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Market Update John Flavell General Manager, NAB Broker Australian property riding on China’s back AFR, Nov 2012 Lenders face off on outof-cycle rate cuts Australian Broker Feb 2013 Europe delays, US ‘fiscal cliff’ threatens growth: G20 AFR Nov 12 Japan posts record trade deficit BBC News, Feb 2013 China’s investment in Australia cut in half 3 Australian, Oct 2012 Aussie John sells to which bank? AFR Dec 12 Britain on the brink of ‘triple-dip’ recession AFR, Jan 2013 Congress votes to extend US debt limit BBC News, Jan 2013 Financial markets have turned surprisingly optimistic. Equity markets up, fear index down. FINANCIAL MARKET INDICATORS 60 100 Share markets in major developed economies 50 95 90 40 85 Australian share market 30 80 VIX index of market volatility LHS) 20 75 70 10 65 0 06/06/2011 29/08/2011 21/11/2011 13/02/2012 07/05/2012 30/07/2012 22/10/2012 60 14/01/2013 European sentiment may be bottoming but not their economy • European confidence still at historic lows • But can’t say the same about their economy • But might have bottomed – re ECB and Fed • Delaying Basel 3 liquidity will help further European Economic (Consumer and Business) Sentiment EUROPEAN GDP AND BUSINESS CLIMATE INDICATOR - Measured as Deviation in European Sentiment From Long Run Average 2.00 15 10 1.00 5 0.00 0 (F) -1.00 -5 -10 -2.00 GDP BUSINESS CLIMATE INDICATOR -15 -3.00 -20 -4.00 -25 -30 Sep-12 Mar-12 Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 -35 Jul-06 Jan-06 -5.00 Our forecast suggests moderate on-going US growth US Quarterly GDP v Nab Mini Model 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 Model based on: Real interest rates, House prices, Equity prices, Oil prices, TWI (currency), Commodity prices, Credit rationing and lags. Sep-14 Sep-13 Sep-12 Sep-11 Sep-10 Sep-09 Sep-08 Sep-07 Sep-06 Sep-05 Sep-04 Sep-03 Sep-02 Sep-01 -3 China Growth outlook: We expect further acceleration of growth to around 8 ¼% in 2013 – with policy helping China Real GDP Growth % China - Monetary Policy Response Year-ended percentage change % 14 14 12 12 10 NAB Fcst 8 6 SFM Percentage points of GDP growth Ppts 0.3 0.3 50bp cut to interest rate 10 8 Ppts 0.2 0.2 0.1 0.1 6 4 4 2 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 50bp cut to reserve requirement ratio 0.0 0.0 0 Source: CEIC, NAB 1 2 Quarters 3 4 5 Source: NAB Research Economic Forecasts Year Average Chng % Year-ended Chng % 2012 2011 9.3 6.3 Real GDP Exchange Rate (USD/CNY) Monetary Policy (end of period) Benchmark Lending Rate 6.56 Reserve Ratio Requirement* 21.0 Sources: CEIC; NAB Group Economics * For large depository institutions 2013 2012 7.8 6.3 2013 8.2 6.2 Q1 8.1 6.3 Q2 7.8 6.3 Q3 7.7 6.3 Q4 7.9 6.2 Q1 8.2 6.2 Q2 8.4 6.2 Q3 8.2 6.1 Q4 8.0 6.1 6.00 19.5 6.5 19.5 6.56 20.5 6.31 20.0 6.00 20.0 6.00 20.0 6.00 19.5 6.00 19.5 6.25 19.5 6.5 19.5 World still very multi speed Developed v Developing G ross domestic product S e p qtr 2007 = 100 D evelo p ed w o rld E m erg in g w o rld 160 150 G loba l liquidity crisis G loba l liquidity crisis 140 130 120 110 100 90 80 D e c-05 D e c-07 US UK B razil D e c-09 D e c-11 J ap an C hina D e c-05 D e c-07 D e c-09 D e c-11 E uro are a Ind ia S ourc es : O E CD Main E c onom ic Indic ators , CE IC, NA B AUD a proxy for global risk appetite and commodities. And of course China Model AUD and Forecasts v Actuals 1.2 ACTUAL Plus X2 Std Dev 1.1 Less X2 Std Dev 1 0.9 0.8 0.7 0.6 0.5 Model driven by: commodity prices; USD/EURO – as measure of USD weakness; long and short run rates; relative unemployment; relative equity markets and VIX. Feb-13 Feb-12 Feb-11 Feb-10 Feb-09 Feb-08 Feb-07 Feb-06 Feb-05 Feb-04 Feb-03 Feb-02 Feb-01 Feb-00 Feb-99 Feb-98 Feb-97 Feb-96 Feb-95 Feb-94 Feb-93 Feb-92 Feb-91 Feb-90 Feb-89 Feb-88 Feb-87 Feb-86 Feb-85 0.4 Near- term Australian growth also constrained by consumer caution. Saving ratio remains around GFC levels in trend terms Personal (credit card) and business credit currently around flat to negative Deposit inflow both by consumer and (especially) business strong Home loans at 5% a 30 year low Key System Credit Aggregrates 3 mths at annual rate - saar % 25 20 15 HOUSING 10 5 0 -5 BUSINESS -10 PERSONAL Jul-12 Jul-11 Jul-10 Jul-09 Jul-08 Jul-07 Jul-06 -15 Flattish house prices not helping perceptions of wealth. May be turning now but don’t expect much going forward House price expectations at end 2012 have turned slightly positive Over the medium term our model wants moderate growth. Very different by state – WA still strong: SA and VIC less so. Accelerating in near term but then flattens out by end 2013 as unemployment rises Australian House Prices - 12 Mth % Property Survey - House Price Expectations 50 50% Actual / Forecasts Model 45 40 NSW Q1'13 Q3'13 Qld Q1'14 SA/NT Q3'14 WA 10 10% 5 5% 0 0% -5 -5% -10 -10% -15 -15% Sep-14 Victoria Q3'12 15% Jun-12 Q1'12 15 Mar-10 Australia Q3'11 20% Dec-07 Q1'11 20 Mar-01 -6.0 25% Dec-98 Expectations 25 Sep-96 -4.0 30% Jun-94 -2.0 30 Mar-92 0.0 40% 35% Dec-89 % oya 2.0 45% 35 Sep-87 4.0 Sep-05 6.0 Jun-03 % Interest rates • Our expectation RBA will cut by 75bps in 2013 to 2.25% • First cut probably May • As unemployment rises to 5.75% by mid-late 2013, RBA will need to respond again • We expect a final cut in late 2013 as mining phasing heralds further labour market weakness (say November) • Forecasts imply a bottom in rates between 2 and 2.5% depending on extent of the slow down Australian economic forecasts 2012-13 2013-14 2012 2013 2014 GDP 2.3 2.8 3.5 2.0 3.3 Employment** 0.5 1.5 0.8 1.1 1.3 Unemployment rate* 5.6 5.7 5.2 5.6 5.8 2.8 2.9 2.5 2.7 2.9 2. 5 2.25 3.0 2.25 2.75 0.97 0.99 1.03 .97 0.95 CPI underlying ** (includes carbon) RBA cash rate* $US/$A* * at end of period; ** through-year growth Customer deposits Average 3-12 Mth Blackboard Rate and BBSW 8% 7% 6% 5% 4% 3% 2% 1% 0% Oct 07 Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 Average BBSW Average Blackboard Rate Source: NAB Weekly Advertised Term Deposit Rates since 2007 ^Represents advertised term deposit rates, used here as a peer comparison. These make up less than 15% of total term deposit costs. Term Wholesale Funding Cost of Wholesale Term Funding Cost(bps) 220 European Sovereign Crisis Lehman Brothers Collapse Introduction of 70bps Govt Guarantee 200 180 160 140 Bear Sterns Collapse (Mar/Apr 08) 120 100 80 60 Start of Credit Crises (JulAug 07) 6m Avg Monthly Issuance Margin Cumulative Weighted Average Margin 40 20 0 * Includes Covered Bonds Source: NAB Treasury Short-term Wholesale Funding % 1.0 Lehman Brothers Collapse 0.9 90d Rolling Avg Spot 0.8 0.7 Bear Sterns Collapse European Sovereign Crisis 0.6 0.5 0.4 0.3 0.2 0.1 - Source: Bloomberg Pre-Crisis Spread of 7bps Overall funding cost picture Change in Cost of Funding a Variable Rate Mortgage 180 160 Liquidity & Other Wholesale Funding 140 120 Term Funding 100 80 Customer Deposits 60 40 20 Bank Bill / Overnight Index Swap Spread 0 Pre-Crisis Dec 07 Jun 08 Source: NAB Treasury & Bloomberg Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 In summary • Environment will remain volatile both globally and domestically • Confidence running ahead of the fundamentals • Domestic downturn in growth post peak of mining boom • Property prices sideways • Credit growth slow • Cash rate down Social media a missed opportunity for brokers The Adviser, May 12 Your choice: Embrace social media or bust Australian Broker, Jan 2013 Small firms say LinkedIn works, Twitter doesn’t Wall St Journal, Jan 2013 Twitter move to Australia ‘imminent’ AFR, Jan 2013 Get to grips with Gen Y or lose out, say brokers 19 Broker News, July 2012 MFAA uses social media to promote brokers New App promotes brokers to borrowers The Adviser, Nov 12 5 tips for engaging clients on Facebook Australian Broker Jan 13 NAB Broker Update John Flavell General Manager, NAB Broker Our view is the broker channel will continue to grow 100% 90% 40% 40-45% 45-55% 80% 70% 60% 7% 50% 15-20% 40% 20-30% 30% 20% 10% 53% 40-45% 0% 2010 30-35% + 10 Years + 5 Years Broker Online Branch Broker Satisfaction 83% 76% 77% 79% 70% 66% 56% 55% 47% 37% 39% Implementation of Single Document Pack 1 2 1 2 1 0 -1 1 1 1 -1 2 1 2 -1 3 11 12 10 11 12 1 1 10 l-10 1 1 l l ar ar o v Jan o v Jan o v Jan ep ay ay ay Ju Sep Ju Sep Ju N N N M M S M M M The basics…where are we today ? Service Product & Price Credit People Commission + At Market − Service. Our objective is to deliver consistency. We have made good progress…with more enhancements to come Product. Simple yet feature rich. Price for Risk. Continues to lead the market We are at market with our credit policy Our people are regarded the best in the industry Our Ramped Trail commission structure increasing broker profits on a daily basis. Service…what have we delivered • State-based teams • Outbound calls, we pick up the phone and talk to you when there is an question • Embedded DCAs in production team • Construction Lending case management • Customer on-boarding program • Single Document Pack • New NAB Broker website NAB Broker/Homeside Major Lender of the Year 2012 Product • Homeplus package − Bundled NAB Classic Banking (deposit offset) and Credit Card • Homeside brand refresh − New customer website (homeside.com.au) Homeside Homeplus Best Product 2012 − New broker to customer tools • 3 Year Anniversary Homeside Price for Risk Homeside Homeplus Canstar Cannex 5 star rating Our people • Largest broker distribution team in the market • Recently expanded with 10 new positions to provide greater levels of support and advice • Realigned BDM panels to give you access to knowledgeable experienced staff in person, over the phone and online • Tailored and flexible support − Field-based − Office-based − Broker Support Specialist − Lending Specialist − Aggregator alignment Nick Murray Best Bank BDM 2012 Commission A win-win approach 0.70% 0.65% Ramped trail benefits • Longer customer relationships 0.60% • Increased revenue and book value for brokers 0.50% 0.40% 0.35% 0.30% 0.30% 0.25% 0.20% 0.20% 0.15% 0.10% 0.00% Year 1 Year 2 Year 3 Upfront Year 4 Trail Year 5 Year 6 + Rewarding customer life vs loan life Example scenario 1.10% 1.00% 1.00% 0.90% • Existing Homeside client of 7 years wants to buy and investment property • They take out an additional Homeside loan 0.80% 0.70% 0.60% 0.50% 0.40% 0.35% 0.35% 0.35% 0.35% 0.35% Year 2 Year 3 Year 4 Year 5 Year 6 + 0.30% 0.20% 0.10% 0.00% Year 1 Upfront Trail In Summary • Uncertain economic conditions • Opportunity for broker channel to continue to grow • NAB Broker will continue to grow our share • Keynote - Digital marketing • We will continue to focus and invest in: − Compelling proposition for the end customer − Our service proposition − Compelling partnership proposition − Our people