Scandal-hit Aussie banks earmark billions to repay customers

Agence France-Presse

This is AI generated summarization, which may have errors. For context, always refer to the full article.

Scandal-hit Aussie banks earmark billions to repay customers

AFP

The National Australia Bank alone announces it set aside Aus$1.1 billion (US$770 million) to reimburse customers, after a government probe found rampant malpractice

SYDNEY, Australia – Australia’s big banks – once among the world’s most profitable – are being forced to amass war chests worth billions of dollars to reimburse customers for years of dodgy fees.

Industry heavyweight the National Australia Bank (NAB) on Thursday, May 2, became the latest financial house to outline the mounting cost of refunding ripped-off customers following a government probe into the sector.

The company announced it had set aside Aus$1.1 billion (US$770 million) in the last financial year to remediate customers.

A Royal Commission exposed rampant bank malpractice that included charging fees to dead people, charging fees for no services at all, aggressive selling tactics, and poor advice that led to significant financial upheaval for clients.

The year-long investigation singled out NAB for especially harsh criticism, forcing the departure of the firm’s chief executive officer and chairman. 

It “forced us to confront broader issues of how we treat customers,” the bank said in a statement Thursday.

Earlier this week NAB’s competitor ANZ said it had set aside Aus$928 million in remediation costs since the first half of the 2017 financial year and contacted more than 276,000 customers.

Commonwealth Bank and Westpac have taken similar steps. 

The total cost for the sector could be as much as Aus$6 billion, according to a Macquarie Research estimate. 

The costs – although a fraction of revenues – are beginning to be felt on the banks’ bottom lines, at a time when the housing market is slowing, and they are being asked to increase capital holdings.

Announcing half-yearly earnings, NAB said it would defer the “majority” of management bonuses and cut shareholder dividends by 16% to protect the firm’s balance sheet during a “challenging” period.

NAB said that in the past 6 months it had put aside Aus$525 million for “customer-related remediation costs,” bringing the total provisions to Aus$1.1 billion.

The bank said there was “potential for additional costs, although the amounts and timing remain uncertain.”

The process is likely to take “a considerable period of time to complete” according to Fitch Australia and New Zealand bank analyst Tim Roche.

He said that banks are only booking the charges that they can quantify, so new issues could surface or existing ones could be more complicated than expected.

“It is difficult to know precisely what the final charges will be,” he told Agence France-Presse.

While the profit impact is “manageable,” he said, it adds to the growing list of headwinds facing a sector that has been a driver of the Australian economy.

But Roche said the sector was still doing very well.

“It is adding to broader pressure from slower loan growth, margin pressure, and modest asset quality deterioration, but needs to be viewed in the context of the underlying strength of the earnings of the major banks in Australia.”

NAB shares closed down a third of a percent on the Australian Stock Exchange. – Rappler.com

Add a comment

Sort by

There are no comments yet. Add your comment to start the conversation.

Summarize this article with AI

How does this make you feel?

Loading
Download the Rappler App!