1、ANNUAL FINANCIAL REPORT 2019Our vision is to be Australias leading bank,trusted by customers for exceptional service.National Australia Bank Limited ABN 12 004 044 937 National Australia Bank Limited ABN 12 004 044 937This 2019 Annual Financial Report(Report)is lodged with the Australian Securities
2、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 St
3、andards 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 .au/annualreports.To view the Report online,visit .au/annualreports.Alternatively,to
4、arrange for a copy to be sent to you free of charge,call Shareholder Services 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 su
5、ch securities.All figures in the Report are in Australian dollars unless otherwise stated.REPORT OF THE DIRECTORS22019 at a glance2Chairmans message3Operating and financial review5Directors information29Other Information34Other matters35Auditors independence declaration41Remuneration report43CORPORA
6、TE GOVERNANCE72Governance72FINANCIAL STATEMENTS73Income statements74Statements of comprehensive income75Balance sheets76Cash flow statements77Statements of changes in equity79NOTES TO THE FINANCIAL STATEMENTS81DIRECTORS DECLARATION165INDEPENDENT AUDITORS REPORT166SHAREHOLDER INFORMATION174GLOSSARY17
7、9ANNUAL FINANCIAL REPORT 201912019 Annual Financial Report71,817Australians assisted with microfinance products and services 1%increase from 2018$1.66Dividend per share(for the full year)32 cents lower than 20189.9%cash return on equity 180 basis points decrease from 201819,673Number of customers as
8、sisted experiencing financial hardship 7%increase from 2018$4.80bnStatutory net profit$5.10bnCash earnings 10.6%decrease from 2018$6.55bn cash earningsex large notables of$1,448m 0.8%increase from 2018-14Priority segments net promoter score 2 point increase from 2018,ranked equal#1 amongst major ban
9、ksEmployee engagement score Compared to top quartile global benchmark of 69%54%2019 AT A GLANCEREPORT OF THE DIRECTORS2National Australia BankCHAIRMANS MESSAGEThe release of National Australia Banks annual reportscoincides with my first day as Chairman.I have taken thisposition after eight months as
10、 interim Group CEO,morethan three years as a Director and more than 37 yearsworking in financial services.This has been an extraordinarily challenging year for theorganisation,in which it was clear that significant changeswere necessary.We required a different approach.The Board understands what has
11、 gone wrong within thebank and that we can only move forward if we deal with thepast.We are determined to make things right,earn trustand build confidence in the future of our business.We are pleased with the calibre of the incoming Group CEO,Ross McEwan,who is commencing on 2 December 2019.Ross is
12、an experienced and proven CEO with a strongreputation for customer fairness,cost management,reputation recovery and leading industry reform.The Boardstands ready to help Ross take the organisation forward tobecome the bank you want us to be.At no stage will we seek to brush past the events andfindin
13、gs of the Royal Commission.We were rightly calledout for failing to meet customer expectations and,in somecases,breaching their trust.We faced challenges andrevelations that ultimately led to our outgoing Chairmanand former Group CEO resigning.The shareholders first strike against our 2018Remunerati
14、on Report at our Annual General Meeting(AGM)last year also sent a clear message.We needed to reshapeour remuneration framework,including how we appliedoutcomes for executives.Along the way,we lost trust with customers and thebroader community.As interim Group CEO,I haveresponded to these disappointm
15、ents by being clear onaccountability and driving rigour and discipline in the wayNAB operates.Lifting performanceWe are addressing the issues of the past and preparing thebank for the future.We have taken clear actions designedto ensure we meet customer and community expectations.The Board has incre
16、ased rigour in assessing performance,with a clear focus to reward longer-term,sustainablecustomer and shareholder outcomes.While 2019 underlying business performance was solid,NAB did not achieve some financial and non-financialtargets.The Remuneration Report reflects the Boardsdecision that the Exe
17、cutive Leadership Team will receive noshort-term variable reward and no fixed remunerationincrease for the financial year.We have strengthened our financial settings.We haveincreased customer-related remediation provisions.Wehave lowered our dividend payout,by 16%from financialyear 2018,and we have
18、raised a significant amount ofcapital to ensure we are on track to meet APRAsUnquestionably Strong requirements for 1 January nextyear.Our transformation,which has been underway for over twoyears,is delivering real benefits in terms of productivity andsupporting business growth in a challenging,low-
19、rateenvironment.It is also improving the resilience of ourtechnology and enabling us to adapt to a new digital future.Our focus on becoming simpler,faster and less complex forcustomers and employees has resulted in 30%fewerproducts,30%fewer over the counter transactions and a17%decrease in calls to
20、our call centres.We are making things right where we have made mistakes.We have improved processes to remediate customers fairly,consistently and more quickly,with a dedicated remediationteam of more than 950 people driving this work.REPORT OF THE DIRECTORS32019 Annual Financial ReportA comprehensiv
21、e program of work is well underway toimprove non-financial risk management at NAB.We arefocused on driving effective change to improve outcomesfor customers and achieve sustainable,long-termperformance.We have begun an extensive and considered reformprogram to achieve cultural and risk transformatio
22、n,arisingout of the Self-Assessment and sitting alongside our RoyalCommission response.We take full accountability for our failings and have beentransparent on our progress to address them.Intensiveeffort is underway to continue to overhaul processes andpractices,but it is early days and there is mo
23、re work to bedone to achieve sustainable change.We are determined to ensure NAB meets the higheststandards and to build a culture that puts customers at thecentre of everything we do.Supporting customers and the broader communityNAB exists to serve customers,to keep their money safe andto facilitate
24、 borrowing and enable investment.In doing so,our core banking activities play an important role in theeconomy and the broader community including$5 billionpaid in dividends to our mostly Australian-basedshareholders and$3.1 billion paid in taxes this year.We are absolutely committed to doing our par
25、t to supportgrowth for business and households.We know thatincreased prosperity in Australia relies heavily on businessinvestment and the current caution in the private sectorreflects broader global uncertainty.The RBA cash rate is sitting at historic lows,which presentsnew challenges for our indust
26、ry.We are determined toaddress the needs of depositors,borrowers and ourshareholders in this dynamic environment and remainvery much open for business.This year we provided$61billion in new lending for our Australian and New Zealandcustomers to buy or renovate their homes.This year we enhanced our s
27、tanding as Australias largestbusiness bank,growing market share in the small tomedium sector.With NAB financing one in three dollars lentto Australian farmers,we are also the leading agribusinessbank.We also want to make a positive impact on the lives of ourcustomers,people,shareholders,communities
28、and theenvironment in which we operate.Our employees took13,464 volunteer days to support the community this yearand in our 16th year of partnership with Good Shepherd,wehave now funded$293.6 million in loans to more than halfa million Australians unable to access mainstream finance.In a unique coll
29、aboration with the CSIRO,we launched theAustralian National Outlook report in June,outlining abroad and compelling view about Australias roadmap to2060.We are committed to the communities in which weoperate and understand we have an important role to playin Australias economy.We have more than 34,00
30、0 people and are equally focusedon caring for them;the bankers and teams across the bankwho strive to deliver the best possible financial services toour customers every day.I am proud that our customersoften call out their local branch employees as the highlightof their banking relationship with us.
31、We are working to foster a culture of inclusion andaccessibility,enabled by leaders and employee-ledvolunteer groups.In our survey of NAB employees this year,74%told us they experienced an inclusive workplace in2019.Our aim is to reach the top quartile of organisationsin Australia and New Zealand,wh
32、ich would require a resultaround 77%for inclusion.The future of your businessAs Chairman,I am acutely aware of what is expected of meand the Board in coming years.We will continue to activelypursue Board renewal,following the resignation of formerChairman Ken Henry,effective November 2019 and thepla
33、nned retirement of Anthony Yuen after our AGM inDecember 2019.I take this opportunity to formally thank Ken and Anthonyfor their contributions and service since they joined theBoard in 2011 and 2010 respectively,and wish them well forthe future.I also thank our former Group CEO,AndrewThorburn,who le
34、d the organisation for more than fouryears and whose passion for customers is well known.I would also like to welcome Kathryn Fagg as a new directoron our Board,effective 16 December 2019.Kathryn is ahighly respected director with extensive leadershipexperience across several industries,including ba
35、nking,andwill stand for election at our AGM in December 2019.The Board understands we are at the service ofshareholders,as well as customers and the community.Ascustomers and shareholders ourselves,we have a sharedexperience and perspective on NABs performance.After a year in which we were found to
36、have fallen short inseveral areas,we look forward to demonstrating to allstakeholders that we are a company worthy of yoursupport.Philip Chronican,ChairmanREPORT OF THE DIRECTORS4National Australia BankThe directors of National Australia Bank Limited(NAB)present their report,together with the financ
37、ial statementsof the Group,being NAB and its controlled entities,for theyear ended 30 September 2019.Certain definitionsThe Groups financial year ends on 30 September.Thefinancial year ended 30 September 2019 is referred to as2019 and other financial years are referred to in acorresponding manner.Re
38、ference in this document to theSeptember 2019 full year are references to the twelvemonths ended 30 September 2019.The abbreviations$mand$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.Forwar
39、d looking statementsThis report contains statements that are,or may be deemedto be,forward looking statements.These forward lookingstatements may be identified by the use of forward lookingterminology,including the terms believe,estimate,plan,project,anticipate,expect,target,intend,likely,may,will,c
40、ould or should or,in each case,their negative or other variations or other similarexpressions,or by discussions of strategy,plans,objectives,targets,goals,future events or intentions.Indications of,and guidance on,future earnings and financial position andperformance are also forward looking stateme
41、nts.Users ofthis report are cautioned not to place undue reliance onsuch forward looking statements.Such forward looking statements are not guarantees offuture performance and involve known and unknown risks,uncertainties and other factors,many of which are beyondthe control of the Group,which may c
42、ause actual results todiffer materially from those expressed or implied in suchstatements.There can be no assurance that actual outcomeswill not differ materially from these statements.The Operating and Financial Review describes certaininitiatives relating to the Groups strategic agenda(“Program”),
43、including certain forward looking statements.These statements are subject to a number of risks,assumptions and qualifications,including:Detailed business plans have not been developed for theentirety of the Program,and the full scope and cost ofthe Program may vary as plans are developed and thirdpa
44、rties engaged.The Groups ability to execute and manage the Programin a sequenced,controlled and effective manner and inaccordance with the relevant project and business plan(once developed).The Groups ability to execute productivity initiatives andrealise operational synergies,cost savings and reven
45、uebenefits in accordance with the Program plan(including,in relation to CTI and ROE targets,the extension ofimprovements beyond the current Program plan).The Groups ability to meet its internal net FTE reductiontargets.The Groups ability to recruit and retain FTE andcontractors with the requisite sk
46、ills and experience todeliver Program initiatives.There being no significant change in the Groupsfinancial performance or operating environment,including the economic conditions in Australia and NewZealand,changes to financial markets and the Groupsability to raise funding and the cost of such fundi
47、ng,increased competition,changes in interest rates andchanges in customer behaviour.There being no material change to law or regulation orchanges to regulatory policy or interpretation,includingrelating to the capital and liquidity requirements of theGroup.For the purpose of calculating FTE cost sav
48、ings andredundancy costs,the Group has assumed an averageFTE cost based on Group-wide averages,and such costsare not calculated by reference to specific productivityinitiatives or individual employee entitlements.NABs proposed divestment of its wealth managementbusinesses(excluding JBWere and nabtra
49、de)may have animpact on the timing,scope and cost of the Program,however the impact cannot be quantified at this time.Further information on important factors that could causeactual results to differ materially from those projected insuch statements is contained on page 18 under“Disclosure on Risk F
50、actors”.Financial performance summaryThe following financial discussion and analysis is based onstatutory information unless otherwise stated.The statutoryinformation is presented in accordance with theCorporations Act 2001(Cth)and Australian AccountingStandards and is audited by the auditors in acc
51、ordance withAustralian Auditing Standards.Non-IFRS key financial performance measures used by theGroupCertain financial measures detailed in the Report of theDirectors are not accounting measures within the scope ofInternational Financial Reporting Standards(IFRS).Management review these financial m
52、etrics in order tomeasure the Groups overall financial performance andposition and believe the presentation of these industrystandard financial measures provides useful information toanalysts and investors regarding the results of the Groupsoperations and allows ready comparison with otherindustry p
53、articipants.These financial performance measuresinclude:cash earnings cash earnings(excluding large notable items)statutory ROE cash ROE net interest margin average equity(adjusted)REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW52019 Annual Financial Report average interest earning assets aver
54、age assets.The Group regularly reviews the non-IFRS measuresincluded in its Report of the Directors to ensure that onlyrelevant financial measures are incorporated.Certain otherfinancial performance measures detailed in the Report ofthe Directors are derived from IFRS measures and aresimilarly used
55、by analysts and investors to assess theGroups performance.These measures are defined in theGlossary.Any non-IFRS measures included in this document are not asubstitute for IFRS measures and readers should considerthe IFRS measures as well.The non-IFRS financial measuresreferred to above have not bee
56、n presented in accordancewith Australian Accounting Standards nor audited orreviewed in accordance with Australian Auditing Standardsunless they are included in the financial statements.Further information in relation to these financial measuresis set out below and in the Glossary.Information about
57、cash earningsCash earnings is a non-IFRS key financial performancemeasure used by the Group,the investment community andNABs Australian peers with similar business portfolios.TheGroup also uses cash earnings for its internal managementreporting as it better reflects what it considers to be theunderl
58、ying performance of the Group.Cash earnings is calculated by excluding discontinuedoperations,fair value and hedge ineffectiveness and othernon-cash earnings items which are included within thestatutory net profit attributable to owners of NAB.Cash earnings does not purport to represent the cash flo
59、ws,funding or liquidity position of the Group,nor any amountrepresented on a cash flow statement.A reconciliationbetween statutory net profit and cash earnings is includedin Note 2 Segment information of the financial statements.Information about net interest marginNet interest margin(NIM)is a non-I
60、FRS key financialperformance measure that is calculated as net interestincome(derived on a cash earnings basis,which in thisfinancial report is not materially different from statutory netinterest income)expressed as a percentage of averageinterest earning assets.Information about average balancesAve
61、rage balances,including average equity(adjusted),totalaverage assets and average interest earning assets arebased on daily statutory average balances derived frominternally generated trial balances from the Groups generalledger.This methodology produces numbers that more accuratelyreflect seasonalit
62、y,timing of accruals(such as dividends)and restructures(including discontinued operations),whichwould otherwise not be reflected in a simple average.Refer to page 7 for a five-year summary of the Groupsaverage equity(adjusted),total average assets and averageinterest earning assets.Information about
63、 large notable itemsLarge notable items included in the net profit attributableto owners of NAB are described below:Customer-related remediationCharges associated with customer-related remediationmatters.These include:refunds and compensation to customers impacted byissues in the Wealth business,inc
64、luding adviser servicefees charged by NAB Financial Planning and NAB AdvicePartnerships,combined with the Wealth advice reviewand consumer credit insurance sales(within discontinuedoperations)banking-related matters,including matters wherecustomers were incorrectly charged fees on certain fee-exempt
65、 transactions costs for implementing remediation processes.Capitalised software policy changeCharge associated with a change in the application of thesoftware capitalisation policy by increasing thecapitalisation threshold from$0.5 million to$2 million.Restructuring-related costsCosts associated wit
66、h the acceleration of the Groupsstrategic agenda announced on 2 November 2017 toenhance the customer experience and simplify its business.Rounding of amountsIn accordance with ASIC Corporations(Rounding inFinancial/Directors Reports)Instrument 2016/191,allamounts have been rounded to the nearest mil
67、lion dollars,except where indicated.Any discrepancies between totaland sums of components in tables contained in this reportare due to rounding.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)6National Australia Bank5 Year Financial Performance SummaryGroup(1)20192018201720162015$m$m
68、$m$m$mNet interest income13,55813,50513,18212,93012,462Other income4,3735,5964,8425,1925,975Operating expenses(9,827)(9,910)(8,539)(8,331)(8,189)Credit impairment charge(927)(791)(824)(813)(733)Profit before income tax7,1778,4008,6618,9789,515Income tax expense(2,087)(2,455)(2,480)(2,553)(2,709)Net
69、profit for the year from continuing operations5,0905,9456,1816,4256,806Net(loss)after tax for the year from discontinued operations(289)(388)(893)(6,068)(414)Net profit for the year4,8015,5575,2883576,392Profit attributable to non-controlling interests333554Net profit attributable to owners of NAB4,
70、7985,5545,2853526,338(1)Information is presented on a continuing operations basis.September 2015 was restated for the demerger of CYBG and the sale of 80%of Wealths lifeinsurance business to Nippon Life in September 2016.The Groups financial statements for the year ended 30 September 2015 can be fou
71、nd in thecorresponding report published by the Group for the period.5 Year Key Performance IndicatorsGroup20192018201720162015Key IndicatorsStatutory earnings per share(cents)-basic168.6201.3194.78.8252.7Statutory earnings per share(cents)-diluted164.4194.0189.115.5245.4Statutory return on equity9.1
72、%11.2%10.9%0.5%15.2%Cash return on equity9.9%11.7%14.0%14.3%14.8%Profitability,performance and efficiency measuresDividend per share(cents)166198198198198Net interest margin(1)1.78%1.85%1.85%1.88%1.90%CapitalCommon Equity Tier 1 ratio10.38%10.20%10.06%9.77%10.24%Tier 1 ratio12.36%12.38%12.41%12.19%1
73、2.44%Total capital ratio14.68%14.12%14.58%14.14%14.15%Risk-weighted assets($bn)(spot)415.8389.7382.1388.4399.8Volumes($bn)(1)Gross loans and acceptances(spot)(2)601.4585.6565.1545.8521.9Average interest earning assets758.8726.7711.3689.5658.1Total average assets835.9807.0798.8855.8864.6Customer depo
74、sits(spot)424.6409.0407.6390.5362.0Average equity(adjusted)-Statutory51.648.747.544.340.5Average equity(adjusted)-Cash51.648.747.545.542.2Asset quality90+days past due and gross impaired assets to gross loans and acceptances(1)0.93%0.71%0.70%0.85%0.63%OtherFunds under management and administration(F
75、UM/A)(spot)($bn)(3)150.2144.7133.8125.0n/aAssets under management(AUM)(spot)($bn)(3)201.5206.7195.3184.9n/aFull Time Equivalent Employees(FTE)(spot)(1)34,37033,28333,42234,26333,894Full Time Equivalent Employees(FTE)(average)(1)33,95033,74733,74634,56734,148(1)Information is presented on a continuin
76、g operations basis.September 2015 was restated for the demerger of CYBG and the sale of 80%of Wealths lifeinsurance business to Nippon Life in September 2016.The Groups financial statements for the year ended 30 September 2015 can be found in thecorresponding report published by the Group for the pe
77、riod.(2)Including loans and advances at fair value.(3)For the year ended 30 September 2017,there was a change to the presentation of FUM/A and AUM to include two separate disclosures that represent allmanaged funds and assets from which the Group derives revenue.Certain items will be represented in
78、both FUM/A and AUM and therefore the two should notbe summed.Comparative period information was restated for September 2016.2015 period was not restated.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)72019 Annual Financial ReportPrincipal ActivitiesThe principal activities of the Gr
79、oup during the year werebanking services,credit and access card facilities,leasing,housing and general finance,international banking,investment banking,wealth management services,fundsmanagement and custodian,trustee and nominee services.Significant changes in the state of affairs A number of change
80、s to the composition of the NABBoard and Executive Leadership Team have occurred orwere announced during 2019,namely:Mr Andrew Thorburn resigned as Managing Directorand Group Chief Executive Officer(CEO)and ceasedemployment with the Group effective 28 February2019.Mr Philip Chronican,Director,commen
81、ced as interimGroup CEO on 1 March 2019 and served in thiscapacity until 14 November 2019.He commenced asChairman of the Board effective 15 November 2019.Dr Ken Henry,resigned as non-executive director andChairman of the Board effective 14 November 2019.The Board announced the appointment of Mr Ross
82、McEwan as incoming Group CEO on 19 July 2019 andhe will commence in this role and as ManagingDirector on 2 December 2019.Mr Gary Lennon,Group Chief Financial Officer(CFO),acted as Group CEO from 21 December 2018 to28 February 2019 and will be acting Group CEO from15 November 2019 to 1 December 2019
83、whilecontinuing as Group CFO.Mr Greg Braddy,Deputy Group CFO,acted as GroupCFO from 21 December 2018 to 28 February 2019.Ms Lorraine Murphy,Chief People Officer,ceasedemployment with the Group on 29 March 2019.Ms Julie Rynski,Customer Executive Regional andAgribusiness,acted as Chief People Officer
84、from30 March 2019 to 30 September 2019.Ms Susan Ferrier joined NAB as Chief People Officer on1 October 2019.Ms Kathryn Fagg has been appointed as a non-executive director of NAB,effective 16 December2019.Mr Anthony Yuen will retire as a non-executivedirector of NAB following the Companys AnnualGener
85、al Meeting on 18 December 2019.In March 2019,the Group established a Board CustomerCommittee to better oversee NABs processes to ensurefair products and service outcomes and to evaluatecustomer feedback and complaints.On 17 December 2018,the Group redeemed the GBP400million Trust Preferred Securitie
86、s(TPS)issued by NationalCapital Trust 1 and guaranteed(on a limited basis)byNAB on 29 September 2003.The Trust PreferredSecurities were redeemed for cash at their par value plusaccrued distribution.On 20 March 2019,the Group issued$1,874 million ofNAB Capital Notes 3,which will mandatorily convert i
87、ntoNAB Ordinary Shares on 19 June 2028,provided certainconditions are met.With written prior approval fromAPRA,the Group may elect to convert,redeem or resellNAB Capital Notes 3 on 17 June 2026,or on theoccurrence of particular events,provided certainconditions are met.On 20 March 2019,the Group com
88、pleted the resale of allconvertible preference shares(CPS)issued on 20 March2013 to a nominated purchaser,in accordance with theresale notice issued on 11 February 2019.Following theresale,$750 million of CPS were converted into ordinaryshares,and the remaining balance of approximately$764million of
89、 CPS was redeemed.There were no other significant changes in the state ofaffairs of the Group that occurred during the financial yearunder review that are not otherwise disclosed in this report.The Groups BusinessThe Group is a financial services organisation with morethan 34,000 people,operating th
90、rough a network of almost900 locations,with over 573,000 shareholders and servingapproximately nine million customers.The Groups purposeis to back the bold who move Australia forward.The majority of the Groups financial services businessesoperate in Australia and New Zealand,with brancheslocated in
91、Asia,the United Kingdom(UK)and the UnitedStates(US).In 2019,the Group operated the following divisions:Business and Private Banking focuses on serving theneeds of three of NABs priority customer segments small businesses,medium businesses and investors.Customers are served through an integrated bank
92、ingmodel locally led by managing partners through businessbanking centres and through the small businesscustomer hubs.This includes specialists in Health,Agribusiness,Government,Education,Community andFranchising(GECF),Professional Services and CommercialReal Estate.The division also serves high net
93、 worthcustomers through Private Bank and JBWere.Consumer Banking and Wealth provides customers withproducts and services through proprietary networks inNAB and UBank,as well as third party and mortgagebrokers.Customers are served through the ConsumerBanking network to secure home loans or managepers
94、onal finances through deposit,credit or personalloan facilities.The network also provides servicingsupport to individuals and business customers.Wealth,including Wealth Advice,Asset Management andSuperannuation,provides customers with access toadvisers and a financial planning network of self-employ
95、ed and employed advisers in Australia.Corporate and Institutional Banking provides a range oflending and transactional products and services relatedto financial and debt capital markets,specialised capital,custody and alternative investments.The division servesits customers in Australia and globally
96、,includingREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)8National Australia Bankbranches in the US,UK and Asia,with specialisedindustry relationships and product teams.It includesBank of New Zealands Markets Trading operations.New Zealand Banking comprises the Consumer Banking,Weal
97、th,Business,Agribusiness,Corporate and Insurancefranchises and Markets Sales operations in New Zealand,operating under the Bank of New Zealand brand.Itexcludes Bank of New Zealands Markets Tradingoperations.Corporate Functions and Other includes functions thatsupport all businesses including Treasur
98、y,Technologyand Operations,Support Units and Eliminations.Strategic HighlightsFocus,Vision and ObjectivesThe Groups strategic focus supports its vision to beAustralias leading bank,trusted by customers forexceptional service.Achieving this vision is underpinnedcurrently by four key long term objecti
99、ves:1.Net Promoter Score(1)(2)(NPS)positive and number 1 ofmajor Australian banks in priority segments.2.Cost to income ratio towards 35%.3.Number 1 ROE of major Australian banks.4.Top quartile employee engagement.Critical to the Groups ability to achieve its vision andobjectives is the maintenance
100、of strong foundations Balance Sheet(including capital,funding and liquidity),Risk(including credit and operational risk)and Technology.Implementation of APRA Self-Assessment Actions andRoyal Commission RecommendationsAt the request of the Australian Prudential RegulationAuthority(APRA),the Group und
101、ertook a Self-Assessmentinto governance,accountability and culture in June 2018.The Self-Assessment identified shortcomings in aspects ofthe Groups approach to non-financial risk management,with particular focus on operational,compliance andconduct risk.On 30 November 2018,the Group voluntarilypubli
102、shed the Self-Assessment report which identified 26actions to deliver structural,procedural and cultural change.This work is organised around five overarching goals arisingout of the Self-Assessment and sits alongside NABs RoyalCommission response.On 1 February 2019,the Royal Commission Final Report
103、 washanded to the Governor-General by Commissioner,the Hon.Kenneth Hayne AC QC.The Final Report includes 76recommendations.The Group supports 72 of the 76recommendations.The Royal Commission has establishednew standards and expectations across the industry.TheGroup welcomes change that will drive be
104、tter outcomes forcustomers and will implement the recommendations inaccordance with their intent.A report detailing NABs progress against the Self-Assessment and the recommendations of the RoyalCommission was released on 7 November 2019 and isavailable at .au/about-us/shareholder-centre/asx-announce
105、ment.Accelerating our StrategyIn November 2017,the Group announced an acceleration ofits strategy over the three years to September 2020 toachieve its vision and objectives,reflecting the environmentof rapid and constant change.This transformation involves a targeted$1.5 billion increasein investmen
106、t spend over the three years to September2020,taking total investment spend to approximately$4.5billion over that period.In the September 2019 financialyear,investment spend was$1.7 billion,bringing thecumulative total since September 2017 to$3.2 billion.Thefocus of this increased investment spend o
107、ver three years ison the four key areas outlined below.Best Business BankThe Group continues to invest in transforming its leadingAustralian Small and Medium Enterprise(SME)franchise,making it simpler and easier for customers.Good progresshas been made since September 2017 including:Improved banker
108、capacity to understand and supportbusiness and personal needs of the Groups morecomplex customers,with revenue per banker increasing20%.New Customer Relationship Management platform hasbeen rolled-out providing mobile capability,real timedata and automated reports and dashboards.Small business custo
109、mers have been migrated to a newcustomer service hub,open 7 days a week with extendedoperating hours.The proportion of new small business lending accountsgenerated via the Quickbiz digital platform,increased to47%from 20%.Revenue from bankers with industry specialisations orfocus up from 20%to 30%.S
110、impler and FasterThe Group is focused on delivering exceptional customerservice with increased productivity and reduced complexity.Key progress since September 2017 includes:Number of products reduced by 30%from approximately600 to 423.Over-the-counter transactions in branches declined by30%and call
111、 centre volumes reduced by 17%.95 branches and business centres closed and 835 smartATMs rolled out.Mobile cheque capture launched.Simplifying,reducing and improving transparency offees,with 185 fees removed or reduced across Australian(1)Net Promoter and NPS are registered trademarks and Net Promot
112、er Score and Net Promoter Systems are trademarks of Bain&Company,Satmetrix Systemsand Fred Reichheld.(2)Priority Segments Net Promoter Score(NPS)is a simple average of the NPS scores of four priority segments:NAB defined Home Owners(HLbank)andInvestors,as well as Small Business($0.1m-$5m)and Medium
113、Business($5m-$50m).The Priority Segments NPS data is based on six month moving averagesfrom DBM Atlas&BFSM Research for the September 2019 financial year.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)92019 Annual Financial ReportBanking and Wealth in the September 2019 financialyea
114、r.New and Emerging Growth OpportunitiesCapturing new and emerging growth opportunities byleveraging the Groups capabilities and positions of strengthis a key focus.Progress includes:75 global infrastructure deals completed over the year toSeptember 2019 worth approximately$53 billion of totalproject
115、 debt.UBank,the Groups digital bank,increased customernumbers by 40%over the two years to September 2019,and grew home lending at 7 times system rate over theSeptember 2019 financial year.Great People,Talent and CultureTo deliver on its strategy and to meet the expectations of itscustomers and the c
116、ommunity,the Group is focused onhaving the right culture and plan in place to build thecapability of our people and attract the best talent.Keyinitiatives include:Commencement of a new Group Chief People Officer,MsSusan Ferrier from 1 October 2019,who has led largetransformation and culture change p
117、rograms.A face-to-face program for all People Leaders to buildawareness and create alignment around the Groupsthree culture priorities-customer first,disciplined andsimpler for our people.As part of the transformation,the Group expects to delivercumulative cost savings,currently targeted at greater
118、than$1 billion by 30 September 2020,as it significantly simplifiesand automates processes,reduces procurement and thirdparty costs,and gets closer to its customers with a flatterorganisational structure.In the September 2019 financialyear,cost savings of$480 million were achieved,bringingcumulative
119、cost savings since September 2017 to$800million.The Group is reshaping its workforce to enable it to deliverfor customers.Over the three years to 30 September 2020,the Group is targeting the creation of up to 2,000 new rolesand a reduction of 6,000 existing roles as it furtherautomates and simplifie
120、s its business.This is expected toresult in a net reduction in roles of approximately 4,000 by30 September 2020.During the September 2019 financialyear,a reduction of 1,816 roles occurred and an additional1,045 new roles were added.On a cumulative basis sinceSeptember 2017,there has been a reduction
121、 of 3,713 rolesand an addition of 1,240 new roles.The Group outlined a target for expense growth over theSeptember 2019 financial year and the September 2020financial year to be broadly flat excluding large notableitems.In the September 2019 financial year,expense growthexcluding large notable items
122、 was broadly flat.Reshaping of Wealth ManagementIn May 2018,the Group announced an intention to reshapeits wealth offering,consistent with its plan to becomesimpler and faster.A detailed review determined the Groupcould best serve the needs of its customers and deliver longterm value for shareholder
123、s by retaining and investing in amore focused wealth offering.This involves retainingJBWere,part of the Groups leading Business and PrivateBanking franchise,to help high net worth customersmanage their personal wealth alongside their businessinterests,combined with nabtrade,the Groups fast growingon
124、line investing platform,supporting self-directedcustomers.The Group intends to exit its Advice,Platform&Superannuation and Asset Management businesses,currently operating under MLC and other brands(MLCWealth).Separate ownership will allow this business todetermine its own strategy and investment pri
125、orities tobetter deliver for customers and enhance its competitiveposition.It is expected there will be ongoing arrangementsbetween the Group and MLC Wealth,to offer the Groupscustomers continued access to advice and products to meetwealth management needs.Since announcing this intention,the reshapi
126、ng of MLCWealth continues to gain momentum.A new executiveteam is now largely in place with a new operating modelstructured around four business pillars of-Advice,Platforms,Asset Management and Retirement andInvestment Solutions.Significant work is underway toensure the strength of each pillar.This
127、includes a simpler,more customised advice business,a rebranding andleadership restructure in Asset Management,and morecompetitive pricing across the business.The Group continues to make progress towards a separationof MLC Wealth,targeting a public markets exit in the 2020financial year,together with
128、 exploration of alternativetransaction structures and options.The Group will take adisciplined approach to the exit of MLC Wealth and willexecute a transaction at the appropriate time having regardfor the interests of all stakeholders.Any transaction remainssubject to market conditions,regulatory an
129、d otherapprovals.Performance against Key Long-term ObjectivesThe Group uses the NPS(1)system to access real-time,targeted feedback so it can understand and improve thecustomer experience.Over the September 2019 financialyear,priority segment NPS(1)(2)improved from-16 to-14,andis equal first amongst
130、major banks.The Groups long term objective remains for NPS to bepositive and number one of major Australian banks,whichit expects to achieve by becoming simpler and faster to(1)Net Promoter and NPS are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain&Compa
131、ny,Satmetrix Systemsand Fred Reichheld.(2)Priority Segments Net Promoter Score(NPS)is a simple average of the NPS scores of four priority segments:NAB defined Home Owners(HLbank)andInvestors,as well as Small Business($0.1m-$5m)and Medium Business($5m-100 keydata feeds in production and sophisticated
132、 toolsdeveloped to support advanced data analytics andmachine learning.Customers are now beginning to see improvements as aresult of the Groups investment and strategic approachto technology changes,with a 42%drop in critical andhigh incidents over the year to September 2019.(1)Based on the top quar
133、tile of Australian and New Zealand companies,source Aon(now known as Kincentric)2019.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)112019 Annual Financial ReportFinancial PerformanceGroup2019LargeNotableItems2019ex LargeNotableItems2018LargeNotableItems2018ex LargeNotableItems$m$m$
134、m$m$m$mNet interest income13,558(72)13,63013,505-13,505Other income4,373(1,135)5,5085,596(249)5,845Net operating income17,931(1,207)19,13819,101(249)19,350Operating expenses(9,827)(858)(8,969)(9,910)(866)(9,044)Credit impairment charge(927)-(927)(791)-(791)Profit before income tax7,177(2,065)9,2428,
135、400(1,115)9,515Income tax expense(2,087)617(2,704)(2,455)324(2,779)Net profit for the year from continuing operations5,090(1,448)6,5385,945(791)6,736Net(loss)after tax for the year from discontinued operations(289)(257)(32)(388)(53)(335)Net profit for the year4,801(1,705)6,5065,557(844)6,401Profit a
136、ttributable to non-controlling interests3-33-3Net profit attributable to owners of NAB4,798(1,705)6,5035,554(844)6,398September 2019 v September 2018Net profit attributable to owners of NAB(statutory netprofit)decreased by$756 million or 13.6%.Net interest income increased by$53 million or 0.4%,incl
137、uding a decrease of$133 million which was offset bymovements in economic hedges in other operating incomeand customer-related remediation of$72 million in the2019 financial year.Excluding these movements,theunderlying increase of$258 million or 1.9%was driven bygrowth in both housing and business le
138、nding volumes,combined with the impact of repricing in the lendingportfolios.These movements were partially offset bycompetitive pressures and changing customer preferences(switching from interest only to principal and interest homeloans)affecting housing lending margins,and higherfunding and liquid
139、ity costs.Other income decreased by$1,223 million or 21.9%,including an increase of$133 million which was offset bymovements in economic hedges in net interest income,andan increase of$886 million in customer-relatedremediation.Excluding these movements,the underlyingdecrease of$470 million or 8.4%w
140、as mainly driven byunfavourable movements in fair value and hedgeineffectiveness,lower Wealth income as a result of feereductions and repricing,removal of grandfatheredcommissions,and a change in customer preferences tolower margin products,and lower Markets income.This waspartially offset by higher
141、 NAB risk management income inTreasury.Operating expenses decreased by$83 million or 0.8%.Excluding a decrease of$8 million in large notable items,total operating expenses decreased by$75 million or 0.8%.This was driven by productivity benefits achieved throughcontinued simplification of the Groups
142、operations andreduction in third party spend,combined with lowerperformance-based compensation and lower legal costsassociated with the Royal Commission.This was largelyoffset by foreign exchange movements,continuedinvestment in technology and associated amortisationcharges,increased spend to uplift
143、 customer experience andstrengthen the compliance and control environment,andthe impact of annual salary increases.Credit impairment charge increased by$136 million or17.2%mainly driven by new and increased specific creditimpairment charges raised for the business lendingportfolios in Australia and
144、New Zealand,partially offset bywrite-backs resulting from business turnarounds for a smallnumber of larger exposures,combined with lower collectivecredit impairment charges.Income tax expense decreased by$368 million or 15.0%largely due to a lower profit before tax.Discontinued operations reflect lo
145、sses relating to customer-related remediation of$257 million after tax and additionalcosts associated with the life insurance business sale.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)12National Australia BankLarge Notable ItemsGroup20192018$m$mNet interest incomeCustomer-related
146、 remediation(72)-Other incomeCustomer-related remediation(1,135)(249)Net operating income(1,207)(249)Operating expensesCustomer-related remediation(364)(111)Capitalised software policy change(494)-Restructuring-related costs-(755)(Loss)before income tax(2,065)(1,115)Income tax benefit617324Net(loss)
147、for the year from continuingoperations(1,448)(791)Net(loss)after tax for the year fromdiscontinued operations(257)(53)Net(loss)attributable to owners of NAB(1,705)(844)Large notable items recognised in net profit attributable toowners of NAB consists of:Charges associated with customer-related remed
148、iationmatters of$1,100 million($1,571 million before tax)incontinuing operations in the September 2019 financialyear(2018:$261 million($360 million before tax).Thecharges of$1,571 million were recognised as follows:$72 million in net interest income$1,135 million in other operating income$364 millio
149、n in operating expenses.Charges associated with customer-related remediationmatters of$257 million($367 million before tax)indiscontinued operations in the September 2019 financialyear(2018:$53 million($75 million before tax).Accelerated amortisation charge of$348 million($494million before tax)in c
150、ontinuing operations in the 2019financial year following a change to the application ofthe software capitalisation policy.Restructuring-related costs of$530 million($755 millionbefore tax)in continuing operations in the September2018 financial year.Review of Group and Divisional ResultsGroup20192018
151、$m$mBusiness and Private Banking2,8402,911Consumer Banking and Wealth1,3661,539Corporate and Institutional Banking1,5081,541New Zealand Banking997922Corporate Functions and Other(1)(1,614)(1,211)Cash earnings5,0975,702Cash earnings(excluding large notable items)6,5456,493Non-cash earnings items(10)2
152、40Net(loss)from discontinued operations(289)(388)Net profit attributable to owners of NAB4,7985,554(1)Includes large notable items.September 2019 v September 2018GroupCash earnings decreased by$605 million or 10.6%.Cashearnings excluding large notable items increased by$52million or 0.8%.Business an
153、d Private BankingCash earnings decreased by$71 million or 2.4%driven byhigher credit impairment charges and higher operatingexpenses due to the continued investment in technologyand associated amortisation charges,partially offset byhigher revenue from balance sheet growth.Consumer Banking and Wealt
154、hCash earnings decreased by$173 million or 11.2%driven bylower revenue as a result of competitive pressures onhousing margins,and lower margins in the wealthportfolios,combined with increased credit impairmentcharges.Corporate and Institutional BankingCash earnings decreased by$33 million or 2.1%dri
155、ven byincreased credit impairment charges relating to theimpairment of a small number of larger exposures.Revenueincreased reflecting growth in gross loans and acceptancesand customer deposits,partially offset by lower margins(exMarkets)and lower Markets income.New Zealand BankingCash earnings incre
156、ased by$75 million or 8.1%driven byhigher revenue benefitting from growth in lending,partiallyoffset by higher expenses and credit impairment charges.Corporate Functions and OtherThe cash deficit increased by$403 million mainly due toincrease of$657 million in large notable items.REPORT OF THE DIREC
157、TORSOPERATING AND FINANCIAL REVIEW(CONTINUED)132019 Annual Financial ReportGroup Balance Sheet ReviewGroup20192018$m$mAssetsCash and liquid assets55,45750,188Due from other banks32,13030,568Trading instruments96,82878,228Debt instruments40,20542,056Other financial assets7,11010,041Loans and advances
158、587,749567,981Due from customers on acceptances2,4903,816All other assets25,15523,632Total assets847,124806,510LiabilitiesDue to other banks34,27338,192Trading instruments34,31822,422Other financial liabilities33,28330,437Deposits and other borrowings522,085503,145Bonds,notes and subordinated debt14
159、3,258140,222Other debt issues6,4826,158All other liabilities17,82113,222Total liabilities791,520753,798Total equity55,60452,712Total liabilities and equity847,124806,510September 2019 v September 2018Total assets increased by$40,614 million or 5.0%.Theincrease was mainly due to a net increase in cas
160、h and liquidassets,due from other banks and trading instruments of$25,431 million or 16.0%.The increase is mainly in tradinginstruments due to foreign exchange rate and interest ratemovements during the period.Furthermore,an increase inloans and advances(net of other financial assets at fairvalue an
161、d due from customers on acceptances)of$15,511million or 2.7%reflects growth in non-housing lendingdriven by the Groups focus on priority business segments,combined with continued momentum in housing lending.Total liabilities increased by$37,722 million or 5.0%.Theincrease was mainly due to growth in
162、 bonds,notes andsubordinated debt,other financial liabilities and tradinginstruments of$17,778 million or 9.2%due to an increasein long-term funding to support the Groups asset growth,as well as foreign exchange and interest rate movementsduring the period.Furthermore,an increase in deposits andothe
163、r borrowings and due to other banks totaling$15,021million or 2.8%reflects growth to support increased lendingand the liquidity portfolio.Total equity increased by$2,892million or 5.5%mainly due to an increase in contributedequity attributable to shares issued through the DividendReinvestment Plan(D
164、RP),DRP underwritten allotments andconversion of preference shares during the period.Capital Management and Funding ReviewBalance Sheet Management OverviewThe Group aims to maintain strong capital,funding andliquidity,in line with its ongoing commitment to balancesheet strength.This includes:Seeking
165、 to maintain a well-diversified wholesale fundingportfolio which accesses funding across a variety ofmarkets,currencies and product types.Continuing to monitor and assess these positions so thatchanges in market conditions and regulation can beaccommodated.Regulatory ReformThe Group remains focused
166、on areas of regulatory change.Key reforms that may affect its capital and funding include:Unquestionably Strong and Basel III Revisions In December 2017,the Basel Committee on BankingSupervision(BCBS)finalised the Basel III capitalframework.APRA subsequently commenced consultationon revisions to the
167、 domestic capital framework inFebruary 2018 and reaffirmed its intention to strengthencapital requirements for major Australian banks by 150basis points,such that they are consideredUnquestionably Strong.APRAs consultation on revisions to the capital frameworkincludes consideration of benchmarks for
168、 capitalstrength,risk sensitivity of the capital framework andtransparency,comparability and flexibility of the capitalframework.Final revised prudential standards in relation to the risk-weighting framework and other capital requirements areexpected to be released in 2020,for proposedimplementation
169、 by 1 January 2022.In October 2019,APRA proposed changes to thetreatment of equity investments in subsidiaries(includingBank of New Zealand)for the purpose of calculatingLevel 1 regulatory capital.APRA intends to finalise thesechanges in early 2020,for implementation by 1 January2021.APRA has also p
170、roposed a minimum leverage ratiorequirement of 3.5%for internal ratings-based(IRB)ADIsand a revised leverage ratio exposure measurementmethodology from 1 January 2022.The Groups leverageratio as at 30 September 2019 of 5.5%(under currentmethodology)is disclosed in further detail in theSeptember 2019
171、 Pillar 3 Report.Increased Loss-absorbing Capacity for ADIs In July 2019,APRA released its framework for theimplementation of an Australian loss-absorbing capacityregime,requiring an increase in Total capital of 3%ofrisk-weighted assets for Domestic Systemically ImportantBanks(D-SIBs)by 1 January 20
172、24.APRA has maintainedits overall target calibration of 4%to 5%of risk-weightedassets,and will consult on alternative methods for raisingthe additional loss-absorbing capacity equal to 1%to 2%of risk-weighted assets over the next four years.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTI
173、NUED)14National Australia BankReserve Bank of New Zealand(RBNZ)Capital Review In New Zealand,the RBNZ is undertaking a review of thecapital adequacy framework applied to registered banksincorporated in New Zealand.In December 2018,theRBNZ proposed amendments to the amount ofregulatory capital requir
174、ed of locally incorporated banks,including:increases in risk-weighted assets for banks that use theIRB approach,increased scalars and the introductionof standardised output floors.an increase in the Tier 1 capital requirement to 16%ofrisk-weighted assets.The RBNZ is proposing various dates for imple
175、mentationof the proposed changes,including increases in the Tier1 capital requirement over a five year period to 2024.RBNZ expects to publish final rules in December 2019.Further detail on the regulatory changes impacting theGroup are outlined in the September 2019 Pillar 3 Report.National Income Se
176、curitiesThe distributions on the National Income Securities arecurrently not able to be franked due to a provision in thetax law which applies specifically to instruments that qualifyas Tier 1 capital for prudential purposes.When the NationalIncome Securities no longer qualify as Tier 1 capital from
177、31 December 2021,it is expected that any subsequentdistributions will be franked to the same extent as dividendson NABs ordinary shares are franked.Capital ManagementThe Groups capital management strategy is focused onadequacy,efficiency and flexibility.The capital adequacyobjective seeks to ensure
178、sufficient capital is held in excessof internal risk-based required capital assessments andregulatory requirements,and is within the Groups balancesheet risk appetite.This approach is consistent across theGroups subsidiaries.The Groups capital ratio operating targets are regularlyreviewed in the con
179、text of the external economic andregulatory outlook with the objective of maintainingbalance sheet strength.The Group expects to achieveAPRAs Unquestionably Strong capital benchmark from1 January 2020.Funding and LiquidityThe Group monitors the composition and stability offunding and liquidity throu
180、gh the Board approved riskappetite which includes compliance with the regulatoryrequirements of APRAs Liquidity Coverage Ratio(LCR)andNet Stable Funding Ratio(NSFR).FundingThe Group employs a range of metrics to set its riskappetite and measure balance sheet strength.The NSFR is ametric that measure
181、s the extent to which assets are fundedwith stable sources of funding in order to mitigate the riskof future funding stress.At 30 September 2019 the GroupsNSFR was 113%,above the regulatory minimum of 100%.Another key structural measure used is the Stable FundingIndex(SFI),which is made up of the Cu
182、stomer FundingIndex(CFI)and the Term Funding Index(TFI).The CFIrepresents the proportion of the Groups core assets thatare funded by customer deposits.Similarly,the TFIrepresents the proportion of the Groups core assets thatare funded by term wholesale funding with a remainingterm to maturity of gre
183、ater than 12 months.Over theSeptember 2019 financial year the SFI remained stable at93%as an increase in the CFI was offset by a reduction inthe TFI.Customer FundingNABs deposit strategy is to grow a stable and reliabledeposit base informed by market conditions,fundingrequirements and customer relat
184、ionships.The Monthly Banking Statistics published by APRA showthat for the 6 months ended 30 September 2019(1),NABsgrowth has been as follows:Australian domestic household deposits have grown by1.3%.Business deposits(excluding deposits from financialcorporations and households)have reduced by 0.1%.D
185、eposits from financial institutions have reduced by0.4%.Term Wholesale FundingAfter a period of deterioration and volatility towards theend of calendar year 2018,conditions in global debt capitalmarkets rebounded in 2019,with the Australian marketperforming particularly strongly.Offshore debt issuan
186、cespreads are largely unchanged when compared to thebeginning of the September 2019 financial year,while theAustralian market has outperformed,with credit spreadsreaching tighter levels.NABs average term wholesalefunding issuance cost was higher in the September 2019half year,this was driven by the
187、issuance of subordinatedTier 2 debt.Term funding markets will continue to beinfluenced by investor sentiment,macroeconomicconditions,monetary and fiscal policy settings as well ashedging costs in various derivative markets.The Group maintains a well-diversified funding profileacross issuance type,cu
188、rrency,investor location and tenor,and raised$26.2 billion during the September 2019financial year.NAB raised$22.2 billion of term funding,comprising$13.8billion of senior unsecured funding,$5.2 billion of securedfunding(comprised of covered bonds and residentialmortgage backed securities(RMBS)and$3
189、.2 billion ofsubordinated Tier 2 funding.BNZ raised$4.0 billion duringthe September 2019 financial year.(1)Source:APRA Monthly Authorised Deposit-taking Institution Statistics.The collection data is aligned to the new regulatory definitions set by APRA.APRA havepublished comparatives restating March
190、 2019 only.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)152019 Annual Financial ReportThe weighted average maturity of term wholesale fundingraised by the Group over the September 2019 financial yearwas approximately 5.7 years to the first call date,inclusiveof subordinated debt.T
191、he weighted average remainingmaturity of the Groups term wholesale funding portfolio is3.2 years.Short-term Wholesale FundingThe Group maintained consistent access to internationaland domestic short-term wholesale funding markets duringthe September 2019 financial year,noting certain periods ofincre
192、ased volatility.In addition,repurchase agreements have been primarilyutilised to support markets and trading activities.Repurchase agreements entered into are materially offset byreverse repurchase agreements with similar tenors and arenot used to fund NABs core activities.Liquidity Coverage RatioTh
193、e liquidity coverage ratio(LCR)metric measures theadequacy of high quality liquid assets(HQLA)available tomeet net cash outflows over a 30 day period during asevere liquidity stress scenario.HQLAs consist of cash andcentral bank reserves along with highly rated governmentand central bank issuance.In
194、 addition to HQLA,otherregulatory liquid assets included in the Committed LiquidityFacility(CLF)also contribute to the LCR calculation.Theapproved CLF size for 2019 was$55.9 billion($59.3 billionfor calendar year 2018).The Group maintains a well-diversified liquid asset portfolioto support regulator
195、y and internal requirements in thevarious regions in which it operates.The value of regulatoryliquid assets held through the September 2019 quarter was$143 billion which consisted of$88 billion of HQLA.TheGroup also holds alternative liquid assets(ALA)which arepools of internally securitised mortgag
196、es and other non-HQLA securities.ALAs are a source of contingent liquidityused to collateralise the CLF or are repo-eligible securitieswith the Reserve Bank of New Zealand.The average value ofALAs held over the September 2019 quarter was$55 billion.A detailed breakdown of quarterly average net casho
197、utflows is provided in the Pillar 3 Report.Credit RatingsEntities in the Group are rated by S&P Global Ratings,Moodys Investors Service and Fitch Ratings.DividendsThe directors have determined a final dividend of 83 centsper fully paid ordinary share,100%franked,payable on12 December 2019.The propos
198、ed payment amounts toapproximately$2,393 million.The Group periodicallyadjusts the Dividend Reinvestment Plan(DRP)to reflect thecapital position and outlook.The Group will apply a 1.5%discount on the DRP,with no participation limit.Dividends paid since the end of the previous financial year:The fina
199、l dividend for the year ended 30 September 2018of 99 cents per fully paid ordinary share,100%franked,paid on 14 December 2018.The payment amount was$2,707 million.The interim dividend for the year ended 30 September2019 of 83 cents per fully paid ordinary share,100%franked,paid on 3 July 2019.The pa
200、yment amount was$2,333 million.Information on the dividends paid and determined to dateis contained in Note 28 Dividends and distributions of thefinancial statements.The franked portion of these dividendscarries Australian franking credits at a tax rate of 30%,reflecting the current Australian compa
201、ny tax rate of 30%.New Zealand imputation credits have also been attached tothe dividend at a rate of NZ$0.15 per share.Franking is notguaranteed.The extent to which future dividends onordinary shares and distributions on frankable hybrids willbe franked will depend on a number of factors,includingc
202、apital management activities and the level of profitsgenerated by the Group that will be subject to tax inAustralia.Review of,and Outlook for,the GroupOperating EnvironmentGlobal Business EnvironmentGlobal economic growth has slowed in calendar year 2019,likely to its slowest pace since calendar yea
203、r 2009-belowthe average rate of growth recorded since calendar year1980.The easing in growth has been broad based,including:An easing in US economic growth.A slowdown in the Euro-zone,particularly in Germany.A sharp downturn in Indian economic growth.A US-China trade dispute related decline in growt
204、h acrossmuch of the East Asian region.A continuation of the decline in Chinas growth rate evenas policy moves to offset the impact of the US-Chinadispute.A steep drop in economic growth in Latin America.In response to the slowdown in global growth,many centralbanks have loosened monetary policy:The
205、US Federal Reserve cut the federal funds rate targetrange by 75bps between July and October 2019.The European Central Bank cut its deposit rate inSeptember,and announced a restart of its quantitativeeasing(QE)program in November.A range of Emerging Market central banks have alsoreduced their policy
206、rate.The action being taken by central banks would be expectedto help stabilise growth.However,there are a range of risksaround the global outlook.How the US-China trade disputeand other trade issues will evolve is unclear.Other geo-political risks include the uncertainty around Brexit,ongoing prote
207、sts in Hong Kong,and oil supply disruptionsin the middle-east.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)16National Australia BankAustralian EconomyThe Australian economy grew by 1.4%over the year to June2019,its weakest growth since 2009.The annual growthrate reflects:Household
208、 weakness,with consumption growth subduedand residential dwelling investment falling.Strong growth in public consumption and continuing,but more moderate,growth in public investment(excluding asset transfers with the private sector).A decline in business investment(excluding assettransfers with the
209、public sector),with modest growth innon-mining investment offset by a further decline inmining investment.However,mining investmentstabilised in the last quarter.A more moderate pace of export volume growth.Overall,domestic demand is being supported bygovernment spending while private sector demand
210、is weak.Private sector demand declined by 0.3%over the year toJune 2019,the weakest it has been since 2009.Business conditions have trended down since mid 2018and in September 2019 were below average.While there is a disparity in conditions across industries andgeographies,the slowdown in business c
211、onditions has beenbroad based.Retail sector conditions are particularly weak.In US dollar terms,the RBA commodity price index inOctober 2019 was 5.6%lower than the same month a yearago.In Australian dollar terms,the index fell by 1.3%overthe year to October 2019,but still remains relatively highcomp
212、ared with the last several years.Agricultural prices are at generally reasonable levels,although the NAB Rural Commodities Index declined 3.5%(Australian dollar terms)over the year to September 2019.Seasonal conditions are a major challenge in many areas.Most of New South Wales and parts of Queensla
213、ndcontinue to experience severe drought.The Bureau ofMeteorologys outlook for a dry spring-early summer periodis a serious concern.Year-average GDP growth is expected to be only around1.7%in calendar year 2019,but some improvement isexpected in 2020 and 2021 with growth projected to riseabove 2.0%bu
214、t remain below trend.The key dynamics are aweak household sector(due in part to sluggish householdincome growth and high debt levels),with only modestgrowth in consumption and declining dwelling investment.Public spending,business investment and,in the near term,exports are expected to support growt
215、h.With growth expected to be below trend,theunemployment rate is expected to rise slightly.However,fornow,the labour market remains reasonably healthy:Employment growth is above the rate of working-agepopulation growth.While the unemployment rate has drifted up from 4.9%in February 2019 to 5.2%in Se
216、ptember 2019 it is stillbelow its average over the last twenty years.However,underemployment remains elevated.Annual wage growth has strengthened a little sincemid-2017,but remains low by historical standards.Dwelling prices in Australian capital cities have stabilised:The CoreLogic hedonic dwelling
217、 price index for the eightcapital cities declined between September 2017 and June2019,but has since increased through to October 2019.The turnaround is evident in Sydney,Melbourne andBrisbane;while in October dwelling prices were stilllower than a year ago they have increased in recentmonths.Prices
218、have continued to fall in Perth,and there has alsobeen a modest fall in Adelaide dwelling prices sinceDecember 2018.Total system credit growth has eased since September 2018:Annual housing credit growth was 3.1%in September2019,down from 5.2%last September.Growth in bothowner occupier and investor c
219、redit slowed over thisperiod.Annual business credit growth was 3.3%in September2019,down from 4.4%in September 2018 and otherpersonal credit continues to decline.The RBA reduced the Cash Rate by a total of 75 basis pointsbetween June and October 2019.It expects an extendedperiod of low interest rate
220、s will be required and has statedthat it is ready to ease monetary policy further if needed.With inflation below target and the prospect of adeterioration in the labour market,a further reduction inthe Cash Rate is expected and there is a possibility ofunconventional monetary policy action.How far t
221、he RBAmay have to ease monetary policy will be influenced byFederal government fiscal policy as well as globaldevelopments.New Zealand EconomyOver the year to the June quarter 2019,GDP grew by amodest 2.1%,down from the 3.2%pace of growth seen ayear earlier.Factors behind the easing in growth includ
222、e:Capacity constraints faced by business,highlighted by alow unemployment rate.Weak business confidence,and pressure on profits,constraining business investment.A slowing in population growth as net inward migrationhas eased.New Zealand is also facing a challenging internationalenvironment,reflected
223、 in slowing global growth.However,while it may be a factor in the decline in businessconfidence,at this stage the fall-out remains contained asthe terms-of-trade remains at a high level and exportvolumes have been increasing.Reflecting concerns over the growth outlook for theeconomy,as well as low i
224、nflation,the Reserve Bank of NewZealand(RBNZ)reduced the Official Cash Rate(OCR)at itsMay 2019(by 25 basis points)and August 2019(by 50 basispoints)meetings.The easing in monetary policy will providesupport to the economy,as should fiscal policy.REPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(
225、CONTINUED)172019 Annual Financial ReportAnnual average GDP growth is expected to be 2.2%incalendar year 2019,and at a similar or slightly lower levelover the following two years.Over the year to the June quarter 2019,consumptiongrowth was solid,as was growth in government spending,but business inves
226、tment was weak,only growing by 0.3%,and export volume growth was modest.Over this period,residential building investment was also solid with above-average growth of 5.2%.The number of building consentscontinues to trend upwards and in September 2019 was at ahigh level,indicating further increases in
227、 residentialinvestment is likely.Commodity export prices increased by 7.2%in world priceterms over the twelve months to October 2019,and by 9.7%in NZ dollar terms.International dairy export prices have increased by 12.8%over the year to October 2019 and are close to their 10year average.Fonterras 20
228、18/19 farmgate milk price wasNZ$6.35 per kg milk solids,and it expects an improvedresult(NZ$6.55-7.55)for the 2019/20 season.Export prices for other commodities are generally at solidlevels,although,horticultural,aluminium and forestryproduct prices have declined from their calendar year2018 peaks.H
229、ousing market conditions have been subdued but haverecently shown some signs of strengthening:The REINZs House Price Index grew by 3.6%over theyear to September 2019,but has grown by 3.1%over thelast three months alone.Similarly prices in Auckland arelower than a year ago but have risen in recent mo
230、nths.House price growth has been much stronger in someother localities,at 10%or more over the year toSeptember.Sales volumes rose by 3.3%over the year to September2019.According to the RBNZ,factors that may have weighed onhouse prices include tighter restrictions on non-residentpurchases,affordabili
231、ty constraints,lower netimmigration and elevated dwelling construction.Lowerinterest rates should provide support to prices.The labour market is healthy:While the unemployment rate increased in theSeptember quarter 2019 to 4.2%,from the eleven yearlow reached in the June quarter,it remains relativel
232、y low.However,employment growth has slowed in recentyears.In the September quarter 2019,employment was0.9%higher than the same time a year ago.Wage growth has been increasing.Overall system credit growth was 5.6%over the year toSeptember 2019,up from 5.2%the same month a year ago.This reflects stron
233、ger business credit growth(excludingagriculture),although there is a high degree of volatilitymonth-to-month,and an acceleration in housing creditgrowth.In contrast,personal consumer credit growth has slowedconsiderably.OutlookThe outlook for the Groups financial performance andoutcomes is closely l
234、inked to the levels of economic activityin each of the Groups key markets as outlined above.Disclosure on Risk FactorsRisks specific to the GroupSet out below are the principal risks and uncertaintiesassociated with the Company and the Group.It is notpossible to determine the likelihood of these ris
235、ks occurringwith any certainty.However,the risk in each category thatthe Company considers most material is listed first,basedon the information available at the date of this Report andthe Companys best assessment of the likelihood of eachrisk occurring and potential magnitude of the negativeimpact
236、to the Group should such risk materialise.In theevent that one or more of these risks materialise,theGroups reputation,strategy,business,operations,financialcondition and future performance could be materially andadversely impacted.The Groups risk management framework and internalcontrols may not be
237、 adequate or effective in accuratelyidentifying,evaluating or addressing risks faced by theGroup.There may be other risks that are currently unknownor are deemed immaterial,but which may subsequentlybecome known or material.These may individually or inaggregate adversely impact the Group.Accordingly
238、,noassurances or guarantees of future performance,profitability,distributions or returns of capital are given bythe Group.Strategic RiskStrategic risk is the risk associated with the pursuit of theGroups strategic objectives including the risk that theGroup fails to execute its chosen strategy effec
239、tively or in atimely manner.Strategic initiatives may fail to be executed,may notdeliver all anticipated benefits and may change theGroups risk profile.The Groups corporate strategy sets its purpose,vision andobjectives,and focuses on:Becoming the best business bank.Simplifying the Groups business t
240、o improve efficiencyand better service its customers.Pursuing new and emerging growth opportunities.Attracting and developing people to create a highperforming culture.The Group prioritises,and invests significant resources in,the execution of initiatives that are aligned to its strategy,including t
241、ransformation and change programs.Theseprograms focus on technology,infrastructure,businessimprovement and cultural transformation.There is a riskthat these programs may not realise some or all of theiranticipated benefits.These programs may also increaseoperational,compliance and other risks.Any fa
242、ilure by theGroup to deliver in accordance with its strategy or to deliverREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)18National Australia Bankthese strategic programs effectively,may result in materiallosses to the Group,or a failure to achieve anticipatedbenefits,and ultimately
243、,may adversely impact the Groupsoperations and financial performance and position.The Group faces intense competition.There is substantial competition across the markets in whichthe Group operates.The Group faces competition fromestablished financial services providers as well as newmarket entrants,
244、including foreign banks and non-bankcompetitors with lower costs and new operating andbusiness models.In addition,evolving industry trends andrapid technology changes may impact customer needs andpreferences and the Group may not predict these changesaccurately or quickly enough,or have the resource
245、s andflexibility to adapt in sufficient time to meet customerexpectations and keep pace with competitors.The Australian Commonwealth Government(the AustralianGovernment)passed legislation in August 2019 to establisha Consumer Data Right which seeks to improve consumersability to compare and switch b
246、etween products andservices.It is proposed to apply to the banking sector fromFebruary 2020.These reforms(referred to as OpenBanking)are expected to reduce the barriers to newentrants into,and increase competition in,the bankingindustry in Australia.Progress is also being made towardsOpen Banking in
247、 New Zealand(NZ).Ongoing competition for customers can lead tocompression in profit margins and loss of market share,which may ultimately impact on the Groups financialperformance and position,profitability and returns toinvestors.The Groups intended divestment of its Advice,Platform&Superannuation
248、and Asset Management businesses maynot proceed and there are risks in executing thedivestment.The Group intends to divest its Advice,Platform&Superannuation and Asset Management businesses(theMLC Wealth Divestment).The Groups decision to proceedwith,and its ability to execute,the MLC Wealth Divestme
249、ntis subject to a number of factors,including marketconditions,the impact of regulatory change andinvestigations(including any implications of the findings ofthe Final Report of the Royal Commission),the cost andcomplexity of separation,and obtaining Board andregulatory approvals.If the Group does p
250、roceed with the MLC Wealth Divestment,it will incur costs associated with the transaction.Inaddition,the MLC Wealth Divestment will result in theGroup exiting a financial services market and accordinglywill decrease the size of the Groups operations.This willhave a consequential impact on the Groups
251、 revenues andpotentially its profitability and returns to investors.If the Group decides not to,or is unable to,proceed withthe MLC Wealth Divestment,it will still incur costs that it isunable to recover.In addition,the terms of the MLC WealthDivestment,and the execution of its separation may create
252、risks and uncertainty for the Group and its customers,aligned advisers,employees,suppliers and othercounterparties.Risks may arise from pursuing acquisitions anddivestments.The Group regularly considers a range of corporateopportunities,including acquisitions,divestments,jointventures and investment
253、s.Pursuit of corporate opportunities inherently involvestransaction risks,including over-valuation of an acquisitionor investment or under-valuation of a divestment,andexposure to reputational damage.The Group mayencounter difficulties in integrating or separatingbusinesses,including failure to real
254、ise expected synergies,disruption to operations,diversion of managementresources or higher than expected costs.These risks anddifficulties may ultimately have an adverse impact on theGroups financial performance and position.The Group may incur unexpected financial losses followingan acquisition,joi
255、nt venture or investment if the business itinvests in does not perform as planned or causesunanticipated changes to the Groups risk profile.Additionally,there can be no assurance that employees,counterparties,suppliers,customers and other relevantstakeholders will remain with an acquired businessfol
256、lowing the transaction and any failure to retain suchstakeholders may have an adverse impact on the Groupsoverall financial performance and position.The Group may also have ongoing exposures to divestedbusinesses,including through the provision of continuedservices and infrastructure or an agreement
257、 to retain certainliabilities of the divested businesses through warranties andindemnities,which may have an adverse impact on theGroups business and financial performance and position.In particular,specific risks exist in connection with the saleof 80%of MLC Limited to Nippon Life Insurance Company
258、(Nippon Life)in 2016.The Company gave certain covenants,warranties and indemnities in favour of Nippon Life andMLC Limited,a breach or triggering of which may result inthe Company being liable to Nippon Life or MLC Limited.The parties also entered into long-term agreements for thedistribution of lif
259、e insurance products and the continueduse of the MLC brand by MLC Limited.The duration andnature of these agreements give rise to certain risks,including that changes in the regulatory or commercialenvironment impact the commercial attractiveness of theseagreements.These agreements also limit future
260、opportunities for the Company through non-competearrangements.The Company agreed to take certain actions to establishMLC Limited as a standalone entity,including the provisionof transitional services,as well as support for data migrationactivities and the development of technology systems.Asthis wor
261、k is yet to be completed,there is a risk thatREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)192019 Annual Financial Reportimplementation costs may ultimately prove higher thananticipated.The Company may also be liable to MLC Limitedor Nippon Life if it fails to perform its obligatio
262、ns inaccordance with the agreements relating to these matters.Ifimplementation costs are higher than expected,or if theCompany fails to perform its obligations in accordance withthe relevant agreements,there may be an adverse impacton the Groups financial performance and position.Credit RiskCredit r
263、isk is the risk that a customer will fail to meet itsobligations to the Group in accordance with agreed terms.Credit risk arises from both the Groups lending activitiesand markets and trading activities.A decline in the residential property market may give riseto higher losses on defaulting loans.Le
264、nding activities account for most of the Groups creditrisk.The Groups lending portfolio is largely based inAustralia and NZ.Residential housing loans and commercialreal estate loans constitute a material component of theGroups total gross loans and acceptances.A decline in thevalue of residential pr
265、operty has been observed in someareas in Australia.A range of factors could contribute tofurther declines in residential property prices.This includesregulatory changes which may impact the availability ofcredit,shifts in government policies that are less favourableto immigration and overseas invest
266、ment,changes totaxation policy and rising unemployment.If this occurs,thedeclining value of the residential property used as collateral(including in business lending)may give rise to greaterlosses to the Group resulting from customer defaults,which,in turn,may impact the Groups financialperformance
267、and position,profitability and returns toinvestors.The most significant impact is likely to beexperienced by residential mortgage customers in highloan-to-value-ratio brackets.Adverse business conditions in Australia and NZ,particularly in the agriculture sector,the consumer facingsector,or both,may
268、 give rise to increasing customerdefaults.The Group has a large share of the business lending marketin Australia and NZ.Should adverse business conditionslead to defaults by business customers in these markets,theGroup may experience an adverse impact on its financialperformance and position.Specifi
269、cally,the Group has a large market share in theAustralian and NZ agricultural sectors,particularly the dairysector in NZ.Volatility in commodity prices,milk prices,foreign exchange rate movements,disease and introductionof pathogens and pests,export and quarantine restrictions,and extreme weather ev
270、ents may negatively impact thesesectors.This may result in increased losses to the Groupfrom customer defaults,and ultimately may have an adverseimpact on the Groups financial performance and position.Customers of the Group whose businesses are in consumerfacing industries are also confronting chall
271、enges includinghigh levels of household debt,low wage growth and therecent decline in house prices weighing on consumerconfidence and impacting their business performance.These factors may give rise to an increase in customerdefaults,ultimately affecting the Groups financialperformance and position,
272、profitability and returns toinvestors.Climate change and extreme climate patterns may lead toincreasing customer defaults and may decrease the valueof collateral.Credit risk may arise as a result of climate change,includingextreme weather events affecting property values orbusiness operations,the ef
273、fect of new laws and governmentpolicies designed to mitigate climate change,and theimpact on certain customer segments as the economytransitions to renewable and low-emission technology.There is a risk of increased levels of customer default inaffected business sectors.The impact of this on the Grou
274、pmay be exacerbated by a decline in the value and liquidityof assets held by the Group as collateral in these sectors,which may impact the Groups ability to recover underdefaulting loans.For example,parts of eastern Australia are experiencingsevere drought conditions.The impact of these conditionsis
275、 expected to extend beyond primary producers,tocustomers who are suppliers to the agricultural sector,andto those who reside in and operate businesses withinregional communities.Extreme weather events and otherclimate patterns in other parts of Australia may have similarimpacts on other business sec
276、tors.These impacts mayincrease current levels of customer defaults,therebyincreasing the credit risk facing the Group and adverselyimpacting the Groups financial performance and position,profitability and returns to investors.The Groups losses may differ materially from itsprovisions which may impac
277、t its financial performanceand position.The Group provides for expected losses from loans,advances and other assets.Estimating losses in the loanportfolio is,by its very nature,uncertain.The accuracy ofthese estimates depends on many factors,including generaleconomic conditions,forecasts and assumpt
278、ions,andinvolves complex modelling and judgements.If theassumptions upon which these assessments are made proveto be inaccurate,the provisions for credit impairment mayneed to be revised.This may adversely impact the Groupsfinancial performance and position.The Group may be adversely impacted by mac
279、ro-economicand geopolitical risks and financial market conditionswhich pose a credit risk.The majority of the Groups businesses operate in Australiaand NZ,with branches in Asia,the United Kingdom(UK)andthe United States(US).Levels of borrowing are heavilydependent on customer confidence,employment t
280、rends,market interest rates,and other economic and financialREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)20National Australia Bankmarket conditions and forecasts most relevantly for theGroup in Australia and NZ,but also in the global locationsin which the Group operates.Domestic a
281、nd international economic conditions andforecasts are influenced by a number of macro-economicfactors,such as:economic growth rates;cost andavailability of capital;central bank intervention;inflationand deflation rates;level of interest rates;yield curves;market volatility;and uncertainty.Deteriorat
282、ion in any ofthese factors may lead to the following negative impacts onthe Group:Increased cost of funding or lack of available funding.Deterioration in the value and liquidity of assets(including collateral).Inability to price certain assets.An increase in customer or counterparty default andcredi
283、t losses.Higher provisions for credit impairment.Mark-to-market losses in equity and trading positions.Lack of available or suitable derivative instruments forhedging purposes.Lower growth in business revenues and earnings.Increased cost of insurance,lack of available or suitableinsurance,or failure
284、 of the insurance underwriter.Economic conditions may also be impacted by climatechange and major shock events,such as natural disasters,war and terrorism,political and social unrest,and sovereigndebt restructuring and defaults.The following macro-economic and financial marketconditions are currentl
285、y of most relevance to the credit riskfacing the Group and may give rise to slower revenuegrowth and/or increasing customer defaults:Global economic growth is trending downwards whichmay create credit risk for the Group.The Groups keymarkets of Australia and NZ are small,open economieswhere national
286、 income(and with it,the capacity forbusinesses and households to service debt)is impactedby global trends.The current global economic cyclepeaked in early 2018 and growth has slowed since thistime,due to fading fiscal stimulus,the impact of US-China trade tensions,and tighter monetary policy in theU
287、S,Canada and the UK,among other jurisdictions.In response to weakening growth,some central banks,including the Reserve Bank of Australia and the USFederal Reserve,have eased monetary policy andindicated further rate cuts could occur.Given extremelylow policy rates in some countries,policy easing may
288、also involve additional quantitative easing.Policy easingwould be expected to reduce short-term downside risksto growth,but risks building on existing imbalances invarious asset classes and regions.Policy easing may alsoreduce the impetus for highly geared borrowers todeleverage thereby increasing t
289、he credit risk posed tothe Group by these highly geared customers.As a key trading partner,Chinas economic growth isimportant to Australia and NZ,with export income andbusiness investment exposed to any sharp slowdown inthe rapid pace of Chinese economic growth.Chinas highand growing debt burden pre
290、sents a risk to its medium-term growth prospects.Due to its export mix,Australiaseconomy is exposed to any sudden downturn in Chinasdomestic investment in business,infrastructure orhousing.Any such downturn could therefore have anegative impact on the Groups customers who areexposed to these sectors
291、,and may give rise to increasinglevels of customer defaults.The ongoing trade tensions between the US and Chinapresent additional uncertainty that poses risks to globaleconomic growth.There remains the possibility offurther trade measures that will negatively impact globaleconomic growth.Although Ch
292、ina is the primary targetof US trade measures,value chain linkages mean thatother emerging markets,primarily in Asia,may also beimpacted.A number of emerging markets in East Asia aremajor trading partners with Australia and NZ andaccordingly a negative impact on their economies mayincrease the credi
293、t risk facing the Group.Geopolitical risks continue to present uncertainty to theglobal economic outlook,with negative impacts onconsumption and business investment.An increasingfragmentation of,and a rise in populism in,many majordemocratic economies have led to difficulties in policyimplementation
294、.Protests in Hong Kong are creatingpolitical tensions between the Hong Kong SpecialAdministrative Region and mainland China.Theuncertainty surrounding the UKs departure from theEuropean Union continues,with a general electionscheduled prior to the recently extended deadline,withthe major parties off
295、ering differing ways forward forBrexit.In addition,there are a range of other geopoliticalrisks,particularly given the ongoing uncertainty aroundthe Korean Peninsula,South China Sea and US sanctionson Iran.Australias economic growth has slowed in 2019,which islargely a reflection of weakness in hous
296、ehold demand.Wages growth has been weak,and if the slowdown ingrowth persists,unemployment is expected to rise.NZseconomic growth has also slowed.A slowdown ineconomic growth in Australia and NZ and any resultingincrease in unemployment may negatively impact debtservicing levels,increase customer de
297、faults andnegatively impact the Groups financial performance andposition and its profitability.As commodity exporting economies,Australia and NZ areexposed to shifts in global commodity prices that can besudden,sizeable and difficult to predict.Fluctuations incommodity markets can affect key economi
298、c variableslike national income tax receipts and exchange rates.Previous sharp declines in commodity prices in Australiaand NZ were driven by sub-trend global growthconstraining demand,combined with increases incommodity supply.Commodity price volatility remainssubstantial and given the Groups sizea
299、ble exposures tocommodity producing and trading businesses,thisREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)212019 Annual Financial Reportvolatility poses a significant source of credit risk to theGroup.Market RiskMarket risk is the risk of loss from the Groups tradingactivities.T
300、he Group may suffer losses as a result of achange in the value of the Groups positions in financialinstruments or their hedges due to adverse movements inmarket prices.Adverse price movements impacting theGroup may occur in credit spreads,interest rates,foreignexchange rates,and commodity and equity
301、 prices,inparticular during periods of heightened market volatility orreduced liquidity.Credit spread risk is the risk of the Groups trading bookbeing exposed to movements in the value of securities andderivatives as the result of changes in the perceived creditquality of the underlying company.Cred
302、it spread riskaccumulates in the Groups trading book when it providesrisk transfer services to customers seeking to buy or sellfixed income securities(such as corporate bonds).TheGroup may also be exposed to credit spread risk whenholding an inventory of fixed income securities inanticipation of cus
303、tomer demand or undertaking market-making activity(i.e.quoting buy and sell prices to clients)infixed income securities.Interest rate risk is the risk of the Groups trading bookbeing exposed to changes in the value of securities andderivatives as the result of changes in interest rates.TheGroups tra
304、ding book accumulates interest rate risk whenthe Group provides interest rate hedging solutions forclients,holds interest rate risk in anticipation of customerrequirements or undertakes market-making activity in fixedincome securities or interest rate derivatives.The occurrence of any event giving r
305、ise to a materialtrading loss may have a negative impact on the Groupsfinancial performance and financial position.Balance Sheet and Liquidity RiskBalance sheet and liquidity risk comprises key banking bookstructural risks of the Group,such as liquidity risk,fundingrisk,interest rate risk,capital ri
306、sk and foreign exchange risk.The Group is exposed to funding and liquidity risk.Funding risk is the risk that the Group is unable to raiseshort and long-term funding to support its ongoingoperations,strategic plans and objectives.The Groupaccesses domestic and global capital markets to help fundits
307、business,in addition to using customer deposits.Dislocation in any of these capital markets,reduced investorinterest in the Groups securities and/or reduced customerdeposits,may adversely affect the Groups funding andliquidity position,increase the cost of obtaining funds orimpose unfavourable terms
308、 on the Groups access to funds,constrain the volume of new lending,or adversely affect theGroups capital position.Liquidity risk is the risk that the Group is unable to meet itsfinancial obligations as they fall due.These obligationsinclude the repayment of deposits on demand or at theircontractual
309、maturity,the repayment of wholesaleborrowings and loan capital as it matures,the payment ofinterest on borrowings and the payment of operationalexpenses and taxes.The Group must also comply withprudential and regulatory liquidity obligations across thejurisdictions in which it operates.Any significa
310、ntdeterioration in the Groups liquidity position may lead toan increase in the Groups funding costs,constrain thevolume of new lending,result in the Group drawing uponits committed liquidity facility with the Reserve Bank ofAustralia or cause the Group to breach its prudential orregulatory liquidity
311、 obligations.This may adversely impactthe Groups reputation and financial performance andposition.The Groups capital position may be constrained byprudential requirements.Capital risk is the risk that the Group does not holdsufficient capital and reserves to cover exposures and toprotect against une
312、xpected losses.Capital is thecornerstone of the Groups financial strength.It supports anauthorised deposit-taking institutions(ADIs)operations byproviding a buffer to absorb unanticipated losses from itsactivities.Compliance with prudential capital requirements in thejurisdictions in which the Group
313、 operates and any furtherchanges to these requirements may:Limit the Groups ability to manage capital across theentities within the Group.Limit payment of dividends or distributions on sharesand hybrid instruments.Require the Group to raise more capital(in an absolutesense)or raise more capital of h
314、igher quality.Restrict balance sheet growth.Additionally,if the information or the assumptions uponwhich the Groups capital requirements are assessed proveto be inaccurate,this may adversely impact the Groupsoperations,and financial performance and position.A significant downgrade in the Groups cred
315、it ratings mayadversely impact its cost of funds and capital marketaccess.Credit ratings are an assessment of a borrowerscreditworthiness and may be used by market participants inevaluating the Group and its products,services andsecurities.Credit rating agencies conduct ongoing reviewactivities,whic
316、h can result in changes to credit ratingsettings and outlooks for the Group,or sovereignjurisdictions where the Group conducts business.Creditratings may be affected by operational and market factors,or changes in the credit rating agencys ratingmethodologies.A downgrade in the credit ratings or out
317、look of the Group,the Groups securities,or the sovereign rating of one ormore of the countries in which the Group operates,mayincrease the Groups cost of funds or limit access to capitalREPORT OF THE DIRECTORSOPERATING AND FINANCIAL REVIEW(CONTINUED)22National Australia Bankmarkets.This may also cau
318、se a deterioration of the Groupsliquidity position and trigger additional collateralrequirements in derivative contracts and other securedfunding arrangements.A downgrade to the Groups creditratings relative to peers may also adversely impact theGroups competitive position and financial performance
319、andposition.The Groups financial performance and capital positionmay be adversely impacted by interest rate fluctuations.Interest rate risk is the risk to the Groups financialperformance and capital position caused by changes ininterest rates.Factors which may affect the level of interestrate risk i
320、nclude all on-balance sheet and off-balance sheetitems that create an interest rate risk exposure within theGroup.As interest rates and yield curves change over time,including negative interest rates in certain countries inwhich the Group operates,the Group may be exposed to aloss in earnings and ec
321、onomic value due to the interest rateprofile of its balance sheet.Such exposure may arise from amismatch between the maturity profile of the Groupslending portfolio compared to its deposit portfolio(andother funding sources),as well as the extent to whichlending and deposit products can be repriced
322、as interestrates approach zero or become negative,thereby impactingnet interest margin.The Group may fail to or be unable to sell down itsunderwriting risk.As financial intermediaries,members of the Groupunderwrite or guarantee different types of transactions,risks and outcomes,including the placeme
323、nt of listed andunlisted debt,equity-linked and equity securities.Theunderwriting obligation or guarantee may be over thepricing and placement of these securities,and the Groupmay therefore be exposed to potential losses,which may besignificant,if it fails to sell down some or all of this risk tooth
324、er market participants.The value of the Groups banking book may be adverselyimpacted by foreign exchange rates.Foreign exchange and translation risk arises from theimpact of currency movements on the value of the Groupscash flows,profits and losses,and assets and liabilities dueto participation in g
325、lobal financial markets and internationaloperations.The Groups ownership structure includes investment inoverseas subsidiaries and associates which gives rise toforeign currency exposures,such as repatriation of capitaland dividends.The Group also conducts business outside ofAustralia and transacts
326、with customers,banks and othercounterparties in a number of different currencies.TheGroups businesses may therefore be affected by a changein currency exchange rates,or a change in the reservestatus of any of these currencies.The Groups financial statements are prepared andpresented in Australian do
327、llars,and any adversefluctuations in the Australian dollar against other currenciesin which the Group invests or transacts and generatesprofits(or incurs losses)may adversely impact its financialperformance and position.Operational RiskOperational risk is the risk of loss resulting from inadequateor
328、 failed internal processes,people and systems or externalevents.This includes legal risk,but excludes strategic andreputation risk.Disruption to technology may adversely impact theGroups reputation and operations.Most of the Groups operations depend on technology,andtherefore the reliability and sec
329、urity of the Groupsinformation technology systems and infrastructure areessential to the effective operation of its business andconsequently to its financial performance and position.Thereliability of technology may be impacted by the complextechnology environment,failure to keep technologysystems u
330、p-to-date,an inability to restore or recoversystems in acceptable timeframes,or a physical or cyber-attack.The rapid evolution of technology in the financial servicesindustry and the increased expectation of customers forinternet and mobile services on demand expose the Groupto new operational chall
331、enges.Any disruption to the Groups technology(includingdisruption to the technology systems of the Groupsexternal providers)may be wholly or partially beyond theGroups control and may result in:operational disruption;regulatory enforcement actions;customer redress;litigation;financial losses;theft o
332、r loss of customer data;loss of market share;loss of property or information;ormay adversely impact the speed and agility in the deliveryof change and innovation.In addition,any such disruption may adversely affect theGroups reputation,including the view of regulators orratings agencies,which may re
333、sult in loss of customers,areduction in share price,ratings downgrades and regulatorycensure or penalties.Social media commentary may furtherexacerbate such adverse outcomes for the Group andnegatively impact the Groups reputation.Privacy,security and data breaches may adversely impactthe Groups reputation and operations.The Group processes,stores and transmits large amounts ofpersonal and confide
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