On 19 October 2018, at the parliamentary committee in Canberra, the CEO of National Australia Bank (ASX: NAB) – Mr. Andrew Thorburn announced that this year was difficult and shameful for the bank due to misconduct of its bankers. He regretted the fact that customers of the banks have lost trust in NAB due to the appalling behavior of the staff members.
He admitted that the bank did not have enough controls to solve the problems when it was raised first time and failed to compensate to its customers on time. He also acknowledged that there was too much of a short-term focus due to which banks drifted away from customers and they started preferring profits over customers.
In the investigation, NAB questioned around 1200 staff members and it found out that there was too much focus on bonuses and product sales by the bankers and to achieve those targets many bankers got involved in the misconduct. Around 700 staff members are facing a reduction in pay and other consequences. Moreover, around 300 bankers have been sacked by the NAB for breaching the rules of the bank.
At the Royal Commission, it was revealed that the NAB is charging farmers default interest. Mr. Andrew Thorburn has revealed that the bank has stopped charging the default interest for agriculture clients in drought effected areas. Moreover, he has also asked for a review of default interest and the bank is reviewing the quantum of the charges.
When Mr. Andrew Thorburn was asked whether a $1 million loan, charging a customer $100,000 a year of default interest should be seen as an unlawful penalty. He replied that it is not an unlawful penalty and these contracts have been around for a while, however, he agreed that it is not a right thing to charge vulnerable farming customers such penalties. He committed that NBA will review this and will make it clearer and more consistent for Bank’s clients going forward.
When did the Chairman Mr. Tim Wilson ask the final question of what do international investors think about the royal commission? Mr. Andrew Thorburn expressed that Investors were surprised by the extent of the cases of misconduct in the banks and although they still see Australia and the banking system as strong, and viable and progressive, it does raise some questions of risk premium, because of what could happen with regulation, what could happen with compensation and what could happen with fines. And, as a result of that could become little more reluctant to get as heavily involved at the moment.
In the past three months, the share price of NAB decreased by 7.91 percent from $27.950 to $25.740 as on 18 October 2018, traded at a PE level of 13.220x. NAB’s shares witnessed an intraday decrease of 0.272 percent and traded at $25.670 with a market capitalization of circa $70.38 billion as on 19 October 2018 (AEST 4:00 PM).
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