National Australia Bank Limited

Thank you, operator. Good morning, everyone.

Thank you for joining us for NAB's half year 2025 results. I'm Sally Mihell, and I'm the Head of Investor Relations.

I would like to acknowledge the traditional owners of the land I'm joining you from, the Wurundjeri peoples of the Kulin nation. I'd like to pay respect to the elders past and present elders and to the elders of the traditional land in which you are also joining from.

Presenting today will be Andrew Irvine, our Group CEO; and Shaun Dooley, our Group CFO. We're also joined in the room by members of NAB's executive team.

Andrew will present an update on the business and his strategic priorities, Shaun will provide details of the financial performance of this half. Following the presentations, there will be an opportunity for analysts and investors to ask questions.

I'll now hand to Andrew.

Thank you, Sally, and welcome to our half year 2025 results. We are managing our business well in continued challenging operating conditions, delivering higher cash earnings and return on equity.

NAB's balance sheet settings remain strong, enabling us to support our customers through the cycle. This includes helping our customers who have opportunities to grow and those who are finding the conditions tougher.

Execution of our refreshed strategy is underway. This is focused on driving stronger customer advocacy supported by simplification of policies and processes and investment in modernizing our technology.

Six months in, I'm pleased to say there are some promising early signs. We continue to make deliberate choices on where to invest and grow to drive sustainable long-term returns.

We have 3 clear priorities. These are to grow our core business banking franchise, to drive our performance in deposits, and to improve in proprietary home lending.

We have also reached an milestone with the completion of our required activities under the enforceable undertaking, we agreed with AUSTRAC 3 years ago. The significant work we are doing across our organization to uplift the financial crime systems and controls will continue as we adapt to a constantly evolving landscape.

Recent changes to U.S. trade policy have led to significant market volatility and an uncertain outlook for global growth.

Australia remains well positioned in this environment relative to other global economies. Inflation is easing, and we have a resilient labor market.

This provides capacity for further rate cuts to help offset potential global headwinds on the domestic economy. Cash earnings increased 0.8% over the half.

This was mainly driven by an improvement in underlying profit, which benefited from a strong performance in Markets and Treasury and disciplined cost management. Revenue growth, excluding Markets and Treasury was down slightly, reflecting what remains a competitive environment across our core markets.

We continue to see the impacts of asset quality cycle play out. While we expect economic conditions to improve in the second half, this remains a difficult environment for some customers with high interest rates and elevated costs, providing challenges for both businesses and households.

Our bankers, as always, are there to support them. Shaun will talk more about the drivers of our financial performance shortly.

Our cash return on equity of 11.7% is 10 basis points higher than FY '24. This is an attractive return.

We continue to benefit from our skew to higher-returning business banking segments and ongoing cost and capital management discipline. We have declared an interim dividend of $0.85.

This represents 72.7% of cash earnings for the half, which is in line with our target payout ratio policy of 65% to 75% of cash earnings. The delivery of sustainable returns over 4 years has been achieved while maintaining prudent balance sheet settings.

Following APRA's decision to phase out additional Tier 1 securities, we have increased our common equity Tier 1 ratio target by 25 basis points to be greater than 11.25%. Our common equity Tier 1 ratio of 12.01% is comfortably above this revised target.

This strong capital position means we can fund profitable balance sheet growth and support our customers who want to grow or who need some extra support. There is no change to our approach to capital management, and we retain a bias to reduce share count over time to drive returns.

Since August 2021, we have completed $8 billion of buybacks, which has added around 1% to our first half '25 ROE. We will also neutralize the DRP for our interim dividend.

Our total provisioning remains strong at 1.67% of credit risk-weighted assets, including collective provision coverage of 1.42%. Both the liquidity coverage ratio and the net stable funding ratio are well above minimum requirements.

I'm pleased that our continuing focus on growing deposits has resulted in the share of lending funded by customer deposits increasing to 84%. This is a meaningful improvement from 70% in 2019.

Three years ago, we entered into an enforceable undertaking with AUSTRAC, which required us to implement a comprehensive plan for the improvement of our financial crime systems, processes and controls. And I'm pleased to report we have completed delivery of all the required activities and the external auditor's final report has now been provided to AUSTRAC for its consideration.

Defending against frauds and scams remains a key priority for us, and we are committed to working with others across government, corporates and communities to help keep our customers safe. We are particularly focused on doing what we can to help prevent scams through our investment in initiatives such as real-time payment alerts.

These alerts have resulted in customers stopping more $195 million in payments being made to potential scammers in the past 6 months alone. At the end of last year, I spoke to you about our refreshed strategy and our ambition to be a more customer-centric, simpler and faster organization.

This slide outlines our strategy. Every day, we have bankers who delight our customers, but we need to do this more consistently across our entire bank to drive improved customer advocacy.

And the successful execution of our strategy will deliver better experiences for customers and colleagues, which will in turn drive sustainable revenue growth and strong returns for shareholders over time. Our focus on customer advocacy is anchored in a belief that we -- that this will drive deeper customer relationships together with improved retention and referrals.

All of these will in turn lead to higher sustainable returns over time. And to deliver on this ambition, there are 3 key actions to which we are dedicating significant effort.

Firstly, we have identified 20 must-win battles that represent the experiences and interactions which are most important to our customers. These include customers doing their day-to-day banking together with interactions at moments that matter most to them, such as applying for a business loan.

We are standing up teams specifically focused on driving much better performance for our customers in these critical interactions. Secondly, we need a more systematic approach to listening, to learning and to acting on customer feedback.

We are rolling out consistent feedback processes across all our customer-facing teams. This includes our contact centers, branches, business relationship managers and our digital teams.

And finally, we will track our performance across these interactions using more granular customer experience metrics to drive accountability and alignment across our organization. On this page, we have summarized the early results from the rollout of our strategy in our business contact center, which started in November.

New frontline disciplines have been embedded to more consistently capture customer feedback and to identify actions which can be taken. This will include issues which can be resolved within the contact center team and issues which need to be escalated to other teams such as product or technology to resolve.

To date, over 100 customer experiences have been improved by the business contact center team. Some of these will be small, but the combined impact of improvements for both our customers and for our colleagues is significant.

We can see this in the customer interaction NPS and the colleague engagement scores for this team. While we clearly have work to do, over time, we expect the rollout of our customer advocacy strategy to drive improvements in our strategic NPS scores.

We now sit at #2 in mass consumer and business NPS. However, our performance in high net worth and mass affluent has fallen this half.

This is disappointing, and we have looked closely at the feedback and the drivers. One of the issues raised has been the realignment of a cohort of customers recently undertaken as part of the build-out of our premier banking strategy.

We know this was disruptive for some customers as we work to get the right customer experience and the right proposition for each segment. On a more positive note, BNZ is ranked first for consumer NPS across the 5 major banks in New Zealand.

The improvements in customer experience are also reflected in BNZ's recent above-system growth in both household deposits and home lending. This is a great performance by Dan and his team.

Having engaged colleagues who are customer-obsessed will play a key role in achieving our strategy. Our colleague engagement score remains top quartile with a score of 78 in our most recent survey.

An improvement of colleague experiences will be supported by a focus on simplifying tools and processes and the ongoing investment in modernizing our technology. The use of AI and GenAI tools such as call analytics and a knowledge management interface are examples of how new technology is enabling our colleagues to be better for customers.

We have said for some time now that NAB's strategy is underpinned by deliberate choices on where we invest and grow. And we have 3 key strategic priorities, which will help drive stronger, sustainable returns.

The first is to drive continued growth in our market-leading business banking franchise. SME banking has attracted increased competition, which is not surprising given the opportunity for higher returns.

NAB competes in this market from a position of strength with the benefit of scale and expertise across our franchise. We remain focused on executing our long-term strategy to win in this market while managing margins and returns.

The second is to continue to drive our performance in deposits, which has been a historical weakness for us. Our above-system growth this half in both household and business deposits has been supported by consistent management focus and investment in recent years, but there is still more we can do.

And third is to improve our performance in proprietary home lending. Home lending is an important product for NAB and for our customers.

In recent years, we've been too reliant on brokers to grow. And over the past 12 months, we have implemented a number of initiatives to improve the share of lending through our proprietary channels with early signs of success.

I will now spend a bit more time outlining these 3 priorities in more detail. As I discussed, our first key priority is driving growth in business banking.

We are the largest business lender in Australia. We have a 21.2% share of total business lending and a 27.8% share of lending to small- and medium-sized businesses.

Importantly, we have increased our share of SME lending this half, driven by growth in our core medium franchise. Total business credit at a system level has been strong in the first half of '25.

This has been driven by lending to larger businesses where returns tend to reflect the competitive nature of these transactions. Our below-system growth this period in total business lending reflects the disciplined growth strategy in our Corporate and Institutional Banking business.

C&IB remains focused on long-term relationships with target sector clients to deliver attractive and sustainable returns. SME lending growth has been more subdued this half, including a decline in agri lending as a strong cropping season supported higher-than-usual paydowns.

Agri lending has improved in April, and we expect it will continue to recover in the second half, consistent with usual seasonal trends. SME banking is at the heart of NAB and has been for many years.

We have supported our SME customers through many cycles. To do this, we take a consistent long-term approach to investing in and managing our business.

It starts with having strong long-term relationships, proprietary bankers who are available when and where our customers need them, who understand their customers and their industries deeply. For our bankers to be great at their jobs, we need them to have the right tools and capabilities.

Managing our business for the long term also requires deep SME credit expertise and strong balance sheet settings. Having the confidence, the skills and the settings to support a customer in tough times is when relationships really count.

This approach has delivered a compelling franchise with attractive returns. B&PB is a significant-scale business.

We bank 1 in 4 of the SME market and 1 in 3 of the agri market. It is a relationship business, which skews heavily to proprietary distribution with declining banker turnover.

Our relationships are deep and enduring. For our relationship-managed customers, the median tenure is over 10 years and over 90% of these customers have an active business transaction account with NAB.

We are well set for growth. Our multiyear investment program to develop an end-to-end digital business lending platform has passed a key milestone in first half '25.

The major migration of business lending onto the new platform is supporting faster, more seamless lending experiences. At the same time, our pipeline today is materially higher than this time last year.

Our second priority is to continue to improve our performance in deposits. In Personal Banking, we are investing in frontline capabilities and our premier banking strategy, which is focused on improving relationships with mass affluent customers.

We grew our share of household deposits this half and also delivered strong growth in our transaction account openings with more of these openings now being initiated in our retail branches. We have achieved strong growth in business deposits this half and now have the highest market share of all peers with a 22% share.

Our growth in business deposits is supported by continued investment to improve our transaction banking capability and deliver better experiences for our customers. This has included investment in innovative real-time payment solutions such as NAB Pay by Bank, which offers customers a fast, simple and secure way to initiate both one-off and recurring payments directly from customer bank accounts.

In Business and Private Banking, we also are building out additional features and enhancements to NAB Portal Pay, which offers a specialist payment solution for the real estate industry. Our recently announced partnership with MRI Property Tree will make it easier and simpler for property managers to automatically reconcile rental payments.

Corporate and Institutional Banking's investment in payment and treasury solutions is supporting customer growth, including the recent appointment of NAB as one of the banking partners for the New South Wales government. Our third priority is to improve our performance in proprietary home lending.

Our home lending strategy is aligned to our broader focus on delivering improved customer advocacy. We aim to deliver a seamless customer, banker and broker experience supported by simplifying our processes and policies and investment in modern technology.

I said 6 months ago, I wanted our home lending performance to be closer to system, and I'm pleased to report our momentum in this business has improved with balances growing 2.3% this half, representing 0.9x system. Returns in Australian home lending have been -- have seen a gradual improvement this half but remain challenged.

We continue to navigate these dynamic market conditions with a disciplined approach to manage returns. This includes a focus on improving the performance of our proprietary distribution.

Over the last 6 months, we've implemented a number of initiatives to achieve this, including uplifting our banker capability through the onboarding of around 150 new home loan bankers. Successful execution of our home loan strategy will require more than just hiring bankers.

We have also improved our operating rhythms and have invested in tools required to support better performance. It's still very much early days, but we've seen a 25% increase in proprietary drawdowns over the last 12 months.

The investment in our proprietary channels is also expected to benefit our broader personal banking franchise through the opportunity to deepen customer relationships directly. I will now pass to Sean, who will take you through the results in more detail.

Thanks, Andrew, and good morning, everyone. If I could direct you to Slide 19.

Our results are fairly stable this period. On a half-on-half basis, underlying profit rose 1.9% with revenue up 1.7% and costs 1.4% higher.

Markets and Treasury income was stronger over the half, but excluding this, revenue fell 1%. Cash earnings increased just under 1% with underlying profit growth and lower credit impairment charges, partly offset by a higher effective tax rate.

Statutory profit was 1.7% lower with the GAAP to cash earnings growth mainly reflecting the nonrepeat of the gain on the sale of our New Zealand wealth businesses in the second half of 2024. As set out on Slide 20, from a divisional perspective, we have again benefited from our skew to higher-returning business banking segments.

In this result, Corporate and Institutional Banking is a standout performer with underlying profit growth of approximately 7% half-on-half. This has been led by revenue with strong volume growth and higher markets income.

At the same time, ongoing simplification of Corporate and Institutional Banking's business has helped drive expenses lower. Business and Private Banking had a softer performance this period with underlying profit 1.8% down half-on-half.

The agri impact, which Andrew referred to earlier, has resulted in slower overall volume growth, which was not sufficient to offset a 5-basis-point margin decline. A pickup in business lending growth is expected in the second half of 2025, given that the June quarter is typically our strongest period, and our pipeline is well above the prior comparative period.

In our Personal Bank, underlying profit was 2.6% lower half-on-half. Revenue was slightly weaker with a decline in margins offsetting improved volume growth.

Personal Bank continued to demonstrate good cost control with expenses broadly flat as investment in proprietary lenders and frontline bankers were offset by productivity benefits. And underlying profit for New Zealand Banking grew 0.5% half-on-half, another solid performance in what has continued to be a challenging economic environment.

Turning to revenue set out on Slide 21. This rose 1.7% over the half.

The key driver was Markets and Treasury income of $1 billion this half, and this is a strong performance benefiting from favorable interest rate positioning and a $54 million gain on subordinated loan notes issued by Insignia in 2021 as part of the disposal of our Wealth business. Excluding Markets and Treasury, revenue was 1% lower.

Volumes contributed $67 million with good growth in business lending, primarily relating to Corporate and Institutional. The decline from margins ex Markets and Treasury was $117 million, which I'll discuss in more detail shortly.

Fees and commissions were $57 million lower, impacted by the sale of our New Zealand wealth businesses, the runoff of our asset servicing business and higher customer remediation. Excluding these items, underlying fees and commissions reduced $6 million.

Moving to net interest margin, which is on Slide 22. Our NIM trends this period are fairly consistent with the considerations we highlighted in our FY '24 investor presentation.

Net interest margin is flat over the half and excluding Markets and Treasury, net interest margin declined 3 basis points. Lending margin was 1 basis point lower.

In common with the last half, there's been a series of small movements across the portfolio. Overall, the impact of home lending was neutral this period with a 1 basis point decrease from competition in Australia, offset by a benefit in New Zealand relating to the impact of lower swap rates on our fixed rate lending.

Business lending was a drag of 1 basis point, driven by competitive pressures in Business and Private Bank, which have continued at a fairly similar pace to the recent half years. And while we're seeing more activity from our competitors in the SME space over the past 6 to 12 months, we've been expecting this, and we are managing our margins well in this environment.

Funding costs detracted 2 basis points. 1 basis point relates to expected higher term funding costs associated with the full period impact of refinancing the term funding facility, which was completed in the third quarter of 2024.

The remaining 1 basis point reflects higher short-term funding costs, primarily due to an increase in the bills OIS spread, and we called this out as a potential swing factor for the first half of 2025 at the end of last year. Deposits were 2 basis points lower.

Excluding 2 basis points of benefit from the deposit replicating portfolio, the underlying decline was 4 basis points with fairly even impacts from both mix and costs. Mix reflects the full period impact of an increased weighting to term deposits in the second half of 2024 and ongoing growth in the proportion of deposits in high interest rate savings.

Higher deposit costs relate to both term deposits in New Zealand as customer repricing has lagged the rapid downward moves in swap rates, along with lower U.S. interest rates impacting our foreign currency deposits.

The overall impact across deposits and capital from higher Australian replicating portfolio returns has been 4 basis points this half, with only a small impact from New Zealand. Approximately 2 basis points relates to our capital hedge, which is lower than recent half years as the benefit of higher rates in this 3-year portfolio has started to fade.

The remainder relates to our deposit hedge, which is a 5-year portfolio and hedge volumes were broadly stable over the period. Our approach to managing these hedges remains unchanged with a focus on providing earnings stability through the cycle.

Looking forward, we've included a broad outline of some key considerations for margin outcomes in the second half of 2025. Further tailwinds from our deposit and capital replicating portfolios in Australia and New Zealand are estimated at approximately 3 to 4 basis points based on the 31st of March 2025 swap rates and volumes.

And while swap rates have been volatile, the long-term nature of these portfolios means any reduction in rates post March will be felt most in the periods beyond the second half of 2025. The impact of a 25 basis point RBA cash rate cut on Australian unhedged low rate sensitive deposits is estimated at approximately 1 basis point annualized.

And this is consistent with the sensitivity analysis we provided in our FY '24 investor presentation. Bills/OIS spreads have remained fairly volatile since March and how this plays out over the second half of 2025 will have an impact on funding costs, but it is difficult to predict.

However, we have become slightly less sensitive to movements in Bills/OIS as a result of changes in our balance sheet, including the increase in at call deposits. Every 7 basis point move in this spread impacts our NIM by approximately 1 basis point annualized.

Now moving to operating expenses, which is on Slide 23. These grew 1.4% over the first half of 2025.

Salary-related cost growth was $64 million, and this mainly reflects the part period impact of pay rises under our Australian enterprise agreement from January 2025 and associated costs like super and payroll tax. Volume-related costs rose $24 million.

This includes investments in frontline capability in personal banking to support our mass affluent and proprietary channel strategies, along with additional staffing to assist customers impacted by frauds and scams. Tech and investment spend rose $71 million, and this includes additional licensing and support costs along with higher cloud usage plus vendor inflation.

The OpEx impact from investment spend was $9 million. Total investment spend was lower over the half due to timing, but this was offset by an increase in the OpEx ratio from 34% to 40% in the first half of 2025, which is in line with our FY '25 guidance.

Other costs rose $67 million, including the impact of higher financial crime-related costs. Helping offset these headwinds are productivity savings of $131 million achieved through continued process improvement and simplification, including operational efficiencies and digitization as well as synergies associated with Citi and the wind down of our asset servicing business.

EU-related costs were also lower in this period with the team having completed delivery of the required activities, as Andrew noted. Looking across FY '25, we continue to expect a slower rate of cost growth compared with FY '24.

Our expectation for investment spend remains approximately $1.8 billion with an OpEx ratio of approximately 40%. And subject to AUSTRAC's final sign-off and cancellation of the enforceable undertaking, we do not expect any further EU costs in the second half of 2025, and we continue to target productivity benefits of greater than $400 million.

Now turning to asset quality on Slide 24. The ratio of nonperforming loans to gross loans and acceptances continued to increase in the first half of 2025, up 10 basis points, albeit at a slower pace than the second half of 2024.

The increase this period is mainly driven by business and Private Bank business lending, while Australian home lending arrears trends appear to be stabilizing. While the total nonperforming loan ratio remains dominated by default but not impaired exposures, we have seen a further increase in impaired assets this period and also higher watch loans, both driven by business lending across Corporate and Institutional and Business and Private Bank.

Credit impairment charges reduced over the half to $348 million, representing 9 basis points of gross loans and acceptances. The individually assessed provision charge of $390 million this period mainly relates to Australian business lending and unsecured retail.

The reduction in charge compared with the second half of 2024 reflects a lower level of charges in Business and Private Banking, partly offset by the impairment of a small number of customers in Corporate and Institutional. Underlying collective charges of $152 million reflect asset quality deterioration and volume growth.

And there has also been a net release of $194 million from forward-looking collective provisions as anticipated asset quality deterioration has transitioned from the forward outlook to the current period. And this includes a partial release of the New Zealand agri forward-looking adjustment as conditions have improved in this sector.

Turning to the key trends we are seeing in Business and Private Banking asset quality, which are set out on Slide 25. As we move through the economic cycle, our book continues to perform as we expected.

NAB's approach over a long period has been to work with our customers through difficulties. And while this can take time, our experience is this achieves the best overall result for our customers and our shareholders.

In the past 6 months and not unexpectedly, the nonperforming loan ratio for Business and Private Bank's business lending portfolio has been increasing. And in the first half of 2025 rose 38 basis points, a similar pace to the second half of 2024.

However, consistent with the group ratio, this remains dominated by default but not impaired exposures where we do not expect to incur actual losses. And as can be seen from the bottom chart, NPL increases remain broad-based by industries, consistent with general cash flow pressures felt across the economy.

Not unsurprisingly, we're experiencing the seasoning impact of lending originated in FY '22 and FY '23, which were relatively strong growth periods for B&PB. These vintages have seen a more pronounced impact from the sudden and rapid increase in interest rates, which occurred in FY '23 and FY '24, limiting the ability of some customers to build buffers for resilience.

We're also seeing the results of a more challenging economic environment in Victoria on customer exposures in this state. And while business lending asset quality outcomes may soften further in the near term, we are well prepared for this situation.

Our book is performing within our expectations and remains well diversified and highly secured with prudent provisioning. If we go now to provisions on Slide 26.

Total provisions have increased modestly over the half and represent 1.7x our base case. General movements within the key components of total provisions are typical of what we would expect at this point in the cycle.

Individually assessed provision balances have increased to $920 million, up $164 million from September. Collective provisions reduced slightly to $5.1 billion at March with $194 million release from forward-looking provisions discussed earlier, partly offset by higher underlying collective provision reflecting deteriorating asset quality and volume growth.

At $5.1 billion, collective provisions represent 1.42% of credit risk-weighted assets, 5 basis points lower than September '24. Forward-looking provisions within our collective provisions have been maintained at prudent levels at this point in the cycle, including a 42.5% weighting to the downside economic scenario given heightened global trade uncertainties.

Now turning to capital on Slide 27. Our group CET1 ratio stands at 12.01%, down 34 basis points from September.

Our Level 1 ratio is 11.84%. Cash earnings added 86 basis points this half, partly offset by 63 basis points for payment of the FY '24 final dividend.

Risk-weighted asset moves reduced the CET1 ratio by 30 basis points, mainly reflecting business lending volume growth, a capital floor adjustment and the annual refresh of operational risk RWAs. Our credit risk-weighted asset growth in the first quarter of 2025 was amplified by the impact of FX moves on short-dated derivative positions, but this has unwound in the second quarter of 2025 as expected.

During the half, we completed our on-market share buyback with $600 million bought back, reducing the CET1 ratio by 15 basis points. Other was a 12 basis point negative impact.

This comprises a number of items, including FX impacts and noncash expenses, which can be volatile from period to period. Adjusting for the sale of MLC Life, pro forma CET1 ratio is 12.13% or 11.92% at Level 1.

This is a strong capital position and comfortably above our revised capital target of greater than 11.25%, which Andrew has discussed. Liquidity and funding is set out on Slide 28, and these have also remained strong during this period.

Quarterly average liquidity coverage ratio is 2 percentage points higher over the half at 139% and well above the 100% minimum requirement. And given the structure of our balance sheet, we continue to manage LCR prudently around liquidity and funding events, including current elevated levels of global instability.

Consistent with the LCR outcome, our net stable funding ratio increased 2% to 119%. We issued $20 billion of term wholesale funding during the first half of 2025, and this has supported repayment of our maturities along with continued balance sheet growth.

We continue to expect issuance across FY 2025 to be at broadly similar levels to recent years. I'll now hand back to Andrew.

Thank you, Sean. Okay.

Turning to the Australian economy. The recent global trade tensions and policy uncertainty have caused significant market volatility and are expected to slow global growth.

While the direct impact of new U.S. tariffs on Australia is limited, we do expect the key risk to Australia will be through indirect impacts such as business and consumer sentiment.

However, Australia NAB entered this uncertain period in a good shape. Economic growth improved in the second half of '24, driven by a rebound in household consumption.

Easing inflation, tax cuts and declines in the cash rate are expected to support growth in household incomes over the balance of 2025. A low unemployment rate and inflation within the RBA's target band of 2% to 3% provides further scope for the RBA to ease rates more quickly if required.

This gives me confidence that Australia can successfully navigate these global challenges. Looking ahead, we will maintain a focus on improved customer advocacy to deliver better and more consistent customer and colleague experiences.

In the second half, we will roll out new frontline disciplines, building on the initial success we've seen in our business contact center teams. This will also support our 3 business priorities of driving momentum in business banking and growing our deposits and proprietary home lending.

As I've noted, our environment remains challenging, and there is significant uncertainty in the global economic outlook. For these reasons, retaining prudent balance sheet settings remains a priority as it allows us to continue to grow and to support our customers.

There is no change to our disciplined approach to managing costs. Our focus on productivity is important to provide headroom for the investment required to support the execution of our strategy, including the ongoing modernization of our tech platforms.

This includes the build of our modern unsecured lending platform for the Citi Consumer Business. In March of this year, we successfully migrated our first Citi white-label customer onto the platform.

Building out this platform functionality to support the migration of the remaining Citi customers is a key priority in the second half. This is currently on track to be completed by December.

Talent is an important foundation in every business, and I'm very proud of the talent we have across our top 100 leaders and indeed right across our bank. In March, I announced the appointment of Andrew Orbach to lead our Business and Private Bank.

Andrew is an experienced business and wealth executive, and I'm looking forward to him joining us in June. Our search for a new chief financial officer is progressing well with both strong internal and external candidates, and we look forward to sharing the outcome of that process with you in due course.

I am confident in the outlook for NAB. We have a strong balance sheet, the right business mix and the right priorities to support delivery of strong, sustainable returns over time.

Thank you again for joining today, and I'll now hand back to Sally for Q&A.

Thank you, Andrew. [Operator Instructions] Please go ahead, operator.

Two questions, if I may. So I think first, given that I was so critical about this issue for some time and raised this on previous calls, I think it would be only fair for me to acknowledge that for the first time since, I think, 2018, you achieved growth in your proprietary channel.

So congratulations on that. Are you able to maybe share with us some of the initiatives that worked for you and if you think you can sustain that improved momentum and trend from here?

So that's question number one on Personal Bank. And then secondly, a question on dividend.

So if I could, Shaun, maybe ask you to just confirm with respect to your capital target. 11.25% effectively implies 11.6% to 11.7% given -- on balance date, given that you usually would drop 30, 40 basis points when you pay the dividend.

And so if you look at your capital surplus, particularly in Level 1 terms, it's not quite as large. And in that context, maybe you can comment on the dividend.

And maybe, Andrew, you want to comment on that kind of in broader terms, given that your capital position on an underlying basis has deteriorated in the half. And if you can maybe provide some considerations for maybe capital tailwinds that we may not be seeing at the moment because as we are looking at now, it looks like it's going to be difficult to sustain that dividend.

And so it'd be interesting to hear your considerations and whether the Board, if the time comes, would look to cover the dividend or potentially issue shares like it has done historically.

Yes. Thanks, Victor.

Look, I'll take the home loan question and maybe provide a top line comment on the dividend and then hand it over to Shaun. So on home lending, we are pleased with our progress, but I would say it's early days.

And there's a lot of interventions that we've done in both our Personal Bank and our Business and Private Bank to be better. Things like we've actually created a specialist team focused on proprietary home lending, whereas in the past, that team was embedded in our branch network.

So it's giving distinct and clear leadership for those bankers. I think we've lifted our ambition and aspiration in terms of the quality of bankers that we want to hire onto our platform.

We have worked on our operating rhythms. We've worked on our processes and policies.

And look, we're really leaning in. And I'm confident that you're going to see us continue to do what we said we would do here over the coming months and years.

And hopefully, we'll be able to look back at this and see a really significantly improved mix of origination going forward. And we want our proprietary originations to be as high as they possibly can be because it also aligns very strongly with our customer ambition.

When we have direct relationships with our customers, we can look after them better than when we are intermediated with a broker. So you're going to see us continue to focus on this space very, very heavily.

It's why it's one of our 3 key business priorities. If I turn to the dividend, and Shaun, I'll hand over to you in a moment.

But look, we're very comfortable with the dividend. It's well within our target payout ratio.

And we see opportunities in the business to continue to grow revenue and sustain that dividend as we go forward. Ultimately, what we pay out is a matter for the Board, but we're comfortable with where we're at there and how we're tracking.

But maybe, Shaun, you could answer anything more detailed for Victor.

Yes. Thanks, Victor.

Well, firstly, I'd say the Board sets the dividend policy and they set the dividend. But we certainly think about, as an organization, the dividend as being a sustainable dividend through the cycle.

Clearly, what we tried to do with the capital target is to simplify the way that we talk about our capital management. We've moved away from a range to having a sort of target above 11.25%.

And I think the way that you described those numbers is probably the right way to sort of think about the volatility in that capital ratio, taking into account the buildup of profit before we pay the dividend out and then the timing of the dividend. So I think that makes sense.

We aim to really look at it through the cycle. So there will be periods when we expect higher capital growth -- sorry, higher asset growth to appear.

And certainly, the primary focus of our capital is to be able to support our customers and to enable us to support growth in our client base. But as we've also demonstrated over time, we're also very disciplined around our capital management, and we've had a strategy over time to reduce the share count and really drive higher earnings per share.

And I think that's playing out. As you -- as Andrew said, we're well within our range, 65% to 75% payout ratio.

We've paid out 72.7%. That's down on the payout ratio in the prior half.

So I think that's, again, a proof point of good capital management.

And anything inorganic that you can maybe allude to that potentially may support capital position in the next couple of periods in terms of model optimizations and things like that?

Well, we'll continue to always look at the optimization of our risk-weighted assets. We continue to refine our data.

We continue to look at our methodology to ensure that our models reflect what's going on in our client base and what we're seeing. And so we will have some periods where you'll see those moves come through.

What I'd say in the last half is the -- it's been pretty consistent with a number of halves over time. Certainly, in the second quarter of 2024, we saw a much larger influence of those factors in our capital ratio.

But that was really driven by, I think, 3 significant things.

I think they'll just be consistent going forward, but there's still more to come.

A question, if I could. It's quite a long way into the presentation.

If you can click to Slide 91, which just goes to the Australian Business and Private Bank asset quality. If you look at the top right quarter here, and you talked about this a bit earlier on, you can see a pickup in the non-housing non-performing exposures up to $4.8 billion, which is about now hit 3% of the non-housing book.

If you then click a couple of pages forward where you go through the sector exposures, it looks very broad-based. Nearly every sector is seeing some deterioration in asset quality in this book.

The question I've got is the expense has gone up, but why are you seeing this when your peers don't appear to be seeing the same level of deterioration in this book? And then I've got a follow-up question, too.

Maybe I'll just go at the top with -- our approach to dealing with our customers through the cycle is that when they're having trouble, we stand by them. And we've done that throughout our time at NAB, and it's something we're very proud of.

We take a going concern approach with these customers, and we work with them rather than seeking to have them refinance out. To give you a specific example, when we look at our watch loans and non-performing loans, we have a history of repatriating 70% of those customers back to the business.

And one of the reasons we're such a strong relationship bank is that when we do that, it's probably one of the defining characteristics for business owners when they think about their relationship with us. So we stand by our customers, and we're confident that we will -- that they will get through this, and we'll get through this with them together, and we will not incur losses in this book consistent with prior performance where we've repatriated 70%.

So that's just how we do things in our bank. And I hear that from customers all the time when I talk to them.

So that's our approach. But maybe, Shaun, if you wanted to...

Yes. Thanks, Jon.

Look, what I would say is that the trends in asset quality are behaving as we expect them to behave. They're in their sort of range of long-run loss rates.

Clearly, we're coming off lows sort of post-COVID, and so they're moving up. So I think the -- what you've seen is a pretty steady rate of deterioration in -- or increase in non-performing loans in sort of the second half of 2024 into 2025.

As I said in my earlier comments that we expect softer conditions to continue. And I think that's to be expected given where we've come from of one, a very low base; and two, I think some of the challenging economic conditions that we've had.

But to reiterate the point, it's behaving as we expect it to behave.

Yes.

And just a second question. Business credit growth as a whole has been very strong, running 7% to 8%.

But as you alluded to, and if you go in the APRA stats, there's been a big slowdown in small and medium-sized credit growth and a sizable pickup in large credit. So I think SME is running 2% half-on-half.

And you talked about a stronger pipeline, and I know we're just for a federal election and hopefully, that gives a bit of certainty. But is sort of 4% growth in Business and Private Bank or business bank in this segment, the SME side of it around what they're expecting?

Or do you think that will pick up from these levels?

Yes. Thanks, John.

I'll take that one. Our sense is it will pick up in the second half in SME.

One driver is agri, which I alluded to. Agri at a system level is down, I think, 3% or 4% in terms of growth as farmers paid down loans due to a very successful harvest.

And in the past, we've seen them then releverage a later part in the year to get ready for the upcoming season. And so we expect our agri book to move back into growth in the back half of this year.

And we also, as you mentioned and highlight, we have a record pipeline. While it's at a record, we have seen some slowness in terms of how that pipeline has moved through to settlement, which probably makes sense as business owners are just watching and waiting to see how both the domestic election played out as well as how the geopolitical environment globally might play out.

And as they get more confidence and conviction, I think we'll start to see that pipeline start to move through to settlement as we have done at the same pace in the past. So our view is that SME will grow a little bit faster in the back half of the year, although it's also likely to be the case that large will continue to outperform on the margin.

And that's where we're just being judicious on where we play. We're seeing in the large segment pretty significant growth in mining, in energy and in utilities.

But some of that debt is at incredibly low returns, and we've just been thoughtful on where we play and where we don't play.

A couple of questions, please. The first one, a lot has been written about equity competition lately.

Interested in, Andrew, what you're seeing on the ground in terms of the efforts you're having to make to protect market share. Note that in the NIM slide, the NIM walk, there was 1 basis point of headwind from business lending combined, but that does include CIB, and that was the first time such a headwind was called out in the NIM walk.

So just keen on some of the thoughts there. And then second question is just around the margin piece.

So deposit mix shift seem to be slowing. There was a slowing impact on the NIM in the period and it looks lower than one of your competitors.

Can you unpack sort of what you're seeing in terms of the change in the book mix, noting that some of that appeared to be New Zealand rather than Australia?

Yes, sure, Andrew. I'll talk a little bit about competition and then Shaun, I'll hand over to you on NIM and the NIM walk.

Competition in the business bank in market across the country is high. It's always been pretty high because it's a good market to be in, but we have seen, I think it's fair to say, a reemergence of one competitor who's a stronger competitor today than maybe they were a year or 2 ago.

And we're out there looking after our customers and playing our own game. But it's competitive out there.

It's competitive for bankers. It's competitive for customers.

What we do know is that when you have deep long-term relationships with customers and you look after them, they tend not to be in the market looking at alternatives. And when these long-term relationships do go to market, it's often because there's been an event of some sort.

There's been a service failure, there's been a decline in credit or maybe there's been a change in banker. And they're the types of things that might cause a client to look at potentially moving their banking.

But when those things haven't happened, most of these customers are very long-term relationships, as I mentioned, in terms of the median client is over a 10-year relationship with us. So that's something we're going to continue to foster, and we're going to be a really tough competitor.

We're not -- we don't want to just defend this business. We want to grow it.

And despite all the headlines, our market share in SME is broadly similar to where it was when I came to Australia in September of 2020. So we're holding our own.

And what's really, really encouraging is that we've done well in deposits. We were the third largest deposit gatherer in business banking 4 years ago, and we're now first.

That's been a really significant effort by our teams and something, again, that we're going to continue to do because it drives the quality of the franchise and also helps with NIM in the long term. So maybe, Shaun, I'll hand over to you more specifically on the NIM question.

Thanks, Andrew. And I'll make a couple of comments, but I want to make sure I sort of help answer the question that you've asked.

But what I would say is that in terms of the NIM overall, it's playing out as we said it would at the investor presentation at the end of FY '24. So there's no real surprises in what you're seeing in the NIM walk.

And each of the movements is relatively small. Directing specifically to the lending margin, which I think was the main part of your question, we saw a number of sort of component parts of that.

So housing was about 1 basis point drag this half, and I think that reflects the competitive environment that we're seeing in business. The business lending margin is broadly consistent with in terms of the trend of what we've been seeing in more recent halves, and that's come off a little bit, but -- and you made the point on competitors, and you can see our NIM details in the pack.

And the margin in CIB has been pretty stable this half. And in fact, in the prior half, it was a benefit.

So overall, I think that explains the moving parts in our NIM. It's only 1 basis point overall in respect of lending margin.

And on deposit mix, if you're seeing a slowing or deterioration?

Yes. So what I'd say about deposits, so overall deposits were down 2 basis points across NIM.

And I'll break it into mix and then cost if you want. But I guess the main driver of the 2 basis points was the mix of TDs, which was a pull-through from the prior half of last year.

But the TD mix has stabilized this half, and that's consistent with our expectations in a declining rate environment. We're also expecting to see an ongoing mix impact from savings accounts.

Growth in household deposits is showing up in our savings accounts. And as Andrew said, the real focus on deposits is coming through in these numbers.

And certainly, from my perspective, the focus and effort over the last sort of 4 or 5 years around deposits is really starting to deliver benefits. So we're very, very pleased with that.

They're probably the main things on mix that I'd say on costs. Clearly, the main considerations that you should be thinking about is just the impact of rate cuts on our unhedged low-rate deposits.

We've provided some sensitivity around that piece. But given the timing of our expectation on those cuts, they're more likely to play out in FY '26 than what you'd see in the back half of this year.

I'll just pause at that point.

Just a first question on expenses. You've delivered a good cost performance in the first half and reiterated your full year cost guidance for '25 growth being below the 4.5% from FY '24.

Consensus is consistent with that at about 4% for '25 at the moment, which does imply 3.5% half-over-half growth in the second half versus the 1.5% you delivered in the first half. Now just thinking about the moving parts, clearly, investment spend will tick up in the second half.

But is it realistic to think half-over-half growth is going to increase by that much in the second half? Can you maybe just talk to some of the moving parts?

Well, Shaun can talk to the moving parts, but we're not changing our expense guidance. The expense guidance stays, and we have a well-performing technology business right now, and we are expecting to spend the investment slate that we have allocated.

So I think the guidance is the guidance.

Yes. And thank you, Andrew.

It's Shaun here. So just to extend what Andrew was saying, you shouldn't think about the first half extrapolating into the second half.

They're quite different in terms of timing. As I said in my speaking points, you've had the impact of the salary increases, which really happened from the January period.

So you're only getting part of that roll through in the first quarter, and you'll see all of that in the -- sorry, in the first half, you'll see all of that in the second half. There are timing differences occurring across our spend, which includes our investment spend.

As we've called out in our pack, we spent about $780 million in the first half. We continue to target $1.8 billion across the full year.

That has impacts on the mix as well. So we're not changing our guidance.

I guess how you then sort of digest that is up to you, I guess, but happy to try and help.

Yes. No, that's helpful.

Just a second question related to one of the earlier ones just around the capital position. Risk-weighted optimization has been a bit of a capital tailwind for NAB really over the last decade.

Against that, you've noted that your RWAs are now hitting their capital floors. Now I would have expected that, that means it's going to be pretty difficult to see further optimization sort of supporting capital generation from here.

But Shaun, it did sound like you think that there is still some opportunity for further optimization despite the fact that you have hit your capital floor. Can you maybe just talk about that just in a little bit more detail, just how we should be thinking about that, please?

Yes. So a couple of points I'd make is the advanced calculation is more sensitive than the standardized calculation, and it's influenced by a couple of things.

Certain loan types such as loans to high-quality unrated corporates and FIs have a sort of bigger impact on the standardized -- sorry, on the advanced calculation they have on the standardized. So you'll see a bit more of movement around that.

It remains ongoing work for us to continue to look at the data and refine our data, and that will have impacts on both the advanced calc and also the standardized calc. So it's behaving as we'd expect it to behave.

So I wouldn't necessarily conclude that there's not more optimization. I think there is ongoing optimization.

But when I talk about optimization, it's making sure we've got our data right, we've got our methodology right, we've got our models right and that we continue to satisfy the regulatory scrutiny that comes with all of those as well.

I've got 2 questions just on the Business and Private Bank. The first one is just around the growth in other operating income.

You referenced it this morning that there's reasonable momentum in the franchise with regards to clients and deposit growth. Just want to get an understanding of why you aren't seeing a commensurate increase in other operating income.

Did some of our remediation go in there, Shaun?

Yes. So I think -- so this is -- if we talk about fees and commissions.

So a couple of things I'd call out. One, we've seen a bit of a headwind from some of the disposals of our businesses.

And as you say, customer remediation is coming into that. And the -- some of those disposals, both in terms of the New Zealand wealth business, but also the wind down of the asset servicing business is coming through.

So there's probably a lot of small parts in that underlying sort of number, which is only down about $6 million sort of half-on-half.

Okay. That's useful.

And just on the second question, Andy, more directed at you. I mean there's obviously been a lot of focus just around business banking and the increased intensity of competition, certainly over the last 12, 18 months.

Just want to get a sense from your side with the benefit of hindsight, what would you have done differently in your time running business banking, knowing what you know now in terms of how competition has played out?

Look, I think we're continuing to hire good bankers and look after customers. So I'm happy with where things are in the business bank and the growth we have there.

We've got strong market positions across a range of sectors, and it's very well diversified regionally and sectorally. So that's, I think, pleasing.

And as I said, the biggest area of management intensity has been on transaction accounts and deposits. We had an underweight position in liabilities and if anything, an overweight position on assets.

And we weren't funding our loan book in the business bank to the extent we should have been. And that's been a very significant change over the last 5 years maybe we don't get sufficient credit for.

We were the third biggest deposit gatherer 4, 5 years ago, and now we're the largest. And there's still more work to do here, but that's an area of real focus.

And when you have that day-to-day strength in your franchise, that provides greater opportunities for stickiness and greater opportunities to drive loans. So look, I'm really happy.

There's still more to do. We've got to continue to make it easier for our bankers so they can have more time with their customers.

We want to continue to increase the number of bankers on our platform. And one area that I'm really happy with is how well we're managing our mix of proprietary versus broker in the business bank.

We could easily have grown much faster in business banking through the broker channel, but that may have caught up with us over time. And so that's an area we've been really judicious and I think that will hold us in good stead.

So we're being really thoughtful. This is a business we know extremely well, and I'm comfortable and confident in the business that it will continue to show well over the months and years to come.

If I could just ask a first question on the Citi acquisition. Andrew mentioned the platform migration in December.

You had some spending below the line in the period. And you've talked previously about $130 million of synergies over 3 years at the time of the acquisition.

How much will Citi contribute to over $400 million of productivity in FY '25? How much in FY '26?

And any material change to your expectations here?

Yes. Maybe again, I'll have a crack and then, Shaun, you can sweep up after me if needed.

Look, first of all, we're really happy that we migrated our first white label customer onto our new platform. That gives us confidence that the new platform is working and today is taking transactions for customers.

And we have further waves of customers migrating to the NAB platform over the course of the back half of this year. And so right now, our aspiration is to be out of the Citi TSA by December.

When we did that acquisition, we said that we expected those costs to come down about $125 million, give or take, and we're about 3/4 of the way through that, which is good. Remember, we have migrated our wealth, mortgage and deposit customers as well as diners on to NAB platforms.

And the last one is our unsecured business. So there is still more productivity to be had when we come off the TSA.

And then once we're on NAB platforms, I think there will be further opportunities to drive productivity as we put then our NAB customers onto the same new unsecured platform because remember, we'll have 2 platforms still once we're off the Citi TSA, and we've got to get the NAB clients then onto this platform, and that will drive further synergies and productivity.

I think you've covered it, Andrew. In terms of that I wouldn't say anything else.

That's comprehensive. And just on the bad debt side, Shaun talked to the provision buffers being prudent at this point of the cycle.

You've maintained the scenario weight, but arguably, the trade uncertainties deteriorated in this period. So can you just talk us through how you thought about that scenario weight and why no change?

Yes. Again, Shaun, I'll hand it to you in a moment.

But I think the point you alluded to was the trade uncertainty. You don't have to go back 5 or 6 weeks to remember the world was a scary place.

I was getting up every morning rushing to my phone to see what happened overnight. And we're still not through that, and that hasn't fully played out.

And so we just wanted to make sure that our settings were prudent going into the future with that level of uncertainty. And so that was pretty forefront in our minds.

Yes. Thanks, Matt, for the question.

So if we look at the releases that you're referring to, I think there are 2 components to that. One is the New Zealand one, which is about $30 million, and that relates to our assessment of improved conditions for the agri sector in New Zealand.

We released about half of that provision. We could have potentially built a case to release the whole amount.

But given the uncertainty that is playing out, we're prudent in that regard. But we've definitely seen conditions improve there where milk prices are expected to be -- already are higher and expected to be higher this year than what they were in the prior year.

With respect to Australia, we did have a good look at it actually, when you think about the timing of the tariff announcements were sort of post the half year balance date. We did actually have a good look at it and look at the assumptions in our downside scenario.

And we're pretty comfortable that the downside scenario reflected what we think could play out in that downside if that was to transpire. We've kept our weighting at 42.5%, as I said.

And I think the other factor to take into account is the outlook for the rate environment in Australia changed substantially in that sort of second week of April. And our assessment is that will provide a sort of a counterbalancing buffer to any sort of significant impacts that might occur.

Andrew talked earlier about the industries that might be impacted by tariffs. We looked at our exposure to those.

It's relatively small in each of those sectors. Clearly, what we'll continue to watch is the second order impacts that will occur and more particularly what it might do for global growth.

But every day, there's a new update in terms of what's happening in tariff policy. And we'll continue to watch that pretty closely.

We're pretty comfortable with where we're at, at the moment.

I've got a couple of questions. Andrew, you just mentioned that you're pleased with how you're managing the mix of broker versus proprietary in the business bank.

I think on Slide 15, you revealed that 70% of business lending is through your proprietary channel. How has that changed over time?

Has it fallen in recent years?

That's a flow number. Our stock number would be higher than that.

So this year, it's been relatively stable. So we probably could have grown faster in the SME book at top line if we had done more broker.

But we've been -- we like that kind of mix. And so we were working to try and keep it stable and pushing into more proprietary sales.

I would say that over the last 4 or 5 years, we've probably seen a little bit of degradation, if you could call it that, in terms of mix movement to broker. But I'm pretty certain that our mix is off industry settings and that we do significantly more proprietary business in our business than peers.

And we like that, and we're hoping that, that continues.

Okay. And my second question just relates to CIB or the Institutional Bank.

Your former CEO, Frank Cicutto famously turned pretty bearish and pulled back from large corporate lending in 2002. At the time, he was worried about the outlook for the global economy and what that could mean.

So with your stance in CIB at the moment, is it more a function of your view on sort of margin and returns? Or is it driven by risk appetite?

Is there the risk that you're pulling back from CIB when you shouldn't be? And does it mean your CIB revenue is going to be pretty difficult to sustain?

Well, look, first of all, I'm really happy with our C&IB business. And it's a significantly changed business from the time that you alluded to in the Cicutto days.

It's a much more focused business, focused on domestic corporates and where we do global business, we're really clear on where we play with a strong business in sponsors focused on infrastructure, renewables and digitalization assets. And they're all areas that we feel have strong long-term prospects.

And so there are sectors that we like and we'll continue to lean into. So we're really happy with it.

The growth of sponsor dollars, too has, I think, in some ways, changed the supply-demand economics of bank lending into larger businesses. So there are opportunities to deploy capital at much more attractive returns than you would have seen 10 or 20 years ago.

You'd have never expected an institutional franchise to be delivering the return on equity that we're now delivering. And I think we're 200 basis points higher ROE in our institutional franchise than peers.

So that's something we're proud of. And we're going to continue to deploy capital thoughtfully where we think we can get a good return for shareholders with customers who value the relationship with us.

So I think that the prospects in this business continue to be good, and we like how we're playing in it.

Yes. And the other point I'd make, Richard, is the portfolios are very different now than they were back in that period.

So Frank was the CEO at the time, but the organization was making, I guess, a view around the outlook for the economy post the September 11 terrorist attacks. That's essentially what was driving it because -- and we had some pretty significant defaults that occurred around that time when you go back in sort of history and you can point to some of those spikes.

We're actually in our long-run loss charts, you can see those. So it was a different business.

As Andrew said, we're very happy with our portfolio in the CIB.

So it sounds like from your answers that the sort of discipline around volume growth in CIB more reflects a view on whether you can make a return rather than specific concerns about risks.

Yes, correct. There are lots of opportunities where we could have lent money to safe borrowers, but at returns below our cost of capital, and we chose not to.

Just circling back on a couple of things that you've touched on before. Just on your fee income and there are a number of one-offs in the period.

But if you look at the credit growth, it was really, really strong in the period. Can you just talk about fee income going forward?

Is it decoupling from credit growth? How should we think about fee income going forward from here, please?

Yes. Okay.

So I guess if I think about fee income overall, clearly, we're developing more products and services to try and drive fee income higher. So if we think about merchant payments and some of the other opportunities, we do see opportunities to continue to probably address the mix of fees.

Certainly, as I described earlier, we've seen some runoff in some of our businesses. So there will be a period where we'll stabilize.

But we're investing in capability around transactional banking and other products and services for our customers, particularly our business customers, which you should see flow through to ROI.

Okay. So going forward, should we thinking about it more tracking in line with credit growth?

Or how should we think about the growth in fee income going forward or the headwinds still to go maybe coming through your book. Maybe that's a better way of asking it.

Yes. I don't know if I'd have fee income entirely tracking with credit growth.

I think there are different drivers. And you'd really need to decompose the various elements of fees and commissions into what was credit related and what was service and product related.

Yes. That's exactly right.

Okay. All right.

Second question, just circling back to the margin you haven't touched on. Can you just talk -- if you look at New Zealand was up 1 basis point in the half.

I imagine that was just the movement around the fixed rates and the swaps. Can you talk about what you're seeing there currently?

Also the term funding part of your funding costs, you talked about that was the impact of the TFF. Can you just talk about what you're seeing there in wholesale funding markets at the moment?

Do you still see that as a headwind going forward?

Yes. I might start with the funding costs, if I can, and then I'll come back to New Zealand.

So I guess we've seen term funding spreads were relatively low in -- over the course of the first half. But clearly, we saw some recent increases in those post the announcements around tariffs.

It does take a while for changes in spreads to flow through to NIM given the size of the book. So I think you need to take that into account.

Certainly, Bills-OIS, we've talked about that. That's expected to be a bit more volatile.

But as we said earlier that we're probably less sensitive to Bills-OIS than what we were last year. So Nathan gave you guidance last year, about 6 basis points of Bills-OIS would relate to about 1 basis point annualized in NIM.

This year, we're about 7. So that would be the comments I'd make on funding costs overall.

In terms of New Zealand, I think New Zealand is managing the impact of rate cuts on both sides of the balance sheet. We've seen the OCR come off, of course.

And I think the point to make also on New Zealand is the difference in the balance sheet structure in New Zealand relative to Australia. They've got a much greater exposure to swap curves.

And if you think about their sort of their TD book in New Zealand is probably larger than what we're seeing in Australia. And a very significant proportion of their home lending book is fixed rate, about 86%.

So you'll see a lag between fixed rate pricing and swap curves, and that will be reflected in NIM. In the first half, it's been a headwind on deposits.

In the second half, we expect it to be a tailwind.

I just wanted to follow up on some comments around the provisioning. Clearly, we've got some pretty considerable uncertainty post the 31st of March, and you talked about how sort of rates might support the economic recovery.

I mean if I look at your economic forecast of a cash rate of 2.85%, it obviously implies quite a significant downturn. Is that the sort of policy support that you're factoring into your provisioning assumptions?

So in our provisioning assumptions, we'll look at a range of different scenario -- or different elements of both the base case and the downside case. And obviously, the weighting I described that earlier, but we're looking at not only cash rates, but we're looking at GDP growth.

We're looking at unemployment. We're looking at commercial real estate prices and house prices and how they all sort of play together.

We think the outlook for Australia and New Zealand is reasonably stable. But certainly, we -- as I said earlier, we have to continue to assess what happens globally and the impact that could have on Australia.

As Andrew said, Australia is probably better placed than many other countries, but we need to see the second order and third order impact. So we're comfortable with the assumptions that we've used in our models to date, and we're comfortable with the weighting.

Our base case for Australia is that we'll see good growth in the second half of the year. Household balance sheets will recover and as will businesses benefiting from the base rate cut.

But there's just too much uncertainty in the world for us to change the weightings of our base case assumption with our downside case assumption. And it's just prudent for us to retain those settings given we just don't know what's around the corner.

Yes. And I'd also say, Andrew, we've maintained strong provisioning for some time, and it continues to be very strong.

If you look at our ratios over time and relative to peers that they're very strong.

Yes, that's very clear. And just a second question, if I may, just around investment spend going to $1.8 billion this year.

Just in terms of the buckets, I mean, when we look at the customer experience and revenue focused spend, it's been flat for a few halves now. Are you going to have to lift that given the competitive pressure you're seeing in the business bank?

And would that be sort of additive to investment spend? Or would that sort of come at the expense of some of the other buckets within that?

Yes. Look, I'll take a macro answer on that, that over time, we want to shift more of our expense base to change the bank and grow the bank spend versus run the bank spend.

Now to do that well, we've got to drive productivity in how we run the bank so that we are a more efficient and simpler bank to run every day so that we can drive more of our expenses into things that our customers want and value. And we're also very focused on modernizing the tech underpinnings of our bank.

We may be doing that with a little bit less hullabaloo than some of our other competitors. But nevertheless, there's a lot of work going on to change the underlying platforms and modernize this bank, and that's something that will continue.

And the outcomes that we're getting for our spend are also improving. We've got a very metricated engineering factory where we look at the outcomes of our tech-related squads across all the different businesses that we have, and we're really happy with how those teams are performing, and there's still more opportunity there.

And so as we continue to adopt AI and GenAI capabilities in those businesses and areas, I'm confident that we're going to deploy more and more capability that our customers will enjoy.

Matthew Wilson from Jarden. I have 2.

If you analyze the risk-adjusted returns in the Business Bank, NAB sat above its peers for decades at about 2.6%, 2.7%. That's now completely reversed with CBA entrenching itself at 2.7%, you're at 2.2%.

So you're 50 basis points behind them. You responded partly to that in the presentation by admitting you've got a problem with deposits.

How can you close the gap and what really went wrong in the Business Bank? And then secondly, capitalized software balances are up 16% year-on-year, $3.2 billion, you're 62% or $1.3 billion ahead of your peers.

One could argue that your cost base is probably $250 million understated. Do you think you're being a bit aggressive with capitalization of software expenses?

I'll take the first one, and Shaun, you could take the second one. How's that for -- all right.

We have not been a good deposit gathering bank over decades. And that's something that when Ross and I joined the bank, we wanted to address, and it's been a multiyear journey.

And we're in one heck of a better place today than we were 5 years ago. And I hope that in 5 years' time, we'll be in a heck of a better place than we are today.

If you look at the difference between our ROE and CBA's ROE, I think you could put the entire delta down to deposits. And so we are extremely focused on being a much better transaction bank for our customers, not only in the Business Bank, but in our Corporate and Institutional Bank in New Zealand and in our Personal Bank here in Australia.

And that's got very, very significant management focus and attention. And we still don't have the loan-to-deposit mix of the competitor that you highlight in business banking.

And that's going to be the driver of why there's an ROE delta that you highlight. But we're focused on it.

We're doing much better now than we were before, and we're going to continue to improve. This is a hard, long-term thing to change.

I was talking about risk-adjusted returns. And the reality was NAB was far superior to its peers with the deposit issue as side.

So has something changed more closer to where we are today?

Yes. I'm not necessarily familiar with the ratio that you talk about from yesteryear.

How would you answer...

No, I think it's -- maybe it's a probably longer discussion, Matt. I'm happy to sort of help you try and understand that in a bit more detail.

We'll pick that up later, I think.

Yes. And capitalized software?

Capitalized software. So -- and pull me up if I'm not answering the question that you've asked properly.

But I mean, we look at our capitalized software balance over time. It sort of reflects the mix of spend that we've got and where we're at in the investment cycle that we have.

We're pretty comfortable with our current position. It's something we look at on a regular basis.

I think we're all different in terms of our own policies and our own timing, and I think that's really playing out in the numbers.

Shaun, fantastic clarity in your answers. Really good job.

Two questions. So the first one, perhaps, Andrew, is that if we have a look -- and I like really miserable blow so very, very conservative.

If I have a look at your downside scenario back when everything was so glum on the ECL in FY '20, it was $7.7 billion. March -- September 2024, it was $8.3 billion.

It's now $8.9 billion. What's -- how can we wrap our head around the underlying factors doesn't seem to have changed.

You've had a little bit of growth come through. But how come your adverse scenario, which you've got a 42.5% weighting to, why does it keep on getting worse as your base case scenario gets better?

Well, I think it's probably a function of the growth in the balance sheet as well, right, that's driving it. And that's probably the #1 factor, to be honest.

So it's gone from $8.3 billion to $8.9 billion over the last 6 months. That's quite a bit more than the balance sheet growth.

Yes. What I'd have to do is back solve for the calculation on the percentage of that to the balance sheet.

And maybe we can pick that one up separately. But our point on the...

I think it's a fair point. We are probably being prudent and conservative, but that's the setting that we like, Brian, given the global uncertainty.

And it gives us the ability to change over time if we think it's safe and prudent to do so.

Well, I would actually commend I feel more comfortable personally paying a fee for that. The other one, Andrew, is just on Slide 66.

When we have a look at the -- which is the housing slide, when we have a look at the proprietary balance, it's gone from 48% of the book to 47.1%. So the actual proprietary book based on the numbers has declined from $169.4 billion to $169 billion.

So it's down a little. When we have a look at the ROE on this, this is a question I asked last time around.

Other things being equal, it looks as though the front book ROE is still below the cost of capital across the sector. How can you turn this around?

No longer in aggregate. So our front book housing returns are now at or better than cost of capital, which is good, although as you would be -- you would expect that skews to proprietary.

So it is still true that broker-generated front book home loans are challenged.

So Andrew, if I kind of summarize where we are, we've got [ every ] -- we've got CommBank saying we've got to hire in more people. Surprise, surprise, we've got Westpac saying we're going to hire in more people.

We've got Westpac saying they're going to hire in more people. I look forward to hearing what ANZ say on this in coming days.

But there's only so many people out there. Can you just talk to us about how easy it is to actually hire business mortgage bankers in when they certainly seem to be a hot commodity?

Yes. No, it's a really good question, and it's going to depend on how each player executes in the marketplace.

Some of the bankers, and I've met them that we've been bringing on to our platform in the last 6 months are just exceptional, and it's really exciting. So we're going to -- we've delivered a 25% increase in drawdowns in a year, and that was a metric that we couldn't move for love no money for the years prior.

So the job we've got to do now is to replicate that next half and the half after that and the half after that. I think Australian banking, over decades, outsourced mortgage origination and let a whole bunch of staff go, close branches across the country and allowed brokers to come in and do the job for them, and I'm not sure it served us well.

And so under my leadership in both Personal Banking and Business and Private Banking, we have set out a clear direction to change that, and we have started. And now we've just got to keep going.

And Andrew, if I could just push my luck with one final one. Just on the capitalized software, do you think there's any -- the historic messaging has been we don't need to do a big bang approach on refreshing the core and refreshing the IT.

We see that now coming through at ANZ and Westpac. Can we still clarify that, that is your thinking?

There's no big bang need at some future point?

Our view here is that we're taking a very modular platform-by-platform approach to modernizing our tech architecture. We have persistent domains that have persistent squads that work year in, year out to do that.

So we don't have big splashy projects and big things like that. We just go about our business slowly but surely.

And it's less risky when you do it in a componentized, modernized way. And Patrick is -- and the team are doing an excellent job there, and we're really happy with our progress.

It's less risk.

Well done on the results.

Thank you, everyone, again for joining. The Investor Relations team will be available throughout the day if there's anything further we can help with.

Thanks.