NAB claims small victories for its $1.5bn transformation
National Australia Bank is now two years along on its three-year ambitious A$1.5 billion "transformation" and its executives were keen to explain to investors and banking analysts yesterday how much progress has been made since September 2017.The line item for technology spend was up by $456 million over the previous year. This was attributed by CFO Gary Lennon during his presentation to the transformation process, as well as further risk and compliance initiatives.Regulatory and compliance operating costs have also increased, adding a further $250 million since FY17. Lennon said he expected extra compliance costs to rise to greater than $300m by the end of 2020. On top of this was an extra regulatory and compliance investment spend of $120 million (taking FY17 as a baseline).All these costs were being "absorbed", Lennon said, preferring to concentrate on the wins from the project, as he saw them.Investment in digitising and simplifying the business is now having "a truly significant impact," he said during his investor presentation. Lennon observed that since FY17, the number of NAB's IT legacy applications has reduced by 11 per cent while 19 per cent of current IT applications were migrated to more reliable, lower cost cloud platforms.And, in a quote from NAB's strategic overview statement, Lennon said that as a result of the transformation project to date, the bank now has 30 per cent fewer products (a reduction of 72 products), 30 per cent fewer over-the-counter transactions in its branches and a 17 per cent decrease in contacts with its call centres. Cost savings of $480 million were achieved in FY19, bringing total savings since September 2017 to $800 million. This has been achieved in part through a flatter organisational structure with more than 90 per cent of full-time employees within seven layers or less from the CEO."We continue to target a net FTE reduction of 4,000 and cumulative cost savings of at least $1 billion by 30 September 2020," Lennon said.On the other side of the equation are the unexpected "double benefits" from NAB's insourcing strategy. "By bringing critical technology functions in-house, we're building capability at a reduced cost" and therefore less reliant on external suppliers," he said.To achieve this, however, Lennon conceded that FTE has been reduced by reduced by just 3,713 against the nominated three-year target of 6,000. Counterbalancing that were 1240 new hires over the two years for "upskilling, growth and compliance" against a three year targeted increase of "circa 2,000".These comments provoked a flurry of questions from buy-side analysts, prompting CEO Phil Chronican to intervene with the observation that "FTE is a confusing figure as it counts as 'one' whether we are paying onshore or offshore rates. Don't obsess with it".This theme was gratefully picked up by his CFO: "I'm taking my lead from my new chairman, and not obsessing about FTE, "we're a little bit behind but not massively behind, maybe a couple of hundred.""Growth numbers are up because of a big ramp up in investments, mediation and wealth separation, where we