Banks need A change in Operating Strategy, straight from the horse's mouth- NAB

Summary

• NAB is prepared to slash hundred IT jobs next month as a part of the cost containment drive.
• The Bank has been planning some reforms in its operating model with a focus on boosting efficiency and centralising teams.
• NAB and Microsoft inked a 5-year multi-cloud partnership to boost speed, resilience, and innovation.
• The Australian Banking Association announced in July that banks would extend loan repayment deferral period to 10 months, with an addition of 4 months from the earlier 6-months, for borrowers in financial distress due to COVID-19.

On 13 August, S&P/ASX200 index was trading at 6078.3, marginally declining by 0.88% (at AEST 3:47 PM). While S&P/ASX200 Financials (Sector) was trading at 4,860.6, falling by 1.28% (at AEST 3:50 PM).

ASX listed National Australia Bank Limited (ASX:NAB) from financials sector is set to cut at least 100 IT roles within weeks after costs of the Bank continued to escalate.

In a note to NAB's technology and enterprise operations division last week, NAB’s chief executive of technology and enterprise operations officer Patrick Wright noted that the team would see proposed changes such as centralised teams, which will increase efficiencies by allowing them to pool resources, and scale up resources when work comes. The changes will also back the roll-out of a new operating model including creation of divisional CIO teams.

A Bank spokesperson also stated that the business model for the Bank needed an overhaul and needed decisions with some roles to be believed no longer required and dropped. However, the Bank added that some new roles are being formed to assist frontline teams.

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He also stated that the Bank made an announcement in April on its move to speed to align its teams to a new operating model, have the best employees in the right positions and build different opportunities so that more consumers can be served during the tough times. NAB also indicated towards halting above 100 programs to lay emphasis on its 19 most crucial ones.

The Finance Sector Union added to it, with National Assistant Secretary Nathan Rees stating that banks are fully placed to continue to recruit Australians. The FSU believes that the existing workers must be prepared for new employment and ensuring exposure to such new career prospects is a priority. Mr Rees also added that banks realise well in advance what their potential requirements are, so they will have to provide appropriate training and skill development to existing workers to fill future positions.

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The Bank recently declared that it would cut operating hours through 114 smaller regional offices, with bankers dividing their days beyond business hours between over-the-counter operation and remote or internet banking assistance. The reforms are expected to take place by 17 August.

NAB and Microsoft inked 5-year multi-cloud partnership

In mid-July, NAB and Microsoft Corporation (NASDAQ:MSFT) inked a 5-year strategic partnership for co-designing, development, and investment in multi-cloud technology of NAB and BNZ. The collaboration will see NAB and Microsoft share technology costs and capital commitment to design a multi-domain infrastructure that will house 1,000 of the banks' applications to Microsoft Azure as the primary cloud, while making sure that the same apps can be moved onto or operate through a secondary cloud if required.

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Mr Patrick Wright expects NAB's proportion of apps on the public cloud to move from one third to about 80% by 2023.

He added that his customers' preferences have not switched, but their perception of how a more customised experience can be delivered has shifted. He stated that NAB would continue to invest in the newest technologies and innovate using industry players like Microsoft and help bring new innovations to its consumers, rapidly and at scale.

Microsoft plans to train 5,000 NAB and BNZ technologists as a component of the NAB Cloud Guild program, to make sure that NAB personnel are stocked with the skills for a successful future

COVID-19 moratorium extension

In March, Banks announced six-month moratoriums on interest payments covering both businesses, and home loans as the RBA injected money into the economy, interest had continued to accrue, while repayments were on hold.

Last month, the Australian Banking Association (ABA) had stated that banks should approach financially distressed borrowers owing to the recession at the end of their six-month deferment duration.

In July, banks announced that some borrowers who were postponing repayments on home loans for six months owing to coronavirus would be entitled to get an extra four-month moratorium. Yet, when the present deferment duration runs out in September, the Australian Banking Association would need those people who can afford to begin making repayments to do so.

The decision to revive repayments came into the picture when Australia's second-most inhabited state, Victoria, was struck by the second round of lockdowns, affecting greater Melbourne. The industry groups are fearing that the new lockdown would devastate companies that were only beginning to rebound from the first phase of the COVID-19 pandemic.

However, the change invited warnings from many economists, as well as the Central Bank of the country that withdrawal of the support in September could jeopardise sending the economy over a cliff.

Louis Christopher, SQM Research MD has stated that going forward, banks will have to write-off many loans and begin calling in for loan, where banks are certain that the borrower will not repay the mortgage. He also added that banks are already restricting new lending in some ways like lowering loan to value ratio (LVR) for new borrowers, big fall in housing approvals. etc.

Hence, sooner or later, the ledger for the banking sector needs to be squared off for which few changes in its operating strategy will be required.