Australia’s big banks — once among the world’s most profitable — are being forced to amass war chests worth billions of Australian dollars to reimburse customers for years of dodgy fees.
Industry heavyweight National Australia Bank (NAB) yesterday 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 A$1.1 billion (US$772.8 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 CEO and chairman.
It “forced us to confront broader issues of how we treat customers,” the bank said in a statement yesterday.
Earlier this week, Australia and New Zealand Banking Group said that it had set aside A$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 A$6 billion, Macquarie Research estimated.
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 that it would defer the “majority” of management bonuses and cut shareholder dividends by 16 percent to protect the firm’s balance sheet during a “challenging” period.
NAB said that in the past six months it had put aside A$525 million for “customer-related remediation costs,” bringing the total provisions to A$1.1 billion.
There was “potential for additional costs, although the amounts and timing remain uncertain,” it said.
NAB shares yesterday closed down 0.33 percent on the Australian Stock Exchange.
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