National Australia Bank Annual Financial Report 2017

Robert Ravens
Bridestowe Lavender Estate
ANNUAL
FINANCIAL
REPORT
2017
Our vision is to
be Australia and
New Zealand’s most
respected bank

National Australia Bank Limited
ABN 12 004 044 937
This 2017 Annual Financial Report (Report) is lodged with the Australian Securities and
Investments Commission and ASX Limited. National Australia Bank Limited (NAB) is publicly
listed in Australia. The Report contains information prepared on the basis of the Banking Act
1959 (Cth), Corporations Act 2001 (Cth) and Accounting Standards and Interpretations issued by
the Australian Accounting Standards Board. NAB also produces a non-statutory Annual Review
which can be viewed online at nabgroup.com/annualreports.
To view the Report online, visit nabgroup.com/annualreports. Alternatively, to arrange for
a copy to be sent to you free of charge, call Shareholder Services on 1300 367 647 from within
Australia, or [phone] from outside Australia.
Nothing in the Report is, or should be taken as, an offer of securities in NAB for issue or sale,
or an invitation to apply for the purchase of such securities.
All figures in the Report are in Australian dollars unless otherwise stated.

Report of the Directors 2
Operating and financial review 2
Directors’ information 19
Other matters 25
Auditor’s independence declaration 29
Remuneration report 30
Corporate governance 56
Financial Report 57
Income statements 59
Statements of comprehensive income 60
Balance sheets 61
Cash flow statements 62
Statements of changes in equity 63
Notes to the financial statements 65
Directors' declaration 143
Independent auditor's report 144
Shareholder information 150
Glossary 156
Table of Contents
12017 Annual Financial Report

The directors of National Australia Bank Limited (NAB) present their
report, together with the financial statements of the Group, being NAB
and its controlled entities, for the year ended 30 September 2017.
Certain definitions
The Group’s financial year ends on 30 September. The financial year
ended 30 September 2017 is referred to as 2017 and other financial
years are referred to in a corresponding manner. The abbreviations $m
and $bn represent millions and thousands of millions (i.e. billions) of
Australian dollars respectively. Any discrepancies between total and
sums of components in tables contained in this report are due to
rounding.
Key terms used in this report are contained in the Glossary.
Forward-looking statements
This report contains statements that are, or may be deemed to be,
forward-looking statements. These forward-looking statements may be
identified by the use of forward-looking terminology, including the terms
"believe", "estimate", "plan", "project", "anticipate", "expect", “target”,
"intend", “likely”, "may", "will", “could” or "should" or, in each case, their
negative or other variations or other similar expressions, or by
discussions of strategy, plans, objectives, targets, goals, future events
or intentions. Indications of, and guidance on, future earnings and
financial position and performance are also forward-looking
statements. You are cautioned not to place undue reliance on such
forward-looking statements.
Such forward-looking statements are not guarantees of future
performance and involve known and unknown risks, uncertainties and
other factors, many of which are beyond the control of the Group,
which may cause actual results to differ materially from those
expressed or implied in such statements. There can be no assurance
that actual outcomes will not differ materially from these statements.
Page 4 of this report describes certain initiatives relating to the Group’s
strategic agenda (“Program”), including certain forward-looking
statements. These statements are subject to a number of risks,
assumptions and qualifications, including: (1) detailed business plans
have not been developed for the entirety of the Program, and the full
scope and cost of the Program may vary as plans are developed and
third parties engaged; (2) the Group’s ability to execute and manage
the Program in a sequenced, controlled and effective manner and in
accordance with the relevant project and business plan (once
developed); (3) the Group’s ability to execute productivity initiatives
and realise operational synergies, cost savings and revenue benefits in
accordance with the Program plan (including, in relation to CTI and
ROE targets, the extension of improvements beyond the current
Program plan); (4) the Group’s ability to meet its internal net FTE
reduction targets; (5) the Group’s ability to recruit and retain FTE and
contractors with the requisite skills and experience to deliver Program
initiatives; (6) there being no significant change in the Group’s financial
performance or operating environment, including the economic
conditions in Australia and New Zealand, changes to financial markets
and the Group’s ability to raise funding and the cost of such funding,
increased competition, changes in interest rates and changes in
customer behaviour; (7) there being no material change to law or
regulation or changes to regulatory policy or interpretation, including
relating to the capital and liquidity requirements of the Group; and (8)
for the purpose of calculating FTE cost savings and redundancy costs,
the Group has assumed an average FTE cost based on Group-wide
averages, and such costs are not calculated by reference to specific
productivity initiatives or individual employee entitlements.
Further information on important factors that could cause actual results
to differ materially from those projected in such statements is
contained on page 11 under “Disclosure on Risk Factors”.
Rounding of amounts
In accordance with ASIC Corporations (Rounding in Financial /
Directors' Reports) Instrument 2016/191, all amounts have been
rounded to the nearest million dollars, except where indicated.
Principal activities
The principal activities of the Group during the year were banking
services, credit and access card facilities, leasing, housing and general
finance, international banking, investment banking, wealth
management services, funds management and custodian, trustee and
nominee services.
Significant changes in the state of affairs
During the 2017 financial year, a number of changes to the
composition of the Board occurred:
• Non-executive director Mr Daniel Gilbert retired from the Board on
16 December 2016.
• Non-executive director Ms Jillian Segal retired from the Board on
16 December 2016.
In addition, non-executive director Ms Ann Sherry AO was appointed
to the Board on 8 November 2017.
In November 2017, NAB announced changes to its Executive
Leadership Team. Ms Angela Mentis, currently Chief Customer Officer
– Business and Private Banking, was appointed Managing Director
and CEO of Bank of New Zealand. Mr Anthony Healy, currently
Managing Director and CEO of Bank of New Zealand, was appointed
Chief Customer Officer – Business and Private Banking. The
appointments, which are subject to regulatory approval, will take effect
from 1 January 2018.
The Group’s Business
The Group is a financial services organisation with approximately
33,000 employees, operating through a network of more than 900
locations, with more than 571,000 shareholders and serving over nine
million customers.
The majority of the Group's financial services businesses operate in
Australia and New Zealand, with branches located in Asia, the United
Kingdom (UK) and the United States (US). The Group's brands share
a commitment to providing customers with quality products and
services. The Group's relationships are based on the principles of
providing quality help, guidance and advice to achieve better financial
outcomes for customers.
In 2017 the Group operated the following divisions:
• Consumer Banking and Wealth comprises the NAB and UBank
consumer banking divisions, and the Wealth divisions of Advice,
Asset Management and Superannuation. The division provides
customers with access to independent advisers, including
mortgage brokers and the financial planning network of self-
employed, aligned and salaried advisers in Australia.
• Business and Private Banking focusses on serving priority small
and medium (SME) customers via the NAB Business franchise and
specialist services in key segments including Agriculture, Health,
Government, Education, Community and Franchise. The division
also serves NAB's micro and small business customers and
includes Private Banking and JBWere.
Report of the Directors
Operating and financial review
2 NATIONAL AUSTRALIA BANK

• Corporate and Institutional Banking provides a range of lending and
transactional products and services related to financial and debt
capital markets, specialised capital, custody and alternative
investments. The division serves its customers in Australia and
globally through branches in the US, UK and Asia with specialised
industry relationships and product teams.
• NZ Banking comprises the Retail, Business, Agribusiness,
Corporate and Insurance franchises and Markets Sales operations
in New Zealand, operating under the ‘Bank of New Zealand’ brand.
It excludes Bank of New Zealand's Markets Trading operations.
Strategic Highlights
Vision and Objectives
The Group’s strategic focus supports its vision of becoming Australia
and New Zealand’s most respected bank. In the September 2017 full
year, this was underpinned by three key objectives:
1. Our customers are advocates
2. Our people are engaged
3. Our shareholders receive attractive returns
To meet these objectives, execution was focussed around four key
themes – deepening relationships in priority customer segments,
delivering a great customer experience, reshaping our business to
perform, and being known for great leadership, talent and people.
Deepen relationships in priority customer segments
The Group has prioritised four customer segments where it is
focussing investment to deepen customer relationships. These are
small and medium business customers given NAB’s strong market
position and attractive returns, combined with home owners and
investors.
Investment in priority segments is driving improved results. This is
evident in the performance of Business and Private
Banking which, during the September 2017 full year, recorded positive
revenue growth on higher volumes and stronger margins.
Delivering a great customer experience and reshaping our
business to perform
The Group uses the Net Promoter Score (NPS) (1) system to access
real-time, targeted feedback so it can understand and improve the
customer experience. For the September 2017 full year, our priority
segment NPS (1) (2) was first of the major peer banks.
The Group is committed to using customer feedback and a new way of
working to transform the end-to-end customer experience across a
range of products and channels. This is known as Customer Journeys.
In the September 2017 full year, the Group launched seven Customer
Journeys aimed at driving customer advocacy through increased
efficiencies and improved interactions with customers. Examples
include:
• A new 10 minute digital transaction account onboarding for
business customers with simple needs, significantly reducing
processing time for onboarding new customers and removing the
need for a customer to visit a branch.
• A faster, easier application process for Everyday Accounts,
reducing application time to seven minutes.
• A simplified digital Superannuation portal to help customers better
understand their retirement options and e-forms pre-populated with
existing customer data.
• A virtual banking assistant pilot for business customers using
artificial intelligence chat technology to help customers fulfill simple
needs through self-service.
The Group continues to enhance its products and services for
customers through digitisation and innovation, as evidenced by:
• Enabling small business customers to access funding quickly with
QuickBiz unsecured lending expanded to include business cards
and overdraft facilities.
• The launch of the HICAPS Go mobile app solution in partnership
with start-up, Medipass Solutions, which allows health patients to
book and pay for services via their mobile device while receiving full
transparency of costs, and for practitioners removes the need for a
physical terminal.
The Group is also exploring new strategic alliances and direct equity
investments through its dedicated innovation fund, NAB Ventures, to
fast-track improvements in customer experience and leverage
innovative new technologies and business models. Examples of
investments made during the September 2017 full year include
investments in Veem (business-to-business global payments) and
Wave (a cloud-based integrated suite of small business tools including
accounting, invoicing, payments, and payroll for micro businesses).
Great leadership, talent and people
The Group is committed to attracting, developing and inspiring talent to
drive a culture that delivers high performance. Key initiatives during the
September 2017 full year include:
• Significant investment in senior executive assessment to
understand organisational leadership strengths driving
performance.
• Implementing targeted development programs including
accelerated streams for high potential female talent and executives
identified as key talent.
• Introducing a new performance framework with leaders accountable
for coaching every day, supported by monthly performance and
development conversations.
• Investment in new technology to track performance, talent,
capability and deliver leadership data and insights.
Generating attractive returns
The Group has continued to shift its portfolio towards business with
higher returns where it has strong capability to compete. For the
September 2017 full year, the Group delivered a statutory ROE of
10.9% and a cash ROE of 14.0% on a continuing operations basis.
Maintain and strengthen our foundations
The Group underpins its strategy by maintaining strong foundations:
balance sheet strength (including capital, funding and liquidity), risk
management capability (including credit and operational risk) and core
technology platforms and infrastructure.
The Group remained well capitalised during the September 2017 full
year, and expects to meet APRA's new ‘unquestionably strong’ capital
requirements in an orderly manner by 1 January 2020. The Common
Equity Tier 1 (CET1) ratio as at 30 September 2017 was 10.1%.
(1) Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred
Reichheld.
(2) Priority Segments Net Promoter Score (NPS) is a simple average of the NPS scores of four priority segments: Home Owners, Investors, Small Business ($0.1m-<$5m)
and Medium Business ($5m-<$50m). The Priority Segments NPS data is based on six month moving averages from Roy Morgan Research and DBM BFSM Research.
Report of the Directors
Operating and financial review (continued)
32017 Annual Financial Report

The Group has maintained strong liquidity through the September
2017 full year with a quarterly average Liquidity Coverage Ratio (LCR)
of 123%, which is above the APRA requirement of 100%. The
30 September 2017 Net Stable Funding Ratio (NSFR) was 108%,
above the APRA minimum regulatory requirement of 100% from
1 January 2018.
Overall credit risk in the Group’s portfolio remains sound, and bad and
doubtful debts are stable. Portfolio concentrations are managed with
reference to established Group risk appetite settings.
Accelerating our strategy
The environment in which the Group operates is one of rapid and
constant change. The Group’s customers are now largely 'digital-first'
and expect seamless, personal experiences. New competitors
continue to emerge, and community and regulatory expectations have
never been greater. The risks faced by the Group are constantly
evolving, requiring ever greater vigilance around cybercrime and data
protection.
The Group is optimistic about the future and the opportunities for NAB
in a changing world, and moves forward in a much stronger position.
This allows the Group to plan for the longer term and, on 2 November
2017, the Group announced an acceleration of its strategy to enable
the Group to grow while staying focussed on productivity.
This includes an estimated $1.5 billion increase in investment over the
next three years. A key focus will be driving a major uplift in innovation
and capabilities in the Group’s leading Australian SME franchise. The
timing and amount of investment spend may vary depending on the
operating environment.
The Group expects this to deliver benefits including:
• Improved customer experience with fewer, simpler products,
delivered by digital channels.
• Cumulative cost savings, currently targeted at greater than $1
billion by 30 September 2020, as the Group significantly simplifies
and automates processes, reduces procurement and third party
costs, and gets closer to its customers with a flatter organisational
structure.
• Increased revenue from higher customer retention and targeted
market share gains.
• Reduced operational and regulatory risks from a simplified, more
responsive and resilient technology environment.
The Group is reshaping its workforce to enable it to deliver for its
customers and by 30 September 2020 expects to create up to 2,000
new jobs while about 6,000 roles will be impacted as the Group further
automates and simplifies its business. This will result in a net reduction
in staff currently targeted at approximately 4,000 by 30 September
2020, which is expected to give rise to a restructuring provision of
$0.5-0.8 billion in the first half of the 2018 financial year. Throughout
this process, the Group will treat its people with care and respect and
equip them for the future.
Reflecting the accelerated investment impact, September 2018 full
year expenses are expected to grow 5-8%, with expenses then
targeted to remain broadly flat through to 30 September 2020
(excluding the restructuring provision and large one-off expenses).
Taking account of the near term impact of these changes, the Board
expects to maintain dividends for the September 2018 full year at the
same level as the September 2017 full year, subject to no material
change in the external environment and satisfactory Group financial
performance.
The Group has set four new aspirational objectives:
• NPS positive and number 1 NPS of Australian major banks for the
Group's priority segments.
• Cost-to-income ratio towards 35%.
• Number 1 ROE of Australian major banks.
• Top quartile employee engagement.
The Group plans to achieve these by being the best business bank;
becoming simpler and faster for its customers and its people;
focussing on new and emerging growth opportunities; and having great
leaders, talent and culture.
This is an ambitious and necessary plan. It will enable the Group to
continue to deliver for all its stakeholders, live its purpose to 'back the
bold who move Australia forward' and achieve the Group’s vision to be
Australia and New Zealand’s most respected bank.
Financial performance summary
The following financial discussion and analysis discloses net profit on
both a statutory and cash earnings basis. The statutory basis is
presented in accordance with the Corporations Act 2001 (Cth) and
Australian Accounting Standards and is audited by the auditors in
accordance with Australian Auditing Standards.
Non-IFRS key financial performance measures used by
the Group
Certain financial measures detailed in the Directors’ Report are not
accounting measures within the scope of IFRS. Management review
these financial metrics in order to measure the Group’s overall financial
performance and position and believe the presentation of these
industry standard financial measures provides useful information to
analysts and investors regarding the results of the Group's operations
and allows ready comparison with other industry participants. These
financial performance measures include:
• Cash earnings
• Statutory ROE
• Cash ROE
• Net Interest Margin (NIM)
• Average equity (adjusted)
• Average interest earning assets
• Average assets.
The Group regularly reviews the non-IFRS measures included in its
Directors’ Report to ensure that only material financial measures are
incorporated. Certain other financial performance measures detailed in
the Directors' Report are derived from IFRS measures and are
similarly used by analysts and investors to assess the Group’s
performance. These measures are defined in the Glossary.
Any non-IFRS measures included in this document are not a substitute
for IFRS measures and readers should consider the IFRS measures
as well. The non-IFRS financial measures referred to above have not
been presented in accordance with Australian Accounting Standards
nor audited or reviewed in accordance with Australian Auditing
Standards unless they are included in the Financial report.
Further information in relation to these financial measures is set out
below and in the Glossary.
Information about cash earnings
Cash earnings is a non-IFRS key financial performance measure used
by the Group, the investment community and NAB’s Australian peers
Report of the Directors
Operating and financial review (continued)
4 NATIONAL AUSTRALIA BANK

with similar business portfolios. The Group also uses cash earnings for
its internal management reporting as it better reflects what it considers
to be the underlying performance of the Group.
Cash earnings is calculated by excluding discontinued operations and
other items which are included within the statutory net profit
attributable to owners of NAB.
Cash earnings does not purport to represent the cash flows, funding or
liquidity position of the Group, nor any amount represented on a cash
flow statement. It is not a statutory financial measure and is not
presented in accordance with Australian Accounting Standards nor
audited or reviewed in accordance with Australian Auditing Standards.
A full reconciliation between statutory net profit and cash earnings
including a description of each non-cash earnings item is included on
pages 70 to 72 in Note 2 Segment information in the Financial
report.
Information about net interest margin
Net interest margin (NIM) is a non-IFRS key financial performance
measure that is calculated as net interest income (derived on a cash
earnings basis) expressed as a percentage of average interest earning
assets. A full reconciliation between statutory net interest income and
cash earnings derived net interest income including non-cash
explanations is included on pages 70 to 72 in Note 2
Segment information in the Financial report. Further information in
respect of average interest earning assets is included under the
heading 'Average balances' below and in the Glossary.
Average balances
Average balances, including average equity (adjusted), total average
assets and average interest earning assets are based on daily
statutory balances derived from internally generated trial balances
from the Group's general ledger and are used for internal reporting
purposes including reporting to the Board on a monthly basis.
The methodology used to obtain average balances is to take the
average of the opening balance and the balances at the end of each
day in the period. This methodology produces numbers that more
accurately reflect seasonality, timing of material accruals (such as
dividends) and restructures (including discontinued operations), which
would otherwise not be reflected in a simple average.
Refer to the following page for a five-year summary of the Group’s
average equity (adjusted), total average assets and average interest
earning assets.
Report of the Directors
Operating and financial review (continued)
52017 Annual Financial Report

5 Year Financial Performance Summary
Group (1)
2017 2016 2015 2014(2) 2013(2)
$m $m $m $m $m
Net interest income 13,182 12,930 12,462 13,415 13,351
Total Other income 4,842 5,192 5,975 5,441 4,852
Total Operating expenses (8,539) (8,331) (8,189) (10,227) (8,305)
Charge to provide for bad and doubtful debts (824) (813) (733) (847) (1,810)
Profit before income tax expense 8,661 8,978 9,515 7,782 8,088
Income tax expense (2,480) (2,553) (2,709) (2,598) (2,725)
Net profit for the period from continuing operations 6,181 6,425 6,806 5,184 5,363
Net (loss) / profit after tax for the year from discontinued operations (893) (6,068) (414) 114 -
Net profit for the year 5,288 357 6,392 5,298 5,363
Attributable to owners of NAB 5,285 352 6,338 5,295 5,355
Attributable to non-controlling interests 3 5 54 3 8
Group performance indicators Year to
Sep 17 Sep 16 Sep 15 Sep 14 Sep 13
Key Indicators
Statutory earnings per share (cents) - basic (3) 194.7 8.8 252.7 219.0 225.9
Statutory earnings per share (cents) - diluted (3) 189.1 15.5 245.4 215.4 224.0
Statutory return on equity 10.9% 0.5% 15.2% 12.1% 13.0%
Cash return on equity 14.0% 14.3% 14.8% 11.6% 14.1%
Profitability, performance and efficiency measures
Dividend per share (cents) 198 198 198 198 190
Net interest margin (1) 1.85% 1.88% 1.90% 1.91% 2.02%
Capital
Common Equity Tier 1 ratio 10.06% 9.77% 10.24% 8.63% 8.43%
Tier 1 ratio 12.41% 12.19% 12.44% 10.81% 10.35%
Total capital ratio 14.58% 14.14% 14.15% 12.16% 11.80%
Risk-weighted assets ($bn) (4) 382.1 388.4 399.8 367.7 362.1
Volumes ($bn)
Gross loans and acceptances (1) (4) (5) 565.1 545.8 521.9 537.6 522.1
Average interest earning assets (1) 711.3 689.5 658.1 703.0 661.6
Total average assets (1) 798.8 855.8 864.6 853.4 802.5
Customer deposits (4) 407.6 390.5 362.0 383.0 428.4
Average equity (adjusted) - Statutory 47.5 44.3 40.5 42.0 39.5
Average equity (adjusted) - Cash 47.5 45.5 42.2 43.6 40.8
Asset quality
90+ days past due and gross impaired assets to gross loans and acceptances (1) 0.70% 0.85% 0.63% 1.19% 1.69%
Other
Funds under management and administration (FUM/A) (spot) ($bn) (6) 133.8 125.0 N/A N/A N/A
Assets under management (AUM) (spot) ($bn) (6) 195.3 184.9 N/A N/A N/A
Full Time Equivalent Employees (FTE) (spot) (1) 33,422 34,263 33,894 41,420 42,164
Full Time Equivalent Employees (FTE) (average) (1) 33,746 34,567 34,148 41,153 42,783
(1) Information is presented on a continuing operations basis. September 2015 was restated for the demerger of CYBG and the sale of 80% of Wealth's life insurance business to Nippon Life in September 2016,
with the exception of APRA information (capital). September 2014 was restated for the sale of Great Western Bancorp Inc. but has not been restated for the demerger of CYBG, the sale of 80% of the
Wealth's insurance business to Nippon Life nor APRA information (capital). No further comparative periods have been restated. The Group's consolidated financial statements for the financial years ended
30 September 2013, 2014 and 2015 can be found in the corresponding reports published by the Group for the respective periods.
(2) AASB 9 "Financial Instruments" was adopted from 1 October 2014. 2013 and 2014 periods were not restated.
(3) In September 2015, Earnings per share was restated for September 2014 by adjusting the weighted average number of ordinary shares in order to incorporate the bonus element in the 2015 rights issue, as
per AASB 133.
(4) Spot balance as at reporting date.
(5) Including loans and advances at fair value.
(6) For September 2017, there has been a change to the presentation of FUM/A and AUM to include two separate disclosures that represent all managed funds and assets from which the Group derives
revenue. Certain items will be represented in both FUM/A and AUM and therefore the two should not be summed. Comparative period information has been restated for September 2016.
September 2017 v September 2016
On a statutory basis, net profit attributable to owners of NAB increased
by $4,933 million mainly due to the loss on discontinued operations in
2016. From a continuing operations perspective, statutory net profit
attributable to owners of NAB decreased by $242 million or 3.8%
mainly driven by unfavourable volatility in fair value and hedge
ineffectiveness. The volatility largely relates to the Group's long term
funding portfolio and is income neutral over the full term of
transactions.
Net interest income increased $252 million or 1.9% including a
decrease of $281 million that was offset by movements in economic
hedges in other operating income. The underlying increase was driven
by growth in both housing and business lending volumes, combined
with repricing activity. These movements were partially offset by a
Report of the Directors
Operating and financial review (continued)
6 NATIONAL AUSTRALIA BANK