refer to Note 18 Derivatives and hedge accounting.
110 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8
CASH AND BALANCES WITH OTHER BANKS
Accounting policy
Cash and liquid assets, and balances with other banks are initially measured at fair value and subsequently at
amortised cost.
For the purposes of the statement of cash flows, cash and cash equivalents include cash and liquid assets (including
reverse repurchase agreements and short-term government securities) and amounts due from other banks net of amounts
due to other banks that are highly liquid, readily convertible to known amounts of cash within three months and
are subject to an insignificant risk of changes in value. They are held for the purposes of meeting short-term cash
commitments (rather than for investment or other purposes).
Refer to Note 36 Notes to the statement of cash flows for a detailed reconciliation of cash and cash equivalents.
Cash and liquid assets
Coins, notes and cash at bank
Reverse repurchase agreements
Other (including bills receivable and remittances in transit)
Total cash and liquid assets
Due from other banks
Central banks
Other banks(1)
Total due from other banks
Due to other banks
Central banks(2)
Other banks(1)
Total due to other banks
Group
Company
2021
$m
1,094
49,164
574
50,832
89,708
17,838
107,546
42,486
31,674
74,160
2020
$m
1,366
61,542
1,480
64,388
18,934
28,399
47,333
25,111
21,662
46,773
2021
$m
939
48,982
415
50,336
81,297
16,910
98,207
39,849
28,866
68,715
2020
$m
1,197
61,016
1,342
63,555
16,914
27,271
44,185
24,900
19,549
44,449
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(2)
Included within amounts due to central banks is $34,409 million (2020: $14,401 million) for the Group and $31,866 million (2020: $14,270 million) for the
Company relating to the Term Funding Facility provided by the RBA and the Term Lending Facility, Funding for Lending Program and the Term Auction Facility
(2020 only) provided by the RBNZ.
NOTE 9
TRADING SECURITIES
Accounting policy
Trading securities comprise securities that are classified as held for trading because they are acquired or incurred
principally for the purpose of selling or repurchasing in the near term, or form part of a portfolio of financial instruments
that are managed together and for which there is evidence of short-term profit taking. Trading securities are measured at
fair value through profit or loss.
Government bonds, notes and securities
Semi-government bonds, notes and securities
Corporate / financial institution bonds, notes and securities
Other bonds, notes, securities, equities and other assets
Total trading securities
Group
Company
2021
$m
31,660
4,153
12,240
1,967
50,020
2020
$m
42,071
5,827
15,965
1,074
64,937
2021
$m
27,199
2,878
10,961
1,878
42,916
2020
$m
36,361
3,096
14,394
1,073
54,924
Annual Financial Report 2021
111
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10
DEBT INSTRUMENTS
Accounting policy
Debt instruments are measured at fair value through other comprehensive income as they are held in a business model
with the objective of collecting contractual cash flows or realising the asset through sale and they have contractual cash
flows which are considered to be solely repayments of principal and interest.
Group
Company
2021
$m
3,280
25,027
6,642
6,929
41,878
2020
$m
3,282
23,240
6,648
7,185
40,355
2021
$m
3,279
25,027
6,642
6,901
41,849
2020
$m
3,280
23,240
6,648
7,156
40,324
Government bonds, notes and securities
Semi-government bonds, notes and securities
Corporate / financial institution bonds, notes and securities
Other bonds, notes and securities
Total debt instruments
NOTE 11
OTHER FINANCIAL ASSETS
Accounting policy
Other financial assets are measured at fair value through profit or loss. Changes in fair value and transaction costs
are recognised in the income statement. Financial assets are measured at fair value through profit or loss when they
have contractual cash flow characteristics that are not considered to be solely principal and interest or they have been
designated as such to eliminate or reduce an accounting mismatch that would otherwise arise.
Loans at fair value
Other financial assets at fair value
Total other financial assets
Group
Company
2021
$m
2,556
238
2,794
2020
$m
3,860
-
3,860
2021
$m
1,678
1,627
3,305
2020
$m
2,552
1,333
3,885
The maximum credit exposure of loans (excluding any undrawn facility limits) included in other financial assets is $2,556 million
(2020: $3,860 million) for the Group and $1,678 million (2020: $2,552 million) for the Company. The cumulative change in fair
value of the loans attributable to changes in credit risk amounted to a $52 million loss (2020: $66 million loss) for the Group
and a $33 million loss (2020: $35 million loss) for the Company.
112 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12
LOANS AND ADVANCES
Accounting policy
Loans and advances are financial assets for which the contractual cash flows are solely repayments of principal and
interest and that are held in a business model with the objective of collecting contractual cash flows.
Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the origination of
the loan or advance, which are primarily brokerage and origination fees. Subsequently, loans and advances are measured
at amortised cost using the effective interest rate method, net of any provision for credit impairment.
Loans and advances
Housing loans
Other term lending
Asset and lease financing
Overdrafts
Credit card outstandings
Other lending(1)
Total gross loans and advances(1)
Deduct:
Unearned income and deferred net fee income
Provision for credit impairment
Total net loans and advances(1)
Group
2021
$m
360,000
236,156
13,879
4,588
4,871
7,006
2020
$m
341,729
219,591
13,009
4,347
5,259
6,257
Company
2021
$m
308,041
199,102
13,474
2,801
4,158
6,650
2020
$m
298,154
184,665
12,611
2,484
4,426
5,940
626,500
590,192
534,226
508,280
(173)
(5,171)
(219)
(6,011)
(273)
(4,407)
(282)
(5,179)
621,156
583,962
529,546
502,819
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
NOTE 13
DEPOSITS AND OTHER BORROWINGS
Accounting policy
Deposits and other borrowings are initially recognised at fair value less directly attributable transaction costs and
subsequently measured at amortised cost.
Term deposits
On-demand and short-term deposits
Certificates of deposit
Deposits not bearing interest
Commercial paper and other borrowings
Repurchase agreements
Total deposits and other borrowings
Group
Company
2021
$m
108,494
302,414
45,193
89,350
29,244
30,348
2020
$m
134,181
261,260
34,708
72,221
18,679
25,127
2021
$m
85,217
268,838
45,193
77,715
28,357
30,231
2020
$m
107,044
234,933
34,709
64,163
18,362
25,127
605,043
546,176
535,551
484,338
Annual Financial Report 2021
113
NOTES TO THE FINANCIAL STATEMENTS
NOTE 14
BONDS, NOTES AND SUBORDINATED DEBT
Accounting policy
Bonds, notes and subordinated debt are initially recognised at fair value less directly attributable transaction costs and
subsequently measured at amortised cost using the effective interest method. Premiums, discounts and associated issue
expenses are recognised using the effective interest method through the income statement from the date of issue.
Bonds, notes and subordinated debt
Medium-term notes
Securitisation notes
Covered bonds
Subordinated medium-term notes
Other subordinated notes
Group
Company
2021
$m
67,278
2,264
23,715
15,897
-
2020
$m
85,274
3,126
25,659
11,817
508
2021
$m
2020
$m
64,759
83,711
-
21,845
15,897
-
-
24,769
11,817
-
Total bonds, notes and subordinated debt
109,154
126,384
102,501
120,297
Issued bonds, notes and subordinated debt by currency
AUD
USD
EUR
GBP
JPY
CHF
Other
33,721
29,512
27,555
6,371
4,297
3,655
4,043
38,663
37,633
30,898
5,261
4,916
3,835
5,178
31,361
27,334
25,902
6,356
4,297
3,208
4,043
35,390
36,351
30,421
5,219
4,916
3,362
4,638
Total bonds, notes and subordinated debt
109,154
126,384
102,501
120,297
114 National Australia Bank
NOTE 14 BONDS, NOTES AND SUBORDINATED DEBT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Subordinated medium-term notes
Notional amount(1)
Currency
Currency amount (m)
Maturity / First optional call date(2)
HKD
JPY
AUD
AUD
JPY
SGD
AUD
AUD
CAD
AUD
GBP
AUD
AUD
AUD
AUD
AUD
USD
USD
USD
AUD
AUD
AUD
AUD
USD
Total
1,137
10,000
150
650
10,000
450
943
1,000
1,000
1,250
600
1,175
225
275
20
20
1,500
1,500
1,250
205
215
245
100
1,250
Fixed matured 2021
Fixed matured 2021
Fixed matured 2021
Floating matured 2021
Fixed due 2021
Fixed due 2023
Floating due 2023
Floating due 2024
Fixed due 2025
Floating due 2025
Fixed due 2026
Floating due 2026
Fixed due 2026
Fixed due 2027
Fixed due 2027
Fixed due 2028
Fixed due 2029
Fixed due 2030
Fixed due 2031
Fixed due 2035
Fixed due 2040
Fixed due 2040
Fixed due 2040
Fixed due 2041
Group
2021
$m
-
-
-
-
124
470
940
1,000
1,110
1,250
1,104
1,178
225
300
27
28
2,165
1,933
1,740
205
186
212
86
1,614
15,897
2020
$m
208
133
152
650
134
484
939
1,000
1,103
-
-
1,175
237
316
30
30
2,356
2,104
-
205
215
246
100
-
11,817
Company
2021
$m
-
-
-
-
124
470
940
1,000
1,110
1,250
1,104
1,178
225
300
27
28
2,165
1,933
1,740
205
186
212
86
1,614
15,897
2020
$m
208
133
152
650
134
484
939
1,000
1,103
-
-
1,175
237
316
30
30
2,356
2,104
-
205
215
246
100
-
11,817
(1) Subordinated medium-term notes qualify as Tier 2 capital, in some cases subject to transitional Basel III treatment.
(2) Reflects calendar year of maturity / first optional call date.
Other subordinated notes
On 17 December 2015, BNZ issued NZ$550 million of subordinated unsecured notes in New Zealand (BNZ Subordinated Notes),
treated as Tier 2 capital, subject to an adjustment as the notes were issued by a subsidiary to third parties. On 17 June 2021,
having received APRA and RBNZ approval, BNZ exercised its option to repay all of the BNZ Subordinated Notes in accordance
with their terms.
Annual Financial Report 2021
115
NOTES TO THE FINANCIAL STATEMENTS
NOTE 15
OTHER DEBT ISSUES
Accounting policy
Perpetual notes, convertible preference shares and convertible notes are initially recognised at fair value less directly
attributable transaction costs and subsequently measured at amortised cost using the effective interest method.
Perpetual floating rate notes
Convertible preference shares and convertible notes
Total other debt issues
The table below highlights the key features of the Group’s other debt issuances.
Group
Company
2021
$m
5
6,826
6,831
2020
$m
21
6,170
6,191
2021
$m
5
6,826
6,831
2020
$m
21
6,170
6,191
Issued
amount
Perpetual floating
rate notes
Convertible preference shares
Convertible notes
USD250 million
NAB CPS II - $1.72 billion(1)
NAB Capital Notes 2 - $1.50 billion
NAB Capital Notes 3 - $1.87 billion
NAB Capital Notes 5 - $2.39 billion
NAB Wholesale Capital Notes - $500 million
NAB Wholesale Capital Notes 2 - $600 million
Issued date
9 October 1986
NAB CPS II - 17 December 2013
NAB Capital Notes 2 - 7 July 2016
Interest
payment
frequency
Semi-annually in arrears
Quarterly in arrears
NAB Capital Notes 2 - Quarterly in arrears
NAB Capital Notes 3 - 20 March 2019
NAB Capital Notes 5 - 17 December 2020
NAB Wholesale Capital Notes - 12 December 2019
NAB Wholesale Capital Notes 2 - 17 July 2020
NAB Capital Notes 3 - Quarterly in arrears
NAB Capital Notes 5 - Quarterly in arrears
NAB Wholesale Capital Notes - Semi-annually in
arrears until the optional call date. Quarterly in
arrears thereafter.
NAB Wholesale Capital Notes 2 - Quarterly in arrears
Interest rate
0.15% per annum above
NAB CPS II - 3.25% per annum
NAB Capital Notes 2 - 4.95% per annum above the 3
the 6 month USD LIBOR
above the 3 month BBSW
month BBSW
NAB Capital Notes 3 - 4.00% per annum above the 3
month BBSW
NAB Capital Notes 5 - 3.50% per annum above the 3
month BBSW
NAB Wholesale Capital Notes - 4.95% per annum until
the optional call date. 3.75% per annum above the 3
month BBSW thereafter.
NAB Wholesale Capital Notes 2 - 4.00% per annum
above the 3 month BBSW
Maturity/
Conversion
No final maturity
NAB CPS II were redeemed on
Mandatory conversion:
17 December 2020
NAB Capital Notes 2 - 8 July 2024
NAB Capital Notes 3 - 19 June 2028
NAB Capital Notes 5 - 17 December 2029
NAB Wholesale Capital Notes - 12 December 2031
NAB Wholesale Capital Notes 2 - 17 July 2027
Issuer conversion option:
NAB Capital Notes 2 - 7 July 2022
NAB Capital Notes 3 - 17 June 2026
NAB Capital Notes 5 - 17 December 2027
NAB Wholesale Capital Notes - 12 December 2029
NAB Wholesale Capital Notes 2 - 17 July 2025
116 National Australia Bank
NOTE 15 OTHER DEBT ISSUES (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Perpetual floating
rate notes
Convertible preference shares
Convertible notes
Outstanding
USD3.77 million
NAB CPS II - Nil
amount
NAB Capital Notes 2 - $1.50 billion
NAB Capital Notes 3 - $1.87 billion
NAB Capital Notes 5 - $2.39 billion
NAB Wholesale Capital Notes - $500 million
NAB Wholesale Capital Notes 2 - $600 million
Capital treatment
Tier 2 capital, subject
Additional Tier 1 capital
Additional Tier 1 capital
to transitional Basel
III arrangements
(1) On 17 December 2020, NAB redeemed all of the NAB CPS II for $100 per NAB CPS II.
NOTE 16
OTHER FINANCIAL LIABILITIES
Accounting policy
In certain circumstances, the Group applies the fair value measurement option to financial liabilities. This option is applied
where an accounting mismatch is significantly reduced or eliminated by measuring the financial liability at fair value
through profit or loss.
Where liabilities are designated at fair value through profit or loss, they are initially recognised at fair value, with
transaction costs recognised in the income statement as incurred. Subsequently, they are measured at fair value and any
gains or losses (except for changes in own credit risk that are recognised in other comprehensive income) are recognised
in the income statement as they arise.
Other financial liabilities at fair value
Bonds, notes and subordinated debt
Deposits and other borrowings
Certificates of deposit
Term deposits
Commercial paper and other borrowings
Securities sold short
Other financial liabilities
Total other financial liabilities
Group
2021
$m
2020
$m
Company
2021
$m
2020
$m
18,416
22,348
5,570
5,845
2,324
-
4,228
2,059
19
856
562
3,089
3,092
24
27,046
29,971
-
-
-
1,547
19
7,136
-
-
-
3,042
24
8,911
The change in fair value of bonds, notes and subordinated debt attributable to changes in the Group’s credit risk amounts to a
loss for the 2021 financial year of $78 million (2020: $118 million loss) for the Group and a loss of $63 million (2020: $56 million
loss) for the Company. The cumulative change in fair value of bonds, notes and subordinated debt attributable to changes in
the Group’s credit risk amounts to a loss of $161 million (2020: $83 million loss) for the Group and a loss of $53 million (2020:
$10 million gain) for the Company. The contractual amount to be paid at the maturity of the bonds, notes and subordinated
debt is $17,707 million (2020: $21,230 million) for the Group and $5,222 million (2020: $5,358 million) for the Company.
Annual Financial Report 2021
117
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17
PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST
Accounting policy
The Group applies a three-stage approach to measuring ECL for the following categories of financial assets that are not
measured at fair value through profit or loss:
• debt instruments measured at amortised cost and fair value through other comprehensive income
• loan commitments
• financial guarantee contracts.
Exposures are assessed on a collective basis in each stage unless there is sufficient evidence that one or more events
associated with an exposure could have a detrimental impact on estimated future cash flows. Where such evidence exists,
the exposure is assessed on an individual basis.
Stage
12-months ECL (Stage 1)
Lifetime ECL – not credit
impaired (Stage 2)
Lifetime ECL – credit impaired
(Stage 3)
Measurement basis
The portion of lifetime ECL associated with the probability of default events
occurring within the next 12 months.
ECL associated with the probability of default events occurring throughout the life of
an instrument.
Lifetime ECL, but interest revenue is measured based on the carrying amount of the
instrument net of the associated ECL.
At each reporting date, the Group assesses the default risk of exposures in comparison to the risk at initial recognition, to
determine the stage that applies to the associated ECL measurement. If no significant increase in default risk is observed,
the exposure will remain in Stage 1. If the default risk of an exposure has increased significantly since initial recognition,
the exposure will migrate to Stage 2. Should an exposure become credit impaired it will migrate to Stage 3.
For this purpose, the Group considers reasonable and supportable information that is relevant and available without
undue cost or effort. This includes quantitative and qualitative information and also forward looking analysis. Refer to
Note 19 Financial risk management.
ECL are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:
• Financial assets that are not credit impaired at the reporting date: as the present value of all cash shortfalls over the
expected life of the financial asset discounted by the effective interest rate. The cash shortfall is the difference between
the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive.
• Financial assets that are credit impaired at the reporting date: as the difference between the gross carrying amount and
the present value of estimated future cash flows discounted by the effective interest rate.
• Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to
the Group if the commitment is drawn down and the cash flows that the Group expects to receive.
• Financial guarantee contracts: as the expected payments to reimburse the holder less any amounts that the Group
expects to recover.
Credit quality of financial assets
The Group’s internally developed credit rating system utilises historical default data drawn from a number of sources to
assess the potential default risk of lending, or other financial services products, provided to counterparties or customers.
The Group has defined counterparty probabilities of default across retail and non-retail loans and advances, including
performing (pre-default) and non-performing (post-default) rating grades. In assessing for credit impairment of financial
assets under the expected credit loss model, the Group aligns impairment with the definition of default prescribed in its
Credit Policy and Procedures.
Assessment of significant increase in credit risk
When determining whether the risk of default has increased significantly since initial recognition, the Group considers
both quantitative and qualitative information, including expert credit risk assessment, forward looking information and
analysis based on the Group’s historical experience.
• For non-retail facilities, internally derived credit ratings, as described above, represent a key determinant of default
risk. The Group assigns each customer a credit rating at initial recognition based on available information. Credit risk is
deemed to have increased significantly if the credit rating has significantly deteriorated at the reporting date, relative to
the credit rating at the date of initial recognition.
118 National Australia Bank
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
• Retail facilities use the number of days past due (DPD) or the relative change in probability of default at an account
level, to determine whether or not there has been a significant increase in credit risk.
• In addition, the Group considers that significant increase in credit risk occurs when a facility is more than 30 DPD.
• Consistent with industry guidance, a customer support payment deferral as part of COVID-19 support packages in
isolation does not necessarily result in a significant increase in credit risk, and therefore does not trigger an automatic
migration from Stage 1 (12-month ECL) to Stage 2 (lifetime ECL) in the credit impairment for such loans.
Definition of default
Default occurs when a loan obligation is 90 days or more past due, or when it is considered unlikely that the credit
obligation to the Group will be paid in full without remedial action, such as realisation of security. The offer or uptake of
a COVID-19 related payment deferral does not automatically trigger a default event unless there is other evidence that the
customer is unlikely to meet their contractual obligations.
Calculation of ECL
• ECL are calculated using three main parameters being probability of default (PD), loss given default (LGD) and exposure
at default (EAD). These parameters are generally derived from internally developed statistical models combined with
historical, current and forward looking information, including macro-economic data.
• For accounting purposes, the 12-months and lifetime PD represent the expected point-in-time probability of a default
over the next 12 months and remaining lifetime of the financial instrument, respectively, based on conditions existing
at the balance sheet date and future economic conditions that affect credit risk.
• The LGD represents expected loss conditional on default, taking into account the mitigating effect of collateral, its
expected value when realised and the time value of money.
• The EAD represents the expected exposure at default, taking into account the repayment of principal and interest from
the balance sheet date to the default event together with any expected drawdown of a facility.
• The 12-months ECL is equal to the discounted sum over the next 12-months of monthly PD multiplied by LGD and EAD.
Lifetime ECL is calculated using the discounted sum of monthly PD over the expected remaining life multiplied by LGD
and EAD.
Incorporation of forward looking information
• The Group uses internal subject matter experts from Risk, Economics and Business Divisions to consider a range
of relevant forward looking data, including macro-economic forecasts and assumptions, for the determination of
unbiased general economic adjustments and any idiosyncratic or targeted portfolio / industry adjustments, to support
the calculation of ECL.
• Forward looking adjustments for both general macro-economic adjustments and more targeted portfolio / industry
adjustments, reflect reasonable and supportable forecasts of potential future conditions that are not captured within
the base ECL calculations.
• Macro-economic factors taken into consideration include, but are not limited to, unemployment, interest rates, gross
domestic product, inflation, commercial and residential property prices, and require an evaluation of both the current
and forecast direction of the macro-economic cycle.
• Incorporating forward looking information, including macro-economic forecasts, increases the degree of judgement
required to assess how changes in these data points, will affect ECL. The methodologies and assumptions, including
any forecasts of future economic conditions, are reviewed regularly.
Critical accounting judgements and estimates
Judgement is applied in determining ECL using objective, reasonable and supportable information about current and
forecast economic conditions. Macro-economic variables used in these scenarios, include (but are not limited to) the
cash rate, unemployment rates, GDP growth rates and residential and commercial property price indices. Forward
looking macro-economic information and assumptions relating to COVID-19 have been considered in these scenarios,
recognising that uncertainty still exists in relation to COVID-19. When determining whether the risk of default has
increased significantly since initial recognition, both quantitative and qualitative information is considered, including
expert credit assessment, forward looking information and analysis based on the Group’s historical loss experience.
Consistent with industry guidance, a customer support payment deferral as part of COVID-19 support packages in isolation
does not necessarily result in a significant increase in credit risk, and therefore does not trigger an automatic migration
from Stage 1 (12-month ECL) to Stage 2 (Lifetime ECL) in the credit impairment provision for such loans.
Annual Financial Report 2021
119
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
Credit impairment charge on loans at amortised cost
New and increased provisions (net of collective provision releases)
Write-backs of specific provisions
Recoveries of specific provisions
Total charge / (write-back) to the income statement
Group
2021
$m
122
(270)
(54)
(202)
2020
$m
2,990
(169)
(69)
2,752
Company
2021
$m
19
(169)
(42)
(192)
2020
$m
2,651
(130)
(59)
2,462
Stage 1
Stage 2
Stage 3
Lifetime
ECL not
Lifetime
Lifetime
12-mth
credit
ECL credit
ECL credit
ECL
impaired
impaired
impaired
Collective
Collective
Collective
Specific
provision
provision
provision
provision
Total
Group
Balance at 1 October 2019
Changes due to financial assets recognised in the opening balance that have:
Transferred to 12-months ECL - collective provision
Transferred to Lifetime ECL not credit impaired - collective provision
Transfer to Lifetime ECL credit impaired - collective provision
Transfer to Lifetime ECL credit impaired - specific provision
$m
368
335
(83)
(2)
(1)
$m
2,227
(319)
142
(83)
(46)
New and increased provisions (net of collective provision releases)
(146)
1,981
Write-backs of specific provisions
Write-offs from specific provisions
Foreign currency translation and other adjustments
Balance at 30 September 2020
Changes due to financial assets recognised in the opening balance that have:
Transferred to 12-months ECL - collective provision
Transferred to Lifetime ECL not credit impaired - collective provision
Transfer to Lifetime ECL credit impaired - collective provision
Transfer to Lifetime ECL credit impaired - specific provision
New and increased provisions (net of collective provision releases)
Write-backs of specific provisions
Write-offs from specific provisions
Derecognised in respect of a sale of loans
Foreign currency translation and other adjustments
Balance at 30 September 2021
-
-
(1)
470
213
(69)
(2)
(1)
(358)
-
-
-
3
256
-
-
(5)
3,897
(197)
240
(59)
(31)
(188)
-
-
(299)
13
3,376
$m
523
(16)
(59)
85
(107)
399
-
-
(1)
824
(16)
(171)
61
(93)
281
-
-
-
3
$m
782
$m
3,900
-
-
-
154
756
(169)
(700)
(3)
-
-
-
-
2,990
(169)
(700)
(10)
820
6,011
-
-
-
125
387
(270)
(413)
-
1
-
-
-
-
122
(270)
(413)
(299)
20
889
650
5,171
Impact of movements in gross carrying amount on provision for ECL for the Group
Provision for credit impairment reflects ECL measured using the three-stage approach. The following explains how significant
changes in the gross carrying amount of loans and advances during the 2021 financial year have contributed to the changes in
the provision for credit impairment for the Group under the expected credit loss model.
Overall, the total provision for credit impairment decreased by $840 million compared to the balance at 30 September 2020.
Specific provisions decreased by $170 million compared to the balance at 30 September 2020, mainly due to work-outs for a
small number of larger exposures in the business lending portfolio in Australia and New Zealand.
120 National Australia Bank
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Collective provisions decreased by $670 million compared to the balance at 30 September 2020, comprised of:
Collective provision 12-months ECL (Stage 1) decreased by $214 million as a result of:
• $139 billion of loans and advances that were repaid, experienced movement in underlying account balances during the
period or migrated from Stage 1 to Stage 2 or Stage 3 due to deterioration in credit quality.
• Partial reallocation of forward looking adjustments raised for targeted sectors to Stage 2 due to methodology refinements.
• Partially offset by $141 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or
Stage 3 due to credit quality improvement.
Collective provision Lifetime ECL – not credit impaired (Stage 2) decreased by $521 million as a result of:
• $64 billion of loans and advances that migrated to Stage 1 as a result of improved credit quality or into Stage 3 due to
deterioration in credit quality, were repaid or experienced movement in underlying account balances during the period.
• Decrease in net collective provision forward looking adjustments raised for targeted sectors including aviation due to a sale
of loans in the aviation portfolio.
Partially offset by:
• The reallocation of forward looking adjustments raised for targeted sectors from Stage 1 due to methodology refinements.
• $85 billion of loans and advances migrating into Stage 2 as a result of loans and advances transferred from Stage 1 or
Stage 3.
Collective provision Lifetime ECL – credit impaired (Stage 3) increased by $65 million as a result of:
• $6 billion of loans and advances that experienced movement in underlying account balances during the period or were
transferred into Stage 3 from Stage 1 and Stage 2 due to credit quality deterioration.
• Partially offset by $6 billion of loans and advances that were repaid or migrated to Stage 1 or Stage 2 due to credit quality
improvement or migrated to individually credit assessed with specific provisions raised.
ECL scenario analysis
The following table shows the key macro-economic variables used in the base case and downside scenario at
30 September 2021.
GDP change (year ended September)
Unemployment (as at 30 September)
House price change (year ended September)
Base case
Financial year
Downside
Financial year
2022
2023
2024
2022
2023
2024
%
5.9
4.5
5.5
%
2.2
4.0
3.0
%
2.5
3.8
2.0
%
(0.5)
8.4
(18.0)
%
(3.0)
10.6
(14.1)
%
2.0
10.9
4.3
The probability weighted ECL is a blended outcome taking into consideration the respective scenarios applied across each of
the Group’s major loan portfolios. The following table shows the reported total provisions for ECL based on the probability
weighting of scenarios, with the sensitivity range reflecting the ECL impacts assuming a 100% weighting is applied to the base
case scenario or the downside scenario (with all other assumptions held constant).
Total provisions for ECL
Probability weighted
100% Base case
100% Downside
2021
$m
5,171
4,291
6,984
2020
$m
6,011
5,611
7,774
Annual Financial Report 2021
121
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
The table below shows weightings applied to the Australian portfolio, to derive the probability weighted ECL.
Macro-economics scenario weightings
Upside
Base case
Downside
2021
%
5.0
62.5
32.5
2020
%
15.0
60.0
25.0
• The September 2021 total provisions for ECL in the 100% base case and 100% downside scenarios have reduced since
September 2020, driven primarily by an improvement in the base case macro-economic outlook, the reduction in provisions
from a sale of part of the aviation portfolio and a lower specific provision balance.
• The upside scenario weighting has reduced from 15% at September 2020 to 5% at September 2021, given the improvement
in the base case scenario.
• The downside scenario weighting has increased from 25% at September 2020 to 32.5% at September 2021, to reflect
increased uncertainty and potential headwinds in the outlook.
The table below provides a breakdown of the probability weighted ECL by key portfolios:
Total provision for ECL for key portfolios
Housing
Business
Others
Total
Company
Balance at 1 October 2019
Changes due to financial assets recognised in the opening balance that have:
Transferred to 12-months ECL - collective provision
Transferred to Lifetime ECL not credit impaired - collective provision
Transferred to Lifetime ECL credit impaired - collective provision
Transferred to Lifetime ECL credit impaired - specific provision
New and increased provisions (net of collective provision releases)
Write-backs of specific provisions
Write-offs from specific provisions
Foreign currency translation and other adjustments
Balance at 30 September 2020
Changes due to financial assets recognised in the opening balance that have:
Transferred to 12-months ECL - collective provision
Transferred to Lifetime ECL not credit impaired - collective provision
Transferred to Lifetime ECL credit impaired - collective provision
Transferred to Lifetime ECL credit impaired - specific provision
New and increased provisions (net of collective provision releases)
Write-backs of specific provisions
Write-offs from specific provisions
Derecognised in respect of a sale of loans
Foreign currency translation and other adjustments
Balance at 30 September 2021
122 National Australia Bank
2021
$m
1,248
3,770
153
5,171
Stage 1
Stage 2
Stage 3
Lifetime
ECL not
Lifetime
Lifetime
12-mth
credit
ECL credit
ECL credit
ECL
impaired
impaired
impaired
Collective
Collective
Collective
Specific
provision
provision
provision
provision
$m
300
233
(77)
(2)
(1)
(38)
-
-
(1)
414
192
(18)
(1)
(1)
(382)
-
-
-
(1)
203
$m
1,883
(221)
132
(74)
(31)
1,747
-
-
(2)
$m
474
(12)
(55)
76
(97)
335
-
-
1
3,434
722
(180)
175
(53)
(26)
(179)
-
-
(299)
-
2,872
(12)
(157)
54
(85)
283
-
-
-
1
806
$m
624
-
-
-
129
607
(130)
(618)
(3)
609
-
-
-
112
297
(169)
(322)
-
(1)
526
2020
$m
1,245
4,252
514
6,011
Total
$m
3,281
-
-
-
-
2,651
(130)
(618)
(5)
5,179
-
-
-
-
19
(169)
(322)
(299)
(1)
4,407
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Impact of movements in gross carrying amount on provision for ECL for the Company
Provision for credit impairment reflects ECL measured using the three-stage approach. The following explains how significant
changes in the gross carrying amount of loans and advances during the 2021 financial year have contributed to the changes in
the provision for credit impairment for the Company under the expected credit loss model.
Overall, the total provision for credit impairment decreased by $772 million compared to the balance at 30 September 2020.
Specific provisions decreased by $83 million compared to the balance at 30 September 2020, mainly due to work-outs for a
small number of larger exposures in the Australian business lending portfolio.
Collective provisions decreased by $689 million compared to the balance at 30 September 2020, comprised of:
Collective provision 12-months ECL (Stage 1) decreased by $211 million due to:
• $109 billion of loans and advances that were repaid, experienced movement in underlying account balances during the
period or migrated from Stage 1 to Stage 2 or Stage 3 due to deterioration in credit quality.
• Partial reallocation of forward looking adjustments raised for targeted sectors to Stage 2 due to methodology refinements.
• Partially offset by $119 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or
Stage 3 due to credit quality improvement.
Collective provision Lifetime ECL – not credit impaired (Stage 2) decreased by $562 million due to:
• $57 billion of loans and advances that were repaid, experienced movement in underlying account balances during the
period, migrated to Stage 1 as a result of improved credit quality or into Stage 3 due to deterioration in credit quality.
• Decrease in net collective provision forward looking adjustments raised for targeted sectors including aviation due to a sale
of loans in the aviation portfolio.
Partially offset by:
• The reallocation of forward looking adjustments raised for targeted sectors from Stage 1 due to methodology refinements.
• $64 billion of loans and advances migrating into Stage 2 as a result of loans and advances transferred from Stage 1 or
Stage 3.
Collective provision Lifetime ECL – credit impaired (Stage 3) increased by $84 million due to:
• $5 billion of existing loans and advances that were transferred into Stage 3 from Stage 1 and stage 2 due to credit quality
deterioration or experienced movement in underlying account balances during the period.
• Partially offset by $5 billion of loan and advances that were repaid, migrated to Stage 1 or Stage 2 due to credit quality
improvement or migrated to individually credit assessed with specific provisions raised.
Write-offs still under enforcement activity
The contractual amount outstanding on loans and advances that were written off during the 2021 financial year, which are
still subject to enforcement activity was $32 million (2020: $99 million) for the Group and $10 million (2020: $73 million) for
the Company.
Information about total impaired assets
The following table provides details on impaired assets. Gross amounts are shown before taking into account any collateral held
or other credit enhancements. Refer to Note 19 Financial risk management for analysis of the credit quality of the Group’s loans
and advances.
Summary of total impaired assets
Gross impaired assets(1)
Specific provision for credit impairment(2)
Net impaired assets(3)
Group
Company
2021
$m
1,258
(664)
594
2020
$m
1,866
(840)
1,026
2021
$m
1,031
(526)
505
2020
$m
1,299
(609)
690
(1) Gross impaired assets include $30 million (2020: $38 million) for the Group and $nil (2020: $nil) for the Company of gross impaired loans at fair value,
$9 million (2020: $26 million) of impaired off-balance sheet credit exposures for the Group and $7 million (2020: $19 million) for the Company.
(2) Specific provision for credit impairment includes $14 million (2020: $20 million) for the Group and nil (2020: $nil) for the Company of fair value credit
adjustments on loans at fair value.
(3) The fair value of security in respect of impaired assets is $638 million (2020: $1,065 million) for the Group and $560 million (2020: $740 million) for the
Company. Fair value amounts of security held in excess of the outstanding balance of individual impaired assets are not included in these amounts.
Annual Financial Report 2021
123
NOTES TO THE FINANCIAL STATEMENTS
NOTE 17 PROVISION FOR CREDIT IMPAIRMENT ON LOANS AT AMORTISED COST (CONTINUED)
Modifications
The Group has introduced a number of support measures for customers impacted by COVID-19, including the deferral of
payments for retail and business customers in accordance with APRA guidance. The terms and conditions related to the
deferrals were considered to be non-substantial modifications and accounted for as a continuation of the existing loan
agreements. In accordance with APRA guidance the deferral program closed on 30 September 2021. No material modification
gains or losses have been recognised in respect of loans on deferral.
The table below sets out the gross credit risk exposures on deferral:
Stage 1
Stage 2
Stage 3
Total
Group
Company
2021
$m
919
1,265
36
2,220
2020
$m
26,989
18,104
680
45,773
2021
$m
919
1,265
36
2,220
2020
$m
25,602
18,051
637
44,290
124 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18
DERIVATIVES AND HEDGE ACCOUNTING
Accounting policy
Trading derivatives
Trading derivatives are not in a qualifying hedging relationship and are measured at fair value through profit or loss.
Hedge accounting
The Group utilises the following three types of hedge relationships in managing its exposure to risk. At inception of all hedge relationships the Group documents the relationship
between the hedging instrument and hedged item, the risk being hedged, the Group’s risk management objective and strategy and how effectiveness will be measured throughout
the hedge relationship.
Objective
Methods for testing
hedge effectiveness
Potential sources
of ineffectiveness
Cash flow hedge
To hedge changes to cash flows arising from
interest rate and foreign currency risk.
For portfolio hedges, capacity analysis to
ensure interest cash flows arising from the
portfolio of hedged items are in excess of the
hedging instruments.
Mainly mismatches in terms of the hedged item
and the hedging instrument.
Discounting basis between the hedged item
and hedging instrument.
Recognition of effective
hedge portion
Fair value changes of the hedging instrument
associated with the hedged risk are recognised
in the cash flow hedge reserve in equity.
Fair value hedge
To hedge fair value changes to recognised
assets and liabilities arising from interest rate
and foreign currency risk.
Regression analysis and the Cumulative dollar
offset method.
Net investment hedge
To hedge foreign currency exposure arising
from foreign operations of the Group.
Cumulative dollar offset method.
Mainly mismatches in terms of the hedged item
and the hedging instrument, prepayment risk
and reset risk.
None expected as the net investment is only
hedged to the extent of the notional or carrying
amount of the hedging instrument.
Discounting basis between the hedged item
and hedging instrument.
Fair value changes of the hedging instrument
and those arising from the hedged risk
on the hedged item are recognised in the
income statement.
Fair value changes of the hedging instrument
are recognised in the foreign currency
translation reserve within equity.
Recognition of ineffective
hedge portion
Hedging instrument expires, is
sold, or when hedging criteria
are no longer met
Transferred to the income statement as /
when the hedged item affects the income
statement. If the hedged item is no longer
expected to occur the effective portion
accumulated in equity is transferred to the
income statement immediately.
Recognised in the income statement as ineffectiveness arises.
Cumulative hedge adjustment to the hedged
item is amortised to the income statement on
an effective yield basis.
Cumulative fair value changes arising from the
hedging instrument will remain in equity until
the foreign operation is disposed.
Annual Financial Report 2021
125
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
Derivative assets and liabilities
The tables below set out total derivative assets and liabilities disclosed as trading and hedging derivatives.
Total derivatives
Trading derivatives
Hedging derivatives
Total derivatives
Trading derivatives
Foreign exchange rate-related contracts
Spot and forward contracts
Cross currency swaps
Options / swaptions
Total foreign exchange rate-related contracts
Interest rate-related contracts
Forward rate agreements
Swaps
Options / swaptions
Total interest rate-related contracts
Credit derivatives
Commodity derivatives
Other derivatives
Total trading derivatives
126 National Australia Bank
2021
Assets
$m
24,254
3,220
27,474
2021
Assets
$m
7,218
4,697
222
12,137
12
10,360
870
11,242
2
822
51
Group
2020
Assets
$m
30,914
3,830
34,744
Group
2020
Assets
$m
6,389
5,601
218
12,208
25
16,548
1,513
18,086
74
525
21
2021
2020
Liabilities
Liabilities
$m
22,084
1,947
24,031
$m
30,021
2,255
32,276
2021
2020
Liabilities
Liabilities
$m
$m
6,178
6,674
201
13,053
12
7,330
932
8,274
85
642
30
6,527
8,649
136
15,312
19
12,452
1,718
14,189
156
359
5
2021
Assets
$m
24,658
2,153
26,811
2021
Assets
$m
6,867
5,875
222
12,964
12
9,914
870
10,796
5
842
51
Company
2020
Assets
$m
31,326
2,888
34,214
2021
2020
Liabilities
Liabilities
$m
24,948
1,230
26,178
$m
33,450
1,721
35,171
Company
2020
Assets
$m
6,132
6,462
217
12,811
23
16,353
1,513
17,889
77
528
21
2021
2020
Liabilities
Liabilities
$m
$m
5,854
9,667
201
15,722
12
7,502
931
8,445
88
664
29
6,112
12,180
136
18,428
16
12,761
1,718
14,495
159
363
5
24,254
30,914
22,084
30,021
24,658
31,326
24,948
33,450
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
Risk management strategy for hedge accounting
Overview
The Group’s hedging strategy is to manage its exposure to interest rate risk on a net variable basis in Australian or New Zealand dollars. For Australian and New Zealand denominated
exposures the Group will enter into interest rate swaps where the exposure is to a fixed interest rate. In some instances, cash flow hedges of interest rate risk are also used to arrive at a
net variable rate position. Foreign currency exposures are swapped to Australian or New Zealand dollars using cross-currency swaps and interest rate swaps. The material risks and the risk
management strategy are explained further below.
Cash flow hedges – interest rate risk
The Group manages interest rate risk exposure on deposits and loans via interest rate derivatives. The Group accounts for these hedge relationships as a macro cash flow hedge. The
gross exposures are allocated to time buckets based on expected repricing dates, with interest rate derivatives allocated to hedge accordingly. The benchmark interest rate is hedged which
represents the largest component of changes in fair value and is observable in relevant financial markets.
Cash flow hedges – foreign currency risk
The Group is exposed to foreign currency risk on credit margin cash flows and foreign currency risk on the principal cash flows, both of which arise from foreign currency debt issuances.
The Group uses foreign currency derivatives to manage changes between the foreign currency and Australian and New Zealand dollars for the above mentioned cash flows.
Fair value hedges – interest rate risk
Interest rate risk arises on fixed rate bonds, notes and subordinated debt issuances, fixed rate debt instruments held for liquidity purposes and fixed rate loans and advances. The Group
hedges its interest rate risk on these instruments with relevant interest rate derivatives to reduce its exposure to changes in fair value due to interest rate fluctuations.
Hedging relationships involving debt issuances and the debt instruments are predominantly one-to-one. The fixed rate loans and advances are predominantly managed on a macro basis,
where exposures are bucketed based on expected repricing dates with hedging instruments designated accordingly.
With all the fair value hedges, the benchmark interest rate is hedged which represents the largest component of changes in fair value and is observable in relevant financial markets.
Annual Financial Report 2021
127
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
Hedging derivatives
Hedging derivative assets and liabilities are disclosed by the hedged risk and type of hedge relationship in which they are designated. The Group may designate separate derivatives to
hedge different risk components of one hedged item. In such scenario the notional amount of hedging derivatives will, in sum, exceed the notional amount of the hedged item. In the case
of cross-currency swaps, the Group can designate a single instrument to hedge both interest rate risk in a fair value hedge and currency risk in a cash flow hedge.
Hedging instrument
Risk
$m
$m
$m
$m
$m
$m
$m
$m
Group
Company
2021
2020
2021
2020
Carrying
Carrying
Carrying
Carrying
amount
Notional
amount
Notional
amount
Notional
amount
Notional
Derivative assets
Cash flow hedges
Cash flow hedges
Cash flow hedges
Fair value hedges
Interest rate swaps
Cross-currency swaps
Foreign exchange contracts
Interest rate swaps
Interest
Currency
Currency
Interest
Fair value and cash flow hedges
Cross-currency swaps
Interest and currency
Cash flow hedges
Futures(1)
Interest
Derivative liabilities
Cash flow hedges
Cash flow hedges
Cash flow hedges
Fair value hedges
Interest rate swaps
Cross-currency swaps
Foreign exchange contracts
Interest rate swaps
Interest
Currency
Currency
Interest
Fair value and cash flow hedges
Cross-currency swaps
Interest and currency
Cash flow hedges
Futures(1)
Interest
(1) Futures notional amounts are netted for presentation purposes.
-
2,609
49
209
352
1
137,799
103,037
6,340
72,029
5,530
3,092
15
106,774
1,288
7
19
618
-
64,408
1,492
58,864
8,643
1,047
10
112,785
-
127,152
9
106,602
2,620
273
379
547
1
29
1,222
145
82
772
5
95,600
11,972
57,912
9,757
663
54,817
65,451
5,449
40,418
7,505
2,990
1,788
49
137
178
1
15
1,072
7
12
124
-
79,426
6,340
58,868
2,646
1,221
99,476
55,180
1,492
46,290
4,366
1,047
2,098
273
266
241
1
29
1,199
145
80
263
5
88,825
11,972
44,031
5,191
32
49,853
63,594
5,449
23,892
3,990
2,527
128 National Australia Bank
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
The following table shows the maturity profile of hedging instruments based on their notional amounts.
2021
2020
NOTES TO THE FINANCIAL STATEMENTS
0 to 12 months
1 to 5 years
Over 5 years
$m
$m
$m
Group
Interest rate swaps
Foreign exchange contracts
Futures(1)
Cross-currency swaps - interest and currency
Cross-currency swaps - currency
Company
Interest rate swaps
Foreign exchange contracts
Futures(1)
Cross-currency swaps - interest and currency
Cross-currency swaps - currency
(1) Futures notional amounts are netted for presentation purposes.
91,837
7,832
3,342
5,872
39,830
77,379
7,832
1,471
5,376
32,524
235,087
-
797
5,700
91,543
209,176
-
797
1,287
73,551
Total
$m
375,466
7,832
4,139
14,173
167,445
48,542
-
-
2,601
36,072
45,231
331,786
-
-
349
28,531
7,832
2,268
7,012
134,606
0 to 12 months
1 to 5 years
Over 5 years
$m
$m
$m
106,450
17,421
3,034
2,917
28,257
93,449
17,421
1,940
2,092
27,799
121,833
-
619
11,065
90,823
96,038
-
619
6,694
84,143
37,649
-
-
3,280
41,971
34,891
-
-
395
40,477
Total
$m
265,932
17,421
3,653
17,262
161,051
224,378
17,421
2,559
9,181
152,419
Annual Financial Report 2021
129
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
The average rate for major currencies of the final exchange of cross-currency swaps designated in hedge accounting relationships is as follows:
USD:AUD
EUR:AUD
GBP:AUD
USD:NZD
CHF:NZD
EUR:NZD
The average executed rate for interest rate swaps in hedge accounting relationships for major currencies is as follows:
Group
Company
2021
1.352
1.466
1.803
1.458
1.440
1.696
2020
1.337
1.461
1.790
1.579
1.560
n/a
2021
1.349
1.491
1.815
n/a
n/a
n/a
2020
1.333
1.489
1.788
n/a
n/a
n/a
Group
Company
2021
2020
2021
2020
Fair value
hedges
%
0.11 - 4.50
0.61 - 2.96
0.40 - 7.13
(0.22) - 2.61
Cash flow
hedges
%
(0.01) - 3.20
-
0.02 - 7.29
Fair value
hedges
%
0.11 - 5.39
0.62 - 3.52
1.00 - 7.13
Cash flow
hedges
%
0.03 - 5.31
-
0.09 - 7.29
Fair value
hedges
%
1.95 - 3.05
0.61 - 2.73
0.40 - 7.13
Cash flow
hedges
%
-
-
0.02 - 7.29
Fair value
hedges
%
1.95 - 5.39
0.62 - 3.52
1.00 - 7.13
-
(0.22) - 2.59
-
(0.22) - 2.61
-
(0.22) - 2.59
Cash flow
hedges
%
-
-
0.09 - 7.29
-
NZD interest rates
USD interest rates
AUD interest rates
EUR interest rates
130 National Australia Bank
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Hedged items
The balance of the cash flow hedge reserve, which represents the effective portion of the movements in the hedging instrument, is presented in Note 28 Reserves. The movements in
hedging instruments recognised in other comprehensive income are reported in the Group’s statement of other comprehensive income. There are no amounts recognised in the cash flow
hedge reserve for which hedge accounting is no longer applied (2020: $nil).
The following table shows the carrying amount of fair value hedged items in hedge relationships, and the accumulated amount of fair value hedge adjustments in these carrying amounts.
The Group does not hedge its entire exposure to a class of financial instruments, therefore the carrying amounts below do not equal the total carrying amounts disclosed in other notes.
The accumulated amount of fair value hedge adjustments included in the carrying amount of hedged items that have ceased to be adjusted for hedging gains and losses is $nil (2020: $nil)
for the Group and $nil (2020: $nil) for the Company.
2021
2020
2021
2020
Group
Company
Carrying amount
adjustments
Carrying amount
adjustments
Carrying amount
adjustments
Carrying amount
adjustments
Fair value hedge
Fair value hedge
Fair value hedge
Fair value hedge
$m
$m
$m
21,513
-
21,013
7,581
1,423
42,059
20,803
11,327
(27)
47
781
696
(160)
14,102
2,399
52,503
22,807
7,848
$m
-
131
147
1,850
1,159
410
$m
$m
$m
$m
21,513
-
1,423
39,539
-
11,327
-
-
47
773
-
(160)
21,013
-
2,399
50,940
-
7,848
-
-
147
1,790
-
410
Debt instruments(1)
Semi-government bonds, notes
and securities
Loans and advances
Housing loans
Other term lending
Bonds, notes and subordinated debt
Medium-term notes
Covered bonds(2)
Subordinated medium-term notes
(1) The carrying amount of debt instruments at fair value through other comprehensive income does not include a fair value hedge adjustment as the hedged asset is measured at fair value. The accounting for the hedge relationship
results in a transfer from other comprehensive income to the income statement.
(2) The Company ceased to apply hedge accounting to covered bonds, which continue to be designated for hedge accounting purposes at the Group level.
Annual Financial Report 2021
131
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
Hedge ineffectiveness
Fair value and cash flow hedge relationships result in the following changes in value used as the basis for recognising hedge
ineffectiveness for the years ended 30 September:
Group
Fair value hedges (interest rate risk)
Cash flow hedges (interest rate risk)
Cash flow hedges (currency risk)
Fair value and Cash flow hedges (interest rate and
currency risk)
Total
Company
Fair value hedges (interest rate risk)
Cash flow hedges (interest rate risk)
Cash flow hedges (currency risk)
Total
Change in fair value on
Change in fair value on
recognised in
hedging instruments
hedged items
income statement(1)
Hedge ineffectiveness
2021
$m
(3)
(447)
(927)
(37)
(1,414)
334
(380)
(756)
(802)
2020
$m
404
357
(801)
32
(8)
422
284
(553)
153
2021
$m
10
445
689
37
1,181
(318)
380
720
782
2020
$m
2021
$m
2020
$m
(419)
(356)
841
(32)
34
(425)
(284)
572
(137)
7
(2)
(238)
-
(233)
16
-
(35)
(19)
(15)
1
40
-
26
(3)
-
19
16
(1)
In the 2021 financial year, operational enhancements were implemented to reduce future volatility in earnings related to hedge accounting. This resulted in a
one-off $245 million charge.
Cash flow hedge (interest rate risk)
Cash flow hedges - gains or losses recognised in other comprehensive income
Amount reclassified from the cash flow hedge reserve to income statement
Cash flow hedge (currency risk)
Cash flow hedges - gains or losses recognised in other comprehensive income
Amount reclassified from the cash flow hedge reserve to income statement
IBOR reform
Phase 1
Group
Company
2021
$m
(444)
(55)
2020
$m
360
(61)
2021
$m
(380)
(9)
Group
Company
2021
$m
(724)
887
2020
$m
(818)
640
2021
$m
(720)
714
2020
$m
288
(14)
2020
$m
(571)
458
The Group early adopted AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform,
effective 1 October 2019. This standard amends AASB 7 Financial Instruments: Disclosures and AASB 9 Financial Instruments
to modify some specific hedge accounting requirements to provide relief from the potential effects of uncertainty caused by
interest rate benchmark reform.
Key exposures
The Group’s hedge accounting relationships are exposed to the following significant interest rate benchmarks subject to
cessation: USD Libor, GBP Libor and JPY Libor. These hedging relationships are primarily within the Group’s Corporate and
Institutional Banking division and Treasury function. In addition to interest rate risk, the Group is also exposed to foreign
exchange risk and potentially in the future, additional basis risk as market conventions develop and evolve.
Further information on significant interest rate benchmarks, the extent of risk exposure managed by the Group that is affected
by interest rate benchmark reform and the nominal amount of the hedging instruments in those hedging relationships is
outlined below.
Significant assumptions and judgements
The Group has made the following significant assumptions and judgements in applying AASB 2019-3:
132 National Australia Bank
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
• The Group has applied the assumptions afforded by AASB 2019-3 paras 6.8.1-6.8.8 where applicable.
• Disclosure in the table below is only shown for hedged items and hedging instruments referencing interest rate benchmarks
subject to cessation and where their contractual terms need to be updated as a result of cessation.
• Where a single hedging instrument references more than one benchmark rate and both benchmarks are subject to cessation
(for example, in the case of a cross currency swap), the notional amount has been disclosed in the table below twice to
reflect the absolute notional exposure to benchmark reform. Likewise, if only one benchmark rate is subject to cessation,
the notional is only disclosed once in the table below. Since hedging instruments might be in asset or liability positions, the
table below discloses the absolute (gross) notional rather than net notionals.
• Disclosure in the table below in relation to hedged items includes externally issued standalone instruments where their
contractual cash flows are directly impacted by IBOR reform. Not included in the table below are:
– Hedged item assets amounting to $1.4 billion at 30 September 2021 and $2.4 billion at 30 September 2020 (for Group and
Company), and
– Hedged item liabilities amounting to $38.4 billion (for Group) and $29.8 billion (for Company) at 30 September 2021 and
$42.2 billion (for Group) and $33.8 billion (for Company) at 30 September 2020,
whose contractual cash flows are not directly impacted by IBOR reform, are designated in accounting hedge relationships using
hedging instruments affected by IBOR reform.
Extent of the hedge accounted exposure directly affected by interest rate benchmark reform
Group
2021
Group
2020
USD Libor
GBP Libor
JPY Libor
USD Libor
GBP Libor
JPY Libor
$m
4,580
$m
-
$m
-
$m
7,215
$m
361
$m
-
50,273
167,399
4,384
4,384
4,153
4,153
47,750
160,592
3,159
3,520
4,606
4,606
Company
2021
Company
2020
USD Libor
GBP Libor
JPY Libor
USD Libor
GBP Libor
JPY Libor
$m
4,580
$m
-
$m
-
$m
$m
7,215
361
$m
-
50,273
160,909
4,384
4,384
4,153
4,153
34,113
152,264
542
2,708
4,606
4,606
Hedged items (carrying value)
Bonds, notes and subordinated debt
Hedging instruments (notional)
Fair value hedges
Cash flow hedges
Hedged items (carrying value)
Bonds, notes and subordinated debt
Hedging instruments (notional)
Fair value hedges
Cash flow hedges
Phase 2
The Group has early adopted AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform
– Phase 2, effective 1 October 2020. This standard amends AASB 7 and AASB 9 to address various accounting issues arising
from the cessation of some Inter-bank Offered Rates and the transition to ARRs. The standard also provides relief from some
accounting requirements, including hedge accounting and the modification of financial assets and liabilities, to facilitate the
transition to ARRs.
Managing the process to transition
The Group has an established project team which continues to comprehensively assess and manage the impacts of IBOR reform,
including overseeing the transition from the impacted interest rate benchmarks to ARRs across various divisions and functions
within the Group. A steering committee comprising senior executives from relevant divisions and functions is responsible for
governance ensuring clear accountability for decisions made.
The scope of the project team includes:
• Assessing the impact of IBOR reform on systems and processes within the Group and implementing changes to position the
Group post IBOR cessation.
Annual Financial Report 2021
133
NOTES TO THE FINANCIAL STATEMENTS
NOTE 18 DERIVATIVES AND HEDGE ACCOUNTING (CONTINUED)
• Assessing the impact of IBOR reform on legal agreements the Group has executed, developing plans to support transition
and future regulatory changes.
• Periodically updating the Group’s Executive Leadership Team and the Board on progress within the Group, market
developments and important transition events.
In March 2021, the Financial Conduct Authority (FCA) and ICE Benchmark Administrator announced the cessation dates for all
35 LIBOR tenors. They confirmed the:
• Discontinuation of all USD LIBOR and GBP, JPY, EUR, CHF LIBOR tenors (1 week, 2-month tenors only), with the last
publication date being 31 December 2021.
• Remaining USD LIBOR tenors (overnight, 1, 3, 6 and 12 month) will continue, with last publication on 30 June 2023.
The Group continues to take active steps to meet jurisdictional regulatory guidance and national working group timelines
to cease referencing LIBOR in new transactions and actively transition legacy contracts to ARRs prior to the respective LIBOR
cessation dates.
Risk arising from transition
The Group has been working on and implementing a set of mitigants to eliminate or manage risks arising from transition
to ensure a low probability of occurrence and impact to the Group and its customers. IBOR reform, including the transition
from LIBOR to ARRs, has not resulted in changes to the Group's Risk Management Strategy for hedge accounting as at
30 September 2021.
Financial instruments yet to transition to an alternative benchmark rate
Group (1)
2021
Company
2021
Non-derivative financial assets
Non-derivative financial liabilities
Derivatives
USD Libor
GBP Libor
JPY Libor
Others
USD Libor
GBP Libor
JPY Libor
Others
$m
11,099
(5)
1,846
$m
4,129
-
154
$m
75
-
5
$m
6
-
82
$m
11,099
(5)
1,753
$m
4,129
-
154
$m
75
-
(1)
$m
6
-
82
(1) All amounts represent the AUD carrying value.
Significant assumptions and judgements made in compiling the above disclosure table:
• The disclosure only includes financial instrument contracts where contractual cash flows reference an IBOR subject to
cessation (for example, this does not include AUD BBSW, NZD BKBM etc.). The disclosure also excludes fixed rate financial
instruments with no variability in contractual cash flows.
• The population disclosed includes financial instrument contracts where fallback language is updated and awaiting
benchmark cessation before transition to ARRs occurs.
• A cross currency swap referencing two benchmarks subject to cessation (for example, USD/GBP) has its AUD equivalent
carrying value disclosed twice (for example, in both the USD and GBP column).
• A cross currency swap referencing only one benchmark subject to cessation (for example, USD/AUD) has its AUD equivalent
carrying value disclosed once (for example, in the USD column).
• Financial instruments that mature before cessation date are excluded from the above disclosure.
134 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19
FINANCIAL RISK MANAGEMENT
Overview of risk management framework
Risk is the potential for harm and an inherent part of the Group's business. The Group's ability to manage risk effectively is
critical to being a safe and secure bank that can serve customers well and help our communities prosper. The Group's risk
management is in line with APRA Prudential Standard CPS 220 Risk Management.
The Group's Risk Management Framework consists of systems, structures, policies, processes and people within the Group
that manage the Group's material risks. The Risk Management Framework is comprehensively reviewed every three years for
appropriateness, effectiveness and adequacy by an operationally independent party. The Board is ultimately responsible for the
Risk Management Framework and oversees its operation by management. In addition, directors and senior executives are held
accountable for the parts of the Group’s operations they manage or control, consistent with the BEAR.
The Group applies a 'Three Lines of Accountability' operating model in relation to the management of risk. The overarching
principle of the model is that risk management capability must be embedded within the business to be effective. The role of
each line is:
• First Line - Businesses own risks and obligations, and the controls and mitigation strategies that help manage them.
• Second Line - A functionally segregated Risk function develops risk management frameworks, defines risk boundaries,
provides objective review and challenge regarding the effectiveness of risk management within the first line businesses,
and executes specific risk management activities where a functional segregation of duties and / or specific risk capability
is required.
• Third Line - An independent Internal Audit function reporting to the Board monitors the end-to-end effectiveness of risk
management and compliance with the Risk Management Framework.
Further risk management information for the Group is disclosed in the Corporate Governance section of the Group’s website at
www.nab.com.au/about-us/corporate-governance.
Credit risk
Credit risk overview, management and control responsibilities
Credit is any transaction that creates an actual or potential obligation for a counterparty or a customer to pay the Group.
Credit risk is the potential that a counterparty or customer will fail to meet its obligations to the Group in accordance with
agreed terms. Bank lending activities account for most of the Group’s credit risk, however other sources of credit risk also
exist throughout the activities of the Group. These activities include the banking book, the trading book, and other financial
instruments and loans (including, but not limited to, acceptances, placements, inter-bank transactions, trade financing, foreign
exchange transactions, swaps, bonds and options), as well as in the extension of commitments and guarantees and the
settlement of transactions.
The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation
to existing or potential counterparties or customers, groups of related counterparties or groups of related customers, and
to geographical and industry segments. Such risks are monitored on an ongoing basis and are subject to annual or more
frequent review.
In general, the Group does not take possession of collateral it holds as security or call on other credit enhancements that would
result in recognition of an asset on the balance sheet.
Exposure to credit risk is managed through regular analysis of the ability of existing or potential counterparties, customers,
groups of related counterparties or groups of related customers to meet interest and principal repayment obligations and
by changing lending limits where appropriate. Exposure to credit risk is also managed in part, by obtaining collateral and
corporate and personal guarantees.
The Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with
which it undertakes a significant volume of transactions. Master netting arrangements do not generally result in an offset of
balance sheet assets and liabilities, as transactions are usually settled on a gross basis. However, the credit risk associated
with favourable contracts is reduced by a master netting arrangement to the extent that if any counterparty failed to meet its
obligations in accordance with agreed terms, all amounts with a counterparty are terminated and settled on a net basis.
Environmental, social and governance (ESG) risks
The Group is exposed to ESG and other emerging risks. The following items are examples of how these risks may impact
the Group:
• Increases in the frequency and severity of climatic events could impact customers’ ability to service their loans or the value of
the collateral held to secure the loans.
• Action taken by governments, regulators and society more generally, to transition to a low-carbon economy, could impact
the ability of some customers to generate long-term returns in a sustainable way or lead to certain assets being stranded in
the future.
Annual Financial Report 2021
135
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
• Failure to comply with environmental and social legislation (emerging and current) may impact customers’ ability to
generate sustainable returns and service their loans.
• If in future, customers don’t hold appropriate levels of insurance for physical assets against certain risks, this may impact the
value the Group can recover in the event of certain natural disasters.
The Group considers these risks as part of the credit risk assessment and due diligence process before a customer is granted
credit and for new product development. The Group also manages its total credit portfolio within established risk appetite and
limits, particularly for specific industries or regions that are more exposed to these types of risks. As at 30 September 2021,
the Group holds no forward looking adjustments (FLAs) in its credit impairment provisions reflecting the potential impact of
Australian drought conditions (2020: $89 million).
Maximum exposure to credit risk
For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain
circumstances, there may be differences between the carrying amounts reported on the balance sheet and the amounts
reported in the tables below. Principally, these differences arise in respect of financial assets that are subject to risks other than
credit risk, such as equity instruments which are primarily subject to market risk, or bank notes and coins.
For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group would have to
pay if the guarantees are called upon. For irrevocable loan commitments and other credit-related commitments, the maximum
exposure to credit risk is the full amount of committed facilities.
The table below shows the Group’s maximum exposure to credit risk for on-balance sheet and off-balance sheet positions
before taking into account any collateral held or other credit enhancements.
Financial assets
Cash and liquid assets
Due from other banks(1)
Collateral placed (1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Gross loans and advances(1)
Due from controlled entities(1)
Other assets(1)
Total
Contingent liabilities
Credit-related commitments
Total
Total credit risk exposure
Footnote
(a)
(b)
(c)
(d)
(e)
(f)
(d)
(f)
(g)
(g)
(h)
(h)
Group
Company
2021
$m
49,738
107,546
6,430
50,020
41,878
2,794
27,474
2020
$m
63,022
47,333
8,579
64,937
40,355
3,860
34,744
2021
$m
49,397
98,207
5,919
42,916
41,849
3,305
26,811
2020
$m
62,358
44,185
7,413
54,924
40,324
3,885
34,214
626,500
590,192
534,226
508,280
-
-
6,261
5,724
38,599
5,519
41,847
5,045
918,641
858,746
846,748
802,475
21,409
185,369
206,778
20,626
173,656
194,282
20,633
163,196
183,829
1,125,419
1,053,028
1,030,577
19,707
153,090
172,797
975,272
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(a) The balance of Cash and liquid assets that is exposed to credit risk is comprised primarily of reverse repurchase agreements
and securities borrowing agreements.
(b) The balance of Due from other banks that is exposed to credit risk is comprised primarily of securities borrowing
agreements and reverse repurchase agreements, as well as balances held with central supervisory banks and other interest
earning assets. Securities borrowing agreements and reverse repurchase agreements are collateralised with highly liquid
securities and the collateral is in excess of the borrowed or loaned amount.
Balances held with central supervisory banks and other interest earning assets that are due from other banks are managed
based on the counterparty’s creditworthiness. The Group will utilise master netting arrangements where possible to reduce
its exposure to credit risk.
(c) The maximum exposure to credit risk from Collateral placed is the collateral placed with the counterparty before
consideration of any netting arrangements.
136 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
(d) At any one time, the maximum exposure to credit risk from Trading securities and Derivative assets is limited to the current
fair value of instruments that are favourable to the Group less collateral obtained. This credit risk is managed as part of the
overall lending limits with customers, together with potential exposures from market movements.
The Group uses documentation including International Swaps and Derivatives Association (ISDA) Master Agreements to
document derivative activities. Under ISDA Master Agreements, if a default of a counterparty occurs, all contracts with the
counterparty are terminated. They are then settled on a net basis at market levels current at the time of default. The Group
also executes Credit Support Annexes in conjunction with ISDA Master Agreements.
Credit risk from over-the-counter trading and hedging derivatives is mitigated where possible through netting arrangements
whereby derivative assets and liabilities with the same counterparty can be offset in certain circumstances. Derivatives that
are cleared through a central clearing counterparty or an exchange have less credit risk than over-the-counter derivatives
and are subject to relevant netting and collateral agreements.
Collateral is obtained against derivative assets, depending on the creditworthiness of the counterparty and / or the nature
of the transaction.
(e) Debt instruments are generally comprised of government, semi-government, corporate and financial institution bonds,
notes and securities. The amount of collateral held against such instruments will depend on the counterparty and the
nature of the specific financial instrument.
The Group may utilise credit default swaps, guarantees provided by central banks, other forms of credit enhancements or
collateral to minimise the Group’s exposure to credit risk.
(f) Gross loans and advances and Other financial assets mainly comprise general lending and line of credit products. The
distinction of classification is due to an accounting designation. These lending products will generally have a significant level
of collateralisation depending on the nature of the product.
Other lending to non-retail customers may be provided on an unsecured basis or secured (partially or fully) by acceptable
collateral defined in specific Group credit policy and business unit procedures. Collateral is generally comprised of business
assets, inventories and in some cases personal assets of the borrower. The Group manages its exposure to these products
by completing a credit evaluation to assess the customer’s character, industry, business model and capacity to meet their
commitments without distress. Collateral provides a secondary source of repayment for funds advanced in the event that a
customer cannot meet their contractual repayment obligations. For amounts due from customers on acceptances the Group
generally has recourse to guarantees, underlying inventories or other assets in the event of default which significantly
mitigates the credit risk associated with accepting the customer’s credit facility with a third party.
Housing loans are secured against residential property as collateral and, where applicable, Lenders Mortgage Insurance
(LMI) is obtained by the Group (mostly in Australia) to cover any shortfall in outstanding loan principal and accrued interest.
LMI is generally obtained for residential mortgages with a Loan to Valuation Ratio (LVR) in excess of 80%. The financial effect
of these measures is that remaining credit risk on residential mortgage loans is minimal. Other retail lending products are
mostly unsecured (e.g. credit card outstandings and other personal lending).
(g) The balance of Other assets which is exposed to credit risk includes securities sold not delivered, interest receivable accruals
and other receivables. Interest receivable accruals are subject to the same collateral as the underlying borrowings. Other
receivables will mostly be unsecured. There are typically no collateral or other credit enhancements obtained in respect of
amounts Due from controlled entities.
(h) Contingent liabilities and credit-related commitments are comprised mainly of guarantees to customers, standby or
documentary letters of credit, performance related contingencies and binding credit commitments. The Group will typically
have recourse to specific assets pledged as collateral in the event of a default by a party for which the Group has guaranteed
its obligations to a third party and therefore tend to carry the same credit risk as loans.
With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss of an amount equal to
the total unused commitments. However, the likely amount of loss is generally less than the total unused commitments, as
most commitments to extend credit are contingent upon customers maintaining specific credit standards.
The Group monitors the term to maturity of credit commitments because, in general, longer term commitments have a
greater degree of credit risk than shorter term commitments.
Annual Financial Report 2021
137
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Offsetting financial assets and liabilities
The tables below present the amounts of financial instruments that have been offset on the balance sheet, as well as those
amounts that are subject to enforceable master netting arrangements or similar agreements. The tables exclude financial
instruments that are not subject to offsetting arrangements but are instead only subject to collateral arrangements.
The ‘Net amounts’ presented in the tables are not intended to represent the Group’s actual exposure to credit risk. The Group
utilises a wide range of strategies to mitigate credit risk in addition to netting and collateral arrangements, including placing
limits on the amount of risk accepted in relation to counterparties, customers, groups of related counterparties or customers
and geographical and industry segments.
The amounts recognised on the balance sheet are presented in the 'Total balance sheet amount' column in the tables
below, and comprise the sum of the 'Net amount reported on balance sheet' and 'Amounts not subject to enforceable
netting arrangements'.
2021
Subject to enforceable netting arrangements
Amounts offset on
balance sheet
Amounts not offset on balance sheet
Net
amount
reported
on
Gross
Amount
balance
Financial
Amounts
not subject
to
Total
enforceable
balance
Cash
Net
netting
sheet
Non-
cash
amount
offset
sheet
Instruments
collateral
collateral
Amount
arrangements
amount
Group
Derivative assets(1)
$m
$m
$m
$m
$m
$m
75,219
(52,723)
22,496
(11,115)
(245)
(4,531)
Reverse repurchase agreements
72,172
(9,865)
62,307
1,106
(1,035)
71
-
-
(62,307)
-
-
-
$m
6,605
-
71
$m
4,978
-
$m
27,474
62,307
628,985
629,056
148,497
(63,623)
84,874
(11,115)
(62,552)
(4,531)
6,676
633,963
718,837
(73,803)
52,723
(21,080)
11,115
179
5,928
(3,858)
(2,951)
(24,031)
Deposits and other borrowings
(4,562)
1,035
(3,527)
(98,801)
9,865
(88,936)
Total liabilities
(177,166)
63,623 (113,543)
11,115
89,115
5,928
-
-
88,936
-
-
-
-
(3,527)
(7,385)
-
(88,936)
(608,068)
(611,595)
(611,019)
(724,562)
Loans and advances
Total assets
Derivative liabilities(1)
Repurchase agreements
Loans and advances
Total assets
Derivative liabilities(1)
Repurchase agreements
Company
Derivative assets(1)
69,026
(46,823)
22,203
(8,406)
(245)
(4,116)
9,436
Reverse repurchase agreements
71,603
(9,865)
61,738
491
(454)
37
-
-
(61,738)
-
-
-
-
37
4,608
-
26,811
61,738
535,867
535,904
141,120
(57,142)
83,978
(8,406)
(61,983)
(4,116)
9,473
540,475
624,453
(70,236)
46,823
(23,413)
8,406
179
5,789
(9,039)
(2,765)
(26,178)
Deposits and other borrowings
(3,341)
454
(2,887)
(95,737)
9,865
(85,872)
-
-
85,872
-
-
-
-
-
(85,872)
(2,887)
(532,664)
(535,551)
Total liabilities
(169,314)
57,142 (112,172)
8,406
86,051
5,789
(11,926)
(535,429)
(647,601)
(1) At 30 September 2021, the amount offset for derivative assets includes $1,340 million (Company: $1,005 million) of cash collateral netting and the amount
offset for derivative liabilities includes $2,082 million (Company: $1,852 million) of cash collateral netting.
138 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
2020
Subject to enforceable netting arrangements
Amounts offset on
balance sheet
Amounts not offset on balance sheet
Net
amount
reported
on
Gross
Amount
balance
Financial
Amounts
not subject
to
Total
enforceable
balance
Cash
Net
netting
sheet
Non-
cash
amount
offset
sheet
Instruments
collateral
collateral
Amount
arrangements
amount
Group
Derivative assets(1)
$m
$m
$m
$m
$m
$m
$m
111,672
(83,311)
28,361
(12,372)
(459)
(5,169)
10,361
Reverse repurchase agreements
98,058
(13,731)
84,327
Loans and advances(2)
1,152
(1,082)
70
-
-
(84,327)
-
-
-
-
70
$m
6,383
-
$m
34,744
84,327
593,982
594,052
Total assets
Derivative liabilities(1)
Repurchase agreements
210,882
(98,124) 112,758
(12,372)
(84,786)
(5,169)
10,431
600,365
713,123
(111,868)
83,311
(28,557)
12,372
909
8,126
(7,150)
(3,719)
(32,276)
Deposits and other borrowings(2)
(4,338)
1,082
(3,256)
(70,647)
13,731
(56,916)
-
-
56,916
-
-
-
-
-
(56,916)
(3,256)
(547,427)
(550,683)
Total liabilities
(186,853)
98,124
(88,729)
12,372
57,825
8,126
(10,406)
(551,146)
(639,875)
Loans and advances(2)
Total assets
Derivative liabilities(1)
Repurchase agreements
Company
Derivative assets(1)
100,267
(71,796)
28,471
(14,318)
(459)
(4,722)
8,972
Reverse repurchase agreements
97,134
(13,731)
83,403
594
(562)
32
-
-
(83,403)
-
-
-
-
32
5,743
-
34,214
83,403
510,800
510,832
197,995
(86,089) 111,906
(14,318)
(83,862)
(4,722)
9,004
516,543
628,449
(103,475)
71,796
(31,679)
14,318
909
7,411
(9,041)
(3,492)
(35,171)
Deposits and other borrowings(2)
(3,218)
562
(2,656)
(69,992)
13,731
(56,261)
-
-
56,261
-
-
-
-
-
(56,261)
(2,656)
(481,682)
(484,338)
Total liabilities
(176,685)
86,089
(90,596)
14,318
57,170
7,411
(11,697)
(485,174)
(575,770)
(1) At 30 September 2020, the amount offset for derivative assets includes $3,382 million (Company: $2,580 million) of cash collateral netting and the amount
offset for derivative liabilities includes $5,436 million (Company: $4,985 million) of cash collateral netting.
(2) Comparative information has been restated to align to the disclosure in the current period.
Derivative assets and derivative liabilities
Derivative amounts are only offset on the balance sheet where the Group has a legally enforceable right to offset in all
circumstances and there is an intention to settle the asset and liability on a net basis, or to realise the asset and settle the
liability simultaneously. The Group has applied offsetting to certain centrally cleared derivatives and their associated collateral
amounts which were deemed to satisfy the AASB 132 Financial Instruments: Presentation requirements.
Reverse repurchase and repurchase agreements
Reverse repurchase and repurchase agreements will typically be subject to Global Master Repurchase Agreements or similar
agreements whereby all outstanding transactions with the same counterparty can only be offset and closed out upon a default
or insolvency event. In some instances, the agreement provides the Group with a legally enforceable right to offset in all
circumstances. In such a case and where there is an intention to settle the asset and liability on a net basis, or to realise the
asset and settle the liability simultaneously, the amounts with that counterparty are offset on the balance sheet.
Where the Group has a right to offset on default or insolvency only, the related non-cash collateral amounts comprise highly
liquid securities, either obtained or pledged, which can be realised in the event of a default or insolvency by one of the
counterparties. The value of such securities obtained or pledged must at least equate to the value of the exposure to the
counterparty, therefore the net exposure is considered to be nil.
Loans and advances, deposits and other borrowings
The amounts offset for loans and advances and deposits and other borrowings represent amounts subject to set-off agreements
that satisfy the AASB 132 requirements. The 'Net amounts reported on balance sheet' are included within ‘Overdrafts’ in Note
12 Loans and Advances and ‘On-demand and short-term deposits’ and ‘Deposits not bearing interest’ in Note 13 Deposits and
other borrowings. The 'Amounts not subject to enforceable netting arrangements' represent all other loans and advances and
deposits and other borrowings of the Group, including those measured at fair value.
Annual Financial Report 2021
139
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Credit risk exposure by risk grade
The following tables show the credit quality of gross credit risk exposures to which the expected credit loss model is applied,
for both recognised and unrecognised financial assets, based on the following risk grades:
• Senior investment grade: broadly corresponds with Standard & Poor’s ratings of AAA to A- (internal rating 1 to 5).
• Investment grade: broadly corresponds with Standard & Poor’s ratings of BBB+ to BBB- (internal rating 6 to 11).
• Sub-investment grade: broadly corresponds with Standard & Poor’s ratings of BB+ (internal rating 12 to 23).
• Default: broadly corresponds with Standard & Poor’s rating of D (internal rating 98 and 99).
Notional stage allocations (Stage 1, Stage 2 and Stage 3) for gross credit risk exposures incorporate the impact of forward
looking stress applied in the expected credit loss model. Refer Accounting Policy section of Note 17 Provision for credit
impairment on loans at amortised cost for further information.
Stage 1
Stage 2
Stage 3
Total
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
Group
On balance sheet assets
Gross loans and advances(1)
Senior investment grade
Investment grade
Sub-investment grade
Default
Total gross loans and advances
434,487
425,158
184,522
156,869
99,145
116,598
242,260
220,507
14,675
35,567
2,692
27,769
93,082
88,053
132,179
124,460
-
-
2,101
1,948
-
-
-
-
-
-
7,491
7,491
8,165
8,165
113,820
119,290
277,827
248,276
225,261
212,513
9,592
10,113
626,500
590,192
Debt instruments
Senior investment grade
Investment grade
Sub-investment grade
Default
41,615
40,344
263
-
-
11
-
-
Total debt instruments
41,878
40,355
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,615
40,344
263
-
-
11
-
-
41,878
40,355
Total on balance sheet assets
476,365
465,513
184,522
156,869
7,491
8,165
668,378
630,547
Off balance sheet commitments
Senior investment grade
Investment grade
Sub-investment grade
Default
66,797
57,722
17,478
-
71,894
55,675
16,583
-
15,872
18,770
29,474
248
5,007
16,991
27,433
211
Total off balance sheet commitments
141,997
144,152
64,364
49,642
-
-
-
417
417
-
-
-
488
488
82,669
76,492
46,952
665
76,901
72,666
44,016
699
206,778
194,282
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
140 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Stage 1
Stage 2
Stage 3
Total
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
Company
On balance sheet assets
Gross loans and advances(1)
Senior investment grade
Investment grade
Sub-investment grade
Default
Total gross loans and advances
367,468
353,135
159,959
147,989
71,933
91,170
217,280
196,163
13,626
29,640
2,671
26,941
78,255
65,802
114,597
116,434
-
-
2,096
1,943
-
-
-
-
-
-
6,799
6,799
7,156
7,156
85,559
93,841
246,920
223,104
192,852
182,236
8,895
9,099
534,226
508,280
Debt instruments
Senior investment grade
Investment grade
Sub-investment grade
Default
41,586
40,313
263
-
-
11
-
-
Total debt instruments
41,849
40,324
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
41,586
40,313
263
-
-
11
-
-
41,849
40,324
Total on balance sheet assets
409,317
393,459
159,959
147,989
6,799
7,156
576,075
548,604
Off balance sheet commitments
Senior investment grade
Investment grade
Sub-investment grade
Default
61,763
51,853
14,176
-
66,599
47,925
10,311
-
15,202
15,520
24,688
247
5,007
16,540
25,833
210
Total off balance sheet commitments
127,792
124,835
55,657
47,590
-
-
-
380
380
-
-
-
372
372
76,965
67,373
38,864
627
71,606
64,465
36,144
582
183,829
172,797
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Concentration of exposure
Concentration of credit risk exists when a number of counterparties are engaged in similar activities, or operate in the same
geographical areas or industry sectors and have similar economic characteristics so that their ability to meet contractual
obligations is similarly affected by changes in economic, political or other conditions.
The diversification and size of the Group is such that its lending is widely spread both geographically and in terms of the types
of industries it serves.
Annual Financial Report 2021
141
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Industry concentration of financial assets
Net loans
and advances(1)
Other financial assets(2)
liabilities and credit-
Contingent
related commitments
Total
2021
$m
2020
$m(3)
2021
$m
2020
$m(3)
2021
$m
2020
$m
2021
$m
2020
$m
Group
Accommodation and hospitality
8,038
7,831
Agriculture, forestry, fishing
& mining
Business services and
property services(4)
Commercial property(4)
Construction(4)
Financial & insurance
Government & public authorities
Manufacturing
Personal
47,576
43,348
17,298
62,918
7,013
39,828
2,347
11,344
6,873
17,262
59,303
6,971
31,830
2,067
11,052
7,102
-
-
-
-
-
-
-
-
-
-
121,260
27,773
62,540
26,427
-
-
-
-
Residential mortgages
358,736
340,504
6,719
6,923
18,426
16,162
9,193
18,133
17,266
16,676
8,990
17,839
-
-
98
4
-
-
372
5
Retail and wholesale trade
Transport and storage
Utilities
Other(4)
Total
Company
Accommodation and hospitality
6,921
6,705
Agriculture, forestry, fishing
& mining
Business services and
property services(4)
Commercial property(4)
Construction(4)
Financial & insurance
Government & public authorities
Manufacturing
Personal
33,392
29,199
15,788
55,097
5,974
37,375
2,292
8,320
6,085
15,909
51,743
6,028
29,777
1,898
8,205
6,175
-
-
-
-
-
-
-
-
-
-
111,439
27,742
58,226
26,426
-
-
-
-
Residential mortgages
306,878
297,022
6,692
6,893
Retail and wholesale trade
Transport and storage
Utilities
Other(4)
Total
15,090
14,043
8,289
15,953
14,396
14,744
8,013
15,839
-
-
98
4
-
-
372
5
1,359
1,304
9,397
9,135
12,253
11,271
59,829
54,619
7,149
13,163
6,217
45,998
2,413
7,679
14,590
62,187
11,864
6,762
4,709
10,435
6,710
12,588
5,644
44,283
1,566
7,731
14,977
55,717
11,794
6,801
4,654
9,242
24,447
76,081
13,230
23,972
71,891
12,615
207,086
138,653
32,533
19,023
21,463
30,060
18,783
22,079
427,642
403,144
30,290
22,924
14,000
28,572
29,060
23,477
14,016
27,086
1,162
1,132
8,083
7,837
10,027
9,158
43,419
38,357
6,379
11,052
5,238
44,678
1,689
5,718
12,041
57,860
9,867
5,692
4,021
8,405
6,069
10,600
4,722
42,892
905
5,629
12,415
52,028
9,921
5,671
4,019
7,636
22,167
66,149
11,212
21,978
62,343
10,750
193,492
130,895
31,723
14,038
18,126
29,229
13,834
18,590
371,430
355,943
24,957
19,735
12,408
24,362
24,317
20,415
12,404
23,480
531,497
505,653
145,975
91,922
183,829
172,797
861,301
770,372
623,885
588,041
155,854
96,267
206,778
194,282
986,517
878,590
(1) Net loans and advances includes loans at fair value.
(2) Other financial assets represents amounts due from other banks, debt instruments and collateral placed.
(3) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(4) Comparative information has been restated to reflect a revised classification of amounts within 'Net loans and advances'.
142 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Geographic concentration of financial assets
NOTES TO THE FINANCIAL STATEMENTS
Group
Cash and liquid assets
Due from other banks(1)
Collateral placed(1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
Other assets(1)
Total
Company
Cash and liquid assets
Due from other banks(1)
Collateral placed(1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
Other assets (1)
Total
Australia
New Zealand
Other International
2021
$m
4,319
83,982
5,789
42,984
31,833
1,916
17,390
2020
$m
20,320
19,934
7,410
54,577
30,466
2,552
22,080
509,809
487,170
5,817
5,069
2021
$m
173
9,235
511
7,014
-
878
2,567
89,585
1,030
2020
$m
505
3,090
1,166
10,013
2021
$m
45,246
14,329
130
22
-
10,045
1,308
3,559
79,767
809
-
7,517
21,762
993
2020
$m
42,197
24,309
3
347
9,889
-
9,105
17,025
1,184
703,839
649,578
110,993
100,217
100,044
104,059
4,192
83,957
5,789
42,894
31,832
1,915
19,204
20,223
19,925
7,410
54,577
30,466
2,552
25,047
508,189
486,192
5,812
4,991
703,784
651,383
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45,205
14,250
130
22
10,017
1,390
7,607
21,357
983
42,135
24,260
3
347
9,858
1,333
9,167
16,627
1,154
100,961
104,884
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Market risk
Market risk overview and management
Market risk primarily stems from the Group’s trading and balance sheet management activities, the impact of changes and
correlation between interest rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.
Market risk is represented by the below two categories:
Traded Market Risk
Non-Traded Market Risk
Traded Market Risk is the potential for gains or losses to arise from
The Group has exposure to non-traded market risk, primarily Interest
trading activities undertaken by the Group as a result of movements
Rate Risk in the Banking Book (IRRBB). IRRBB is the risk that the Group’s
in market prices. The trading activities of the Group are principally
earnings or economic value will be affected or reduced by changes in
carried out by Corporate and Institutional Banking.
interest rates. The sources of IRRBB are as follows:
Trading activities represent dealings that encompass both active
• Repricing risk, arising from changes to the overall level of interest
management of market risk and supporting client sales businesses.
rates and inherent mismatches in the repricing term of banking
The types of market risk arising from these activities include interest
book items.
rate, foreign exchange, commodity, equity price, credit spread and
• Yield curve risk, arising from a change in the relative level of
volatility risk.
interest rates for different tenors and changes in the slope or shape
of the yield curve.
• Basis risk, arising from differences between the actual and expected
interest margins on banking book items over the implied cost of
funds of those items.
• Optionality risk, arising from the existence of stand-alone or
embedded options in banking book items, to the extent that the
potential for those losses is not included in the above risks.
Annual Financial Report 2021
143
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Measurement of market risk
The Group primarily manages and controls market risk using Value at Risk (VaR), which is a standard measure used throughout
the industry. VaR gauges the Group’s possible loss for the holding period based on historical market movements. VaR is
measured at a 99% confidence interval. This means that there is a 99% chance that the loss will not exceed the VaR estimate
during the holding period.
The Group employs other risk measures to supplement VaR, with appropriate limits to manage and control risks, and
communicate the specific nature of market exposures to management, the Board Risk & Compliance Committee and ultimately
the Board. These supplementary measures include stress testing, loss, position and sensitivity limits.
Traded market risk
The VaR methodology involves multiple revaluations of the trading books using 550 days of historical pricing shifts. The pricing
data is rolled daily.
The use of VaR methodology has limitations, which include:
• The historical data used to calculate VaR is not always an appropriate proxy for current market conditions. If market volatility
or correlation conditions change significantly, losses may occur more frequently and to a greater magnitude than the VaR
measure suggests.
• VaR methodology assumes that positions are held for one day and may underestimate losses on positions that cannot be
hedged or reversed inside that timeframe.
• VaR is calculated on positions at the close of each trading day, and does not measure risk on intra-day positions.
• VaR does not describe the directional bias or size of the positions generating the risk.
144 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Traded market risk
The table below shows the Group and Company VaR for the trading portfolio, including both physical and derivative positions:
As at
Group
As at
Company
30 September
Average value
Minimum value
Maximum value
30 September
Average value
Minimum value
Maximum value
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
Value at Risk at a 99% confidence level
Foreign exchange risk
Interest rate risk
Volatility risk
Commodities risk
Credit risk
Inflation risk
Diversification benefit
Total Diversified VaR at 99% confidence interval
Other market risks
Total
2.8
8.6
3.0
1.1
2.2
2.3
0.8
10.1
4.7
1.1
2.1
1.7
4.6
13.6
3.2
1.3
2.6
2.3
2.3
10.8
4.2
0.7
1.8
1.9
(8.8)
(9.2)
(11.9)
(9.1)
11.2
9.3
20.5
11.3
10.0
21.3
15.7
8.5
24.2
12.6
4.9
17.5
0.9
7.8
1.9
0.5
1.7
1.1
n/a
9.1
5.7
14.8
0.5
5.6
2.8
0.3
0.9
1.1
n/a
7.5
2.3
9.8
9.3
27.3
4.7
3.3
3.9
3.2
n/a
29.5
11.7
41.2
5.6
25.0
6.2
1.7
4.4
3.3
2.6
7.8
2.9
1.1
1.8
2.1
0.9
7.8
4.7
1.1
1.9
1.7
4.1
12.0
3.1
1.3
2.2
2.0
2.2
9.3
4.2
0.7
1.5
1.7
n/a
(10.1)
(8.8)
(10.8)
(8.6)
24.2
10.0
34.2
8.2
9.3
17.5
9.3
10.0
19.3
13.9
8.5
22.4
11.0
4.9
15.9
0.8
6.6
1.9
0.5
1.2
1.0
n/a
8.1
5.7
13.8
0.5
5.1
2.8
0.3
0.7
0.9
n/a
6.7
2.3
9.0
8.4
23.4
4.7
3.3
3.6
3.1
n/a
26.4
11.7
38.1
6.1
21.3
6.2
1.7
3.9
3.1
n/a
23.6
10.0
33.6
Non-traded market risk - Balance sheet risk management
The principal objective of balance sheet risk management is to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative impact of movements in interest rates on
the earnings and market value of the Group’s banking book, while ensuring the Group maintains sufficient liquidity to meet its obligations as they fall due.
Non-traded market risk – Interest rate risk management
IRRBB is measured, monitored, and managed from both an internal management and regulatory perspective. The Risk Management Framework incorporates both market valuation and
earnings based approaches in accordance with the IRRBB Policy and Prudential Practice Guides. Risk measurement techniques include VaR, Earnings at Risk (EaR), interest rate risk stress
testing, repricing analysis, cash flow analysis and scenario analysis. The IRRBB regulatory capital calculation incorporates repricing, yield curve, basis, and optionality risk, embedded gains /
losses and any inter-risk and / or inter-currency diversification. The Group has been accredited by APRA to use its internal model for the measurement of IRRBB.
Key features of the internal interest rate risk management model include:
• historical simulation approach utilising instantaneous interest rate shocks
• static balance sheet (i.e. any new business is assumed to be matched, hedged or subject to immediate repricing)
• VaR and EaR are measured on a consistent basis
• 99% confidence level
• three month holding period
• EaR utilises a 12 month forecast period
Annual Financial Report 2021
145
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
• at least six years of business day historical data (updated daily)
• investment term for capital is modelled with an established benchmark term of between one and five years
• investment term for core non-interest bearing assets and liabilities is modelled on a behavioural basis with a term that is consistent with sound statistical analysis.
The following table shows the Group and the Company aggregate VaR and EaR for the IRRBB:
As at
As at
Group
Company
30 September
Average value
Minimum value
Maximum value
30 September
Average value
Minimum value
Maximum value
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
2021
$m
2020
$m
347.3
366.6
346.3
317.4
324.0
255.9
361.6
391.3
347.3
366.6
346.3
317.4
324.0
255.9
361.6
391.3
35.3
38.7
12.7
11.7
48.5
24.5
24.2
12.7
42.3
28.8
20.6
15.2
31.1
21.5
39.7
8.8
23.6
22.0
11.3
7.4
21.9
12.0
18.0
4.2
62.2
38.7
30.8
23.4
48.5
33.1
67.6
12.7
-
38.7
12.7
-
-
24.5
24.2
-
-
28.8
20.6
-
-
21.5
39.7
-
-
22.0
11.3
-
-
12.0
18.0
-
-
38.7
30.8
-
-
33.1
67.6
-
Value at Risk
Australia
New Zealand
Other International
Earnings at Risk(1)
Australia
New Zealand
(1) EaR amounts calculated under the IRRBB model include Australian banking and other overseas banking subsidiary books, however excludes offshore branches.
Residual value risk
As part of its normal lending activities, the Group takes residual value risk on assets such as industrial, mining, rail, aircraft, marine, technology, healthcare and other equipment. This
exposes the Group to a potential fall in prices of these assets below the outstanding residual exposure at the facility expiry.
146 National Australia Bank
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Liquidity risk and funding mix
Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. These obligations include the
repayment of deposits on demand or at their contractual maturity, the repayment of wholesale borrowings and loan capital as
they mature and the payment of interest on borrowings.
These risks are governed by the Group’s funding and liquidity risk appetite which is set by the Board. Group Treasury is
responsible for the management of these risks. Objective review and challenge of the effectiveness of risk management is
provided by Group Balance Sheet and Liquidity Risk Management with oversight by the Group Asset and Liability Committee.
The Board has the ultimate responsibility to monitor and review the adequacy of the Group’s funding and liquidity risk
management framework and the Group’s compliance with risk appetite.
Key principles adopted in the Group’s approach to managing liquidity risk include:
• Monitoring the Group’s liquidity position on a daily basis, using a combination of contractual and behavioural modelling of
balance sheet and cash flow information.
• Maintaining a HQLA portfolio which supports intra-day operations and may be sold in times of market stress.
• Operating a prudent funding strategy which ensures appropriate diversification and limits maturity concentrations. The
Group undertakes a conservative approach by imposing internal limits that are in addition to regulatory requirements.
• Maintaining a contingent funding plan designed to respond to the event of an accelerated outflow of funds from the Group.
• Requiring the Group to have the ability to meet a range of survival horizon scenarios, including name-specific and general
liquidity stress scenarios.
On 10 September 2021, APRA announced that the CLF will be phased out to zero by the end of 2022 subject to financial market
conditions. The CLF reduction is expected to be offset by ADIs increasing holdings of HQLA.
The liquid asset portfolio held as part of these principles is well diversified by currency, tenor, counterparty and product
type. The composition of the portfolio includes cash, government securities and highly rated investment grade paper. The
market value of total on balance sheet liquid assets held at 30 September 2021 was $194,498 million (2020: $170,141 million).
In addition, the Group holds internal RMBS as a source of contingent liquidity. As at 30 September 2021, the amount of
unencumbered internal RMBS after haircuts held was $39,704 million (2020: $81,617 million).
Funding mix
The Group’s funding is comprised of a mix of deposits, term wholesale funding, short-term wholesale funding and equity. The
Group manages this within risk appetite settings to ensure suitable funding of its asset base and to enable it to respond to
changing market conditions and regulatory requirements.
The Group maintains a strong focus on stable deposits both from a growth and quality perspective and continues to utilise
deposits as a key funding source for funded assets.
The Group supplements deposit-raising via its term funding programmes, raising $12,476 million of term wholesale funding in
the 2021 financial year (2020: $15,010 million) at a weighted average maturity of approximately 8.1(1) years to first call (2020:
6.7(1) years). In addition, during the 2021 financial year, the Group continued to access international and domestic short-term
wholesale markets.
On 19 March 2020, the RBA announced the establishment of the TFF for the Australian banking system to support ADIs in
providing credit into the economy. The TFF provides access to three-year secured funding, supporting lending to the Group's
customers and reducing wholesale funding refinancing risks. NAB fully drew down on its total TFF allocation of $31,866 million,
consisting of $17,596 million of Additional and Supplementary Allowances in the 2021 financial year and $14,270 million of
Initial Allowance in the 2020 financial year.
Contractual maturity of assets and liabilities
The following tables show an analysis of contractual maturities of assets and liabilities at the reporting date. The Group expects
that certain assets and liabilities will be recovered or settled at maturities which are different to their contractual maturities,
including deposits where the Group expects as part of normal banking operations that a large proportion of these balances will
roll over.
(1) Weighted average maturity excludes Additional Tier 1, Residential Mortgage Backed Securities, RBA Term Funding Facility and RBNZ funding facilities.
Annual Financial Report 2021
147
NOTES TO THE FINANCIAL STATEMENTS
NOTE 19 FINANCIAL RISK MANAGEMENT (CONTINUED)
Less than 12 months
Greater than 12 months
No specific maturity
Total
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
2021
$m
2020
$m
Deposits and other borrowings
599,285
540,321
Bonds, notes and subordinated debt
23,586
24,838
85,568
101,546
Group
Assets
Cash and liquid assets
Due from other banks(1)
Collateral placed(1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
All other assets(1)
Total assets
Liabilities
Due to other banks(1)
Collateral received(1)
Other financial liabilities
Derivative liabilities(1)
Other debt issues
All other liabilities(1)
Total liabilities
Net (liabilities) / assets
Company
Assets
Cash and liquid assets
Due from other banks(1)
Collateral placed (1)
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Loans and advances(1)
All other assets(1)
Total assets
Liabilities
Due to other banks(1)
Collateral received(1)
Other financial liabilities
Derivative liabilities(1)
50,832
107,346
6,430
9,622
6,767
2,435
1,133
64,388
46,643
8,579
10,640
7,321
2,313
939
-
200
-
39,517
35,111
359
2,087
-
690
-
54,294
33,034
1,547
2,891
112,481
117,627
503,804
461,076
6,844
6,306
150
-
303,890
264,756
581,228
553,532
40,255
4,664
11,730
522
5,327
9,035
857
32,464
33,905
14,309
-
15,316
1,425
5,758
-
20,936
1,398
5,855
-
-
6,977
6,302
687,019
619,144
(383,129)
(354,388)
-
1,754
143,726
437,502
-
1,649
145,693
407,839
50,336
98,007
5,919
5,248
6,766
682
787
92,359
5,509
63,555
43,495
7,413
6,421
7,320
1,271
829
97,818
5,556
-
200
-
36,787
35,083
2,623
1,366
-
690
-
48,500
33,004
2,614
2,059
433,029
400,575
674
-
265,613
233,678
509,762
487,442
35,840
4,120
2,393
323
30,179
4,721
437
765
32,875
14,270
-
4,743
907
4,133
-
8,474
956
2,647
-
-
-
881
-
-
-
-
-
3
-
-
24,254
30,914
4,871
10,844
40,850
5,259
12,101
48,277
50,832
107,546
6,430
50,020
41,878
2,794
27,474
64,388
47,333
8,579
64,937
40,355
3,860
34,744
621,156
583,962
17,838
18,407
925,968
866,565
-
-
-
-
-
-
22,084
30,021
74,160
4,664
27,046
24,031
46,773
5,327
29,971
32,276
-
-
6,831
3,529
-
-
605,043
546,176
109,154
126,384
6,191
4,223
6,831
12,260
6,191
12,174
32,444
40,435
863,189
805,272
8,406
7,842
62,779
61,293
-
-
-
881
-
-
-
-
-
3
-
-
24,658
31,326
4,158
49,761
79,458
4,426
54,236
89,991
50,336
98,207
5,919
42,916
41,849
3,305
26,811
63,555
44,185
7,413
54,924
40,324
3,885
34,214
529,546
502,819
55,944
59,792
854,833
811,111
-
-
-
-
-
-
68,715
44,449
4,120
7,136
4,721
8,911
24,948
33,450
26,178
35,171
-
-
6,831
41,950
73,729
5,729
-
-
535,551
484,338
102,501
120,297
6,191
45,394
85,035
4,956
6,831
49,342
6,191
52,391
800,374
756,469
54,459
54,642
Deposits and other borrowings
531,418
481,691
Bonds, notes and subordinated debt
23,573
24,820
78,928
95,477
Other debt issues
All other liabilities(1)
Total liabilities
Net (liabilities) / assets
-
-
5,905
5,552
603,572
548,165
(337,959)
(314,487)
-
1,487
123,073
386,689
-
1,445
123,269
364,173
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
148 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting policy
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Where the classification of a financial asset or liability results
in it being measured at fair value, wherever possible, the fair value is determined with reference to the quoted bid or
offer price in the most advantageous active market to which the Group has immediate access. An adjustment for credit
risk (CVA) is also incorporated into the fair value as appropriate as well as an adjustment for funding costs (FVA) related
to uncollateralised over-the-counter derivatives. The fair value measurement technique of each class of instrument is
described below.
Instrument
Loans and advances
Deposits and
other borrowings
Bonds, notes and
subordinated debt and other
debt issues
Derivatives
Trading securities and
debt instruments
Equity instruments
Other financial assets
and liabilities
Fair value measurement technique
The fair value of loans and advances that are priced based on a variable rate with no
contractual repricing tenor is assumed to equate to the carrying value. The fair value of all
other loans and advances is calculated using discounted cash flow models based on the
maturity of the loans and advances. The discount rates applied are based on interest rates
at reporting date for similar types of loans and advances, if the loans and advances were
performing at reporting date.
The fair value of deposits and other borrowings that are non-interest bearing, at call or at
a fixed rate that reprice within six months of reporting date, is assumed to equate to the
carrying value. The fair value of other deposits and other borrowings is calculated using
discounted cash flow models based on the deposit type and maturity.
The fair values of bonds, notes and subordinated debt and other debt issues are calculated
based on a discounted cash flow model using a yield curve appropriate to the remaining
maturity of the instruments and appropriate credit spreads, or in some instances are
calculated based on market quoted prices when there is sufficient liquidity in the market.
The fair values of trading and hedging derivative assets and liabilities are obtained from
quoted closing market prices at reporting date, discounted cash flow models or option
pricing models as appropriate.
The fair values of trading securities and debt instruments are based on quoted closing
market prices at reporting date. Where securities are unlisted and quoted market prices
are not available, the Group obtains the fair value by means of discounted cash flows
and other valuation techniques that are commonly used by market participants. These
techniques address factors such as interest rates, credit risk and liquidity.
The fair value of equity instruments at fair value through other comprehensive income is
estimated on the basis of the actual and forecasted financial position and results of the
underlying assets or net assets taking into consideration their risk profile.
The fair values of other financial assets and liabilities are based on quoted closing market
prices and data or valuation techniques, appropriate to the nature and type of the
underlying instrument.
The carrying amounts of cash and liquid assets, due from and to other banks, due from customers on acceptances,
other assets, other liabilities and amounts due from and to controlled entities, approximate their fair value as they are
short-term in nature or are receivable or payable on demand.
Guarantees, letters of credit, performance related contingencies and credit related commitments are generally not sold or
traded and estimated fair values are not readily ascertainable. The fair value of these items are not calculated, as very few
of the commitments extending beyond six months would commit the Group to a predetermined rate of interest, and the
fees attaching to these commitments are the same as those currently charged for similar arrangements.
Fair value for a net open position is the offer price for a financial liability and the bid price for a financial asset, multiplied
by the number of units of the instrument issued or held.
Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period
in which the transfer occurs.
Annual Financial Report 2021
149
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Critical accounting judgements and estimates
A significant portion of financial instruments are carried on the balance sheet at fair value.
Where no active market exists for a particular asset or liability, the Group uses a valuation technique to arrive at the fair
value, including the use of transaction prices obtained in recent arm’s length transactions, discounted cash flow analysis,
option pricing models and other valuation techniques, based on market conditions and risks existing at reporting date. In
doing so, fair value is estimated using a valuation technique that makes maximum use of observable market inputs and
places minimal reliance upon entity-specific inputs.
The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value
of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other
observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a
valuation technique whose variables include only data from observable markets. When such evidence exists, the Group
recognises the difference between the transaction price and the fair value in profit or loss on initial recognition (i.e. on
day one).
Fair value hierarchy
The level in the fair value hierarchy within which a fair value measurement is categorised is determined on the basis of the
lowest level input that is significant to the fair value measurement in its entirety. The fair value hierarchy is as follows:
• Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices for identical financial assets
or financial liabilities in active markets. Financial instruments included in this category are Commonwealth of Australia and
New Zealand government bonds, and spot and exchange traded derivatives.
• Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted
prices within Level 1 that are observable for the financial asset or financial liability, either directly (as prices) or indirectly
(derived from prices). Financial instruments included in this category are over-the-counter trading and hedging derivatives,
semi-government bonds, financial institution and corporate bonds, mortgage-backed securities, loans measured at fair value,
and issued bonds, notes and subordinated debt measured at fair value.
• Level 3 – Financial instruments that have been valued through valuation techniques incorporating inputs that are not
based on observable market data. Unobservable inputs are those not readily available in an active market due to market
illiquidity or complexity of the product. Financial instruments included in this category are bespoke trading derivatives,
trading derivatives where the credit valuation adjustment is considered unobservable and significant to the valuation, and
certain asset-backed securities valued using unobservable inputs.
Transfers into and out of Level 3 take place when there are changes to the inputs in the valuation technique. Where inputs are
no longer observable the fair value measurement is transferred into Level 3. Conversely, a measurement is transferred out of
Level 3 when inputs become observable.
The Group’s exposure to fair value measurements based in full or in part on unobservable inputs is restricted to a small number
of financial instruments, which comprise an insignificant component of the portfolios in which they belong. As such, a change
in the assumption used to value the instruments as at 30 September 2021 attributable to reasonably possible alternatives would
not have a material effect.
150 National Australia Bank
NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Fair value of financial instruments, carried at amortised cost
The financial assets and financial liabilities listed in the table below are carried at amortised cost. While this is the value at
which the Group expects the assets to be realised and the liabilities to be settled, the table below includes their fair values as at
30 September:
2021
2020
Carrying
Fair
Carrying
Fair
value
Level 1
Level 2
Level 3
Value
value
Level 1
Level 2
Level 3
Value
$m
$m
$m
$m
$m
$m
$m
$m
$m
$m
621,156
-
4,645 616,438 621,083
583,962
-
4,506 580,524
585,030
Group
Financial assets
Loans and advances(1)
Financial liabilities
Deposits and other borrowings
Bonds, notes and subordinated debt
605,043
109,154
- 605,068
- 112,563
- 605,068
546,176
- 546,530
- 112,563
126,384
514 128,297
Other debt issues
6,831
6,061
1,156
-
7,217
6,191
5,236
1,128
-
-
-
546,530
128,811
6,364
Company
Financial assets
Loans and advances(1)
529,546
-
2,786 527,076 529,862
502,819
-
2,528 501,338
503,866
Financial liabilities
Deposits and other borrowings
Bonds, notes and subordinated debt
535,551
102,501
- 535,590
- 104,447
- 535,590
484,338
- 104,447
120,297
- 484,137
- 122,264
Other debt issues
6,831
6,061
1,156
-
7,217
6,191
5,236
1,128
-
-
-
484,137
122,264
6,364
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Annual Financial Report 2021
151
NOTES TO THE FINANCIAL STATEMENTS
NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair value measurements recognised on the balance sheet
2021
2020
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
Level 1
Level 2
Level 3
$m
$m
$m
Total
$m
Group
Financial assets
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Investments relating to life insurance business
Equity instruments(2)
33,694
3,211
-
-
-
-
16,326
37,748
2,560
27,326
102
-
-
919
234
148
-
135
50,020
41,878
2,794
27,474
102
135
42,075
3,209
-
-
-
-
22,862
36,427
3,860
34,636
100
-
Total financial assets measured at fair value
36,905
84,062
1,436
122,403
45,284
97,885
Financial liabilities
Other financial liabilities
Derivative liabilities(1)
Total financial liabilities measured at fair value
1,291
-
1,291
25,755
23,935
49,690
-
96
96
27,046
24,031
51,077
1,371
-
1,371
28,600
32,188
60,788
Company
Financial assets
Trading securities(1)
Debt instruments
Other financial assets
Derivative assets(1)
Equity instruments(2)
29,143
3,210
-
-
-
13,773
37,720
3,071
26,663
-
-
919
234
148
51
42,916
41,849
3,305
26,811
51
36,365
3,209
-
-
-
18,559
36,396
3,885
34,106
-
Total financial assets measured at fair value
32,353
81,227
1,352
114,932
39,574
92,946
Financial liabilities
Other financial liabilities
Derivative liabilities(1)
Total financial liabilities measured at fair value
852
-
852
6,284
26,082
32,366
-
96
96
7,136
26,178
33,314
1,343
-
1,343
7,568
35,083
42,651
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(2)
Includes fair value through profit or loss instruments.
-
719
-
64,937
40,355
3,860
108
34,744
-
116
943
-
88
88
-
719
-
108
44
871
-
88
88
100
116
144,112
29,971
32,276
62,247
54,924
40,324
3,885
34,214
44
133,391
8,911
35,171
44,082
There were no material transfers between Level 1 and Level 2 during the financial year for the Group and the Company.
152 National Australia Bank
NOTE 20 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The table below summarises changes in fair value classified as Level 3:
NOTES TO THE FINANCIAL STATEMENTS
Derivative
Debt instruments
Other(1)
Assets
Liabilities
Derivative
2021
2020
2021
2020
2021
2020
2021
2020
Group
Balance at the beginning of year
Gains / (losses) on assets and (gains) /
losses on liabilities recognised:
In profit or loss
In other comprehensive income
Purchases and issues
Sales and settlements
Transfers into Level 3
Transfers out of Level 3
Foreign currency translation adjustments
$m
108
$m
77
$m
719
$m
479
(4)
-
30
-
7
6
1
21
-
14
-
(6)
-
2
-
5
379
(384)
318
(118)
-
919
-
13
91
(215)
429
(78)
-
719
$m
116
14
7
241
(9)
-
-
-
$m
91
1
(5)
29
-
-
-
-
369
116
Balance at end of year
148
108
Gains / (losses) on assets and (gains) /
losses on liabilities for the reporting
period related to financial instruments
held at the end of the reporting
period recognised:
In profit or loss
In other comprehensive income
Company
(4)
-
21
-
-
5
-
13
Balance at the beginning of year
108
77
719
479
Gains / (losses) on assets and (gains) /
losses on liabilities recognised:
In profit or loss
In other comprehensive income
Purchases and issues
Sales and settlements
Transfers into Level 3
Transfers out of Level 3
Foreign currency translation adjustments
(4)
-
30
-
7
6
1
21
-
14
-
(6)
-
2
Balance at end of year
148
108
-
5
379
(384)
318
(118)
-
919
-
13
91
(215)
429
(78)
-
719
44
88
14
7
44
13
-
228
-
-
-
-
1
(5)
-
-
-
-
-
-
-
Gains / (losses) on assets and (gains) /
losses on liabilities for the reporting
period related to financial instruments
held at the end of the reporting
period recognised:
In profit or loss
In other comprehensive income
(1)
Includes other financial assets and equity instruments.
(4)
-
21
-
-
5
-
13
13
-
-
-
285
44
$m
88
(5)
-
12
-
-
-
1
96
(5)
-
(5)
-
12
-
-
-
1
96
(5)
-
$m
56
31
-
-
-
-
-
1
88
31
-
56
31
-
-
-
-
-
1
88
31
-
Annual Financial Report 2021
153
NOTES TO THE FINANCIAL STATEMENTS
NOTE 21
FINANCIAL ASSET TRANSFERS
The Group and the Company enter into transactions by which they transfer financial assets to counterparties or to structured entities. Financial assets that do not qualify for derecognition
are typically associated with repurchase agreements, covered bonds and securitisation program agreements. The following table sets out the carrying amount of financial assets that did
not qualify for derecognition and their associated liabilities. Where relevant, the table also sets out the net position of the fair value of financial assets where the counterparty to the
associated liabilities has recourse only to the transferred assets.
Group
Company
Covered bonds
Securitisation
Covered bonds
Securitisation(1)(2)
Repurchase
agreements
2021
$m
62,003
49,092
2020
$m
28,050
25,432
2021
$m
33,708
25,836
2020
$m
33,454
28,648
Repurchase
agreements
2021
$m
58,487
46,072
2020
$m
26,741
24,146
2021
$m
28,841
21,694
2020
$m
29,211
24,544
2021
$m
2,212
2,212
2,212
2,281
(69)
2020
$m
3,051
3,126
3,057
3,186
(129)
2021
$m
2,329
2,329
2,330
2,373
(43)
2020
$m
3,108
3,108
3,114
3,159
(45)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Carrying amount of transferred assets
Carrying amount of associated liabilities
For those liabilities that have recourse only
to the transferred assets
Fair value of transferred assets
Fair value of associated liabilities
Net position
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
(2) Securitisation assets exclude $96,789 million of assets (2020: $132,882 million) where NAB holds all of the issued instruments of the securitisation vehicle.
154 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
OTHER ASSETS AND LIABILITIES
NOTE 22
GOODWILL AND OTHER INTANGIBLE ASSETS
Accounting policy
Goodwill
Goodwill arises on the acquisition of an entity and represents the excess of the consideration paid over the fair value of
the identifiable net assets acquired.
Software costs
External and internal costs that are incurred to acquire or develop software are capitalised and recognised as an
intangible asset. Capitalised software costs and other intangible assets are amortised on a systematic basis once deployed,
using the straight-line method over their expected useful lives which are between three and ten years.
Impairment of intangible assets
Assets with an indefinite useful life, including goodwill, are not subject to amortisation and are tested on an annual basis
for impairment, and additionally whenever an indication of impairment exists. Assets that are subject to amortisation
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its
recoverable amount.
The recoverable amount of an asset is the higher of its fair value less costs of disposal or its value in use. For assets that do
not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit (CGU)
to which that asset belongs. Goodwill impairment is assessed at the group of CGUs that represents the lowest level within
the Group at which goodwill is maintained for internal management purposes, which is at the segment level.
Recoverable amounts of CGUs
The recoverable amount of a CGU is determined using either a value in use or fair value less costs of disposal.
Assumptions for determining the recoverable amount of each CGU, under either a value in use or fair value less costs
of disposal approach, are based on past experience and/or expectations for the future. Cash flow projections for value in
use are based on five year management approved forecasts which are then extrapolated using a constant growth rate for
up to a further five years. These forecasts use management estimates to determine income, expenses, capital expenditure
and cash flows for each CGU.
The discount rate reflects the market determined, risk-adjusted, post-tax discount rate and is adjusted for specific risks
relating to the CGUs and the countries in which they operate. Terminal value growth rate represents the growth rate
applied to extrapolate cash flows beyond the forecast period. These growth rates are based on forecast assumptions of
the CGUs’ long-term performance in their respective markets.
Critical accounting judgements and estimates
The measurement of goodwill is subject to a number of key judgements and estimates. These include:
• the allocation of goodwill to CGUs on initial recognition
• the re-allocation of goodwill in the event of disposal or reorganisation
• the appropriate cash flows, growth rates and discount rates.
Further details about these items are provided below.
Annual Financial Report 2021
155
NOTES TO THE FINANCIAL STATEMENTS
NOTE 22 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
Goodwill
Internally generated software
Acquired software
Other acquired intangible assets(1)
Total goodwill and other intangible assets
At cost
Deduct: Accumulated amortisation / impairment losses
Total goodwill and other intangible assets
(1) Other acquired intangible assets relate to brand names.
Reconciliation of movements in goodwill and internally generated software
Goodwill
Balance at beginning of year
Additions from the acquisition of controlled entities and business combinations
Reclassified to held for sale(1)
Impairment and write-offs
Balance at end of year
Internally generated software
Balance at beginning of year
Additions from internal development
Disposals, impairments and write-offs
Amortisation
Change in application of software capitalisation policy - continuing operations(2)
Change in application of software capitalisation policy - discontinued operations(2)
Foreign currency translation adjustments
Balance at end of year
Group
Company
2021
$m
1,964
1,956
177
16
4,113
9,627
(5,514)
4,113
2020
$m
1,838
1,890
65
16
2021
$m
-
1,703
54
-
2020
$m
-
1,705
52
-
3,809
1,757
1,757
8,860
(5,051)
3,809
6,333
(4,576)
1,757
5,940
(4,183)
1,757
Group
Company
2021
$m
1,838
126
-
-
1,964
1,890
500
(11)
(429)
-
-
6
2020
$m
2,864
-
(827)
(199)
1,838
2,628
629
(12)
(301)
(950)
(106)
2
2021
$m
2020
$m
-
-
-
-
-
1,705
404
(8)
(397)
-
-
(1)
-
-
-
-
-
2,263
520
(12)
(260)
(806)
-
-
1,956
1,890
1,703
1,705
(1) Refer to Note 37 Discontinued operations for further information.
(2) The 2020 balance includes a reduction of software assets balance following a change to the application of the software capitalisation policy. Refer to Note 5
Operating expenses for further details.
156 National Australia Bank
NOTE 22 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Goodwill allocation to cash-generating units
The key assumptions used in determining the recoverable amount of CGUs, to which goodwill has been allocated, are
as follows:
Cash generating unit
Business and Private Banking
New Zealand Banking
Personal Banking
86 400(1)
Total goodwill
Goodwill
2021
$m
68
258
1,512
126
1,964
2020
$m
68
258
1,512
-
1,838
Discount
Terminal
rate per
growth rate
annum
per annum
2021
%
2021
%
9.0
9.1
9.0
n/a
n/a
3.4
4.9
3.4
n/a
n/a
(1) The recoverable amount for 86 400 has been determined as a fair value less costs of disposal using the price paid in May 2021 (a Level 2 input) and
transaction costs the Group incurred to purchase 86 400.
NOTE 23
OTHER ASSETS
Accrued interest receivable
Prepayments
Receivables
Other debt instruments at amortised cost
Equity instruments at fair value through other comprehensive income
Investment in associates - MLC Life(1)
Securities sold not delivered
Other
Total other assets(2)
Group
Company
2021
2020
2021
2020
$m
635
278
755
342
120
472
4,274
1,046
7,922
$m
789
263
952
345
102
411
3,428
808
7,098
$m
537
238
393
647
38
477
3,727
801
6,858
$m
685
213
872
-
29
441
3,318
606
6,164
(1) Refer to table (b) in Note 31 Interest in subsidiaries and other entities for further details.
(2) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Annual Financial Report 2021
157
NOTES TO THE FINANCIAL STATEMENTS
NOTE 24
PROVISIONS
Accounting policy
Provisions
Provisions are recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable
that an outflow of economic benefits will be required to settle the obligation and the amount of the obligation can be
reliably estimated. Provisions are not discounted to the present value of their expected net future cash flows except where
the time value of money is material.
Operational risk event losses
Provisions are recognised for non-lending losses which include losses arising from specific legal actions not directly
related to amounts of principal outstanding for loans and advances, and losses arising from forgeries, fraud and the
correction of operational issues.
Customer-related and payroll remediation
Provisions for customer-related and payroll remediation include provisions for potential refunds and other compensation
to customers, payments to colleagues, as well as associated program costs.
Critical accounting judgements and estimates
Provisions are held in respect of a range of future obligations such as employee entitlements, restructuring costs,
customer-related remediation and litigation. The recognition and measurement of some of these provisions involves
significant judgement about the existence of a present obligation, the likely outcome of various events and the related
estimated future cash flows. If the future events are uncertain or where the outflows cannot be reliably measured a
contingent liability is disclosed, refer to Note 30 Commitments and contingent liabilities.
Payments that are expected to be incurred after more than one year are discounted at a rate which reflects both current
interest rates and the risks specific to that provision.
In relation to customer-related remediation, determining the amount of the provision requires the exercise of significant
judgement. This includes forming a view on a number of different estimates, including the number of impacted
customers, average refund per customer and the associated costs required to complete the remediation activities. The
appropriateness of underlying assumptions is reviewed on a regular basis against actual experience and other available
evidence, and adjustments are made to the provision where required.
Employee entitlements
Operational risk event losses
Customer-related and payroll remediation
Other(1)
Total provisions
(1) Comparative information has been restated to align to the presentation in the current period.
Group
2021
$m
1,093
134
1,231
376
2,834
2020
$m
818
348
2,069
585
3,820
Company
2021
2020
$m
968
81
1,221
350
2,620
$m
744
326
2,019
539
3,628
158 National Australia Bank
NOTE 24 PROVISIONS (CONTINUED)
Reconciliation of movements in provisions
Operational risk event losses
Balance at beginning of year
Provisions made(1)
Payments out of provisions
Provisions no longer required and net foreign currency movements
Reclassified to held for sale(2)
Balance at end of year
Customer-related and payroll remediation
Balance at beginning of year
Provisions made (continuing operations)
Provisions made (discontinued operations)
Payments out of provisions
Provisions no longer required(3)
Balance at end of year
NOTES TO THE FINANCIAL STATEMENTS
Group
2021
$m
348
75
(215)
(74)
-
134
2,069
109
143
(1,041)
(49)
1,231
2020
$m
292
323
(100)
(128)
(39)
348
2,092
373
643
(799)
(240)
2,069
Company
2021
$m
2020
$m
326
23
(194)
(74)
-
81
2,019
143
143
(1,035)
(49)
1,221
214
289
(68)
(109)
-
326
2,068
983
-
(792)
(240)
2,019
(1) Amount includes provisions made in both continuing and discontinued operations.
(2) MLC Wealth’s provision for operational risk event losses was reclassified to held for sale in the 2020 financial year. Refer to Note 37 Discontinued operations
for further information.
(3) September 2021 full year amount relates to MLC Wealth-related provisions transferred to IOOF upon completion of the sale of MLC Wealth.
NOTE 25
OTHER LIABILITIES
Accrued interest payable
Payables and accrued expenses
Securities purchased not delivered
Lease liabilities
Other
Total other liabilities(1)
Group
Company
2021
$m
892
1,100
3,710
1,967
1,457
9,126
2020
$m
1,283
805
3,536
1,555
737
7,916
2021
$m
796
626
3,423
1,659
1,421
7,925
2020
$m
1,105
408
3,491
1,319
823
7,146
(1) Comparative information has been restated to align to the presentation in the current period. Refer to Note 1 Basis of preparation.
Annual Financial Report 2021
159
NOTES TO THE FINANCIAL STATEMENTS
NOTE 26
LEASES
Accounting policy
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration. At inception or on reassessment of a contract that contains a lease component, the Group allocates the
consideration in the contract to each lease component on the basis of their relative stand-alone selling prices. For leases
of land and buildings where the Group is the lessee, the Group has elected not to separate non-lease components, and
accounts for the lease and non- lease components as a single lease component.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. Except for right-of-use
assets measured in accordance with the standard's transition provisions, the right-of-use asset is initially measured at
cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before
the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset, less any lease incentives received.
The right-of-use asset is subsequently measured under the cost model and depreciated using the straight-line method
from the commencement date to the end of the lease term. In addition, the right-of-use asset is reviewed for impairment
and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that have not been paid at the
commencement date, discounted using the Group’s incremental borrowing rate which is based on the Group’s funds
transfer pricing curve. The lease liability is subsequently measured at amortised cost using the effective interest method.
It is remeasured when there is a lease modification that is not accounted for as a separate lease, there is a change in
future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount
expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will
exercise a purchase, extension or termination option. The Group does not include extension options in the measurement
of the lease liability until such time that it is reasonably certain that the options will be exercised.
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases and leases of
low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line
basis over the lease term.
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating
lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all the
risks and rewards incidental to ownership of the underlying asset. Where this is the case, the lease is a finance lease. All
other leases are classified as operating leases.
Effect of leases on the balance sheets
Right-of-use assets
Property, plant and equipment
Buildings
Technology
Total right-of-use assets
Group
2021
$m
1,691
50
1,741
2020
$m
1,331
32
1,363
Company
2021
$m
1,381
45
1,426
2020
$m
1,084
28
1,112
Additions to right-of-use assets during the period
779
480
673
411
Lease liabilities
Other liabilities
Total lease liabilities
160 National Australia Bank
1,967
1,967
1,555
1,555
1,659
1,659
1,319
1,319
NOTE 26 LEASES (CONTINUED)
Effect of leases on the income statements
Depreciation
Buildings(1)
Technology
Total depreciation on right-of-use assets
Interest
Total interest expense on lease liabilities
Short-term lease expense
Total short-term lease expense
NOTES TO THE FINANCIAL STATEMENTS
Group
2021
$m
2020
$m
Company
2021
$m
2020
$m
357
37
394
35
15
433
32
465
31
49
306
35
341
30
11
383
30
413
26
44
(1) Comparative period includes one-off impairment charges to property-related assets.
Future cash flow effect of leases
The table below is a maturity analysis of future lease payments in respect of existing lease arrangements on an
undiscounted basis.
Due within one year
Due after one year but no later than five years
Due after five years
Total future lease payments
Group
Company
2021
2020
2021
2020
$m
336
991
799
$m
362
840
515
$m
291
850
656
$m
317
697
439
2,126
1,717
1,797
1,453
The Group has committed to a number of future lease contracts in relation to new buildings across Australia. As these
new leases become effective, the Group will recognise additional right-of-use assets and corresponding lease liabilities of
approximately $567 million over the next five years.
Annual Financial Report 2021
161
NOTES TO THE FINANCIAL STATEMENTS
CAPITAL MANAGEMENT
NOTE 27
CONTRIBUTED EQUITY
In accordance with the Corporations Act 2001 (Cth), the Company does not have authorised capital and all ordinary shares
have no par value. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or
options are included within equity. Holders of ordinary shares are entitled to receive dividends as determined from time to time
and are entitled to one vote, on a show of hands or on a poll, for each fully paid ordinary share held at shareholders’ meetings.
In the event of a winding-up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully
entitled to any residual proceeds of liquidation.
Issued and paid-up ordinary share capital
Ordinary shares, fully paid
Other contributed equity
National Income Securities
Total contributed equity
Reconciliation of movement in ordinary shares
Balance at beginning of year
Shares issued:
Institutional share placement
Retail share purchase plan
Conversion of convertible preference shares and convertible notes
Dividend reinvestment plan
Dividend reinvestment plan underwritten allotments
Transfer from equity-based compensation reserve
On-market purchase of shares for dividend reinvestment plan neutralisation
Share buy-back
Tax on deductible transaction costs
Balance at end of year
Group
2021
$m
2020
$m
Company
2021
$m
2020
$m
43,247
43,531
42,461
42,745
-
43,247
1,945
45,476
-
42,461
1,945
44,690
Group
Company
2021
$m
43,531
-
-
-
274
-
79
(164)
(486)
13
2020
$m
36,762
2,954
1,250
750
976
700
139
-
-
-
2021
$m
42,745
-
-
-
274
-
79
(164)
(486)
13
2020
$m
35,976
2,954
1,250
750
976
700
139
-
-
-
43,247
43,531
42,461
42,745
162 National Australia Bank
NOTE 27 CONTRIBUTED EQUITY (CONTINUED)
The number of ordinary shares on issue for the last two years at 30 September was as follows:
NOTES TO THE FINANCIAL STATEMENTS
Ordinary shares, fully paid
Balance at beginning of year
Shares issued:
Institutional share placement
Retail share purchase plan
Conversion of convertible preference shares and convertible notes
Dividend reinvestment plan
Dividend reinvestment plan underwritten allotments
Bonus share plan
Share-based payments
Paying up of partly paid shares
On-market purchase of shares for dividend reinvestment plan neutralisation
Share buy-back
Total ordinary shares, fully paid
Ordinary shares, partly paid to 25 cents
Balance at beginning of year
Paying up of partly paid shares
Total ordinary shares, partly paid to 25 cents
Total ordinary shares (including treasury shares)
Less: Treasury shares
Total ordinary shares (excluding treasury shares)
National Income Securities
Company
2021
No. ’000
2020
No. ’000
3,290,093
2,883,019
-
-
-
10,949
-
1,058
3,434
7
(6,173)
(17,377)
212,014
88,337
35,141
39,745
26,898
1,445
3,494
-
-
-
3,281,991
3,290,093
19
(7)
12
19
-
19
3,282,003
3,290,112
(6,005)
(5,572)
3,275,998
3,284,540
On 15 February 2021, the Group redeemed the $2,000 million of National Income Securities issued on 29 June 1999. The
National Income Securities were redeemed for cash at their par value ($100) plus the final interest payment. The unpaid
preference shares forming part of the National Income Securities were bought back for no consideration and cancelled.
Annual Financial Report 2021
163
NOTES TO THE FINANCIAL STATEMENTS
NOTE 28
RESERVES
Accounting policy
Foreign currency translation reserve
Exchange differences arising on translation of the Group’s foreign operations, any offsetting gains or losses on net
investment hedges and any associated tax effect are reflected in the foreign currency translation reserve.
The results and financial position of the Group entities that have a functional currency different from Australian dollars are
translated into Australian dollars as follows:
• assets and liabilities are translated at the closing exchange rate at the balance sheet date
• income and expenses are translated at average exchange rates for the period
• all resulting exchange differences are recognised in the foreign currency translation reserve.
A cumulative credit balance in this reserve would not normally be regarded as available for payment of dividends until
such gains are realised and recognised in the income statement on sale or disposal of the foreign operation.
Asset revaluation reserve
The asset revaluation reserve is used to record revaluation adjustments on land and buildings. When an asset is sold or
disposed of the related balance in the reserve is transferred directly to retained profits.
Cash flow hedge reserve and cost of hedging reserve
The cash flow hedge reserve comprises fair value gains or losses associated with the effective portion of designated
cash flow hedging instruments, net of tax. The cost of hedging reserve records fair value gains or losses associated with
changes in forward points on forward contracts and changes in cross-currency basis on cross-currency swaps, that have
been removed from hedge relationships and are amortised over the life of the hedge. The cumulative movements will
reduce to nil by maturity of the hedging instrument.
Equity-based compensation reserve
The equity-based compensation reserve comprises the fair value of shares and rights provided to employees.
Debt instruments at fair value through other comprehensive income reserve
The reserve includes all changes in the fair value of investments in debt instruments that are measured at fair value
through other comprehensive income, other than impairment losses, foreign exchange gains and losses, interest income
and net of any related hedge accounting adjustments. The cumulative amount recognised in the reserve is transferred to
profit or loss when the related asset is derecognised.
Equity instruments at fair value through other comprehensive income reserve
The Group has made an irrevocable election to measure certain investments in equity instruments that are not held for
trading purposes at fair value through other comprehensive income. Changes in the fair value of these investments are
recognised in this reserve, while dividends are recognised in profit or loss. The cumulative amount recognised in the
reserve is transferred directly to retained profits when the related asset is derecognised.
164 National Australia Bank
NOTE 28 RESERVES (CONTINUED)
Reserves
Foreign currency translation reserve
Asset revaluation reserve
Cash flow hedge reserve
Cost of hedging reserve
Equity-based compensation reserve
Debt instruments at fair value through other comprehensive income reserve
Equity instruments at fair value through other comprehensive income reserve
Total reserves
Foreign currency translation reserve
Balance at beginning of year
Transfer from retained profits
Redemption of National Income Securities
Currency adjustments on translation of foreign operations, net of hedging
Transfer to the income statement on disposal or partial disposal of
foreign operations(1)
Balance at end of year
(1) Partial disposals of foreign operations include returns of capital made by foreign branches.
NOTE 29
DIVIDENDS AND DISTRIBUTIONS
2021
Final dividend determined in respect of the year ended 30 September 2020
Interim dividend determined in respect of the year ended 30 September 2021
Deduct: Bonus shares in lieu of dividend
Dividends paid by the Group during the year ended 30 September 2021
Add: Dividends paid to non-controlling interest in controlled entities
Dividends paid by the Group (before dividend reinvestment plan)
2020
Final dividend determined in respect of the year ended 30 September 2019
Interim dividend determined in respect of the year ended 30 September 2020
Deduct: Bonus shares in lieu of dividend
Dividends paid by the Group during the year ended 30 September 2020
Add: Dividends paid to non-controlling interest in controlled entities
Dividends paid by the Group (before dividend reinvestment plan)
Dividends paid during 2021 were fully franked at a tax rate of 30% (2020: 30%).
NOTES TO THE FINANCIAL STATEMENTS
Group
Company
2021
2020
$m
288
25
86
(266)
136
266
15
550
$m
(38)
26
307
(396)
115
77
8
99
2021
$m
(200)
-
69
(175)
136
266
3
99
Group
Company
2021
2020
$m
(38)
21
15
301
(11)
288
$m
20
-
-
(36)
(22)
(38)
2021
$m
(243)
15
15
27
(14)
(200)
2020
$m
(243)
-
346
(264)
115
77
3
34
2020
$m
(214)
-
-
(7)
(22)
(243)
Amount
per share
cents
30
60
n/a
n/a
n/a
n/a
83
30
n/a
n/a
n/a
n/a
Total
amount
$m
987
1,979
(27)
2,939
4
2,943
2,393
895
(32)
3,256
4
3,260
Annual Financial Report 2021
165
NOTES TO THE FINANCIAL STATEMENTS
NOTE 29 DIVIDENDS AND DISTRIBUTIONS (CONTINUED)
Final dividend
On 9 November 2021, the directors determined the following dividend:
Final dividend determined in respect of the year ended 30 September 2021
Franked
Amount
Total
amount per
per share
amount
cents
67
$m
2,199
share
%
100
The final 2021 ordinary dividend is payable on 15 December 2021. The Dividend Reinvestment Plan discount is nil, with no
participation limit. The financial effect of this dividend has not been brought to account in the financial statements for the year
ended 30 September 2021 and will be recognised in subsequent financial reports.
Australian franking credits
The franking credits available to the Group at 30 September 2021 are estimated to be $1,024 million (2020: $1,017 million) after
allowing for Australian tax payable in respect of the current reporting period's profit and the receipt of dividends recognised
as a receivable at reporting date. Franking credits to be utilised as a result of the payment of the proposed final dividend are
$942 million (2020: $423 million). NAB's franking account fluctuates during the year as a result of the timing of income tax
instalment and dividend payments. While the franking account balance fluctuates during the year, a surplus is only required
as at 30 June each year for the purpose of complying with Australian income tax legislation. Franking is not guaranteed. The
extent to which future dividends on ordinary shares and distributions on frankable hybrids will be franked will depend on a
number of factors, including capital management activities and the level of profits generated by the Group that will be subject
to tax in Australia.
New Zealand imputation credits
NAB is able to attach available New Zealand imputation credits to dividends paid. As a result, New Zealand imputation credits of
NZ$0.01 per share will be attached to the final 2021 ordinary dividend payable by the Company. New Zealand imputation credits
are only relevant for shareholders who are required to file New Zealand income tax returns.
Distributions on other equity instruments
National Income Securities
Group
Company
2021
2020
$m
13
$m
39
2021
$m
13
2020
$m
39
On 15 February 2021, the Group redeemed the $2,000 million of National Income Securities issued on 29 June 1999. The
National Income Securities were redeemed for cash at their par value ($100) plus the final interest payment. The unpaid
preference shares forming part of the National Income Securities were bought back for no consideration and cancelled.
166 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
UNRECOGNISED ITEMS
NOTE 30
COMMITMENTS AND CONTINGENT LIABILITIES
Accounting policy
The Group discloses certain items as contingent liabilities, as they are either possible obligations whose existence will be
confirmed only by uncertain future events, or they are present obligations where a transfer of economic resources is not
probable or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but are disclosed
unless an outflow of economic resources is remote.
Commitments
Financial assets are pledged as collateral predominantly under repurchase agreements with other banks. The financial assets
pledged by the Group are strictly for the purpose of providing collateral for the counterparty. These transactions are conducted
under terms that are usual and customary to standard lending and securities borrowing and lending activities, as well as
requirements determined by exchanges where the Group acts as an intermediary. Repurchase agreements that do not qualify
for derecognition are reported in Note 21 Financial asset transfers.
Bank guarantees and letters of credit
The Group provides guarantees in its normal course of business on behalf of its customers. Guarantees written are conditional
commitments issued by the Group to guarantee the performance of a customer to a third party. Guarantees are primarily issued
to support direct financial obligations such as commercial bills or other debt instruments issued by a counterparty. The Group
has four principal types of guarantees:
• bank guarantees
• standby letters of credit
• documentary letters of credit
• performance-related contingencies.
The Group considers all bank guarantees and letters of credit as “at call” for liquidity management purposes because it has no
control over when the holder might call upon the instrument.
Bank guarantees and letters of credit
Bank guarantees
Standby letters of credit
Documentary letters of credit
Performance-related contingencies
Total bank guarantees and letters of credit
Clearing and settlement obligations
Group
Company
2021
$m
4,166
6,907
3,860
6,476
2020
$m
4,252
3,272
3,313
9,789
2021
$m
4,421
6,907
3,538
5,767
2020
$m
4,216
3,272
3,016
9,203
21,409
20,626
20,633
19,707
The Group is subject to a commitment in accordance with the rules governing clearing and settlement arrangements contained
in the Australian Payments Network Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing System,
the Consumer Electronic Clearing System and the High Value Clearing System which could result in a credit risk exposure and
loss in the event of a failure to settle by a member institution. The Group also has a commitment in accordance with the
Austraclear System Regulations and the Continuous Linked Settlement Bank Rules to participate in loss-sharing arrangements in
the event that another financial institution fails to settle.
The Group is a member of various central clearing houses, most notably the London Clearing House (LCH) SwapClear and
RepoClear platforms and the ASX Over-The-Counter Central Counterparty, which enables the Group to centrally clear derivative
and repurchase agreement instruments respectively. As a member of these central clearing houses, the Group is required to
make a default fund contribution. The exposure to risk associated with this commitment is reflected for capital adequacy
purposes in the Group’s Pillar 3 reporting. In the event of a default of another clearing member, the Group could be required to
commit additional funds to the default fund contribution.
Annual Financial Report 2021
167
NOTES TO THE FINANCIAL STATEMENTS
NOTE 30 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Credit-related commitments
Binding credit-related commitments to extend credit are agreements to lend to a customer so long as there is no violation
of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. Since many of the commitments are expected to expire without being
drawn down, the total commitment amounts do not necessarily represent future cash requirements. Nevertheless, credit-related
commitments are considered “at call” for liquidity management purposes.
Credit-related commitments
Binding credit commitments
Total credit-related commitments
Credit-related commitments by geographical location
Australia
New Zealand
Other International
Total credit-related commitments
Parent entity guarantees and undertakings
Group
2021
$m
2020
$m
Company
2021
$m
2020
$m
185,369
185,369
173,656
173,656
163,196
163,196
153,090
153,090
147,506
136,823
146,662
136,267
21,328
16,535
20,010
16,823
185,369
173,656
-
16,534
163,196
-
16,823
153,090
The Company has provided the following guarantees and undertakings relating to entities in the Group. These guarantees and
undertakings are not included in previous tables in the note:
• The Company will guarantee up to $27,733 million (2020: $28,141 million) of commercial paper issuances by National
Australia Funding (Delaware) Inc. Commercial paper of $887 million (2020: $317 million) has been issued.
• The Company is responsible to its customers for any direct loss suffered as a result of National Nominees Limited failing to
perform its obligations to the Company.
• The Company and MLC Wealth had both been granted a licence (the License) by the Safety, Rehabilitation and Compensation
Commission (the Commission) to operate as self-insurers under the Commonwealth Government Comcare Scheme (the
Commonwealth Scheme). The parties applied to the Commission to revoke MLC Wealth’s License as MLC Wealth would
instead be covered under the State-based scheme after the sale of MLC Wealth to IOOF. The Commission agreed to revoke
MLC Wealth’s License effective from the date of the sale. The Company still holds its License and continues to be self-insured
under the Commonwealth Scheme. As required by legislation and the Commission, the Company has provided a guarantee
in respect of any workers' compensation liabilities of employees of MLC Wealth in respect of injuries that arose before the
completion of the sale.
• The Company has issued letters of support in respect of certain subsidiaries and associates in the normal course of business.
The letters recognise that the Company has a responsibility to ensure that those subsidiaries and associates continue to meet
their obligations.
Contractual commitments
Acquisition of Citigroup's Australian consumer business
On 9 August 2021 NAB announced it has entered into a Sale and Purchase Agreement with Citigroup to purchase Citigroup’s
Australian consumer business. The proposed acquisition, which remains subject to regulatory approvals, is structured primarily
as an asset and liability transfer, with NAB to pay Citigroup cash for the net assets of Citigroup's Australian consumer business
plus a premium of $250 million. Subject to the timing of regulatory approvals, completion is expected to occur by the middle of
next calendar year.
168 National Australia Bank
NOTE 30 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Contingent liabilities
From time to time the Group is exposed to contingent risks and liabilities arising from the conduct of its business including:
• actual and potential disputes, claims and legal proceedings
• investigations into past conduct, including actual and potential regulatory breaches, carried out by regulatory authorities on
either an industry-wide or Group-specific basis
• internal investigations and reviews into past conduct, including actual and potential regulatory breaches, carried out by or
on behalf of the Group
• contracts that involve giving contingent commitments such as warranties, indemnities or guarantees.
There are contingent liabilities in respect of all such matters. Such matters are often highly complex and uncertain. Where
appropriate, provisions have been made. The aggregate potential liability of the Group in relation to these matters cannot be
accurately assessed.
Further information on some specific contingent liabilities that may impact the Group is set out below.
Legal proceedings
Bank Bill Swap Reference Rate US class action
In August 2016, a class action complaint was filed in the United States District Court for the Southern District of New York
regarding alleged conduct relating to the Bank Bill Swap Reference Rate. The complaint named a number of defendants,
including NAB and various other Australian and international banks. The allegations against NAB refer to proceedings brought
by ASIC against three banks in relation to the Bank Bill Swap Reference Rate. The relevant ASIC proceeding against NAB was
concluded in November 2017 with NAB admitting certain contraventions.
In June 2021, NAB announced that it had agreed to settle the claims made against it in the class action. The settlement is
without admission of liability and remains subject to negotiation and the execution of complete settlement terms and court
approval. The terms of the settlement remain confidential.
United Kingdom matters
Eight separate claims focused on Tailored Business Loans (TBLs) have been commenced against NAB and Clydesdale Bank Plc
(CYBG) by RGL Management Limited (a claims management company) (RGL) and law firm Fladgate LLP on behalf of customers
of CYBG in the English Courts.
The claims concern TBLs which customers entered into with CYBG and in respect of which NAB employees performed various
functions. The claimants allege they were misled about: (1) the cost of repaying (or restructuring) their TBLs early; and (2) the
composition of fixed interest rates/other rates offered under the TBLs. The alleged misconduct is said to give rise to several
causes of action, including negligent misstatement, misrepresentation and deceit.
The claims were before the court for a procedural hearing in December 2020 following which a timetable was directed for the
first and fourth claims to move forward to a second procedural hearing which occurred in October 2021. At that hearing the
court made further directions to progress the first and fourth claims (the remaining claims are currently, or are expected to be,
paused by agreement and court order). NAB has filed and served its defences to the first and fourth claims.
The potential outcome and total costs associated with the claims by RGL and Fladgate LLP remain uncertain.
Annual Financial Report 2021
169
NOTES TO THE FINANCIAL STATEMENTS
NOTE 30 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Regulatory activity, compliance investigations and associated proceedings
Anti-Money Laundering and Counter-Terrorism Financing program uplift and compliance issues
For some time NAB has been working to uplift and strengthen the Group’s systems and processes to comply with AML and
CTF requirements. The Group continues to the keep Australian Transaction Reports and Analysis Centre (AUSTRAC) and, where
applicable, relevant foreign regulators informed of its progress. In addition to a general uplift in capability, the program of
work aims to remediate specific known compliance issues and weaknesses. As this work progresses, further compliance issues
may be identified and reported to AUSTRAC or equivalent foreign regulators, and additional uplifting and strengthening may
be required.
The Group has reported a number of compliance issues to relevant regulators and has responded to a number of requests
from regulators requiring the production of documents and information. Identified issues include certain weaknesses with
the Group’s implementation of ‘Know Your Customer’ (KYC) requirements; other financial crime risks; and certain systems
and process issues that impacted transaction monitoring and reporting in some specific areas. In particular, the Group
has identified issues with collection and verification of identity information and enhanced customer due diligence for non-
individual customers. This is the subject of a dedicated remediation program that is underway.
In June 2021, NAB announced that AUSTRAC had identified serious concerns with the NAB Designated Business Group’s
(NAB DBG) compliance with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 and the Anti-Money
Laundering and Counter-Terrorism Financing Rules 2007. AUSTRAC advised NAB that it was AUSTRAC’s view that there was
“potential serious and ongoing non-compliance” with customer identification procedures, ongoing customer due diligence and
compliance with Part A of the Group’s AML and CTF program. These concerns were referred to AUSTRAC’s enforcement team
and it initiated a formal enforcement investigation. AUSTRAC advised NAB that it had not made any decision about whether or
not enforcement action would be taken and further, that it was not considering civil penalty proceedings, at that stage, and that
this decision was “reflective of the work undertaken” by NAB to date. NAB has not been notified of any change to this position,
however the AUSTRAC investigation is ongoing. AUSTRAC’s referral to its enforcement team followed regular engagement by
NAB with AUSTRAC over a long period of time. AUSTRAC has a wide range of enforcement options available to it, including civil
penalty orders, enforceable undertakings, infringement notices and remedial directions. The Group is fully cooperating with
AUSTRAC’s investigation and continuing with its efforts to uplift its financial crime capabilities in parallel.
The potential outcome and total costs associated with these investigations and remediation processes for specific issues
identified to date, and for any issues that may be identified in the future, remain uncertain.
Banking matters
A number of reviews into banking-related matters are being carried on across the Group, both internally and in some cases by
regulatory authorities, including matters where:
• incorrect fees were applied in connection with certain products
• customers may not have been provided notice of increases to loan repayments within the timeframe required by the
National Credit Code
• incorrect interest rates were applied in relation to certain products, including home lending products on conversion from
interest only to principal and interest and/or from fixed interest to variable interest rates
• there were issues in delivering electronic statements, and other notices enclosed with those statements, capturing customer
consent to receive electronic statements and inconsistencies with recording statement preferences
• business term lending facilities were not amortising in accordance with approved facilities; and
• various responsible lending matters.
The potential outcome and total costs associated with these matters remain uncertain.
Incorrect charging of periodical payment fees
On 24 February 2021, ASIC commenced Federal Court proceedings against NAB alleging that NAB failed to comply with a
number of provisions of the ASIC Act and the Corporations Act in relation to the incorrect charging of periodical payment fees
including misleading or deceptive conduct and unconscionable conduct. NAB filed its response to ASIC’s claim on 28 April 2021.
The potential outcomes and total costs associated with the matter remain uncertain.
Payroll matters
In December 2019, NAB announced an end-to-end Payroll Review examining internal pay processes and compliance with
pay-related obligations under Australian employment laws. The review has identified a range of issues and a remediation
program is being undertaken. Provisions have been taken and a number of payments have been made. In addition to the
costs associated with the remediation program, there remains the potential for further developments regarding these issues,
including possible enforcement action or other legal actions. The final outcome and total costs associated with this matter
remain uncertain.
170 National Australia Bank
NOTE 30 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
The Wage Inspectorate Victoria and the NSW Employee Relations have been undertaking investigations in relation to the long
service leave entitlements of NAB’s casual employees. In October 2021, NAB commenced action in the Federal Court seeking a
declaration about the proper interpretation of relevant provisions of the Fair Work Act (Cth), in order to clarify the situation. In
October 2021, the Wage Inspectorate Victoria commenced a prosecution in the Victorian Magistrate’s Court with respect to this
matter. The final outcome and total costs associated with this matter remain uncertain.
Wealth - Adviser service fees
In 2015, ASIC commenced an industry-wide investigation into financial advice fees paid by customers pursuant to ongoing
service arrangements with financial advice firms, including entities within the Group. Under the service arrangements,
customers paid an adviser service fee to receive ongoing financial review services. In some instances, customers did not receive
the agreed services or, in other cases, there may not be sufficient evidence that the agreed services were provided or that
customers were adequately informed of their ability to terminate the service fee. NAB is undertaking a remediation program
in relation to this matter for JBWere and the various advice businesses, which were operated by the Group prior to completion
of the MLC Wealth Transaction discussed below, including MLC Advice (formerly known as NAB Financial Planning) and NAB
Advice Partnerships. While the businesses of MLC Advice and NAB Advice Partnerships have been sold to IOOF pursuant to the
MLC Wealth Transaction discussed below, NAB has retained the companies that operated the advice business, such that the
Group has retained all liabilities associated with the conduct of these businesses pre-completion of the MLC Wealth Transaction.
JBWere is not within the scope of the MLC Wealth Transaction.
Payments with respect to MLC Advice are now largely complete. NAB Advice Partnerships has commenced making accelerated
remediation payments to potentially impacted customers for remediation.
JBWere has identified its potentially impacted customers and will commence making remediation payments where appropriate.
JBWere continues to assess for remaining clients whether there is evidence to demonstrate that agreed financial review services
were provided.
The total ongoing advice fees received within the period 2009-2018 are estimated to be approximately $1.3 billion for NAB
Advice Partnerships. With respect to JBWere, the ongoing advice fees in-scope for remediation is approximately $80 million.
While the Group has taken provisions in relation to these matters based on current information, there remains the potential for
further developments and the potential outcomes and total costs associated with these matters remain uncertain.
Wealth - Advice review
In October 2015, NAB began contacting certain groups of customers where there was a concern that they may have received
non-compliant financial advice since 2009 to: (a) assess the appropriateness of that advice; and (b) identify whether customers
had suffered loss as a result of non- compliant advice that would warrant compensation. These cases are progressing through
the Customer Response Initiative review program, the scope of which includes the advice businesses of MLC Advice, NAB Advice
Partnerships and JBWere, with compensation offered and paid in a number of cases. Where customer compensation is able to
be reliably estimated, provisions have been taken. The final outcome and total costs associated with this work remain uncertain.
Further, a number of other investigations into the historic activities of the advice business are being carried out by the Group,
including reviews of the implementation of financial advice provided by MLC Advice relating to reinvestment decisions.
While the MLC Advice and NAB Advice Partnerships businesses relevant to these matters have been sold to IOOF pursuant to
the MLC Wealth Transaction discussed below, NAB has retained the companies that operated the advice business, such that the
Group has retained all liabilities associated with the conduct of these businesses pre-completion of the MLC Wealth Transaction.
The potential outcomes and total costs associated with these matters remain uncertain.
Contractual commitments
MLC Wealth Transaction
On 31 May 2021, NAB completed the sale of MLC Wealth, comprising its advice, platforms, superannuation and investments,
and asset management businesses to IOOF.
As part of the MLC Wealth Transaction, NAB has provided IOOF with indemnities relating to certain pre-completion
matters, including:
• a remediation program relating to workplace superannuation (including matters where some employer superannuation
plans and member entitlements were not correctly set up in the administration systems, and matters relating to disclosure
and administration of certain features of the super product such as insurance and fees)
• breaches of anti-money laundering laws and regulations
• regulatory fines and penalties; and
• certain litigation and regulatory investigations (including the NULIS and MLCN class actions described below).
Annual Financial Report 2021
171
NOTES TO THE FINANCIAL STATEMENTS
NOTE 30 COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
NAB also provided covenants and warranties in favour of IOOF. A breach or triggering of these contractual protections may
result in NAB being liable to IOOF. NAB and IOOF are reassessing certain provisions for pre-completion matters as part of the
completion accounts process, which may involve increases to such provisions.
As part of the MLC Wealth Transaction, the Group retained the companies that operated the advice business, such that the
Group has retained all liabilities associated with the conduct of that business pre-completion.
NAB has also agreed to provide IOOF with certain transitional services and continuing access to records, as well as support for
data migration activities. NAB may be liable to IOOF if it fails to perform its obligations under these agreements.
The final financial impact associated with the MLC Wealth Transaction remains uncertain and subject to finalisation of the
completion accounts process and other contingencies outlined.
NULIS and MLCN - class actions
In October 2019, litigation funder Omni Bridgeway (formerly IMF Bentham) and William Roberts Lawyers commenced a class
action against NULIS Nominees (Australia) Limited (NULIS) alleging breaches of NULIS’s trustee obligations to act in the best
interests of the former members of The Universal Super Scheme in deciding to maintain grandfathered commissions on their
transfer into the MLC Super Fund on 1 July 2016. NULIS filed its first defence in the proceeding in February 2020.
In January 2020, Maurice Blackburn commenced a class action in the Supreme Court of Victoria against NULIS and MLC
Nominees Pty Ltd (MLCN) alleging breaches of NULIS's trustee obligations in connection with the speed with which NULIS and
MLCN effected transfers of members’ accrued default amounts to the MySuper product (Supreme Court Class Action). NULIS and
MLCN filed their joint defence in the proceeding in April 2020.
On 26 March 2021, Maurice Blackburn commenced a class action in the Federal Court against NULIS and MLCN alleging
breaches of NULIS's trustee obligations which mirror those made in the Supreme Court Class Action referred to above. The
action is to be stayed pending the determination of an appeal in the Supreme Court Class Action regarding the Court’s
jurisdiction to hear the action.
The potential outcomes and total costs associated with these matters remain uncertain. While NULIS and MLCN are no longer
part of the Group following completion of the MLC Wealth Transaction, NAB remains liable for the costs associated with, and
retains conduct of, these matters pursuant to the terms of the MLC Wealth Transaction.
172 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
OTHER DISCLOSURES
NOTE 31
INTEREST IN SUBSIDIARIES AND OTHER ENTITIES
Accounting policy
Investments in controlled entities
Controlled entities are all those entities (including structured entities) to which the Company is exposed, or has rights,
to variable returns from its involvement with the entity and has the ability to affect those returns through its power
over the entity. An assessment of control is performed on an ongoing basis. Entities are consolidated from the date on
which control is transferred to the Group. Entities are deconsolidated from the date that control ceases. The effects of
transactions between entities within the Group are eliminated in full upon consolidation. External interests in the equity
and results of entities that are controlled by the Group are shown as 'non-controlling interests in controlled entities' in the
equity section of the consolidated balance sheet.
Investments in associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control of those policies. The Group's
investments in associates are accounted for using the equity method.
Structured entities
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in
deciding who controls the entity. Structured entities generally have restricted activities and a narrow and well-defined
objective which is created through contractual arrangement. Depending on the Group's power over the relevant activities
of the structured entities and its exposure to and ability to influence its own returns, it may or may not consolidate
the entity.
Unconsolidated structured entities refer to all structured entities that are not controlled by the Group. The Group
enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer
transactions or for specific investment opportunities.
Interests in unconsolidated structured entities include, but are not limited to, debt and equity investments, guarantees,
liquidity arrangements, commitments, fees from investment structures, and derivative instruments that expose the Group
to the risks of the unconsolidated structured entities. Interests do not include plain vanilla derivatives (e.g. interest rate
swaps and cross currency swaps) and positions where the Group:
• creates rather than absorbs variability of the unconsolidated structured entity
• provides administrative, trustee or other services as agent to third party managed structured entities.
Involvement is considered on a case by case basis, taking into account the nature of the structured entity’s activities. This
excludes involvement that exists only because of typical customer-supplier relationships.
(a) Investment in controlled entities
The following table presents the material controlled entities as at 30 September 2021. Investment vehicles holding life
policyholder assets are excluded from the list below:
Entity name
National Australia Bank Limited
National Equities Limited
National Australia Group (NZ) Limited
Bank of New Zealand
Ownership %
Incorporated / formed in
100
100
100
Australia
Australia
New Zealand
New Zealand
Changes to material controlled entities
On 31 May 2021, National Wealth Management Holdings Limited was sold to IOOF.
Significant restrictions
Subsidiary companies that are subject to prudential regulation are required to maintain minimum capital and other regulatory
requirements that may restrict the ability of these entities to make distributions of cash or other assets to the parent company.
These restrictions are managed in accordance with the Group’s normal risk management policies set out in Note 19 Financial
risk management and capital adequacy requirements in Note 35 Capital adequacy.
Annual Financial Report 2021
173
NOTES TO THE FINANCIAL STATEMENTS
NOTE 31 INTEREST IN SUBSIDIARIES AND OTHER ENTITIES (CONTINUED)
The RBNZ has implemented a restriction on 31 March 2021 allowing New Zealand banks to pay dividends up to a maximum of
50 per cent of prior financial year earnings and has outlined its expectations that banks will exercise prudence in determining
dividends. This has the effect of restricting NAB’s ability to access cash by way of dividends from its wholly owned subsidiary,
BNZ. The restriction imposed by the RBNZ will remain in place until 1 July 2022, subject to economic conditions at that time.
(b) Investment in associates
The Group’s investments in associates include a 20% interest in MLC Life, a provider of life insurance products in Australia. Set
out below is the summarised financial information of MLC Life based on its financial information (and not the Group’s 20%
share of those amounts) and a reconciliation of that information to the equity-accounted carrying amount as at 30 September:
Summarised income statement of MLC Life
Revenue
Net loss for the period
Total comprehensive income for the period
Reconciliation to the Group's share of loss
MLC Life's net loss for the period
Prima facie share of loss at 20%
Less: Amortisation of intangible assets recognised at acquisition, net of tax
Group's share of loss for the period
Summarised balance sheet of MLC Life
Total assets
Total liabilities
Net assets
Reconciliation to the Group's investment in MLC Life
Prima facie share of net assets at 20%
Add intangible assets recognised at acquisition, net of deferred tax
Accumulated impairment losses
Group's carrying amount of the investment in MLC Life
2021
$m
1,585
(222)
(222)
(222)
(44)
-
(44)
7,746
4,954
2,792
558
-
(86)
472
2020
$m
1,549
(167)
(167)
(167)
(34)
(3)
(37)
6,810
4,327
2,483
497
128
(214)
411
There was no dividend received from MLC Life during the 2021 financial year (2020: $nil). The Group made additional capital
contributions to MLC Life, in proportion to its 20% shareholding, totalling $106 million during the 2021 financial year (2020:
$138 million).
Significant restrictions
Assets in a statutory fund of MLC Life can only be used to meet the liabilities and expenses of that fund, to acquire investments
to further the business of that fund, or to make profit distributions when solvency and capital adequacy requirements of the Life
Insurance Act 1995 (Cth) are met. This may impact MLC Life's ability to transfer funds to the Group in the form of dividends. In
addition, in certain circumstances the payment of dividends may require approval by APRA.
Transactions
As part of a long-term commercial arrangement with Nippon Life and MLC Life, the Group refers certain bank customers to
MLC Life. Under a financial services agreement and certain linked arrangements, the Group provides MLC Life with certain
financial services on an arm’s length basis, including custody, transactional banking facilities, fixed income, commodity and
currency services.
174 National Australia Bank
NOTE 31 INTEREST IN SUBSIDIARIES AND OTHER ENTITIES (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
(c) Consolidated structured entities
The Group has interests in the following types of consolidated structured entities:
Type
Details
Securitisation
The Group engages in securitisation activities for funding, liquidity and capital management purposes. The
Group principally packages and sells residential mortgage loans as securities to investors through a series of
securitisation vehicles. The Group is entitled to any residual income after all payments to investors and costs
related to the program have been met. The note holders only have recourse to the pool of assets. The Group
is considered to hold the majority of the residual risks and benefits of the vehicles. All relevant financial
assets continue to be held on the Group balance sheet, and a liability is recognised for the proceeds of the
funding transaction.
The Group provides liquidity facilities to the securitisation vehicles. The facilities can only be drawn to manage the
timing mismatch of cash inflows from securitised loans and cash outflows due to investors. The liquidity facility
limit as at 30 September 2021 is $1,063 million.
Covered bonds
The Group is entitled to any residual income after all payments due to covered bonds investors and costs related
to the program have been met. The covered bond holders have dual recourse to the Group and the covered pool
assets. Housing loans are assigned to a bankruptcy remote structured entity to provide security for the obligations
payable on the covered bonds issued by the Group.
(d) Unconsolidated structured entities
The Group has interests in the following types of unconsolidated structured entities:
Type
Details
Securitisation
The Group engages with third party (client) securitisation vehicles by providing warehouse facilities, liquidity
support and derivatives. The Group invests in residential mortgage and asset-backed securities.
Other financing
The Group provides tailored lending to limited recourse single purpose vehicles which are established to facilitate
asset financing for clients. The assets are pledged as collateral to the Group. The Group engages in raising finance
for leasing assets such as aircraft, trains, shipping vessels and other infrastructure assets. The Group may act as a
lender, arranger or derivative counterparty to these vehicles.
Other financing transactions are generally senior, secured self-liquidating facilities in compliance with Group
credit lending policies. Regular credit and financial reviews of the borrowers are conducted to ensure collateral is
sufficient to support the Group’s maximum exposures.
Investment funds
The Group has direct interests in unconsolidated investment funds. The Group’s interests include holding units
and receiving fees for services. The Group’s interest in unconsolidated investment funds is immaterial.
Annual Financial Report 2021
175
NOTES TO THE FINANCIAL STATEMENTS
NOTE 31 INTEREST IN SUBSIDIARIES AND OTHER ENTITIES (CONTINUED)
The table below shows the carrying value and maximum exposure to loss of the Group’s interests in unconsolidated
structured entities:
Loans and advances
Debt instruments
Group
Securitisations
Other financing
Total
2021
2020
2021
2020
2021
2020
$m
$m
$m
$m
$m
$m
15,857
13,401
3,461
4,947
19,318
18,348
6,889
7,194
-
-
6,889
7,194
Total carrying value of assets in unconsolidated structured entities
22,746
20,595
3,461
4,947
26,207
25,542
Commitment / contingencies
8,892
8,392
-
20
8,892
8,412
Total maximum exposure to loss in unconsolidated structured entities
31,638
28,987
3,461
4,967
35,099
33,954
Exposure to loss is managed as part of the Group's Risk Management Framework. The Group’s maximum exposure to loss
is the total of its on-balance sheet positions and its off-balance sheet arrangements, being loan commitments, financial
guarantees, and liquidity support. Consequently, the Group has presented these measures rather than the total assets of
the unconsolidated structured entities. Refer to Note 19 Financial risk management for further details. Income earned from
interests in unconsolidated structured entities primarily result from interest income, mark-to-market movements and fees
and commissions.
The majority of the Group’s exposures are senior investment grade, but in some limited cases, the Group may be required
to absorb losses from unconsolidated structured entities before other parties because the Group’s interests are subordinated
to others in the ownership structure. The table below shows the credit quality of the Group’s exposures in unconsolidated
structured entities:
Senior investment grade
Investment grade
Sub-investment grade
Total(1)
Group
Securitisations
Other financing
Total
2021
2020
2021
2020
2021
2020
$m
$m
22,694
20,388
48
4
206
1
22,746
20,595
$m
888
1,442
1,131
3,461
$m
1,228
1,812
1,907
4,947
$m
$m
23,582
21,616
1,490
1,135
2,018
1,908
26,207
25,542
(1) Of the total, $26,032 million (2020: $25,422 million) represents the Group's interest in senior notes and $175 million in subordinated notes (2020:
$120 million).
176 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 32
RELATED PARTY DISCLOSURES
The Group provides a range of services to related parties including the provision of banking facilities and standby financing
arrangements. Other dealings include granting loans and accepting deposits, and the provision of finance. These transactions
are normally entered into on terms equivalent to those that prevail on an arm’s length basis in the ordinary course of business.
Other transactions with controlled entities may involve leases of properties, plant and equipment, provision of data processing
services or access to intellectual or other intangible property rights. Charges for these transactions are normally on an arm’s
length basis and are otherwise on the basis of equitable rates agreed between the parties. The Company also provides
various administrative services to the Group, which may include accounting, secretarial and legal. Fees may be charged for
these services.
Loans made to subsidiaries are generally entered into on terms equivalent to those that prevail on an arm’s length basis, except
that there are often no fixed repayment terms for the settlement of loans between parties. Outstanding balances are unsecured
and are repayable in cash.
The Company may incur costs on behalf of controlled entities in respect of customer-related remediation, regulatory activity,
compliance investigations and associated proceedings. Refer to Note 30 Commitments and contingent liabilities for further
information in respect of these matters.
Subsidiaries
The table below shows the aggregate amounts receivable / (payable) from subsidiaries for the years ended 30 September:
Balance at beginning of year
Net cash (inflows) / outflows
Net foreign currency translation movements and other amounts receivable
Balance at end of year
The table below shows material transactions with subsidiaries for the years ended 30 September:
Net interest (expense)
Dividend revenue
Superannuation plans
Company
2021
$m
380
(434)
(29)
(83)
2020
$m
(1,247)
1,486
141
380
Company
2021
$m
(1,713)
1,752
2020
$m
(1,743)
1,294
The following payments were made to superannuation plans sponsored by the Group:
Payment to:
National Australia Bank Group Superannuation Fund A
Other(1)
(1) Comparative information has been restated to align to the presentation in the current period.
Group
Company
2021
2020
2021
2020
$m
251
12
$m
243
16
$m
251
8
$m
243
8
Transactions between the Group and superannuation plans sponsored by the Group were made on commercial terms
and conditions.
Annual Financial Report 2021
177
NOTES TO THE FINANCIAL STATEMENTS
NOTE 32 RELATED PARTY DISCLOSURES (CONTINUED)
Key Management Personnel
KMP are the directors and senior executives of the Group who have authority and responsibility for planning, directing
and controlling the activities of both NAB and the Group. Details of KMP are set out in Section 5.1 and Section 6.2 of the
Remuneration report of the Report of the Directors.
Remuneration
Total remuneration of KMP is included within total personnel expenses in Note 5 Operating expenses. The total remuneration is
as follows:
Short-term benefits
Cash salary
Variable reward cash
Non-monetary
Post-employment benefits
Superannuation
Other long-term benefits
Other long-term benefits
Equity-based benefits
Shares
Performance rights
Other
Other remuneration
Special duties
Total
Group
2021
$
2020(1)
$
17,689,685
16,146,764
8,321,343
1,155,255
69,183
592,623
448,262
420,756
187,772
173,623
1,769,389
6,749,724
1,467,630
2,520,742
870,000
2,497,237
-
224,764
37,191,430
24,113,322
(1) The 2020 comparative amount has been adjusted for Angela Mentis’ annual leave entitlement accrual arising from changes in BNZ's leave policy and an
additional amount for motor vehicle benefits, and Ross McEwan as fringe benefits tax was not payable on certain amounts associated with his relocation
to Australia.
Performance rights and shareholdings of KMP are set out in the Remuneration report included in the Report of the Directors.
Loans to KMP and their related parties
During the reporting period, loans made to KMP and other related parties of the Group and Company were $34 million
(2020: $8 million). Loans made to directors of NAB are made in the ordinary course of business on terms equivalent to those
that prevail in arm's length transactions. Loans to Executives (including Executives acting on an interim basis) may be made
on similar terms and conditions generally available to other employees of the Group. Loans may be secured or unsecured
depending on the nature of the lending product advanced. As at 30 September 2021, the total loan balances outstanding were
$45 million (2020: $22 million).
No amounts were written off in respect of any loans made to directors or other KMP of the Group and Company during the
current or prior reporting period.
Further details regarding loans advanced to KMP of the Group and Company are included in the Remuneration report of the
Report of the Directors.
178 National Australia Bank
NOTE 33
REMUNERATION OF EXTERNAL AUDITOR
EY Australia
Audit services
Audit-related services
Taxation-related services
Non-audit services
Total Australia
EY Overseas
Audit services
Audit-related services
Taxation-related services
Non-audit services
Total Overseas
Total Australia and Overseas
Services for non-consolidated trusts of which a Group entity is a trustee, manager or responsible
entity and non-consolidated Group superannuation funds
Total remuneration paid to the external auditor
NOTES TO THE FINANCIAL STATEMENTS
Group
Company
2021
$'000
2020
$'000
11,442
12,971
5,275
5,792
45
-
60
26
2021
$'000
9,409
4,829
45
-
2020
$'000
10,138
4,278
60
26
16,762
18,849
14,283
14,502
4,206
647
124
-
4,163
606
-
6
1,969
267
124
-
2,083
283
-
-
4,977
4,775
2,360
2,366
21,739
23,624
16,643
16,868
1,134
3,274
-
-
22,873
26,898
16,643
16,868
The Joint Parliamentary Committee inquiry into the Regulation of Auditing in Australia highlighted the disparity and lack of
comparability of the external auditor fee remuneration disclosure for ASX Listed Corporates. ASIC are proposing four categories
to define external auditor services as the basis of the proposed future disclosure requirements which are set out below.
Auditor’s remuneration - ASIC disclosures
Group
Company
2021
$'000
2020
$'000
2021
$'000
2020
$'000
EY Australia - consolidated entities
Audit services for the statutory financial report of the parent and any of its' controlled entities
11,442
12,971
9,409
10,138
Assurance services that are required by legislation to be provided by the external auditor
213
299
121
126
Other assurance and agreed-upon-procedures under other legislation or
contractual arrangements
Other services
Total Australia
EY Overseas - consolidated entities
5,062
45
5,409
170
4,707
45
4,068
170
16,762
18,849
14,282
14,502
Audit services for the statutory financial report of the parent and any of its' controlled entities
4,206
4,163
1,969
2,083
Other assurance and agreed-upon-procedures under other legislation or
contractual arrangements
Other services
Total Overseas
Total Australia and Overseas
EY Australia and Overseas - non-consolidated entities
Other assurance and agreed-upon-procedures under other legislation or
contractual arrangements
Other services
Total remuneration paid to the external auditor for the non-consolidated entities
Total remuneration paid to the external auditor
647
124
606
6
267
124
283
-
4,977
4,775
2,360
2,366
21,739
23,624
16,642
16,868
1,134
-
1,134
2,754
520
3,274
-
-
-
-
-
-
22,873
26,898
16,642
16,868
For a description of the Board Audit Committee’s pre-approval policies and procedures, refer to the NAB 2021 Corporate
Governance Statement which is available online at www.nab.com.au/about-us/corporate-governance. Further details of the
audit-related and taxation-related services provided by EY to the Group during 2021 and the fees paid or due and payable for
those services are set out in the Report of the Directors.
Annual Financial Report 2021
179
NOTES TO THE FINANCIAL STATEMENTS
NOTE 34
EQUITY-BASED PLANS
Accounting policy
The value of shares and rights provided to employees are measured by reference to their grant date fair value. The grant date fair value of each share is determined by the market
value of NAB shares and is generally a five-day weighted average share price. The grant date fair value of shares and rights with market performance hurdles is determined using a
simulated version of the Black-Scholes model.
With the exception of general employee shares in Australia, the expense for each tranche of shares or rights granted is recognised in the income statement on a straight-line basis,
adjusted for forfeitures, over the vesting period for the shares or rights. The expense for general employee shares in Australia is recognised in the income statement in the year the
shares are granted as they are not subject to forfeiture. A corresponding increase is recorded in the equity-based compensation reserve.
Critical accounting judgements and estimates
The key estimates and inputs used in the Black-Scholes model vary depending on the award and type of security granted. They include the NAB share price at the time of the grant,
exercise price of the rights (which is nil), the expected volatility of NAB’s share price, the risk-free interest rate and the expected dividend yield on NAB shares for the life of the rights.
When estimating expected volatility, historic daily share prices are analysed to arrive at annual and cumulative historic volatility estimates (which may be adjusted for any abnormal
periods or non-recurring significant events). Trends in the data are analysed to estimate volatility movements in the future for use in the numeric pricing model. The simulated version
of the Black-Scholes model takes into account both the probability of achieving market performance conditions and the potential for early exercise of vested rights.
While market performance conditions are incorporated into the grant date fair values, non-market conditions are not taken into account when determining the fair value and
expected time to vesting of shares and rights. Instead, non-market conditions are taken into account by adjusting the number of shares and rights included in the measurement of the
expense so that the amount recognised in the income statement reflects the number of shares or rights that actually vest.
Under the Group’s employee equity plans, employees of the Group are awarded shares and rights. An employee’s right to participate in a plan is often dependent on their performance or
the performance of the Group, and shares and rights awarded under the plans are often subject to service and / or performance conditions.
Generally, a right entitles its holder to be allocated one share when the right vests and is exercised. However, under certain bespoke plans, a right entitles its holder to be allocated a
number of shares equal to a predetermined value on vesting and exercise of the right.
The Board determines the maximum total value of shares or rights offered under each plan having regard to the rules of the relevant plan and, where required, the method used in
calculating the fair value per security. Under ASX Listing Rules, shares and rights may not be issued to NAB directors under an employee equity plan without specific shareholder approval.
Under the terms of most offers, there is a period during which shares are held on trust for the employee they are allocated to and cannot be dealt with, or rights granted to an employee
cannot be exercised, by that employee. There may be forfeiture or lapse conditions which apply to shares or rights allocated to an employee (as described below), including as a result of
the employee ceasing employment with the Group during those periods or conduct standards not being met. Shares allocated to employees are eligible for any cash dividends paid by NAB
on those shares from the time those shares are allocated to the trustee on their behalf. Rights granted to employees are not eligible for any cash dividends paid by NAB. In some limited
circumstances, there may be a cash equivalent payment made in the event that rights vest.
The table below sets out details of the Group’s employee equity plans that are offered on a regular basis. As noted above, the Group also offers bespoke plans in certain circumstances,
including in connection with material transactions, as a retention mechanism and to encourage the achievement of certain specific business growth targets.
180 National Australia Bank
NOTE 34 EQUITY-BASED PLANS (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTS
Variable reward (VR)
Long-term variable reward (LTVR)
Commencement awards
Recognition/ Retention awards
General employee shares
Description
A proportion of an employee’s
annual VR is provided in equity
LTVRs (including prior year Long-
term Incentive (LTI) grants) are
Provided to enable the buy-out of
Offered to key individuals in roles
Shares up to a target value of $1,000
equity or other incentives from an
where retention is critical over the
are offered to eligible employees.
and is deferred for a specified
awarded to encourage long-term
employee’s previous employment.
medium-term (generally between 2
period. The deferred amount and
decision-making critical to creating
the deferral period is commensurate
long-term value for shareholders
with the level of risk and
through the use of challenging
responsibility within a role.
long-term performance hurdles.
and 3 years).
VR was referred to as ‘short-term
incentive’ before the:
• 2018 financial year, for members
of the Executive Leadership Team
and other Accountable Persons
• 2019 financial year for all
other employees.
Eligibility
Certain permanent employees
The Group CEO and Executive
Provided on a case by case basis,
Provided on a case by case basis,
Prior to 2019, permanent employees
based in Australia, New Zealand,
Leadership Team were previously
with the recommendation of the
with the recommendation of the
based in Australia, Asia, New
the United Kingdom and the
eligible to receive LTI grants except
People & Remuneration Committee
People & Remuneration Committee
Zealand, the United Kingdom and
United States having regard to their
for the 2018 financial year.
and the approval of the Board.
and the approval of the Board.
the United States were eligible
individual performance and the
performance of the Group.
The Group CEO and Executive
Leadership Team are now eligible to
receive LTVR.
to participate. From 2019, only
permanent employees in Australia
were eligible to participate.
Type of equity-
Generally shares. However, deferred
Performance rights.
Generally shares. However,
Generally shares. However,
Shares.
based payment
rights are granted to:
• the Group CEO and other
members of the Executive
Leadership Team (except in
respect of 2018 when shares
were granted) and other
Accountable Persons
• other employees
for jurisdictional or
regulatory reasons.
rights are also granted for
rights are also granted for
jurisdictional reasons.
jurisdictional reasons.
Annual Financial Report 2021
181
NOTES TO THE FINANCIAL STATEMENTS
NOTE 34 EQUITY-BASED PLANS (CONTINUED)
Variable reward (VR)
Long-term variable reward (LTVR)
Commencement awards
Recognition/ Retention awards
General employee shares
Service conditions
Deferred shares or rights are
During the vesting period, all of an
Shares or rights are subject to
Shares or rights are subject to
Shares are subject to restrictions
and performance
forfeited or lapsed during the
executive’s performance rights will
restrictions and certain forfeiture
restrictions and certain forfeiture
on dealing for three years and, in
hurdles
vesting period if:
lapse on the executive’s resignation
or lapsing conditions, including
or lapsing conditions, including
Australia and Asia, are not subject
• the employee resigns
• the employee does not meet
conduct standards
from the Group and a pro rata
forfeiture or lapsing on resignation
forfeiture or lapsing on resignation
to forfeiture. In New Zealand, the
portion will lapse on cessation of
from the Group or if conduct
from the Group or if conduct
United Kingdom and the United
employment in other circumstances.
standards are not met.
standards are not met.
States, the shares are effectively
• the employee's employment with
Performance rights will also lapse if
the Group is terminated, subject
conduct standards or performance
to certain exclusions.
hurdles are not met. The Board has
absolute discretion to determine
vesting or lapsing outcomes for the
performance rights.
forfeited if the employee resigns
or is dismissed from the Group
before the end of the 3-year
restriction period.
Vesting,
Defined period to align with the
Defined period set at time of grant,
Defined period set at time
Defined period set at time of grant.
3 years.
performance or
level of risk and impact of the
generally between 4 and 5 years.
of grant, based on satisfactory
deferral period
role on business performance and
results or to meet regulatory
requirements. The vesting period
will generally be between 1 and
7 years.
evidence of foregone awards from
previous employment.
Exercise period
If the applicable conditions are met,
Performance rights will be
If the applicable conditions are met,
If the applicable conditions are met,
n/a
(only applicable
deferred rights will vest and each
automatically exercised if they vest.
rights will vest and each right will
rights will vest and each right will
for rights)
right will be automatically exercised.
be automatically exercised.
be automatically exercised.
Board discretion
The Board regularly reviews Group performance for risk, reputation, conduct and performance considerations and has the ability to:
n/a
n/a for share grants.
n/a for share grants.
n/a for share grants.
• Extend the vesting, performance or deferral period beyond the original period for the Group CEO, other members of the Executive Leadership
Team, other Accountable Persons and, in certain circumstances, other employees.
• Forfeit or lapse the deferred shares or rights.
• Clawback the deferred shares or rights for the Group CEO, other members of the Executive Leadership Team, other Accountable Persons and in
certain circumstances, other employees.
In addition, the Board generally has discretion to determine the treatment of unvested shares and rights at the time a change of control event occurs.
Vesting of shares and rights will not be automatic or accelerated and the Board will retain discretion in relation to the vesting outcome including
absolute discretion to forfeit all shares and rights.
182 National Australia Bank
NOTE 34 EQUITY-BASED PLANS (CONTINUED)
Employee share plan
Employee share plans
Variable reward deferred shares
Commencement and recognition shares
General employee shares
NOTES TO THE FINANCIAL STATEMENTS
2021
Fully paid
2020
Fully paid
ordinary shares
Weighted average
ordinary shares
Weighted average
granted during
grant date
granted during
the year
No.
1,399,188
530,881
1,164,526
fair value
$
21.76
23.79
23.00
the year
No.
1,686,075
433,537
1,041,183
grant date
fair value
$
26.86
21.36
25.38
The closing market price of NAB shares at 30 September 2021 was $27.83 (2020: $17.75). The volume weighted average share price during the year ended 30 September 2021 was $24.93
(2020: $19.92).
Rights movements
Number of rights
Opening balance as at 1 October
Granted(1)
Forfeited(1)
Exercised
Closing balance as at 30 September
Exercisable as at 30 September
2021
2020
1,776,614
1,878,890
(489,130)
(520,603)
2,645,771
3,986
2,794,858
456,144
(984,769)
(489,619)
1,776,614
-
(1) Where rights have been allocated or forfeited to a predetermined value, the total number granted or forfeited has been estimated using a share price of $24.93, being the volume weighted average share price of NAB shares during the
financial year ended 30 September 2021.
Annual Financial Report 2021
183
NOTES TO THE FINANCIAL STATEMENTS
NOTE 34 EQUITY-BASED PLANS (CONTINUED)
Terms and conditions
Market hurdle
Non-market hurdle(1)
Individual hurdle(1)
2021
2020
Outstanding at
Weighted average
Outstanding at
Weighted average
30 Sep
remaining life
No.
months
30 Sep
No.
remaining life
months
1,590,967
913,357
141,447
35
7
26
741,323
875,305
159,986
25
8
30
(1) Where rights have been allocated or forfeited to a predetermined value, the total number granted or forfeited has been estimated using a share price of $24.93, being the volume weighted average share price of NAB shares during the
financial year ended 30 September 2021.
Information on fair value calculation
The table below shows the significant assumptions used as inputs into the grant date fair value calculation of rights granted during the last two years. In the following table, values have
been presented as weighted averages, but the specific values for each grant are used for the fair value calculation. The table also shows a ‘no hurdle’ value for rights that do not have any
market-based performance hurdles attached. The 'no hurdle' value is calculated as the grant date fair value of the rights, and in most instances is adjusted for expected dividends over the
vesting period.
Weighted average values
Contractual life (years)
Risk-free interest rate (per annum)
Expected volatility of share price
Closing share price on grant date
Dividend yield (per annum)
Fair value of rights with a market hurdle
Fair value of rights without a market hurdle
Expected time to vesting (years)
184 National Australia Bank
2021
4.0
0.31%
30%
$24.90
5.00%
$11.50
$19.01
3.79
2020
4.0
0.64%
16%
$26.24
6.30%
$10.07
$22.84
3.73
NOTES TO THE FINANCIAL STATEMENTS
NOTE 35
CAPITAL ADEQUACY
As an ADI, NAB is subject to regulation by APRA under the authority of the Banking Act 1959 (Cth). APRA has set minimum
Prudential Capital Requirements (PCR) for ADIs consistent with the Basel Committee on Banking Supervision capital adequacy
framework. PCR are expressed as a percentage of total risk-weighted assets. APRA requirements are summarised below:
CET1 capital
Tier 1 capital
Total capital
CET1 capital ranks behind the claims of
CET1 capital plus Additional Tier 1 capital.
Tier 1 capital plus Tier 2 capital. Tier
depositors and other creditors in the event
Additional Tier 1 capital comprises high quality
2 capital comprises other components
of winding-up of the issuer, absorbs losses
components of capital that satisfy the following
of capital that, to varying degrees, do
as and when they occur, has full flexibility of
essential characteristics:
dividend payments and has no maturity date.
CET1 capital consists of the sum of paid-up
ordinary share capital, retained profits plus
certain other items as defined in APS 111.
• provide a permanent and unrestricted
commitment of funds
• are freely available to absorb losses
• rank behind the claims of depositors and other
more senior creditors in the event of winding up
of the issuer
• provide for fully discretionary capital distributions.
not meet the requirements of Tier 1
capital but nonetheless contribute to
the overall strength of an ADI and its
capacity to absorb losses.
An ADI must hold a capital conservation buffer above the PCR for CET1 capital. The capital conservation buffer is 2.5% of the
ADI’s total risk-weighted assets. As a Domestic Systemically Important Bank (D-SIB) in Australia, the Group is also required to
hold an additional buffer of 1% in CET1 capital. In addition, APRA requires the Group to hold a countercyclical capital buffer set
on a jurisdictional basis. The requirement is currently set to zero for Australia.
APRA may determine a higher PCR for an ADI and may change an ADI’s PCR at any time. A breach of the required ratios
under APRA's prudential standards may trigger legally enforceable directions by APRA, which can include a direction to raise
additional capital.
Regulatory capital requirements are measured on a Level 1 and Level 2 basis. Level 1 comprises NAB and Extended Licenced
Entities approved by APRA. Level 2 comprises NAB and its controlled entities, excluding superannuation and funds management
entities, insurance and securitisation special purpose vehicles which meet APRA’s requirements for capital relief.
Capital ratios are monitored against internal capital targets that are set by the Board over and above minimum capital
requirements set by APRA.
The Group remained well capitalised during the year to September 2021, with a CET1 capital ratio of 13.00% as at
30 September 2021.
Annual Financial Report 2021
185
NOTES TO THE FINANCIAL STATEMENTS
NOTE 36
NOTES TO THE STATEMENT OF CASH FLOWS
Reconciliation of net profit attributable to owners of NAB to net cash provided by / (used in) operating activities
Net profit / (loss) attributable to owners of NAB
Add / (deduct) non-cash items in the income statement:
(Increase) / decrease in interest receivable
Increase / (decrease) in interest payable
Increase / (decrease) in unearned income and deferred net fee income
Fair value movements on assets, liabilities and derivatives held at fair value
Increase in provisions
Equity-based compensation recognised in equity or reserves
Impairment losses on non-financial assets
Impairment losses on financial assets
Credit impairment charge / (write-back)
Depreciation and amortisation expense
(Increase) / decrease in other assets
Increase / (decrease) in other liabilities
Increase / (decrease) in income tax payable
(Increase) / decrease in deferred tax assets
Increase / (decrease) in deferred tax liabilities
Operating cash flow items not included in profit
Investing or financing cash flows included in profit
Loss on sale of controlled entities, before income tax
(Gain) / loss on sale of associates and joint ventures, before income tax
(Gain) on sale of other debt and equity instruments
(Gain) / loss on sale of property, plant, equipment and other assets
Net cash provided by / (used in) operating activities
Group
Company
2021
$m
6,364
159
(347)
(47)
(505)
1,165
100
16
2
(148)
1,088
258
267
29
661
27
2020
$m
2,559
218
(915)
(234)
(3,186)
2,027
74
424
-
2,821
2,184
(387)
(57)
(331)
(836)
(15)
2021
$m
5,063
149
(277)
(12)
515
1,040
100
89
2
(150)
878
450
226
2
445
(3)
2020
$m
(527)
194
(770)
(227)
(2,548)
1,898
74
2,578
-
2,521
1,655
(705)
(118)
(401)
(833)
143
(8,222)
29,537
(14,269)
29,190
19
(11)
(121)
5
759
-
-
-
9
19
7
(121)
(22)
-
-
-
-
33,892
(5,869)
32,124
186 National Australia Bank
NOTE 36 NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
Reconciliation of liabilities arising from financing activities
NOTES TO THE FINANCIAL STATEMENTS
Group
Company
Bonds‚ notes and
Other debt
Lease
Bonds‚ notes and
Other debt
Lease
subordinated debt
issues
liabilities
subordinated debt
issues
liabilities
At
At fair
amortised
value
$m
cost
$m
Balance at 1 October 2019
25,998
143,258
Cash flows
Proceeds from issue
Repayments
Non-cash changes
Opening lease liabilities on
adoption of AASB 16
Additions to lease liabilities
Conversion of convertible
preference shares and
convertible notes
552
(4,140)
14,444
(30,384)
-
-
-
-
-
-
Fair value changes, including fair
value hedge adjustments
342
512
Foreign currency translation and
other adjustments
(404)
(1,446)
At
At fair
amortised
value
$m
6,414
-
$m
-
-
(322)
(573)
cost
$m
137,599
12,939
(29,227)
$m
6,482
1,100
(649)
-
-
1,425
473
-
-
(750)
-
8
-
-
-
-
-
-
204
450
(21)
1,555
(200)
5,845
(1,464)
120,297
Balance at 30 September 2020
22,348
126,384
6,191
Cash flows
Proceeds from issue
Repayments
Non-cash changes
713
(4,054)
12,385
(26,008)
2,365
(1,731)
-
-
(383)
(191)
10,053
(24,622)
Additions to lease liabilities
-
-
Fair value changes, including fair
value hedge adjustments
(247)
(2,096)
Foreign currency translation and
other adjustments
(344)
(1,511)
-
-
6
789
-
6
Balance at 30 September 2021
18,416
109,154
6,831
1,967
-
2
-
(1,660)
(86)
5,570
(1,567)
102,501
$m
6,482
1,100
(649)
$m
-
-
(278)
-
-
1,204
404
(750)
-
8
6,191
2,365
(1,731)
-
-
6
6,831
-
-
(11)
1,319
-
(337)
678
-
(1)
1,659
Annual Financial Report 2021
187
NOTES TO THE FINANCIAL STATEMENTS
NOTE 36 NOTES TO THE STATEMENT OF CASH FLOWS (CONTINUED)
Reconciliation of cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents includes cash and liquid assets and amounts due from
other banks (including reverse repurchase agreements and short-term government securities) net of amounts due to other
banks that are readily convertible to known amounts of cash within three months.
Cash and cash equivalents as shown in the cash flow statement is reconciled to the related items on the balance sheet
as follows:
Assets
Cash and liquid assets(1)
Treasury and other eligible bills
Due from other banks (excluding mandatory deposits with supervisory central banks)
Total cash and cash equivalent assets
Liabilities
Due to other banks
Total cash and cash equivalents
Group
Company
2021
$m
50,832
871
25,296
76,999
2020
$m
64,560
1,607
31,806
97,973
2021
$m
2020
$m
50,336
63,555
-
16,001
66,337
-
28,363
91,918
(39,118)
(35,932)
(35,875)
(33,112)
37,881
62,041
30,462
58,806
(1) Comparative information includes cash and liquid assets held in MLC Wealth. Refer to Note 37 Discontinued operations.
Non-cash financing and investing activities
New share issues
Dividend reinvestment plan
Conversion of convertible preference shares and convertible notes
The Dividend Reinvestment Plan discount is nil (2020: nil), with no participation limit.
Group
Company
2021
$m
274
-
2020
$m
976
750
2021
$m
274
-
2020
$m
976
750
188 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 37
DISCONTINUED OPERATIONS
Accounting policy
A discontinued operation is a component of the Group that has been disposed of or is classified as held for sale and
represents a separate major line of business or geographical area of operations, and is part of a single coordinated plan to
dispose of such a line of business or area of operations. The results of discontinued operations are presented separately in
the income statement and statement of comprehensive income.
Sale of MLC Wealth discontinued operation
On 31 August 2020, the Group entered into an agreement for the sale of 100% of MLC Wealth, including the advice,
platforms, superannuation and investments, and asset management businesses, to IOOF. The total consideration for the sale
was $1,440 million, comprising $1,240 million in cash and $200 million in equity-linked subordinated notes issued by IOOF.
Management concluded that MLC Wealth met the criteria to be classified as a discontinued operation as at 30 September
2020. An impairment of the goodwill attributable to MLC Wealth of $199 million was recognised within the 'net loss from
discontinued operations' for the year ended 30 September 2020.
The transaction completed on 31 May 2021 and a loss on the sale based on the net assets at completion of $50 million was
recognised within the "net loss from discontinued operations". The final financial outcome of the sale remains subject to the
finalisation of the completion accounts process and other contingencies associated with the sale. Refer to Note 30 Commitments
and contingent liabilities for further information.
MLC Life discontinued operation
Amounts presented in the life insurance discontinued operation related to the Group's life insurance business. The Group
disposed of 80% of its investment in MLC Life to Nippon Life Insurance Company in 2016. The amounts presented in September
2021 and 2020 relate to a re-assessment of customer-related remediation provisions associated with the MLC Life business.
Analysis of net loss from discontinued operations
MLC Wealth discontinued operation
Net operating income
Operating expenses
MLC reportable segment profit before tax
MLC Wealth-related items(1)
Income tax benefit
Net loss related to MLC Wealth
Loss on sale / impairment of goodwill
Net loss from MLC Wealth discontinued operation
MLC Life discontinued operation
Net profit / (loss) from MLC Life discontinued operation
Net loss from discontinued operations
Attributable to owners of NAB
Attributable to non-controlling interests
Group
2021
$m
749
(695)
54
(175)
53
(68)
(50)
(118)
14
(104)
(107)
3
2020
$m
1,258
(1,194)
64
(1,308)
340
(904)
(199)
(1,103)
168
(935)
(939)
4
(1) Primarily relates to customer-related and payroll remediation, MLC Wealth separation costs, the impact of the change in the application of the software
capitalisation policy and changes in the provision for litigation.
Annual Financial Report 2021
189
NOTES TO THE FINANCIAL STATEMENTS
NOTE 37 DISCONTINUED OPERATIONS (CONTINUED)
Cash flows provided by / (used in) discontinued operations(1)
MLC Wealth discontinued operation
Net cash provided by / (used in) operating activities
Net cash provided by / (used in) investing activities(2)
Net cash provided by / (used in) financing activities
Net cash inflows / (outflows) from MLC Wealth discontinued operation
MLC Life discontinued operation
Net cash provided by / (used in) operating activities
Net cash inflows / (outflows) from life insurance business discontinued operation
Group
2021
$m
(724)
(396)
(374)
(1,494)
(50)
(50)
2020
$m
(728)
27
(71)
(772)
(98)
(98)
Includes cash outflows of $402 million representing cash and cash equivalents of MLC Wealth at time of disposal.
(1)
(2) Group received $1,240 million of cash consideration on the sale of MLC Wealth, which is included in Note 36 Notes to the statement of cash flows.
Non-current assets and disposal group held for sale
As at 30 September 2021, the Company had assets held for sale of $nil (2020: $1,837 million which represented NAB’s
investment in NWMH in 2020).
The major classes of assets and liabilities included in the MLC Wealth disposal group as at 30 September 2020 are
summarised below:
MLC Wealth disposal group(1)
Assets
Cash and liquid assets
Other financial assets
Deferred tax assets
Property, plant and equipment
Goodwill and other intangibles
Other assets
Assets held for sale
Liabilities
Provisions
Deferred tax liabilities
Other liabilities
Liabilities directly associated with assets held for sale
(1) Amounts are shown net of inter-company balances.
Group
2020
$m
172
226
91
1
827
162
1,479
96
6
119
221
As at 30 September 2021, the fair value of total assets in the disposal group held for sale is $nil (2020: $1,479 million) and the
fair value of total liabilities in the disposal group held for sale is $nil (2020: $221 million). These fair values were categorised
within Level 2 of the fair value hierarchy.
190 National Australia Bank
NOTES TO THE FINANCIAL STATEMENTS
NOTE 38
ACQUISITION OF SUBSIDIARY
The Group acquired 86 400 to accelerate the growth of its digital bank, UBank, by combing UBank’s established customer base
and brand with 86 400’s technology and innovation capability thereby enabling the Group to develop a leading digital bank that
can attract and retain customers at scale and pace.
Prior to December 2020, the Group paid $29 million to acquire an 18.3% voting equity interest in 86 400. On 19 May 2021 the
Group acquired the remaining equity interest for $216 million (cash consideration).
At acquisition the 18.3% investment was revalued to $45 million and the revaluation gain was recognised in other operating
income. A total of $5.8 million in transaction costs have been incurred by the Group in respect of the acquisition and
recognised within other operating expenses.
Prior to the completion date for the acquisition of 86 400, the Group provided a $300 million secured financing facility to 86
400, negotiated on arms-length terms. This facility allowed 86 400 to sell $227 million in loans to NAB over the period prior to
completion. This transaction was accounted for separately from the acquisition of 86 400.
$126 million of goodwill was recognised on acquisition date. This goodwill is supported by 86 400’s team experience
and technology platform to deliver the next generation of simple, fast and mobile banking solutions. No impairment was
recognised at 30 September 2021. Goodwill as at the acquisition date was determined as follows:
Consideration for the acquisition
Cash
Fair value of previously held equity interest
Total consideration
Assets and liabilities acquired
Total assets
Total liabilities
Net assets
Goodwill
NOTE 39
EVENTS SUBSEQUENT TO REPORTING DATE
There are no items, transactions or events of a material or unusual nature that have arisen in the interval between
30 September 2021 and the date of this report that, in the opinion of the directors, have significantly affected or may
significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in
future years.
Group
2021
$m
216
45
261
Group
2021
$m
772
511
261
126
Annual Financial Report 2021
191
DIRECTORS’ DECLARATION
The directors of National Australia Bank Limited declare that:
(a) in the opinion of the directors, the financial statements and the notes thereto as set out on pages 85 to 191 and
the additional disclosures included in the audited pages of the Remuneration report, comply with Australian Accounting
Standards (including the Australian Accounting Interpretations), International Financial Reporting Standards as stated in
Note 1 Basis of preparation to the financial statements, and the Corporations Act 2001 (Cth);
(b) in the opinion of the directors, the financial statements and notes thereto give a true and fair view of the financial position
of NAB and the Group as at 30 September 2021, and of the performance of NAB and the Group for the year ended
30 September 2021;
(c) in the opinion of the directors, at the date of this declaration, there are reasonable grounds to believe that NAB will be able
to pay its debts as and when they become due and payable; and
(d) the directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth).
Dated this 9th day of November 2021 and signed in accordance with a resolution of the directors.
Philip Chronican
Chair
Ross McEwan
Group Chief Executive Officer
192 National Australia Bank
Annual Financial Report 2021
193
Ernst & Young8 Exhibition StreetMelbourne VIC 3000 AustraliaGPO Box 67 Melbourne VIC 3001Tel: +61 3 9288 8000Fax: +61 3 8650 7777ey.com/auIndependent Auditor's Report to the Members of NationalAustralia Bank LimitedReport on the Audit of the Financial ReportOpinionWe have audited the Financial Report of National Australia Bank Limited (the Company) and itssubsidiaries (collectively the Group), which comprises:the Group consolidated and Company balance sheets as at 30 September 2021;the Group consolidated and Company income statements, statements of comprehensive income,statements of changes in equity and statements of cash flow for the year then ended;notes to the financial statements, including a summary of significant accounting policies, andthe Directors’ declaration.In our opinion the accompanying Financial Report is in accordance with theCorporations Act2001,including:giving a true and fair view of the Company’s and the Group’s financial position as at 30 September2021 and of their financial performance for the year ended on that date; andcomplying with Australian Accounting Standards and theCorporations Regulations 2001.Basis for OpinionWe conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Report of the current year. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. The key audit matters identified below, unless otherwise stated, relate to both the Company and the Group.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation 194 National Australia Bank
We have fulfilled the responsibilities described in theAuditor’s Responsibilities for the Audit of theFinancial Report section of our report, including in relation to these matters. Accordingly, our auditincluded the performance of procedures designed to respond to our assessment of the risks of materialmisstatement of the Financial Report. The results of our audit procedures, including the proceduresperformed to address the matters below, provide the basis for our audit opinion on the accompanyingFinancial Report.Why significantHow our audit addressed the key audit matterProvision for credit impairmentAs described in Note 17Provision for creditimpairment on loans at amortised cost andNote 19Financial risk management, theprovision for credit impairment is determinedin accordance with Australian AccountingStandard – AASB 9Financial Instruments(AASB 9).This was a key audit matter due to the valueof the provision, and the degree of judgmentand estimation uncertainty associated withthe provision calculation.Key areas of judgment included:the application of the impairmentrequirements of AASB 9 within theCompany’s and the Group’s expectedcredit loss methodology;the identification of exposures with asignificant deterioration in credit quality;assumptions used in the expected creditloss model (for exposures assessed on anindividual or collective basis); andthe incorporation of forward-lookinginformation to reflect current andanticipated future external factors,including judgments related to theongoing impact of COVID-19, both in themultiple economic scenarios and theprobability weighting determined for eachof these scenarios.We assessed the alignment of the Group’s expected credit lossmodel and its underlying methodology against therequirements of AASB 9, with consideration of ongoing COVID-19 impacts and related industry responses.We assessed the following for exposures evaluated on acollective basis and overlays:significant modelling and macroeconomic assumptions,including the reasonableness of forward-looking informationand scenarios;the basis for and data used to determine overlays; andsensitivity of collective provisions to changes in modellingassumptions.We involved our actuarial specialists to test the mathematicalaccuracy of the model and to consider key assumptions.We examined a sample of exposures assessed on an individualbasis by:assessing the reasonableness and timeliness of internalcredit quality assessments based on the borrowers’particular circumstances; andevaluating the associated provisions by assessing thereasonableness of key inputs into the calculation, withparticular focus on the impact of COVID-19 on high-riskindustries, work out strategies, collateral values, and thevalue and timing of recoveries.In conjunction with our IT specialists, we assessed theeffectiveness of relevant controls relating to the:capture of data, including loan origination and transactionaldata, ongoing internal credit quality assessments, storageof data in data warehouses, and interfaces with the models;andexpected credit loss models, including functionality, ongoingmonitoring/validation and model governance.We considered the processes used to identify and assessclimate-related risks associated with the Company’s and theGroup’s provision for credit impairment.We considered the adequacy and appropriateness of thedisclosures related to credit impairment within the FinancialReport.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation Annual Financial Report 2021
195
Why significantHow our audit addressed the key audit matterProvisions for customer-related remediation and associated costs, regulatory compliance matters and legalproceedingsAs detailed in Note 24Provisions and Note30Commitments and contingent liabilities, theCompany and the Group have recorded provisionsand/or made disclosures in relation to mattersrequiring customer remediation, regulatorycompliance investigations (including from ASIC andAUSTRAC) and any associated legal proceedings.This was a key audit matter due to the significantjudgment required to determine a reliable estimateof the provision.Key areas of judgment included the:decision whether to recognise a provision and/ordisclose a contingent liability, including whetherthere is a present obligation as a result of a pastevent and whether sufficient information existedto allow a provision to be reliably measured;assumptions used to estimate the customer-related remediation payments, including refundrates and average compensation amounts; andcosts required to complete the remediationprograms.We developed an understanding of the Company’s andthe Group’s processes for identifying potentialregulatory compliance matters and customer-relatedremediation obligations.We held discussions with management, reviewed Boardof Directors and Board committee minutes, reviewedcorrespondence with regulators and attended BoardAudit Committee and Board Risk and ComplianceCommittee meetings.We discussed ongoing and potential legal matters withmanagement, including General Counsel, the MoneyLaundering Reporting Officer and the Chief RiskOfficer, and considered the need to obtain externallegal confirmations.We assessed key assumptions used to estimate thecustomer-related remediation amounts, includingconsideration of industry and historical trends andcompensation experience to date. We also reviewedand assessed legal advice where applicable.We evaluated the adequacy of the costs recognised withreference to the status of each program and costsincurred to date.For those matters where the Company and the Groupdetermined that either a present obligation as a resultof a past event does not exist, or where a sufficientlyreliable estimate of the amount of the obligation cannotbe made and for which no provisions have beenrecognised, we assessed the appropriateness of thisconclusion.We considered the adequacy and appropriateness ofthe disclosures within the Financial Report related tothe provisions and/or related contingent liabilitydisclosure.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation 196 National Australia Bank
Why significantHow our audit addressed the key audit matterInformation Technology (IT) systems and controls over financial reportingA significant part of the Company’s and the Group’sfinancial reporting process is primarily reliant on ITsystems with automated processes and controlsrelating to the capture, storage and extraction ofinformation.A fundamental component of these IT controls isensuring that risks relating to inappropriate useraccess management, unauthorised program changesand IT operating protocols are addressed.We focused on those IT systems and controls that aresignificant to the Group’s financial reporting process.We involved our IT specialists, as audit procedures overIT systems and controls require specific expertise.We assessed the design and tested the operatingeffectiveness of the Company’s and the Group’s ITcontrols, including those related to user access, changemanagement and data integrity.Where we identified design and/or operatingdeficiencies in the IT control environment, ourprocedures included the following:we assessed the integrity and reliability of thesystems and data related to financial reporting; andwhere automated procedures were supported bysystems with identified deficiencies, we assessedalternative controls that were not reliant on the ITcontrol environment.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation Annual Financial Report 2021
197
Why significantHow our audit addressed the key audit matterImpairment assessment of goodwillThe Group has recognised goodwill of $1,964 millionon its balance sheet. During the year, goodwill wasrecognised arising from the acquisition of 86 400. Anew cash generating unit (CGU) was created for thepurposes of impairment testing with $126 million ofgoodwill attributed to it.As detailed in Note 22Goodwill and other intangibleassets, the Group performs an annual impairmentassessment, or more frequently, if there is anindication that goodwill may be impaired. Thisinvolves a comparison of the carrying value of theCGU to which the goodwill has been attributed withits recoverable amount.The recoverable amount was determined using fairvalue less cost of disposal for the 86 400 CGU and avalue in use basis for the other CGUs. Thedetermination of value in use incorporated a rangeof assumptions, including:future cash flows;discount rate; andterminal growth rate.The impairment assessment of goodwill was a keyaudit matter due to the degree of estimationuncertainty associated with the assumptions appliedin the impairment assessment.We assessed whether the value in use calculationmethodology used by the Group for the impairmentassessment of goodwill was in accordance with therequirements of Australian Accounting Standards.We assessed the appropriateness of the CGUs identifiedto which goodwill has been allocated.We agreed the forecast cash flows to the most recentBoard or management-approved cash flow forecastsand assessed the accuracy of the historical forecasts byperforming a comparison of recent forecasts to actualresults.We involved our valuation specialists to assess the keyassumptions, including discount rates, terminal growthrates and growth assumptions, used in the impairmentassessment with reference to comparable companiesand to test the mathematical accuracy of theimpairment models.We assessed whether the fair value less cost of disposaldetermined for the 86 400 CGU was in accordance withthe requirements of Australian Accounting Standards.We considered market capitalisation of the businessand recent trading history relative to net assets andbenchmarked the implied valuations to comparablecompany valuation multiples.We considered the disclosures within the FinancialReport related to the impairment assessment ofgoodwill.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation 198 National Australia Bank
Information Other than the Financial Report and Auditor’s Report ThereonThe Directors are responsible for the other information. The other information comprises the information included in the Company’s Annual Financial Report for the year ended 30 September 2021 but does not include the Financial Report and our auditor’s report thereon.Our opinion on the Financial Report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.In connection with our audit of the Financial Report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the Financial Report or our knowledge obtained in the audit or otherwise appears to be materially misstated.If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.Responsibilities of the Directors for the Financial ReportThe Directors of the Company are responsible for the preparation of the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the Directors determine is necessary to enable the preparation of the Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.In preparing the Financial Report, the Directors are responsible for assessing the Company’s and Group’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Company or Group or to cease operations, or have no realistic alternative but to do so.Auditor's Responsibilities for the Audit of the Financial ReportOur objectives are to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this Financial Report.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation Annual Financial Report 2021
199
As part of an audit in accordance with the Australian Auditing Standards, we exercise professionaljudgment and maintain professional scepticism throughout the audit. We also:Identify and assess the risks of material misstatement of the Financial Report, whether due to fraudor error, design and perform audit procedures responsive to those risks, and obtain audit evidencethat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting amaterial misstatement resulting from fraud is higher than for one resulting from error, as fraud mayinvolve collusion, forgery, intentional omissions, misrepresentations, or the override of internalcontrol.Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s or the Group’s internal control.Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by the Directors.Conclude on the appropriateness of the Directors’ use of the going concern basis of accounting and,based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company’s or Group’s ability to continue as agoing concern. If we conclude that a material uncertainty exists, we are required to draw attentionin our auditor’s report to the related disclosures in the Financial Report or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Company orthe Group to cease to continue as a going concern.Evaluate the overall presentation, structure and content of the Financial Report, including thedisclosures, and whether the Financial Report represents the underlying transactions and events ina manner that achieves fair presentation.Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the Financial Report. We areresponsible for the direction, supervision and performance of the Group audit. We remain solelyresponsible for our audit opinion.We communicate with the Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.From the matters communicated to the Directors, we determine those matters that were of most significance in the audit of the Financial Report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDITOR’S REPORT
200 National Australia Bank
Report on the Audit of the Remuneration ReportOpinion on the Remuneration ReportWe have audited the Remuneration Report included in pages 52 to 84 of the Report of the Directorsfor the year ended 30September 2021.In our opinion, the Remuneration Report of National Australia Bank Limited for the year ended30September 2021 complies with section 300A of theCorporations Act2001.ResponsibilitiesThe Directors of the Company are responsible for the preparation and presentation of the Remune-ration Report in accordance with section 300A of theCorporations Act2001. Our responsibility is toexpress an opinion on the Remuneration Report, based on our audit conducted in accordance withAustralian Auditing Standards.Ernst & YoungSarah LowePartnerMelbourne9 November 2021A member firm of Ernst & Young Global LimitedLiability limited by a scheme approved under Professional Standards Legislation Twenty largest registered fully paid ordinary shareholders of the Company as at 15 October 2021
SHAREHOLDER INFORMATION
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMS PTY LTD
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED
NETWEALTH INVESTMENTS LIMITED
BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD
ARGO INVESTMENTS LIMITED
MILTON CORPORATION LIMITED
BNP PARIBAS NOMS (NZ) LTD
AMP LIFE LIMITED
CPU SHARE PLANS PTY LTD
NAVIGATOR AUSTRALIA LTD
NULIS NOMINEES (AUSTRALIA) LIMITED
AUSTRALIAN EXECUTOR TRUSTEES LIMITED
Total
Substantial shareholders
Number of
shares
784,355,688
496,630,362
272,306,042
122,060,970
73,544,878
43,799,170
36,639,050
21,900,294
11,154,789
9,175,654
7,628,653
6,195,386
5,934,685
4,880,441
4,845,665
4,744,764
4,400,856
4,029,164
3,731,360
2,972,650
%
23.90
15.13
8.30
3.72
2.24
1.33
1.12
0.67
0.34
0.28
0.23
0.19
0.18
0.15
0.15
0.14
0.13
0.12
0.11
0.09
1,920,930,521
58.53
The following organisations have disclosed a substantial shareholding notice to ASX. As at 15 October 2021, the Company has
received no further update in relation to these substantial shareholdings.
Name
BlackRock Group(1)
The Vanguard Group, Inc(2)
(1) Substantial shareholding as at 18 March 2020, as per notice lodged on 20 March 2020.
(2) Substantial shareholding as at 27 May 2020, as per notice lodged on 1 June 2020.
Distribution of fully paid ordinary shareholdings
Range (number)
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
Total
Less than marketable parcel of $500
Voting rights
Number of
shares
177,651,034
191,802,827
% of
voting
power
6.02%
6.00%
Number of
% of
Number of
shareholders
holders
shares
% of
shares
367,359
192,890
34,649
20,851
480
616,229
16,078
59.61
31.30
5.62
3.38
0.08
100
129,138,013
437,502,955
241,112,912
420,456,224
2,053,783,649
3,281,993,753
114,571
3.93
13.33
7.35
12.81
62.58
100
Each ordinary shareholder present at a general meeting (whether in person or by proxy or representative) is entitled to one
vote on a show of hands or, on a poll, one vote for each fully paid ordinary share held. Holders of partly paid shares voting on
a poll are entitled to a number of votes based upon the proportion that the amount of capital call and paid up on the shares
bears to the total issue price of the shares.
Annual Financial Report 2021
201
SHAREHOLDER INFORMATION
SHAREHOLDER INFORMATION (CONTINUED)
Official quotation
Fully paid ordinary shares of the Company are quoted on the ASX.
The Group has also issued:
• NAB Capital Notes 2, NAB Capital Notes 3, NAB Capital Notes 5, NAB Subordinated Notes 2, covered bonds and residential
mortgage backed securities which are quoted on the ASX.
• Medium-term notes and covered bonds which are quoted on the Luxembourg Stock Exchange.
• Medium-term notes and subordinated notes which are quoted on the Euro MTF market.
• Undated subordinated floating rate notes which are quoted on the London Stock Exchange.
• Medium-term notes which are quoted on the NZX Debt Market.
• Medium-term notes and covered bonds which are quoted on the SIX Swiss Exchange.
• Medium-term notes which are quoted on the Taipei Exchange.
Unquoted securities
NAB has the following unquoted securities on issue as at 31 October 2021:
• 11,958 partly paid ordinary shares, of which there are 17 holders
• 1,866,363 rights, of which there are 50 holders (see page 37 of this report for further details).
202 National Australia Bank
Chair
Mr Philip Chronican
BCom (Hons), MBA (Dist), GAICD, SF Fin
Group Chief Executive Officer and Managing Director
Mr Ross McEwan CBE
BBus
Group Chief Financial Officer
Mr Gary Lennon BEc (Hons), FCA
Registered office
Level 28
395 Bourke Street
MELBOURNE VIC 3000
Australia
Tel: 1300 889 398
Tel: +61 3 8872 2461
Auditor
Ernst & Young
8 Exhibition Street
MELBOURNE VIC 3000
Australia
Tel: +61 3 9288 8000
Company Secretary
Mrs Louise Thomson BBus (Dist), FGIA
Group Investor Relations
National Australia Bank Limited
Level 2
2 Carrington Street
SYDNEY NSW 2000
Australia
Email: investorrelations@nab.com.au
Social Impact
National Australia Bank Limited
Level 21
395 Bourke Street
MELBOURNE VIC 3000
Australia
Email: social.impact@nab.com.au
Shareholder Centre website
The Group’s website at www.nab.com.au/shareholder has
a dedicated separate section where shareholders can gain
access to a wide range of information, including copies of
recent announcements, annual financial reports as well as
extensive historical information.
Shareholder information line
There is a convenient 24 hours a day, 7 days a week
automated service. To obtain the current balance of your
securities and relevant payment details, telephone 1300 367
647 (Australia) or +61 3 9415 4299 (outside Australia).
These services are secured to protect your interests. In
all communications with the Share Registry, please ensure
you quote your Securityholder Reference Number (SRN),
or in case of broker sponsored shareholders, your Holder
Identification Number (HIN).
SHAREHOLDER INFORMATION
Principal Share Register
Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
ABBOTSFORD VIC 3067
Australia
Postal address:
GPO Box 2333
MELBOURNE VIC 3001
Australia
Local call: 1300 367 647
Fax: +61 3 9473 2500
Telephone and fax (outside Australia):
Tel: +61 3 9415 4299; Fax: +61 3 9473 2500
Email: nabservices@computershare.com.au
Website: www.investorcentre.com/au
United Kingdom Share Register
Computershare Investor Services plc
The Pavilions
Bridgwater Road BRISTOL BS99 6ZZ
United Kingdom
Tel: +44 370 703 0197
Fax: +44 370 703 6101
Email: nabgroup@computershare.co.uk
Website: www.investorcentre.com/au
United States ADR Depositary, Transfer Agent and
Registrar contact details for NAB ADR holders:
Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company Operations Center
6201 15th Avenue
Brooklyn, NY 11219
USA
Toll-free number: +1 866 706 0509
Direct Dial: +1 718 921 8137
Email: db@amstock.com
Contact details for NAB ADR brokers &
institutional investors:
US Tel: +1 212 250 9100
UK Tel: +44 207 547 6500
Email: adr@db.com
Annual Financial Report 2021
203
GLOSSARY
Term Used
Description
12-month expected credit
The portion of lifetime expected credit losses that represent the expected losses arising from default events that
losses (ECL)
could occur within 12 months of the reporting date.
86 400
86 400 refers to 86 400 Holdings Limited, the holding company of the 86 400 banking business, acquired by the
Group in May 2021.
90+ days past due (DPD)
Loans and advances 90+ DPD but not impaired and impaired assets expressed as a percentage of gross loans and
and gross impaired assets
acceptances. Calculated as the sum of ‘Loans and advances past due but not impaired (past due over 90 days)’ and
to GLAs
AASB
‘Gross impaired assets’, divided by gross loans and acceptances.
Australian Accounting Standards Board.
Accountable Person
An accountable person for the purposes of the Banking Act 1959 (Cth).
ADI
ADR
AGM
AML
APRA
Authorised Deposit-taking Institution.
American Depositary Receipt.
Annual General Meeting.
Anti-Money Laundering.
Australian Prudential Regulation Authority.
The Group undertook a self-assessment into governance, accountability and culture in June 2018 at the request of
the Australian Prudential Regulation Authority (APRA). The self-assessment identified shortcomings in aspects of the
APRA self-assessment
Group's approach to non-financial risk management, with particular focus on operational, compliance and conduct
risks. The Group voluntarily published the self-assessment report which identified 26 actions to deliver structural,
APS
ASIC
ASX
AUSTRAC
Available stable
funding (ASF)
procedural and cultural changes.
Prudential Standards issued by APRA applicable to ADIs.
Australian Securities and Investments Commission.
Australian Securities Exchange Limited (or the market operated by it).
Australian Transaction Reports and Analysis Centre.
The portion of an ADI's capital and liabilities expected to be reliably provided over a one-year time horizon.
Average equity (adjusted) Average equity adjusted to exclude non-controlling interests and other equity instruments.
Average interest
earning assets
Bank levy
Basel III
BBSW
BNZ
Business lending
The average balance of assets held by the Group over the period that generate interest income.
A levy imposed under the Major Bank Levy Act 2017 (Cth) on ADIs with total liabilities of more than $100 billion.
Basel III is a global regulatory framework designed to increase the resilience of banks and banking systems and was
effective for ADIs from 1 January 2013.
Bank Bill Swap Rate.
Bank of New Zealand.
Lending to non-retail customers including overdrafts, asset and lease financing, term lending, bill acceptances,
foreign currency loans, international and trade finance, securitisation and specialised finance.
Cash earnings is defined as net profit attributable to owners of NAB from continuing operations, adjusted for the
items NAB considers appropriate to better reflect the underlying performance of the Group. Cash earnings for the
September 2021 full year have been adjusted for the following:
Cash earnings
• distributions
• hedging and fair value volatility
• amortisation of acquired intangible assets
• acquisition, integration and transaction costs.
Cash return on equity
(cash ROE)
CGU
Citigroup
CO2-e (carbon
dioxide equivalent)
Committed Liquidity
Facility (CLF)
Cash earnings after tax expressed as a percentage of average equity (adjusted).
Cash-generating unit.
Citigroup Pty Limited and Citigroup Overseas Investment Corporation.
The common unit of measure for the expression of Greenhouse Gas (GHG) emissions. Each unit of GHG has
a different global warming potential. Therefore, all greenhouse gases are converted back to tonnes (tCO2-e) of
carbon dioxide equivalent to enable consistent comparison and measurement.
A facility provided by the RBA to certain ADIs to assist them in meeting the Basel III liquidity requirements.
204 National Australia Bank
GLOSSARY
Term Used
Description
CET1 capital ranks behind the claims of depositors and other creditors in the event of winding-up of the issuer,
Common Equity Tier 1
absorbs losses as and when they occur, has full flexibility of dividend payments and has no maturity date. CET1
(CET1) capital
capital consists of the sum of paid-up ordinary share capital, retained profits and certain other items as defined in
Common Equity Tier 1
capital ratio
Company
APS 111 Capital Adequacy: Measurement of Capital.
CET1 capital divided by risk-weighted assets.
National Australia Bank Limited (NAB) ABN 12 004 044 937.
Continuing operations
Continuing operations are the components of the Group which are not discontinued operations.
Core assets
Represents gross loans and advances including acceptances, financial assets at fair value, and other debt
instruments at amortised cost.
Customer deposits
The sum of interest bearing, non-interest bearing and term deposits (including retail and corporate deposits).
Customer Funding
Customer deposits (excluding certain short dated institutional deposits used to fund liquid assets) divided by
Index (CFI)
core assets.
CTF
CYBG
Counter-Terrorism Financing.
Virgin Money UK PLC (formerly CYBG PLC).
Deferred STI shares
allocated at no charge to the employee, in respect of prior year performance, which provide dividend income to the
Deferred STI shares form part of the Short-term incentives (STI) equity-based plan. They are NAB ordinary shares,
employee from allocation.
Dilutive potential
ordinary share
A financial instrument or other contract that may entitle its holder to ordinary shares and which would have the
effect of decreasing earnings per share. For the Group, these include convertible preference shares, convertible
notes and shares issued under employee incentive schemes.
Discontinued operations
sale, and represents a separate major line of business or geographical area of operations, which is part of a single
Discontinued operations are a component of the Group that either has been disposed of, or is classified as held for
coordinated plan for disposal.
Distributions
Payments to holders of equity instruments other than ordinary shares such as National Income Securities.
EaR
Earnings at risk.
Earnings per share (EPS)
Calculated as net profit attributable to ordinary equity holders of the parent (statutory basis) or cash earnings (cash
- basic
earnings basis), divided by the weighted average number of ordinary shares.
Earnings per share (EPS)
- diluted
Calculated as net profit attributable to ordinary equity holders of the parent (statutory basis) or cash earnings (cash
earnings basis), divided by the weighted average number of ordinary shares, after adjusting both earnings and the
weighted average number of ordinary shares for the impact of dilutive potential ordinary shares.
Economic adjustments form part of the provision for credit impairment derived from reasonable and supportable
Economic
forecasts of potential future conditions (forward looking information) that are not captured within the underlying
adjustments (EA)
credit provision. They incorporate general macro-economic forward looking information (for example, GDP,
Environmental
reporting year
Fair value
Fair value (for the
purposes of equity
awards set out in the
Remuneration Report)
Forward looking
adjustments (FLA)
unemployment and interest rates).
Environmental reporting period from 1 July to 30 June. Aligned with the National Greenhouse and Energy Reporting
Act 2007 (Cth).
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at measurement date.
The value of the awards provided are measured by reference to the grant date fair value of the shares and
performance rights provided to employees. The grant date fair value of each share is determined by the market
value of NAB shares, and is generally a five-day weighted average share price. The fair value of the shares
and performance rights with market performance hurdles is determined using a simulated version of the Black-
Scholes model.
Forward looking adjustments reflect part of the provision for credit impairment derived from reasonable and
supportable forecasts of potential future conditions (forward looking information) that are not otherwise captured
within the underlying credit provision or the EA. They incorporate more targeted sector-specific
forward looking information.
Full-time equivalent
employees (FTE)
Includes all full-time, part-time, temporary, fixed term and casual employee equivalents, as well as agency
temporary employees and external contractors either self-employed or employed by a third party agency. Note:
this excludes consultants, IT professional services, outsourced service providers and non-executive directors.
Annual Financial Report 2021
205
GLOSSARY
Term Used
Greenhouse gas
(GHG) emissions
Gross Domestic
Product (GDP)
Gross loans and
acceptances (GLAs)
Description
Gaseous pollutants released into the atmosphere that amplify the greenhouse effect. Gases responsible include
carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.
GDP is the market value of finished goods and services produced within a country in a given period of time.
Total loans, advances and acceptances, including unearned and deferred fee income, excluding associated
provisions for expected credit losses. Calculated as the sum of 'Acceptances', 'Loans and advances at fair value’
and ‘Loans and advances at amortised cost’.
Group
NAB and its controlled entities.
Hedging and fair
value volatility
This volatility represents timing differences between the unrealised gains or losses recognised over the term of
the transactions and the ultimate economic outcome which will only be realised in the future. This volatility
arises primarily from fair value movements relating to trading derivatives held for risk management purposes; fair
value movements relating to assets, liabilities and derivatives designated in hedge relationships; and fair value
movements relating to assets and liabilities designated at fair value.
High-quality liquid
Consists primarily of cash, deposits with central banks, Australian government and semi-government securities and
assets (HQLA)
securities issued by foreign sovereigns as defined in APS 210 Liquidity.
Housing lending
Mortgages secured by residential properties as collateral.
IFRS
International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).
Consist of:
• Retail loans (excluding unsecured portfolio managed facilities) which are contractually 90 days past due with
insufficient security to cover principal and interest.
Impaired assets
• Non-retail loans which are contractually past due and / or there is sufficient doubt exists about the ability to
collect principal and interest in a timely manner.
• Off-balance sheet credit exposures where current circumstances indicate that losses may be incurred.
• Unsecured portfolio managed facilities that are 180 days past due (if not written off).
Internal ratings-
The process used to estimate credit risk through the use of internally developed models to assess potential credit
based (IRB)
losses using the outputs from the probability of default, loss given default and exposure at default models.
Key Management
KMP are the directors of NAB and senior executives of the Group who have authority and responsibility of planning,
Personnel (KMP)
directing and controlling activities of both NAB and the Group.
Leverage ratio
to supplement the risk-weighted assets based capital requirements. Exposures include on-balance sheet exposures,
Tier 1 capital divided by exposures as defined by APS 110 Capital Adequacy. It is a simple, non-risk based measure
derivative exposures, securities financing transaction exposures and other off-balance sheet exposures.
Lifetime expected credit
losses (ECL)
The ECL that results from all possible default events over the expected life of a financial instrument.
Liquidity Coverage
A metric that measures the adequacy of HQLA available to meet net cash outflows over a 30-day period during a
Ratio (LCR)
MLC Life
MLC Wealth
severe liquidity stress scenario.
MLC Limited.
MLC Wealth was the Group’s Wealth division which provided superannuation, investments, asset management and
financial advice to retail, corporate and institutional clients, supported by several brands including MLC, Plum and
investment brands under MLC Asset Management. The sale of MLC Wealth to IOOF Holdings Ltd completed on
NAB
National Australia Bank Limited ABN 12 004 044 937.
31 May 2021.
NAB risk management
Management of interest rate risk in the banking book, wholesale funding and liquidity requirements and trading
market risk to support the Group’s franchises.
Net interest margin (NIM) Net interest income derived on a cash earnings basis expressed as a percentage of average interest earning assets.
Net Promoter Score (NPS)
trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld. Net Promoter Score measures the likelihood
Net Promoter® and NPS® are registered trademarks, and Net Promoter Score and Net Promoter System are
of a customer's recommendation to others for retail or business banking.
Net Stable Funding
Ratio (NSFR)
A ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF).
Official Cash Rate
Official Cash Rate is an interest rate set by the Reserve Bank of New Zealand.
RBA
RBNZ
Reserve Bank of Australia.
Reserve Bank of New Zealand.
206 National Australia Bank
GLOSSARY
Term Used
Required stable
funding (RSF)
Risk-weighted assets
Description
The amount of stable funding an ADI is required to hold measured as a function of the liquidity characteristics and
residual maturities of the various assets held by an ADI, including off-balance sheet exposures.
A quantitative measure of risk required by the APRA risk-based capital adequacy framework, covering credit risk for
on and off-balance sheet exposures, market risk, operational risk and interest rate risk in the banking book.
RMBS
Residential Mortgage Backed Securities.
Royal Commission
The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry established
on 14 December 2017 by the Governor-General of the Commonwealth of Australia to conduct a formal public
inquiry into Australian financial institutions.
Securitisation
Structured finance technique which involves pooling and packaging cash flow converting financial assets into
securities that can be sold to investors.
Senior executives
The Executive Leadership Team, excluding the Group CEO.
Short-term incentive (STI)
An ‘at risk’ opportunity for individuals to receive an annual performance-based reward. The actual STI reward that
an individual will receive in any particular year will reflect both business and individual performance.
SME
Small and medium-sized enterprises.
Stable Funding Index (SFI) Term Funding Index (TFI) plus Customer Funding Index (CFI).
Standardised approach
assist in assessing credit risk and/or the application of specific values provided by regulators to determine risk-
An alternative approach to the assessment of credit risk whereby an ADI uses external rating agencies to
Statutory net profit
Net profit attributable to owners of NAB.
weighted assets.
Statutory return on equity Statutory earnings after tax expressed as a percentage of average equity (adjusted), calculated on a statutory basis.
Structured entity
entity may take the form of a corporation, trust, partnership or unincorporated entity. Structured entities are often
An entity created to accomplish a narrow well-defined objective (e.g. securitisation of financial assets). A structured
Term Funding Index (TFI)
Tier 1 capital
created with legal arrangements that impose strict limits on the activities of the structured entity.
Term wholesale funding (with remaining maturity to first call date greater than 12 months), including Term Funding
Facility (TFF) drawdowns divided by core assets.
Tier 1 capital comprises CET1 capital and instruments that meet the criteria for inclusion as Additional Tier 1 capital
set out in APS 111 Capital Adequacy: Measurement of Capital.
Tier 1 capital ratio
Tier 1 capital divided by risk-weighted assets.
Tier 2 capital
Tier 2 capital comprises other components of capital that, to varying degrees, do not meet the requirements as Tier
1 capital but nonetheless contribute to the overall strength of an ADI and its capacity to absorb losses.
Top quartile engagement
Top quartile comparison is based upon Glint’s client group (domestic and global, from all industries).
Total average assets
The average balance of assets held by the Group over the period, adjusted for discontinued operations.
Total capital
Tier 1 capital plus Tier 2 capital.
Total capital ratio
Total capital divided by risk-weighted assets.
Treasury shares
Shares issued to meet the requirements of employee incentive schemes which have not yet been distributed.
Underlying profit / loss
items, including income tax expense and the credit impairment charge. It is not a statutory financial measure and is
Underlying profit / loss is a performance measure used by NAB. It represents cash earnings / loss before various
VaR
Value at Risk.
not presented in accordance with Australian Accounting Standards.
Weighted average
number of ordinary shares
The number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary
shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is
the number of days that the shares are outstanding as a proportion of the total number of days in the period.
Annual Financial Report 2021
207
This page has been left blank intentionally. National Australia Bank LimitedLevel 28395 Bourke StreetMelbourne VIC 3000 AustraliaIf calling within Australia 1300 889 398If calling internationally +61 3 8872 2461www.nab.com.auNAB Asset ServicingLevel 15 395 Bourke Street Melbourne VIC 3000Correspondence to:GPO Box 1406Melbourne VIC 3001AustraliaFax: +61 1300 556 414SWIFT: NATAAU3303Xwww.nab.com.au/assetservicingNew York Branch28th Floor, 245 Park AvenueNew York NY 10167United States of AmericaTel: +1 212 916 9500Fax: +1 212 986 5252London Branch52 Lime Street London EC3M 7AF EnglandUnited KingdomTel: +44 (0)20 7710 2100Hong Kong BranchSuites 506-509Levels 5 & 6, Three Pacific Place1 Queen’s Road EastHong KongTel: +852 2826 8111 (HK Branch General line) (HK Branch)Fax: +852 2845 9251 (HK Branch General line) (HK Branch)www.nab.com.au/corporate Singapore Branch 12 Marina View#20-02 Asia Square Tower 2Singapore 018961Tel: +65 6419 7000Fax: +65 6336 0067www.nab.com.au/corporate Tokyo BranchMuromachi Higashi Mitsui Building 18F2-2-1 Nihonbashi MuromachiChuo-kuTokyo 103-0022JapanTel: +81 3 3241 8781Fax: +81 3 3241 8951www.nationalaustraliabank.comBeijing BranchUnit 01, 29 - 32, Level 23China World Office 1No. 1 Jian Guo Men Wai AvenueBeijing 100004ChinaTel: +86 10 6535 9800Fax: +86 10 6505 8836www.nab.com.au/corporate Shanghai BranchSuite 4201 – 4204 42nd Floor, One Lujiazui68 Middle Yincheng RoadPudongShanghai 200120ChinaTel: +86 21 2089 0288Fax: +86 21 6100 0531www.nab.com.au/corporate India Representative OfficeNo. 64, 6th Floor3 North AvenueMaker MaxityBandra Kurla Complex, Bandra EastMumbai 400051 Indiawww.nab.com.au/corporateBank of New ZealandLevel 4 80 Queen StreetAuckland 1010 New ZealandTel: +64 9 375 1300www.bnz.co.nzPRINCIPAL ESTABLISHMENTS © 2021 National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686 A165465-1121www.nab.com.au/shareholderThe cover of this publication is printed on Revive Laser paper stock. Revive Laser is 100% Recycled, manufactured from Forest Stewardship Council® (FSC®) Recycled certified fibre and manufactured carbon neutral. It is produced by an ISO14001 (environmental management system) certified mill. No chlorine bleaching occurs in the recycling process.The text of this publication is printed on Sumo Laser paper stock. Sumo Laser is an environmentally responsible paper manufactured under the ISO14001 Environmental Management System, using elemental chlorine free pulp. Sumo Laser is FSC® Certified Mix pulp.The printer’s operation is accredited to ISO 14001 and ISO 9001 (quality management system) standards and holds FSC® (chain of Custody) certification.This publication is fully recyclable, please dispose of wisely. Emissions generated from the production of this Annual Financial Report have been offset. Offsets corresponding to 8,617kg of CO2-e have been retired.