# 2023 Annual Report

# About this report

# National Australia Bank Limited ABN 12 004 044 937

This 2023 Annual 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), 4th edition ASX Corporate Governance Councilʼs Corporate Governance Principles and Recommendations, Accounting Standards and interpretations issued by the Australian Accounting Standards Board and International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board. It also provides information on the Groupʼs activities and performance in 2023, showing how the Group is creating value through its strategy, operating environment, governance and financial and non-financial activities. NAB also produces a Climate Report which can be viewed online at nab.com.au/annualreports.

To view the Report online, visit www.nab.com.au/annualreports. Alternatively, to arrange for a copy to be sent to you free of charge, call the shareholder information line on 1300 367 647 from within Australia or +61 3 9415 4299 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.

# 2023 Reporting Suite

Acknowledgement of Country

NAB acknowledges Australia’s First Nations people as the Traditional Custodians of the land and their continuing connection to country, sea and water. We pay respect to their Elders past and present.

We make this acknowledgement with the ambition to continue supporting a reconciled Australia through our actions and voice. This is backed by why we are here: to serve customers well and help our communities prosper.

“Indigenous Australians”, "Aboriginal and Torres Strait Islander" and "First Nations people" (or "First Nations Australians") are used interchangeably throughout this report. By intent, these terms refer to Aboriginal and/or Torres Strait Islander peoples of Australia. These terms, however, do not reflect the diversity of Aboriginal and Torres Strait Islander peoples. NAB acknowledges that many Aboriginal and Torres Strait Islander people prefer to be known by other cultural names.

2023 Annual Report

NAB’s 2023 Annual Report provides information on the Group’s activities and performance during 2023. It outlines how NAB is creating value through its strategy, operating environment, governance, financial and non-financial activities.

The Annual Report draws on aspects of the International Integrated Reporting Framework. It is supported by the additional documents outlined below.

Report Structure

Pages to 55 contain information on the Group’s business, strategy, operating environment and performance. These pages outline performance relevant to customers, colleagues, climate change and environment, technology, data and security, and communities. Stakeholder feedback was considered in the shaping of this section (refer to What matters most on page for more information).
Pages to contain NAB’s 2023 Corporate Governance Statement, which discloses how the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations – 4th edition’ have been complied with.
Pages to contain key components of the Report of the Directors.
Pages to contain the Remuneration Report.
Pages to contain the Financial Report.

Assurance

The Remuneration Report on pages to and Financial Report on pages to have been audited by EY. The assurance statement for the Financial Report and Remuneration Report is on pages to 266.

EY provides limited assurance over 25 key non-financial sustainability metrics and performance disclosures and a further seven metrics relating to NAB's Reconciliation Action Plan as outlined in EY's limited assurance statement on pages to 59.

KPMG provides assurance over selected environmental measures disclosed across NAB's reporting suite. KPMG’s assurance statements are available on NAB's website at nab.com.au/about-us/social-impact/shareholders/performance-and-reporting.

Additional documents

2023 Full Year Results Investor Presentation Information designed for analysts and institutional investors which accompanies the Group's Full Year Results Presentation. | Management Discussion and AnalysisManagement discussion and analysis of the Group's results for the year ended 30 September 2023. | 2023 Climate ReportProvides stakeholders with information on the Group's approach to climate change and how it manages associated risks and opportunities. The report is guided by the recommendations of the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD). | 2023 Pillar 3 ReportDescribes the Group's approach to risk management and provides details about risk exposures, capital adequacy and liquidity. | 2023 Sustainability Data PackProvides further detail on the Group's ESG performance, in addition to the material themes covered in the Annual Report and the Climate Report.

# Additional information

Certain definitions

The Group's financial year ends on 30 September. The financial year ended 30 September 2023 is referred to as 2023 and other financial years are referred to in a corresponding manner. Reference in this document to the year ended September 2023 are references to the twelve months ended 30 September 2023. Reference in this document to the environmental reporting year are references to the twelve months ended 30 June 2023. Other twelve month periods referred to in this document 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.

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", "goal", “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.

There are a number of other important factors that could cause actual results to differ materially from those projected in such statements, including (without limitation) a significant change in the Group’s financial performance or operating environment; a material change to law or regulation or changes to regulatory policy or interpretation; and risks and uncertainties associated with the ongoing impacts of the Russia and Ukraine war, conflict in the Middle East and other geopolitical tensions, the Australian and global economic environment and capital market conditions. Further detail is contained on page under Disclosure on Risk factors.

# Our business in 2023

# 2023 at a glance

# Chair's message

Strength and stability

Our consistent execution of the bank’s strategy over multiple years is continuing to benefit NAB’s customers, employees and shareholders. We are making steady progress in building the bank we want and that work continues.

Our executive leadership team is delivering consistently and demonstrating discipline in how the bank operates. This includes prioritising the experiences of our customers and our people. We are seeing the outcomes of this through our Net Promoter Score1 and market share while our employee engagement is growing. The calibre of our senior people has been demonstrated through internal appointments to senior executive roles during the year.

This capability has enabled us to grow the bank safely and support our customers in a complex economic environment.

We are improving the culture within NAB, with a strong focus on the impact we have in the communities we serve. Culture and risk management remain front of mind for all of us.

The outstanding regulatory issues identified through the Financial Services Royal Commission have largely been closed. Matters relating to NAB’s Enforceable Undertaking with AUSTRAC are progressing to plan.

Lessons learned guide our approach to keeping the bank safe, protecting customers and innovating to be a leading financial services provider.

Financially secure bank

An increase in underlying earnings this year reflects positive contributions from all businesses. The Board has determined dividends for the year of 167 cents per share, returning $5.2 billion in total to shareholders.

For the third consecutive year we have undertaken a share buy-back while maintaining healthy capital levels. This supports our ambition to progressively manage down our share count and support shareholder returns.

Over the three years to September 2023, total shareholder return was 85.8 per cent, against an average return of 65.2 per cent for NAB’s major bank peers.

The Board has determined executive and employee remuneration outcomes based on the bank’s performance against the targets set in NAB’s 2023 plan. These are aligned with shareholder outcomes and include financial performance, market share growth, customer outcomes and colleague engagement. These outcomes reflect good progress of our strategy. The Board is focused on maintaining responsible levels of executive remuneration.

Board renewal

We were pleased to announce the appointment of Christine Fellowes, Carolyn Kay and Alison Kitchen to the NAB Board, to be considered by NAB’s shareholders at our Annual General Meeting (AGM) in December. Our existing directors Simon McKeon and Ann Sherry will also stand for re-election with our full support.

At the same time and after having each served three terms of three years, David Armstrong and Peeyush Gupta will retire from the NAB Board at the conclusion of the AGM. On behalf of all shareholders, I thank them for their significant contributions in this period.

These changes are in line with NAB’s Board renewal strategy and desire to bring relevant new skills, experience and broader diversity to the Board.

Preparing for the future

We are focused on securing NAB’s position for the long term. The economic environment remains uncertain and there are new and emerging risks to be managed. While the Australian economy is slowing, it is still growing.

Australia is in a good position and we are cautiously optimistic for the future while being alert to geopolitical tensions and the impact that these may have.

We are modernising our technology and our digital, data and analytics capability.

At the same time, we are ensuring the bank is well prepared for further shifts in the global operating environment and acting to strengthen communities and build value for shareholders.

Where appropriate, we will engage in and take action to support broader community issues where there is benefit for our customers, community and the bank. These decisions are made after careful consideration of a range of views. During the year we supported the ‘Yes’ campaign on the referendum for an indigenous Voice. This was done because of our strong interest in addressing First Nations disadvantage in the communities in which we operate. We continue to work towards reconciliation through our own Reconciliation Action Plan and growing indigenous businesses.

Global decarbonisation is gathering pace and there is a growing urgency to transition economies faster.

What we achieve from now to 2030 is critically important and Australia needs to act quickly to set up our economy to capitalise on the opportunity before us.

This year NAB has set 2030 decarbonisation targets for another three emissions-intensive priority sectors: aluminium, iron and steel, and aviation. This builds on targets set last year for power generation, oil and gas, thermal coal mining and cement production. We plan to set targets for another three sectors by May next year, in line with our requirements as a member of the UN-convened Net Zero Banking Alliance and our ambition to align our lending portfolio to net zero emissions by 2050.

On behalf of the Board, I would like to thank you for your ongoing support as shareholders. I would also like to recognise NAB’s team of more than 38,000 for the work they do serving customers well and helping our communities prosper.

We are fortunate to have Ross McEwan as CEO. Ross has never wavered from his intent to have NAB operating as a good bank that does the basics well for customers. NAB has come a long way in recent years. There’s still more to do, and we are pleased with the progress being made.

Philip Chronican, Chair

1. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Inc., NICE Systems, Inc., and Fred Reichheld.

# CEO's message

Building momentum and capability

NAB’s strategy is in its fourth year and our results demonstrate we are making progress to be a simpler, better performing bank.

Pleasingly we have delivered a strong financial performance this year with positive contributions across each of our divisions, in a more challenging environment.

We are seeing the benefits of the deliberate choices we are making about where we invest. Our leading Business and Private Banking division has continued its record of strong growth. This is a great business built on strong relationships and we are determined to make it even better.

The second half saw our financial results soften as the impact of higher rates and inflation increasingly weighed on households and the economy. We expect 2024 will remain challenging, reflecting continued slower economic growth and elevated inflation. Inflation has added cost pressures which we were able to offset partially through productivity savings in line with our target of $400 million. We will be disciplined on costs through 2024, while continuing to invest in the experience of customers and colleagues.

This year we delivered a simpler, more modern Enterprise Agreement that puts our colleagues in a better place than before.

Our focus on the skills, training and development of our bankers is supporting a more capable and engaged workforce that can meet more of our customers’ needs.

Well positioned to rebound

For many in Australia and New Zealand, 2023 has been challenging. The economies of both countries have slowed, and needed to, to counter inflation at levels not seen for three decades.

In Australia, the impact of 13 rate rises is being felt. The higher cost of living is the greatest driver of stress for consumers. This has changed how people are managing their money with Australians more engaged with their finances than previously. Most are maintaining a budget and cutting back on spending to focus on the things that matter to them.

I expect Australia will avoid recession, but it will continue to feel harder for a while yet.

Despite headwinds, business conditions remain above average and businesses I talk to are ambitious for growth. With strong migration levels, low unemployment and demand for our natural resources, Australia is well placed to rebound in the second half of next year.

In New Zealand, there are also reasons for optimism. High migration and low unemployment should support a return to growth during the next 12 months.

Supporting and protecting customers

Throughout the year NAB has been checking in with customers. While a small number have required support, the message we’ve mostly heard has been ‘thank you, but we’re doing ok’.

We increased the size of our NAB Assist team by 120 people to support those in greatest need. To those who need support our message is clear, please call us early.

We are working hard to fight the scams epidemic. We have a range of initiatives completed or underway to protect our customers from the multinational criminal groups that are relentlessly targeting Australians. Our improvements include being the first Australian bank to remove links from unsolicited
text messages and the introduction of payment prompts to slow down digital payments that seem unusual.

As new challenges emerge we will find more ways to better support and protect our customers.

Investing in the future and community

We are investing for the long-term benefit of customers, colleagues and the community.

Artificial intelligence offers the potential to support meaningful interactions with our customers and benefit both customers and colleagues. Our teams are working to get the right safeguards in place.

Housing affordability and supply has become one of the nation’s greatest challenges and urgent action is required to solve this problem. We work with NAB customer and partner, The Salvation Army, to provide relief to Australians in housing crisis or affected by homelessness.

We celebrated this year a 20-year partnership with Good Shepherd Australia New Zealand, having supported close to one million people experiencing vulnerability with more than $480 million low and no interest loans. This community partnership is now entering a new chapter with a focus on affordable housing.

We also announced a target to lend at least a further $6 billion by 2029 to help more Australians access specialist and affordable housing. We will assess new opportunities to work with government and industry on this.

In the communities in which we operate, natural disasters are all too frequent. NAB Foundation helps communities withstand and recover from natural disasters. The Foundation has partnered with Disaster Relief Australia to recruit and manage 3,000 community volunteers be on stand-by when needed.

Taking action on climate change is everyone’s job as Australia reaches a critical point in the transition to a net zero economy. We recognise our role to support our customers to get there.

We have an ambition to lend $1 billion over three years to First Nations businesses and have a specialist team leading this work. We recognise a strong First Nations business sector creates opportunities for communities to succeed and contributes to a strong Australian economy.

Looking ahead

The banks that perform best are the ones that get the basics right consistently and we are determined to do so for our customers and colleagues.

Thank you to our customers for choosing to bank with us and to my colleagues for their dedication this year. We look forward to continuing to serve you in 2024.

Ross McEwan CBE, Group Chief Executive Officer

# Creating value

# Our business

We are here to serve customers well and help our communities prosper. More than 38,0001 colleagues provide about 10 million customers with secure, easy and reliable banking services.

Customer-facing units reflect the needs of customers and opportunities for safe growth. The four customer-facing units are supported by enabling units. These are Technology and Enterprise Operations; Digital, Data and Analytics; Finance; Risk; Commercial Services, People and Culture and the Chief Operating Office. ubank operates as a customer-facing unit under the leadership of the Chief Operating Office.

Business and Private Banking

Clear market leadership
Business and Private Banking focuses on NAB's priority small and medium (SME) customer segments. This includes diversified businesses, as well as specialised Agriculture, Health, Professional Services, Franchisees, Government, Education and Community service segments, along with Private Banking and JBWere.

NAB works to deepen relationships with business customers as a trusted advisor in a dynamic economic environment. This year Business and Private Banking delivered more efficient processes such as digitised lending and deposits. The merchant offering has been strengthened, and a more integrated whole-of-NAB proposition for High Net Worth (HNW) clients created. As Australia’s largest business bank, NAB has grown faster than the overall banking system in business lending and business deposits during 2023.

Progress to build a better business banking experience for customers and colleagues continues.

Personal Banking

Simple and digital
Personal Banking helps customers secure a home loan and manage personal finances through deposits, credit card or personal loan facilities. It includes the Citi consumer business, acquired in 2022.

In the face of rising costs of living, Personal Banking has prioritised customer service by proactively contacting customers to offer support when there are signs they may be in difficulty. This has helped many customers get back on their feet.

Personal Banking maintains a strong regional presence with more than half our branches located in regional and rural Australia. NAB serves customers through the mobile app, internet banking, branches and phone banking. NAB's Bank@Post partnership with Australia Post provides customers with access to a range of banking services across 3,400 locations.

In 2023, NAB introduced a number of new initiatives to help protect customers from scams and fraud including removing links in text messages, increasing prompts for in-app payments and improved card features to block transactions.

Corporate and Institutional Banking

Disciplined growth
Corporate and Institutional Banking partners with customers globally to meet their most complex financial needs providing a range of products and services globally with offices in Australia, Asia, London, Paris, and New York.

For 20 years, support has been provided to organisations through sustainable financing and more recently navigating the transition to net zero. Thanks to this work NAB has retained its position as the number one Australian Bank for global renewables transactions. NAB’s carbon markets business has commenced trading and sustainable finance has grown to more than $10 billion.

By further investing in Transaction Banking and Payments, Corporate and Institutional Banking has maintained market leading positions in cash and liquidity management. NAB is ranked first in the Relationship Strength Index rating for Transaction Banking, Foreign Exchange, Interest Rate Derivatives and Debt Capital Markets12.

Bank of New Zealand (BNZ)

Personal and SME
BNZ serves more than 1.2 million customers across New Zealand with personal and business banking services, through a nationwide network of customer centres, digital and assisted channels. It is New Zealand’s largest business bank, one of the largest providers of agricultural financing and has continued to gain market share in personal and business segments. During 2023 BNZ has increased its focus on helping New Zealanders and businesses navigate continued economic uncertainty. It also provided support to customers during recent flooding and cyclone events.

1. Peter Lee Associates - 2023 surveys: Large Corporate and Institutional Transaction Banking, and Debt Capital Markets.
2. Peter Lee Associates - 2022 surveys: Foreign Exchange and Interest Rate Derivatives Ranking against the four major domestic banks.

# Strategy

Strategic ambition
To serve customers well and help our communities prosper.

NAB's strategic focus is on clear market leadership for Business and Private Banking; simple and digital experiences for Personal Banking; disciplined growth for Corporate and Institutional Banking; personal and SME growth for BNZ, and digital customer acquisition through ubank.

During the year NAB has made progress on the integration of acquired businesses. The completion of the 86 400 integration into ubank has delivered positive results, with an increase in the customer base and improved customer advocacy. Completing the integration of the Citi consumer business remains a priority. We have maintained prudent balance sheet settings including capital levels above our target range and strong provisioning coverage.

Disciplined execution of our strategy continues to be our focus. Our goal is to be ranked number one in NPS1 among the major Australian banks and to have our NPS in a positive territory. As at 30 September 2023, NAB was:

- Consumer: Ranked first in NPS among the major Australian banks12.

- Corporate & Institutional: Ranked second in Relationship Strength Index (RSI)3.

- Business: Ranked second in NPS among the major Australian banks14.

- High Net Worth and Mass Affluent: Ranked equal second in NPS among the major Australian banks15.

While there have been some improvements across customer segments there is more work to be done across the business to consistently deliver excellence for customers and improve these outcomes.

NAB achieved a colleague engagement score of 78 in the July 2023 survey, the highest since setting the strategy in 2020. NAB's average colleague engagement score for 2023 increased to 776 (2022: 76).

For the year ended 30 September 2023, diluted cash earnings7 per share amounted to 238.0 cents, with cash return on equity7 of 12.9%. NAB has determined dividends for the year of 167 cents per share, an increase of 10.6%.

Disciplined execution and doing the basics well will be critical in delivering better outcomes for colleagues and customers. This will be supported by continued strengthening of NAB's technology, digital and data capabilities.

Delivering financial crime requirements and protecting customers is a critical priority for 2024. This includes delivering the agreed plan for the Australian Transaction Reports and Analysis Centre (AUSTRAC) Enforceable Undertaking (EU), anti-money-laundering and counter-terrorism financing (AML/CTF) compliance. In addition, we will strengthen ways in which we protect customers from scams and fraud.

1. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Inc., NICE Systems, Inc., and Fred Reichheld.
2. Sourced from DBM Consumer Atlas (part of RFI Global), measured on 6 month rolling average to September 2023. Consumer NPS excludes consumers with Personal income of $260k+ and/or investible assets $1m+. Ranking based on absolute scores, not statistically significant differences.
3. Peter Lee Associates – Large Corporate and Institutional Relationship Banking Survey Australia 2023. Ranking against all banks included in survey.
4. Sourced from DBM Business Atlas (part of RFI Global), measured on 6 month rolling average to September 2023. Business NPS is based on equal (25:25:25:25) combined weighting of NAB turnover segments: Micro (Up to $100k turnover), Small ($100k - $5m turnover), Medium ($5m - $50m turnover), Large ($50m+). Ranking based on absolute scores, not statistically significant differences.
5. Sourced from DBM Consumer Atlas (part of RFI Global), measured on 6 month rolling average to September 2023. Based on all consumers, 18+, in either High Net Worth definition or Mass Affluent definition and on equal (50:50) combined weighting of included segments. Mass Affluent includes consumers with Personal income of $260k+ and investible assets less than $2.5m and/or investible assets $1m<$2.5m, High Net Worth includes consumers with Investible assets of $2.5m+. Ranking based on absolute scores, not statistically significant differences.
6. 2023 Heartbeat Surveys conducted by Glint, score based on an average of the four surveys conducted in November 2022, February 2023, May 2023 and July 2023. Includes Australia and New Zealand colleagues, excludes external contractors, consultants and temporary colleagues.
7. Full detail on how cash earnings is defined, a discussion of non-cash earnings items and a full reconciliation of statutory net profit attributable to owners of NAB is set out in Note 2 Segment information of the Financial Report on page . Statutory return on equity and statutory earnings per share (EPS) are presented on page .

# What we will be known for

# Relationship-led

Relationships are our strength. NAB strives to deliver the best banking experience for customers through these relationships.

# Developing exceptional bankers

NAB’s Career Qualified in Banking (CQiB) program continues to build colleagues' professionalism. Our aim is to have Australia’s most qualified bankers to help build better customer relationships. In partnership with Financial Services Institute of Australasia (FINSIA), NAB has enrolled more than 20,000 colleagues across the life of the program. More than 14,500 colleagues have now successfully graduated from the program, up from 8,000 in 2022.

Investment in leaders continues through Distinctive Leadership – the approach to leadership for everyone at NAB. 92% of people leaders have completed Distinctive Leadership training workshops – an increase from 69% in 2022. In 2023 the Distinctive Leadership experience was extended to all colleagues (not just people leaders) through digital learning modules.

NAB is investing in specialist banker capabilities, including:

- NAB’s lending academy, developing future Home Lending Executives.

- NAB's retail customer advisor learning pathway, a 6-month blended learning pathway supported by a dedicated Learning Mentor.

- NAB's re-designed Home Lending Fundamentals program, a secured lender accreditation program focused on skills broader than home lending, including customer conversation practice, time to practice on tools and greater alignment with ways of working.

- Agribusiness climate banker training (in partnership with Melbourne Business School) to over 350 of our business and private bankers and establishing a Corporate and Institutional Banking network of more than 100 sustainability champions.

- BNZ bankers have been trained as Nominated Representatives to meet obligations under the Financial Services Legislation Amendment Act.

Building better customer relationships through expertise, support and insights.

# A more personalised experience

NAB is investing in data and analytical capabilities to make banking more personal for customers. This includes personalised loyalty rewards, spending insights and faster credit decisions based on what we already know about our customers. Customers across the NAB and ubank brands can set savings goals on their accounts to work towards milestones and purchases that are important to them.

To assist small business customers, NAB has launched the digital Small Biz Explorer experience which assesses business customers’ needs and recommends relevant products and services.

BNZ rewards was launched as a new loyalty and rewards proposition for customers, and won the Canstar Most Satisfied Customers – Rewards Credit Card award.

# Easy

Customers expect better banking experiences, so NAB is making banking easier and faster for them.

# Simple products and a seamless experience

NAB is working to make all our products easy to understand and use. In 2023, this work included more ways to manage home loans online, in-app notifications and expansion of digital wallet capabilities.

Since the launch of NAB Messaging, NAB has served more than 500,000 customers through the channel, helping them manage banking enquiries in their own time. Customers can now 'leave a message' for NAB to respond to and get on with their day.

NAB is building towards a one-way home lending application experience across all channels and an improved experience for customers, colleagues and brokers. NAB has demonstrated strong progress towards its aim of delivering Australia’s simplest home loan with 70% of all proprietary home loans and 15% of broker home loans now submitted via Simple Home Loans (SHL). ~70% of retail home loans submitted via SHL achieve time-to-unconditional-approval in less than a day1, while most of our broker customers receive unconditional approval same-day through SHL.

Following the completion of the 86 400 integration in 2023, ubank customers can link accounts from other banks, superannuation and investment providers to see a full picture of their wealth.

BNZ has delivered innovative solutions to help make it simpler and easier for customers to manage their finances. BNZ’s easy to use online repayment features enable customers to manage their mortgage repayments online. BNZ’s recently launched MyProperty empowers customers with more information so they can better plan ahead for future interest rate changes. BNZ has simplified fees across a range of products, including removing international payment fees and monthly account fees on BNZ’s TotalMoney account.

1. Median average time

# Faster and decisive banking

Modernising NAB's technology is helping our colleagues serve customers faster. Home loan approval times for customers and brokers have improved, while automation and process improvements reduced onboarding time for Corporate and Institutional customers in 2023.

NAB’s instant credit decisioning capabilities are critical to providing customers with speed and certainty when they apply. A key focus has been on automating the customer authentication and verification journey, and pre-filling known customer data in applications. These improvements save time and make it easier for customers when applying for transaction accounts, savings and new products like NAB Now Pay Later.

Modernising our technology to help serve customers faster and improve the experience.

# Safe

A responsible and secure business is essential to protect our customers and colleagues.

Protecting customers and colleagues through financial and operational resilience.

# Strong balance sheet

The Group implemented Australian Prudential Regulation Authority's (APRA) revised capital framework on 1 January 2023 and the Group remains well capitalised. The Common Equity Tier 1 (CET1) capital ratio remains strong at 12.22% on an APRA basis, with a capital surplus to the Group’s CET1 target range of 11.00-11.50% and strong provisioning levels (collective provisions at 1.47% of credit risk weighted assets). On 28 February 2023, the Group completed the $2.5 billion on-market capital buy-back announced in March 2022. On 15 August 2023, the Group announced a further $1.5 billion on-market capital buy-back, which commenced on 29 August 2023. A total of $0.9 billion of ordinary shares have been bought back and cancelled during 2023.

The Group maintains a strong funding and liquidity position, with a September 2023 quarterly average Liquidity Coverage Ratio (LCR) of 140% and 30 September 2023 Net Stable Funding Ratio (NSFR) of 116%. This is supported by $40 billion1 of term wholesale funding issuance during 2023 financial year as the Initial Allowance of the Term Funding Facility matured.

1. Includes Funding for Lending Program (FLP).

# Resilient technology and operations

NAB’s strategy is to develop leading resilient technology so that customers and colleagues can depend on us. There has been significant progress in reducing service interruptions with the number of critical and high incidents dropping 83% since 2018.

In 2023, NAB intensified focus on security in the face of ever-escalating cyber threats. This year 33 initiatives have been completed as part of a bank-wide strategy to address the global scam epidemic, including removing links in unexpected texts to customers. This work follows efforts by NAB, together with telecommunications providers, to prevent spoofing scams by stopping criminals infiltrating and impersonating phone numbers and legitimate text message threads.

Having a strong, capable and internal technology workforce is a key enabler of its strategy. NAB continues to insource key technology functions to get the right skills to operate sustainably. The infrastructure insourcing program is largely completed and the focus is now on further building strategic skill sets in cyber, data, digital and artificial intelligence (AI) which are critical to modern technology platforms. NAB's India and Vietnam-based innovation centres are a significant part of our strategy, increasing collaboration with Australia-based teams.

In 2018, NAB adopted a "cloud first" strategy. Since then, NAB has migrated over 77% of applications to cloud-based platforms. This has been critical in building more resilience in our systems.

Protecting customers from scams and fraud and financial crime

For more information on how we are helping protect customers, their data and our systems refer to:

Further details on Financial crime on page .

Further details on how NAB is protecting its customers against scams and fraud on page .

More information is available on the NAB website at: nab.com.au/about-us/security.

# Long-term

Protecting the long-term interests of customers, colleagues, and communities.

# Responding to societal challenges

NAB's ambition is to drive commercial responses to societal challenges. Our priority areas are:

- Climate action (page and in the Group's 2023 Climate Report).

- Affordable and specialist housing (page ).

- Indigenous economic advancement (page ).

Tackling the biggest societal issues requires investment across business, government and society, which is why NAB is driving commercial responses and building partnerships.

# Sustainable business practices

NAB needs to get the basics right by maintaining sustainable business practices. NAB engages directly with stakeholders and participates in external assessments to understand views on our broad environmental, social and governance (ESG) performance. Key focus areas within this strategic pillar include:

- Colleagues and culture.

- Inclusive banking.

- ESG risk management.

- Supply chain management.

- Human rights.

Information on how these areas are managed is outlined in the What matters most section of this report on page . NAB's 2023 Sustainability Data Pack1 contains further detail on performance in these areas.

Acting now for the long-term.

1. Available at nab.com.au/annualreports

# Innovating for the future

NAB is continually assessing and exploring innovation themes that can deliver value to NAB and our stakeholders. In 2023, NAB began piloting several use cases of generative AI to improve colleague productivity and support bankers.

NAB has explored ways to help customers understand their carbon emissions and partnered with Thriday to provide small and medium business customers with additional insights on their banking.

NAB's in-house venture capital fund, NAB Ventures, invests in early-stage businesses with innovative technologies and business models that address themes core to NAB's strategic priorities. In 2023, NAB Ventures, made investments in Banked (Account-to-Account payments), Greener (sustainability platform) and Carbonplace (voluntary carbon credits platform).

# Operating environment

# Global business environment

Global economic growth has been volatile over recent quarters. This is in part due to the impact of China’s zero-COVID-19 policies, including a temporary bounce in the March quarter 2023 following their removal. Overall, average growth is expected to slow in calendar year 2023 and again in 2024, before a modest upturn in 2025. Growth over this period is expected to remain below the long-term average.

In part, the slowing trend for global growth reflects the impact of the rapid tightening in monetary policy (together with more restrictive lending standards by banks in many advanced economies) since early calendar year 2022, intended to control inflation. The outlook for China is weak, reflecting a downturn in its property sector, while domestic consumption and export demand is subdued.

Global consumer price growth has trended lower since the cycle peak of September 2022, as supply side pressures triggered by COVID-19 have gradually eased. However, inflation remains above central bank targets in most regions and global energy prices increased between late June and end of September 2023.

The slowing inflation trend in advanced economies has increased the likelihood that most major central banks have either reached the end of their tightening cycle or are near the peak.

Other risks to the outlook include the Russia-Ukraine war and conflict in the Middle East (including the potential impact on energy supply and prices) and geopolitical tensions between the United States and China.

# Australian economy

The Australian economy has continued to expand but growth has slowed. While the labour market remains tight, and inflation high, there are signs of easing labour market and price pressures.

Gross Domestic Product (GDP), after solid growth of 0.7% in the December quarter 2022, grew by a subdued 0.4% in both the March and June 2023 quarters. By expenditure component, between the September quarter 2022 and June quarter 2023:

- Household consumption was particularly subdued, only growing 0.7%.

- Residential investment fell 1.9%.

- Business and government fixed capital investment, and exports grew strongly. Export growth was assisted by a continued recovery in overseas tourist and international student numbers.

Most industry sectors grew between the September quarter 2022 and June quarter 2023, with only four out of the 19 broad industry groups (utilities, wholesale trade, retail trade and professional services) seeing a fall in gross value added. Similarly, over the same period, state final demand grew in most state and territories, except for Tasmania and the Northern Territory where it declined.

Inflation has eased but remains high. In the September quarter 2023, the annual growth rate in the Consumer Price Index (CPI) was 5.4%, down from 7.8% in the December quarter 2022.

Household budgets have come under pressure from elevated inflation and rising interest payments. Household disposable income, after adjustment for inflation, declined by 4.2% between the March quarter 2022 and the June quarter 2023. Households have adjusted by slowing consumption growth and reducing their savings rate. Business operating profits have been volatile - while in the June quarter 2023 they were 11% below their June quarter 2022 level, reflecting a large fall in mining sector profits, the average level over the four quarters to June 2023 was 5.3% higher than in the previous year.

Agriculture conditions have been mixed. Prices have been falling for over a year; in September 2023 the NAB rural commodity price index was 34% below its June 2022 peak. However, the 2022-23 winter crop is estimated to have been the third consecutive record high, although a crop slightly below its average of the ten prior years is expected in 2023-24.

The labour market remains tight, but there are signs of easing:

- The unemployment rate was 3.6% in September 2023, low by historical standards but up slightly from October 2022 (3.4%).

- The number of job vacancies remained very high in the September quarter 2023 but has come off its peak, aided by strong population growth.

- The wage price index (excluding bonuses) grew by 3.6% between the June quarter 2022 and the June quarter 2023, up from 2.6% in the prior four-quarter period.

Dwelling prices have rebounded. After falling by 8.1% from their peak in April 2022, the eight capital city CoreLogic Hedonic Home Value Index increased by 7.9% between January 2023 and September 2023.

With high inflation still weighing on households, and the full impact of interest rate increases still coming through, GDP growth is expected to remain subdued over the rest of calendar year 2023 and 2024, leading to a rise in the unemployment rate.

The RBA increased the cash rate from 0.1% in April 2022 to 4.35% in November 2023. If the economy evolves as expected, the cash rate is likely at or near its peak, with the possibility of rate cuts starting from around the end of calendar year 2024.

Annual system credit growth has eased. Between September 2022 and September 2023:

- Housing and non-financial business credit growth slowed to 4.2% and 6.4% respectively (from 7.4% and 13.3% over the year to September 2022), only partially offset by stronger other personal credit growth (2.3%, up from -0.2%).

- However, housing credit growth may have stabilised, with the monthly growth rate largely unchanged since the end of calendar 2022.

# New Zealand economy

Growth in the New Zealand economy has slowed in recent quarters. While GDP increased by 0.9% in the June quarter 2023, over the last three quarters it only grew by 0.3%. The quarterly pattern of growth has been affected by the severe weather events that impacted the North Island in January (flooding) and February (Cyclone Gabrielle).

The slowdown in growth has occurred even as population growth has accelerated. Over the year to the June quarter 2023, the population grew by 2.1%, driven by high rates of net inward migration.

The weakening in economic growth, together with strong population growth, has seen labour market pressures ease, with businesses reporting much less difficulty in finding staff. In the September quarter 2023:

- Employment was 2.4% higher than in the September quarter 2022, slightly below growth in the working again population (2.6%) over the same period.

- The unemployment rate was 3.9%, up from 3.2% in the September quarter 2022 but still low by historical standards.

With the economy's capacity constraints abating, inflation has gradually fallen, but it remains high. In the September quarter 2023 annual CPI inflation was 5.6%, down from 7.3% in the June quarter 2022.

Commodity export prices fell 11.1% between September 2022 and September 2023 in New Zealand dollar terms, this included a 20.8% fall in dairy export prices. However, prices showed signs of stabilising at the end of this period.

Housing market activity has stabilised. The REINZ House Price Index fell 18% between November 2021 and May 2023, but has since (to September) increased 2.8%. Sales volumes remain low but have come off their trough of early 2023.

System credit grew by 2.4% over the year to September 2023, down from 5.6% over the year to September 2022 . This reflected slower housing credit (3.0% over year to September 2023) and non-agricultural business credit (0.9%) growth, although credit to agriculture, which had been negative, turned positive (1.4%).

The RBNZ increased the Official Cash Rate (OCR) from 0.25% to 5.50% between October 2021 and May 2023. The RBNZ is expected to remain on hold for some time. While there is some chance of the RBNZ tightening further, the most likely next change in the OCR is a cut.

Looking ahead, economic growth is likely to be weak into the first half of calendar 2024, before recovering, which is expected to lead to an increase in the unemployment rate. This outlook reflects the lagged impact of monetary policy tightening, curtailed commodity income, reductions in government spending, and weaker goods exports due to slow global growth and weather-related reductions in agricultural output. Fiscal policy settings are also uncertain with the formation of a new government following October’s election.

# Outlook

The outlook for the Group’s financial performance and outcomes is closely linked to the levels of economic activity in each of the Group’s key markets that are outlined above.

# Creating value

NAB creates value for customers, colleagues and communities in a variety of ways through a variety of resources.

NAB's key resources
Customer relationships Customers choose NAB because we serve them well |  | Colleagues Trusted professionals who are proud to be a part of NAB |  | Finance Access to capital through deposits and funding markets
Risk management and balance sheet Strong foundations, and risk management capabilities |  | Technology and data capabilities Safe, resilient technology coupled with the use of ethical data |  | Community relationships Partnerships and stakeholder engagement

|  | ⬇ |  |
NAB's business activities
NAB delivers its strategy (page ) and creates value for stakeholders through the following business activities:
Holding deposits for customers. Providing transaction banking services. Lending money to retail, business and institutional customers. Helping customers mitigate and manage risk. Providing commercial responses to society’s challenges. Providing payments services and supporting customers with trade and capital flows. | Helping customers invest through online brokerage. Providing advisory services. Investing in a capable, qualified and inclusive workforce. Helping NAB's customers, colleagues and their communities withstand and recover from natural disasters.

| ⬇ |

The value NAB creates
Supporting customers
$86 billion in new home lending. | $587 billion in deposits managed for retail and business customers. | $88 billion in new business lending.

NAB's economic value distributed
| Suppliers | Payments made for the provision of utilities, goods and services. | $6.2 bn
| Community investment | Community partnerships, donations, grants, in-kind support and volunteering.1 | $79.2 m
| Shareholders | Dividend payments to more than 596,000 registered shareholders. | $5.0 bn
| Colleagues | Colleague salaries, superannuation contributions and incentives. | $5.3 bn
| Governments | Payments made to governments in the form of the Bank Levy ($372 million paid) plus $3.6 billion in income taxes, goods and services taxes, fringe benefit taxes and payroll taxes among others. | $4.0 bn
|  | Total economic value distributed | $20.6 bn

1. This includes foregone fee revenue, management costs, cash contributions and in-kind contributions. For a detailed breakdown of the categories included within the Group's community investment, see the 'Community' tab in the 2023 Sustainability Data Pack.

# Sustainability approach

# Sustainability in NAB's strategy

The future depends on acting now for the long-term.

NAB employs more than 38,0001 colleagues, serves about 10 million customers and is connected to communities across Australia and New Zealand. That scale and connectivity is critical to NAB's ability to drive positive change. Sustainability is embedded in the long-term pillar of NAB's strategy in recognition of the impact that successfully managing sustainability matters can have on our business and the environment and communities we operate in.

NAB has prioritised the areas where it can have the biggest positive impact. NAB determined these priority areas through its sustainability materiality process and impact analysis following guidance of the United Nations Principles for Responsible Banking (UN PRB). The Group’s approach to managing climate-related risks and opportunities is detailed in the standalone Climate Report2.

1. Number of full-time equivalent colleagues as at 30 September 2023, excluding discontinued operations.
2. Available at nab.com.au/annualreports.

# Sustainability governance and performance

The challenges and opportunities of sustainability require a whole of Group response. Sustainability is embedded in NAB's governance structure, as outlined below. The Board retains ultimate accountability for the oversight of sustainability-related risks and opportunities and receives regular updates on sustainability performance.

Further detail on the Board and Board committee activities in 2023 is available in the Corporate Governance Statement section of this report.

# Stakeholder engagement

Effective stakeholder engagement helps NAB to understand what is expected of the bank, identify issues, advocate for changes in policy and discover opportunities to improve.

NAB's approach to stakeholder engagement, including processes for consultation on sustainability topics, is set out in its Sustainability Policy and informed by the AA1000 Stakeholder Engagement Standard. NAB aims to be respectful, responsive, open and authentic with all stakeholders.

Engaging on sustainability:

NAB values constructive feedback on issues and drives progress on the sustainability topics that matter to NAB, the customers it serves and the community. Key discussions this year have included:

- Climate change and transition, including NAB's position on lending to fossil fuels – as well as biodiversity and natural capital.

- Supporting the ambitions and progress of First Nations people – primarily through better banking services, particularly to Indigenous businesses.

- Consumer issues such as cost of living, the impact of scams and fraud, financial vulnerability (including Buy Now Pay Later regulation), cyber security and privacy.

Stakeholders | Engagement activities
--- | ---
Customers | Market research, including customer satisfaction and experience surveys and focus groups, customer advocacy groups, engagement with the ELT, Sustainability teams and Board Customer Committee.
Colleagues | Heartbeat surveys, intranet articles and social media, confidential alert lines and interactive events with the ELT.
Shareholders, investors and analysts | Annual General Meeting (AGM), investor presentations and analyst briefings, survey participation, direct engagement with the ELT, Investor Relations and Sustainability teams.
Suppliers | Relationship management, surveys (as part of due diligence processes and annual engagement activities) and industry forums.
Industry bodies and associations | Relationship management, participation in consultation and advocacy processes.
Regulators and government | Regular meetings and briefings, participation in consultation processes and inquiries, focus groups and workshops.
Non-government organisations (NGOs) and community partners | Research, surveys and interviews, not-for-profit customers and social enterprise support, meetings, conferences, events and workshops, employee volunteering (skilled, general and remote), workplace giving, donations and fundraising, grants and sponsorship, ethical and impact investing.

Industry associations

In 2023, NAB engaged on key topics including climate and nature-related financial disclosures, such as:

- Working with the Australian Banking Association (ABA) on the Federal Department of Treasury’s proposals for the implementation of standardised, internationally-aligned climate-related financial disclosures.

- Involvement in the United Nations Environment Program Finance Initiative (UNEP FI) Taskforce on climate-related financial disclosures (TCFD) Forum, including review of tools and data sets being developed for climate-related risk analysis, and updates on climate-related litigation.

- Task Force on Nature-related Financial Disclosures (TNFD) forum and also part of UNEP FI piloting of the recommendations of the TNFD framework on freshwater bodies.

NAB was the only Australian company to participate in the United Nations Global Compact's (UNGC) Think Lab on Just Transition (“Think Lab”). NAB contributed to the Think Lab's work to shape business and thought leadership on critical areas linked to just transition.

Many of the issues that impact NAB's ability to serve customers well cannot be addressed by any one company. Our key industry association memberships and payments for 2023 were:

- Australian Banking Association (ABA): $2,313,382

- Business Council of Australia (BCA): $95,000

- New Zealand Bankers' Association: NZ$426,934

- BusinessNZ: NZ$22,000

Engaging on public policy

NAB engages government and regulatory bodies to provide input and help shape policy on sustainability issues that are important to NAB. In 2023, this included:

- Engagement with Minister of Indigenous Affairs on economic advancement.

- Participation in cross-sector Government roundtables on scams and consultation with Government and the Australian Competition and Consumer Commission (ACCC) on launch of the National Anti-Scam Centre.

- Engagement on affordable housing, including CEO participation in Federal Treasury’s Investor Roundtable meetings on affordable housing and residential energy efficiency and sustainable finance.

- Submission on the Australian Cyber Security Strategy (2023-2030) discussion paper and engagement with the Government’s expert advisory council on cybersecurity.

See page 14 of NAB's 2023 Climate Report for detail on NAB's climate-related advocacy.

NAB’s political contributions policy means it does not make political donations to any political party, parliamentarian, elected official or candidate for political office. However, NAB representatives may pay to attend political events and business forums hosted by major political parties. In 2022 (period 1 July 2021-30 June 2022), NAB spent $60,500 with the Australian Labor Party, $60,000 with the Liberal Party of Australia, and $33,000 with the National Party of Australia. These payments are disclosed to the Australian Electoral Commission (AEC) in line with State and Federal regulation, noting the AEC’s reporting year is a different period to NAB’s financial year. NAB’s 2023 contributions (period July 2022- June 2023) will be available via the AEC in February 2024.

# What matters most

ESG materiality assessment

NAB's annual ESG materiality assessment is designed to identify and prioritise the ESG areas of most relevance to NAB's performance, its stakeholders, and where it can potentially have the biggest impacts on society. The outcomes guide reporting and decision-making, to help NAB address the ESG topics that matter most.

NAB’s definition of ESG materiality considers the areas where NAB’s business activities impact the economy, environment and people. It also considers the ESG issues with the potential to impact enterprise value, including through influence on stakeholder decision-making.

The process draws on external frameworks and resources, such as the UNEP FI Impact Radar, as well as reporting frameworks (e.g. Global Reporting Initiative, Sustainability Accounting Standards Board) and ESG benchmarks and ratings (e.g. MSCI. Sustainalytics, Dow Jones Sustainability Index).

NAB's engagement with stakeholders as outlined on page informs the approach. This includes analysing feedback through existing channels, and specific engagements to discuss ESG matters of importance. Insights are reviewed against our strategic priorities and industry guidance.

This helps prioritise the issues that matter. Outcomes of this review are provided to the Group's Board of Directors for consideration.

2023 ESG materiality outcomes

While NAB's material ESG themes remain unchanged from 2022, the prevalence of some sub-topics and measures reported have shifted. In 2023, key changes included rising cost of living pressures, increase in cybercrime, scams and fraud, approach to a just transition, increasing expectations on management of nature-related risks and opportunities, and protecting customer privacy.

Principles for Responsible Banking (PRB) self-assessment

As a founding signatory of the PRB, NAB seeks to align its business activities to have a positive impact on society. For detail on NAB's progress against the PRB see its year three self-assessment on nab.com.au.1

BNZ will publish its PRB self-assessment at the end of calendar year 2023.

#### The materiality assessment involves the following four stages:

2023 ESG material themes | Sub-topics
| 1. Supporting customers NAB is here to serve customers well and help our communities prosper. NAB is becoming a simpler, digital bank that gets things done for customers. | Customer advocacy (pages to ) Complaint management/remediation (page ) Scams and fraud (page ) Customers experiencing vulnerability (page ) Financial hardship (page ) Affordable housing (page ) Indigenous business (page )
| 2. Managing climate change Taking decisive action on climate change and environmental sustainability. Climate action is everyone's job. | Financing the transition to net zero Sustainable finance Biodiversity and natural capital Just transition Operational environmental performance Summarised information can be found on pages to . See the Group's 2023 Climate Report for more detail.
| 3. Governance, conduct and culture Being transparent, making ethical decisions and embedding accountability throughout the Group. | Code of Conduct (pages to ) Clear accountability (page ) Culture and How We Work (page ) Executive remuneration (page )
| 4. Colleague engagement, inclusion and capability NAB's more than 38,000 colleagues are central to our business. NAB is focused on supporting wellbeing, building capability and an inclusive culture to be proud of. | Capability, including leadership (pages to ) Talent attraction and retention (pages to ) Inclusion and diversity (pages to 35) Health, safety and wellbeing (page ) Employee/Industrial relations (page )
| 5. Data security, technology and innovation Maintaining resilient, reliable and secure systems oriented to customer outcomes and experience. | Use of data, privacy and ethics (pages to 45) IT security (pages and ) Innovation (pages and ) Stability (pages and )

1. See NAB's self-assessment at nab.com.au/about-us/social-impact/shareholders/performance-and-reporting.

# Sustainability scorecard

The targets and key measures below show the Group’s progress in meeting goals aligned to the sustainability areas that matter most. NAB's 2023 Sustainability Data Pack and 2023 Climate Report is available at nab.com.au/annualreports.

2023 Sustainability scorecard

# Customers

Serving customers well is a core part of NAB's strategy. Whether it is helping provide access to banking for someone who needs additional support, or being there when times are tough, our message to any customer is that we are here to help.

# Supporting customers in changing economic conditions

The NAB Assist team is the main point of contact for personal and small business customers experiencing financial difficulty. This team will tailor assistance to each customer and their circumstances.

In the current economic environment the main reasons for hardship include expenses, unemployment and underemployment. NAB is more frequently reviewing loans and getting in touch with customers so they can prepare for any changes in repayments. For example, for customers who are rolling off low fixed rates, NAB has developed a digitised fixed rate rollover process with pricing based on their individual circumstances.

Through NAB Assist, customers are offered personalised care including free financial counselling and wellbeing support. These offerings extend to reduced repayments, payment breaks, loan reviews and restructures tailored to each situation. In 2023, NAB has provided customers with financial support on 15,354 accounts.

Investing in systems and partnerships

NAB has invested in new ways to support customers and improve outcomes for those experiencing financial difficulty:

- NAB strengthened its online offering to improve the digital form that enables customers to apply for financial hardship without calling a contact centre. In the last year NAB customers have requested hardship assistance on 6,450 accounts via the online form. This form supports increased customer demand during times of natural disaster and the provision of relief.

- NAB works with third party representatives such as Way Forward and financial counsellors to support customers experiencing financial difficulty.

- NAB has implemented a cost-of-living training program for colleagues to improve customer conversations.

Supporting customers experiencing vulnerability

The NAB Assist Customer Support Hub supported 2,635 customers experiencing vulnerability including domestic and family violence, scams, financial abuse, problem gambling and other challenging circumstances, as outlined in NAB's Customers Experiencing Vulnerability Framework 2021-20231.

Reducing financial abuse in all its forms

Taking extra care of customers experiencing financial abuse is a priority. Identifying these customers earlier to provide the right support is a key focus at NAB. Some examples in 2023 include:

- NAB has a zero tolerance approach to financial abuse and terms and conditions have been updated to reflect this.

- Improved detection and prevention of abusive messages in transaction descriptions, with almost 14,000 messages blocked per month in mobile app and internet banking. Customers sending serious threatening messages are being investigated, warned and in some cases may be exited.

Disaster relief

NAB’s Ready Together program supported customers impacted by natural disasters with $557,000 in cash grants during the year. The grant application process has also been made easier with a new online application form for customers to apply for an emergency relief grant. Refer to page for more information on the NAB Ready Together program.

Quick link

nab.com.au/customersupport

NAB is here to help. We are investing in new ways to support customers and improve outcomes for those experiencing financial vulnerability.

1. Available at nab.com.au/content/dam/nabrwd/documents/guides/corporate/customer-vulnerability-framework-21-23.pdf.

# Accelerating our efforts to protect customers against scams and fraud

NAB is taking action to reduce the impact of scams and fraud on customers. NAB received an increase in customer enquiries this year in relation to scams and fraud, with an average of 1,500 scam cases impacting NAB customers per month, an increase of 74% compared to 2022.

NAB is investing in initiatives aimed at preventing fraud, scams, financial and cyber crime for customers. As at September 2023, 33 initiatives have been completed as part of a bank-wide strategy to help address the global scam epidemic. These include:

- Adding more than 70 dedicated scam and fraud team members this year creating a team of more than 470 colleagues in the Group Investigations and Fraud team, assisting to support 24/7 customer account monitoring for signs of suspicious activity.

- Working with telecommunication providers to reduce the impact of criminals attempting to infiltrate and impersonate NAB phone numbers and legitimate text message threads.

- Removing links in text messages to protect customers. NAB became the first major bank in Australia to replace links in text messages with advice directing customers to NAB's website, to call NAB, or head to internet banking or the NAB app to take specific action.

- Introducing customer payment alerts to the mobile app and internet banking to encourage customers to stop and think before making payments. This intervention has seen $40 million worth of payments subsequently abandoned.

- Implementing new customer protections to block payments to some high-risk cryptocurrency exchanges where scams are more prevalent.

- Played a leading role in the creation of the Australian Financial Crimes Exchange (AFCX) Fraud Exchange Platform (FRX). This is a digital platform helping banks exchange information in real-time, improving the possibility that scammed funds can be frozen and returned to customers.

- Ran more than 110 free security education webinars throughout the year. These sessions are free to all Australians, not just NAB customers.

With the application of various initiatives, NAB has prevented and recovered more than $200 million in scam losses for our customers over the last two years.

NAB’s message to customers is to stay alert, curious and educated on scams and fraud.

# Inclusive banking

Supporting low-income customers

A significant number of people in Australia and New Zealand experience difficulties accessing financial services1. NAB works to support customers through inclusive banking practices.

NAB and Good Shepherd Australia New Zealand (Good Shepherd) have worked together since 2003 to help Australians manage their money better and serve those at risk of exclusion from mainstream banking services. The partnership began through NAB’s support of microfinance initiatives aiming to support people on low incomes – mainly the No Interest Loans (NILs) program.

It is one of NAB’s longest-standing corporate community partnerships.

Since 2003, NAB has provided zero-interest capital to enable almost 380,000 microfinance loans, worth $482.6 million.

In doing so, NAB has helped almost one million Australians on low incomes, primarily through access to loans with no interest or fees.

In 2023, NAB provided support to help build financial inclusion across Australia by supporting more than 87,000 Australians with 40,940 NILs totalling $68.6 million, including support for 10,575 Indigenous customers23.

Accessibility

NAB’s new Accessibility Action Plan 2023 – 2024 available at nab.com.au/about-us/accessibility-inclusion was launched this year, providing a roadmap for improved inclusion and accessibility for customers, colleagues and community members. In 2023, NAB was awarded third place in the Access and Inclusion Index by the Australian Network on Disability. The action plan focuses on three key goals:

1. Work towards being an employer of choice for people with disability.

2. Help our communities prosper by supporting disability organisations and businesses to solve emerging issues.

3. Use data and insights from customers to listen, understand and implement improved accessibility into their experience.

Some improvements made in 2023 are:

- Registering disability organisations on NAB neighbourhood to access expert volunteering.

- Rolling out interpreter services for customers with limited English across all contact centres.

- The Indigenous Customer Service Line has made improvements to help indigenous customers experiencing ID takeover and fraudulent transactions to ensure they are authenticated more effectively, reducing the time taken to resolve their issues.

- As more customers adopt digital banking, Bank@Post continues to be a place where customers with passbooks can withdraw money, including in regional and rural locations.

- Progressively updating applications and documentation with more inclusive gender and salutations fields.

- Enhanced customer focus in product governance and risk assessment with a new Inclusive Product Guidance tool for product owners and change managers to self-assess a range of customer accessibility, inclusion and vulnerability considerations.

1. 28 Marjolin, A., Muir, K., and Ramia, I. (2017) Financial Resilience and Access to Financial Products and Services – Part 2, Centre for Social Impact (CSI) at UNSW Sydney, for National Australia Bank.
2. For breakdown of products included, see NAB's 2023 Sustainability Data Pack available at nab.com.au/annualreports. Number and dollar value of microfinance loans written by NAB are assured by EY. NAB microfinance dollar value figures are provided in AUD.
3. Number of people supported by a NILs loan includes dependents of loan recipients.

# Helping First Nations businesses prosper

NAB recognises the importance of the First Nations business and community sectors. NAB has developed specialist bankers and provides funding that can help First Nations people prosper.

NAB was the first Australian corporate business to achieve 'Elevate' Reconciliation Action Plan (RAP) status for our leadership in reconciliation.

NAB is developing its next three-year RAP for 2024-2026. It builds on the ambition of NAB's previous RAP's, and ultimately aligns with our objective to drive commercial growth in the First Nations business sector, including through initiatives aligned with key pillars; customers, colleagues and community.

Through its growing network of specialised bankers across Australia, NAB will fund First Nations businesses and community organisations eager to unlock their potential and grow.

NAB has set a target to more than double its lending to First Nations businesses and community organisations to at least $1 billion over the next three years1.

NAB's team of specialist bankers support First Nations businesses by:

- Providing sector, government policy, First Nations culture and credit opportunity insights to the NAB banking team.

- Connecting NAB's customers to external business advisors and financial capital providers from government, philanthropists and NGOs.

- Deepening NAB's understanding of sector compliance and regulatory requirements of First Nations businesses and community organisations to effectively provide funding and other banking services to ensure these entities grow and thrive.

Working together with First Nations people, NAB:

- Partnered with six First Nations business chambers and two government agencies towards delivering sector insights and education.

- Delivered targeted First Nations cultural awareness training to 89 business bankers, credit specialists, legal practitioners, and banking associates.

- Created a dedicated First Nations Business Credit specialist support team and in-depth credit coaching and support for our network of Indigenous business bankers nationally.

We have developed and mandated our cultural awareness training for Australian-based colleagues to help build their understanding of Australia’s shared history, as well as NAB's own initiatives and objectives and how these relate to the work of our colleagues and their ability to support customers effectively. Since the release of the training module, we have achieved a 98% completion rate.

Supporting reconciliation

Our vision is for a reconciled Australia, where the gaps between Aboriginal and Torres Strait Islander and non-Indigenous Australians are closed. It’s a future where Aboriginal and Torres Strait Islander people have the same access to finance and employment— where First Nations and non-Indigenous Australians and organisations work together to build healthy, inclusive and sustainable communities

We support the ambitions and progress of First Nations people. Our primary focus is providing better banking services, particularly to Indigenous businesses in the knowledge that jobs and economic opportunities drive positive social outcomes.

Our RAP sets out the actions we are taking. In developing and delivering our RAP, we consider the perspectives of our Indigenous colleagues, customers and community partners – to understand and our role in supporting them to succeed.

In this context, the NAB Board and Executive Leadership Team made a unanimous decision, in 2022, to support constitutional recognition of Indigenous people. In 2022-2023, a total of $1.5 million in philanthropic grants were made to Australians for Indigenous Constitutional Recognition (AICR), From the Heart (via Cape York Foundation) and Uluru Dialogue. NAB respects the democratic process and the views of shareholders, colleagues and customers are broad and varied.

We seek genuine partnership with Aboriginal and Torres Strait Islander colleagues, customers, and communities. By listening to First Nations’ perspectives we will keep working to help deliver better economic outcomes for First Nation Australians.

See page 33 for more information on NAB’s approach to supporting First Nations colleagues.

NAB's "Walking together" Indigenous star illustrates recognition of Indigenous Australians' contribution to culture, and NAB's ambition to support their financial inclusion and economic aspirations. The idea came from proud Kamilaroi man and NAB colleague Kieran Cain-Hall, and was designed by Marcus Lee, a proud Aboriginal descendant of the Karajarri people from North Western Australia. |

BNZ's Māori strategy

BNZ's objective is to serve Māori well and help Māori communities prosper and create a more inclusive economy. BNZ's Māori strategy aims to build a strong wharenui (large house) and this is built on three pou (pillars).

Pou Tahi – Raising competency in Māori, improving response to Te Tiriti o Waitangi, cultural practice, te reo, Māori leadership and recruitment.

Pou Rua – Facilitate solutions for Māori through business solutions, sustainability-linked loans, lending and financial literacy.

Pou Toru – Influence the market for Māori business to prosper through iwi and public sector relationships.

1. Lending target position refers to 'Gross Loans and Advances' as at the target of 31 December 2026 to customers who have been identified as an Indigenous business or community organisation. Baseline position of $413.6m calculated as at 31 August 2023.

# Affordable and specialist housing

Affordable housing is a priority area of impact at NAB and a critical issue facing customers and communities. In November 2022, NAB extended its efforts, targeting an additional $6 billion in lending for affordable and specialist housing by 2029.

This includes accommodation provided by state and territory governments and community housing providers through to mixed tenure developments, commercial projects including build-to-rent as well as government programs to support home ownership essential workers, younger Australians and those on low incomes.

During 2023, a total of $2.2 billion1 was provided towards this target.

Social, affordable and community housing

NAB is working closely with the Federal Government's major housing financing body, Housing Australia, to help create the right financing conditions to build scale in social and affordable housing aligned with the Federal Government’s ambition for 40,000 social and affordable homes by 2029.

This year NAB helped to finance social, affordable and community housing transactions which included build to rent, land lease and mixed tenure models. NAB is focused on connecting and influencing key stakeholders through networks in the affordable housing sector, and working closely with community partners like Good Shepherd and the Salvation Army.

Specialist Disability Accommodation (SDA)

Life with disability can make finding a liveable home harder. In 2023, NAB has financed the construction of some significant specialist homes for people living with disability. This included finance to the Australian Disability Accommodation Projects2. Working with Lighthouse Infrastructure and a consortium of lenders, this is NAB’s largest commitment in the SDA sector to date, and the first social loan for SDA in Australia.

First Home Guarantee Scheme

NAB is helping people earning incomes under the national median, access home ownership as part of the First Home Guarantee (FHG) scheme which has established income and other eligibility criteria. NAB’s affordable and specialist housing target includes a subset of loans provided via the FHG, for loans where applicants have a total taxable income under the national median, and for properties with a price under the national median. NAB is a founding bank in this scheme and in 2023 has financed loans in this subset housing, approximately 5,127 borrowers.

The growth of this scheme shows government, business and community providers, all play a key role in making home ownership more accessible. NAB is consulting with the Federal Government on its new Help to Buy scheme, a shared equity access program for low-income earners, announced in 2022.

BNZ

BNZ supports New Zealanders into warm, dry and resilient homes. The focus to date has been on shared ownership models that support construction and new home ownership. One of these initiatives is First Home Partner, a shared ownership initiative with Kāinga Ora aimed at helping people who have a household income of under NZD $150,000 and a minimum of 5% deposit. Partnering with Habitat for Humanity, BNZ is helping homeowners who would otherwise lack access to the necessary funds improve the resilience and liveability of their homes. In 2023 the programme assisted 64 families, with access to more than NZD $500,0000 of no interest lending for home repairs improving the wellbeing of our communities.

1. Affordable and specialist housing includes affordable housing, specialist disability accommodation and sustainable housing. This includes loans made under the First Home Guarantee and Family Home Guarantee, as part of the Home Guarantee Scheme for properties under the national median house price, and for borrowers with taxable income below the national median household income. Progress is based on total lending facilities committed, where first draw down occurred during the target period, or additional funding was provided during the target period for a pre-existing loan facility. This number does not reflect debt balance.
2. Australian Disability Accommodation Projects Trust 2.

# Colleagues

# Colleague strategy

Colleagues and customers are the twin peaks of NAB's strategy

NAB is delivering our Colleague Strategy with the goal of having trusted professionals that are proud to be a part of NAB. Refer to Figure 1 for further information.

NAB has:

- Focused on developing leadership and capability for leaders and colleagues. We have emphasised colleague development and increased professionalism in our workforce through formal banking accreditation (refer to page 31).

- Delivered against our Inclusion and Diversity Framework (refer to page 32).

- Fostered a safe and healthy working environment where colleagues can thrive (refer to page 36).

- Commenced our colleague-centric and future-focused People and Culture technology transformation program (refer to page 36).

- Achieved majority support from colleagues on the 2024 Enterprise Agreement (refer to page 36).

Workforce composition

NAB's workforce is made up of more than 38,000 colleagues globally. About 93% of the workforce are in Australia and New Zealand, while others work in Asia, London, New York and Paris. NAB has observed lower levels of colleague attrition in 2023 as the broader economy experiences uncertain economic conditions locally and globally.

### Workforce by contract type and gender 2023 (%)

Source: Workforce distribution based on headcount as at 30 September 2023. Due to rounding, figures may not sum to 100%.

| Female | Male
--- | --- | ---
Permanent full-time | 30.8 | 36.8
Permanent part-time | 6.8 | 1.2
Fixed term full-time | 1.1 | 2.1
Fixed term part-time | 0.2 | 0.1
Casual | 0.6 | 0.2
External/temporary employee/contractors | 7.2 | 12.4

### Workforce distribution by geographic region

### Group total colleague turnover

#### Figure 1: Colleague strategy

# Leadership and capability

NAB seeks to develop leaders and colleagues who are clear, capable and motivated. Investing in skills and capability drives engagement, resulting in improved customer experience and overall performance.

NAB has three organisation-wide priorities to sustainably improve leadership and capability. These are:

- Distinctive Leadership: NAB’s signature leadership program, focused on bringing strong disciplines to leaders. 92% of leaders have completed the program. In 2023 the Distinctive Leadership experience was made available to all colleagues through digital learning modules, enabling the extension of disciplines in support of colleague and customer outcomes.

- People Leader Fundamentals: Launched in 2023, People Leader Fundamentals is an enterprise-wide approach to help people leaders navigate processes, systems and policies at NAB. People Leader Fundamentals aims to provide a structured, self-directed pathway for new leaders, while also offering learning for experienced leaders. People Leader Fundamentals sits alongside Distinctive Leadership in enabling our people leaders to excel in their roles.

- Career Qualified in Banking (CQiB): Reinforces the Group's emphasis on colleague development, industry professionalism and serving customers well, as it strives to have Australia’s most qualified bankers. The key program delivered by CQiB is the Professional Banking Fundamentals qualification, delivered in partnership with Financial Services Institute of Australasia (FINSIA). NAB has enrolled over 20,000 colleagues since the program commenced in 2021, and has delivered more than 14,500 graduates at the end of 2023.

To further support colleagues in building confidence and competence in their roles, NAB offers technical learning pathways, accreditations and core regulatory training to build capabilities in areas such as green and sustainable finance, cloud computing, engineering and product ownership. In 2023, this included investments in NAB’s cloud skills training program, Climate training for bankers, NAB Cloud Guild, and deployment of the Technology Academy in Australia and Vietnam to build a pipeline of digital skills.

NAB has invested in digital learning platforms to provide colleagues the opportunity to access learning programs relevant to their own development needs.

Talented professionals who shape the future of banking.Employer of Choice Awards

NAB was recognised for the second year running as #3 in the 2023 LinkedIn Top Companies to grow your career in Australia. NAB also ranked #4 on GradAustralia’s Top 100 Graduate Employers and #1 in the Banking & Finance industry. Other recognition included:

- #6 in the 2023 Top 100 Most Popular Graduate Employers List as determined by GradConnection/AFR (up from #9 the prior year)

- #25 on the Australia Associate of Graduate Employers top 75 list. The highest of the Big 4 banks and up from #50 the prior year.

# Engagement

Listening and acting on colleague feedback is critical to engagement. One way in which leaders engage in regular and careful colleague listening is NAB’s ‘Heartbeat’ engagement survey.

Heartbeat provides an opportunity to gain a deeper understanding of NAB's colleagues, and what drives engagement. Information from the Heartbeat survey helps leaders address the needs of their teams and informs NAB’s Executive Leadership Team (ELT) in identifying consistent feedback and areas of improvement across the bank.

Against a backdrop of declining engagement across corporates globally, NAB’s average engagement score of 771 for 2023 met the top quartile global benchmark of 77 and has improved from 2022. NAB's engagement score was 78 as at the July 2023 survey.

Key strengths identified by colleagues include their people leader, their understanding of how their work contributes to NAB’s strategy and being treated with respect.

Colleagues identified opportunities for improvement in the need for NAB to become a simpler place to work and removing barriers that slow down work. Information on how NAB is making things easy for customers and colleagues is on page in the Strategy section of this report.

1. 2023 Heartbeat Surveys conducted by Glint, score based on an average of the four surveys conducted in November 2022, February 2023, May 2023 and July 2023. Includes Australia and New Zealand colleagues, excludes external contractors, consultants and temporary colleagues.

# Inclusion and diversity

Inclusion and diversity (I&D) provides better outcomes for customers, colleagues and the community. Ensuring that colleagues feel appreciated and empowered to contribute helps improve performance, innovation and risk management. The Board has endorsed a three year I&D Strategy Framework for 2022-2024.

The three pillars of the I&D Strategy Framework are:

1. Inclusive leadership: Leaders are visible in their work towards inclusion and actively build diversity in teams. They role model How We Work in their everyday actions and ensure that systems are inclusive and accessible to all.

2. Inclusive workplace: A culture that actively promotes and leverages team diversity, flexibility and wellbeing. An environment where all colleagues feel they can contribute to their full potential.

3. Customer inclusion: Colleagues who take pride in understanding the needs of NAB's customers, ensuring that they can access the information, services and products they need with ease.

In line with the framework, in 2023 NAB has:

- Continued to embed the I&D governance structure, which includes the operation of NAB’s I&D Council and restructuring of NAB’s Employee Resource Groups (ERGs) to include stronger executive sponsorship.

- Incorporated key performance indicators for I&D, which are linked to remuneration, into the ELT’s performance plans.

- Developed and delivered on divisional I&D plans owned by each Group Executive, which support tailored actions and emphasise the leader-led approach to inclusion.

- Launched the First Nations Employee Resource Group.

Leader-led, colleague-enabled approach

NAB's I&D Policy includes a requirement for the Board to set measurable objectives for achieving inclusion and diversity which, together with progress on the framework, is assessed and reported on at least annually. The I&D Policy is available on NAB's website at nab.com.au/about-us/corporate-governance. The ELT has direct accountability for the execution of the framework. All leaders at NAB have I&D goals included in their annual performance plan. The Board and the ELT's ambition is for a workforce that is reflective of the broader community and a reputation that attracts and retains the best talent.

Gender equality

NAB has set measurable objectives for gender equality, with a target to achieve 40-60% female representation at every level of the business, and to reduce the gender pay gap to below 10%, both by 2025. Our measurable objectives are detailed on page 35.

Representation

There has been solid progress towards gender representation targets in 2023, with increases in representation of women on the Board and across senior salary groups where representation has historically been lower. The Board has achieved gender diversity in the composition of its non-executive directors in 2023, with 55% being women.

To continue to improve representation of women, NAB invests in initiatives designed to accelerate a diverse pipeline of women towards more senior roles. This includes the 1500 degrees program in our Business and Private Banking business, which provides Group 3 & 4 women with targeted learning, networking, sponsorship, and development opportunities.

Reducing the gender pay gap

NAB's 2023 gender pay gap for base pay is 15.8%1 decreasing from 16.9% in 2022. This was primarily driven by an increase in representation of women in middle to senior leadership.

Driving greater representation of women in leadership roles is one of the most sustainable ways to continue reducing the gender pay gap and a key priority for NAB.

Equal pay or pay equity differs from gender pay gap, and broadly means pay decisions are not influenced by factors such as gender, age, ethnicity, religion or sexual orientation. We take specific steps to ensure that all colleagues are paid equally for doing the same role, including undertaking pay equity reviews as part of our annual performance and remuneration process. This analysis compares pay for similar roles and seeks to account for legitimate factors driving differences in pay (e.g. seniority, expertise, experience, and performance). Following this recent review in 2023, NAB made positive adjustments to the end-of-year remuneration decisions of more than 400 colleagues.

Additional steps to ensure colleagues are paid equally for doing the same job, include:

- Clear guidance to People Leaders who make pay decisions that determinations must reflect the individual’s role and contribution to NAB.

- Providing People Leaders with pay equity analysis for consideration in annual pay reviews and subjecting our annual performance and pay reviews to a robust challenge process.

- Communicating with colleagues and increasing the transparency of pay outcomes.

- Continuing to simplify our remuneration structures where appropriate.

Cultural inclusion

NAB encourages colleagues to use cultural and religious leave, providing up to three working days of paid leave each year to celebrate important cultural or religious events and traditions.

NAB was Platinum sponsor of the Asian Leadership Project’s national conference and participates in its National Group Mentoring program.

NAB’s Cultural Inclusion Employee Resource Group (ERG) aspires to promote an inclusive workplace where cultural diversity is celebrated, to increase diverse representation in senior leadership roles, and to harness the power of cultural inclusion. The ERG provides a forum for colleagues to celebrate many cultural dates of significance and works passionately to help culturally diverse colleagues to advance their careers at NAB.

Indigenous Australian inclusion

Ensuring that all colleagues understand First Nations culture is critical to support inclusion in the workplace and for our customers. This year NAB’s Indigenous cultural awareness training was refreshed and made mandatory for all Australian colleagues. This was supplemented by a specific cultural capability program for all Executives.

NAB supports employment pathways at all levels for First Nations Australians. In the past 12 months entry-level positions through the Indigenous intern and trainee programs (13 and 25 positions respectively) have been provided.

In 2023, NAB’s First Nations ERG was launched. Having a shared understanding forms a strong basis which is central to true reconciliation and progress. The ERG seeks to create a culturally safe environment within NAB where First Nations colleagues have a clear sense of community.

NAB measures the inclusion experience for colleagues who identify as Aboriginal and/or Torres Strait Islander annually through the Heartbeat survey. In 2023, the inclusion index score for this cohort was 80, which is 3 points lower than non-Aboriginal and Torres Strait Islander colleagues. NAB will work to reduce the gap in 2024, through initiatives outlined in NAB’s Reconciliation Action Plan available at nab.com.au/content/dam/nab/documents/reports/corporate/reconciliation-action-plan-2022-2023.pdf.

LGBTQIA+ inclusion

NAB was awarded Platinum Status in the 2023 Australian Workplace Equality Index (AWEI). This is the highest recognition, acknowledging NAB’s high level of performance over a sustained time.

The NAB Pride ERG aims to be the voice of LGBTQIA+ colleagues and customers, by raising awareness and advocating for a safe, inclusive workplace and experience.

In 2023, NAB introduced gender affirmation leave, of up to 12 months, consisting of 4 weeks paid leave and the remainder unpaid. Colleagues who take steps to affirm their gender have the entitlement to build a gender affirmation plan alongside their people leader, and a support person, to help ensure a positive experience in affirming gender at work.

NAB supports the LGBTQIA+ community through partnerships with Out Leadership, the Pride Cup, and Principal Partnership of the Midsumma Festival in Melbourne for the eleventh consecutive year.

Accessibility

NAB released the Group Accessibility Action Plan 2023-2024, which will deliver on three key goals:

- Being an employer of choice for people with disability.

- Helping communities to prosper by supporting disability organisations to solve emerging issues.

- Using data and insights from customers to listen, understand and implement improved accessibility into their experience.

In 2023, NAB was ranked in the top three organisations on the Australian Network on Disability Access and Inclusion Index.

Key partnerships informing NAB’s approach include:

- Valuable 500, a global movement putting disability inclusion on the business leadership agenda. Through involvement in this global network NAB is building capability and striving for best practice in disability inclusion.

- Australian Network on Disability, participating in programs and initiatives including the Stepping Into internship program and the Positive Action Towards Career Engagement (PACE) Mentoring Program.

The NABility ERG, a voluntary group of colleagues with disability, carers of people with disability and allies, has used internal and external story-telling to celebrate the role and valuable contributions that colleagues with disability have at NAB. They have also delivered internal events to encourage disability pride and reduce ableism.

Supporting colleagues who are carers

This year NAB has strengthened our parental leave offering by:

- Providing equal leave to both parents by removing the distinction between primary and secondary carers.

- Increasing the number of weeks paid parental leave to 16 weeks upon the birth of a child, as well as for adoption, foster and kinship arrangements for children under 16 years of age, with additional flexibility as to when the leave can be taken. This builds on changes made last financial year that removed the requirement to have at least 12 months service to qualify for paid parental leave.

- Updating our pregnancy loss leave provisions to provide two weeks’ paid leave (or 16 weeks’ paid leave if more than 20 weeks’ gestation).

- Enhancing the superannuation contributions for full and part time colleagues on parental leave, increasing these to a period of two years from date of birth or placement (up from 52 weeks).

The return-to-work rate2 across all genders and all Australia colleagues after parental leave was 93.6%, an increase on 2022 (92.5%). NAB monitors this rate and supports colleagues to return to work.

Anti-harassment and discrimination

NAB has zero-tolerance for sexual harassment and works to fulfil our duty to prevent sexual harassment and discrimination. In response to the Respect@Work legislative changes, a detailed gap analysis has been completed using the Australian Human Rights Commission’s Good Practice Indicators Framework to ensure NAB has clear outcomes and measures on leadership, culture, training, risk management, support, reporting, monitoring and evaluation.

A Respect@NAB training module has been added to NABs People Leader Fundamentals program, which is designed to educate People Leaders on NAB’s legislative obligations and to foster an environment that reduces the likelihood of bullying, harassment and other inappropriate conduct.

Additional actions to strengthen leadership responsibility, bystander interaction, training and risk management are underway. A psychosocial risk working group meets quarterly to identify trends and issues and proactively address risk indicators of sexual harassment and other forms of unlawful discrimination, harassment and bullying.

NAB takes a complainant-sensitive approach to complaint handling and encourages speaking up and to address any concerns raised regarding unlawful discrimination and bullying, including sexual harassment. There has been more frequent and targeted communication, enhanced conduct and risk awareness training for all colleagues, and support for People Leaders managing concerns about harassment and discrimination. NAB’s discrimination and harassment guidelines can be viewed on nab.com.au.

Diversity in supply chain

Including diverse suppliers (businesses owned by women, First Nations people, people with disability, and social enterprises) into NAB's supply chain helps increase their exposure to corporate sourcing, while creating employment and training opportunities, sustainable growth and social and financial inclusion. In 2023, NAB’s spend with diverse suppliers increased to $7.5 million3 up from $4.2 million in 2022. Of this, $6.0 million was to Indigenous supplier spend, exceeding NAB’s target to spend $5 million in 2023.

### Progress Against NAB's 2021-2025 measurable objectives

Measurable objective | 2021 | 2022 | 2023 | 2025 target
--- | --- | --- | --- | ---
1. Diverse leadership teams and talent pipelines40-60% gender representation at every level of the business140-60% gender representation on NAB Group Board (non-executive directors)40-60% gender representation on NAB subsidiary boards
Representation of women
| NAB Board (non-executive directors) | 38% | 38% | 55% | 40-60%
| NAB Group subsidiary boards | 49% | 49% | 53% | 40-60%
| Executive Management (Salary level 7) | 33% | 31% | 33% | 40-60%
| Executive Management (Salary level 6) | 35% | 36% | 37% | 40-60%
| Senior Management (Salary level 5) | 36% | 36% | 38% | 40-60%
| Management (Salary level 4) | 38% | 39% | 39% | 40-60%
| Non-management (Salary level 3) | 45% | 46% | 46% | 40-60%
| Non-management (Salary level 2) | 56% | 57% | 56% | 40-60%
| Non-management (Salary level 1) | 71% | 70% | 68% | 40-60%
| Total organisation | 50% | 50% | 50% | 40-60%
2. Fair remuneration – seek to reward people fairly and support the objective of <10% gender pay gap by 2025
| Gender pay gap2 | 16.6% | 16.9% | 15.8% | <10%
3. Inclusive workplace culture34 |  |  |  |
| Women (Difference vs men)5 | -2 (81 vs 83) | -1 (81 vs 82) | -3 (79 vs 82) | 0
| People with disability (Difference vs people without disability)6 | -4 (79 vs 83) | -5 (78 vs 83) | -6 (77 vs 83) | 0
| Ethnic minority (Difference vs non-ethnic minority)7 | -1 (82 vs 83) | 0 (83 vs 83) | 0 (83 vs 83) | 0
| LGBTQIA+ (Difference vs non-LGBTQIA+)8 | -3 (80 vs 83) | -2 (81 vs 83) | -2 (80 vs 82) | 0
| Carers (Difference vs non-carers)9 | -1 (83 vs 84) | -1 (82 vs 83) | -2 (81 vs 83) | 0

1. Based on the percentage of women in each salary level, calculated using population of permanent full-time and part-time colleagues.
2. The pay gap analysis indicates NAB’s gender pay gap when comparing the base salary of all females to males within the Australian-based workforce of NAB, for the reporting period 1st April 2022 to 31 March 2023. The ratio is calculated by dividing the female average salary by the male average salary per employment level. It does not separately measure the gender pay gap in equivalent roles. Analysis includes permanent, fixed term, and casual colleagues and excludes contractors. Gender pay gaps for 2021 and 2022 reflect Workplace Gender Equality Agency (WGEA) published figures. Note at time of reporting WGEA figures were not published for 2023, these figures represent NAB calculated gender pay gaps following the WGEA methodology.
3. The inclusive workforce culture scores are based off responses to NAB's Heartbeat survey conducted in July 2023 (2023 score), August 2022 (2022 score) and July 2021 (2021 score). The methodology was revised in 2022 to measure the differences on an inclusion score, based on a combined response to three questions: 1. 'I feel comfortable being myself at work'. 2. 'I am treated with respect and dignity' and 3. 'Regardless of background, everyone at our company has an equal opportunity to succeed'. The table represents the scores for specific historically under-represented groups, with comparisons to the related majority group within the workforce.
4. ubank did not participate in the demographic section of Heartbeat survey in 2023, therefore no ubank data is included in the inclusion scores that are reported for 2023. ubank data is included in 2022 and 2021 inclusion scores.
5. Inclusion score is calculated using responses to questions in Heartbeat survey, with gender of respondents based on how this is recorded in SAP.
6. Colleagues who selected that they identify as a person with disability in the Heartbeat survey.
7. The methodology used in defining ethnic minority was altered this year, to take into account NAB’s growth in international colleagues. Ethnic minority and non-ethnic minority calculations only include colleagues from Australia, NZ, UK and US. The ethnic minority group is comprised of individuals whose ethnicity is considered to be an ethnic minority in those included regions. Colleagues based in other regions have not been included in the calculation this year, as identification of ethnic minority would be different in those regions
8. Categories were expanded in 2022 to include asexual, homosexual, pansexual and non-binary or other genders. Other categories include lesbian, gay, bisexual, transgender, agender, bigender, another gender, intersex and different identity.
9. Colleagues who selected they spend time providing unpaid care, help, or assistance to family members or others with a disability (including children, adults or older adults).

1. Based on the percentage of women in each salary level, calculated using population of permanent full-time and part-time colleagues.
2. Percentage of Employees due to return from paid parental leave of >90 days between October 1 2022 - 30 September 2023 who have returned and remained working for a period of at least 30 days.
3. In 2023, NAB increased its resourcing and improved processes for recording and reporting on supplier diversity, allowing greater opportunity to identify pathways for spending with diverse suppliers including Indigenous suppliers. NAB’s spend with diverse suppliers increased to $7.5 million up from $4.2 million in 2022. Of this, $6m was to Indigenous suppliers, against NAB’s target to spend $5m with Indigenous suppliers in 2023. Diverse spend has 2 pathways to capture spend as follows: 1) Diverse supplier engaged directly by NAB (Tier-1 or Direct Suppliers); 2) Diverse supplier engaged through a NAB supplier as a subcontractor (Tier-2 or Directed Suppliers).

# Health, safety and wellbeing

NAB recognises the importance of fostering a safe and healthy working environment where colleagues can thrive.

Hybrid and flexible working

As a relationship-led bank, NAB has continued to support colleagues to work in a hybrid manner where their role permits, balancing the needs of our customers, colleagues and operations. As part of our hybrid working model, the majority of colleagues (excluding those in branches) have the option to work flexibly, with an expectation that they work from a NAB location (such as a NAB office) a minimum of two days per week. NAB’s hybrid approach includes tools and resources to support hybrid practices, in-person events, greater opportunities for face-to-face collaboration and social connection. Ongoing review of feedback to address barriers to attending the office is in place to continuously improve the experience for colleagues.

While we scaled back our COVID-19 response in line with changing Government requirements, colleagues who are unwell are still required to stay at home to prevent transmission of illness. There has been a higher than usual uptake in our annual flu vaccination program this year and absenteeism (measured as unscheduled absence day per FTE) has reduced from 9.2 days per FTE in 2022 to 7.8 in 20231.

We support flexible working as it has a wide range of inclusion benefits and allows NAB to attract and retain the best talent, including for colleagues with accessibility needs, or those managing multiple responsibilities outside work. Colleagues can adopt other flexible working arrangements including variable start/finish times, part-time hours and job- sharing opportunities.

Wellbeing program

The Group has implemented a refreshed wellbeing strategic framework in 2023 under the 'Right Culture' pillar of our Colleague Strategy. The three focus areas of the framework include:

- Respond to health concerns.

- Prevent harm.

- Promote thriving.

The focus has shifted towards initiatives that promote thriving, whilst continuing to support colleagues with their recovery and safe return to work following work or non-work-related injury or illness. This service remains a priority, delivered through our team of allied health professionals, which also includes assisting colleagues who have experienced domestic and family violence, ensuring that they have access to leave and specialist support services.

Counselling services remain available through our Employee Assistance Program and are available to all colleagues, their families and NAB customers. Customer utilisation of this service has increased during the year, and we expect to see this continue due to challenges in the external environment including cost of living pressures. NAB also has a robust program in place to support colleagues and customers in managing the impacts of natural disasters through counselling, leave options and emergency grants, where the need arises.

The introduction of an extra five days of leave, You Leave in 2023 has led to a greater uptake of annual and long service leave this year.

The management of psychosocial risk continued to be an area of focus, and we have strengthened our approach through:

- Enhanced data analytics and insights to assist with identifying psychosocial hazards, assessing risks and measuring the effectiveness of controls.

- Building leader capability through communications and campaigns, People Leader Fundamentals online program, webinars, and new tools to help manage workload and wellbeing for teams.

- Establishment of a Psychosocial Risk Working Group to share insights and drive prevention initiatives.

- Promotion of wellbeing resources available to colleagues under the banners of physical, mental, social and financial wellbeing.

NAB’s Heartbeat surveys have seen incremental improvements in the wellbeing score during the year from 74 in February 2023 to 77 as at the July 2023 survey and we will continue to build on this through delivery of our wellbeing strategic framework.

1. Includes Australia-based colleagues only.

# Investing in People and Culture information technology

NAB is investing in world-class digital technology to make it simpler and easier for colleagues. In 2023 NAB commenced the roll-out of a new global platform, with deployments to China, Singapore, Japan and Hong Kong. More locations are planned in 2024, which will include transition to a fully managed payroll service for NAB’s larger regions. Implementation is expected to be completed in 2025, enabling the automation of core Human Resource processes and controls and more efficient People & Culture service delivery.

# Enterprise Agreement

The current Enterprise Agreement 2016 sets out the conditions of employment for NAB colleagues who work in Australia.

A new Enterprise Agreement 2024 was supported by a majority of NAB colleagues. The new Enterprise Agreement 2024 was approved by the Fair Work Commission in September 2023 and will commence in February 2024. The new Enterprise Agreement 2024 will only cover colleagues in Groups 1-6 who are based in and working in Australia. The new Enterprise Agreement aims to reward colleagues fairly, support them in important times of their lives and includes simplifications such as grandfathering of Rostered Days Off for existing colleagues and the removal of annual leave loading.

There are no significant changes to industrial arrangements in other jurisdictions.

Payroll Remediation

The Payroll Review was established in January 2020 to examine NAB’s compliance with obligations to colleagues relating to remuneration and other entitlements under applicable law and NAB agreements. Within Australia, NAB has finalised the investigation and remediation of the largest and most complex issues. NAB has made total payments of $154.7 million, including interest, to colleagues and has:

- Made significant investments in the ongoing operations team, including strengthening our risk environment, and associated controls and obligations relating to remuneration entitlements.

- Continued to contact and pay former colleagues.

# Climate change and environment

NAB's climate strategy is aligned to our strategic ambition - to serve customers well and help our communities prosper. We acknowledge that climate change is a significant risk to the planet and a major challenge for society to address. Beyond this risk, there is an immense economic opportunity as the world transitions to a low-carbon future. We are working with customers as they decarbonise, adapt and build resilience, while pursuing new climate opportunities for a prosperous future.

# Climate strategy

NAB is seeking to act as a catalyst for climate action through the financing we provide and the insights we share with customers. NAB is supporting customers to reduce their emissions and has set targets to align with pathways to net zero by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100. This approach is underpinned by core beliefs including:

| Climate transition can create growth for the economy. Management of climate transition is core to our business, not an adjacency. Our approach is relationship-led, supported by strong enabling capabilities. Sector decarbonisation targets should be science-based.

This section of the report provides a summary of activities and performance in 2023, guided by the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, with detailed TCFD aligned disclosures and an update on our Net Zero Banking Alliance (NZBA) interim 2030 sector decarbonisation targets (decarbonisation targets), available in NAB's 2023 Climate Report, available at nab.com.au/annualreports.

NAB's climate strategy is aligned to the Group’s strategic ambition to serve customers well and help communities prosper. The appointment of our first Chief Climate Officer, in addition to an increased focus on banker climate training and colleagues’ climate capabilities, helps support NAB’s whole-of-bank approach to its climate strategy and to help achieve emissions reduction consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100. Business Unit climate change strategies are in place across Business and Private Banking, Personal Banking, Corporate and Institutional Banking and BNZ.

Our climate strategy also captures our operational emissions ambition, including emissions from our international offices where applicable, in addition to the capability of our colleagues in supporting our customers through the transition. Our focus remains on maximising economic benefits for customers and shareholders, to support customers as they decarbonise, adapt and build resilience, while pursuing new climate opportunities and creating prosperity.

NAB's strategic climate priorities

BNZ's climate strategy

Given the country and economy-specific climate-related risks and opportunities for the BNZ, BNZ has its own climate strategy, is a member of the NZBA and is setting its own sector decarbonisation targets to meet its NZBA commitment. Refer to BNZ’s climate reporting at www.bnz.co.nz/about-us/sustainability for further details.

Governance

The Board retains oversight of ESG-related matters including climate-related risks and opportunities. ESG considerations are integrated into business strategy, operations and risk management.

The Board is supported by the Board Risk & Compliance Committee (BRCC) which has accountability for oversight of the Group’s risk profile and risk management. This includes ESG risk, within the context of Board determined risk appetite, although ultimate responsibility for risk oversight, risk appetite and risk management rests with the Board.

The Group’s approach to sustainability governance is described in Sustainability in the Group’s strategy on page .

The Group’s overall approach to governance is outlined in the Corporate Governance Statement section on page . Specific information on ESG Risk-related governance is provided in the ESG Risk Management section on page .

In 2023, key climate-related matters presented to the Board included:

- The 2022 Climate Report and draft climate disclosures for 2023.

- Decarbonisation targets to meet NAB's NZBA commitment and engagement plan to May 2024 in relation to further target setting proposed.

- Risk appetite and related performance.

- Updates on the Group’s environmental performance and related regulatory reporting.

Risk management

ESG risks, including climate-related risks, are identified, measured, monitored, reported and overseen in accordance with the Group’s Risk Management Framework (RMF)(as described in the Group’s Risk Management Strategy). Refer to the ESG Risk Management section (pages to to 55) of this report for further information on ESG risk management and our ESG risk-related capability initiatives, including those for climate risk. Other climate risk focused initiatives undertaken in 2023 included:

- Incorporating key learnings from participating in APRA’s Climate Vulnerability Assessment into a proof-of-concept climate risk tool called 'HomeID' which provides access to a data asset for the home lending portfolio so NAB and its customers can make more effective decisions in response to the potential physical risk impacts arising from climate change. Further detail is provided in our 2023 Climate Report.

- Enhancing guidance for Corporate & Institutional Banking colleagues on how to incorporate climate risk information into credit risk assessment and credit submission documentation. Additionally, a program of work has been established to more deeply integrate climate risk considerations into credit risk management processes.

- Integrating sector decarbonisation targets into NAB’s enterprise risk management tool - Governance Risk And Compliance Engine (GRACE).

Board were briefed on, and approved, the second tranche of sector decarbonisation targets (Aluminium, Iron & Steel and Aviation).

NAB's approach to climate change, including climate-related risk management, is detailed in its 2023 Climate Report at nab.com.au/annualreports.

2023 Climate Report

The Group has publicly reported on climate-related performance since 2003. Over the past two decades, the Group has been maturing its management of climate-related risks and opportunities.

The Group has been certified carbon neutral for its Australian operations since 20101, aligned its climate-related reporting to the recommendations of the TCFD since October 2017 and joined the NZBA in December 2021.

Recognising the increasing level of demand for detailed disclosures on climate-related matters, this year NAB has prepared its second standalone Climate Report. The Climate Report details NAB's approach to climate change covering: governance, strategy, risk management and metrics and targets. The Climate Report also includes information about the methodologies we use.

NAB's 2023 Climate Report at nab.com.au/annualreports.

Metrics and targets

NAB has developed metrics and targets to track progress against its climate strategy, and to measure and manage its climate-related risks and opportunities. We have been focused on operational GHG emissions reductions since 2003. Now, as a member of the NZBA, we are also setting targets for financed emissions, and monitoring and reporting our progress, as part of this commitment. In 2023, NAB set three sector decarbonisation targets (aluminium, iron and steel and aviation, a sub-sector of transport). This takes the total number of sector decarbonisation targets set to date to seven. Sector decarbonisation targets were set in 2022 for power generation, oil and gas, thermal coal mining and cement. In setting these sector decarbonisation targets, NAB has been informed by the UNEP FI Guidelines for Target Setting for Banks. NAB plans to set further sector decarbonisation targets in May 2024. Detailed information about NAB‘s sector decarbonisation targets is included in NAB’s 2023 Climate Report available at nab.com.au/annualreports.

BNZ has separately joined the NZBA, and in May 2023 published its first set of sector decarbonisation targets in line with the time frames set out by NZBA. BNZ's initial sector decarbonisation targets were set for the coal mining, dairy, power generation, and oil and gas sectors. BNZ selected these sectors because of their emissions intensity, the relative availability of emissions data, and BNZ's lending exposure to these sectors. During 2024, BNZ plans to publish its sector decarbonisation targets for: sheep and beef; aluminium; cement; commercial and residential real estate; iron and steel; and transport. Further details on BNZ's sector decarbonisation targets, target setting approach and key assumptions are available in BNZ's Net Zero Banking Alliance targets disclosure, available at: bnz.co.nz/about-us/sustainability/environment-and-climate.

The following section provides a high-level overview of relevant operational environmental performance and targets, as well as regulatory reporting. NAB's detailed metrics and targets relating to operational and financed emissions are disclosed in its 2023 Climate Report, available at nab.com.au/annualreports.

Operational GHG emissions and relevant environmental regulatory reporting

During the 2023 environmental reporting year, the Group’s total market-based GHG emissions (Scope 1, 2 and 32) were 64,566 tCO2-e (2022: 60,8293 tCO2-e), after accounting for use of certified renewable energy. The Group retired 64,5664 offsets in 2023. These offsets are a mix of Australian Carbon Credit Units and Verified Carbon Units. They are generated from projects which include Indigenous-led savannah burning and renewable energy projects. NAB has purchased offsets only from domestic sources since 2020. Prior to 2020, offsets were purchased domestically and internationally and NAB retains a bank of these offset purchases. The Group is carbon neutral in operations. Its Australian operations are certified carbon neutral by Climate Active and have been since 2010. In New Zealand, BNZ has been a Toitū5 net carbonzero certified organisation since 2022. JBWere NZ has been a Toitū net carbonzero certified organisation since 2021.

National Greenhouse and Energy Reporting Act disclosures

The Group’s operations are subject to the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act). This is part of Australia’s legislative response to climate change. The NGER Act requires the Group to report on the period from 1 July to 30 June (the environmental reporting year), therefore, all of the Group's energy and GHG emissions reporting is aligned to this reporting period.

The Group’s Australian vehicle fleet and building-related net energy use reported under the NGER Act for the 2023 environmental reporting year was 327,609 gigajoules (GJ) (2022: 334,194 GJ), which is approximately 83% of the Group’s measured total net energy use. The associated total GHG emissions from fuel combustion (Scope 1) and from electricity use (Scope 2) were 60,354 tCO2-e (2022: 71,035 tCO2-e).

Streamlined Energy and Carbon Reporting

The Group is voluntarily reporting data required for the Streamlined Energy and Carbon Reporting (SECR) requirements which are implemented through the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (United Kingdom) in the Group's 2023 Climate Report. The Group's United Kingdom-based (London Branch) energy use6reported, and aligned to the SECR for the 2023 environmental reporting year was 543,941 KWh (2022: 506,076 KWh). The associated total gross GHG emissions from fuel combustion (Scope 1) and from electricity use7(Scope 2) were 111 tCO2-e (2022: 97 tCO2-e). This equates to 218 KWh and 0.04 tCO2-e per metre squared of property space occupied by the Group's London Branch. Further London Branch and Group energy and GHG emissions data is provided in the Group's 2023 Climate Report (refer to page 60).

Operational energy efficiency

The Group continues to implement an energy efficiency program, including energy efficiency opportunity assessments and sustainable building design. This helps to produce GHG emissions reductions and contributes to the delivery of the Group's climate change strategy and targets. From 1 July 2006 to 30 June 2023, the Group has identified and recorded a total of 1,327 energy efficiency and renewable energy opportunities, primarily in Australia. A key focus of our program has been improving the energy efficiency and environmental performance of the major buildings we occupy. This has included moving into: (i) three new major commercial buildings in Australia in 2022; and (ii) a newly refurbished and more energy efficient office building for our branch in the US in 2023. As a result of our focus on major buildings and the purchase of renewable energy over the past few years, fewer other energy saving initiatives have been identified and implemented. A focus on lighting and HVAC upgrades across our Australian building portfolio including branches and business banking centres has continued and we plan to reassess outstanding energy efficiency initiatives and refresh our pipeline of energy efficiency opportunities in 2024.

In 2014, the Group’s United Kingdom-based operations became subject to the Energy Savings Opportunities Scheme (ESOS), introduced by the United Kingdom ESOS Regulations 2014. The ESOS requires mandatory energy assessments (audits) of organisation buildings and transport to be conducted every four years. The Group's London Branch has completed its ESOS energy efficiency assessment in 2023 as part of preparation for its ESOS submission. However, due to having moved our London office into a new energy efficient commercial building in 2019, only four small energy efficiency opportunities were identified. The Group fulfilled its most recent ESOS obligation in December 2019 and will resubmit as required by 5 June 2024.

Additional detail on the Group’s environmental and climate-related performance is provided in the 2023 Sustainability Data Pack available at nab.com.au/annualreports and in the Group's 2023 Climate Report, which contains information on the methodologies used by the Group to calculate GHG emissions. Further detail is also available on the Group website8.

1. Carbon neutral in operations refers to the process the Group follows to first avoid and reduce greenhouse gas emissions associated with its operational Scope 1, 2 and 3 emissions (excluding financed emissions) and retiring carbon offsets for residual emissions. NAB's Australian operations were first certified carbon neutral on 1 July 2010 under the National Carbon Offset Standard, now the Climate Active Carbon Neutral Standard for Organisations, NAB has a forward purchasing approach and forward purchased and retired offsets for the environmental reporting year (1 July 2010 to 30 June 2011) to be carbon neutral for 2011. BNZ has been a Toitū net carbonzero certified organisation since 2022. JBWere NZ has been a Toitū net carbonzero certified organisation since 2021.
2. Scope 1 GHG emissions are direct emissions from sources that are owned or controlled by an organisation including on-site fossil fuel combustion and vehicle fleet fuel consumption. Scope 2 emissions are indirect emissions from purchased electricity. Scope 3 emissions relate to all other indirect emissions that occur outside the boundary of the organisation as a result of the activities of the organisation. However, the Group’s Scope 3 emissions reported here are operationally-related and do not include Scope 3 emissions associated with the Group’s financing activities. The Group commenced reporting on Scope 3 attributable financed emissions in 2021. Attributable financed emissions are not included in the Group’s carbon neutral position.
3. In 2023, the Group has selected a market-based approach as its primary electricity accounting method, having previously used a location-based methodology. The Group has retired offsets to achieve its carbon neutrality based on its market-based position. The Group has also changed its methodology for calculating market-based emissions to more closely align with the Department of Climate Change, Energy, the Environment and Water (DCCEEW) in its Australian National Greenhouse Accounts Factors August 2023 manual. The Group has restated its 2022 market based emissions number from 77,236 to 60,829 tCO2-e.
4. BNZ’s 2022 emissions were restated to reflect minor changes. BNZ's Scope 2 emissions increased by 147 tCO2-e and Scope 3 emissions increased by 41 tCO2-e to account for a change in the electricity emissions factor due to MfE’s August 2022 release of ‘Measuring emissions: A guide for organisations: 2022 summary of emission factors’ and improved accuracy of water data in 2023 following release of 2022 accruals. The net change in total BNZ GHG emissions after accounting for renewable energy is 76 tCO2-e. The total offsets retired for 2023 include an additional 76 offsets to account for restatement of the 2022 BNZ emissions figure.
5. Toitū Envirocare is the wholly-owned subsidiary of Manaaki Whenua – Landcare Research, a New Zealand Government-owned Crown Research Institute. They provide Toitū carbonreduce, Toitū net carbonzero and Toitū enviromark programmes and certifications for businesses in New Zealand and many countries globally.
6. The Group's energy use and GHG emissions reported voluntarily in alignment with SECR requirements are associated with building-related gas and electricity use only. The Group does not have a vehicle fleet associated with its United Kingdom operations.
7. 100% of the Group's United Kingdom-based (London Branch) electricity is renewable electricity.
8. Refer to 'How we calculate our carbon emissions' on nab.com.au/about-us/social-impact/environment/climate-change.

# Biodiversity and natural capital

Biodiversity and natural capital play a critical role in underpinning wellbeing and economic activity. NAB has further progressed its understanding and management of nature-related risks and opportunities building on work that started in 2011 with NAB contributing to the development of, and becoming an inaugural signatory to, the Natural Capital Declaration.

Supporting customers with nature-related risks and opportunities

NAB is supporting customers as they respond to the opportunities and risks which result from their impacts and dependencies on nature.

Providing products to support customers

- NAB Agri Green Loan. In November 2022, NAB launched its Agri Green Loan proposition. This loan helps agribusiness customers to invest in eligible on-farm practices and projects such as solar, bioenergy, establishing trees or increasing ground cover and crop or pasture diversity, improving soil and water conservation and building drought resilience. This product can support customers seeking to manage nature-related impacts (e.g. water use) and dependencies (e.g. soil quality).

- Business finance for green equipment. This product can support on-farm emission reductions. This includes equipment such as energy efficient tractors; best-in-class combine, cotton and sugar cane harvesters; and energy efficient irrigation. This product can support customers seeking to manage nature-related impacts, such as GHG emissions.

Partnerships to provide useful insights for customers

- Farming for the Future. This industry-led program seeks to help farmers make informed decisions about sustainable long-term management of natural assets to optimise production, build resilience and reduce risks. NAB is providing opportunities for customers to be involved in the program.

- Climateworks Centre, Natural Capital Investment Initiative. In 2023, NAB supported the continued development of the Natural Capital Measurement Catalogue project, which included the launch of an open-access web-based interface where users can select metrics and methods for the measurement of natural capital assets, flows of services or benefits, and organisational impacts or dependencies on nature.

- Greening Australia / World Wide Fund for Nature-Australia (WWF). The NAB Foundation is supporting primary research by Greening Australia and WWF on the efficacy of nature-based solutions for enhancing environmental resilience to fire through configuration of vegetation. This multi-year project is moving to implementation phase which includes establishing a demonstration site.

For more information, refer to the Community Investment section of this report (page ).

Progressing towards the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD)

NAB recognises the benefits of standardised disclosure guidance in helping to identify, manage and report against nature- related risks and opportunities and welcomes the release of TNFD recommendations in September 2023.

NAB's participation in the TNFD forum has informed the development of its approach. Key activities in 2023 included:

- Pilot testing of TNFD LEAP1 process using freshwater as a case study and drawing on the beta version of the TNFD framework. A summary of the lessons learned appears below. The pilot was managed by UNEP FI, and the full findings are available at www.unep.org.

- Contributing to the Australian Banking Association’s (ABA) feedback on the TNFD. Feedback drew on implementation challenges identified through the UNEP FI pilot process.

- Participating in a UNEP FI project designed to support financial institutions in understanding the role of nature scenarios (a similar concept to climate scenarios). Such scenarios can help decision-makers by establishing an agreed definition of the future status of nature e.g. how might soil quality change and what risks and opportunities may arise for the productivity of agribusinesses as a result.

- Taking part in the Australian Government’s TNFD education and awareness raising program.

Lessons from the UNEP FI pilot

NAB's participation in the pilot has supported identification of key challenges associated with the TNFD recommendations. These include:

1. Technical aspects of the guidance. For example, the LEAP process is presented as a linear process, however, an iterative process that draws on new information as it becomes available would help reduce the potential for a given decision or assumption to result in compounding errors.

2. Availability and accessibility of data and tools to support the assessment. Many tools used during the pilot are global in nature and do not always fully represent Australian conditions. This may lead to inaccuracies in assessed impacts and dependencies. LEAP also assumes that financial institutions have access to customer data that is not currently collected, e.g. water consumption and efficiency measures.

3. Organisational capacity. Using the LEAP process requires familiarity with a broad range of environmental issues and analytical skills and systems which support geospatial data analysis. Many businesses, including banks, do not currently have this capability. Furthermore, time will be required to develop the capacity of assurance providers, who will be required to support the implementation and preparation of nature-related disclosures.

Assessing nature-related impacts and dependencies

The LEAP guidance suggests that organisations evaluate their material nature-related impacts and dependencies to understand where risks and opportunities may arise. During 2023, NAB undertook a preliminary assessment of its nature-related impacts and dependencies. A summary of the results of this assessment is provided in Figure 3.

Defining nature-related impacts, dependencies, risks and opportunitiesThe TNFD draws on the following definitions with respect to nature:Impacts. Changes in the state of nature (quality or quantity), which may result in changes to the capacity of nature to provide social and economic functions. Impacts can be positive or negative. They can be the result of an organisation’s or another party’s actions and can be direct, indirect or cumulative.Dependencies. Dependencies are aspects of environmental assets and ecosystem services that a person or an organization relies on to function. A company’s business model, for example, may be dependent on the ecosystem services of water flow, water quality regulation and the regulation of hazards like fires and floods; provision of suitable habitat for pollinators, who in turn provide a service directly to economies; and carbon sequestration.Risks. Potential threats (effects of uncertainty) posed to an organisation that arise from its and wider society’s dependencies and impacts on nature.Opportunities. Activities that create positive outcomes for organisations and nature by creating positive impacts on nature or mitigating negative impacts on nature. Nature-related opportunities are generated through impacts and dependencies on nature.Source: TNFD glossary (Version 1.0, September 2023)

The analysis identified that the most material customer-related impacts on nature are associated with the agriculture, construction, manufacturing, mining, energy and utilities industries, and transport and storage. The highest impacts on nature across the portfolio relate to land and water use, GHG emissions and waste production.

The industries that were found to have the most material dependencies on nature were: agriculture, fishing, forestry, energy and utilities. The preliminary analysis identified that the key dependencies customers have on nature-related matters are: climate regulation, fibres and other materials, flood and storm protection, access to ground and surface water.

The assessment draws on the global Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) tool developed by the UNEP World Conservation and Monitoring Centre. A number of adjustments were required to better reflect the Australian and NAB context. Owing to these adjustments, NAB will continue to refine its assessment. The finalised assessment will contribute to the TNFD roadmap the Group is developing.

Figure 3: Preliminary assessment of NAB's lending portfolio and nature-related impact and dependency areas
| Notes: The ENCORE tool assesses impacts and dependencies across 11 sectors, 138 sub-industries and 86 processes. These categories were manually aligned to sectoral/industry groupings used by NAB. For some areas, it was not possible to achieve complete alignment, resulting in the following portfolio areas being excluded from the assessment: personal lending, residential mortgages, commercial property, and government. To gain greater insights, some industry groupings were disaggregated, e.g. agriculture, fishing, forestry and mining were assessed as separate categories. Within the tool, 11 aspects of natural capital impact are considered, including non-GHG air pollution, solid waste, water pollutants and water use. For dependencies, 29 aspects are considered, including animal-based resources, plant-based resources, flood protection, and pollination. These impacts and dependencies were reviewed with reference to NAB’s industry categories and with respect to common Australian production processes. The assessment has been undertaken from the perspective of the primary industry of impact or dependency. For example, 'Telecommunication' considers the operation of telecommunication businesses, whereas ‘construction’ considers the impact of telecommunication-related construction activities. |

Managing nature-related risk

Sustainability Risk, which includes biodiversity and other nature-related risks, is one of the Group's material risk categories, managed through the Group's Risk Management Strategy and Framework (further information about NAB's ESG risk management is provided on page of the Risk Management section of this report).

Nature-related risks considered within the Group's ESG risk assessment processes include those related to:

- Forests.

- Water.

- Biodiversity.

We regularly update and improve how we incorporate environmental risk into our risk management framework, policies and processes in response to changes in technology, regulation, voluntary initiatives and societal expectations.

Managing deforestation risk

Deforestation and other forms of land clearing can be a key threat to biodiversity. The Group is aware of increasing concern about the impact of legal deforestation on biodiversity loss and is engaging with stakeholders to understand the different perspectives and to determine how it may be best placed to respond.

The Group takes allegations of illegal land clearing by its customers very seriously. If we become aware that customers are engaged in, or alleged to be involved in, illegal land clearing, the Group reviews the matter and takes action, as appropriate, in line with risk appetite and the Group's ESG, Credit and Financial Crime policies and processes.

This may involve supporting customers as they undertake remediation. Where issues are material, or systemic, or are not remediated, the Group may consider exiting the customer relationship.

The Group aims to identify and manage the risk of illegal land clearing, and understand the impacts associated with land clearing on biodiversity and ecosystems, where appropriate, through its existing credit risk assessment and due diligence processes.

If potential ESG risk issues are identified as part of risk-based screening, or bankers identify a customer's involvement in high-risk sectors or activities, then customers are subject to more detailed ESG risk assessment and due diligence in accordance with exposure-related trigger thresholds. See page for detail on how ESG issues, including those related to land clearing, are included within NAB’s credit risk assessment and due diligence processes.

Increasing capability

Building on the UNEP FI pilot findings, NAB is developing capability to more accurately geo-locate agricultural customers assets through its FarmID database (under development). While initially intended to support the identification of exposure to climate-related hazards, the analytical infrastructure will provide the foundation for understanding a range of nature-related risks in the future.

External engagement activities

During 2023, NAB participated in the following external engagement activities:

- Consultation on the agenda for the Australian Government's Global Nature Positive Summit to be held in Sydney in 2024.

- The Australian Sustainable Finance Institute’s (ASFI) Natural Capital Advisory Group (NCAG) for the ‘Valuing Natural Capital’ partnership. NCAG comprises representatives from financial institutions and seeks to inform the development of nature-related metrics and enabling tools that will allow the integration of nature considerations into financial decision-making.

- The Science-based Targets for Nature Regional Strategy Working Group (Australia and New Zealand/Aotearoa). This group of industry, peak-body membership associations and professional-services firms aims to establish a framework to help businesses better understand and pilot nature-based disclosure frameworks and reporting, especially regarding science-based targets.

Quick link

nab.com.au/about-us/sustainability/environment/natural-capacity-resource-management

1. The LEAP process encompasses: Locate interface with nature. Evaluate dependencies and impacts. Assess material risks and opportunities. Prepare to respond and report.

# Technology, data and security

Why it matters

Delivering exceptional customer and colleague experiences is underpinned by resilient and safe technology, that is simple and easy to use.

What NAB is doing

NAB's technology strategy, data security and privacy management

NAB continues building a sophisticated security function to protect our business, our customers, and the community from evolving cyber security threats.

During 2022 NAB refreshed its technology strategy for the next five years. Building on our cloud first foundations established in prior years the strategy aims to deliver improved technology driven customer and colleague outcomes, while also:

- Further building resilience, ensuring our services are always on.

- Reducing technology and cyber related risk to better protect NAB and our customers.

- Simplifying and strengthening our technology estate and reducing complexity.

- Protecting customer data and ensuring it is used appropriately.

In addition, this section will cover how NAB is continuing to enhance its ability to deter, detect, disrupt and prevent financial crime.

Eight focus areas underpin our technology strategy:

|  |  | Focus areas |
--- | --- | --- | --- | ---
|  |  | Digital first Customers and colleagues expect to interact in real time, and with the latest personalised functionality regardless of the channel they use. |
|  |  | Simplify & automate Reduce complexity in technology, and improve NAB's ability to react quickly to change. |
|  |  | Data like electricity Data creates insights and actions to improve customer interactions, with customers demanding more personalised experiences. |
|  |  | Secure by design NAB must be proactive and strengthen our defences to keep the Bank and customers safe. |
|  |  | Platform mindset NAB must modernise our technology to be simpler, modular, and more resilient that removes duplication and caters for business needs. |
|  |  | Expert engineering Quality technology delivery requires strong, capable and highly efficient engineers supported by appropriate tooling and processes. |
|  |  | Delivery excellence Removing the impediments and inconsistencies in the way NAB delivers technology change, which impacts speed, cost, and quality of outcomes. |
|  |  | Best technology colleagues To deliver on the strategy, NAB must attract, retain and develop top technology talent in a highly competitive talent market. |

Resilient, safe and simple services

Building on our cloud foundations established in prior years, our technology strategy has delivered significant customer and colleague improvements, while continuing to improve the resilience of our services, and keeping our customers and NAB safe in an environment of ever-escalating fraud, scams and cyber threats. In addition, we continue to simplify and modernise our environment, to improve the services and experiences we deliver to our customers and colleagues. Key outcomes in 2023 include:

Resilient

- Cloud migration: Migrating applications to cloud based services has been key to improving technology service resilience. Building on progress in recent years, 77% of applications have been migrated and we are on track to meet our target of 83% in 2024.

- Reducing incidents: NAB achieved a 17% year-on-year reduction in critical and high impacting incidents, with critical and high incidents down 83% since 2018, driven by cloud migration and service improvements.

- Service availability: In 2023, the average availability of our top 47 critical services was 99.89%, ensuring customers could access our systems when they need. For several critical services, NAB is ranked number one in six of seven Retail Payments Service Reliability categories (of the Big four), based on analysis of disclosures provided to the Reserve Bank of Australia since Q3 2021.

Safe

- Cyber and Tech Risk investment: To combat increasing cyber threats, NAB has invested significantly in cyber security and technology risk reduction over 3 years.

- Cyber capability: In 2023 we achieved our target National Institute of Standards and Technology (NIST) Cyber security capability maturity level (across people, process, and technology). The National Institute of Standards and Technology (US Government) Cyber Security framework helps businesses understand, manage and reduce cyber security risks. This improvement has seen our time to contain cyber threats reduce by 51% since 2019.

- Intelligence information sharing: To improve cyber defence effectiveness NAB has continued to collaborate with various Federal agencies to share information and adjust our response to organised cyber activity. Further detail is provided in the Investing in Security section.

- New protection for Customers: To further protect customers, several new features have been implemented during 2023. This includes new customer phishing and scam protections, including the removal of links in SMS and emails, contributing to a reduction in scam payments. In addition, NAB has recently announced our participation in an industry digital identity verification service (Connect ID), which helps customers securely share their identity information.

Simple

A key element of our technology strategy is the consolidation of legacy technology applications onto standardised enterprise platforms. Over time, this will both simplify our operating environment and provide modern services which are more fit for purpose.

- Modernising key business applications: In 2023 NAB completed the modernisation of two legacy core banking applications.

  - Migration of ubank customers to a modern platform, improving the banking experience, and decommissioning the legacy.

  - Migration of our Trade Finance business to a new platform, with involves less manual processing and enables better compliance.

- Simple technology for colleagues: In addition, NAB has made it simpler for our bankers by completing:

  - Migration of ~3,000 additional bankers to an enterprise customer relationship management platform (now ~70% complete overall), providing bankers with world-class tools to service customers.

  - Migration of all bankers to a Cloud-based call centre platform with AI powered call routing, providing greater flexibility in managing customer calls.

- These examples represent some of decommissioning outcomes delivered during 2023, which saw NAB decommission 13% legacy applications.

# Privacy management and data ethics

NAB’s transparent, compliant, and ethical collection and use of data is key for earning trust with colleagues and customers.

Protecting customer and colleague privacy

NAB's customers rely on us to protect their personal information, and to ensure their interests are protected in the use of the data. NAB has a specialist Global Privacy Office, which establishes data protection and use principles, to make sure colleagues are aware of their responsibilities. These responsibilities are embedded into the way NAB works, and support transparent, fair and compliant use and sharing of personal information of our customers and colleagues.

NAB's Data Ethics Framework goes beyond legal compliance, to consider not if NAB can use data (legally or otherwise), but whether we should. NAB’s Data Ethics Principles set out how we should responsibly use data and guides how data is used in analytics, machine learning, artificial intelligence (AI) and sharing with third parties. These Data Ethics Principles are brought to life through a Data Ethics assessment process. By ensuring the responsible and sustainable use of data, NAB can make better decisions.

Data collection, storage, retention and destruction within NAB is governed by the NAB Records Management Policy Standard. The Standard is supported by a series of Record Retention Schedules which ensure compliance in recordkeeping obligations across all regions.

Investing in security

NAB continues to build a sophisticated security function to protect our business, our customers, and the community from evolving cyber security threats.

Cyber security is recognised as one of NAB’s key risks, and is closely monitored with regular updates on the threat landscape, security strategy, capability, incidents, issues and progress on risk reduction and performance metrics.

NAB has made progress on our refreshed security strategy, to strengthen our security foundations and has significantly improved security capability aligned to the National Institute of Standards and Technology's (NIST) Cyber Security Framework (CSF). External firms independently review and test this security capability.

Having world-class security talent is critical. In 2023 our security colleagues participated in specialist training and/or certification from global security providers.

NAB has expanded our security workforce across multiple regions globally, extending coverage and capability around the clock.

NAB is focused on a collaborative approach to drive national outcomes that protect businesses and individuals from cyber-enabled crime. As part of this approach NAB is partnering with Security Centres, agencies and research groups.

NAB has strengthened and uplifted its governance frameworks, associated reporting and forums. This has enabled NAB to improve visibility, oversight, consistency in security posture, capability maturity, and achieve broader business benefits across NAB.

Building customer capability

NAB is helping customers and communities become more secure by delivering customer cyber security and fraud detection sessions to more than 6,000 people across Australia in 2023. These sessions provide customers and community members with information on the current cyber and fraud threat landscape, and provide practical advice on how they can protect themselves.

For more information on these sessions, additional resources including NAB Security’s security podcast and advice on identifying and responding to scams and frauds, refer to nab.com.au/security.

# Financial crime

Financial crime has a devastating impact on NAB’s customers and community. NAB has zero tolerance for criminal activity and remains dedicated to effectively managing financial crime risk and keeping customers, communities, and the financial system safe.

NAB plays an important role in the monitoring and reporting of suspicious activity and complies with anti- bribery and corruption, economic and trade sanctions, and AML/CTF regulations.

Delivering the agreed plan for the AUSTRAC EU, entered into in April 2022 to address AUSTRAC’s concerns with NAB’s compliance with certain AML and CTF requirements remains a key priority. Refer to Risk management section on page for further detail.

In addition to addressing regulatory commitments and remediating issues, we continue to make significant enhancements to our ability to deter, detect, disrupt and prevent financial crime. This year NAB has:

- Invested in colleagues, data and technology systems to enhance controls, monitoring and risk assessment models to strengthen the management of financial crime risk.

- Enhanced its AML/CTF Program and preventative and detective controls (beyond the requirements of the EU) to better mitigate current and emerging financial crime risks.

- Developed our financial intelligence-led capabilities to enhance identification of emerging financial crime risks and minimise the threat posed by criminal exploitation of NAB’s products and services.

- Safely and securely utilised machine learning and AI to reduce manual handling and improve the accuracy and pace of detecting and preventing financial crime threats.

- Provided financial crime training to colleagues and the Executive Leadership team to support them in their role to mitigate the risk of financial crime at NAB, including on money laundering / terrorism financing, bribery and corruption, sanctions, and scams and fraud.

The past 18 months of sanctions, export, and import controls have been unprecedented in their scope, complexity, and impact. Enforcement by global sanctions regulators remains significant, with USD 1 billion in penalties issued globally in financial year 2023. To ensure compliance NAB has continued to improve its Sanctions Compliance Program, including implementing a new trade screening program and enhancing our controls for the identification and monitoring of high sanctions risk customers.

NAB also plays a crucial role by collaborating with law enforcement, alliances and Government agencies in Australia to combat financial crimes impacting our community, colleagues and customers. This helps NAB identify, investigate and/or disrupt money laundering, fraud, national security, drug trafficking and human impact crimes, which have detrimental impacts to our society.

NAB continues to execute the financial crime strategy which was launched in 2022. While NAB is making good progress, the nature of the threat and risk it presents requires ongoing vigilance and pursuit of best practice in all that NAB does.

Scams and fraud

Increasingly sophisticated use of scams and technology to target customers and the financial system requires an ever-evolving approach to fighting financial crime.

The fight against these crimes has been a focus for NAB this year, and through the execution of the multi-year Scams Strategy launched last year, NAB has:

- Delivered a number of initiatives throughout the year to combat scams and fraud.

- Deployed behavioural technologies to identify scams and fraud, alongside assistive tools like SMS messaging to engage customers who might be at risk.

- Continued to educate customers and the community on how to identify scams and to raise awareness of the financial and emotional impact they cause.

Quick link

For more information on how NAB protects itself and our customers against financial crime, visit nab.com.au/about-us/corporate-governance/managing-financial-crime

# Helping our communities prosper

# Community investment

NAB's community investment is centred on supporting people and organisations that help our communities prosper.

NAB’s reporting of community investment is guided by the Business for Societal Impact (B4SI) Community Investment Framework1. This includes money, time through volunteering and NAB also reports forgone revenue from products and services provided for community benefit.

Key contributions to NAB's community investment included:

- Skilled volunteering projects for not-for-profits in partnership with Australian Business Volunteers and Jawun.

- Disaster relief grants to support customers and colleagues impacted by natural disasters.

- Revenue foregone through the provision of no-interest capital and products as part of NAB's 20-year partnership with Good Shepherd.

- Donations to NAB Foundation to significantly increase its size and scope. The NAB Foundation corpus has grown to $110 million in 2023, more than triple its size compared with 2021. This investment has permanently increased NAB Foundation’s capacity to provide long-term stable funding for programs and partnerships with community organisations.

Volunteering

As a workforce of more than 38,000 colleagues, we can have significant impact as volunteers in the community. Every NAB colleague has at least 16 hours each year available to volunteer their time and talents to support communities via general volunteering, skilled volunteering and supported longer-term secondment program partnerships.

While volunteering take-up remains below pre COVID-19 levels, NAB has seen a 90% increase in hours year on year, largely driven by an increase in volunteer opportunities available with NAB community partners including The Salvation Army, Save the Children, Disaster Relief Australia and Girls on Fire.

NAB Neighbourhood
NAB Neighbourhood is NAB's platform to engage colleagues and community organisations in philanthropic initiatives. Colleagues can participate in volunteering, giving, fundraising and granting activities to support causes they care about.

### Group community investment ($m)

NAB Foundation

NAB Foundation is a registered charity that uses philanthropy, social investment and in-kind support to fund social and environmental progress in Australian communities served by NAB. By funding the people and communities who make a real difference, the NAB Foundation aims to help tackle social and environmental challenges relevant to NAB, natural disasters, climate transition, indigenous economic advancement and affordable housing.

Partnerships

NAB Foundation funds a number of community organisations investing in disaster resilience through NAB's flagship program, NAB Ready Together.

Providing grants

The NAB Foundation Community Grants program funds local community ideas and projects to prepare for and recover from disasters Australia-wide.

NAB Foundation's Environmental Resilience Fund supports practical projects that build environmental resilience to disasters and climate change.

For more information on NAB Foundation's Community Grants program and Environmental Resilience Fund, refer to the NAB Ready Together section on page .

Donations

NAB Foundation provided support for Australians for Indigenous Constitutional Recognition (AICR) and the Uluru Dialogue. In support of housing and homelessness, NAB Foundation donated to the Salvation Army’s Red Shield Appeal, Melbourne City Mission and other organisations focused on humanitarian initiatives across Australia.

Investments

NAB Foundation uses impact investment to generate social and environmental impact. In 2023, NAB Foundation invested in seven impact investment funds, representing up to 10% of its portfolio. NAB Foundation invests all corpus assets with a socially responsible investment position.

1. Corporate Community Investment, defined broadly as businesses’ voluntary engagement with charitable organisations or activities that extends beyond their core business activities. Learn more at https://b4si.net/framework/community-investment/

# NAB Ready Together

With Australians continuing to face natural disasters, there is a growing need for ongoing community support and innovation. NAB will help by supporting our customers and their communities to withstand and recover from natural disasters.

Going above and beyond for NAB customers from disaster to recovery

Over the past year, communities across Australia were impacted by natural disasters including floods and cyclones. NAB provided $557,000 in disaster relief grants to customers and colleagues impacted by floods in NSW, VIC, TAS, SA, WA and NT.

Additional support is available. For more information on how NAB supports customers with financial hardship assistance, see page .

Partnering to support Australia's disaster relief volunteers

It takes many hands to get communities back up and running after a disaster. That is why NAB and the NAB Foundation partner with disaster relief organisations to help communities recover faster.

In 2023 NAB Foundation announced a flagship partnership, providing $1 million in funding to help Disaster Relief Australia (DRA) bolster its community and corporate volunteer capacity over the next two years. The partnership will assist DRA to recruit and manage more than 3,000 community members on stand-by to volunteer.

In addition, we are:

- Working with Girls on Fire to expand its fire and resilience programs across Australia to improve gender diversity and inclusion in the emergency services sector.

- Supporting QLD Rural Fire Service to develop and deliver an Indigenous traditional burning training program, teaching participants about traditional fire and land management practices to reduce disaster risk and improve preparedness.

NAB colleagues are encouraged to support communities impacted by disasters. NAB provides unlimited crisis leave to colleagues who volunteer with emergency services along with access to two days of general volunteering and disaster preparedness leave for all colleagues. In 2023, NAB colleagues contributed more than 1,400 volunteer hours with disaster relief organisations.

Helping communities to build their resilience and recover from natural disasters

The NAB Foundation Community Grants program offers grants to local community-led projects for disaster readiness and recovery across Australia. It aims to award a total of $1 million annually in grants of up to $10,000 each, with an additional $200,000 available for up to eight projects that demonstrate potential to scale impact.

In calendar year 2023, NAB Foundation awarded community grants to more than 100 organisations totalling $1.2 million. Initiatives focused on education, training, emergency systems, preparedness plans, mental health support, infrastructure, equipment, community cohesion, and wildlife and natural environment rehabilitation.

"I felt an obligation to help out"

When floods hit Brisbane in 2011, NAB’s Ilyas Livanes was part of the 'Mud Army' who volunteered to help with the clean up.

“I’m a born and bred Brisbanite and I felt like the city and its people were hurting,” he said.

“I had water up to my front door, but it didn’t matter. I just wanted to help.”

In the floods of 2022, Ilyas was there again, alongside a group of volunteer veterans, emergency services personnel and civilians from DRA.

“I saw the ingenuity of the people helping and how well the organisation behind it was working,” Ilyas said.

This inspired other NAB colleagues to use their volunteer leave to support communities impacted by flooding across Victoria and South Australia towards the end of 2022 and beginning of 2023.

NAB Foundation partners with DRA to help it build community and corporate volunteer capacity to support communities to recover.

For Ilyas, this is a great opportunity for NAB colleagues to use their volunteer leave to support the DRA’s efforts.

“It makes me feel good…In our privileged position where NAB colleagues get that volunteer leave every year, as long as we have the appetite to continue to use it, it’s a step in the right direction.”

Investing in nature-based solutions

NAB Foundation's Environmental Resilience Fund supports practical projects that build environmental resilience to natural disasters and climate change.

NAB Foundation funds the Climate-ready Restoration partnership with Greening Australia and World Wide Fund for Nature-Australia. The funding enables fire experts and local communities in south-eastern Australia to test green firebreaks to manage disaster risks. The project aims to restore ecosystems by improving biodiversity, as well as engaging Indigenous Australians to assess the feasibility of cultural burning and other Indigenous-led land management practices. The project also includes a rewilding and cultural burning program. NAB Foundation is providing $2 million to the partnership over three years.

The project is in its second year and is moving to implementation phase. A demonstration site showing a green firebreak configuration will be established in Western Sydney. The construction of predator-free fence has meant that Eastern bettongs have been successfully reintroduced to Yiraaldiya National Park in NSW. Bettongs are a small hopping marsupial related to kangaroos. They protect and restore ecosystems by reducing leaf litter, promoting healthy soils and seed germination.

See page of this report for more information on NAB's approach to managing biodiversity and natural capital.

Quick link

nab.com.au/nabreadytogether

# Respecting human rights

NAB recognises the fundamental worth of all people by respecting human rights.

A commitment to respecting human rights is a core foundation for our Group Human Rights Policy, the approach to ‘How we work’, and our codes of conduct. It is also integrated within a number of key voluntary initiatives to which NAB is a signatory, including the Principles for Responsible Banking and the United Nations Global Compact. Further information about NAB's approach to human rights and a copy of the Group Human Rights Policy is available on nab.com.au/about-us/sustainability/reporting-policies-approach/human-rights-approach.

As a financial institution, NAB contributes to economic and social development that is necessary to underpin the protection of human rights – through our direct operations, the financial products and services we provide, and the wages and taxes that we pay. NAB and BNZ provide access to finance for disadvantaged groups, support businesses which provide jobs and economic growth and provide financing for key infrastructure.

Exposure to human rights risk

NAB recognises that human rights concerns may arise not only in our own operations, but also via interactions with external third parties. As a financial services organisation, NAB is exposed to human rights risk through five key channels: banking operations, customer relationships, supply chain management, private wealth-related services and more generally through the communities we serve.

For each of these channels, NAB considers its most salient human rights issues1and related vulnerable groups. Examples of relevant salient human rights issues include:

- Health, safety, security and wellbeing

- Customer financial resilience and hardship

- Fair and responsible products and services

- Accessibility

- Indigenous rights and inclusion

- Modern slavery

- Corruption and bribery

- Diversity and inclusion

- Collective bargaining

- Gender Equity

- Data ethics, AI and human rights.

These issues are considered as part of our risk management practices when determining mitigating actions.

NAB's 2023 Sustainability Data Pack2 provides a content index on key external human rights frameworks and our salient human rights issues, including references to where they have been addressed in greater detail within NAB's 2023 annual reporting suite.

Managing human rights risk

Human rights risk is an ESG risk considered as part of Sustainability Risk within the Group's Risk Management Strategy and Framework and risk appetite, including our sensitive sectors and areas list and divisional Credit Appetite Strategies. This is supported by ESG risk assessment in customer and supplier related on-boarding and review processes. Refer to the Environmental, Social and Governance (ESG) Risk Management section on pages to 55 for further detail on how ESG Risk (including human rights) is managed, using a risk-based approach, within lending and sourcing activities.

Human rights risk assessment and due diligence

NAB seeks to proactively identify, assess and address human rights risks and impacts that may arise in business relationships with customers and suppliers, as outlined in our Human Rights Due Diligence process. This includes issues such as poor labour practices, modern slavery, Free, Prior and Informed Consent, and improper land acquisition.

In 2023, through our ESG risk assessment processes (which form part of the credit risk and due diligence process), including media scanning, we identified a small number of customers with potential human rights and modern slavery concerns within their operations or supply chains. Further investigation and/or customer engagement has confirmed some instances of poor labour practices and/or other potential human rights concerns. NAB and BNZ have taken action, engaged relevant customers and are monitoring the actions these customers are taking to address the issues, as appropriate.

NAB identified a number of instances of possible human exploitation by its customers that were investigated and reported to AUSTRAC and law enforcement as required. Further action was taken as appropriate. Similarly, in New Zealand, BNZ investigated several instances of possible human exploitation by its customers and reported these to the NZ Police Financial Intelligence Unit (FIU) as required. No instances of modern slavery or human trafficking were identified in NAB’s own operations or its supply chain.

Managing grievances

NAB's human rights grievance process sets out how human rights issues and concerns are investigated and acted upon. One of the mechanisms provided for the receipt of human rights-related feedback and concerns is our mailbox grievances@nab.com.au. Grievances received in this mailbox are referred to the appropriate area for investigation and action. To ensure individuals wishing to raise human rights-related concerns understand the process, NAB's website contains guidance, in multiple languages, on how to lodge a human rights concern. In 2023, we received one grievance via the mailbox, from six Tiwi Islands Traditional Owners and one Larrakia Traditional Owner. Similar complaints regarding the same customer were received by 11 other Australian and international banks. NAB has since considered and provided a response to that human rights grievance.

Customer-related human rights concerns may be received directly by NAB, or via external dispute resolution bodies such as Courts and human rights and/or equal opportunity commissions or tribunals. For example, in 2023, NAB received 13 complaints alleging discrimination that were filed in Courts or human rights/equal opportunity commissions or tribunals. Of those 13 complaints, 10 were made by customers and 3 were made by colleagues or former colleagues.

Colleague concerns regarding human rights are managed through employee relations processes or via our Whistleblower Program (refer to How We Work on page ).

In 2022, NAB engaged a specialist business and human rights advisory firm to review its human rights grievance mechanism against the effectiveness criteria set out in the UN Guiding Principles on Business and Human Rights. The review identified several areas where NAB could make incremental improvements to strengthen our grievance mechanism. As a result, a number of small changes were made to guidance for colleagues in 2023.

Human rights areas of focus

A number of human rights areas are of interest to our stakeholders, including:

- Indigenous inclusion and support: NAB is taking steps to support growth in Indigenous business, employment prospects and reconciliation (refer to page which provides more detail on how NAB is helping Indigenous businesses prosper and supporting reconciliation). Also refer to page which gives further detail of BNZ's Māori strategy.

- Inclusion and diversity: NAB's priority areas include: inclusion, accessibility, gender diversity, flexible working and supply chain diversity. Refer to page for more detail.

- Modern slavery: The Group is taking steps to address modern slavery risk in our value chain as outlined briefly in the section below and in more details in the Group's Modern Slavery and Human Trafficking Statement.1

- Enterprise bargaining and payroll review: NAB received majority support from colleagues on the 2024 Enterprise Agreement (refer to page ).

- Climate change: Climate change and climate-related natural disasters can have negative impacts on human rights, including the rights to life, food, health, water and places to live and work. We are taking steps to manage our own climate impact as well as considering the climate impacts of our customers and the need for a just transition. NAB is the only Australian company participating in the United Nations Global Compact's Think Lab on Just Transition (“Think Lab”). NAB contributed to the Think Lab's work to shape business and thought leadership on critical areas linked to just transition. NAB's 2023 Climate Report2 details our approach to climate change, covering governance, strategy, risk management and metrics and targets.

- Disaster support: When communities where NAB operates are threatened by natural disasters, NAB's Ready Together program provides support to help them withstand the events and recover (refer to page ).

- Financial hardship: NAB is proactively supporting customers with financial hardship assistance (refer to page ).

- Technology, ethics and human rights: AI can improve efficiency and increase customer satisfaction when engaging with banking services. However, given the important role banks play in helping Australians to manage their wealth, it is important that when integrating AI into bank decision-making, it is done ethically and with human rights at the forefront. For this reason, in 2023, NAB partnered with the Australian Human Rights Commission to develop and produce a human rights impact assessment tool for AI-informed decision-making systems in banking. Refer to further detail in the highlighted case study.

Case Study: Assessing the human rights impact of AI

Automation is increasingly becoming a key area for banks, and while technological change can lead to advancements, there are also risks that arise from implementation that need to be well considered and balanced. AI systems have the capability to improve efficiency and increase customer satisfaction when engaging with banking services, and due to the special relationship that banks have with their customers, it is critical to ensure that any decision-making that uses AI systems is made ethically and with consideration to human rights.

The Australian Human Rights Commission ('the Commission') sought to develop a Human Rights Impact Assessment (HRIA) Tool following its publication of recommendations in its Final Report: Human Rights and Technology including that private sector bodies should be encouraged to undertake HRIAs before using AI systems and that tools should be developed to assist them in doing so.

The aim of the HRIA Tool is to assist banks in considering and measuring the risk to human rights posed by AI systems, implement strategies to address those risks and support the availability of remedies for any human rights violations.

The Commission's partnership with NAB provided an opportunity to consult with our data ethics and analysis experts for feedback on the practicality and useability of the questions incorporated into the HRIA Tool. NAB considered it a valuable opportunity to help develop the HRIA Tool as it recognised that it is in both banks' and customers' interests, to ensure that it measures the risk to human rights posed by AI activities and to implement strategies to address those risks.

In order to support development of the HRIA Tool, NAB coordinated input from a cross-functional group of colleagues working in areas including data science, human rights, finance, legal and customer service.

The HRIA Tool builds upon the Commission’s work to develop practical guidance for the ethical use of AI systems for various sectors and businesses.

Traditionally, banks employ a range of risk assessment tools. This tool can be tailored by banks and integrated into their data ethics assessment processes. To date, NAB has included various human rights specific questions into our own data ethics assessment process for review of more general data use cases. Now we will also consider human rights as a part of the risk assessment when considering use of AI tools.

Copies of the Commission's Final Report: Human Rights and Technology and the HRIA Tool are available on the Commission's website at https://humanrights.gov.au.

Modern Slavery

The Group's annual Modern Slavery and Human Trafficking Statements are made available on our website3. Our annual Statement outlines what we have done to manage modern slavery and human trafficking risk in the Group's operations and supply chain. The Group has reported against the UK Modern Slavery Act since 2016, and the Australian Modern Slavery Act since 2020.

Further information on how we coordinate our modern slavery prevention activities across the Group is provided in our annual Modern Slavery Statement. During 2023, key activities included: assessment of modern slavery risks associated with new subsidiaries; improvements to internal guidance for colleagues on our human rights grievance mechanism; and a review of our third-party risk ESG risk assessment processes, which include consideration of human rights and modern slavery.

Building capability

In 2023, modern slavery risk, was included both in annual risk awareness training for colleagues and in annual training on financial crime and AML/CTF. NAB achieved a participation rate of 99.9% for this training.

We also support colleagues with a number of ESG-related checklists and internal guidance notes on a range of topics which incorporate human rights-related considerations, including guidance explaining key elements of our Group Human Rights Policy for colleagues. Our internal ESG risk management intranet site provides resources and links to help bankers understand and identify human rights, including modern slavery risks and impacts.

Participating in industry working groups and initiatives

The Group is a signatory to the Principles for Responsible Banking, Equator Principles and the UN Global Compact, all of which incorporate human rights-related principles or requirements. Engaging in industry working groups and forums enables us to exchange knowledge, learn from peer financial institutions and other corporates and to contribute to industry guidance in relation to human rights and modern slavery.

In 2023, NAB participated in a range of industry working and activities including the following:

- Responsible Investment Association of Australasia Human Rights and First Nations' Rights Working Groups

- Australian Banking Association Modern Slavery Working Group

- UNGC Human Rights Dialogue, where NAB spoke on a panel promoting the concept of a ‘just transition’ and awareness of the broader human rights impacts of climate change, alongside representatives of government and civil society. This work builds on NAB’s partnership with 'Think Lab' (available at www.unglobalcompact.org/take-action/think-labs/just-transition) which has seen the publication of a series of briefings intended to help businesses practically engage with the human rights issues raised by climate change transition and adaptation.

- As part of the Fintel Alliance, NAB contributed to a report titled ‘Combatting the Sexual exploitation of Children for Financial Gain’ published by the Fintel Alliance, AUSTRAC, the Australian Federal Police and the Australian Centre to Counter Child Exploitation. The Report covers new and emerging child exploitation threats facing our customers and the community.

- Clean Energy Council's Risks of Modern Slavery Working Group. Our participation in this working group is providing input into an internal review of modern slavery in the renewable energy sector. Refer to the case study below.

Case Study: Corporate and Institutional Banking – Modern Slavery in the Renewable Energy Sector

Corporate and Institutional Banking has supported renewable energy infrastructure over many years and through application of our ESG risk assessment process potential modern slavery issues have been identified in the solar supply chain. The Clean Energy Council (CEC) in conjunction with Norton Rose Fulbright published a report titled ‘Addressing Modern Slavery in the Clean Energy Sector’ in November 2022 on risks and challenges in the renewables supply chain.

Collaboration is taking place across the renewable energy industry globally. The challenges are complex and will take time to resolve but increasing transparency and willingness of customers to acknowledge issues and implement strategies to reduce and eliminate modern slavery risks will contribute to a just low carbon transition.

In 2023, NAB commenced an in-depth review of modern slavery risk in the renewable energy sector. As part of the review process, NAB has engaged with a number of relevant customers and referred to a range of external guidance, including information provided in the CEC Report and by other international renewable energy industry bodies, advice from NAB’s internal ESG experts and other external sources and experts. Progress to date includes a portfolio review to confirm high risk jurisdictions and activities are correctly identified and engagement with external experts to help identify where we can improve frameworks, guidance and risk management practices. The next step will be to update banker guidance.

1. Salient human rights issues are those human rights that are at risk of the most severe negative impact through the Group’s activities or business relationships.
2. Available at nab.com.au/about-us/social-impact/modern-slavery-statement.
3. Refer to nab.com.au/annualreports.
4. Refer to nab.com.au/about-us/sustainability/reporting-policies-approach/performance-reporting.

# Environmental, Social and Governance (ESG) Risk Management

Managing risk is part of everyone’s role. This is supported by Risk functions, led by the Group Chief Risk Officer (CRO).

Risk Governance

The CEO oversees enterprise-wide risk management through the Enterprise Risk & Compliance Committee (ERCC) and its supporting sub-committees, including the Group Credit and Market Risk Committee (GCMRC). The GCMRC supports the ERCC in its oversight of the Group’s management of Credit Risk, Market Risk and Sustainability Risk and emerging risks and their related financial implications. This includes oversight of:

- ESG-related policies, including those related to human rights and environment1;

- assessment of customer-related ESG risk; and

- ESG-related risk appetite settings. ESG matters are escalated to the ERCC, BRCC and the Board as required.

Sustainability Risk was added as a material risk category2 within the Risk Management Framework in October 2021. The Group defines Sustainability Risk as “the risk that ESG events or conditions negatively impact the risk and return profile, value or reputation of the Group or its customers and suppliers”. Climate, nature, and human rights-related risks are included in consideration of Sustainability Risk, alongside other ESG risks.

#### Figure 2: Summary of ESG Risk management and oversight

The Group's risk frameworks and processes

Effective risk management is fundamental to execution of our strategy and ability to be a safe and secure bank that serves customers well and helps our communities prosper. Managing ESG risk is part of our day-to-day business and it is identified, measured, monitored, reported and overseen in accordance with the Group’s Risk Management Strategy, Framework and reflected in the Risk Appetite Statement (RAS) and relevant supporting policies and management practices.

We manage ESG risk in an integrated manner as part of our processes for managing risks across material risk categories. This is guided by a set of six ESG Risk Principles1 comprising an environmental principle, two social principles and three governance principles. ESG risk assessment is part of the Group's credit risk assessment and supplier risk management due diligence processes, and factors into day-to-day decisions of colleagues.

Additionally, where ESG and associated reputation risk is high, ESG matters are escalated by customer-facing teams for discussion and consideration in business units (Business and Private Banking and Corporate and Institutional Banking) or subsidiary forums (BNZ) involving senior management, executive and other key internal stakeholders including Risk and Corporate Affairs. The Business and Private Banking forum was formalised in 2023.

Management of ESG risk is operationalised through a number of supporting key risk frameworks and systems, including:

- Risk Appetite Framework – risk appetite cascades from the Group RAS, where there are specific ESG-related tolerances, including fossil fuel related limits. The RAS operates in conjunction with divisional Credit Appetite Strategies (CAS) and the Group’s High Risk ESG Sectors and Sensitive Areas list (‘Sensitive Sectors and Areas List’). Our Sensitive Sectors and Areas List helps colleagues working with customers and suppliers know which sectors and activities may have a higher inherent exposure to ESG-related risks. It sets out sectors and activities where we have restricted or no appetite. Key elements of the risk appetite framework (RAS, CAS and the Sensitive Sectors and Areas List - refer to Figure 4) are reviewed and refreshed annually to incorporate emerging and changing ESG risks, including during 2023.

- Group Policy Governance Framework – prescribes the minimum requirements for policies across the Group to support adherence to regulatory and legislative obligations, our strategic ambition, risk appetite, and where relevant, industry or best practices. Specific ESG-related policies include the Group Environmental Management Policy, Group Environmental Reporting and Offset Management Policy, Human Rights Policy, Social Impact Policy, NZBA Policy, Equator Principles Policy, Assessing Customer-related ESG Risk Policy and Environmental Contamination Risk Policy. During 2023, the Equator Principles Policy, Assessing Customer-related ESG Risk Policy and Environmental Contamination Risk Policy were refreshed.

#### Key elements of our risk appetite framework

ESG risk management in lending

The Group considers exposure to risk, including ESG risk, at a lending portfolio and individual customer level.

The Group’s credit risk assessment and due diligence processes include the following steps, appropriate to the relevant sector, business activity and geography:
Origination and internal review

As part of the credit risk assessment and due diligence process, colleagues in both NAB Business Banking and Corporate & Institutional Banking Divisions are required to undertake negative media screening on customers at origination and internal review.

If potential ESG risk issues are identified as part of this risk-based screening, or bankers note a customer's involvement in high-risk sectors or activities, then customers are subject to more detailed ESG risk assessment and due diligence in accordance with exposure-related trigger thresholds, as part of the Group’s origination or ongoing credit review processes.

Evaluation

Detailed credit risk assessment and due diligence is conducted. This includes assessment and identification of material risk issues, incorporating ESG risks. ESG-related checklists and guidance notes on a range of topics and sensitive sectors help guide this activity. This may include assessing a potential customer’s background, character, ESG-related performance and the countries in which they operate.

Where lending is project related, the Equator Principles2 may apply. The Equator Principles are a set of guidelines through which participating banks agree to only finance projects that are managed by the borrower with responsible business practices (both environmental and social) and which meet and comply with the Equator Principles.

In 2023, we reviewed and refreshed our ESG-related guidance, checklists and processes for Corporate & Institutional Banking colleagues as part of a refresh of customer-related ESG risk policies. For BNZ, the ESG guidance has been reviewed and approved, and will be rolled out in 2024.

Approval

Lending approval is only given where risk (including ESG risk where appropriate) has been effectively evaluated, appropriately mitigated and accepted. Where there is high ESG or reputational risk, matters are escalated to the relevant divisional and/or executive forums or committees, Board Risk & Compliance Committee and/or Board as appropriate.

Documentation and settlement

During documentation and settlement, the customer may be subject to conditions and covenants to address legal obligations, any voluntary compliance obligations (for example, the Equator Principles), and/or to monitor and manage specified ESG risks against agreed performance measures. This includes consideration of ESG performance KPIs when sustainability-linked products are involved.

Customer engagement and monitoring

Ongoing customer relationship management includes engagement with customers to discuss their ESG-related performance, issues and initiatives. This engagement helps us to assess customer's ESG performance and to better understand their ESG goals and objectives so we can support them with appropriate products and services and manage ESG and reputation risk that may arise as a result of the customer relationship. It also includes regular review of the customer’s compliance with any agreed conditions and covenants with ESG-related requirements. If there is evidence of systemic non-compliance or material issues, this may result in termination of the relationship.

ESG risk management in sourcing

The conduct and performance of suppliers can have a significant impact on NAB's sustainability as a business, as well as our reputation within communities. We have risk management processes to identify, assess, mitigate and monitor potential risk areas where we could be exposed to ESG risks. The Group Supplier Sustainability Principles set out an expectation that suppliers will, among other things:

- Comply with all relevant local and national laws and regulations, provide transparent and public reporting on their ESG risks and have a process in place to provide timely disclosure to the Group of material ESG matters concerning their organisation.

- Respect human rights and address any infringements or adverse impacts to human rights associated with their business activities.

- Comply with all relevant local and national laws and regulations in relation to environmental protection, management and reporting.

In addition, NAB and BNZ have taken action, where applicable, to reduce the likelihood that we might have an adverse impact on human rights as a consequence of procurement, for example by continuing to purchase Fairtrade certified tea, coffee and cocoa across NAB commercial building tea points and Fairtrade certified coffee across BNZ commercial building tea points.

In 2023, NAB reviewed and refreshed the ESG risk assessment component of its Third-Party Risk Management Module, which is part of our enterprise risk management tool. This supports the ongoing management of supplier-related risks, including ESG risk.

Building ESG risk management capability

We provide frontline colleagues with access to appropriate ESG expertise, information, training and tools as part of our approach to managing ESG risk. An ESG module, which in 2023 included information on modern slavery related risks, is included in annual Risk Awareness training for all colleagues. In 2023, NAB achieved a participant completion rate of 98.6% for Risk Awareness training. In 2024, NAB plans to expand the content and cover general ESG risk, human rights and modern slavery and climate risk.

During 2023, further capability improvement activities were completed to continue to embed ESG risk management practices across the Group, including in relation to climate change. This included:

- Training sessions on a range of topics including climate change, net zero banking, Equator Principles, green and sustainable finance, ESG-related assurance and greenwashing delivered as part of Corporate and Institutional Banking sustainability champions network training program, and refresher training for Corporate and Institutional Banking and Business and Private Banking colleagues on our customer-related ESG Risk policies;

- Training sessions on greenwashing for colleagues in a range of teams including Risk, Corporate Affairs, Marketing, Corporate and Institutional Banking, and the Climate Office;

Participating in voluntary industry initiatives

The Group has voluntarily become a signatory to initiatives that help banks set standards and improve ESG risk management practices. These include the UN Global Compact, the Equator Principles, the PRB and NZBA. Requirements under these initiatives are assigned in the Group's enterprise risk management tool, to ensure we have controls and processes in place to meet any requirements of these initiatives and to track the Group's progress in meeting these requirements.

ESG risk management references

This year, the Group has published its second standalone Climate Report. This contains detailed disclosures aligned to the recommendations of the Taskforce on Climate-related Financial Disclosures. This is available on nab.com.au/annualreports.

The Group's modern slavery statement is provided on nab.com.au/about us/social-impact/modern-slavery-statement.

Refer to Risk Factors on page 97 for further detail on the Group's exposure to Sustainability Risk.

1. The Group's Human Rights Policy, Group Environmental Management Policy and Group Environmental Reporting and Offset Management Policy are available on our website here: Explore policies and resources | Research and insights - NAB available at nab.com.au/about-us/sustainability/reporting-policies-approach/policies-resources.
2. The material risks managed by the Group are: credit risk, operational risk, compliance risk, conduct risk, balance sheet and liquidity risk, market risk, sustainability risk and strategic risk. For more information on these, and other principal risks and uncertainties faced by the Group, refer to Risk Factors on pages to 101.
3. Available on our website nab.com.au/content/dam/nabrwd/documents/reports/corporate/esg-risk-principles.pdf.
4. The Equator Principles are a set of guidelines through which participating banks throughout the world agree to only finance projects that are managed by the borrower with responsible business practices (both environmental and social) and which meet and comply with the Equator Principles.

# Independent limited assurance statement

# Corporate Governance Statement

# Corporate Governance Framework

This Statement describes NAB’s approach to corporate governance and governance practices.

NAB aims to maintain and promote high standards of corporate governance to support strong business performance and retain the trust of shareholders, customers, colleagues, regulators and the community. NAB continually strives to improve its governance, accountability and risk management practices to meet the needs of its business and stakeholders.

NAB's Corporate Governance Framework is based on accountability, delegation and oversight to support sound and prudent decision-making.

As a fundamental element of NAB’s culture and business practices, its Corporate Governance Framework guides effective decision-making in all areas of the Group through:

- Strategic and operational planning.

- Culture, purpose, values and conduct.

- Risk management and compliance.

- Customer outcomes.

- Financial management.

- External reporting.

- People and remuneration.

The following diagram shows the key components of NAB's Corporate Governance Framework. The key functions of the Board and its committees are outlined in this Statement.

NAB follows the 4th edition ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations in this Statement. This Statement has been approved by the Board and is current as at 30 September 2023.

# Board of Directors

Details of NAB directors in office at the date of this report, including each director’s qualifications, experience and other directorships and interests are below.

The Board acknowledges that directors benefit from being involved in a broad range of governance roles provided directors have the capacity to devote sufficient time and effort to fulfil their NAB responsibilities. The Chair, with the assistance of the Nomination & Governance Committee, has determined each director meets this requirement.

Mr Philip Chronican
BCom (Hons), MBA (Dist),GAICD, SF Fin

Term of office: Chair and independent non-executive director. Non-executive director since May 2016 and Chair of the Board and the Board’s Nomination & Governance Committee since November 2019.

Independent: Yes

Industry experience: Philip has more than 40 years of experience in banking and financial services in Australia and New Zealand. Before his retirement from executive roles, Philip was responsible for leading ANZ’s Australian retail and commercial banking business. Prior to that, he had a long career at Westpac, including as the Chief Financial Officer and leading Westpac’s institutional banking business.

During his career as a banking executive, Philip gained deep experience in strategy, business performance, transformation, operations, risk management, capital management, financial reporting, stakeholder engagement, and people and culture. He also gained broad experience in technology, M&A activity and post-merger integration.

Philip has taken an active and public role in advocating for greater transparency and ethics in banking and promoting workforce diversity. Philip has also developed his knowledge and takes a strong interest in climate change and the impact on customers and the economy.

Other business and market experience: Philip started his career as an economist and continues to take a deep interest in domestic and international economics. Through his executive and non-executive career, Philip has had extensive experience in governance practices.

Directorships of other listed entities:

Woolworths Group Limited (since October 2021)

Other relevant interests: Philip’s other interests include The Westmead Institute for Medical Research (Chair) and the National Foundation for Australia-China Relations Advisory Board (Member).

Mr Ross McEwan CBE
BBus

Term of office: Group Chief Executive Officer and Managing Director since December 2019.

Independent: No

Industry experience: Ross has more than 30 years of experience in the financial services industry, spanning banking, insurance and investment. Prior to joining NAB, Ross was Group CEO of the Royal Bank of Scotland (RBS) from 2013 to 2019. Prior to joining RBS, he held executive roles at Commonwealth Bank of Australia, First NZ Capital Securities and National Mutual Life Association of Australasia / AXA New Zealand. From this experience, Ross brings a strong focus on customers, business performance, capital management, technology transformation, risk management, and people and culture to his current role.

Other business and market experience: Ross has deep experience in leading organisations through significant change and recovery.

Other relevant interests: Ross' other interests include Australian Banking Association (Director) and the Financial Markets Foundation for Children (Director).

Mr David Armstrong
BBus, FCA, MAICD

Term of office: Independent non-executive director since August 2014. Chair of the Board's Audit Committee and member of the Board's Risk & Compliance Committee. David will retire at NAB's 2023 AGM in December having served three terms of three years on the Board.

Independent: Yes

Industry experience: David has a deep understanding of banking and capital markets gained throughout his career in professional services, particularly auditing banks and other financial services’ providers. David is deeply experienced in accounting, auditing, financial and regulatory reporting, regulation, risk management, capital management and governance practices.

Other business and market experience: David has more than 30 years of experience in professional services, including as a partner at PricewaterhouseCoopers (PwC). As well as a deep understanding of banking, David gained significant knowledge of real estate and infrastructure industries during his professional services career, as well as international experience in North America, Europe and Asia.

Directorships of other listed entities:

IAG Limited (since September 2021)

Other relevant interests: David’s other interests include The George Institute for Global Health (Chair) and Opera Australia Capital Fund Limited (Director).

Ms Kathryn Fagg AO
FTSE, BE(Hons), MCom
(Hons)

Term of office: Independent non-executive director since December 2019. Member of the Board's Risk & Compliance and People & Remuneration Committees.

Independent: Yes

Industry experience: During her executive career, Kathryn had first-hand banking experience through operational and strategic leadership roles at ANZ. She also served on the Board of the Reserve Bank of Australia.

Other business and market experience: Kathryn has more than 25 years of senior commercial and operational leadership experience in a range of industries, holding executive roles with Linfox Logistics, Bluescope Steel and ANZ.

During her executive career in banking and other industries, Kathryn gained deep experience in strategy, business performance, risk management, customer experience, corporate development, stakeholder engagement, and people and culture, in a variety of jurisdictions across Asia as well as in Australia and New Zealand.

Kathryn has had an active non-executive career across industries including science and innovation, manufacturing, industrials, macroeconomics and public policy, and the investment sector. In these roles, Kathryn has developed strong experience across a broad range of ESG matters.

Directorships of other listed entities:

Djerriwarrh Investments Limited (since May 2014)
Medibank Private Limited (since March 2022)

Former directorships of other listed entities in the past 3 years:

Boral Limited (from September 2014 to July 2021)

Other relevant interests: Kathryn’s other interests include CSIRO (Chair), Breast Cancer Network Australia (Chair), Watertrust Australia Limited (Chair), The Grattan Institute (Director), The Myer Foundation (Director) and Champions of Change Coalition (Director).

Ms Christine Fellowes
BE, MAICD

Term of office: Independent non-executive director since June 2023. Member of the Board's Customer Committee.

Christine will stand for election at the 2023 AGM.

Independent: Yes

Industry experience: Christine has more than 30 years of experience leading businesses across strategy, marketing, product and brand development, operations and profit and loss (P&L), driving digital transformation within multinational organisations in media, communications and technology.

Other business and market experience: Christine has extensive experience in leading growth businesses across regional expansion, strategy, operations and P&L roles for prominent US multinationals in media, entertainment and technology companies in Asia-Pacific. Most recently she served as the Managing Director of the NBCUniversal Global Networks and Direct to Consumer business in Asia-Pacific, overseeing Pay-TV, television and digital services, where she also served on corporate boards. Prior to that, she held leadership positions at Comcast International Media Group, Turner Broadcasting System and Omnicom Group.

Christine has a deep understanding of navigating strategic digital transformation while serving broad customer and community interests. Her expertise lies in strategy development, business performance, customer experience, stakeholder engagement and organisational culture, as well as high competency in data and analytics.

Former directorships of other listed entities in the past 3 years:

VIQ Solutions1 (from 2022 to August 2023)

Other relevant interests: Christine co-founded NINEby9 Pte Ltd, a Singapore based company dedicated to research and advocacy for gender equality in organisations in Asia. As a director of the company, she actively works towards fostering inclusivity and empowering women in the workplace.

Mr Peeyush Gupta AM
BA, MBA, AMP (Harvard)

Term of office: Independent non-executive director since November 2014. Member of the Board's Audit and Risk & Compliance Committees. Peeyush will retire at NAB's 2023 AGM in December having served three terms of three years on the Board.

Independent: Yes

Industry experience: Peeyush has more than 30 years of experience in financial services, with a particular focus on wealth management. Peeyush was a co-founder and the inaugural CEO of IPAC Securities, a wealth management firm spanning financial advice and institutional portfolio management, which was acquired by AXA. During his executive career, Peeyush gained deep experience in strategy, business performance, risk management, fiduciary governance and stakeholder engagement.

Other business and market experience: Peeyush has significant governance experience as a director on a range of listed, government, private and public sector boards throughout his executive and non-executive career.

Directorships of other listed entities:

Link Administration Holdings Limited (Link Group) (since November 2016)
Charter Hall WALE Limited (since May 2016)

Other relevant interests: Peeyush’s other interests include Charter Hall Direct Property Management Limited (Chair), Special Broadcasting Service Corporation (Director), Northern Territory Aboriginal Investment Corporation (Director), Chartered Accountants Australia & New Zealand (Director) and Cancer Council NSW (Director).

Ms Carolyn Kay
LLB, BA, GradDip Management, FAICD

Term of office: Independent non-executive director since July 2023. Member of the Board's Risk & Compliance Committee.

Carolyn will stand for election at the 2023 AGM.

Independent: Yes

Industry experience: Carolyn has more than 30 years’ experience in the financial services sector in executive and non-executive roles. Carolyn was a lawyer and banker whose work history included Morgan Stanley, JP Morgan and Linklaters & Paines in London, New York and Australia. She has held a number of industry related non-executive director roles including Commonwealth Bank of Australia, The Future Fund, Treasury Corporation of Victoria, Victorian Funds Management Corporation and Colonial State Bank.

Other business and market experience: Carolyn has been and remains a non-executive director of enterprises across a broad range of industries. She was previously a Guardian of Australia’s sovereign fund, The Future Fund (2015 to 2023) and a panel member of the Commonwealth Retirement Income Review (2019 to 2020). In the public sector, Carolyn is a member of the Foreign Investment Review Board and in the not-for-profit sector, she is on the board of the General Sir John Monash Foundation and Sydney Grammar School.

During her executive and non-executive careers, Carolyn gained deep experience in banking, governance, risk management, business performance, stakeholder engagement, people and culture, and public policy.

Carolyn was awarded a Centenary Medal for services to Australian society in business leadership.

Directorships of other listed entities:

Scentre Group Limited (since February 2016)

Other relevant interests: Carolyn's other interests include Rothschild & Co Australia (Chair), Myer Family Investments (Director), Foreign Investment Review Board (Member), General Sir John Monash Foundation (Director) and Sydney Grammar School (Trustee).

Ms Alison Kitchen
BA (Hons), FCA, MAICD

Term of office: Independent non-executive director since September 2023. Member of the Board's Audit Committee.

Alison will stand for election at the 2023 AGM.

Independent: Yes

Industry experience: Alison has more than 30 years’ experience in a variety of management and governance roles within the KPMG partnership, as well as serving as lead external audit partner for a range of ASX-listed organisations, including five ASX Top 50 companies with global operations. Alison was the National Chair of KPMG Australia and a member of KPMG’s Global and Regional boards having responsibility for the overall governance and strategic positioning of the firm.

Alison’s experience extends to providing advice in areas including audit, transaction support, risk management, internal controls, business processes and regulatory change to a wide range of industries, including financial services.

Other business and market experience: Alison has worked in geographically diverse and complex operating environments and provided advice to industries including energy, mining, transport and consumer goods, as well as financial services.

Other relevant interests: Alison's other interests include Business Council of Australia (Director and Chair of Macroeconomic Committee) and Australian National University (Council Member and Chair of Audit and Risk Committee).

Ms Anne Loveridge AM
BA (Hons), FCA, GAICD

Term of office: Independent non-executive director since December 2015. Chair of the Board's People & Remuneration Committee and member of the Board's Nomination & Governance and Customer Committees.

Independent: Yes

Industry experience: Anne has a strong understanding of banking and financial services, including in the areas of financial and regulatory reporting, accounting, risk management, change management and governance, gained throughout her career as an audit partner, consultant and non-executive director in this sector.

Other business and market experience: Anne has more than 30 years of experience in professional services, including as Deputy Chair at PwC. During her career as a senior executive and partner, Anne gained deep experience in business performance, client experience, stakeholder engagement, governance, and people and culture. This included a particular focus on business growth and change management, leadership development and succession, performance and reward frameworks and promoting increased diversity.

Directorships of other listed entities:

nib Holdings Limited (since February 2017)
Platinum Asset Management Limited (since September 2016)

Other relevant interests: Anne’s other interests include Destination NSW (Board Member).

Mr Douglas McKay ONZM
BA, AMP (Harvard) CMinstD (NZ)

Term of office: Independent non-executive director since February 2016. Member of the Board's Audit and Customer Committees. Chair and independent non-executive director of BNZ, a major subsidiary of NAB.

Independent: Yes

Industry experience: Doug has gained industry experience as Chair of BNZ since 2016 (and non-executive director since 2013). This has supplemented Doug’s extensive experience in business performance, capital management, risk management and stakeholder engagement with banking context.

Other business and market experience: Doug has more than 30 years of experience in commercial and leadership roles in manufacturing and distribution businesses across Australasia having held CEO and Managing Director positions in major trans-Tasman companies including Lion Nathan, Carter Holt Harvey, Goodman Fielder, Sealord and Independent Liquor. He was the inaugural CEO of the amalgamated Auckland Council. During his executive career, Doug gained deep commercial, business performance, customer, marketing, risk management and stakeholder engagement experience. Doug has private equity experience and a deep understanding of New Zealand and Australian markets.

Directorships of other listed entities:

Fletcher Building Limited2(since September 2018)
Vector Limited (since September 2022, Chair since September 2023)

Former directorships of other listed entities in the past 3 years:

Genesis Energy Limited2 (from June 2014 to September 2022)

Other relevant interests: Doug is a Director of IAG (NZ) Holdings Limited.

Mr Simon McKeon AO
BCom, LLB, FAICD

Term of office: Independent non-executive director since February 2020. Chair of the Board’s Risk & Compliance Committee and member of the Board's Nomination & Governance Committee.

Simon will stand for re-election at the 2023 AGM.

Independent: Yes

Industry experience: Simon has more than 40 years of experience in a wide range of sectors including financial services, law, government and charities. During his executive career, he held investment banking leadership roles within Macquarie Group, including as Executive Chair of its business in Victoria. In his non-executive career, Simon served as AMP Limited Chair (2014-2016) (and non-executive director 2013-2016). Through these roles in the financial services industry, Simon has gained deep experience in strategy, business performance, risk management, legal and regulatory matters, client experience, stakeholder engagement, and people and culture.

Other business and market experience: Simon has broad experience from a range of governance roles in private, public and social sectors. This includes experience gained as former Chair of MYOB Limited, CSIRO, MS Research Australia and a Federal Government Panel that completed a strategic review of health and medical research in 2013.

Simon is an active philanthropist and has contributed over many years to charitable, educational, public health, social housing and other community-based organisations and social causes.

Simon has a strong interest in ESG matters, gained through his broad range of roles and experiences. Simon is the Chair of the Australian Industry Energy Transitions Initiative and was the inaugural President of the Australian Takeovers Panel and the Banking and Finance Oath’s Review Panel.

Directorships of other listed entities:

Rio Tinto Group (since January 2019)

Other relevant interests: Simon’s other interests include Monash University (Chancellor), Greater South East Melbourne (Chair), The Big Issue (Advisory Board Member) and GFG Alliance Australia (Advisory Board Member).

Ms Ann Sherry AO
BA, Grad Dip IR, FAICD, FIPAA

Term of office: Independent non-executive director since November 2017. Chair of the Board's Customer Committee and member of the Board's People & Remuneration Committee. Co-Chair of NAB's Indigenous Advisory Group.

Ann will stand for re-election at the 2023 AGM.

Independent: Yes

Industry experience: Ann had a 12 year banking career at Westpac in senior business and people and culture leadership roles, including as divisional CEO for Westpac New Zealand and Bank of Melbourne, and Group Executive, People & Culture. In these roles, Ann gained deep experience in strategy, business performance, operations, risk management, customer experience, stakeholder engagement, and people and culture, with a strong focus on diversity and inclusion. She also gained broad experience in technology, capital management and marketing. Ann also served as a director on the ING Group Supervisory Board and as a director of ING DIRECT Australia.

Other business and market experience: Ann has significant experience in executive roles within the tourism and transport industries in Australia and New Zealand, as well as in government and public service. She served as CEO and Chair of Carnival Australia, the largest cruise ship operator in Australasia and the South Pacific. Earlier in her career, Ann was First Assistant Secretary of the Office of the Status of Women advising the Prime Minister on policies and programmes to improve the status of women.

Ann is an active philanthropist and has contributed over many years to charitable and social causes. Ann has a deep interest in ESG matters, with particular interests and experience in diversity and Indigenous matters.

Directorships of other listed entities:

Enero Group Limited (Chair since January 2020)

Former directorships of other listed entities in the past 3 years:

Sydney Airport (from May 2014 to March 2022)

Other relevant interests: Ann’s other interests include Queensland University of Technology (Chancellor), UNICEF Australia (Chair), Port of Townsville (Chair) and Queensland Airports Limited (Chair).

1. Listed on TSX and NASDAQ.
2. Dual-listed on the New Zealand and Australian stock exchanges.

# Company Secretaries

The Group Company Secretary provides advice and support to the Board, and is accountable to the Board, through the Chair, for all matters relating to the proper functioning of the Board and its committees. The Group Company Secretary is responsible for advising the Board on governance matters and ensuring compliance with Board and Board committee charters and procedures.

The Group Company Secretary (and assistant company secretaries) are appointed and removed by the Board.

Details of company secretaries of NAB in office at the date of this report and each company secretary’s qualifications and experience are below.

Louise Thomson BBus (Dist), FGIA joined the Group in 2000 and was appointed Group Company Secretary in May 2013. Louise is Secretary to the Board and the Nomination & Governance Committee. She has experience in a wide range of finance, risk, regulatory and governance matters.

Penelope MacRae BA (Hons), LLB (Hons) joined the Group in 2011 as a Senior Corporate Lawyer and was appointed Company Secretary in December 2016. Penny is the Secretary of the Board's Risk & Compliance Committee and is responsible for managing the Group's Executive-level Risk Committees. She has experience in a wide range of corporate, legal, governance, risk and regulatory matters.

Tricia Conte BCom, LLB (Hons) joined the Group in 2006 and was appointed Company Secretary in November 2018. Tricia is the Secretary to the Board Audit Committee. She is a Special Counsel in the Legal team and advises the Group on a wide range of legal, corporate, governance and regulatory matters.

Ricardo Vasquez BSc, LLB, ACIS joined the Group in 2020 and was appointed Company Secretary in March 2021. Mr Vasquez resigned as Company Secretary in July 2023.

# Executive Leadership Team

Executive Leadership Team

Details of NAB's Executive Leadership Team members in office at the date of this report are below.

Ross McEwan CBE
BBus

Refer to the Board of Directors on page for Ross McEwan's biography.

Sharon Cook
BA, LLB (Hons)

Sharon Cook was appointed Group Executive, Legal and Commercial Services in April 2017. She is responsible for Legal, Governance, Regulatory Affairs, Customer Complaints, the Office of the Customer Advocate and Customer Remediation at NAB. Sharon has more than 30 years of experience as a lawyer. For over 8 years before joining NAB, Sharon led major commercial law firms.

Shaun Dooley
BEc, MS

Shaun Dooley was appointed Group Chief Risk Officer in October 2018. Prior to his current role, Shaun was Group Treasurer and he has also led the Institutional Banking, Corporate Finance and Financial Institutions teams. Shaun joined NAB in 1992 as a relationship banker in the Corporate Banking group. Prior to joining NAB, Shaun worked for Chase Manhattan Bank Australia and Elders Finance Group.

David Gall
BSc, BBus, MBA (Exec)

David Gall was appointed Group Executive, Corporate and Institutional Banking in October 2018. David has over 30 years of experience in corporate, business and retail banking, working capital services, risk and payments. Since joining NAB in 2008, David has held executive roles in Corporate Banking and Specialised Business, Global Transaction Banking and Payments, and as Group Chief Risk Officer. Prior to joining NAB, David was a Group Executive of Strategy and Retail Business at St George Bank. David is a Senior Fellow of the Financial Services Institute of Australasia (FINSIA).

Nathan Goonan
BCom, BAgrSc (Hons)

Nathan Goonan was appointed as Group Chief Financial Officer in July 2023. Nathan joined NAB in 2004 before working in investment banking. Since re-joining NAB in 2013, Nathan has held several executive-level roles in corporate strategy and mergers and acquisitions, including Group Executive Strategy and Innovation.

Daniel Huggins
BCom (Hons), MBA, MEM

Daniel Huggins was appointed as BNZ Managing Director and Chief Executive Officer in October 2021. Daniel has 17 years of experience in banking, corporate and financial services. Since joining BNZ in 2020, Daniel held an executive-level role focused on customer, products and services. Prior to joining BNZ, Daniel worked at the Commonwealth Bank of Australia and McKinsey & Company.

Andrew Irvine
BSc Business Management (Hons), MBA

Andrew Irvine was appointed as Group Executive, Business and Private Banking in September 2020. Andrew has 15 years of experience in customer solutions and business banking. Prior to joining NAB, he worked at Bank of Montreal where he was Head of Canadian Business Banking.

Les Matheson
BCom (Hons)

Les Matheson was appointed as Group Chief Operating Officer in January 2021 and was appointed Group Executive, Digital, Data and Chief Operating Officer with effect from 1 November 2023. Les has 26 years of experience in banking and finance across Europe and Asia Pacific. Prior to joining NAB, he was CEO of the Retail Bank at RBS and was also responsible for Ulster Bank in Ireland. Les had a long career with Citigroup, including Chief Country Officer for Australia. He is a Certified Bank Director (The Institute of Bankers UK) and a Fellow of the Chartered Bankers Institute (UK).

Rachel Slade
BEc (Hons)

Rachel Slade was appointed as Group Executive, Personal Banking in April 2020. Rachel has over 20 years of experience in banking. Since joining NAB in 2017, Rachel has held several executive-level roles in deposits and transaction services, and customer experience, and joined the Executive Leadership Team in October 2018. Prior to joining NAB, she held several executive-level positions at Westpac, including in Global Transactional Services and in the Retail and Business divisions. Rachel is a graduate of the Women’s Leadership program at Harvard Business School.

Sarah White

Sarah White was appointed as Group Executive, People & Culture in August 2023. Sarah joined the NAB Executive Leadership Team after more than five years as Chief of Staff to the Group Chief Executive Officer. Prior to that she was Executive General Manager, Talent and Leadership, in addition to a number of other key executive roles in People & Culture. Sarah has extensive experience in business partnering, coaching executives and senior leaders, leading complex change and business transformation.

Patrick Wright
BBA, BMIS

Patrick was appointed to the role of Group Executive, Technology and Enterprise Operations in April 2017. Prior to joining NAB, Patrick was Chief Operations and Technology Officer at Barclaycard and Chief Operations Officer at Barclays Americas. Patrick has more than 30 years of experience in the banking and technology sectors, giving him extensive experience in driving major transformations in large financial services companies.

Former Executive Leadership Team members

Three Executive Leadership Team members retired in the period between 30 September 2023 and the date of this report. They are reported as Key Management Personnel for 2023 in the Remuneration Report.

Susan Ferrier
BA, LLB, MBA

Susan Ferrier was Group Executive, People and Culture from October 2019 to August 2023. Susan has over 30 years of international experience in culture and people strategy across financial services, professional services and technology sectors. Prior to joining NAB, Susan was Global Head of People at KPMG responsible for the global talent strategy and leading teams in Global HR, Global Learning and Development, Global Citizenship and Global Inclusion and Diversity. Susan announced her retirement from the Group in July 2023, effective from 31 October 2023.

Gary Lennon
BEc (Hons)

Gary Lennon was Group Chief Financial Officer from March 2016 to June 2023 and was previously Executive General Manager, Finance and Chief Financial Officer Wholesale Banking. Prior to joining NAB in 2008, Gary spent a combined 18 years in a number of global senior finance executive roles with Deutsche Bank and KPMG. Gary is a Fellow of the Institute of Chartered Accountants. Gary announced his retirement from the Group in March 2023, effective from 1 October 2023.

Angela Mentis
BBus

Angela Mentis was Group Chief Digital, Data and Analytics Officer from October 2021 to October 2023. Angela has over 30 years of banking experience, including as the Managing Director and Chief Executive Officer of BNZ. Angela has also served as NAB’s Chief Customer Officer – Business and Private Banking, and as Group Executive, Business Banking. Angela has held senior positions at BT Financial Group, Westpac and Citibank Limited, after starting at Macquarie Bank. She is a Senior Fellow of FINSIA. Angela announced her retirement from the Group in October 2023, effective from 1 November 2023.

# Corporate Governance Statement

# Board roles and responsibilities

The Board guides the strategic direction of NAB and represents shareholders’ interests by overseeing activities that create sustainable value.

The roles and responsibilities of the Board, including the matters that are specifically reserved to the Board and those delegated to management, are set out in the Board Charter which is available in the Corporate Governance section at nab.com.au/about-us/corporate-governance. Key elements of the Board’s roles and responsibilities are described below.

The Board Charter sets out the specific responsibilities of the Chair. The Chair’s primary responsibility is to lead the Board and oversee the processes used by the Board in performing it's role.

The Board delegates certain powers to Board committees to help it fulfil its roles and responsibilities. Committee roles and responsibilities are set out in the respective charters and Board Committee Operating Rules, which are also available in the Corporate Governance section at nab.com.au/about-us/corporate-governance.

The Board has delegated management of the Company to the Group CEO. Except for any specific powers reserved by the Board, or matters specifically delegated by the Board to others, the Group CEO may make all decisions and take any necessary action to carry out the management of the Group. The Group CEO is accountable to the Board in exercising this delegated authority. The Board Charter also sets out the responsibilities of the Group CEO.

Key element | Board's roles and responsibilities
--- | ---
Leadership and stakeholder focus | Represent shareholders and serve the interests of the Company by overseeing and evaluating the Company’s strategies, performance, frameworks and policies. Ensure that stakeholders are kept informed of the Company’s performance and major developments affecting its state of affairs. Approve the Company’s purpose, values and Code of Conduct to underpin the desired culture within the Company and oversee that the Company’s culture is focused on sound risk management and customer outcomes. Oversee that an appropriate framework exists for relevant information to be reported by management to the Board and whenever required challenge management and hold it to account. With the guidance of the Customer Committee, oversee the importance given to the voice of the customer and the focus on customer outcomes.
Strategy and performance | Guide the strategic direction of the Company and monitor the execution of strategies and business performance to oversee that sustainable value is being built for shareholders. This includes business unit strategies and strategies for critical enablers such as technology, digital, data and analytics, and human capital. Make decisions concerning capital structure and dividend policy. Approve major capital expenditure and other major business initiatives.
External reporting | With the guidance of the Audit Committee, review and approve the Group's annual and half yearly financial statements, other sections of the Annual Report and any reports that accompany them, including the Climate Report. With the guidance of the Audit Committee, review management processes aimed at ensuring the integrity of financial, regulatory and other corporate reporting.
Risk management | With the guidance of the Risk & Compliance Committee, satisfy itself that the Group has in place an appropriate Risk Management Framework for financial and non-financial risks by overseeing related frameworks and internal compliance and control systems. This includes risk management related to financial crime, technology, information security, cyber resilience and sustainability, including environmental and human rights risks.
Remuneration | With the guidance of the People & Remuneration Committee, review and approve the Group’s remuneration framework including remuneration policy and satisfy itself that the remuneration framework and outcomes are aligned with the Company’s purpose, values, strategic objectives and risk appetite.
Appointment and succession planning | Appoint a Group CEO and Managing Director and approve key executive appointments. Monitor and review executive succession planning. With the guidance of the Nomination & Governance Committee, plan for Board renewal, appoint non-executive directors to the Board and select a Chair.

# Key Board activities

# Key Board activities in 2023

- Strategy and business performance – The Board remains focused on creating sustainable shareholder value. At each major Board meeting, the Board received reports on business performance and execution of the Group’s strategy to monitor progress. The Board periodically received reports on execution of strategies at a business unit level to understand operating context, as well as specific strategic initiatives, such as business acquisitions and integration, digital, data and analytics and technology plans. The Board also reviewed and approved the Group’s corporate plan, after having several sessions with management on strategy development.

- Technology - The Board remains focused on technology as a critical enabler of NAB’s business. At each major Board meeting, the Board received reports from the Group Executive, Technology & Enterprise Operations, as well as updates on the execution of NAB’s technology strategy. The Board undertook a study tour focused on core banking modernisation, payments, cyber security and innovation, and participated in workshops with external experts and management on a range of technology-related topics, including cyber resilience, information security, external technology developments, data fundamentals and generative AI.

- Financial and capital management – The Board remains focused on business momentum, supporting customers and driving growth, which requires prudent balance sheet and capital management. The Board received regular reports on financial performance, capital, funding and liquidity. The Board approved the 2022 full year and 2023 half year financial reports, the 2022 final and 2023 interim dividends, the capital management strategy and on-market buy-back programs. The Board also participated in workshops on capital adequacy and stress testing, balance sheet risk management, capital and credit provisioning and discussed lessons from bank failures in other geographies.

- Risk management – The Board remains focused on risk management, governance, accountability and culture. This focus requires strong risk governance and an effective Risk Management Framework operated by management. The Board received regular reports from the Group Chief Risk Officer on financial and non-financial risks, including emerging risks and issues, and from the Group Money Laundering Reporting Officer on financial crime risk. The Board approved the risk management strategy, the risk appetite statement and policies for managing financial and non-financial risks. The management of financial crime risks, cyber and technology risks, and environmental and social risks were areas of focus, as well as emerging risks related to the economic and geopolitical environment and climate vulnerability.

- People and culture – The Board remains focused on engaged, capable colleagues who are aligned to the Group’s values, purpose and strategy. The Board received regular reports from the Group Executive, People and Culture on people-related matters, including progress in the execution of the colleague strategy and achieving NAB’s target culture, and health, safety and wellbeing. The Board held workshops on leadership and succession planning and met with a range of senior leaders in formal and informal settings. The Board approved scorecards and performance outcomes for the Group CEO, Group Executives and certain other senior executives. The Board also approved the Group Performance Indicators used for the Group Variable Reward Plan and determined the final outcome.

- Customers – The Board and directors met with customers and customer advocates (internal and external) throughout the year to hear their feedback and perspectives. The Board also focused on matters impacting customers, including customer vulnerability, scams, servicing experience, cyber risks, integration of acquisitions, digital customer experience, product governance, compliance with product and conduct obligations and customer remediation. The Board met with the Australian Financial Complaints Authority to obtain feedback and share perspectives on priorities and industry risks and issues.

- Environmental and social – The Board debated and reviewed the Group’s decarbonisation targets to meet NAB's Net Zero Banking Alliance commitment, after investing time in education on climate change transition. The Chair and Group CEO met customers to hear about their approach to climate transition. The Board also met with external experts to deepen the Board’s understanding of Indigenous affairs, including NAB's Reconciliation Action Plan and the Voice to Parliament. The Board discussed human rights issues, approved the Modern Slavery Statement and received updates on the Group’s social impact program and NAB Foundation.

- Regulatory and stakeholder engagement – The Board remains focused on maintaining solid relationships with regulators and other stakeholders. The Board received regular reports on regulatory engagement, government engagement, key legal and regulatory matters, and trust and reputation. The Board met with the Group’s main regulators throughout the year to obtain feedback and share perspectives on priorities, industry risks and issues, and reform. The Group's Enforceable Undertaking with AUSTRAC was a key area of focus.

# Board meetings

Board meetings are an essential part of corporate governance at NAB. They are the main way for the Board to have oversight of the Group’s strategy and performance and allow the Board to set expectations of management. The Board approves its calendar of meetings two years in advance to ensure that directors can attend meetings. The Board has six major multi-day meetings each year, which include committee meetings and strategy sessions, as well as other minor meetings during the year for specific purposes. Out-of-cycle Board meetings are convened as needed for time-critical matters.

The Board’s priorities and responsibilities drive comprehensive planning and agenda-setting for meetings. The agenda forward planner is set at the start of the year and regularly updated to reflect priorities. The forward planner is the key framework for Board reporting and is used to balance time allocated to strategic and business topics, as well as regulatory and legal obligations. Recurring agenda items include business performance, strategy execution and development, capital management, financial reporting, risk management, people and culture, regulatory and other stakeholder engagement and ESG matters. Unstructured time is also factored into Board meetings and there is flexibility for ad hoc matters to be raised. Meetings with NAB’s main regulators are also planned at the start of the year. Agendas are reviewed by the Chair, in consultation with the Group CEO. The same approach is adopted for forward planning and agenda-setting for each of the Board’s Committees, which are reviewed by respective Chairs in consultation with the relevant Group Executive.

Attendance at meetings

Details of director attendance at Board and committee meetings in 2023 are set out below.

All directors receive copies of agendas, papers and minutes of committee meetings to help ensure they have equal access to that information regardless of whether they are appointed to a particular committee. All directors may attend committee meetings even if they are not a member of a committee. The table below excludes the attendance of directors at committee meetings where they were not a committee member.

|  | Board meetings12 | Audit Committee meetings | Risk & Compliance Committee meetings | People & Remuneration Committee meetings | Customer Committee meetings | Nomination & Governance Committee meetings
--- | --- | --- | --- | --- | --- | --- | ---
|  | Attended / Held | Attended / Held | Attended / Held | Attended / Held | Attended / Held | Attended / Held
Current directors |  |  |  |  |  |  |
Phil Chronican |  | 10/10 | - | - | - | - | 6/6
Ross McEwan |  | 10/10 | - | - | - | - | -
David Armstrong |  | 10/10 | 5/5 | 6/6 | - | - | -
Kathryn Fagg3 |  | 10/10 | 2/2 | 6/6 | 6/6 | - | -
Christine Fellowes4 |  | 3/3 | - |  | - | 2/2 | -
Peeyush Gupta3 |  | 10/10 | 3/3 | 6/6 | 2/2 | - | -
Carolyn Kay5 |  | 2/2 | - | 2/2 | - | - | -
Alison Kitchen6 |  | - | - | - | - | - | -
Anne Loveridge7 |  | 10/10 | - | - | 7/8 | 5/5 | 6/6
Doug McKay |  | 10/10 | 5/5 | - | - | 5/5 | -
Simon McKeon |  | 10/10 | - | 6/6 | - | - | 6/6
Ann Sherry |  | 10/10 | - | - | 8/8 | 5/5 | -

1. There were six major Board meetings and four minor Board meetings scheduled in the Board’s calendar for 2023. No Board meetings were convened outside of the scheduled Board calendar.
2. Several workshops were held for the Board and Committees during 2023. As these were held as part of a scheduled Board program, workshops are not shown as additional meetings in the table above.
3. Ms Fagg and Mr Gupta switched their Audit Committee and People & Remuneration Committee memberships in March 2023 and attended all meetings of those Committees while a member.
4. Ms Fellowes joined the Board on 5 June 2023 and attended all Board and relevant Committee meetings held after that date.
5. Ms Kay joined the Board on 31 July 2023 and attended all Board and relevant Committee meetings held after that date.
6. Ms Kitchen joined the Board on 27 September 2023. No Board or relevant Committee meetings were held between that date and 30 September 2023.
7. Ms Loveridge attended all People & Remuneration Committee meetings scheduled in the Board's calendar for 2023. She was unable to attend one out-of-cycle Committee meeting convened at short notice. The Board Chair attended the Committee meeting on her behalf.

# Board composition, diversity and performance

# Board composition

Composition of the Board is informed by a number of factors, including the following key principles:

- The Board will be of an appropriate size to allow efficient decision making.

- The Board must consist of a majority of independent non-executive directors.

- The Board should consist of directors with a broad range of skills, experience and expertise, and different facets of diversity, including gender.

- The Chair must be an independent non-executive director and must not have been a NAB executive or the Group CEO in the previous three years.

Further detail about directors’ independence is on page .

NAB has a Group Fit and Proper and BEAR Suitability Policy that addresses the requirements of APRA Prudential Standard CPS 520 Fit and Proper and supports compliance with the obligations of the BEAR.

This Policy requires an annual assessment of the directors, certain members of senior management and responsible auditors, including a determination of whether they have the appropriate competence, character, diligence, honesty, integrity and judgement to perform their role.

The Board, with the assistance of the Nomination & Governance Committee, has reviewed and taken into consideration the existing workload of directors and concluded that each director has sufficient capacity to undertake the duties expected of a director of NAB.

As a Board vacancy approaches, the Nomination & Governance Committee assesses the skills and experience required, which informs the identification of suitable candidates. The most suitable candidate is appointed by the Board after appropriate checks are undertaken, including assessment in accordance with the Group Fit and Proper and BEAR Suitability Policy, and is subject to election by shareholders at the next AGM.

The key terms and conditions of a director’s appointment are formally documented in a letter of appointment. This process was followed for all directors on the Board.

Newly appointed directors must stand for election by shareholders at the next AGM. In addition, the NAB Constitution requires that at each AGM, non-executive directors who have held office for at least three years without re-election, or beyond the third AGM following their appointment or last election (whichever is longer) must retire from office and are eligible to stand for re-election.

Before each AGM, the Board assesses the performance of each director due to stand for election or re-election and decides whether to recommend to shareholders that they vote in favour of the election or re-election of each relevant director. Further detail on NAB’s directors is provided on pages to .

# Board renewal

During the year, after consulting with the Board, the Nomination & Governance Committee reviewed the three-year Board renewal strategy and plans. This included reviewing the highest priority skills to bring on to the Board over the short and medium-term, considering a current vacancy and anticipated retirements at the end of 2023. The three highest priority areas of deep competency for future director appointments were: transformation, digital, technology, data and analytics; banking; and financial reporting and accounting. The Nomination & Governance Committee and the Board aim to identify, select and nominate candidates who are able to contribute broadly in the boardroom, not only in areas of deep competency, and who add different facets of diversity to the Board.

Working with an external recruitment consultant, the Nomination & Governance Committee reviewed candidate profiles and met with candidates. During 2023, the Nomination & Governance Committee nominated three candidates to the Board, and the Board appointed Christine Fellowes, Carolyn Kay and Alison Kitchen as non-executive directors. The three new directors will stand for election by shareholders at the next AGM, as required under NAB’s Constitution. Further detail on NAB’s directors is provided on pages to .

Two directors, David Armstrong and Peeyush Gupta, will stand down from the Board following the 2023 AGM, having completed three terms of three years.

Re-election and election of directors in 2023

In 2023, the Board has recommended in the AGM Notice of Meeting that shareholders re-elect Simon McKeon for his second three-year term on the Board and Ann Sherry for her third term. The Board has also recommended that shareholders elect Christine Fellowes, Carolyn Kay and Alison Kitchen to the Board for their first three-year terms. The Board has provided shareholders with all material information that is relevant to a decision whether or not to re-elect and elect those directors in the AGM Notice of Meeting. Further detail on NAB's directors is provided on pages to .

# Skills matrix

Each year NAB assesses the skills and experience of each director and combined capabilities of the Board. The insights from this assessment are documented in a skills matrix that is:

- Considered in the context of NAB’s business and its strategic needs.

- Incorporated into Board succession planning and the selection of new directors.

- Used to inform areas of focus for the Board’s continuing education and use of external expertise.

To prepare the skills matrix, each director rates their skills, expertise and experience against several competency areas that are then mapped to the skills matrix. The self-assessment ratings and skills matrix are reviewed and calibrated by the Nomination & Governance Committee on behalf of the Board.

The skills matrix presented here demonstrates alignment of the Board’s responsibilities with the current mix of skills on the Board.

With the addition of new directors in 2023, the Board believes the current mix of skills, experience and expertise of directors (as shown on the skills matrix) provides a diverse range of views and perspectives for the effective governance, oversight and strategic leadership of NAB. The Board also invested in continuing education throughout 2023 to continue to develop directors’ competencies in the following key areas:

- Digital and technology topics – Cyber resilience; information security; core banking modernisation; data foundations; digital assets; generative AI; and innovation in payments and cyber security technologies. This included a Board study tour and meeting with external experts on these topics.

- Environmental and social topics – Climate transition (risks, opportunities, transition opportunities, target setting methodologies and practices) and Indigenous matters. This included meeting with external experts on these topics.

- Risk management in banking – balance sheet risk management; capital adequacy and stress testing; capital and credit impairment provisioning; lessons from bank failures in other geographies; financial crime risk management; crisis management; cyber resilience; information security; and BEAR scenarios.

- People-related topics – Succession planning; health and safety; and concepts from NAB’s Distinctive Leadership Program.

- Stakeholders – Investor, customer, regulatory and government perspectives. This included meetings with representatives from each of these areas to hear and discuss their perspectives.

Skills and experience | Explanation | Collective
--- | --- | ---
Banking and financial services experience | Experience outside NAB in significant components of the financial services industry, including banking and equity and debt capital markets. Strong knowledge of the regulatory environment. Includes advisory roles to the industry. | 95
Leadership and commercial acumen | Skills gained while performing at a senior executive level for a considerable length of time. Includes delivering superior results, running complex businesses, leading complex projects and issues, and leading workplace culture. | 85
Financial acumen | Good understanding of financial statements and drivers of financial performance for a business of significant size, including ability to assess the effectiveness of financial controls. | 83
Customer outcomes | Experience in delivering customer outcomes and deepening relationships in customer segments. | 80
Risk management | Experience in anticipating and evaluating financial and non-financial risks that could impact the business. Recognising and managing these risks by developing sound risk management frameworks and providing oversight. Includes experience in managing compliance risks and regulatory relationships, as well as an understanding of cyber resilience and technology risks. | 90
Strategy | Experience in developing, setting and executing strategic direction. Experience in driving growth and transformation and executing against a clear strategy. | 80
Governance | Publicly listed company experience, extensive experience in and commitment to the highest standards of governance, experience in the establishment and oversight of governance frameworks, policies and processes. | 90
Digital and technology | Experience in oversight of technology for businesses of a significant scale and implementing business transformations through the use of technology, including digital, data and analytics, and innovation. | 50
People and remuneration | Experience in building workforce capability, setting a remuneration framework that attracts and retains a high calibre of executives, and promotion of diversity and inclusion. | 65
Environmental and social | Understanding potential risks and opportunities from an environmental and social perspective. | 55

# Board tenure and gender statistics1

Board tenure | %
--- | ---
0-3 years | 27.0
3-6 years | 27.0
6-9 years | 46.0

Board gender diversity | %
--- | ---
Female | 54.5
Male | 45.5

# Board performance

Directors comprehensively prepare for, attend and participate in Board and committee meetings.

The Board recognises the importance of continuously monitoring and improving its performance and that of its committees. Under their respective charters, the Board and committees are required to assess their performance annually, which was undertaken during the year. An independent external performance evaluation of the Board and its committees is conducted every three years, or as otherwise determined by the Board. An independent external performance evaluation was last undertaken in 2022.

The results of the internal assessments undertaken in 2023 were that the Board and each of its committees continue to operate effectively. In the spirit of continuous improvement, the Board agreed actions to further improve its effectiveness, which are focused in the following areas: improving oversight of execution of technology and digital strategies; continuing to apply discipline to remain focused on the Board's priorities; and supporting directors through a period of Board renewal.

Directors’ individual performance is also assessed annually. Each director participated in an individual performance interview with the Chair in 2023.

# Responsible remuneration

The Board continues to monitor NAB’s executive and Group remuneration frameworks to ensure they reinforce our focus on customers, align with sustainable shareholder value and are informed by risk, reputation, conduct and values outcomes.

A decision in 2023 to change the executive remuneration framework with effect from 1 October 2023 was approved by the Board. The change reflects the requirements under APRA Prudential Standard CPS 511 Remuneration. The changes made were to:

- Incorporate materially weighted non-financial measures (being individual risk management and conduct) into long-term variable reward to maintain a strong focus on individual conduct and management of financial and non-financial risks.

- Increase the deferral period applicable to long-term variable reward to align Executives with the shareholder experience and encourage a focus on delivering sustainable long-term value.

- Review the risk management and conduct framework to enable the Board to apply adjustment mechanisms to ensure remuneration outcomes are commensurate with performance and risk outcomes over the long-term.

The Board considers these changes provide an appropriate and fair remuneration framework to NAB's Executive Leadership Team while supporting the Group’s purpose, strategic objectives and risk appetite and reflect the expectations of customers, regulators and shareholders. Detailed information about the executive remuneration framework changes effective from 1 October 2023 is provided in the Remuneration Report.

The colleague remuneration framework was reviewed to ensure alignment to APRA Prudential Standard CPS 511 Remuneration requirements. As a result, modifications were made to the Group’s specialist incentive plans to provide appropriate non-financial performance measures (being individual risk management and conduct assessments), effective from 1 October 2023. As a result of the changes, all of NAB's incentive plans comply with APRA Prudential Standard CPS 511 Remuneration and continue to support the Group’s strategic objectives and risk appetite.

The Group successfully renegotiated the new Enterprise Agreement (EA) in 2023. The new EA provides certainty about pay and benefits, providing an average Fixed Reward increase of 4.5% to eligible colleagues in January 2024, and ongoing guaranteed increases in January 2025 and January 2026.

Progress has also been made on other key colleague initiatives including colleague learning and other enhancements to the employee value proposition offered by NAB including the performance framework and other benefits available to colleagues.

Further detail about NAB’s executive and colleague remuneration frameworks, including NAB’s policies and practices regarding the remuneration of non-executive directors, the Group CEO, Group Executives and other colleagues, is set out in the Remuneration Report.

# Shareholder engagement

NAB values open, timely and transparent communication and engages with shareholders and investors in many ways including:

- Providing shareholders options on how they choose the receive communications (electronically or by post).

- Sending electronic communications, such as open letters and publications from the Chair and the Group CEO on key developments and matters of interest.

- Providing information about NAB on its website, including in relation to the Group’s policies and governance practices and media releases.

- Directly responding to shareholder enquiries by email, phone and post.

- Periodic trading updates, financial results and reports, ASX announcements, investor presentations and briefings (all of which are available in the Shareholder Centre section at nab.com.au/shareholder).

- In situations when the Group hosts an analyst and investor presentation including interim and end of financial year results, supporting materials are released on the ASX Market Announcement Platform ahead of the presentation commencing.

- Webcasting of significant market briefings and meetings, including the AGM.

- The Chair, Group CEO, Group CFO and other senior executives meet with domestic and offshore institutional investors throughout the year.

NAB also engages directly with investment analysts, proxy advisors and the Australian Shareholders’ Association.

NAB’s 2023 AGM will be conducted as a hybrid meeting. Shareholders will have the opportunity to view presentations, ask questions and submit votes at the physical meeting or online during the AGM.

As in prior years, NAB will again invite shareholders to submit questions in advance of the 2023 AGM, to help NAB understand and address areas of interest or concern.

Each substantive resolution considered at the AGM will be conducted by a poll. The Board considers that voting by a poll is in the interests of shareholders as a whole and ensures that the views of as many shareholders as possible are represented at the AGM. Shareholders unable to attend the hybrid AGM are encouraged to vote in advance of the meeting.

Shareholders can contact NAB or the NAB Share Registry at any time, by mail, telephone, email or via the Computershare Investor Centre. More than half of NAB’s shareholders have elected to communicate with NAB and Computershare electronically.

# Colleague engagement

In 2023, the Board participated in a number of events with NAB colleagues, including:

- Meetings with specific teams to learn about their day-to-day work and areas of subject matter expertise.

- Meetings with senior leaders, which allowed directors to experience the culture and capability of leaders.

- Site visits and events with colleagues to listen to customers and support them with their needs.

# Director induction and continuing education

Three new directors were appointed to the Board in 2023. Each new director is provided with an orientation program that includes discussions with management, and briefings and workshops on NAB’s:

- Major lines of business.

- Strategic and financial plans.

- Risk management strategy, frameworks, compliance programs and significant risk management matters, including cyber and financial crime risk management.

- Financial statements, including significant financial and accounting matters.

- NAB’s performance management structure.

- Internal and external audit programs.

- Purpose, values and Code of Conduct.

- Key policies and external commitments, such as decarbonisation targets.

- Directors’ rights, duties and responsibilities.

Continuing education is provided for the Board through a combination of internal and external presentations, workshops with management, site visits and study tours. Directors are also expected to keep up to date on topical issues in their own time.

For further detail on the Board's continuing education in 2023, refer to the skills matrix on page .

# Directors' independence

All NAB directors are expected to bring independent and unfettered judgement to Board deliberations.

To qualify as independent, a director must be independent of management and free of any business, personal or other association that could materially interfere with (or reasonably be perceived to materially interfere with) the director’s exercise of independent and unfettered judgement with respect to issues before the Board, and to act in the best interests of NAB and its shareholders.

The Board conducts annual reviews of the independence of each of the directors. Directors are expected to provide information as and when changes occur, and each non-executive director is required to make an annual disclosure to the Board of all relevant information.

A register of directors’ material interests is maintained and periodically reviewed by each director.

If a director is involved with another company or firm that may have dealings with NAB, those dealings must be at arm’s length and on normal commercial terms.

Director tenure is a factor considered by the Board in assessing the independence of a director but is not determinative. As a guide, most directors would not stand for re-election after serving nine years on the Board, however, the Board may determine that a director continues to bring valuable expertise, independent judgement and the ability to act in the best interests of NAB beyond that period. The overall tenure profile of the Board is also a relevant factor.

In considering the independence of each director, the Board considers the factors outlined in the 4th edition ASX Corporate Governance Principles and Recommendations. The Board has determined for 2023 that all non-executive directors identified on pages to are independent and that the Board consisted of a majority of independent directors.

To further assist in ensuring that the Board operates independently of management, non-executive directors meet in the absence of management at most scheduled Board and committee meetings.

# Conflicts of interest

Under Australian law, directors have a duty to avoid conflicts of interest.

The NAB Conflicts of Interest Policy and the NAB Constitution establish clear rules, controls and guidance regarding the management of actual, potential or perceived conflicts of interest.

Directors are expected to avoid any action, position or interest that conflicts or appears to conflict with an interest of NAB. This is a matter for ongoing and active consideration by all directors, and any director who has a material personal interest in a matter relating to NAB’s affairs must notify the Board.

If a potential conflict of interest arises, NAB’s corporate governance standards dictate that the director concerned does not receive copies of the relevant Board papers and is not present at meetings while such matters are considered. In this way, the director takes no part in discussions and exercises no influence over the other members of the Board. If a significant conflict of interest with a director exists and cannot be resolved, the director is expected to tender his or her resignation.

For more information, please refer to the Corporate Governance section of nab.com.au.

# Access to management and independent professional advice

The Board and its committees have free and unfettered access to senior management, and any other relevant internal or external party and information, and may make any enquiries to fulfil their responsibilities.

The Board Charter and Board Committee Operating Rules clearly state that the Board or its committees may engage external consultants and experts as required, and written guidelines entitle each director to seek independent professional advice at NAB’s expense, with the prior approval of the Chair. The Board can conduct or direct any investigation to fulfil its responsibilities and can retain, at NAB’s expense, any legal, accounting or other services that it considers necessary from time to time to fulfil its duties.

# Director and executive shareholding requirements

To align with shareholders’ interests, the Board has adopted a policy that within five years of appointment, non-executive directors must hold ordinary shares equal in value of the annual Chair fee for the Chair and base fee for all other non-executive directors.

The value of a non-executive director’s shareholding is based on the share price at the time shares were acquired.

Other than the three new directors, non-executive directors have met their minimum shareholding requirement.

Newly appointed non-executive directors are expected to acquire shares each year until the minimum requirement is met by the end of year 5.

Minimum shareholding requirements for the Executive Leadership Team are:

- Group CEO: two times fixed remuneration.

- Group Executives: one times fixed remuneration.

Newly appointed Executive Leadership Team members are required to satisfy the minimum shareholding requirement within a five-year period from the date of commencement in their role.

The Group CEO and other Group Executives have met, or are on track to meet their minimum shareholding requirement.

Details of non-executive director and Executive Leadership Teams’ NAB shareholding requirements are set out in the Remuneration Report.

# Board committees

# Nomination & Governance Committee

Committee purpose | 2023 areas of focus | Relevant information
--- | --- | ---
Supports the Board on composition and governance matters. | Board composition and skills: assessing the necessary and desirable skills and competencies of the Board and Chair, and of the committees and committee chairs, as well as making recommendations on continuing education and development for the Board and directors. Nominations: with the assistance of an external recruitment consultant, identifying potential director candidates and making recommendations to the Board on the selection and re-election of directors. Governance: reviewing corporate governance principles and policies. | Must have a minimum of three independent non-executive directors. The Chair of the Board is Committee Chair. 2023 Members: Philip Chronican (Committee Chair) Anne Loveridge Simon McKeon

# Audit Committee

Committee purpose | 2023 areas of focus | Relevant information
--- | --- | ---
Supports the Board with overseeing the integrity of accounting and financial statements and the financial, regulatory and corporate reporting processes of the Group, the Internal Audit function, the external auditor, and the Group Whistleblower Protection Policy and Program. | Financial statements: overseeing the integrity of the Group’s accounting and financial statements, including compliance with accounting standards and policies. Reporting: overseeing the integrity of the Group's financial, regulatory and corporate reporting processes. Audit results: reviewing key internal and external audit findings and insights. Auditor performance and independence: overseeing the performance and independence of Internal Audit and the external auditor, including review of the adequacy of internal and external audit plans and resourcing. Whistleblower Program: overseeing the effectiveness of the Group Whistleblower Protection Policy and Program including material matters being investigated, key themes and trends. | Must have a minimum of three independent non- executive directors. Has a member who also sits on the Risk & Compliance Committee. Has members who are financially literate and at least one member with appropriate accounting or financial expertise. 2023 Members: David Armstrong (Committee Chair) Doug McKay Kathryn Fagg (until February 2023) Peeyush Gupta (from March 2023) Alison Kitchen (from September 2023) The Group Chief Financial Officer (CFO), Executive, Internal Audit and senior executives of the Group’s external auditor, EY, attended all eligible Committee meetings. The Group Deputy CFO attended the majority of eligible Committee meetings.

# People & Remuneration Committee

Committee purpose | 2023 areas of focus | Relevant information
--- | --- | ---
Supports the Board in discharging its responsibilities relating to people and remuneration strategies, policies and practices of the Group. The committee undertakes these activities with the objective that they align with and enable the overall Group Strategy and support the Group’s purpose, values, strategic objectives and risk appetite (while not rewarding conduct or behaviours that are contrary to these aims). | Strategy execution: monitoring the impact from, and the embedding of, key elements of the Colleague Strategy, including leadership, talent development, succession and engagement. Remuneration governance: monitoring how remuneration and performance frameworks (including consequence management) are applied across the Group, particularly ensuring effective connections between risk management and remuneration outcomes. Monitoring the implementation of APRA Prudential Standard CPS 511 (Remuneration) and the finalisation of the new Enterprise Agreement, in particular, their impact on NAB's people and remuneration strategies, policies and frameworks. Executive performance: evaluating individual executive performance in the context of Group performance at least twice each reporting period, and recommending to the Board the fixed remuneration and variable reward outcomes for the Group CEO, Group Executives and certain other senior executives. Information on the process for evaluating executive performance is set out in the Remuneration Report. Group performance and variable reward: considering Group performance for 2023 (with the assistance of other Board committees) and making a Group Performance Indicator (GPI) recommendation to the Board for the Group Variable Reward Plan. | Must have a minimum of three independent non-executive directors. Has a member who also sits on the Risk & Compliance Committee. 2023 Members: Anne Loveridge (Committee Chair) Ann Sherry Peeyush Gupta (until February 2023) Kathryn Fagg (from March 2023) The Board Chair, the Group CEO, and the Group Chief Risk Officer (CRO) attended all eligible Committee meetings. The Group Executive, People & Culture and the Executive, Internal Audit attended the majority of eligible Committee meetings.

# Risk & Compliance Committee

Committee purpose | 2023 areas of focus | Relevant information
--- | --- | ---
Supports the Board with oversight of the Group’s risk profile, Risk Management Framework (covering financial, non-financial and emerging risks), material risks, risk mitigation practices, adherence to Board approved risk appetite and internal compliance and control systems, while guiding management’s promotion and maintenance of a risk-based culture. | Risk appetite: reviewing and overseeing the Group and NAB Risk Appetite Statement and Risk Management Strategy, covering existing and emerging financial and non-financial risks. Risk management: reviewed the Board’s annual Risk Management Declaration to APRA for the year ended 30 September 2022 and overseeing management’s progress in addressing matters identified in that Declaration. Material risk updates: overseeing key material risk categories, including: Credit risk; Balance Sheet & Liquidity risk; Market risk; Operational risk; Compliance risk; Conduct risk; and Sustainability risk. The Board has retained direct oversight of Strategic risk. Compliance culture: continued focus on regulatory and legislative requirements and the controls and compliance environment to monitor adherence and shortcomings. Controls environment: continued review of the health and transformation of controls. Audit matters: reviewing key internal audit findings and insights, including monitoring management’s response to matters raised. Technology: reviewing updates relating to the technology risk profile, technology resilience, technology currency debt, and cyber risks. External environment: reviewing regular updates on credit, market and liquidity conditions and the impact of external conditions on certain portfolios. Capital and liquidity: continued emphasis on monitoring and reviewing the level of capital and liquidity held by the Group. | Must have a minimum of three independent non- executive directors. Has members who also sit on the Audit Committee and People & Remuneration Committee. 2023 Members: Simon McKeon (Committee Chair) David Armstrong Kathryn Fagg Peeyush Gupta Carolyn Kay (from July 2023) The Group CRO, Group CFO, Executive, Internal Audit and senior executives of the Group’s external auditor, EY, attended all eligible Committee meetings. The Board Chair and the Group CEO attended the majority of meetings.

# Customer Committee

Committee purpose | 2023 areas of focus | Relevant information
--- | --- | ---
Supports the Board with overseeing the importance given to the voice of the customer and the focus on customer outcomes at NAB. | Customer outcomes: monitoring NAB’s response to scams and support for customers experiencing vulnerability . Product governance: monitoring NAB’s adherence to the ASIC Design & Distribution Obligations and product simplification progress. Customer complaints: monitoring NAB’s complaint capture, handling and themes. Customer remediation: reviewing and evaluating management reports on both banking and wealth remediation programs. Customer Advocates: reviewing reports from the Customer Advocate Banking on advocacy and insights to deliver fair outcomes for NAB customers that align with community expectations. | Must have a minimum of three independent non-executive directors. 2023 Members: Ann Sherry (Committee Chair) Doug McKay Anne Loveridge Christine Fellowes (from June 2023) The Group Executive, Legal and Commercial Services attended the majority of the meetings.

# Subsidiary boards

NAB has a number of subsidiary companies. The activities of each subsidiary company in the Group are overseen by that company’s own board of directors. The Board’s confidence in the activities of its controlled entities stems from the quality of the directors on those subsidiary boards and their commitment to NAB’s objectives. NAB has one significant subsidiary, BNZ. The Chair of the BNZ Board is Doug McKay who is also a NAB director. NAB directors have a standing invitation to attend board meetings of BNZ to develop a broader understanding of its operations.

The Group's subsidiary governance framework sets out the corporate governance requirements for subsidiaries operating within the Group environment including different roles and responsibilities of subsidiaries, their boards and management.

# How We Work

# Governance, conduct and culture

The Board approves NAB’s purpose, values and Code of Conduct to underpin the desired culture within NAB’s business and oversees the establishment by management of a culture that is focused on sound risk management and customer outcomes. NAB's refreshed strategy, released in 2020, clearly stated why NAB is here: to serve customers well and help our communities prosper.

# NAB values and culture

NAB updated its company values in 2020 in conjunction with a refresh of its Strategy. These values, known as How We Work, identify the core elements of behaviour expected of colleagues for NAB to deliver its strategy and clearly articulate its target culture.

The below articulation of “what we do” and “what we don’t do” provides guidance for all colleagues to understand the standards expected at NAB. How We Work is the basis of NAB’s Code of Conduct and integrated into its performance management framework. To strengthen NAB's commitment to service delivery and serving its customers well, the "excellence for customers" value was updated in 2023.

How We Work has been approved by the Board and is summarised below.

To achieve NAB's target culture, the Colleague Strategy was established to deliver the goal of having trusted professionals who are proud to be a part of NAB. NAB's strategic aspirations include:

# Talented professionals who shape the future of banking

NAB fosters diverse, market-leading banking professionals and attracts, develops and retains top talent. NAB empowers colleagues to learn and grow, build digital and data capabilities and pursue exciting career opportunities.

# Distinctive leaders who inspire performance

NAB builds clear, capable and motivated leaders who drive positive change and connect colleagues to why NAB is here: to serve customers well and help our communities prosper. NAB people leaders create a winning environment and celebrate the successes and contributions of all.

# Empowered colleagues who are motivated

NAB cares deeply about customers and is passionate about exceptional service and executional excellence. NAB focuses on top priorities, works with flexibility and pace, and colleagues are rewarded fairly for strong performance.

# Inclusive culture we can be proud of

NAB aims for an agile, progressive and accountable culture where colleagues role model How We Work and collaborate to accelerate decision-making and customer outcomes.

NAB has a continued focus on improving its culture and risk culture, underpinned by its culture and risk culture framework which is based on How We Work. NAB’s culture and risk culture framework has evolved in maturity over time, with the goal of having an approach that is best in class. Progress is reported to the Board twice yearly and measurement uses data including colleague engagement Heartbeat surveys, objective performance metrics, operating model effectiveness assessments and independent expert review. The varied data inputs provide a holistic and integrated assessment and bring meaningful insights to inform management action on culture and risk culture.

NAB's Inclusion and Diversity Policy is available in the Corporate Governance section of nab.com.au. Information about NAB's measurable objectives is located in the Inclusion and diversity section of this report.

# Conduct

NAB has a suite of policies and practices to promote a culture of honesty and ethical behaviour. Policy compliance is monitored and consequence management procedures exist for policy breaches. Senior leaders are accountable for performance against risk and conduct measures.

NAB's Code of Conduct

NAB’s Code of Conduct (the Code) was revised in 2020 and approved by the Board.

The Code outlines what is expected of directors, leaders, colleagues and contractors who perform services on NAB’s behalf.

The Code captures NAB’s legal obligations and an expectation to act ethically and responsibly towards customers, colleagues and communities. The Code emphasises How We Work, and the key policies and guidelines which must be followed to achieve expected outcomes. There is a strong emphasis on speaking up about concerns and a guide to ethical decision making.

The Code is supported by a renewed approach to conduct and consequence management. Each business and enabling unit has established professional standards forums to review or note breaches of the Code at least quarterly, taking action to set the tone and reinforce NAB’s standards of conduct and culture. Any material breaches or conduct that is materially inconsistent with the expected outcomes in the Code are reported to the People & Remuneration Committee.

NAB’s Code of Conduct is available in the Corporate
Governance section at nab.com.au/about-us/corporate governance.

# Banking Executive Accountability Regime (BEAR)

For the purposes of BEAR, NAB has registered certain individuals (the directors, Group Executives, Executive Internal Audit and Executive Group Money Laundering Reporting Officer) as ‘Accountable Persons’ with APRA. NAB undertakes appropriate checks before appointing executives or putting someone forward for election as a director.

NAB’s implementation of BEAR continues to strengthen and clarify its accountability structures and practices. This helps to ensure clearer delegation and decision-making processes.

All NAB Accountable Persons have a letter of appointment (in the case of directors) or written employment agreement (in the case of executives), which governs the terms of their appointment, as well as a detailed BEAR Accountability Statement which is lodged with APRA.

On 5th September, the Commonwealth Parliament passed the Financial Accountability Regime Bill (FAR). FAR will replace BEAR and expands upon the obligations imposed on NAB and its Accountable Persons under BEAR. FAR will come into force for NAB on 15 March 2024.

# Escalation and whistleblower protection

The Group Whistleblower Protection Policy and Whistleblower Program reflects NAB’s ambition for an environment where colleagues feel safe and empowered to speak up about wrongdoing.

NAB encourages colleagues to raise concerns about wrongdoing including conduct that may be illegal, unacceptable or improper.

By speaking up, colleagues help to identify and address wrongdoing as early as possible ensuring NAB's focus is on getting the basics right and serving customers well.

The Group Whistleblower Program provides confidential channels for colleagues (current and former colleagues, officers, contractors and/or suppliers) to raise concerns, including through FairCall, an independently monitored external hotline service operated by KPMG.

The Group Whistleblower Protection Policy provides information on the support and protection available to whistleblowers, how matters will be investigated and reinforces NAB's zero tolerance for any act of reprisal against those who speak up.

The Program has been established as an independent function with direct escalation and reporting lines to the Board’s Audit Committee via NAB’s Group Whistleblower Committee.

The Group Whistleblower Protection Policy is available in the Corporate Governance section at nab.com.au

# Anti-bribery and corruption policy

The Group is committed to preventing financial crime and takes a zero-tolerance approach to bribery and corruption. This is reflected in the Group’s Anti-Bribery and Corruption (ABC) Policy and Framework as well as the Group’s dedication to acting:

- Honestly, with integrity and upholding the highest ethical standards in its global activities.

- In compliance with all applicable anti-bribery and corruption laws in all jurisdictions in which the Group operates.

The prohibition against bribery and corruption in the ABC Policy applies to NAB’s entities, colleagues and all agents, contractors and other third parties acting for or on behalf of the Group. The Group strictly prohibits bribery in any form (including facilitation payments). The ABC Policy includes additional requirements around gifts and entertainment involving government officials which require approvals regardless of value. The ABC Policy is supplemented by supporting procedures which define minimum standards for compliance with the ABC Policy. Material breaches of the ABC Policy are reported to the Board by the Group CRO. NAB is a Cornerstone Member of Transparency International Australia, a member of the Bribery Prevention Network and is a signatory to the UN Global Compact, pledging to work against corruption in all its forms.

The Group’s ABC Policy is available in the Corporate Governance section at nab.com.au.

# Group disclosure and external communication policy

The Corporations Act 2001 (Cth) and the ASX Listing Rules require that, subject to certain exceptions, once NAB becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of NAB securities (‘market sensitive information’), NAB will immediately disclose that information to the ASX and where applicable, to other relevant stock exchanges.

NAB manages compliance with its continuous disclosure obligations through its Group Disclosure and External Communications Policy and associated guidance notes. NAB’s Disclosure Committee, comprised of senior executives, has primary responsibility regarding NAB’s disclosure obligations. Potentially disclosable matters are promptly referred to the Disclosure Committee for assessment and determination. NAB operates a strict decision-making regime to enable it to monitor compliance with its disclosure obligations.

All members of the ELT are responsible for ensuring their teams adhere to the Policy and for liaising directly with the Group Executive, Legal and Commercial Services or the General Counsel Corporate on any potentially disclosable matters. Routine administrative ASX announcements are made by the Group Company Secretary without reference to the Disclosure Committee.

Where appropriate, the Board is consulted on disclosures of utmost significance and all announcements of major matters require consideration and approval by the Board.

The Board receives copies of all material market announcements promptly after they have been made.

The Group Disclosure and External Communications Policy is available in the Corporate Governance section at nab.com.au/about-us/corporate governance.

# Restrictions on trading in NAB securities

NAB’s Group Securities Trading Policy and associated guidance notes explain the law and the policy for its colleagues to comply with when trading in NAB securities.

NAB has black-out periods prior to the release of the Group’s financial results during which colleagues must not trade in NAB securities. In addition, ad hoc restrictions may be imposed on all, or individually identified, colleagues from time to time when there is a heightened risk of those colleagues coming into contact with market sensitive information.

All NAB colleagues are prohibited from using derivatives or otherwise entering into hedging arrangements in relation to elements of their remuneration that are unvested.

In addition, members of key management personnel and their closely related parties are prohibited from using derivatives or otherwise entering into hedging arrangements in relation to elements of their remuneration that are unvested or which have vested but remain subject to forfeiture conditions.

For more detail, refer to the Remuneration Report.

The Group Securities Trading Policy is available in the Corporate Governance section at nab.com.au/about-us/corporate governance.

# Group political contributions policy

Since 2016, NAB has not made donations to any political party, parliamentarian, elected official or candidate for political office. From time to time, NAB representatives may pay to attend political events and business forums hosted by major political parties. Any payments for event attendance received by political parties will be included in the Australian Electoral Commission register. For detail on NAB’s approach to engaging on public policy, including further information on political contributions, see the Stakeholder Engagement section on page .

NAB considers its Group Political Contributions Policy every two years. The Group Political Contributions Policy is available in the Corporate Governance section at nab.com.au/about-us/corporate governance.

# Modern slavery and human trafficking statement

The Group provides an annual Modern Slavery and Human Trafficking Statement. From 2020, this statement has been pursuant to both the Modern Slavery Act 2015 (UK) and the Modern Slavery Act 2018 (Cth). Consideration of modern slavery is incorporated into the Group Human Rights Policy and relevant risk management practices and processes applicable to the Group’s customer and third-party relationships. This includes: (i) management of sustainability risk (incorporating modern slavery and human trafficking risk), within the Group's material supply chain relationships; (ii) banker identification and reporting of potential modern slavery and human trafficking concerns and Financial Crime team monitoring and investigation of human impact crimes; and (iii) consideration of modern slavery and human trafficking risk in ESG risk assessments conducted as part of customer credit risk assessment and due diligence processes, where applicable.

The Group's Human Rights Policy is available in the Human rights approach section at nab.com.au/content/dam/nabrwd/documents/policy/corporate/human-rights-policy.pdf.

The Group's Modern Slavery and Human Trafficking Statement is available in the Sustainability performance and reporting section at nab.com.au/about-us/social-impact/modern-slavery-statement.

# Assurance and control

For the Board to determine that the Group's financial statements and disclosures are complete and accurate, it reviews information provided by management. Independent and objective assurance is provided by the Group’s external auditor, EY, on the audited financial report.

External Audit

Throughout 2023, NAB’s external auditor was EY. The Audit Committee is responsible for the appointment, evaluation, management and removal of the external auditor, and the approval of the external auditor’s annual fees (subject to shareholder approval where required). The Audit Committee oversees EY’s responsibilities and regularly meets with EY to review the adequacy of the external audit arrangements with emphasis on effectiveness, performance and independence. This includes an annual review of the external audit plan.

To foster open communication and to facilitate appropriate matters coming to the attention of the Audit Committee, the Group CEO, Group CFO, Deputy Group CFO, Group CRO, Group Executive Legal & Commercial Services, Executive General Counsel Corporate, Executive Internal Audit, and the lead External Audit Partner all have direct and unfettered access to the Audit Committee.

NAB does not employ or appoint to the Board, Group or any subsidiary board or management body, any current or former partner, principal, shareholder or professional employee of the external auditor or their family members, if to do so would impair the auditor’s independence.

The Audit Committee has adopted a Group External Auditor Independence Policy that requires pre-approval of any services proposed to be provided by the external auditor to ensure that independence is maintained. The Audit Committee delegates authority to the Group CFO and Deputy Group CFO to approve those services where the expected cost of the service is less than $200,000 (excluding local taxes). Services over $200,000 (excluding local taxes) require the approval by the Chair of the Audit Committee as the Audit Committee delegated authority. The exercise of any such delegation is reported to the Audit Committee at least biannually.

The Group External Auditor Independence Policy defines audit-related and taxation-related services and stipulates that certain services are entirely prohibited from being provided by the external auditor to ensure the independence of the external auditor is maintained. Non-audit services are permitted where the service meets auditor independence requirements with the approval by the Chair of the Audit Committee.

Unless the Audit Committee approves otherwise, fees paid for the provision of audit-related, taxation-related and non-audit services must not exceed fees paid for audit services in any year. Details of the services provided by the external auditor to the Group and the fees paid or payable for such services are set out in the Note 34 Remuneration of external auditor in the Financial Report.

Legislation requires the rotation of the external audit senior personnel who are significantly involved in NAB’s audit after five successive years, including the Lead Partner.

The external auditor attends the AGM and is available to answer shareholder questions regarding the conduct of the audit and the content of the audit report.

Periodic corporate reports

The Annual Report, Climate Report, Investor Presentations, Quarterly Trading Updates, Full Year Results Management Discussion and Analysis and Pillar 3 Report form the suite of the Group’s periodic corporate reports.

Each report is subject to the Group’s risk management and internal control systems. Assurance over risk management and internal control systems is achieved through assessments of the effectiveness of controls.

The integrity of the Group’s periodic corporate reports is underpinned by structures and processes within the Group functions that support areas of judgement, validation of information and the maintenance of proper records for all information.

The Group’s reporting policies incorporate Australian and international regulatory, legislative and prudential requirements. The Group's Enterprise Reporting Assurance team verify and check information across the suite of the Group’s periodic corporate reports. Group Executives and subject matter experts certify the information pertaining to their area of responsibility is materially complete and not materially misleading by statement or omission.

The level of external assurance provided on the suite of the Group’s periodic corporate reports is disclosed by the external auditor in their reports presented in NAB’s 2023 Annual Report and by KPMG in their reports available on NAB's website over a selection of climate-related measures and disclosures presented in NAB's 2023 Climate Report.

Where there is no external assurance provided, management’s assurance procedures are considered adequate by the Audit Committee for ensuring the Group’s periodic corporate reports are materially accurate, balanced and provide investors with appropriate information to make informed decisions.

Internal Audit

The role of Internal Audit is to provide independent assurance on the adequacy and effectiveness of NAB’s Risk Management Framework. Internal Audit forms the third line of risk accountability in NAB’s Risk Management Framework.

The Executive, Internal Audit needs to be suitably qualified for the role.

A recommendation on the appointment, performance and dismissal of the Executive, Internal Audit is made by the Audit Committee to the Board. The Audit Committee monitors the activities and performance of Internal Audit and assesses whether it remains independent of management and is adequately resourced and funded.

Internal Audit has a direct reporting line to the Chair of the Audit Committee and informal reporting lines to the Group CEO and Group CFO.

As well as reporting regularly to the Audit Committee, the Executive, Internal Audit provides regular reports to the Board’s Risk & Compliance Committee on risk and control matters and attends People & Remuneration Committee meetings to provide insights on conduct and culture matters.

Both the External and Internal Audit functions have full and unrestricted access to all colleagues, records and systems as necessary to undertake their activities.

# Compliance with ASX corporate governance recommendations

This statement has been approved by the Board of National Australia Bank Limited (Board) and is current as at 30 September 2023.

NAB's Appendix 4G (a checklist that cross references the disclosures in this Statement to the ASX Corporate Governance Principles and Recommendations) is available in the Corporate Governance section of nab.com.au.

Before publication of NAB's 2023 Annual Report, the Board received a joint declaration from the Group CEO and the Group CFO that:

- In their opinion the financial records of NAB have been properly maintained in accordance with the Corporations Act 2001 (Cth).

- In their opinion the financial statements and notes comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the Group.

- Their opinion was formed based on a sound system of risk management and internal control which is operating effectively.

# Risk management

# Risk management overview

Risk is the potential for harm and is inherent in NAB's business. The Group's ability to manage risk effectively is critical to being a safe and secure bank that can serve customers well and help our communities prosper. This is achieved through the Risk Management Framework, documented in the Risk Management Strategy.

Risk Management Framework

The Risk Management Framework (RMF) consists of systems, structures, policies, processes and people within the Group that manage material risks.

Material risks are those that could have a material impact, both financial and/or non-financial, on the Group or on the interests of customers. The Group's material risks are categorised as: strategic risk, credit risk, market risk, balance sheet and liquidity risk, operational risk, compliance risk, conduct risk and sustainability risk.

The Group applies a ‘Three Lines of Accountability’ operating model in relation to the management of risk. The overarching principle of the model is that risk management capability must be embedded within the business to be effective.

The role of each line is:

- First Line – Businesses own risks and obligations, and the controls and mitigation strategies that help manage them.

- Second Line – A functionally segregated Risk function develops risk management frameworks, defines risk boundaries, provides objective review and challenge regarding the effectiveness of risk management within the first line businesses, and executes specific risk management activities where a functional segregation of duties and/or specific risk capability is required.

- Third Line – An independent Internal Audit function reporting to the Board monitors the end-to-end effectiveness of risk management and compliance with the RMF.

Risk governance refers to the formal structure used to support risk-based decision-making and oversight across the Group's operations. This consists of the Board, Board committees and management committees, delegations of authority for decision-making, management structures and related reporting. The risk governance structure increases transparency and the sharing of insights, guidance and challenge to support each BEAR Accountable Person1 in their decision-making when discharging their individual accountabilities. The Group CRO report highlights risk appetite measures, along with commentary when triggers and limit thresholds are exceeded. It is discussed at each scheduled meeting of the Executive Risk & Compliance Committee, the Board Risk & Compliance Committee and the Board. It is also provided to those bodies between scheduled meetings when it is timely or appropriate to do so.

The Risk Appetite Statement is a key component of our RMF and sets out boundaries so that the Group operates within acceptable levels of risk and in compliance with obligations and commitments.

The updated Risk Management Strategy (RMS) and RAS were approved by the Board in early October 2022 and submitted to APRA. The Board also makes an annual Risk Management Declaration (RMD) to APRA for NAB, confirming that NAB has a RMF that is appropriate for the size, business mix and complexity of the Group, and which is consistent with the Group’s strategic objectives and business plan, in accordance with the requirements of APRA Prudential Standard CPS 220 Risk Management. This RMD is currently being undertaken within the time frame permitted.

Environmental, Social and Governance (ESG) Risk Management

ESG risks are identified, measured, monitored, reported and overseen in accordance with the Group’s RMS and RMF and reflected in the Group RAS and relevant supporting divisional credit appetite strategies, ESG-related policies and management practices. Executive management’s Group Credit & Market Risk Committee oversees Sustainability risk, which is defined as ESG risk and includes climate and human rights-related risk, as a significant part of the Group's exposure to these risks is through lending to customers.

The Group's climate change disclosures align with TCFD recommendations. In 2023, TCFD disclosures continue to be provided in a standalone Climate Report, alongside a summary in this Report on page .

The Group's modern slavery statement is available on nab.com.au/about-us/social-impact/modern-slavery-statement.

Updates on ESG risk are provided to the Executive Risk & Compliance Committee, Board Risk & Compliance Committee and Board as appropriate. Further information on the Group’s material exposures to ESG risks is set out in ‘Disclosure on risk factors’. Further detail on how the Group manages risks presented by climate change within its Risk Management Framework can be found in the Group's 2023 Climate Report.

1. For the purposes of BEAR, NAB has registered certain individuals (the directors, Group Executives, Executive Internal Audit and Executive Group Money Laundering Reporting Officer) as ‘Accountable Persons’ with APRA.

# Risk factors

Disclosure on risk factors
Risks specific to the Group

Set out below are the principal risks and uncertainties associated with the Company and its controlled entities (Group). It is not possible to determine the likelihood of these risks occurring with any certainty.

However, the risk in each category that the Company considers most material is listed first, based on the information available at the date of this Report and the Company’s best assessment of the likelihood of each risk occurring and the potential magnitude of the negative impact to the Group should such risk materialise. In the event that one or more of these risks materialises, the Group’s reputation, strategy, business, operations, financial condition, and future performance could be materially and adversely impacted.

The Group’s Risk Management Framework and internal controls may not be adequate or effective in accurately identifying, evaluating, or addressing risks faced by the Group. There may be other risks that are unknown or deemed immaterial, but which may subsequently become known or material. These may individually, or in aggregate, adversely impact the Group. Accordingly, no assurances or guarantees of future performance, profitability, distributions or returns of capital are given by the Group.

Strategic risk

Strategic risk is the risk to earnings, capital, liquidity, funding, or reputation arising from an inadequate response to changes in the external environment and risk of failing to properly consider downstream impacts and achieve effective outcomes when executing material change programs.

Strategic initiatives may fail to be executed, may not deliver all anticipated benefits, or may otherwise change the Group’s risk profile.

The Group’s corporate strategy sets its purpose, ambition, and objectives.

The Group prioritises and invests significant resources in the execution of initiatives that are aligned to its chosen strategy, including transformation and change programs. These programs primarily focus on customers, technology, digital and data assets, infrastructure, business improvement, cultural transformation, regulatory compliance, and changes to associated controls, and may have dependencies on external suppliers or partners. There is a risk that these programs may not realise some or all of their anticipated benefits and outcomes. These programs may also increase operational, compliance, and other risks, and new or existing risks may not be appropriately assessed or controlled.

The Group’s strategy includes Environmental, Social or Governance (ESG) related initiatives, including a climate strategy and various obligations, targets and goals. Setting and achieving the Group’s sector decarbonisation targets and managing risks including climate change related financial risks and ESG-related risks are influenced by the Group’s customers, policy makers, the emerging ESG-related regulatory and disclosure environment and other stakeholders.

Any failure by the Group to deliver in accordance with its strategy, or to deliver strategic programs effectively, may result in material losses to the Group, reputational damage, or a failure to achieve anticipated benefits, and ultimately, may materially and adversely impact the Group’s operations and financial performance and position.

The Group faces a rapidly changing external environment.

The Group operates in a dynamic macro-economic environment. The impact of slowing global and domestic economic growth, rising unemployment and interest rates, and falling consumer confidence can reduce demand for credit, adversely impacting Group revenue. In addition, Group expense plans may be at risk if inflation does not normalise in line with expectations, particularly with respect to employee remuneration and technology costs.

There is also substantial competition across the markets in which the Group operates. The Group faces competition from established financial services providers and other parties, including foreign banks and non-bank competitors, such as fintechs, Buy Now Pay Later (BNPL) providers, digital platforms and large global technology companies, some of which have lower costs, or operating and business models, technology platforms or products that differ from or are more competitive than the Group’s and some of which are subject to less regulatory oversight. In particular, there are some financial services providers focused on the business banking segment with investment in improved customer experiences. This poses a risk to the Group’s position in that segment.

In addition, evolving industry trends, technology changes, and environmental factors have impacted, and may continue to impact customer needs and preferences and the Group may not predict these changes accurately or quickly enough, or have the resources and flexibility to adapt in sufficient time, to meet customer expectations and keep pace with competitors. These risks are heightened in the current context in which technologies, including those that may impact the financial services industry, continue to evolve at a rapid pace.

Other trends and recent regulatory and legislative developments that may impact the Group include, but are not limited to:

- Increased focus on digital, data and analytics capabilities with the objective of creating easy and seamless customer experiences. The rapid development and deployment of artificial intelligence (AI) capabilities has emerged as a key strategic consideration. Inadequate or lack of adoption of AI within business processes could pose a strategic disadvantage to the Group relative to its competitors who deploy AI tools and could result in unwanted financial and non-financial consequences for the Group. AI regulation is developing globally and its impact on the Group’s business is currently unknown.

- Increased demand for green or sustainability-related products or increased lending to assist customers in achieving their ESG-related performance objectives, for example, sustainability-linked loans, or, correspondingly, increased scrutiny of products or lending that are perceived to be inconsistent with the ESG-related performance objectives of the Group or its stakeholders.

- Continued competitive pressures in home lending, particularly as customers of the Group revert to variable rate loans as fixed rate periods expire on loans entered into at historically low rates in recent years. This increases the risk that customers will refinance outside the Group.

- Increased competition for customer deposits in the context of an uncertain market and elevated interest rate environment, with the risk of further increases to the Group’s cost of funds relative to its competitors.

- Ongoing growth of the broker market and the risk of disintermediating customer relationships.

- The continued implementation of the Consumer Data Right (CDR), known as ‘Open Banking’, in the Australian banking sector. The CDR seeks to increase competition and innovation between service providers by mandating and standardising the sharing of certain consumer and business customer data and data relating to their products and services. In response to the 2022 Statutory Review of the CDR recommendations proposed by the Australian Treasury, the Australian Government committed funding in its 2023-24 budget over the next two years to support the CDR to maturity in banking and energy, progress its expansion to non‑bank lending, progress the design of action initiation, deliver cyber security enhancements, and develop a trust brand strategy that will support consumer confidence in the CDR. Where large global technology companies choose to participate in the CDR, there is potential for these companies to access more data which may increase their competitiveness including in other sectors, such as financial services.

- The New Zealand (NZ) Government’s decision to establish a CDR in NZ and for banking to be the first sector designated under the legislation. An exposure draft of the Customer and Product Data Bill was released in June 2023 for industry feedback. The adoption of Open Banking in NZ is designed to increase competition in the NZ banking industry, and may increase compliance costs for established institutions, including Bank of New Zealand (BNZ) and may limit BNZ’s ability to charge for access to payments or data.

- The evolving and increasingly complex payments landscape, including increasing use of digital payments, new payments infrastructures and emerging technology, and shift away from traditional payment methods. To this end, the Australian Government is consulting on proposed changes to the Payments Systems (Regulation) Act 1998 to address new payments-related risks following the release of its Strategic Plan for Australia’s Payments System in June 2023.

- The Reserve Bank of Australia (RBA) proposes to enhance the competitiveness, efficiency and safety of Australia’s debit card market, including expectations for tokenisation of payment cards and storage of primary account numbers in the Australian market. AusPayNet is working with the industry to meet the RBA’s expectations including developing more specific tokenisation standards, if required. Standardisation of tokenised dual network debit cards will improve portability for both scheme and proprietary tokens to reduce the friction for merchants that wish to switch payment service providers.

- The continued consumer and institutional adoption of cryptocurrencies and other digital assets. The rate of digital asset adoption, digital asset product creation (for example, stable coins and decentralised finance) and government responses are expected to influence the future of the sector and its impact on the Group. The RBA has completed a research project exploring central bank digital currency (CBDC) use cases and identified legal, regulatory, technical and operational issues warranting further consideration in future research. The RBA’s review of these matters remains ongoing. As part of its multi-stage reform agenda, the Australian Government recently completed consultations on token mapping and on the licensing of payment service providers to help formulate an appropriate regulatory framework for the crypto and digital assets ecosystem in Australia. A draft Digital Assets (Market Regulation) Bill 2023 was referred to the Senate Economics Legislation Committee which recommended the bill not be passed. Regulation of digital assets is nascent, but emerging, across all markets in which the Group operates, which may increase the Group’s costs, or require the Group to invest in resources to adapt its products or systems to new technologies. The release of Basel Committee’s final Prudential Treatment of Crypto-asset Exposures in December 2022 is expected to provide the basis for the development by the Australian Prudential Regulation Authority (APRA) of its prudential standard in this area. APRA has announced it will consult on the prudential treatment for crypto-assets in 2024, which is expected to come into effect in 2025.

- The commencement of a market study into competition for personal banking services in NZ by the NZ Commerce Commission. The NZ Commerce Commission’s final report, which will set out its findings on factors that may affect competition in personal banking, including bank profitability, and any recommendations, is due to be released in August 2024.

Competition for customers, which remains heightened in the current interest rate environment, can lead to compression in profit margins and loss of market share. Intense competition increases the risk of additional price pressure, especially in commoditised lines of business, such as mortgages, where the providers with the lowest unit cost may gain market share and industry profit pools may be eroded. Such factors may ultimately impact the Group’s financial performance and position, profitability and returns to investors.

Risks may arise from pursuing acquisitions and divestments.

The Group regularly considers a range of corporate opportunities, including acquisitions, divestments, joint ventures, and investments.

Pursuit of corporate opportunities inherently involves transaction risks, including the risk that the Group over-values an acquisition or investment, or under-values a divestment, as well as exposure to reputational damage or regulatory intervention. The Group may encounter difficulties in integrating or separating businesses, including failure to realise expected synergies, disruption to operations, diversion of management resources, or higher than expected costs. These risks and difficulties may ultimately have an adverse impact on the Group’s financial performance and position.

The Group may incur unexpected financial losses following an acquisition, joint venture, or investment if the business it invests in does not perform as planned or causes unanticipated changes to the Group’s risk profile. Additionally, there can be no assurance that customers, employees, suppliers, counterparties, and other relevant stakeholders will remain with an acquired business following the transaction, and any failure to retain such stakeholders may have an adverse impact on the Group’s overall financial performance and position.

Risks related to the Company’s acquisition of Citigroup’s Australian consumer business which completed on 1 June 2022 continue to exist.

The Company continues to rely on Citigroup’s regional shared technology infrastructure for transitional services (and will do so through the transition period), as well as Citigroup’s support for data migration activities after the development of technology systems within the Group. There is a risk that as the integration project and the development of technology systems within the Group continues, costs may be higher than anticipated, more internal resourcing is required than anticipated, or that key employees, customers, suppliers, or other stakeholders required for a successful transition, will not be retained. Additionally, there is a risk that the timeline for the integration is extended, which may result in further costs being incurred by the Company.

Citigroup has provided the Company with indemnities relating to certain matters which may have occurred pre-completion, as well as covenants and warranties in favour of the Company. There is a risk that these protections may be insufficient to fully cover liabilities relating to these matters, which may have an adverse impact on the Group’s financial performance and position.

The Group may also have ongoing exposures to divested businesses, including through a residual shareholding, the provision of continued services and infrastructure, or an agreement to retain certain liabilities of the divested businesses through warranties and indemnities. These ongoing exposures may have an adverse impact on the Group’s business and financial performance and position. The Group may also enter into non-compete arrangements as part of divestments, which may limit the future operations of the Group.

The Company completed the sale of its advice, platforms, superannuation and investments and asset management businesses to IOOF Holdings in May 2021, now named Insignia Financial (MLC Wealth Transaction). As part of the MLC Wealth Transaction, the Company provided Insignia Financial with indemnities relating to certain pre-completion matters, including a remediation program relating to workplace superannuation matters, breaches of anti-money laundering laws and regulations, regulatory fines and penalties, and certain litigation and regulatory investigations. The Company also provided covenants and warranties in favour of Insignia Financial. A breach or triggering of these contractual protections may result in the Company being liable to Insignia Financial.

As part of the MLC Wealth Transaction, the Company retained the companies that operated the advice businesses, such that the Group has retained all liabilities associated with the conduct of these businesses pre-completion. From completion, the Company has agreed to provide Insignia Financial with certain transitional services and continuing access to records, as well as support for data migration activities. The Company may be liable to Insignia Financial if it fails to perform its obligations. There is a risk that costs associated with separation activities and the costs incurred by the Company in satisfying its obligations may be higher than anticipated. If so, or if the Company fails to perform its obligations, there may be an adverse impact on the Group’s financial performance and position.

On 17 November 2022, the Company announced its intention to exit its custody business, NAB Asset Servicing. The exit is expected to be effected through the transfer of all of NAB Asset Servicing’s clients to alternative custody providers over a period of approximately three years. The transfer of all clients over a relatively short period is a complex exercise that is subject to operational/transitional risks that will need to be managed carefully. There is a risk that this does not occur to plan, and that there may be a potential adverse impact on the Group if not managed appropriately.

Credit risk

Credit risk is the risk that a customer will fail to meet their obligations to the Group in accordance with agreed terms. Credit risk arises from both the Group’s lending activities and markets and trading activities.

Elevated interest rates to combat persistent inflation may result in deterioration in the Group's credit risk profile in the short term through increases in defaulted loans.

Globally, central banks (including in Australia and NZ) have rapidly increased policy rates in response to elevated levels of inflation.

Inflation remains high and above the targets of many central banks, including those in the locations in which the Group operates. This may increase the risks arising from further rate rises in 2023 and beyond, or from elevated rates, relative to recent historical levels, persisting.

Elevated interest rates, coupled with existing inflationary pressures, may increase household and business financial stress across Australia and NZ, particularly for underprepared customers. Higher rates typically lead to reduced disposable income for households leaving sectors exposed to changes in household discretionary spending (including retail trade, tourism, hospitality, and personal services) vulnerable to significant financial stress in the event of changes to consumer spending behaviour. This includes a heightened risk of corporate and business bankruptcies, job losses and higher unemployment, particularly in the event of an economic slowdown. The increased credit risk in affected sectors and elevated levels of household and business financial stress may result in an increase in losses if customers default on their loan obligations and/or higher capital requirements through an increase in the probability of default.

A decline in property market valuations may give rise to higher losses on defaulting loans.

Lending activities account for most of the Group’s credit risk exposure. The Group’s lending portfolio is largely based in Australia and NZ. Residential housing loans and commercial real estate loans constitute a material component of the Group’s total gross loans and acceptances.

The Group may have higher credit risk, or experience higher credit losses, to the extent its loans are concentrated by loan type, industry segment, borrower type, or location of the borrower or collateral. For example, the Group’s credit risk and credit losses can increase if borrowers who engage in similar activities are uniquely or disproportionately affected by extreme weather events, economic or market conditions, or by regulation, such as regulation related to climate change. Deterioration in economic conditions or real estate values in Australia and NZ, where the Group has relatively larger concentrations of lending, including for residential or commercial real estate, could result in higher credit losses and costs.

Residential and commercial property prices in Australia and NZ increased for some years up until 2021, but experienced decline in 2022 following the central banks’ moves to increase policy rates. House prices have stabilised to date in 2023, with some markets recording price increases, however the recovery has not covered the declines experienced in 2022. Any declines in the value of residential or commercial property used as collateral (including in business lending) may give rise to greater losses to the Group resulting from customer defaults. This may, in turn, impact the Group’s financial performance and position, profitability and returns to investors. The most significant impact, in the event of default, is likely to come through residential mortgage customers in high loan-to-value-ratio brackets.

Adverse business conditions in Australia and New Zealand, particularly in the agricultural sector, may give rise to increasing customer defaults.

The Group has a large market share among lenders to the Australian and NZ agricultural sectors. These sectors may be negatively impacted by several factors, including:

- Vulnerability to labour constraints.

- Trade restrictions and tariffs.

- Volatility in commodity prices (particularly agricultural product prices).

- Foreign exchange rate movements.

- Changes in consumer preference.

- Disease and introduction of pathogens and pests (for example the threat of a local foot and mouth disease outbreak and spread in Australia of the varroa mite – impacting European honey bees).

- Export and quarantine restrictions.

- Supply chain constraints.

- Extreme weather events (including substantial rainfall or drought).

- Increasing weather volatility.

- Longer-term changes in climatic conditions.

Some customers are facing significant challenges from extreme weather events such as the floods in NZ in 2023, Australian bushfires in 2019/20 and floods in New South Wales (NSW) and Queensland (2022 and 2023), which caused stock, crop and plant and equipment loss and damage. These events, combined with changes to future insurance affordability and availability, may result in increased losses to the Group from customer defaults, and ultimately may have an adverse impact on the Group’s financial performance and position. More broadly, physical and transition risks associated with climate change may also increase current levels of customer defaults in other sectors.

Adverse business conditions (including supply chain disruptions, labour constraints and rising input costs, including from volatile commodity and energy prices and the impact of rapid technological change) may also lead to stress in certain other sectors such as construction, wholesale trade and manufacturing. Rising household financial pressures (including inflationary pressures) also pose a risk to sectors that are reliant on household expenditure.

Market declines and increased volatility may result in the Group incurring losses.

Some of the Group’s assets and liabilities comprise financial instruments that are carried at fair value, with changes in fair value recognised in the Group’s income statement. Movements in interest rates can affect prepayment assumptions and thus fair value. Market declines and increased volatility could negatively impact the value of such financial instruments and cause the Group to incur losses.

Other macro-economic, geopolitical, climate, other nature-related or social risks may adversely affect the Group and pose a credit risk.

The majority of the Group's businesses operate in Australia and NZ, with additional operations located in Asia, the United Kingdom, France and the US. Levels of borrowing are heavily dependent on customer confidence, employment trends, market interest rates, and other economic and financial market conditions and forecasts.

Domestic and international economic conditions and forecasts are influenced by a number of macro-economic factors, such as: economic growth rates, environmental and social issues (including emerging issues such as modern slavery and nature-related risks), cost and availability of capital, central bank intervention, inflation and deflation rates, level of interest rates, yield curves, market volatility, and uncertainty. Deterioration in any of these factors may lead to the following negative impacts on the Group:

- Deterioration in the value and liquidity of assets (including collateral).

- The inability to price certain assets.

- Environmental conditions and social and governance issues impacting the risk and return profile and/or value of customers’ security or business operations.

- An increase in customer or counterparty default and credit losses.

- Higher provisions for credit impairment.

- Mark-to-market losses in equity and trading positions, including the Company's high-quality liquid asset (HQLA) portfolios.

- A lack of available or suitable derivative instruments for hedging purposes.

- Increased cost of insurance, lack of available or suitable insurance, or failure of the insurance underwriter.

Economic conditions may also be negatively impacted by climate change and major shock events, such as natural disasters, epidemics and pandemics, war and terrorism, cyber-attacks, political and social unrest, banking instability and sovereign debt restructuring and defaults.

The following macro-economic and financial market conditions are, as of the date of this Report, of most relevance to the credit risk facing the Group and may affect revenue growth and/or customer balance sheets:

- Global economic growth has slowed to date in calendar year 2023, consistent with expectations of below average growth in both calendar years 2023 and 2024. Weaker economic conditions reflect the impact of tightening monetary policy and lending standards, particularly in advanced economies, along with energy disruptions in Europe and weak growth rates in China. The risk of recessions in one or more major economies in calendar year 2024 remains.

- Inflationary pressures emerged at the start of calendar year 2021 and have continued through calendar year 2023, increasing the cost of living and reducing disposable income for consumers. The lift in inflation reflected a broad range of factors, including the impact of fiscal stimulus in a range of countries, disruptions to global supply chains, shortages of key inputs, commodities, and labour in various locations and the impact of the Russia-Ukraine conflict. The conflict in Israel-Palestine will also likely impact inflation, particularly through the impact on global commodity prices, most notably oil. Although inflation has slowed in calendar year 2023 to date, it remains above the targets set by most major central banks.

- Persistent inflation and fears that households’ inflation expectations could become unanchored from central bank targets (driving increased wage demands) drove global central banks (including in Australia and NZ) to rapidly lift policy rates starting in early 2022 and this trend continued in 2023. Market pricing suggests most major central banks are either at or near the peak of the rate cycle, although forward guidance from these banks indicates that they still have a tightening bias (indicating that policy rates could rise further should the current slowing in inflation falter).

- A sustained period of increased policy rates, and/or further increases in rates, accompanied by tighter lending standards in many countries, may expose imbalances or weaknesses in balance sheets, including those of financial institutions, and asset markets that have built up over time. This may increase pressure on borrowers, particularly those that are highly geared and/or face reduced income due to weaker economic activity. Where concerns over the viability of financial institutions arise, it can trigger contagion fears, potentially destabilising global markets and, in turn, negatively affecting economic activity. More generally, higher policy rates may adversely affect the Group’s cost of funds, trading income, margins and the value of the Group’s lending and investments.

- Risk of contagion due to financial system instability remains an ongoing concern for the Group due to the interdependency of financial market participants. Where concerns over the viability of financial institutions arise, it can trigger contagion fears, potentially destabilising global markets and, in turn, negatively affecting economic activity and adversely affecting the Group’s results.

- China is a major trading partner for Australia and NZ, with export incomes and business investment exposed to changes in China’s economic growth and trade policies. China’s economic growth slowed in the June quarter of 2023, pointing to the loss of momentum in China’s post-zero-COVID recovery – with domestic demand remaining subdued. There remains considerable uncertainty around household consumption and the property sector in China (including as a result of defaults by major property developers), which could negatively impact the global economy generally, and the Australian and NZ economy in particular (including by reducing demand for Australian and NZ exports). A range of medium to longer-term risks also continue to be present, including high corporate debt levels and demographic pressures from China’s ageing population. Although diplomatic tensions between the Chinese and Australian governments appear to have eased since mid-calendar year 2022, the risk of trade restrictions being imposed on Australian exports remains. Such restrictions could have a negative impact on the Group’s customers and may give rise to increasing levels of customer defaults.

- As commodity exporting economies, Australia and NZ are exposed to shifts in global commodity prices that can be sudden, sizeable, and difficult to predict. Fluctuations in commodity markets can affect key economic variables like national income tax receipts and exchange rates. Commodity price volatility remains substantial and, given the Group’s sizeable exposures to commodity producing and trading businesses, this volatility poses a credit risk to the Group.

- Ongoing geopolitical instability, such as that caused by the ongoing conflict between Russia and Ukraine, has negatively impacted, and could in the future negatively impact, the global and Australian economies, including by causing supply chain disruptions, rising prices for oil and other commodities, volatility in capital markets and foreign currency exchange rates, rising interest rates and heightened cybersecurity risks. In response to the Russia-Ukraine conflict, several countries (including Australia and NZ) imposed wide ranging economic sanctions and export controls on individuals and firms closely connected to the Russian Government or conducting economic activity in certain regions of Ukraine. These sanctions, as well as responsive measures, continue to impact the European and global economy, including through volatile energy and commodity prices. Prices may remain elevated for an extended period, which would negatively impact most businesses and households, and may lead to increased credit losses for the Group.

- Other geopolitical risks continue to present uncertainty to the global economic outlook, with negative impacts on consumption and business investment. Tensions between the US and China, including in relation to Taiwan, the Russia-Ukraine conflict and China’s trade and technology policies, continue to persist, which could impact global economic growth and global supply chains. Similarly, geopolitical tensions in the Asia-Pacific region could increase as a result of the AUKUS pact or other similar agreements. The possibility of the war between Israel and Hamas expanding to become a wider regional conflict in the Middle East, poses a fresh threat to the global economy including potential implications for energy prices, inflation and confidence levels.

Market risk

The Group may suffer losses as a result of a change in the value of the Group’s positions in financial instruments, bank assets and liabilities, or their hedges due to adverse movements in market prices. Adverse price movements impacting the Group may occur in credit spreads, interest rates, foreign exchange rates, and commodity and equity prices, particularly during periods of heightened market volatility or reduced liquidity. Market volatility has increased in response to increased geopolitical risk, rising inflation and central banks lifting interest rates.

The occurrence of any event giving rise to material market risk losses may have a negative impact on the Group’s financial performance and position.

The Group is exposed to credit spread risk.

Credit spread risk is the risk that the Group may suffer losses from adverse movements in credit spreads. This is a significant risk in the Group’s trading and banking books.

The Group’s trading book is exposed to credit risk movements in the value of securities and derivatives as a result of changes in the perceived credit quality of the underlying company or issuer. Credit spread risk accumulates in the Group’s trading book when it provides risk transfer services to customers seeking to buy or sell fixed income securities (such as corporate bonds). The Group may also be exposed to credit spread risk when holding an inventory of fixed income securities in anticipation of customer demand or undertaking market-making activity (i.e., quoting buy and sell prices to customers) in fixed income securities. The Group’s trading book is also exposed to credit spread risk through credit valuation adjustments. A widening of credit spreads could negatively impact the value of the credit valuation adjustments.

The Group’s banking book houses the Group’s liquidity portfolio. While the Group hedges the interest rate risk on this portfolio, it is subject to credit spread risk through changes in spreads on its holdings of semi-government bonds. These positions form part of the required holdings of HQLAs used in managing the Group’s liquidity risk and can give rise to material profit and loss volatility within the Group’s Treasury portfolio during periods of adverse credit spread movements. Positions in Residential Mortgage-Backed Securities that arise through the Group’s warehousing, underwriting, and syndication operations also form part of the banking book and are exposed to changes in credit spreads.

The Group is exposed to interest rate risk.

The Group's financial performance and capital position are impacted by changes in interest rates.

The Group’s trading book is exposed to changes in the value of securities and derivatives as a result of changes in interest rates. The Group’s trading book accumulates interest rate risk when the Group provides interest rate hedging solutions for customers, holds interest rate risk in anticipation of customer requirements, or undertakes market-making activity in fixed income securities or interest rate derivatives. The level of volatility in interest rate markets has increased in the post-pandemic period after a broadening of inflationary pressures saw major central banks unwind stimulus and rapidly tighten monetary policy. Market volatility has increased in response to increased geopolitical risk, rising and sustained inflation, central banks lifting interest rates and other macroeconomic risks.

Balance sheet and off-balance sheet items can create an interest rate risk exposure within the Group. As interest rates and yield curves change over time, the Group may be exposed to a loss in earnings and economic value due to the interest rate profile of its balance sheet. Such exposure may arise from a mismatch between the maturity profile of the Group’s lending portfolio compared to its deposit portfolio (and other funding sources), as well as the extent to which lending and deposit products can be repriced should interest rates change, thereby impacting the Group’s net interest margin.

The Group is exposed to foreign exchange risk.

Foreign exchange risks are evident in the Group’s trading and banking books.

Foreign exchange and translation risks arise from the impact of currency movements on the value of the Group’s positions in financial instruments, profits and losses, and assets and liabilities due to participation in global financial markets and international operations.

The Group’s ownership structure includes investment in overseas subsidiaries and associates which gives rise to foreign currency exposures, including through the repatriation of capital and dividends. The Group’s businesses may therefore be affected by a change in currency exchange rates, and movements in the mark-to-market valuation of derivatives and hedging contracts.

The Group’s financial statements are prepared and presented in Australian dollars unless otherwise stated, and any adverse fluctuations in the Australian dollar against other currencies in which the Group invests or transacts, and generates profits (or incurs losses), may adversely impact its financial performance and position.

The Group is exposed to market risk should it be unable to sell down its underwriting risk.

As financial intermediaries, members of the Group underwrite or guarantee different types of transactions, risks and outcomes, including the placement of listed and unlisted debt, equity-linked and equity securities. The underwriting obligation or guarantee may be over the pricing and placement of these securities, and the Group may therefore be exposed to potential losses, which may be significant, if it fails to sell down some or all of this risk to other market participants.

Capital, funding and liquidity risk
The Group is exposed to funding and liquidity risk.

Liquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. These obligations include the repayment of deposits on demand or at their contractual maturity, the repayment of wholesale borrowings and loan capital as they mature, the payment of interest on borrowings and the payment of operational expenses and taxes. The Group must also comply with prudential and regulatory liquidity obligations across the jurisdictions in which it operates. Any significant deterioration in the Group’s liquidity position may lead to an increase in the Group’s funding costs, constrain the volume of new lending or cause the Group to breach its prudential or regulatory liquidity obligations. This may adversely impact the Group’s reputation and financial performance and position

Funding risk is the risk that the Group is unable to raise short and long-term funding to support its ongoing operations, regulatory requirements, strategic plans, and objectives. The Group accesses domestic and global capital markets to help fund its business, along with using customer deposits. The final maturity dates of the additional and Supplementary Allowance of the drawn Term Funding Facility (TFF) (a three-year facility established by the RBA to support lending to the Group’s customers) are concentrated during 2024 for all participating Authorised Deposit-taking Institutions (ADIs) including the Group (the Initial Allowance matured in 2023). The Group relies on offshore wholesale funding to support its funding and liquidity position. Periods of heightened market volatility may limit the Group’s access to this funding source. Disruption in global capital markets, reduced investor interest in the Group’s securities and/or reduced customer deposits, may adversely affect the Group’s funding and liquidity position. This may increase the cost of obtaining funds, reduce the tenor of available funds or impose unfavourable terms on the Group’s access to funds, constrain the volume of new lending, or adversely affect the Group’s capital position.

The Group’s capital position may be constrained by prudential requirements.

Capital risk is the risk that the Group does not hold sufficient capital and reserves to cover exposures and to protect against unexpected losses. Capital is the cornerstone of the Group’s financial strength. It supports the Group’s operations by providing a buffer to absorb unanticipated losses from its activities.

The Group must comply with prudential requirements in relation to capital across the jurisdictions in which it operates. Compliance with these requirements, and any further changes to these requirements may:

- Limit the Group’s ability to manage capital across the entities within the Group.

- Limit payment of dividends or distributions on shares and hybrid instruments.

- Require the Group to raise more capital (in an absolute sense) or raise more capital of higher quality.

- Restrict balance sheet growth.

Current regulatory changes that could present a risk to the Group’s capital position include loss-absorbing requirements for Domestic Systemically Important Banks (D-SIBs), which include the Group. These changes require an increase to total capital by 4.5% of risk weighted assets (RWA) by 1 January 2026, with an interim increase by 3% of RWA by 1 January 2024. These requirements are expected to be satisfied primarily through the issue of additional Tier 2 Capital which will further increase the Group’s funding costs due to the higher cost of Tier 2 Capital issuance relative to senior debt.

On 21 September 2023, APRA released a Discussion Paper, outlining potential options for, and seeking feedback from stakeholders on, improving the effectiveness of Additional Tier 1 (AT1) capital in Australia. APRA intends to follow this process with a formal consultation in 2024 on any proposed amendments to prudential standards. Changes to the requirements for AT1 capital may impact the Group’s capital position.

In addition, revisions to the Reserve Bank of New Zealand capital requirements (to be phased in by 2028) will require the Group to hold more capital in NZ.

If the information or the assumptions upon which the Group’s capital requirements are assessed prove to be inaccurate, this may adversely impact the Group’s operations, financial performance and financial position.

A downgrade in the Group’s credit ratings or outlook may adversely impact its cost of funds and capital market access.

Credit ratings are an assessment of a borrower’s creditworthiness and may be used by market participants in evaluating the Group and its products, services, and securities. Credit rating agencies conduct ongoing review activities, which can result in changes to credit rating settings and outlooks for the Group, or credit ratings of sovereign jurisdictions where the Group conducts business. Credit ratings may be affected by operational and other market factors (e.g. ESG-related), or changes in a credit rating agency’s rating methodologies.

A downgrade in the credit ratings or outlook of the Group, the Group’s securities, or the sovereign rating of one or more of the countries in which the Group operates, may increase the Group’s cost of funds or limit its access to capital markets. This may also cause a deterioration of the Group’s liquidity position and trigger additional collateral requirements in derivative contracts and other secured funding arrangements. A downgrade to the Group’s credit ratings relative to its peers may also adversely impact the Group’s competitive position and financial performance and position.

Operational risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or external events. This includes legal risk but excludes strategic risk.

Disruption to technology may adversely impact the Group’s reputation and operations.

Most of the Group’s operations depend on technology and therefore the reliability, resilience, and security of the Group’s (and its third- party vendors’) information technology systems and infrastructure are essential to the effective operation of the Group’s business and consequently to its financial performance and position. The reliability, security and resilience of the Group’s technology may be impacted by the complex technology environment, failure to keep technology systems up-to-date, an inability to restore or recover systems and data in acceptable timeframes, or a physical or cyber-attack against the Group or its external providers including suppliers of cloud services to the Group.

The rapid evolution of technology in the financial services industry and the increased expectations of customers for internet and mobile services on demand expose the Group to changing operational scenarios.

Any disruption to the Group’s technology (including disruption to the technology systems of the Group’s external providers) may be wholly or partially beyond the Group’s control and may result in operational disruption, regulatory enforcement actions, customer redress, litigation, financial losses, theft or loss of customer data, loss of market share, loss of property or information, or may adversely impact the Group’s speed and agility in the delivery of change and innovation.

In addition, any such disruption may adversely affect the trust that internal and external stakeholders have in the Group’s ability to protect key information (such as customer and employee records) and infrastructure. This may in turn affect the Group’s reputation, which may result in loss of customers, a reduction in share price, ratings downgrades and regulatory censure or penalties.

Privacy, information security and data breaches may adversely impact the Group’s reputation and operations.

The Group collects, processes, stores and transmits large amounts of personal and confidential information through its people, technology systems and networks and the technology systems and networks of its external service providers. Threats to information security are constantly evolving and techniques used to perpetrate cyber-attacks are increasingly sophisticated. In addition, the number, nature and resources of adverse actors that could pose a cyber threat to the Group is growing, including individual cybercriminals, criminal or terrorist syndicate networks and large sophisticated foreign governments with significant resources and capabilities.

There is a risk that the Group’s efforts to improve its technology systems and networks and its information security policies, procedures and controls may not be adequate to address these threats. While the Group participates in internal and external reviews and testing and is subject to regulatory oversight, which collectively helps to identify weaknesses and areas for improvement, remediation of weaknesses is sometimes difficult to complete in a timely manner due to the complex technology environment (including third party involvement) and the rapidly evolving nature of the threats, which leads to the continuing emergence of new vulnerabilities.

As cyber threats continue to evolve, the Group may be required to expend significant additional resources to continue to modify or enhance its layers of defence or to investigate and remediate any information security vulnerabilities.

The Group may also not always be able to anticipate a security threat, or be able to implement effective information security policies, procedures, and controls to prevent or minimise the resulting damage. The Group may also inadvertently retain information which is not specifically required or is not permitted by legislation, thus increasing the impact of a potential data breach or non-compliance. A successful cyber-attack could persist for an extended period before being detected and, following detection, it could take considerable time for the Group to obtain full and reliable information about the cybersecurity incident and the extent, amount and type of information compromised. During an investigation, the Group may not necessarily know the full effects of the incident or how to remediate it, and actions and decisions that are taken or made in an effort to mitigate risk may further increase the costs and other negative consequences of the incident. Moreover, the Group may be required to disclose information about a cybersecurity event before it has been resolved or fully investigated. Additionally, the Group uses select external providers (in Australia and overseas) to process and store confidential data and to develop and provide its technology services, including the increasing use of cloud infrastructure. While the Group negotiates comprehensive risk-based controls with its service providers, it is limited in its ability to monitor and control the security protocols that service providers implement on a day-to-day basis. The Group may also submit confidential information to its key regulators under a legal obligation and as part of regulatory reporting.

A breach of security at any of these external providers, regulators or within the Group may result in operational disruption, theft or loss of customer or employee data, a breach of privacy laws, regulatory enforcement actions, civil penalties, customer or employee redress, litigation, financial losses, or loss of market share, property, or information. This may be wholly or partially beyond the control of the Group and may adversely impact its financial performance and position. For example, some large Australian organisations have experienced significant cyber-attacks in recent years leading to intense public reactions and increased political and regulatory focus.

In addition, any such event may give rise to increased regulatory scrutiny or adversely affect the view of ratings agencies. Social media commentary, and the Group’s responses to the relevant event, may exacerbate the impact on the Group’s reputation.

The threat environment has also seen a new vector appear in the form of generative AI, the threat of which is uncertain, but which is a step-change in AI. While generative AI has potential to support significant service advances for customers, it also has potential to assist and enable and enhance existing methods for criminals to perpetrate fraud, scams, and cyber threats against the Company and its customers.

Complexity of infrastructure, processes and models, gives rise to a significant risk to the Group’s operations.

The Group’s business involves the execution of many processes and transactions with varying degrees of complexity. The Group is reliant on its policies, processes, controls, and supporting infrastructure functioning as designed, and on third parties appropriately managing their own operational risk and delivering services to the Group as required. A failure in the design or operation of these policies, processes, controls, and infrastructure, failure of the Group to manage external service providers, or the disablement of a supporting system, all pose a significant risk to the Group’s operations and consequently its financial performance, reputation and the timeliness and accuracy of its statutory and prudential reporting.

Models are used extensively in the conduct of the Group’s business, for example, in calculating capital requirements or customer compensation payments, and in measuring and stressing exposures. If the models used prove to be inadequate, or are based on incorrect or invalid assumptions, judgements or inputs, this may adversely affect the Group’s customers and the Group’s financial performance and position.

The Group is exposed to the risk of human error.

The Group’s business, including the internal processes and systems that support business decisions, relies on appropriate actions and inputs from its employees, agents, and external providers. The Group is exposed to operational risk due to process or human error, including incorrect or incomplete data capture and records maintenance, incorrect or incomplete documentation to support activities, or inadequate design of processes or controls. The Group uses select external providers (in Australia and overseas) to provide services to the Group and is exposed to similar risks arising from such failures in the operating environment of its external providers.

The materialisation of any of these risks could lead to direct financial loss, loss of customer, employee or commercially sensitive data, regulatory penalties, and reputational damage.

The Group may not be able to attract and retain suitable talent.

The Group is dependent on its ability to attract and retain key executives, employees, and Board members with a deep understanding of banking and technology, who are qualified to execute the Group’s strategy, including the technology transformation the Group is undertaking to meet the changing needs of its customers. Potential weaknesses in employment practices, including diversity, anti-discrimination, workplace flexibility, payroll compliance, workplace health and safety and employee wellbeing, together with a competitive labour market for critical skills, are sources of operational risk that can impact the Group’s ability to attract and retain qualified personnel with the requisite knowledge, skills and capability. The effective management of psychosocial risk (including relating to workplace factors such as customer aggression, workload issues or poor change management) is an area of focus within the Group to support colleague wellbeing and retain talent. It is also an area of increasing regulatory scrutiny and reputational risk.

The Group’s capacity to attract and retain key talent, in addition to providing attractive career opportunities, also depends on its ability to design and implement effective remuneration and talent structures. This may be constrained by several factors, including by regulatory requirements (particularly in the highly regulated financial services sector).

The unexpected loss of key resources or the inability to attract personnel with suitable experience may adversely impact the Group’s ability to operate effectively and efficiently, or to meet the Group’s strategic objectives. This risk may also impact third party vendors (including offshore vendors) engaged by the Group, who may be experiencing similar personnel related challenges.

External events may adversely impact the Group’s operations.

Operational risk can arise from external events such as biological hazards, climate change, natural disasters, widespread disease or pandemics, or acts of terrorism and geopolitical conflict.

The Group has branches across Australia in locations that are prone to seasonal natural disasters. Recent examples are the bushfires over the 2019/2020 summer period in NSW and Victoria, and severe flooding events in Eastern Australia in 2021 and 2022 and North-Eastern Australia in 2023. In addition, the Group has branches and office buildings in NZ, which is prone to extreme weather events and has experienced significant flooding and earthquakes in recent years, as well as a severe and damaging tropical cyclone in February 2023, and which may be exposed to the risk of future extreme weather events and earthquakes.

Given the Group’s physical presence in major cities in Australia, NZ and other countries where it has, or is intending to establish, offshore operations, it may also be exposed to the risk of a terrorist attack.

The Group has operations in India and Vietnam conducting a range of essential business functions and processes including transaction processing and technology development. Disruption to these centres may have a material impact on the Group’s operations.

Geopolitical risks continue to present uncertainty to the Group’s operations. Tensions between the US and China, including in relation to Taiwan, the Russia-Ukraine and Israel-Gaza conflicts and China’s trade and technology policies, continue to persist, which could impact the Group’s operations adversely, for example through disruption to global supply chains and availability of talent.

External events, such as extreme weather, natural disasters, biological hazards, and acts of terrorism may cause property damage and business disruption, which may adversely impact the Group’s financial performance. In addition, if the Group is unable to manage the impacts of such external events, it may compromise the Group’s ability to provide a safe workplace for its personnel and/or lead to reputational damage. The environment the Group is operating in has become more complex and more uncertain and could create operational risks that are yet to be identified.

Sustainability risk

Sustainability risk is the risk that ESG-related events or conditions arise that could negatively impact the sustainability, resilience, risk and return profile, value, or reputation of the Group or its customers and suppliers. Inadequate management of ESG risks by the Group or its customers may expose the Group to other potential risks across risk categories such as strategic, credit, compliance, conduct, operational risk and capital, funding and liquidity risk.

Physical and transition risks arising from climate change, other environmental impacts and nature-related risks may lead to increasing customer defaults and decrease the value of collateral.

Extreme weather, increasing weather volatility, and longer-term changes in climatic conditions, as well as environmental impacts such as land contamination and other nature-related risks such as deforestation, biodiversity loss and ecosystem degradation, may affect water security, property and asset values or cause customer losses due to damage, crop losses, existing land use ceasing to be viable, and/or interruptions to, or impacts on, business operations and supply chains.

Globally, an increasing number of countries are prone to, and have experienced, acute physical climate events. In Australia and NZ these have included drought conditions, bushfires over summer periods, and severe floods, particularly in Eastern Australia over the past three years including in 2023. NZ also experienced a severe and damaging tropical cyclone in February 2023. Extreme weather events are expected to increase globally and locally in frequency and severity, which may have adverse macroeconomic impacts. The impact of extreme weather events can take time to be fully realised and be widespread, extending beyond residents, businesses, and primary producers in highly impacted areas, to supply chains in other cities and towns relying on agricultural and other products from within these areas. The impact of these losses on the Group may be exacerbated by a decline in the value and liquidity of assets held as collateral and the extent to which these assets are insured or insurable, which may impact the Group’s ability to recover its funds when loans default.

Climate-related transition risks are increasing as economies, governments, and companies seek to transition to low-carbon alternatives and adapt to climate change. Certain customer segments may be adversely impacted as the economy transitions to renewable and low-emissions technology. Decreasing investor appetite and customer demand for carbon intensive products and services, increasing climate-related litigation, and changing regulations and government policies designed to mitigate climate change, may negatively impact revenue and access to capital for some businesses, and/or the Group’s products or services that serve those customers. Furthermore, management of transition risk is more challenging given the presence of social risks such as modern slavery in relevant supply chains e.g., input materials and equipment required to support the low carbon transition.

NZ also faces geological risk associated with major earthquakes and certain areas of Australia have also more recently experienced some earthquake-related damage.

Nature-related risks (caused by impacts and dependencies on nature), such as deforestation and illegal land clearing, and biodiversity loss and ecosystem degradation, may disrupt business activities and supply chains, and may cause business impacts including contributing to raw material and/or commodity price volatility, stranded assets, changes in customer demand and changes in the regulatory environment. Examples include: the decline of bee populations which provide pollination services to agriculture, the collapse of fishing or agricultural yields, and a decrease in air or water quality.

These risks may increase expected and actual levels of customer defaults, thereby increasing the credit risk facing the Group and adversely impacting the Group’s financial performance and position, profitability and returns to investors.

The Group, its customers, or its suppliers may fail to comply with legal, regulatory or voluntary standards or broader shareholder, community and stakeholder expectations concerning ESG risk performance.

ESG issues have been subject to increasing legal, regulatory, voluntary, and prudential standards and increasing (and sometimes differing) community and stakeholder expectations. These include:

- Environmental issues – such as climate change, deforestation and illegal land clearing, biodiversity loss, ecosystem degradation, and pollution. Supervisory and regulatory guidance and requirements for banks are increasingly focusing on ESG risks, as regulators seek to understand and manage system- wide impacts such as those arising from climate-related risks. This focus is quickly evolving to broader environmental issues, such as nature-related risks, as the links between nature and economic prosperity and societal wellbeing are becoming better understood. This has been a particular focus of the Task Force on Nature-related Financial Disclosures, whose recommendations were released in September 2023, and the development of which has been supported by the Australian and United Kingdom governments.

- Social issues – such as human rights (including modern
  slavery), compliance with recognised labour standards and fair working conditions, unfair and inequitable treatment of people including discrimination, product responsibility, appropriate remuneration, and indigenous land rights and cultural heritage including any such potential impacts on these matters from a customer’s operations and/or projects.

- Governance issues – such as bribery and corruption, tax avoidance, greenwashing and other false or misleading environmental or sustainability claims, poor governance, lack of transparency, and not fulfilling accountabilities.

As certain issues become better understood and the associated risks can be more accurately quantified, corporate ESG commitments, and performance against those commitments, are being more closely monitored by external stakeholders. Globally, and particularly in Australia, regulators have strengthened their policy guidance in relation to sustainability-related disclosures and governance practices, with particular emphasis on greenwashing. Consumer and fair-trading issues in relation to environmental and sustainability claims are a 2023-24 compliance and enforcement priority of the Australian Competition and Consumer Commission (ACCC), aimed at improving the integrity of environmental and sustainability claims and to protect consumers from greenwashing. Effective regulatory frameworks underpinning sustainable finance continues to be a key theme and strategic priority of the Australian Securities and Investments Commission (ASIC) in 2023. In 2022, Australian regulators (in particular, ASIC) increased enforcement activity in relation to sustainability-related disclosures and that trend has continued in 2023.

ESG due diligence requirements may become mandatory in some jurisdictions in which the Group operates, placing increasing demands on the Group’s processes and capability to manage, monitor and address ESG risks.

The impacts associated with climate change-related legislative and regulatory initiatives, customer requirements and the transition to a low carbon economy, including meeting new regulatory expectations, retrofitting of assets, energy efficient and low carbon investments, purchasing carbon credits or paying carbon taxes, may result in operational changes and additional expenditures that could adversely affect the Group and/or its customers.

The Group’s reputation and business prospects may also be damaged if it does not, or is perceived not to, effectively prepare for the potential business and operational opportunities and risks associated with climate change, including through the development and marketing of effective and competitive products and services designed to address clients’ climate risk-related needs. These risks include negative market perception, reduced market share and regulatory and litigation consequences associated with greenwashing claims or driven by association with clients, industries or products that may be inconsistent with the Group’s stated positions on climate change issues.

Failure by the Group to:

- Comply with ESG-related regulatory requirements or standards, including emerging ESG-related disclosure requirements arising globally and following the release of the International Sustainability Standards Board’s Sustainability and Climate disclosure standards, the proposed introduction of climate-related disclosure requirements by the Australian Accounting Standards Board, and recently introduced disclosure requirements in NZ, related to the recommendations of the Task Force on Climate-related Financial Disclosures.

- Meet ESG-related commitments, goals and targets set by the Group, or Group ESG-related policies.

- Meet community and stakeholder expectations in relation to ESG.

- Apply appropriate ESG standards to its customers, or to entities in the Group’s supply chain.

- Appropriately make representations about its ESG-related products and performance.

may adversely impact the Group’s reputation, and shareholder, customer and employee sentiment towards the Group, may increase the risk of ESG-related litigation against the Group, or may result in regulatory fines or penalties, including litigation or regulatory action related to green washing. Risk also exists due to well-funded and strategic private litigants actively seeking opportunities to take litigation action in Australia.

Certain products, services or industries may become subject to heightened public scrutiny, either generally or following a specific adverse event, or because of activism by shareholders, investors or special interest groups. This could result in a sudden and significant decrease in demand for these products or services and a negative impact on revenue and access to capital for some businesses and increasing litigation risk. Reputational damage to impacted suppliers, customers or customer sectors may give rise to associated reputational damage to the Group. In addition, levels of customer defaults in an impacted sector may increase, adversely impacting the Group’s financial performance and position, profitability and returns to investors.

Conduct risk

Conduct risk is the risk that any action (or inaction) of the Group, or those acting on behalf of the Group, will result in unfair outcomes for any of the Group’s customers.

The Group is reliant on its employees, contractors and external suppliers acting in an appropriate and ethical way.

Organisational culture can greatly influence individual and group behaviours. Poor culture can expose an organisation and lead to customer harm, financial loss and detriment. The behaviours that could expose the Group to conduct risk include:

- Failure to design products and services that are transparent, accessible, and easy for the Group’s customers to understand.

- Unmanaged conflicts of interest that could influence behaviour that is not in the customer’s best interest.

- Non-adherence to applicable learning and competency training requirements.

- Selling, providing, or unduly influencing customers to purchase or receive products or services that may not meet their existing needs or that place the customer at risk of future hardship.

- Use of Artificial Intelligence (AI) that is inappropriate or inconsistent with community and customer expectations, or the overreliance on algorithmic outcomes without adequate human supervision.

- Making representations to customers about products or services of the Group which are inaccurate, misleading or deceptive, including representations which may mislead customers on the extent to which the Group’s practices are environmentally friendly, sustainable or ethical.

- Being a party to fraud.

- Failure to protect customers from fraud or scams when banking through digital channels or failure to respond adequately to customers impacted by external fraud or scams.

- Non-adherence to applicable requirements or providing financial advice which is not appropriate or in a customer’s interests.

- Delays in appropriately escalating regulatory and compliance issues.

- Failure to resolve issues and remediate customers in a timely manner and in accordance with community expectations.

- Failure to deliver on product and service commitments.

- Failure to remediate ineffective business processes and stop re-occurrence of issues in a timely manner.

- Failure to act in accordance with the Group’s Code of Conduct or Financial Markets Conduct Policy.

If the Group’s conduct related controls were to fail significantly, be designed inappropriately, or not meet legal or regulatory requirements or community expectations, then the Group may be exposed to, among other things:

- Increased costs of compliance, fines, additional capital requirements, public censure, loss of customer confidence, class actions and other litigation, settlements, and restitution to customers or communities.

- Increased supervision, oversight, or enforcement by regulators or other stakeholders.

- Unenforceability of contracts such as loans, guarantees, and other security documents.

- Enforced suspension of operations, amendments to licence conditions, or loss of licence to operate all or part of the Group’s businesses.

- Other enforcement or administrative action or agreements, including legal proceedings.

A failure of the Group’s conduct-related controls to accurately reflect relevant legal, regulatory or community expectations may adversely impact the Group’s reputation, financial performance and position, profitability, operations and returns to investors and can result in customer harm, financial loss and detriment.

Compliance risk

Compliance risk is the risk of failing to understand and comply with relevant laws, regulations, licence conditions, supervisory requirements, self-regulatory industry codes of conduct and voluntary initiatives, as well as the internal policies, standards, procedures, and frameworks that support fair and equitable treatment of customers.

The Group may be involved in a breach or alleged breach of laws governing bribery, corruption and financial crime.

Supervision and regulation of financial crime and enforcement of anti- bribery and corruption (ABC), anti-money laundering and counter-terrorism financing (AML/CTF) laws have increased in recent years.

On 29 April 2022, the Company entered into an enforceable undertaking (EU) with the Australian Transaction Reports and Analysis Centre (AUSTRAC) to address AUSTRAC’s concerns with the Group’s compliance with certain AML and CTF requirements. Under the terms of the EU, the Company and the relevant members of the Group are required to:

- Complete a Remedial Action Plan (RAP) approved by AUSTRAC.

- Address, to AUSTRAC’s satisfaction, any deficiencies or concerns with activities in the RAP identified by AUSTRAC.

In May 2022, the Company appointed an external auditor (as required under the EU). The Company obtains interim reports from the external auditor on a quarterly basis and an annual basis. The external auditor will provide a final report to the Company for the period up to 31 March 2025.

The Company has completed approximately three-quarters of its required activities under the RAP. A number of these activities require review by the External Auditor, and some of the more complex activities under the RAP have longer timeframes for completion. The Company continues to oversee delivery of the RAP commitments through dedicated EU Governance forums.

The Group continues to investigate and remediate a number of known AML/CTF compliance issues and weaknesses, including in accordance with the EU. As this work progresses, further compliance issues may be identified and reported to AUSTRAC or equivalent foreign regulators, and additional enhancements of the Group’s systems and processes may be required.

A negative outcome to any investigation or remediation process, or a failure to comply with the EU, may adversely impact the Group’s reputation, business operations, financial position, and results.

As a bank engaged in global finance and trade, the Group faces risks relating to compliance with AML/CTF, ABC and financial sanctions laws across multiple jurisdictions. Undetected failure of internal controls, or the ineffective remediation of compliance issues could lead to breaches of AML/CTF and/or ABC obligations or sanctions violations, resulting in potentially significant monetary and regulatory penalties, which, in turn, may adversely impact the Group’s reputation, financial performance, and position.

The risks of sanctions violations are increased in the context of additional, wide ranging economic sanctions and export controls imposed in 2022 and 2023 as a result of the Russia-Ukraine conflict and the continued attempts by those subject to sanctions to evade and circumvent their impact. NAB’s sanctions compliance function continues to monitor the sanctions issued as a result of rising tensions in the Middle East. NAB’s sanctions controls remain well equipped to support compliance with new and anticipated sanctions measures imposed by regulators. Refer to ‘Notes to the Consolidated Financial Statements’ Note 31 Commitments and Contingent liabilities, on page in the Group’s 2023 Annual Report, ‘Regulatory activity, compliance investigations and associated proceedings – AML and CTF program uplift and compliance issues’ for more information.

The Group may fail to comply with applicable laws and regulations which may expose the Group to significant compliance and remediation costs, regulatory enforcement action or litigation, including class actions.

The Group is highly regulated and subject to various regulatory regimes which differ across the jurisdictions in which it operates, trades, and raises funds.

Ensuring compliance with all applicable laws is complex. There is a risk the Group will be unable to implement the processes and controls required by relevant laws and regulations in a timely manner, or that the Group’s internal controls will prove to be inadequate or ineffective in ensuring compliance. There is also a potential risk of misinterpreting new or existing regulations.

There is significant cost associated with the systems, processes, controls, and personnel required to comply with applicable laws and regulations. Such costs may negatively impact the Group’s financial performance and position. Any failure to comply with relevant laws and regulations may have a negative impact on the Group’s reputation and financial performance and position and may give rise to class actions, litigation, or regulatory enforcement, which may in turn result in the imposition of civil or criminal penalties, or additional regulatory capital requirements, on the Group.

Entities within the Group have been, and may continue to be, involved from time to time in regulatory enforcement and other legal proceedings arising from the conduct of their business. There is inherent uncertainty regarding the possible outcome of any legal or regulatory proceedings involving the Group. It is also possible that further class actions, regulatory investigations, compliance reviews, civil or criminal proceedings, or the imposition of new licence conditions or regulatory capital requirements could arise in relation to known matters or other matters of which the Group is not yet aware. The aggregate potential liability and costs associated with legal proceedings cannot be estimated with any certainty.

A negative outcome to regulatory investigations or litigation involving the Group may impact the Group’s reputation, divert management time from operations, and affect the Group’s financial performance and position, profitability, and returns to investors. Refer to ‘Notes to the Consolidated Financial Statements’ Note 31 Commitments and Contingent liabilities on pages to in the Group’s 2023 Annual Report for details in relation to certain current legal and regulatory proceedings, compliance reviews and associated remediation, and other contingent liabilities which may impact the Group.

Extensive regulatory change poses a significant risk to the Group.

Globally, the financial services and banking industries are subject to significant and increasing levels of regulatory change, reviews and political scrutiny, including in Australia, NZ and other countries where the Group has, or is intending to establish, offshore operations.

Examples of regulatory change in other jurisdictions that may directly or indirectly impact the Group’s Australian operations include changes relating to the Group of 20 (G20) over-the-counter derivative products, potential updates to the Foreign Exchange Global Code, U.K. and European market abuse regulations, European Union directives relating to Corporate Sustainability Reporting and Corporate Sustainability Due Diligence and the French Duty of Vigilance legislation. The pace, volume, and complexity of change may also expose the Group to the increased risk of failure to adequately identify all applicable regulatory changes. Changes to laws and regulations or their interpretation and application can be unpredictable, are beyond the Group’s control, and may not be harmonised across the jurisdictions in which the Group operates.

Regulatory change may result in significant capital and compliance costs, changes to the Group’s corporate structure, and increasing demands on management, colleagues and information technology systems. This may also impact the competitiveness of the Group in certain of its businesses, the viability of the Group’s participation in certain markets or require the divestment of a part of the Group’s business.

Operationalising large volumes of regulatory change presents ongoing risks for the Group. Extensive work is done to assess proposed design solutions and to test design effectiveness of controls for each regulatory change before the effective date, however, the operating effectiveness of some controls cannot be fully tested until the go-live date for the relevant regulatory change has occurred. There are also inherent risks associated with the dependency on third parties for the effectiveness of some controls.

The Group is in the process of implementing key regulatory changes that have yet to take effect. These include the Financial Accountability Regime Act 2023, Operational Risk Management (CPS 230), Public Disclosure (APS 330) and Recovery and Exit Planning (CPS 190). Other notable changes which have taken effect recently include the Compensation Scheme of Last Resort (which facilitates payment of compensation for eligible consumers who have received a determination from the Australian Financial Claims Authority that remains unpaid) and ASIC’s Indigenous Financial Services Framework (which aims to encourage financial institutions to provide suitable products and services to First Nations peoples).

Since coming into power in May 2022, the Australian Government has released its inaugural Strategic Plan for the Payments System, an initial Data and Digital Government Strategy and a proposed 2023-2030 Australian Cyber Security Strategy. It is also progressing discussions with the RBA on recommendations from the Review of the Reserve Bank of Australia which may have implications for the Group and for the Australian economy. The Group will be subject to significant regulatory and process changes as the Australian Government finalises and implements its strategic policy priorities and digitalisation agenda in the period ahead.

Ongoing and proposed regulatory changes, reviews and inquiries relevant to the Group include operational resilience (including cyber security), market risk capital reform, liquidity reforms, CDR reforms (expansion to non-bank lenders, action initiation, and consent), crypto assets (prudential treatment, licensing and custody), governance, vulnerability (including hardship, domestic violence, accessible and inclusive banking and regional branch closures), financial claims scheme, personal property securities framework reform, financial advice reforms, market abuse or conduct-related regulations, changes to financial benchmarks, derivatives reform, modification of legislation applicable to deposit takers in NZ, payments, data quality, protection and privacy law reforms, competition inquiries (ACCC Retail Deposits Inquiry, Treasury Review of Competition Policy Settings), financial crime legislation (including de-banking), accounting, disclosure and reporting requirements (financial, sustainability and climate risk, reportable situations, complaints and remuneration), bankruptcy and personal and corporate insolvency, human rights, modern slavery, tax reform and the Australian Securities Exchange CHESS replacement.

Current consumer-centric regulatory changes due to take effect in the coming months include enhancements to the Unfair Contract Terms (UCT) regime for consumers and small businesses and the Banking Code of Practice. The changes to UCT will allow Courts to impose substantial penalties on businesses and individuals who include unfair terms in their standard form contracts. Regulatory priorities may also direct or influence the manner in which the Group is currently meeting its obligations to customers.

With increasing evidence of consumers experiencing financial distress and difficulty due to cost-of-living pressures, ASIC expects lenders to work constructively with their customers to find a sustainable solution in the period ahead. In addition, ASIC’s strategic priority to take action to address poor product design and distribution and poor consumer outcomes is expected to drive both issuers’ and distributors’ focus on the application of the ‘reasonable steps’ obligations to ensure financial products are appropriately distributed to their respective target markets.

Further inquiries and regulatory reviews impacting the financial services industry may be commissioned by the Australian and NZ governments, which, depending on their scope, findings and recommendations, may adversely impact the Group.

Examples of specific reviews and regulatory reforms currently relevant to the Group, and which present a potential material regulatory risk include those set out below.

- The Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI Act) will create an oversight and licensing regime for regulating conduct in the banking, non-bank deposit taking and insurance sectors in NZ. The CoFI Act is expected to come into force in early 2025.

- Legislation was introduced into Parliament in November 2022 to enable ‘write access’ or ‘action initiation’ within the CDR regime which may present additional cyber and fraud risks in the CDR ecosystem, if passed. Governance mechanisms including accountabilities, controls, and frameworks are still evolving and, under the Open Banking regime, customer data may be shared with, and received from, a broader range of stakeholders. Significant Group resources and management time have been, and will continue to be, utilised to implement and progress Open Banking (including supporting the CDR to mature in the banking sector).

- At the direction of the Treasurer in February 2023, the ACCC is conducting an inquiry into the market for the supply of retail deposit products to ensure that there is competition between Australian banks in relation to the pricing and features of retail deposit products offered to customers. The inquiry will look at matters including the interest rates paid by ADIs for retail deposits, how the interest rates are set between retail deposit products and lending products (including home loans), decisions made in light of changes to the RBA target cash rate, the extent of competition in the market for retail deposit products and how deposit products are a source of funding for the supply of credit. The ACCC is to provide its report by 1 December 2023.

- Globally, regulators increasingly expect that the financial services industry, including banks, will play a more substantive role in protecting customers from scams and other fraudulent activity. While recognising the potential for regulatory change to address the impact of scams, the Group continues to proactively educate its customers about scams and further enhance its systems and processes to detect and protect customers and the Group from scams and fraud. In this way, the Group seeks to mitigate the risk to customers from scam or fraud activity that may be difficult for the Group to anticipate or control. Although no government policy or position in relation to a contingent reimbursement scheme has been promulgated in Australia, the Group’s strategic planning and enhancement of systems and processes will also prepare it for expected regulatory change in this regard. Given the considerable growth in industry and customer losses from scams and fraud, the potential costs associated with control failures and transferal of risk from the customer may be significant.

- New Base Erosion and Profit Shifting rules (Pillar Two model rules) have been released by the OECD that are designed to ensure that multinational enterprises pay a minimum tax of 15% tax on income arising in each jurisdiction. The rules will come into effect for NAB globally commencing 2025. The rules are complex and will require global implementation resulting in increased compliance costs. Substantial changes will be required to existing tax operations with a focus on an increase in global data analytics capabilities.

- Proposed ESG-related regulatory regimes, including increasing obligations relating to modern slavery, human rights, sustainable finance, climate, and other sustainability risk-related prudential guidance, and regulatory and disclosure requirements. These include:

  - The climate-related disclosures regime under the Financial Markets Conduct Act 2013 in NZ, which requires mandatory climate-related reporting from early 2024, and the expected introduction of similar requirements in Australia in 2024/2025 following the consultations by Australian Treasury in 2023 on the design and implementation of standardised, internationally-aligned requirements for disclosure of climate-related financial risks and opportunities in Australia.

  - Changes to international accounting standards on disclosure of sustainability and climate-related financial information published by the International Sustainability Standards Board in 2023 and amendments to Australian Accounting Standards proposed by the Australian Accounting Standards Board (AASB) to introduce three Australian Sustainability Reporting Standards.

  - The final recommendations of the Taskforce on Nature-related Financial Disclosures which were published in September 2023.

  - Expansion of modern slavery and sustainability due diligence requirements in Australia, New Zealand and the European Union.

The full scope, timeline and impact of current and potential inquiries and regulatory reforms such as those mentioned above, or how they will be implemented (if at all in some cases), is not known.

Depending on the specific nature of the regulatory change requirements and how and when they are implemented or enforced, they may have an adverse impact on the Group’s business, operations, structure, compliance costs or capital requirements, and ultimately its competitiveness, reputation, financial performance, or financial position.

The Group may be exposed to losses if critical accounting judgements and estimates are subsequently found to be incorrect.

Preparation of the Group’s financial statements requires management to make estimates and assumptions and to exercise judgement in applying relevant accounting policies, each of which may directly impact the reported amounts of assets, liabilities, income, and expenses. A higher degree of judgement is required for the recognition and estimates used in the measurement of provisions (including for customer-related remediation and other regulatory matters), the determination of income tax, the valuation of financial assets and liabilities (including fair value and credit impairment of loans and advances), and the valuation of goodwill and intangible assets arising from business acquisitions.

If the judgements, estimates, and assumptions used by the Group in preparing the financial statements are subsequently found to be incorrect, there could be a significant loss to the Group beyond that anticipated or provided for, which may adversely impact the Group’s reputation, financial performance and financial position.

# Report of the Directors

# Operating and financial review

# 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, investment and private banking and wealth management services, funds management and custodian, trustee and nominee services.

For further details on Our business refer to page .

# Significant change in the state of affairs

- On 28 February 2023, the Group completed the $2.5 billion on-market buy-back announced on 24 March 2022. On 15 August 2023, the Group announced its intention to buy back up to $1.5 billion of NAB ordinary shares on-market to progressively manage its CET1 capital ratio towards its target range. Including the previous buy-back, the Group has bought back and cancelled 29,832,512 ordinary shares ($0.9 billion) in the full year ended 30 September 2023 including $0.3 billion (0.07% of CET1 capital) in the half year ended 30 September 2023.

- Changes to the composition of the Executive Leadership Team have occurred or were announced during 2023 and up until the date of this report, namely:

  - On 21 March 2023, NAB announced Group Chief Financial Officer Gary Lennon would retire from NAB effective 1 October 2023. Group Executive Strategy & Innovation Nathan Goonan was appointed Group Chief Financial Officer in an expanded role, effective 1 July 2023.

  - On 4 July 2023, NAB announced Group Executive People and Culture Susan Ferrier would retire from NAB effective 31 October 2023. On 3 August 2023 Sarah White, previously Chief of Staff to the NAB Group CEO, was appointed Group Executive People & Culture, effective 18 August 2023.

  - On 5 October 2023, NAB announced Group Chief Digital, Data & Analytics Officer Angela Mentis would retire from NAB. Group Chief Operating Officer Les Matheson was appointed Group Executive Digital, Data and Chief Operating Officer in an expanded role. Both changes were effective 1 November 2023.

  - No other changes to the composition of the Executive Leadership Team occurred during 2023 and up until the date of this report.

- Changes to the Board occurred or were announced during 2023 and up until the date of this report, namely:

  - Christine Fellowes was appointed as an independent non-executive director, effective 5 June 2023.

  - Carolyn Kay was appointed as an independent non-executive director, effective 31 July 2023.

  - Alison Kitchen was appointed as an independent non-executive director, effective 27 September 2023.

  - Two current non-executive directors, David Armstrong and Peeyush Gupta, will stand down following the Company’s 2023 AGM in December, having served three terms of three years on the Board.

  - No other changes to the composition of the Board have occurred during 2023 and up until the date of this report.

There were no other significant changes in the state of affairs of the Group that occurred during the financial year under review that are not otherwise disclosed in this report.

# Environmental, Social and Governance disclosure

Environmental regulation and climate-related disclosures

The Group’s operations are not subject to any site-specific environmental licences or permits which would be considered particular or significant under the laws of the Commonwealth of Australia or of an Australian state or territory.

As a lender, the Group may incur environmental liabilities in circumstances where it takes possession of a borrower’s assets and those assets have associated environmental risks. The Group has developed and implemented credit policies that aim to ensure that these risks are minimised and managed appropriately.

The Group’s operations are subject to the National Greenhouse and Energy Reporting Act 2007 (Cth) (NGER Act) in Australia. While this legislation is not particular to the Group or significant in its impact, the Group complied with its requirements. The NGER Act requires the Group to report on the period from 1 July to 30 June (the environmental reporting year), therefore, all of the Group's energy and GHG emissions reporting is aligned to this reporting period. Further details on the Group’s GHG reporting subject to the NGER Act is provided in the Climate change and environment section of this Report on pages to .

The Group’s United Kingdom-based operations are subject to the Energy Savings Opportunities Scheme (ESOS), introduced by the United Kingdom ESOS Regulations 2014 which came into force in July 2014. The ESOS requires mandatory energy assessments (audits) of an organisation's buildings and transport to be conducted every four years. The Group fulfilled its most recent ESOS obligation in December 2019 and will resubmit as required in June 2024.

The Group is voluntarily reporting data required for the Streamlined Energy and Carbon Reporting (SECR) requirements which are implemented through the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (United Kingdom) as part of the legislative response to climate change in the United Kingdom. This information is now provided in the Group’s 2023 Climate Report.

Further details of the Group’s environmental performance are provided in the Creating value section of our Annual Report, more specifically, a summary of the Group’s approach to climate change governance, strategy, risk management and metrics and targets consistent with the recommendations of the TCFD is provided on pages to titled Climate change and environment.

Further detailed information on the Group’s approach to climate change is provided in the Group’s 2023 Climate Report, which is aligned to the TCFD requirements, and includes methodological information related to the Group's GHG-related reporting, which was previously published in separate documents.

The Group's 2023 Climate Report is available as part of the Group’s annual reporting suite at nab.com.au/annualreports. A detailed breakdown of the Group’s Scope 1, 2 and 3 emissions is provided in the 2023 Sustainability Data pack.

Modern slavery

The Group is subject to modern slavery legislation in Australia and the United Kingdom. The Group has prepared a Modern Slavery Act statement which sets out actions taken by the Group during 2023 to ensure that its business operations, and its supply chain, are free from slavery and human trafficking. This statement is made available online at nab.com.au/modernslaverystatement in accordance with both the UK Modern Slavery Act and the Modern Slavery Act 2018 (Cth).

# Litigation and disputes

From time to time entities within the Group may be involved in disputes or legal proceedings arising from the conduct of their business. The outcomes and total costs associated with such ongoing disputes and proceedings are typically uncertain. Any material legal proceedings may adversely impact the Group's reputation and financial performance and position.

Refer to Note 31 Commitments and contingent liabilities of the notes to the financial statements for details of the Group's material legal proceedings and contingent liabilities.

# Financial performance summary

The following financial discussion and analysis is based on statutory information unless otherwise stated. The statutory information is presented in accordance with the Corporations Act 2001 (Cth) and Australian Accounting Standards and is audited by the Group's auditors in accordance with Australian Auditing Standards.

Non-IFRS key financial performance measures used by the Group

Certain financial measures detailed in the Report of the Directors are not accounting measures within the scope of International Financial Reporting Standards (IFRS). Management use these financial metrics to evaluate the Group’s overall financial performance and position and believe the presentation of these financial measures provide useful information to analysts and investors regarding the results of the Group's operations. These financial performance measures include:

- cash earnings

- statutory return on equity

- cash return on equity

- net interest margin

- average equity (adjusted)

- average interest earning assets

- total average assets.

The Group regularly reviews the non-IFRS measures included in the Report of the Directors to ensure that only relevant financial measures are incorporated. Certain other financial performance measures detailed in the Report of the Directors 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 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 statements.

Further detail 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 and the investment community.

The Group also uses cash earnings for its internal management reporting as it better reflects what is considered to be the underlying performance of the Group. Cash earnings is calculated by adjusting statutory net profit from continuing operations for certain non-cash earnings items. Non-cash earnings items are those items which are considered separately when assessing performance and analysing the underlying trends in the business. These include items such as hedging and fair value volatility, the amortisation of acquired intangible assets and gains or losses and certain other items associated with acquisitions, disposals and business closures.

Cash earnings does not purport to represent the cash flows, funding or liquidity position of the Group, nor any amount represented on a statement of cash flows. It is not a statutory financial measure and is not presented in accordance with Australian Accounting Standards and is not audited or reviewed in accordance with Australian Auditing Standards.

Cash earnings for the year ended 30 September 2023 has been adjusted for the following:

- hedging and fair value volatility

- amortisation of acquired intangible assets

- acquisitions, disposals and business closures.

Information about net interest margin

Net interest margin is a non-IFRS key financial performance measure that is calculated as cash net interest income (Cash NII) expressed as a percentage of average interest earning assets.

Information about average balances

Average balances, including average equity (adjusted), total average assets and average interest earning assets are based on daily statutory average balances.

This methodology produces numbers that NAB believes more accurately reflect seasonality, timing of accruals and restructures (including discontinued operations), which would otherwise not be reflected in a simple average.

Refer to page for a five-year summary of the Group’s average equity (adjusted), total average assets and average interest earning assets.

# 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. Any discrepancies between total and sums of components in tables contained in this report are due to rounding.

# 5 Year Financial Performance Summary

|  |  |  | Group |  |
--- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 | 2021 | 2020 | 2019
|  | $m | $m | $m | $m | $m
Net interest income |  | 16,807 | 14,840 | 13,793 | 13,877 | 13,555
Other income |  | 3,841 | 3,730 | 2,936 | 3,259 | 3,980
Operating expenses |  | (9,382) | (8,702) | (7,863) | (9,221) | (8,263)
Credit Impairment (charge) / write-back |  | (816) | (124) | 202 | (2,752) | (927)
Profit before income tax |  | 10,450 | 9,744 | 9,068 | 5,163 | 8,345
Income tax expense |  | (2,980) | (2,684) | (2,597) | (1,665) | (2,440)
Net profit for the year from continuing operations |  | 7,470 | 7,060 | 6,471 | 3,498 | 5,905
Net loss after tax for the year from discontinued operations |  | (51) | (169) | (104) | (935) | (1,104)
Net profit for the year |  | 7,419 | 6,891 | 6,367 | 2,563 | 4,801
Profit attributable to non-controlling interests |  | 5 | - | 3 | 4 | 3
Net profit attributable to owners of the Company |  | 7,414 | 6,891 | 6,364 | 2,559 | 4,798

# 5 Year Key Performance Indicators

|  |  |  | Group |  |
--- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 | 2021 | 2020 | 2019
Key indicators |  |  |  |  |  |
Statutory earnings per share (cents) - basic |  | 236.4 | 214.1 | 193.0 | 82.1 | 168.6
Statutory earnings per share (cents) - diluted |  | 228.7 | 205.6 | 185.2 | 80.5 | 164.4
Statutory return on equity |  | 12.3% | 11.3% | 10.4% | 4.4% | 9.1%
Cash return on equity1 |  | 12.9% | 11.7% | 10.7% | 6.5% | 11.4%
Profitability, performance and efficiency measures |  |  |  |  |  |
Dividend per share (cents) |  | 167 | 151 | 127 | 60 | 166
Net interest margin |  | 1.74% | 1.65% | 1.71% | 1.77% | 1.78%
Total Group capital |  |  |  |  |  |
Common Equity Tier 1 (CET1) capital ratio |  | 12.22% | 11.51% | 13.00% | 11.47% | 10.38%
Tier 1 capital ratio |  | 14.19% | 13.14% | 14.64% | 13.20% | 12.36%
Total capital ratio |  | 19.88% | 18.17% | 18.91% | 16.62% | 14.68%
Risk-weighted assets ($bn) |  | 435.0 | 449.9 | 417.2 | 425.1 | 415.8
Volumes ($bn) |  |  |  |  |  |
Gross loans and acceptances (GLAs)2 |  | 708.5 | 687.7 | 629.1 | 594.1 | 601.4
Average interest earning assets |  | 966.7 | 900.3 | 805.0 | 781.7 | 758.8
Total average assets |  | 1,065.1 | 991.5 | 889.6 | 877.0 | 835.9
Total customer deposits |  | 587.4 | 566.7 | 500.3 | 468.2 | 424.6
Average equity (adjusted)3 |  | 60.1 | 60.8 | 61.2 | 56.7 | 51.6
Asset quality |  |  |  |  |  |
90+ days past due and gross impaired assets to GLAs |  | 0.75% | 0.66% | 0.94% | 1.03% | 0.93%
Full-time equivalent employees (FTE)4 |  |  |  |  |  |
FTE (spot) |  | 38,516 | 35,558 | 33,275 | 34,944 | 34,370
FTE (average) |  | 37,290 | 34,022 | 34,217 | 34,841 | 33,950

1. Full detail on how cash earnings is defined, a discussion of non-cash earnings items and a full reconciliation of statutory net profit attributable to owners of the Company is set out in Note 2 Segment information of the Financial Report on page . Statutory return on equity and statutory earnings per share (EPS) are presented on page .
2. Including loans and advances at fair value.
3. Average equity on a cash and statutory basis are equal.
4. Excluding discontinued operations, FTE (spot) is 38,128 (2022: 35,128) and FTE (average) is 36,895 (2022: 33,530).

# Financial performance

|  | Group
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Net interest income |  | 16,807 | 14,840
Other income |  | 3,841 | 3,730
Net operating income |  | 20,648 | 18,570
Operating expenses |  | (9,382) | (8,702)
Credit Impairment charge |  | (816) | (124)
Profit before income tax |  | 10,450 | 9,744
Income tax expense |  | (2,980) | (2,684)
Net profit for the year from continuing operations |  | 7,470 | 7,060
Net loss after tax for the year from discontinued operations |  | (51) | (169)
Net profit for the year |  | 7,419 | 6,891
Profit / (loss) attributable to non-controlling interests |  | 5 | -
Net profit attributable to owners of the Company |  | 7,414 | 6,891

September 2023 v September 2022

Net profit attributable to owners of the Company (statutory net profit) increased by $523 million or 7.6%.

Net interest income increased by $1,967 million or 13.3%. Excluding the Citi consumer business, net interest income increased by $1,776 million or 12.1%. This includes a decrease of $318 million due to movements in economic hedges, offset in other operating income. Excluding these movements, the underlying increase of $2,094 million or 14.3% was primarily due to higher earnings on deposits and capital driven by the rising interest rate environment and higher average interest earning assets. These movements were partially offset by lower housing lending margins, deposit mix impact due to growth in term deposits and higher wholesale funding costs.

Other income increased by $111 million or 3.0%. Excluding the Citi consumer business, other operating income increased by $53 million or 1.4%. This includes an increase of $318 million due to movements in economic hedges, offset in net interest income. Excluding these movements, the underlying decrease of $265 million or 7.1% was primarily due to lower volumes of realised gains on bond sales in Treasury (high-quality liquids portfolio), and the impact of one-off gain on the disposal of BNZ Life not repeated in the September 2023 full year. These were partially offset by higher NAB risk management income in Markets, combined with a positive derivative valuation adjustment.

Operating expenses increased by $680 million or 7.8%. Excluding the Citi consumer business, operating expenses increased by $440 million or 5.2%. This includes an increase of $40 million for a provision in respect of a one-off levy for the Compensation Scheme of Last Resort (CSLR). Excluding these movements, the underlying increase of $400 million or 4.7% was primarily driven by higher personnel expenses due to an increase in average FTE and salary and related costs, together with continued investment in technology and compliance capabilities including fraud and cyber security. This was partially offset by productivity benefits achieved through continued process improvements and simplification of the Group’s operations, lower costs associated with the acquisition, disposals and closure of Group businesses, combined with lower remediation charges.

Credit impairment charge increased by $692 million driven by a higher level of collective credit impairment charges across the Group's lending portfolio, combined with a higher level of specific credit impairment charges off a low base.

Income tax expense increased by $296 million or 11.0% largely due to a higher profit before tax.

Discontinued operations are excluded from the individual account lines of the Group's results and are reported as a single net loss after tax line item. The results of discontinued operations primarily relate to costs associated with managing the run-off of the MLC Wealth retained entities, combined with a re-assessment of the provisions for customer-related remediation.

# Review of group and divisional results

September 2023 v September 2022
Group

Net profit increased by $523 million or 7.6%.

Business and Private Banking

Net profit increased by $298 million or 9.9%, driven by higher revenue as a result of volume growth and higher net interest margin. This was partially offset by increased operating expenses and credit impairment charges.

Personal Banking

Net profit decreased by $170 million or 10.7%, driven by higher credit impairment charges and operating expenses, partially offset by an increase in revenue.

Corporate and Institutional Banking

Net profit increased by $57 million or 3.3%, driven by higher revenue partially offset by higher expenses and credit impairment charges.

New Zealand Banking

Net profit increased by $61 million or 4.6%, driven by higher revenue, partially offset by higher operating expenses and credit impairment charges.

Corporate Functions and Other

Net loss decreased by $277 million or 36.3%, driven by lower credit impairment charges and higher NAB risk management income in Treasury, partially offset by higher operating expenses combined with the impact of the one-off gain on the disposal of BNZ Life not repeated in the September 2023 full year.

# Group balance sheet review

|  | Group
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Assets |  |  |
Cash and liquid assets |  | 24,699 | 56,451
Due from other banks |  | 117,306 | 141,861
Collateral placed |  | 11,286 | 13,115
Trading assets |  | 101,168 | 40,573
Debt instruments |  | 46,357 | 42,080
Other financial assets |  | 1,430 | 2,061
Derivative assets |  | 34,269 | 61,016
Loans and advances |  | 702,702 | 680,434
All other assets |  | 19,866 | 17,535
Total assets |  | 1,059,083 | 1,055,126
Liabilities |  |  |
Due to other banks |  | 39,516 | 74,679
Collateral received |  | 10,672 | 17,245
Other financial liabilities |  | 66,352 | 23,286
Derivative liabilities |  | 35,633 | 57,486
Deposits and other borrowings |  | 682,120 | 683,526
Bonds, notes and subordinated debt |  | 135,645 | 119,283
Debt issues |  | 8,561 | 7,318
All other liabilities |  | 19,081 | 13,271
Total liabilities |  | 997,580 | 996,094
Total equity |  | 61,503 | 59,032
Total liabilities and equity |  | 1,059,083 | 1,055,126

September 2023 v September 2022
Assets

Total assets increased by $3,957 million or 0.4%. The key movements are as follows:

- Cash and liquid assets decreased by $31,752 million or 56.2% predominantly due to the commencement of measuring certain reverse repurchase agreements at fair value through profit or loss which are now presented within Trading assets.

- Due from other banks decreased by $24,555 million or 17.3% primarily due to a decrease in the Exchange Settlement Account (ESA) balance with the RBA and the commencement of measuring certain reverse repurchase agreements at fair value through profit or loss which are now presented within Trading assets, partly offset by an increase in deposits with overseas central banks.

- Collateral placed decreased by $1,829 million or 13.9% as a result of a decrease in derivative liabilities.

- Trading assets increased by $60,595 million driven by the commencement of measuring certain reverse repurchase agreements at fair value through profit or loss.

- Debt instruments increased by $4,277 million or 10.2% due to an increase in semi-government bonds, notes and securities.

- Derivative assets decreased by $26,747 million or 43.8% predominantly driven by foreign exchange and interest rate movements during the period.

- Loans and advances increased by $22,268 million or 3.3% primarily due to growth in housing lending.

- All other assets increased by $2,331 million or 13.3% primarily due to an increase in accrued interest receivable and outstanding settlements for securities sold.

Liabilities

Total liabilities increased by $1,486 million or 0.1%. The key movements are as follows:

- Due to other banks decreased by $35,163 million or 47.1% predominantly due to the commencement of measuring certain repurchase agreements at fair value through profit or loss which are now presented within Other financial liabilities, and a reduction in TFF owing to the RBA.

- Collateral received decreased by $6,573 million or 38.1% due to a decrease in derivative assets.

- Other financial liabilities increased by $43,066 million due to the commencement of measuring certain repurchase agreements at fair value through profit or loss.

- Derivative liabilities decreased by $21,853 million or 38.0% predominantly driven by foreign exchange and interest rate movements during the period.

- Deposits and other borrowings decreased by $1,406 million or 0.2% primarily due to the commencement of measuring certain repurchase agreements at fair value through profit or loss which are now presented within Other financial liabilities, partly offset by growth in customer deposits.

- Bonds, notes and subordinated debt increased by $16,362 million or 13.7% primarily driven by net new issuances in line with the Group's funding requirements.

- All other liabilities increased by $5,810 million or 43.8% primarily due to an increase in accrued interest payable and payables for securities purchased.

Equity

Total equity increased by $2,471 million or 4.2%. The key movements are as follows:

- Contributed equity decreased by $853 million or 2.2% primarily driven by share buy-backs during the period.

- Reserves increased by $647 million primarily due to movements in the foreign currency translation reserve.

- Retained profits increased by $2,328 million or 10.8% reflecting current period statutory profits, partially offset by dividends paid.

# Strategic highlights1

The close of 2023 marks the third full year under the Group’s refreshed long-term strategy. This strategy is centred on delivering better outcomes for customers and colleagues while keeping the bank safe. It is supported by disciplined execution and persistent investment to create a simpler, more streamlined business, which is more productive, resilient and efficient. Good progress has been made towards the Group's strategic objectives over the past three years with more to do. The Group remains focused on executing its strategy and building on the progress made in recent years.

The Group exists to serve customers well and help our communities prosper. To achieve this, the Group is focused on key priorities that it believes will make a real difference to its customers and colleagues, and support over time its aim to be known for being:

- Relationship-led; building on market leading expertise, data and insights.

- Easy; a simpler, more seamless and digitally enabled bank that gets things done faster.

- Safe; protect customers and colleagues through financial and operational resilience.

- Long-term; deliver sustainable outcomes for stakeholders.

Executing the Group’s strategy is expected to deliver better customer outcomes, more engaged colleagues and improved shareholder value. The Group will measure the success of its strategy and execution according to four key ambitions:

- Colleague Engagement – top quartile.

- Customer NPS – strategic NPS1 positive and ranked first among Australian banks

- Cash EPS growth2 – delivered through a focus on market share growth in target segments while managing risk and pricing disciplines, and a disciplined approach to managing costs and investment.

- Return on Equity (ROE)2 – targeting double digit cash ROE.

Execution of the Group's strategy over the past three years has positioned it well with strong, safe balance sheet settings and attractive growth options. This has allowed the Group to continue to grow in 2023, in a selective and targeted manner, despite a more challenging operating environment.

In Business and Private Banking, where the Group has the leading SME business lending market share, it is continuing to leverage growth opportunities across its franchise through a relationship-led approach increasingly enabled by digital, data and analytics. Following a strong growth year in 2022, business lending balances rose 8% over 2023 including 24% growth in small business lending, benefiting from simplified origination, enhanced digital capability and specialist local small business bankers. Heightened focus and increasing simplification and digitisation of the account opening process is also supporting strong growth in SME deposits. New business transaction account openings grew 50% over the three years to September 2023, including an 11% increase over the September 2023 financial year. Delivering better payments experiences remains a key priority and 2023 has seen the rollout of nextgen terminals for healthcare providers and SMEs, increased self service functionality via the Group's new payment portal and continued launch of innovative solutions such as NAB Flex-Flow Lending which gives merchant customers fast access to unsecured lending.

In Personal Banking, the Group remains focused on providing simpler, more digital banking experiences to drive quicker, better outcomes for customers and colleagues. Simple everyday banking products opened digitally increased to 74% in 2023 from 71% in 2022 and 62% in 2020. Australian home lending remains a key market, and the Group is continuing to invest to deliver better customer experiences including further progressing its simple and digital home loan initiative with rollout to brokers and Business and Private Banking underway in 2023. However, given a number of sector headwinds in 2023 including heightened refinancing activity and competitive pressures, the Group adopted a disciplined approach to originating new home loans, which saw its share of system growth1 reduce from 1.1x in 2022 to 0.7x in 2023.

The Group remains excited about growth in unsecured lending and ubank where it is leveraging capability from recent acquisitions to deliver better, more targeted customer propositions and diversify its portfolio. Over 2023, the Group's credit card balances and market share increased. Over the same period ubank recorded continued strong new customer acquisition with the addition of approximately 175,000 net new customers in 2023, weighted towards its target segment of 18 to 35 year-olds.

Corporate and Institutional Banking delivered improved returns and continued strong customer outcomes despite lower lending balances. In a difficult market, New Zealand Banking achieved good growth in home lending and deposits, while business lending was more subdued reflecting weak system growth and disciplined portfolio management.

Having a strong customer franchise and engaged colleagues are key to the Group's ability to grow sustainably, and is supported by a consistent focus on improving customer and colleague experiences. The Group's most recent colleague engagement score of 78 at July 2023 is up two points since August 2022 and one point higher than the top quartile benchmark2 which is consistent with its ambition. Customer outcomes in key segments in 2023 have remained first or second ranked versus major Australian bank peers. But there is more to do to achieve the Group's objective of being number one of the major Australian banks with positive NPS scores. Over the 12 months to September 2023, Business NPS improved from -5 to 5 with NAB continuing to rank second among major Australian banks while Consumer NPS declined from 0 to -2 with NAB ranking first among major Australian banks. Customer outcomes for 2023 in Corporate and Institutional Banking include Institutional NPS3 declining five points to 36 and Relationship Strength Index (RSI)4 declining 29 points to 593, in both cases reducing the Group's ranking versus major Australian banks from first to second, although pleasingly RSI continues to rank first across a range of specialist focus areas including Transactional Banking5 and Debt Capital Markets6.

A key focus of the Group's investment over recent years has been on simplifying, automating and digitising its business and increasing the use of data and analytics. These initiatives are delivering better outcomes for customers and colleagues by allowing bankers to spend more time with customers and provide more insights and quicker responses, while at the same time letting customers increasingly self serve when they want to. They are also making the Group more efficient, helping it manage costs while investing to grow. In 2023 the Group achieved productivity benefits of $398 million. During a period of elevated inflationary pressures, this allowed the Group to limit growth in cash costs in 2023 to 5.6%7 (excluding Citi consumer business costs and a provision of $40 million in respect of a one-off levy for the Compensation Scheme of Last Resort), while maintaining investment spend at approximately $1.4 billion. Looking to 2024, the Group expects to continue its balanced approach of maintaining cost discipline while investing for sustainable growth, and is targeting investment spend remaining at approximately $1.4 billion and further productivity savings of approximately $400 million.

Safety is a key pillar of the Group's long term strategy and keeping customers safe remains an important focus. Over 2023 the Group accelerated efforts to protect customers against the rapid rise in fraud and scams. This includes investment in customer awareness and education, 24/7 account monitoring, security alerts and proactive payment prompts, along with additional resourcing and working with telecommunication providers to help limit NAB-related spoofing calls and messages. More can and will be done at a customer, bank, industry, government and community level to deter criminals. The Group also recognises the current environment is more challenging for its customers including the impact of cost of living pressures. To support those customers needing help, the Group has increased resourcing in its customer assistance and hardship teams during 2023.

Safety also requires that the Group maintain prudent balance sheet settings and manage risk with discipline to ensure it can grow sustainably. At September 2023 collective provisions as a ratio of credit risk weighted assets were 1.47% and the share of lending funded by deposits was above 80% - both materially stronger than pre COVID-19 levels. Liquidity increased over 2023 and remains well above regulatory minimums and the Group continued to access term wholesale funding across a range of products, currencies and tenors, issuing $40 billion8 in 2023. The Group continues to target a CET1 capital ratio of 11-11.5% reflecting a balance between maintaining a strong balance sheet through the cycle while improving shareholder returns. Over 2023, Group CET1 ratio increased 71 basis points to 12.22% at September 2023. This includes a 47 basis point benefit from implementation of APRA's revised capital framework at 1 January 2023, partly offset by a reduction of 20 basis points from share buy-backs during the period. Adjusting for the remaining $1.2 billion share buy-back outstanding at September 2023, proforma Group CET1 is approximately 11.94%9.

Despite retaining strong balance sheet settings over 2023, the Group has delivered improved returns for shareholders consistent with its strategic ambition. These outcomes reflect the ongoing execution of the Group's strategy combined with benefits from the higher interest rate environment. Cash EPS2 increased 26% compared with 2022 and cash ROE2 increased to 12.9% compared with 11.7% in 2022. The final 2023 dividend has been set at 84 cents per share, bringing total dividends for the year ended 30 September 2023 to 167 cents per share which is 10.6% higher than 2022. This represents a 2023 cash earnings payout ratio of 67.7%, consistent with the Group's target dividend payout ratio which is guided by a range of 65% – 75% of cash earnings10, subject to Board determination based on circumstances at the relevant time.

1. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Inc., NICE Systems, Inc., and Fred Reichheld. Sourced from DBM Business and Consumer Atlas (part of RFI Global), measured on 6 month rolling average to September 2023. Business NPS is based on equal (25:25:25:25) combined weighting of NAB turnover segments: Micro (Up to $100k turnover), Small ($100k - $5m turnover), Medium ($5m - $50m turnover), Large ($50m+). Consumer NPS excludes consumers with Personal income of $260k+ and/or investible assets $1m+. Ranking based on absolute scores, not statistically significant differences.
2. Full detail on how cash earnings is defined, a discussion of non-cash earnings items and a full reconciliation of statutory net profit attributable to owners of the Company is set out in Note 2 Segment information of the Financial Report on page . Statutory return on equity and statutory EPS are presented on page .
3. APRA Monthly Authorised Deposit-taking Institution statistics. Latest data as at September 2023 (adjusted for reclassification of the Citi consumer business). 2022 multiple of system growth excludes impact of Citi consumer business balances acquired by NAB Group on 1 June 2022.
4. Engagement scores refer to Glint ‘Heartbeat’ outcomes. Top quartile comparison is based upon Glint’s client group (domestic and global, from all industries).
5. Peter Lee Associates Australia - Corporate and Institutional Relationship Banking Survey 2023. Ranking against the four major domestic banks. 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.
6. Peter Lee Associates Australia - Corporate and Institutional Relationship Banking Survey 2023. Ranking against all banks included in survey. Relationship Strength Index (RSI) is based on the results of key qualitative measures.
7. Peter Lee Associates Australia - Transaction Banking Survey 2023. Ranking against the four major domestic banks.
8. Peter Lee Associates Australia - Debt Capital Markets Survey 2023. Ranking against the four major domestic banks.
9. On a cash earnings basis. On a statutory basis, expenses in 2023 increased by 7.8% compared with 2022.
10. Includes RBNZ’s Funding for Lending Programme (FLP) of $1.3 billion.
11. On 28 February 2023 the Group completed its $2.5 billion on-market share buy-back announced in March 2022. This includes $0.6 billion (19,270,329 ordinary shares) bought back and cancelled in the March 2023 half year. On 15 August 2023 the Group announced its intention to acquire up to $1.5 billion ordinary shares via an on-market buyback. This buy-back is expected to be undertaken over approximately 12 months, with approximately $0.3 billion (10,562,183 ordinary shares) acquired as at 30 September 2023.
12. Statutory dividend payout ratio is 70.6%.

# Capital management and funding review

# Balance sheet management overview

The Group has a strong capital and liquidity position, consistent with its commitment to balance sheet strength.

# Regulatory reform

The Group remains focused on areas of regulatory change. Key reforms that may affect the Group's capital and funding include:

Revisions to the capital framework

- APRA prudential standards for the revised capital framework came into effect on 1 January 2023. From 31 March 2023, capital ratios presented in this report are in accordance with the revised framework. APRA’s revisions to the framework include:

  - Improving flexibility via increasing regulatory capital buffers.

  - Implementing more risk-sensitive risk-weights.

  - Introducing a capital floor for internal ratings-based (IRB) ADIs.

  - Improving transparency and comparability through the disclosure of risk-weighted assets (RWA) under the standardised approach.

- The Group has applied APS 115 Capital Adequacy: Standardised Measurement Approach to Operational Risk from 1 January 2022.

- APRA’s revised leverage ratio exposure measurement methodology came into effect on 1 January 2023, as did the minimum leverage ratio requirement of 3.5% for IRB ADIs. The 30 September 2023 leverage ratio of 5.2% is in accordance with the revised methodology.

- APRA has announced that revisions to APS 117 Capital Adequacy: Interest Rate Risk in the Banking Book will be released for consultation in late 2023 with an expected effective date in 2025.

- Following the APS 117 finalisation, APRA plans to consult on revisions to the market risk capital standards over 2024. The process will implement the Basel Committee on Banking Supervision’s fundamental review of the trading book, effective from 2026.

- APRA has also deferred the implementation date for Basel III reforms to APS 180 Capital Adequacy: Counterparty Credit Risk to 2026.

Increased loss-absorbing capacity for ADIs

In December 2021, APRA released its finalised requirements for the Australian loss-absorbing capacity framework. The final requirements represent a further increase in the amount of Total capital required by domestic systemically important banks (D-SIBs) equal to 1.5% of RWA, with a total increase of 4.5% of RWA required by January 2026. The interim requirement of an increase in the Total capital requirement of 3% of RWA by 1 January 2024 remains in place. Based on the Group’s RWA and Total capital position as at 30 September 2023, NAB has met the interim requirement.

RBNZ capital review

In December 2019, the RBNZ finalised its review of the capital adequacy framework. The RBNZ amendments to the amount of regulatory capital required of locally incorporated banks include:

- An increase in credit RWA for banks that use the RBNZ's internal ratings-based approach due to:

  - The use of the standardised approach for bank and sovereign exposures, and the introduction of an overall minimum standardised floor, implemented on 1 January 2022.

  - An increase in the RWA scalar, implemented on 1 October 2022.

- An increase in the Tier 1 capital requirement to 16% of RWA, and an increase in the Total capital requirement to 18% of RWA, to be phased in by 2028.

- As at 30 September 2023, BNZ Tier 1 and Total capital ratios were 14.6% and 15.7%.

Additional Tier 1 capital discussion paper

In September 2023, APRA released a discussion paper outlining potential options for, and seeking feedback from stakeholders on, improving the effectiveness of Additional Tier 1 (AT1) capital in Australia. APRA intends to follow this process with a formal consultation in 2024 on any proposed amendments to prudential standards.

Liquidity requirements

APRA expects to conduct a comprehensive review of APS 210 Liquidity in 2024, with an expected effective date in 2026.

# Capital management

The Group’s capital management strategy is focused on adequacy, efficiency and flexibility. The capital adequacy objective seeks to ensure sufficient capital is held in excess of regulatory requirements and is within the Group’s balance sheet risk appetite. This approach is consistent across the Group’s subsidiaries.

The Group’s capital ratio operating targets are regularly reviewed in the context of the external economic and regulatory outlook with the objective of maintaining balance sheet strength. From 1 January 2023, the Group’s CET1 target range moved to 11.00-11.50% to align with the new calculation methodology under APRA’s revised capital framework.

On 28 February 2023, the Group completed the $2.5 billion on-market buy-back announced on 24 March 2022.

On 15 August 2023, the Group announced its intention to buy back up to $1.5 billion of NAB ordinary shares on-market to progressively manage its CET1 capital ratio towards its target range. NAB commenced the further buy-back on 29 August 2023. Including the previous buy-back, NAB has bought back and cancelled 29,832,512 ordinary shares ($0.9 billion) in the full year ended 30 September 2023 including $0.3 billion (0.07% of CET1 capital) in the half year ended 30 September 2023.

# Additional Tier 1 capital initiatives

On 14 September 2023, the Group issued $1,250 million of NAB Capital Notes 7, which will mandatorily convert into NAB ordinary shares on 17 June 2033, provided certain conditions are met.

With APRA’s prior written approval, NAB may elect to convert, redeem or resell these NAB Capital Notes 7 on 17 September 2030, 17 December 2030, 17 March 2031, 17 June 2031, or on the occurrence of particular events, provided certain conditions are met.

Tier 2 capital initiatives

The Group’s Tier 2 capital initiatives during the September 2023 full year included the following:

- On 12 January 2023, NAB issued US$1.25 billion of Subordinated Notes.

- On 9 March 2023, NAB issued $1.25 billion of Subordinated Notes.

- On 19 May 2023, NAB redeemed SGD450 million of Subordinated Notes.

- On 6 June 2023, NAB issued HKD640 million of Subordinated Notes.

- On 20 September 2023, NAB redeemed $943,210,100 of NAB Subordinated Notes 2 issued on 20 March 2017, in accordance with the redemption notice issued on 11 July 2023.

BNZ capital initiatives

On 14 June 2023, BNZ issued NZD375 million of Perpetual Preference Shares (PPS), which qualify as AT1 capital under RBNZ rules. With RBNZ’s prior approval, BNZ may elect to redeem the PPS on the first optional redemption date (14 June 2029) and each subsequent distribution payment date, provided certain conditions are met.

# Funding and liquidity

The Group monitors the composition and stability of funding and liquidity through the Board approved risk appetite which includes compliance with the regulatory requirements of APRA's Liquidity coverage ratio (LCR) and Net Stable Funding Ratio (NSFR).

# Funding

The Group employs a range of metrics to set its risk appetite and measure balance sheet strength. The NSFR measures the extent to which assets are funded with stable sources of funding to mitigate the risk of future funding stress.

As at 30 September 2023, the Group’s NSFR was 116% down 3% compared to 30 September 2022, with the movement primarily driven by impacts associated with the maturity of the Initial Allowance of the Term Funding Facility (TFF) and the 2024 maturities of the Additional and Supplementary Allowances of the TFF.

Another key structural measure for balance sheet strength is the Stable Funding Index (SFI), which is comprised of the Customer Funding Index (CFI) and the Term Funding Index (TFI). The CFI represents the proportion of the Group’s core assets that is funded by customer deposits. Similarly, the TFI represents the proportion of the Group’s core assets that is funded by term wholesale funding with a remaining term to maturity of greater than 12 months, including TFF, Term Lending Facility (TLF) and Funding for Lending Programme (FLP) drawdowns.

For the 30 September 2023 full year, the SFI remained at 102% as term wholesale funding and remaining TFF moving within 12 months to maturity was met with a similar increase in new term wholesale funding. The increase in lending growth was largely funded by deposit inflows.

# Term wholesale funding

The Group maintains a well-diversified term wholesale funding profile across issuance type, currency, investor location and tenor.

In March 2023 global term wholesale funding markets were impacted by the events surrounding Credit Suisse and the US regional bank failures. More recently term wholesale funding markets have been driven by global monetary policy and increased interest rate volatility.

The Group raised $40.2 billion1 of term wholesale funding during the September 2023 full year. NAB raised $35.1 billion of term wholesale funding, including $3.2 billion of Tier 2 subordinated debt and BNZ raised $3.9 billion of term wholesale funding.

The weighted average maturity of term wholesale funding issued by the Group in the September 2023 full year was 4.32 years. The weighted average remaining maturity of the Group’s term wholesale funding portfolio is 3.52 years.

Term wholesale funding markets continue to be influenced by the economic environment, investor sentiment and impacts of monetary and fiscal policy settings.

1. Includes FLP.
2. Excludes AT1 capital, Residential Mortgage Backed Securities (RMBS), TFF and FLP.

# Short-term wholesale funding

For the September 2023 full year, the Group accessed international and domestic short-term funding through wholesale markets. In addition, the Group has accessed secured short-term funding in the form of repurchase agreements primarily to support markets and trading activities. Repurchase agreements entered into, excluding those associated with the TFF, TLF and FLP, are materially offset by reverse repurchase agreements with similar tenors.

# Liquidity Coverage Ratio

The LCR measures the adequacy of High-quality liquid assets (HQLA) available to meet net cash outflows over a 30-day period during a severe liquidity stress scenario. HQLA consists of cash, central bank reserves and highly rated government securities. In addition to HQLA, Alternative liquid assets (ALA) can also contribute to regulatory liquidity. ALA has previously included the Committed Liquidity Facility (CLF) which was in effect pre 1 January 2023, and currently includes certain RBNZ repo-eligible securities.

The Group maintains a well-diversified liquid asset portfolio to support regulatory and internal requirements in the regions in which it operates. The average value of regulatory liquid assets held through the September 2023 quarter was $210 billion which was comprised of $209 billion of HQLA and $1 billion of RBNZ repo-eligible securities.

The Group's LCR averaged 140% during the September quarter, an increase of 9% compared to September 2022.

A detailed breakdown of quarterly average net cash outflows is provided in the September 2023 Pillar 3 Report.

# Dividend and Dividend Reinvestment Plan (DRP)

The final dividend in respect of the year ended 30 September 2023 has been increased to 84 cents, 100% franked, payable on 15 December 2023.

The extent to which future dividends on ordinary shares and distributions on frankable hybrids will be franked is not guaranteed and will depend on a number of factors, including capital management activities and the level of profits generated by the Group that will be subject to tax in Australia.

The Group periodically adjusts its DRP to reflect its capital position and outlook. The DRP discount for the 2023 final dividend is nil. Eligible shareholders have the ability to participate in the DRP for the 2023 final dividend for up to 5 million NAB ordinary shares per participant. The Group expects to satisfy the DRP in full by an on-market purchase of shares.

.

# Directors’ information

For information on the directors, company secretaries and board meetings refer to pages to and .

# Directors' and officers' indemnity

NAB’s constitution

To the maximum extent permitted by law and without limiting the Company’s power, the Company may indemnify any current or former officer out of the property of the Company against:

- Any liability incurred by the person in the capacity as an officer (except a liability for legal costs).

- Legal costs incurred in defending or resisting (or otherwise in connection with) proceedings, whether civil or criminal or of an administrative or investigatory nature, in which the officer becomes involved because of that capacity.

- Legal costs incurred in connection with any investigation or inquiry of any nature (including, without limitation, a royal commission) in which the officer becomes involved (including, without limitation, appearing as a witness or producing documents) because of that capacity.

- Legal costs incurred in good faith in obtaining legal advice on issues relevant to the performance of their functions and discharge of their duties as an officer, if that expenditure has been approved in accordance with the terms of any applicable deed or agreement entered into pursuant to article 20.3 or any applicable policy of the Company, except to the extent that:

  - The Company is forbidden by law to indemnify the person against the liability or legal costs, or

  - An indemnity by the Company of the person against the liability or legal costs, if given, would be made void by law.

Under Article 20.2, the Company may pay or agree to pay, whether directly or through an interposed entity, a premium for a contract insuring a person who is or has been an officer against liability incurred by the person in that capacity, including a liability for legal costs, unless:

- The Company is forbidden by law to pay or agree to pay the premium, or

- The contract would, if the Company paid the premium, be made void by law.

The Company may enter into an agreement with a person referred to in Articles 20.1 and 20.2 with respect to the subject matter of those Articles. Such an agreement may include provisions relating to rights of access to the books of the Company . In the context of Article 20, ‘officer’ means a director, secretary or senior manager of NAB or of a related body corporate of the Company.

The Company has executed deeds of indemnity in favour of each director of NAB and certain directors of related bodies corporate of the Company. Some companies within the Group have extended equivalent deeds of indemnity in favour of directors of those companies.

# Directors' and officers' insurance

During the year, the Company, pursuant to Article 20, paid a premium for a contract insuring all directors, secretaries, executive officers and officers of the Company and of each related body corporate of the Company. The contract does not provide cover for the independent auditors of the Company or of a related body corporate of the Company. In accordance with usual commercial practice, the insurance contract prohibits disclosure of the premium payable, the policy limits and the nature of the liabilities covered.

# Directors' and executives' interests

Particulars of shares, rights and other relevant interests held directly and indirectly by directors and Group Executives are set out in the Remuneration Report.

# Other matters

# Rights

As at the date of this report, there are 3,635,434 rights outstanding in relation to NAB fully paid ordinary shares. No exercise price is payable for rights. The latest dates for exercise of the rights range between 15 November 2023 and 15 November 2030. Persons holding rights are not entitled to participate in capital actions by NAB (such as rights issues or bonus issues).

For the period from 1 October 2023 to the date of this report, no NAB fully paid ordinary shares were issued as a result of the exercise of a right.

For further details on rights refer to Note 35 Equity-based plans of the notes to the financial statements and Section 7.4 of the Remuneration Report.

# Future developments

In the opinion of the directors, discussion or disclosure of any further future developments including the Group’s business strategies and its prospects for future financial years would be likely to result in unreasonable prejudice to the interests of the Group.

# Proceedings on behalf of NAB

There are no proceedings brought or intervened in, or applications to bring or intervene in proceedings, on behalf of NAB by a member or other person entitled to do so under section 237 of the Corporations Act 2001 (Cth).

# Events subsequent to reporting date

There are no items, transactions or events of a material or unusual nature that have arisen in the period between 30 September 2023 and the date of this report that, in the opinion of the directors, have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future years.

# Integrity of reporting

The directors of NAB have a responsibility with respect to the integrity of external reporting. This involves reviewing and monitoring, with the assistance of the Board Audit Committee and management, the processes, controls and procedures which are in place to maintain the integrity of the Group’s financial statements.

Further details on the role of the Board and its committees can be found in NAB's 2023 Corporate Governance Statement in the Corporate Governance Statement section of this report and is available online at nab.com.au/about-us/corporate-governance.

# External auditor

EY were appointed as the Group external auditor on 31 January 2005 and have provided the audit opinion on the Financial Report for 19 years. Mr Tim Dring was appointed on 16 December 2022 as the Group's Lead Partner succeeding Ms Sarah Lowe on the completion of her five-year tenure. The Audit Committee conducts an annual review of the adequacy of the external audit with emphasis on effectiveness, performance and independence of the external auditor. The Audit Committee resolved EY should continue as the Group's external auditor.

There is no person who has acted as an officer of the Group during the 2023 financial year who has previously been a partner at EY when that firm conducted the Group's audit.

Non-audit services, audit-related, taxation-related services

The remuneration of the external auditor is set out in Note 34 Remuneration of external auditor of the notes to the financial statements and includes details of the fees paid or due and payable for audit-related, taxation-related and non-audit services provided by EY to the Group during 2023.

In accordance with advice received from the Board Audit Committee, the directors are satisfied that the provision of audit- related, taxation-related and non-audit services during the year to 30 September 2023 by EY is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth). The directors are satisfied because the Board Audit Committee or its delegate has assessed each service, having regard to auditor independence requirements of applicable laws, rules and regulations, and concluded that the provision of each service or type of service would not impair the independence of EY.

A description of the Board Audit Committee’s pre-approval policies and procedures is set out in the Assurance and Control section on page . A copy of EY’s independence declaration is set out on page .

# Remuneration Report

# Letter from the People & Remuneration Committee Chair, Anne Loveridge

Dear Fellow Shareholders,

On behalf of the Board, I am pleased to present the 2023 Remuneration Report. Our results reflect the continued disciplined execution of the Group's long-term strategy to serve customers well and help our communities prosper. The Group CEO and Group Executives performed well in challenging conditions to deliver the Group's business plan.

Performance in 2023

In 2023, the Group CEO and Group Executives were supported by our 38,000 colleagues to deliver safe, sustainable growth and better outcomes for customers and colleagues. Key outcomes in 2023 include:

- Strong financial performance with cash earnings of $7.73 billion1. This resulted in improved shareholder returns through a total dividend paid of 161 cents per share, fully franked for the year ended 30 September 2023.

- Reasonable market share growth in key categories including Australia business deposits (excluding Financial Institutions and Government), New Zealand home lending and New Zealand household deposits2. Market share growth in Australia lending to Small & Medium Enterprises was below plan.

- Net Promoter Score (NPS)3 results were mixed. While NAB remained #1 among the major Australian banks in one segment, the Board recognises there is more work to be done in this area. Further detail is in section 4.2.

- Colleague average engagement improved by 1% to 77%. This is pleasing and reflects our focus on the colleague experience.

- Automation and digitisation of our business driven by investment in new technologies, artificial intelligence and resources. This contributed to productivity benefits of $398 million.

- Action to keep the bank and customers safe through disciplined risk management, AUSTRAC compliance, continued investment in protection against financial crime and strong balance sheet settings.

- Investment in environmental initiatives including business loans for customers investing in emission-reducing technologies.

Additional detail about Group performance is in section 4.

Remuneration for colleagues excluding the Group CEO and Group Executives in 2023

Colleagues received an average Fixed Remuneration (FR) increase of 4.6% effective January 2023. Progress was made towards gender equality with an improvement of the gender pay gap to 15.8%. Progress continues to be made to addressing gender representation across the Group. The Group successfully renegotiated the new Enterprise Agreement (EA) in 2023, with 85% of colleagues who voted voting in favour of the new EA. The new EA provides certainty about pay and benefits, providing an average guaranteed FR increase of 4.5% to eligible colleagues in January 2024 and ongoing guaranteed increases in January 2025 and January 2026. Additional information about colleague benefits and progress of key initiatives is provided in section 1.3.

Remuneration for the Group CEO and Group Executives in 2023

The Group CEO and Group Executives delivered another year of strong results and progress on the Group strategy in 2023. The Board demonstrated discipline in determining executive remuneration outcomes and is focused on maintaining responsible levels of executive remuneration.

Key remuneration outcomes in 2023 were:

- Group Performance Indicators (GPI) achieved at 90% of target driven by strong cash earnings, good progress on colleague initiatives and safe growth, partially offset by some non-financial performance measures.

- The Group CEO's Annual Variable Reward (VR) outcome was 108% of his target opportunity (72% of maximum), recognising his leadership in delivering the Group strategy and engaging with customers.

- Annual VR outcomes for Group Executives were 81% to 117% of target (54% to 78% of maximum opportunity).

- No long-term VR vested in 2023 as the Group did not grant any long-term VR awards in 2018.

- The FR for three Group Executives will be increased in FY24 to reflect their increased accountabilities following changes in their portfolios and, for two individuals, realignment to external market positioning. No change was made to the FR for the Group CEO.

Further detail on the remuneration outcomes is in section 2.1.

Changes to the Group's remuneration frameworks

A decision in 2023 to change the executive remuneration framework with effect from 1 October 2023 was approved by the Board. The changes address the requirements of APRA's Prudential Standard CPS 511 Remuneration (CPS 511). For the Group CEO and Group Executives the changes were:

- The redesign of the Long Term Incentive (LTI) to give material weight to non-financial measures. The LTI is comprised of two equally weighted components being the Long Term Equity Award (LTEA) component (which is subject to a non-financial measure) and the Long Term Variable Reward (LTVR) component (which is subject to a financial measure);

- Longer deferral periods for the Group CEO and Group Executives to ensure long-term focus; and

- Strengthening of risk and conduct assessments aligned to our Group Risk Framework.

As a result of the changes the maximum remuneration opportunity for the Group CEO and Group Executives was reduced by 11%. Further detail is provided in section 5.

To address the requirements of CPS 511, the colleague remuneration framework was also reviewed, and modifications were made to the Group's specialist incentive plans to introduce materially weighted non-financial measures.

On behalf of the Board, I invite you to read this Remuneration Report which will be presented for adoption at the 2023 AGM.

Anne Loveridge People & Remuneration Committee Chair 9 November 2023

| Contents |  |  |
--- | --- | --- | --- | ---
| Section 1 - | Our remuneration framework |  |
| Section 2 - | Key executive remuneration 2023 outcomes |  |
| Section 3 - | Our 2023 executive variable remuneration plans |  |
| Section 4 - | Remuneration outcomes |  |
| Section 5 - | Executive remuneration in 2024 |  |
| Section 6 - | Governance, risk and consequence |  |
| Section 7 - | Group CEO and Group Executive statutory remuneration disclosures |  |
| Section 8 - | Non-executive director remuneration |  |
| Section 9 - | Loans, other transactions and other interests |  |

1. Full detail on how cash earnings is defined, a discussion of non-cash earnings items and a full reconciliation of statutory net profit attributable to owners of the Company is set out in the Financial Report on page .
2. Further detail is provided in section 4.
3. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Inc., NICE Systems, Inc., and Fred Reichheld.

# 1 - Our remuneration framework

# 1.1 Strategic context for remuneration at NAB

Our Group strategy and remuneration principles

Our remuneration frameworks are informed by the Group strategy which focuses on customers and colleagues. Our remuneration principles support the delivery of our strategic priorities as outlined below. The Group operates an executive remuneration framework for the Group CEO and Group Executives, and a broader colleague remuneration framework. Our Group strategy and remuneration principles are outlined below.

Through six underpinning principles, we seek to demonstrate how we approach remuneration to all stakeholders, including our customers, regulators, communities and colleagues. We intend to be fair, appropriate, simple and transparent. The new executive remuneration framework outlined in section 5 is governed by the Group strategy and Group remuneration principles. These principles inform our Group remuneration framework, remuneration policy and remuneration structures.

# 1.2 Executive remuneration framework in 2023

The Group remuneration principles inform the remuneration framework for the Group CEO and Group Executives. The framework reinforces our commitment to customers, aligns with sustainable shareholder value creation and reflects risk, reputation, conduct, sustainability and values (How We Work) outcomes. The framework supports the Group CEO and Group Executives to drive both short and long term performance. The requirement to hold a minimum shareholding enhances the alignment between the interests of shareholders and the Group CEO and Group Executives. The diagram below illustrates the executive remuneration framework that applied to the Group CEO and Group Executives in 2023.

A decision in 2023 to change the executive remuneration framework with effect from 1 October 2023 was approved by the Board. Further information about the change is provided in section 5. Accordingly, the executive remuneration framework illustrated above ceased to apply on 30 September 2023.

# 1.3 Colleague remuneration framework

Informed by our remuneration principles, the colleague remuneration framework as outlined below applies to colleagues below the Group Executive level.

Enhancements to the colleague remuneration framework

In 2023 we reviewed the colleague remuneration framework to ensure compliance with the regulatory requirements introduced by CPS 511. The enhancements to the colleague remuneration framework were informed by an independent review of the Group remuneration framework, performance management framework and consequence management practices completed in June 2022. We continued our focus on embedding simplification and standardisation through a compliant, cost effective and market aligned approach.

Colleague benefits and initiatives

NAB provides a broad range of benefits including financial and other wellbeing benefits to all colleagues. This includes training and education such as the CQiB qualifications which more than 14,500 colleagues have completed, data analytics and digitisation training, flexible work arrangements, up to two days of volunteer leave per year, and wellness and mental health resources through our Employee Assistance Program.

In 2023 the Group successfully renegotiated the new EA by undertaking extensive negotiations and colleague engagement. The new EA provides certainty about pay and a range of additional benefits to colleagues including one week of You Leave every year to eligible colleagues. The FR increase for 2024 for eligible colleagues below Group Executive level is based on colleagues' current FR as outlined below:

- FR below $110,300: Colleagues will receive a 5% FR increase.

- FR of $110,300 - $140,000: Colleagues will receive a minimum FR increase of 3.5%.

- FR of $140,001 - $185,925: Colleagues will receive a minimum FR increase of 2.5%.

- FR above $185,925: A budget of 3% of FR has been allocated to these colleagues and will be distributed based on individual performance, internal peer relatives and external market remuneration positioning.

Progress was made on other key colleague initiatives including:

- refinement of our "Ways of Working" to ensure workloads are manageable and colleagues have the support and resources required to perform their role.

- embedding our Distinctive Leadership tools and practices through continued focus on building clear, capable and motivated leaders who drive positive change. 92% of leaders have now completed the Distinctive Leadership Program.

- continued focus during our annual performance and reward review process to ensure people leaders address gender pay equity through the performance and reward decisions they make. NAB’s gender pay gap1 decreased to 15.8% in 2023 (16.9% in 2022)2.

- following the implementation of Reshaping Reward in 2021 and 2022 which simplified and standardised our reward offering, we continued to focus on our recognition program as a mechanism to continue to drive a positive culture.

- compliance with legislated Superannuation Guarantee Contribution changes that support a long-term benefit focus, together with awards being made under our $1,000 share or cash grant supporting long term value creation for colleagues.

1. The pay gap analysis indicates NAB’s gender pay gap when comparing the base salary of all females to males within the Australian-based workforce of NAB for the reporting period 1 April 2022 to 31 March 2023. The ratio is calculated by dividing the female average salary by the male average salary per employment level. It does not separately measure the gender pay gap in equivalent roles. Analysis includes permanent, fixed term, and casual colleagues and excludes contractors.
2. The 2022 Remuneration Report included a typographic error that recorded the gender pay gap as 10.9% instead of 16.9%.

# 2 - Key executive remuneration 2023 outcomes

# 2.1 Executive remuneration outcomes in 2023

Fixed Remuneration | 2023 Fixed Remuneration outcomesAs disclosed in our 2022 Remuneration Report, the Board approved a FR increase of 2.5% for the Group Chief Risk Officer and 2% for the other Group Executives effective from 4 January 2023.
2023 Performance and Annual VR outcomes | 2023 Annual VR outcomesThe Board considered performance across all elements of the scorecard, which reflected another year of good results and disciplined execution of strategic initiatives.The Board determined that a GPI outcome of 90% appropriately reflected the mix of strong and partial achievements. The GPI outcome reflected good cash earnings, progress on colleague initiatives and safe growth, partially offset by some non-financial performance measures (see section 3.1). In arriving at this outcome, the Board considered the sustained improvements in the management of risk and progress against strategy, customer outcomes and sustainability priorities.The 2023 Annual VR outcomes were:The five-year overview below shows modest Annual VR outcomes when compared to the maximum VR opportunity available. The level of variation in the outcomes for the Group CEO and Group Executives reflects appropriate pay for performance alignment.
2018 Long-Term VR outcomes | There was no LTVR vesting in 2023 as NAB did not grant any LTVR awards in relation to the 2018 performance year. The following table provides a five-year overview of the vesting outcomes of long-term VR awards. Further details on awards are provided in section 4.4.

The 2023 executive remuneration framework ceased to operate on 30 September 2023. The new 2024 executive Remuneration Framework commenced on 1 October 2023. Further details are provided in section 5.

# 2.2 Group executive appointments and exit arrangements

The following table outlines the remuneration arrangements for Group Executives as a result of role changes in 2023. Further details are provided in section 2.3.

Group Executive | Remuneration arrangement
--- | ---
Nathan Goonan, Group Chief Financial Officer(appointed 1 July 2023, ceased to be the Group Executive, Strategy and Innovation on 30 June 2023) | Mr Goonan was previously the Group Executive, Strategy and Innovation. As an existing Group Executive, Mr Goonan’s remuneration on appointment aligned to the 2023 executive remuneration framework. Effective from his appointment, Mr Goonan's remuneration comprised of annual FR of $1,127,500 with Annual VR maximum opportunity of 150% of FR and an LTVR maximum opportunity of 130% of FR.
Gary Lennon, Group Executive, Special Projects(ceased to be Group Chief Financial Officer on 1 July 2023, retired on 1 October 2023)1 | Mr Lennon retired from NAB on 1 October 2023. In accordance with the terms of NAB’s VR programs, Mr Lennon retained all unvested deferred short-term and long-term VR awards. The awards remain subject to the relevant performance measures and restriction periods. Mr Lennon remained eligible to participate in the FY23 Annual VR plan. Mr Lennon’s Annual VR will be delivered in cash (50%) and deferred cash (50%), vesting in four equal annual tranches. On retirement, Mr Lennon received a payment in respect of statutory entitlements and in recognition of his contribution to the Group. Payments made in connection with Mr Lennon's retirement complied with the termination benefits regime in the Corporations Act 2001 (Cth).
Sarah White, Group Executive People and Culture(appointed 18 August 2023)2 | Ms White was previously the Chief of Staff to the Group CEO. Due to the timing of her appointment, Ms White was provided with remuneration under the 2024 executive remuneration framework. Her remuneration is comprised of annual FR of $900,000 with Annual VR maximum opportunity of 100% of FR and LTI opportunity of 140% of FR (comprising the LTEA component of 70% of FR and the LTVR component of 70% of FR). Further information about the 2024 executive remuneration framework is provided in section 5. Ms White’s 2023 Annual VR outcome was based on her performance in her previous role.
Susan Ferrier, Group Executive People and Culture(ceased to be Group Executive People and Culture on 17 August 2023, retired on 31 October 2023)3 | Ms Ferrier retired from NAB on 31 October 2023. In accordance with NAB’s VR programs, Ms Ferrier retained all unvested recognition award shares and all unvested deferred short-term and long-term VR awards. The awards remain subject to the relevant performance measures and restriction periods. Ms Ferrier remained eligible to participate in the FY23 Annual VR plan. Ms Ferrier's Annual VR will delivered in cash (50%) and deferred cash (50%), vesting in four equal annual tranches. On retirement, Ms Ferrier received a payment in respect of statutory entitlements, support for transition to her retirement and in recognition of her contribution to the Group. Payments made in connection with Ms Ferrier's retirement complied with the termination benefits regime in the Corporations Act 2001 (Cth).

1. Mr Lennon was appointed as Group Executive, Special Projects for the period 1 July 2023 to 30 September 2023. He ceased to be a KMP and member of the ELT on 30 September 2023. He retired on 1 October 2023.
2. Ms White did not participate in the Annual VR program from 18 August 2023 to 30 September 2023, when she was appointed Group Executive People and Culture, and did not receive an Annual VR award in respect of this period. Consistent with the 2024 executive remuneration framework, Ms White will participate in the Annual VR plan and will receive an LTI award (comprising the LTEA component and LTVR component) in 2024.
3. Ms Ferrier remained employed by NAB during the period 18 August 2023 to 31 October 2023 to transition functional accountability to Ms White. She was not a KMP or a member of the Executive Leadership Team in this period. Ms Ferrier retired on 31 October 2023.

Group executive changes

Ms Mentis' announced her retirement at the end of FY23. Accordingly, her portfolio was reallocated to Mr Matheson from 1 November 2023. The table below outlines the change in his remuneration arrangements. Further details are provided in section 2.3.

Group Executive | Remuneration arrangement
--- | ---
Les Matheson, Group Executive Digital, Data and Chief Operating Officer(appointed 1 November 2023, ceased to be Group Chief Operating Officer on 31 October 2023) | Mr Matheson was previously the Group Chief Operating Officer. As the appointment occurred within the 2024 financial year, Mr Matheson's appointment aligned to the 2024 executive remuneration framework. On appointment, his remuneration comprised of annual FR of $1,150,000 with an Annual VR maximum opportunity of 100% of FR and LTI opportunity of 140% of FR (comprising the LTEA component of 70% of FR and the LTVR component of 70% of FR).
Angela Mentis, Group Chief Digital, Data and Analytics Officer(retired and ceased to be Group Chief Digital, Data & Analytics Officer on 31 October 2023) | Ms Mentis retired from NAB on 31 October 2023. In accordance with the terms of NAB’s VR programs, Ms Mentis retained all unvested deferred short-term and long-term VR awards. The awards remain subject to the relevant performance measures and restriction periods. Ms Mentis remained eligible to participate in the FY23 Annual VR plan. Ms Mentis' Annual VR will be delivered in cash (50%) and deferred cash (50%), vesting in four equal annual tranches. On retirement, Ms Mentis received a payment in respect of statutory entitlements and in recognition of her contribution to the Group. Payments made in connection with Ms Mentis' retirement complied with the termination benefits regime in the Corporations Act 2001 (Cth).

# 2.3 Key management personnel

The list of NAB's Key Management Personnel (KMP) is assessed each year and comprises of the non-executive directors of NAB, the Group CEO (an executive director of NAB) and the Group Executives who represent employees of the Group and have authority and responsibility for planning, directing and controlling the activities of both NAB and the Group. The KMP during 2023 were:

Name | Position | Term as KMP
--- | --- | ---
Non-executive directors |  |
Philip Chronican | Chair | Full year
David Armstrong | Director | Full year
Kathryn Fagg | Director | Full year
Christine Fellowes1 | Director | Part year
Peeyush Gupta | Director | Full year
Carolyn Kay2 | Director | Part year
Alison Kitchen3 | Director | Part year
Anne Loveridge | Director | Full year
Douglas McKay | Director | Full year
Simon McKeon | Director | Full year
Ann Sherry | Director | Full year
Group CEO |  |
Ross McEwan | Group Chief Executive Officer and Managing Director | Full year
Group Executives |  |
Sharon Cook | Group Executive, Legal and Commercial Services | Full year
Shaun Dooley | Group Chief Risk Officer | Full year
Susan Ferrier4 | Group Executive, People and Culture (to 17 August 2023) | Part year
David Gall | Group Executive, Corporate and Institutional Banking | Full year
Nathan Goonan5 | Group Executive, Strategy and Innovation (to 30 June 2023) Group Chief Financial Officer (from 1 July 2023) | Full year
Daniel Huggins6 | Managing Director and CEO of Bank of New Zealand | Full year
Andrew Irvine | Group Executive, Business and Private Banking | Full year
Gary Lennon7 | Group Chief Financial Officer (to 30 June 2023) Group Executive, Special Projects (from 1 July 2023) | Full year
Les Matheson8 | Group Chief Operating Officer | Full year
Angela Mentis9 | Group Chief Digital, Data and Analytics Officer | Full year
Rachel Slade | Group Executive, Personal Banking | Full year
Patrick Wright | Group Executive, Technology and Enterprise Operations | Full year
Sarah White10 | Group Executive, People and Culture (from 18 August 2023) | Part year

1. Christine Fellowes' appointment was effective 5 June 2023. She will stand for election at the 2023 Annual General Meeting.
2. Carolyn Kay's appointment was effective 31 July 2023. She will stand for election at the 2023 Annual General Meeting.
3. Alison Kitchen's appointment was effective 27 September 2023. She will stand for election at the 2023 Annual General Meeting.
4. Susan Ferrier ceased to be a KMP and member of the Executive Leadership Team on 17 August 2023. She remained an employee of NAB until 31 October 2023.
5. As announced on 21 March 2023, Nathan Goonan commenced as Group Chief Financial Officer from 1 July 2023.
6. All matters relating to the remuneration of Daniel Huggins including VR, have been approved by the BNZ Board as required under BNZ's Conditions of Registration which are set by the Reserve Bank of New Zealand.
7. Gary Lennon ceased to be a KMP and member of the Executive Leadership team on 30 September 2023 and retired on 1 October 2023.
8. As announced on 5 October 2023, Les Matheson commenced as Group Executive Digital, Data and Chief Operating Officer on 1 November 2023.
9. Angela Mentis retired and ceased to be a KMP and member of the Executive Leadership Team following the end of FY23 on 31 October 2023.
10. Sarah White's appointment was effective 18 August 2023.

# 3 - Our 2023 executive variable reward plans

The 2023 executive remuneration framework (including the executive variable reward plans described below) applied for 2023 and ceased to operate on 30 September 2023. From 1 October 2023, the new executive remuneration framework, as described in section 5, came into effect for the Group CEO and Group Executives.

# 3.1 Annual variable reward for 2023

The table below outlines the key features of the 2023 Annual VR plan for the Group CEO and Group Executives.

Feature |  | Description
--- | --- | ---
Purpose |  | Annual VR rewards the Group CEO and Group Executives for delivery of annual goals that drive long-term sustainable performance. It provides an appropriate level of remuneration that varies based on the Board’s determination of Group and individual performance over the financial year measured against agreed targets for financial and non-financial measures that are set to drive delivery of the Group's strategy. The plan is not wholly formulaic. Judgement is applied through qualitative assessment as determined by the Board.
| Group CEO and Group Executives (excluding Group Chief Risk Officer) | 100% of FR | 150% of FR
Group Chief Risk Officer | 75% of FR | 112.5% of FR
Group performance |  | Group performance is assessed on achievement of financial and non-financial measures (GPI) linked to the Group's key strategic priorities, overlaid by a qualitative assessment. The qualitative assessment may result in the outcome being adjusted upwards or downwards (including to zero) for risk, quality of performance (including consideration of financial and customer outcomes, sustainability matters, and progress made against strategy) and any other matters as determined by the Board. Further detail on the 2023 GPI and outcome is provided in section 4.1.
Individual performance and measures |  | Individual performance is assessed against a scorecard comprised of key financial and non-financial goals. The weighting of measures reflects the responsibilities for each individual's role. The Group CEO's 2023 scorecard is aligned to the GPI.
Individual performance modifiers: The Board considers three individual performance modifiers which may result in an adjustment to individuals’ performance and VR outcomes: Risk: the individual's management of risk and compliance Employee conduct: individual performance and VR outcomes may be reduced where expected standards of conduct are not met How We Work: the individual's demonstration of NAB’s values
Annual VR calculation |  | Individual Annual VR awards for the Group CEO and Group Executives1 are calculated as follows: Discretionary adjustments: Annual VR is discretionary and will vary in line with Group and individual performance and available funding. The Board may determine any amount be awarded from zero up to the maximum VR opportunity.The Group CEO's 2023 scorecard, assessment and outcomes are provided in section 4.2.
Award delivery and deferral |  | Annual VR is delivered as a combination of cash and deferred rights. The cash component of Annual VR is paid following the performance year to which it relates.Deferred rights are granted in February 2024 and are scheduled to vest pro-rata over four years from grant. Deferred rights are granted and may vest by the Board at its discretion, subject to the relevant plan rules including malus and clawback provisions.A dividend equivalent payment for any vested deferred rights is paid at the end of each deferral period.
Separation |  | If the Group CEO or Group Executive resigns, they will not receive any Annual VR for that year and any unvested deferred rights will be forfeited.Unvested awards may be retained on separation in other circumstances prior to the end of the vesting period. The Board retains discretion to determine a different treatment. Vesting of any unvested awards retained will generally not be accelerated and will continue to be held by the individual on the same terms.
Board discretion |  | The Board has extensive discretion in respect of the Annual VR awarded. Further detail on governance of Annual VR is outlined in section 6.2.

1. All matters relating to the remuneration of Daniel Huggins, Managing Director and CEO BNZ, including scorecard measures and performance assessment, have been approved by the BNZ Board as required under BNZ's Conditions of Registration which are set by the Reserve Bank of New Zealand. Daniel Huggins’ Annual VR is calculated as VR Target Opportunity x (50% Group performance + 50% BNZ performance) x Individual Performance Score. BNZ performance is assessed based on Customer (30%); Colleagues (12.5%); Safe Growth (7.5%) and Financial (50%). The assessed overall BNZ performance for 2023 was 100%.

# 3.2 Long-term variable reward allocated in 2023

The table below outlines the key features of the LTVR award allocated in February 2023 for the Group CEO and Group Executives.

From 1 October 2023, the Group CEO and Group Executives will be awarded a Long Term Incentive (LTI) award under the new executive remuneration framework. The LTI award (comprising the LTEA and LTVR components) will be granted in February 2024 (subject to shareholder approval for the grant to the Group CEO). Further information about the new executive remuneration framework is provided in section 5.

Feature | Description
--- | ---
Purpose | LTVR awards were granted by the Board to encourage long-term decision making critical to creating long-term value for shareholders. They were determined and awarded independently from Annual VR decisions.
Participants | Group CEO and Group Executives as determined by the Board.
Award value | The maximum face value of the LTVR award was 130% of FR for the Group CEO and Group Executives. The value of the LTVR granted was determined by the Board. The Board considered the Group's and the relevant participant's performance when determining the LTVR granted to the participant.The actual value delivered to each participant is subject to the level of achievement against the performance measure and may be zero if the performance measure is not achieved.
Instrument | The LTVR award was provided as performance rights.Each performance right entitles its holder to receive one NAB share at the end of the four year performance period, subject to the performance measure being satisfied.
Allocation approach | The number of performance rights granted was calculated by dividing the LTVR award face value by NAB's weighted average share price over the last five trading days of the financial year. The weighted average share price used for the 2023 LTVR award, which was allocated on 23 February 2023, was $29.11.
Grant date | The LTVR award was granted on 23 February 2023.
Performance period | Four years from 15 November 2022 to 15 November 2026.
Performance measure | TSR measures the return that a shareholder receives through dividends (and any other distributions) together with capital gains over a specific period. For the purposes of calculating TSR over the performance period, the value of the relevant shares on the start date and the end date of the performance period are based on the volume weighted average price of those shares over the 30 trading days up to and including the relevant date.NAB's TSR is measured against the TSR peer group to determine the level of vesting:
| NAB's relative TSR outcome |  | Level of vesting
| Below 50th percentile |  | 0%
| At 50th percentile |  | 50%
| Between 50th and 75th percentiles |  | Pro-rata vesting from 50% to 100%
| At or above 75th percentile |  | 100%
| The TSR peer group is AMP Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited, Bendigo and Adelaide Bank Limited, Commonwealth Bank of Australia, Macquarie Group Limited, Suncorp Group Limited and Westpac Banking Corporation. No change was made from the prior year.
Testing | TSR outcomes are calculated by an independent provider.
No retesting | The performance measure is not retested. Any performance rights that have not vested after the end of performance period will lapse in December 2026.
Dividends | No dividends are paid throughout the vesting period or in respect of vested performance rights.
Separation | The treatment of performance rights will depend on the reason for separation: Resignation: performance rights will be forfeited in full All other circumstances including retrenchment and retirement: the performance rights will be retained in full unless otherwise determined by the Board in its absolute discretion1 Any performance rights a participant continues to hold will remain subject to the performance measure, with the measure being tested in accordance with the normal timetable.
Board discretion | The Board has extensive discretion in respect of the LTVR, including the initial value granted, the amount of performance rights that vest and any forfeiture or clawback applied. Further detail is provided in section 6.2.

1. For example, if the participant retires prior to the end of the financial year in which the performance rights are granted, generally the Board will exercise its discretion to allow the participant to retain a pro-rata portion of the performance rights reflecting the proportion of the LTVR performance period served when the retirement occurs.

# 3.3 Remuneration mix

The 2023 remuneration mix for the Group CEO and Group Executives at maximum opportunity aimed to deliver approximately three-quarters of total remuneration as variable and 'at risk' remuneration. The actual remuneration mix for the Group CEO and each Group Executive is subject to Group1 and individual performance each year.

1. The outcome for the Managing Director and CEO BNZ will vary depending on overall Group and BNZ performance.

# 3.4 Long-term alignment of remuneration

The executive remuneration framework that applied in 2023 incorporated deferral to ensure shareholder alignment and a focus on continued, sustainable performance. A proportion of remuneration is deferred in the form of equity for up to four years. This encourages long-term decisions which are critical to creating sustainable value for customers and shareholders. The Board retains discretion to determine whether all or some variable reward (unvested, vested or paid) may be subject to malus and clawback. See section 6.2 for more detail.

# 4 - Remuneration outcomes

# 4.1 Group performance

The Board determined Group performance for 2023 based on the GPI outlined below. The 2023 GPI was determined as 90%. The GPI is linked to the Group's key strategic priorities, and has regard to a qualitative assessment of risk, performance (including consideration of financial, sustainability and customer outcomes, and progress made against strategy) and any other matters as determined by the Board.

In 2023, when determining the GPI outcome, the Board considered a range of qualitative factors including progress on sustainability matters. This included progress against sustainability priorities, support for customers (including affordable housing, cost of living support and scam and fraud prevention), community initiatives, colleague engagement and gender equality. Further detail on the sustainability matters in our performance and reward framework is provided in section 4.2.

The 2023 GPI outcomes were:

As part of our governance process, the GPI outcome may be modified by the Board due to unsatisfactory risk or conduct findings. The Group Risk Performance assessment, undertaken by the Group Chief Risk Officer, reviewed the Group’s practices and presented the findings to the Board and the Board Risk and Compliance Committee.

Historical Group performance

The table below shows the Group's annual financial performance over the last five years and its impact on shareholder value, taking into account dividend payments, share price changes, and other capital adjustments during the period.

Financial performance measure |  | 2023 | 2022 | 2021 | 2020 | 2019
--- | --- | --- | --- | --- | --- | ---
Basic earnings per share (cents) |  | 238.0 | 219.3 | 196.3 | 112.7 | 208.2
Cash earnings ($m)1 |  | 7,731 | 7,104 | 6,558 | 3,710 | 5,853
Dividends paid per share ($) |  | 1.61 | 1.40 | 0.90 | 1.13 | 1.82
Company share price at start of year ($) |  | 28.81 | 27.83 | 17.75 | 29.70 | 27.81
Company share price at end of year ($) |  | 29.07 | 28.81 | 27.83 | 17.75 | 29.70
Absolute Total Shareholder Return - latest financial year |  | 6.5% | 8.6% | 61.9% | (36.4%) | 13.3%
Absolute Total Shareholder Return - rolling four financial year period |  | 14.9% | 22.5% | 6.9% | (11.5%) | 29.6%

1. Information is presented on a continuing operations basis, unless otherwise stated. 2019 has been restated for the presentation of MLC Wealth as a discontinued operation. No other comparative periods have been restated.

The table below summarises the variable reward outcomes for the Group CEO and Group Executives over the last five years, including vesting of LTVR awards relating to prior periods.

|  | 2023 | 2022 | 2021 | 2020 | 2019
--- | --- | --- | --- | --- | --- | ---
Group CEO Annual VR (% of max. Annual VR) |  | 72% | 74% | 81% | 0% | 0%
Average Group Executives Annual VR (% of max. Annual VR)1 |  | 68% | 65% | 83% | 0% | 0%
LTVR award - four year performance period (% of total award vested)2 |  | n/a3 | 66% | 56% | 38% | 0%
LTVR award - five year performance period (% of total award vested)4 |  | n/a | n/a | n/a | 35% | 0%
NAB's four year relative TSR (S&P/ASX50)5 |  | n/a | n/a | n/a | 23rd | 20th
NAB's four year relative TSR (Top Financial Services peer group)56 |  | n/a3 | 71st | 71st | 57th | 43rd
NAB's five year relative TSR (S&P/ASX50)5 |  | n/a | n/a | n/a | 22nd | 35th
NAB's five year relative TSR (Top Financial Services peer group)56 |  | n/a | n/a | n/a | 57th | 43rd

1. The maximum Annual VR opportunity has changed over time, consistent with the relevant Annual VR plan.
2. The amount shown for 2022 is the portion of the total 2017 LTI award that vested and for 2021 is the portion of the total 2016 LTI award that vested. Both awards were measured over a four year performance period, against relevant peer groups.
3. NAB did not award any LTVR in 2018 and therefore there was no award to be tested for vesting in 2023.
4. The amount shown for 2020 is the percentage of the total 2014 LTI award that vested. This award was measured over a five year performance period against relevant peer groups.
5. Measured over the performance period of the relevant LTVR award.
6. The Top Financial Services peer group for all awards is: AMP Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited, Bendigo & Adelaide Bank Limited, Commonwealth Bank of Australia, Suncorp Group Limited and Westpac Banking Corporation.

# 4.2 Group CEO's performance

The table below shows the key 2023 performance measures for the Group CEO and Group Executives and the Board's assessment of the Group CEO's performance against those measures. The measures were selected to support the Group strategy and are underpinned by the GPI scorecard in section 4.1. The Board considers that the Group CEO and Group Executives have maintained momentum in delivering the Group strategy and have delivered strong results against the Group's business plan in a challenging and competitive economic environment.

Goal, objective and assessment | Weighting | Outcome
--- | --- | ---
Financial: Deliver attractive returns, safe growth and the financial planStrong financial performance with above plan cash earnings and disciplined management of the Group's balance sheet. The Group has maintained strong liquidity through 2023 with surpluses above regulatory requirements. Return on Total Allocated Equity (expected loss basis)1 of 13.15% was 22 basis points higher than plan. Cash earnings (expected loss basis)2 of $7,639 million was $117 million or 1.6% higher than plan. Market Share3 below plan expectations. Financial performance / profit growth reflects the continued, disciplined execution of our long-term strategy targeting growth in higher returning segments while managing the impact of the higher interest rate environment. | 60% | Achieved
Customers: Deliver a great customer experience and grow customer advocacyContinued support for our customers with a focus on vulnerable customers, customer complaint handling, customer advocacy and our remediation program. Strategic NPS4 results were disappointing and below target in 3 out of 4 priority segments. C&IB NPS leads peers. This was at target5. Consumer NPS was 3 points below the baseline of 0, with NAB ranked second among the major Australian banks6. Business NPS was 10 points above baseline (-4), with NAB ranked second among the major Australian banks7. High Net Worth and Mass Affluent NPS was 6 points below baseline (-3), with NAB ranked third among the major Australian banks8. The HNW NPS segment ended 2023 ranked first among the major Australian banks. Accelerating efforts to protect customers against scams and fraud via customer awareness and education campaigns, and investing in biometric technologies, machine learning, 24/7 account monitoring, working with telecommunications companies and delivering pro-active customer alerts. Continued improvement to complaints handling and resolution of remediation programs. Increased climate and sustainable financing products including the NAB Agri Green Loan, business finance for “green” equipment and new capability to provide equity funding in innovative early-stage climate-related investments. | 20% | Partially Achieved
Colleagues: Lead cultural change through energy, positivity, simplicity and engaged colleaguesColleague engagement increased steadily throughout the year achieving an average colleague engagement score of 77 for 2023, with a Q4 engagement spot score of 78, which was a top quartile outcome9. This reflects the work undertaken to realise our desired culture, including simplifying our processes and prioritising workload management and well-being. Continued to embed effective leadership practices across the Group with 92% of leaders having completed the Distinctive Leadership Program. Notable improvement (0.8% increase) in the representation of women in Leadership (Group 4 – 6) roles was achieved but was slightly below target. Implementation of the three-year EA comprehensively supported by the colleague vote. Effective leadership of challenging talent market with reduced attrition and effective attraction of key leadership roles and critical capabilities. | 15% | Partially Achieved
Safe Growth: Deliver the Group strategy with improved processes and controls across the GroupImproved management of the Group's obligations, risk and control environment and delivery against our long-term strategy. Achieved an Intelligent Control Score (internal measure of the Group's control environment) of 91 against a target of 86 (and a baseline of 81). Strong momentum in innovation and partnerships highlighted by Instant Credit Decisioning and the launch of NAB Stablecoin (tokenisation) with our world's first borderless transaction. Effective execution against our Technology Modernisation plan. Good execution of Mergers and Acquisition integration agenda. Good progress against our sustainability and climate strategy which is outlined further in NAB’s Climate Report (see below for additional information on the application of sustainability matters within performance). | 5% | Highly Achieved
Outcome before application of modifier |  | Partially Achieved
Risk modifier: Regulatory, breach management, progress on matters of interest, losses associated with operational events and remediation costs, reputation Maintained a stable risk profile in a volatile external environment, with a majority of Material Risk Categories improved or stable and positive momentum on significant risk issues throughout 2023. Increased focus on commitment to strengthening risk management and performance across the organisation, driven by Group CEO personal sponsorship, a focus on safe growth, protecting customers, improving risk management practices and disciplined management of compliance requirements, Responses to challenges presented by increased fraud and scams managed effectively, resulting in the average ‘speed of answer’ for calls to Fraud Operations significantly improving, the fraud and scams NPS improving and complaints reducing. Improvement in the Financial Crime risk profile including the on-schedule delivery of the AUSTRAC Enforceable Undertaking Remedial Action Plan. Achieved highest RepTrak survey score in six years and third consecutive quarterly increase10. |  | Achieved
How We Work modifier: Individual conduct and demonstration of NAB's valuesThe Group CEO demonstrated the Group's values and supported the Group's desired culture. Continued focus on simplification and productivity. Consistently driving accountability and performance focus across all leadership segments. Role modelled customer service behaviours with extensive engagement with key customers on a regular basis. Leadership across scams and fraud. Purposeful and regular engagement with colleagues including a focus on celebrating colleague success and encouraging colleagues to speak up and challenge the status quo. Demonstrated all leadership requirements and has improved the culture of accountability across all colleagues. |  | Highly Achieved
Overall OutcomeThe Group CEO's overall outcome was assessed as Highly Achieved reflecting his personal leadership contribution internally on strategic matters and externally on matters of significance, as well as role- modelling individual conduct and NAB's values. |  | CEO: 108% of target 72% of maximum opportunity

1. Return on Total Allocated Equity on an expected loss basis remains sensitive to changes in the risk profile of the Group's portfolio. Statutory net profit for the period amounted to $7,414 million.
2. Calculation on an expected loss basis provides a view that is reflective of long-term underlying business performance and is less volatile than the Credit Impairment Charge view which in individual years can be impacted by large movements in economic adjustments and forward looking adjustments.
3. Market Share is assessed by each product individually. Products include Australia Home Lending (16%, APRA), New Zealand Home Lending (4%, RBNZ), Australia SME Lending (27%, RBA), New Zealand Business Lending (3%, RBNZ), Australia Household Deposits (21%, APRA), New Zealand Household Deposits (4%, RBNZ), Australia Business Deposits excluding Financial Institutions and Government (21%, APRA), New Zealand Business Deposits (4%, RBNZ). Market Share movement results are July 2022 to July 2023.
4. Net Promoter® and NPS® are registered trademarks and Net Promoter Score and Net Promoter Systems are trademarks of Bain & Company, Inc., NICE Systems, Inc. and Fred Reichheld.
5. Met target based on ranking in our target market, informed by an independent survey.
6. Sourced from DBM Consumer Atlas (part of RFI Global), measured on 6 month rolling average to August 2023. Baseline is August 2022. Consumer NPS excludes consumers with Personal income of $260k+ and/or investible assets of $1m+. Ranking based on absolute scores, not statistically significant differences.
7. Sourced from DBM Business Atlas (part of RFI Global), measured on 6 month rolling average to August 2023. Baseline is August 2022. Business NPS is based on equal (25:25:25:25) combined weighting of NAB turnover segments: Micro (Up to $100k turnover), Small ($100k-$5m turnover), Medium ($5m-$50m turnover), Large ($50m+). Ranking based on absolute scores, not statistically significant differences.
8. Sourced from DBM Consumer Atlas (part of RFI Global), measured on 6 month rolling average to August 2023. Baseline is August 2022. Based on all consumers 18+, in either High Net Worth definition or Mass Affluent definition and on equal (50:50) combined weighting of included segments. Mass Affluent includes consumers with Personal income of $260k+ and/or investible assets less than $2.5m and/or investible assets of $1m<$2.5m, High Net Worth includes consumers with investible assets of $2.5m+. Ranking based on absolute scores, not statistically significant differences.
9. The Group's average colleague engagement increased to 77 over 2023, with a Q4 spot score of 78 in August 2023. This is based on the methodology adopted by Glint (which conducts the Heartbeat survey). Top quartile is based upon Glint's client group (domestic and global, from all industries).
10. RepTrak Score (0-100) is provided by The RepTrak Company. It is an independent measurement of company reputation among those familiar with NAB. Data is reported on a quarterly basis.

Sustainability within our remuneration framework

Our strategic ambition, to serve customers well and help communities prosper is reflected in the measures that determine performance and remuneration across NAB. Sustainability related performance is part of this process and is applied within our GPI and qualitative assessment of performance, as well as Group CEO, Group Executive and colleague scorecards.

The governance and oversight of how these measures are set, reviewed and linked to the Group CEO and Group Executives' remuneration outcomes are in accordance with the Group's governance and oversight framework outlined in section 6.1.

Our approach has been consistent since 2020 when the new Group strategy was implemented.

Examples of Sustainability within our performance framework

The list below provides some examples of the types of sustainability related matters that have been incorporated into the assessments of the Group CEO and Group Executives' performance in 2023. For specific Group Executives, sustainability related measures are included within their individual performance scorecards.

- Positive customer outcomes: Including NPS measures, meaningful action on customer complaints, appropriate support for customers experiencing vulnerability, actions taken to build customer awareness and reduce the impact of fraud and scams.

- Positive colleague outcomes: Colleague engagement, gender equality, inclusion and diversity.

- Progress against sustainability priorities:

  - Climate change: Progress against existing, and establishing additional, sector decarbonisation targets; building operational maturity and colleague capability; increasing support for customers through product and service development and safe growth in environmental financing.

  - Affordable and specialist housing: Progress against NAB’s affordable and specialist housing target and development of NAB’s specialised customer proposition in target growth areas.

  - Indigenous economic advancement: Progress against NAB’s Indigenous business strategy including growth of a specialised banking team, and safe growth in financing to Indigenous businesses.

  - Natural disaster support: Maturity of NAB’s customer and colleague disaster support process and national partnerships implemented to drive meaningful philanthropic activity.

Individual performance modifiers for Risk and How We Work (conduct and values) also consider sustainability related matters, and therefore may influence final assessed performance.

Further information on NAB’s approach to managing climate change and other sustainability related matters is provided in NAB’s 2023 Climate Report.

# 4.3 In-year variable reward outcomes

Group CEO and Group Executives

The table below outlines the Annual VR outcome for the Group CEO and each Group Executive for 2023 compared to each individual's maximum Annual VR opportunity. The variance in the individual scores reflects differences in performance against individual scorecards.

|  | Maximum Annual VR opportunity | Total Annual VR | Annual VR cash | VR deferred rights1 |  | % of maximum Annual VR opportunity
--- | --- | --- | --- | --- | --- | --- | ---
Name |  | $ | $ | $ | $ |  | %
Group CEO |  |  |  |  |  |  |
Ross McEwan |  | 3,750,000 | 2,700,000 | 1,350,000 | 1,350,000 |  | 72
Group Executives |  |  |  |  |  |  |
Sharon Cook |  | 1,460,625 | 920,194 | 460,097 | 460,097 |  | 63
Shaun Dooley |  | 1,383,750 | 871,763 | 435,882 | 435,881 |  | 63
Susan Ferrier2 |  | 1,220,733 | 659,195 | 329,597 | 329,598 |  | 54
David Gall |  | 1,845,000 | 1,383,750 | 691,875 | 691,875 |  | 75
Nathan Goonan |  | 1,690,500 | 1,065,015 | 532,507 | 532,508 |  | 63
Andrew Irvine |  | 1,845,000 | 1,439,100 | 719,550 | 719,550 |  | 78
Gary Lennon |  | 1,691,250 | 1,166,963 | 583,482 | 583,481 |  | 69
Les Matheson |  | 1,614,375 | 1,065,488 | 532,744 | 532,744 |  | 66
Angela Mentis |  | 1,845,000 | 1,217,700 | 608,850 | 608,850 |  | 66
Rachel Slade |  | 1,845,000 | 1,328,400 | 664,200 | 664,200 |  | 72
Patrick Wright |  | 2,306,250 | 1,591,313 | 795,657 | 795,656 |  | 69
Daniel Huggins3 |  | 1,701,291 | 1,216,481 | 608,241 | 608,240 |  | 72
Sarah White4 |  | - | - | - | - |  | n/a
Total |  | 24,198,774 | 16,625,362 | 8,312,682 | 8,312,680 |  | 69

1. Due to the retirement of Susan Ferrier, Gary Lennon and Angela Mentis, their Annual VR deferred award will be paid as deferred cash.
2. Susan Ferrier's VR for 2023 has been pro-rated for the period she was a KMP being 1 October 2022 to 17 August 2023.
3. VR converted from NZD using the average exchange rate for the 2023 financial year. The Board approved VR for Daniel Huggins of $1,215,269 based on a spot exchange rate of A$1 = NZ$1.0855.
4. Sarah White received Annual VR in respect of her role prior to becoming a KMP. She was not awarded any Annual VR in relation to her Group Executive People and Culture role in 2023.

# 4.4 Prior year long-term VR awards

# (a) LTVR award testing

No LTVR was available for vesting in the current year.

# (b) Overview of unvested long-term awards

The following is a summary of the unvested long-term awards held by the Group CEO and Group Executives.

Award | Grant date | Performance period | Vesting date | Performance measures
--- | --- | --- | --- | ---
LTVR allocated in 2019 |  |  |  | No LTVR awards were granted for the 2018 performance year
LTVR allocated in 20201 | 26/02/2020 | 15/11/2019 to 15/11/2023 | 22/12/2023 | NAB's TSR performance against a financial services peer group
LTVR allocated in 20211 | 24/02/2021 | 15/11/2020 to 15/11/2024 | 22/12/2024 | NAB's TSR performance against a financial services peer group
LTVR allocated in 20221 | 23/02/2022 | 15/11/2021 to 15/11/2025 | 22/12/2025 | NAB's TSR performance against a financial services peer group
LTVR allocated in 20231 | 23/02/2023 | 15/11/2022 to 15/11/2026 | 22/12/2026 | NAB's TSR performance against a financial services peer group

1. The LTVR awards were granted based on individual performance, risk and conduct outcomes in the respective prior performance year.

The FY24 LTI award (comprised of the LTVR and LTEA components) will be granted in February 2024 under the new executive remuneration framework.

# 4.5 Realised remuneration

The table below is a voluntary non-statutory disclosure that shows the realised remuneration the Group CEO and each Group Executive received during 2023. The amounts shown include fixed remuneration, and equity and cash-based awards that vested in 2023. The table provides shareholders with enhanced transparency of remuneration received by Executives. The table is not prepared in accordance with Australian Accounting Standards and this information differs from the statutory remuneration table (in section 7).

|  |  |  | 2023 |  | Prior years |  |  |  |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  |  |  | Fixed remuneration1 | Annual VR cash | Total 2023 remuneration |  | LTI Performance Rights23 | Other vested/paid remuneration43 |  | Total realised remuneration |  | Equity forfeited / lapsed53
Name |  |  |  | $ | $ | $ |  | $ | $ |  | $ |  | $
Group CEO |  |  |  |  |  |  |  |  |  |  |  |  |
Ross McEwan |  | 2023 |  | 2,494,509 | 1,350,000 | 3,844,509 |  | - | 432,063 |  | 4,276,572 |  | -
|  | 2022 |  | 2,502,740 | 1,387,500 | 3,890,240 |  | - | - |  | 3,890,240 |  | -
Group Executives |  |  |  |  |  |  |  |  |  |  |  |  |
Sharon Cook |  | 2023 |  | 966,371 | 460,097 | 1,426,468 |  | - | 421,622 |  | 1,848,090 |  | -
|  | 2022 |  | 939,001 | 441,372 | 1,380,373 |  | 557,019 | 13,790 |  | 1,951,182 |  | (294,095)
Shaun Dooley |  | 2023 |  | 1,219,188 | 435,881 | 1,655,069 |  | - | 121,496 |  | 1,776,565 |  | -
|  | 2022 |  | 1,174,850 | 416,250 | 1,591,100 |  | - | - |  | 1,591,100 |  | -
Susan Ferrier |  | 2023 |  | 1,376,319 | 329,598 | 1,705,917 |  | - | 118,051 |  | 1,823,968 |  | -
|  | 2022 |  | 902,116 | 418,142 | 1,320,258 |  | - | 16,198 |  | 1,336,456 |  | -
David Gall |  | 2023 |  | 1,220,965 | 691,875 | 1,912,840 |  | - | 234,448 |  | 2,147,288 |  | -
|  | 2022 |  | 1,202,821 | 641,151 | 1,843,972 |  | 905,143 | - |  | 2,749,115 |  | (477,886)
Nathan Goonan6 |  | 2023 |  | 972,004 | 532,508 | 1,504,512 |  | - | 196,018 |  | 1,700,530 |  | -
|  | 2022 |  | 902,116 | 418,142 | 1,320,258 |  | - | 4,667 |  | 1,324,925 |  | -
Andrew Irvine |  | 2023 |  | 1,220,937 | 719,550 | 1,940,487 |  | - | 1,060,691 |  | 3,001,178 |  | -
|  | 2022 |  | 1,202,822 | 669,027 | 1,871,849 |  | - | 767,561 |  | 2,639,410 |  | -
Gary Lennon |  | 2023 |  | 1,681,268 | 583,481 | 2,264,749 |  | - | 520,867 |  | 2,785,616 |  | -
|  | 2022 |  | 1,102,587 | 562,169 | 1,664,756 |  | 994,641 | 15,918 |  | 2,675,316 |  | (525,196)
Les Matheson |  | 2023 |  | 1,068,057 | 532,744 | 1,600,801 |  | - | 113,708 |  | 1,714,509 |  | -
|  | 2022 |  | 1,052,469 | 487,832 | 1,540,301 |  | - | - |  | 1,540,301 |  | -
Angela Mentis |  | 2023 |  | 1,834,347 | 608,850 | 2,443,197 |  | - | 1,225,383 |  | 3,668,580 |  | -
|  | 2022 |  | 1,205,315 | 692,367 | 1,897,682 |  | 1,193,581 | 44,380 |  | 3,135,643 |  | (630,195)
Rachel Slade |  | 2023 |  | 1,220,937 | 664,200 | 1,885,137 |  | - | 577,998 |  | 2,463,135 |  | -
|  | 2022 |  | 1,202,822 | 585,399 | 1,788,221 |  | - | 15,785 |  | 1,804,006 |  | -
Patrick Wright |  | 2023 |  | 1,526,171 | 795,656 | 2,321,827 |  | - | 2,099,910 |  | 4,421,737 |  | -
|  | 2022 |  | 1,503,527 | 696,903 | 2,200,430 |  | 1,293,065 | 81,400 |  | 3,574,895 |  | (682,694)
Daniel Huggins78 |  | 2023 |  | 1,141,636 | 608,240 | 1,749,876 |  | - | 187,776 |  | 1,937,652 |  | -
|  | 2022 |  | 1,124,003 | 580,127 | 1,704,130 |  | - | 696,728 |  | 2,400,858 |  | -
Sarah White910 |  | 2023 |  | 105,814 | - | 105,814 |  | - | - |  | 105,814 |  | -

1. Includes cash salary, superannuation and payments on separation consistent with the statutory remuneration table in section 7.1, excluding accrued annual leave entitlements.
2. In 2018, no LTVR was awarded and available for vesting in the current year.
3. The value of equity awards is calculated using NAB's closing share price on the vesting or forfeiture or lapsing date.
4. Amounts related to other vested equity or cash-based remuneration from prior years. This includes VR deferred rights, commencement awards, shares received under the General Employee Share Offer and dividends accumulated during the vesting period on VR vesting in the year. Details of the vested equity awards are provided in section 7.
5. Awards or remuneration lapsed or forfeited during 2023. Details of the awards are provided in section 7.
6. Nathan Goonan was appointed Group Chief Financial Officer effective 1 July 2023. The figures disclosed reflect both his remuneration received as the former Group Executive, Strategy & Innovation and in his current role.
7. AUD/NZD exchange rate of 1.08447, being year to date average exchange rate as of September 2023.
8. Daniel Huggins' remuneration includes VR paid during the year relating to the period before he was a KMP.
9. Sarah White received Annual VR in respect of her role prior to becoming a KMP. She was not awarded any Annual VR in relation to her Group Executive People and Culture role in 2023.
10. Sarah White did not have any VR vest or paid during the period she was a KMP.

# 5 - Executive remuneration in 2024

# 5.1 Our new executive remuneration framework

As foreshadowed in our 2022 Remuneration Report, the Board undertook a detailed review of the remuneration framework for the Group CEO and Group Executives in 2023. The review was in preparation for the implementation of APRA's Prudential Standard CPS 511 Remuneration (CPS 511). Based on the review, the Board approved changes to the framework, which took effect from 1 October 2023. The changes meet the requirements of CPS 511 and ensure that the remuneration framework:

- maintains a strong focus on individual performance, conduct and management of financial and non-financial risks;

- drives short and long-term performance, sustainable shareholder growth and a focus on customer outcomes; and

- provides mechanisms to ensure remuneration outcomes will be commensurate with performance and risk outcomes.

Key changes in the executive remuneration framework
Maximum remuneration opportunity – CEO

The chart below illustrates the reduction in the maximum total remuneration opportunity of the CEO under the 2024 executive remuneration framework. The reduction is driven by the decrease in Annual VR opportunity offset by an increase to the long-term VR opportunity reinforcing the importance of decision making, strategic execution and safe, sustainable growth over the long-term.

New risk management and conduct framework

The 2024 executive remuneration framework continues to focus executives on risk management through annual risk and conduct assessments. These are undertaken as follows:

VR plan | Timing of risk management and conduct assessment:
--- | ---
Annual VR | At the end of the year when Annual VR outcomes are determined. At the end of each year during the deferral period before deferred rights are exercised and shares are allocated.
LTI | Risk management and conduct assessments are undertaken at four stages:1. Pre-grant risk and conduct assessment: At the start of the performance year, an individual assessment of each participant is undertaken to determine the value of performance rights (LTEA and LTVR components) to be awarded to the participant.2. Throughout the performance period: Risk and conduct assessments are undertaken throughout the four year performance period.3. Prior to vesting of performance rights: At the end of the four year performance period, the LTEA and LTVR performance measures are tested and an individual risk and conduct pre-vest assessment is undertaken for each participant. This pre-vest assessment will determine the value of the LTI award (LTEA and LTVR components) that will vest for each individual.4. Before exercise of vested awards and acquisition of shares: At the end of each year during the deferral period before vested performance rights are exercised and shares are allocated.

Further information about the risk and conduct assessment mechanisms and the approach to determining remuneration adjustments is provided in section 6.3.

# 5.2 Executive remuneration in 2024

Feature | Description |  |
--- | --- | --- | ---
Fixed Remuneration | As a result of the changes in the ELT in 2023 and 2024, the Board determined an increase in the FR for Sharon Cook, Shaun Dooley and Les Matheson to reflect the increase in accountabilities1 and, Nathan Goonan and Daniel Huggins to reflect external pay relativity adjustments. The combination of the change in composition of the Executive Leadership Team and FR increases resulted in FR for the Executive Leadership Team decreasing by 15% for 2024. Total remuneration (at target) has decreased by 19% for 2024. This reflects the Board's focus on disciplined cost management and maintaining responsible levels of executive remuneration.No increase was made to the FR of the Group CEO for 2024.The FR increase for the following three Group Executives is effective from 1 November 2023, reflecting the changes to their portfolios. Sharon Cook – Group Executive, Legal and Commercial Services: from $973,750 to $1,000,000 ($26,250 increase) Shaun Dooley – Group Chief Risk Officer: from $1,230,000 to $1,300,000 ($70,000 increase) Les Matheson – Group Chief Operating Officer: from $1,076,250 to $1,150,000 ($73,750 increase) The FR increase for the following two Group Executives is effective from 3 January 2024, aligning to when FR increases apply for all other colleagues. Nathan Goonan – Group Chief Financial Officer: from $1,127,000 to $1,175,000 ($48,000 increase) Daniel Huggins – Managing Director and CEO of Bank of New Zealand: from $1,133,118 to $1,179,180 ($46,062 increase) |
2024 LTI award (LTEA and LTVR components) | The Board assessed the Group CEO and all Group Executives as having met the pre-grant individual performance, risk management and conduct assessments. Accordingly, the Board determined that each be awarded a 2024 LTI award, comprising the LTEA component and the LTVR component, each with a face value of 70% of FR (i.e., a total value of 140% of FR). The LTI award (LTEA and LTVR components) will be granted in February 2024.The actual value delivered to the Group CEO and each Group Executive is subject to the level of achievement against the relevant four-year performance measures and may be zero if the performance measures are not achieved.For the Group CEO, the 2024 LTI award comprising of the LTEA component (60,511 performance rights) and LTVR component (60,511 performance rights) is proposed to be granted in February 2024 (based on NAB's weighted average share price of $28.92 over the last five trading days of the 2023 financial year). The grant of this award is subject to shareholder approval at NAB's 2023 AGM.Further details about the 2024 LTI award (including the LTEA and LTVR components) is presented in section 5.1. |
Non-executive directors | The Board undertakes a review of the quantum of Board fees annually in December. Based on the review undertaken in 2022, the Board determined not to make any changes to Board fees in the 2023 financial year.The Board will next review Board fees in December 2023. Any change to Board fees in 2024 will be reported in the 2024 Remuneration Report. |

1. Les Matheson was appointed as the Group Executive Digital, Data and Chief Operating Officer following the retirement of Angela Mentis on 31 October 2023. The responsibilities of Angela Mentis' role were distributed to Les Matheson (Group Executive Digital, Data and Chief Operating Officer). A small portion of Les Matheson's Chief Operating Officer responsibilities were distributed between Shaun Dooley (Group Chief Risk Officer), Sharon Cook (Group Executive, Legal and Commercial Services) and Sarah White (Group Executive, People and Culture). The FR increases for Les Matheson, Shaun Dooley and Sharon Cook recognise the increase in their responsibilities.

# 6 - Governance, risk and consequence

# 6.1 Remuneration governance and oversight

# 6.2 Board discretion in relation to remuneration

The Board has absolute discretion to adjust the Rewards1 of any employee down, or to zero, where appropriate, including in circumstances where Group or individual performance outcomes have changed over time since the Reward was provided or for an act or omission that has impacted performance outcomes. Adjustments include, but are not limited to:

- determining the initial value of Rewards and varying their terms and conditions, including the performance measures.

- determining that some, or all, of the unvested Rewards be forfeited or extending the deferral period at any time for any Rewards including due to the conduct standards in the Code not being met or following the occurrence of a Malus Event2.

- clawing back paid and vested Rewards (to the extent legally permissible).

People & Remuneration Committee

On behalf of the Board, the Committee's responsibilities include:

- monitoring the effectiveness of the Colleague strategy.

- developing and maintaining an effective Remuneration Policy and ensuring governance in its application.

- making recommendations to the Board in relation to the performance and remuneration outcomes for the Group CEO, Group Executives and other persons determined by the Board and ensuring outcomes are responsible and consistent with the Group's strategy and risk appetite.

- consideration of the findings of risk and conduct assessments for the Group CEO, Group Executives and other persons determined by the Board and determination of consequences.

- oversight of the Group's people and remuneration strategies, frameworks, policies and practices to ensure compliance with legal and regulatory requirements, market practice and trends and the expectations of customers and shareholders.

Further detail about the Committee is provided in our Corporate Governance Statement (on page ) and in the People & Remuneration Committee Charter which is available on nab.com.au.

1. In this section, the term 'Rewards' refers to all forms of variable reward including cash provided under a VR plan, deferred VR (cash and equity) to be paid or granted, LTEA and LTVR performance rights and any VR granted in previous years.
2. Examples include where the executive has failed to comply with their accountability obligations under the Banking Act 1959 (Cth); has engaged in fraud, dishonesty, gross misconduct, behaviour that may negatively impact the Group's long-term financial soundness or prudential standing or behaviour that brings NAB into disrepute; or has materially breached a representation, warranty, undertaking or obligation to the Group.

# 6.3 Conduct, risk and consequence management

The risk management and conduct framework was reviewed and updated in 2023 to reflect CPS 511 requirements. The review resulted in:

- Creation of Risk Framework Guiding Principles which guide annual risk and conduct assessments and the application of consequences.

- A new People & Remuneration Committee and Board Risk and Conduct Assessment Guide which provides steps and factors to be considered when assessing the nature and type of risk or conduct matter and where required the adjustment criteria to be applied to VR.

The Committee regularly reviews Group and individual outcomes for risk, reputation, conduct and performance considerations. This includes oversight of the Group's Employee Conduct Management Framework (Framework) which supports an appropriate risk culture across the Group. The Board, Group CEO and Group Executives influence culture by focusing on leadership behaviour, systems and colleagues, reinforced through performance and remuneration outcomes.

How conduct and risk are integrated in our remuneration framework
Risk, conduct and the consequence management framework

The Consequence Severity Matrix provides guidance to determine the severity of risk and conduct events. Based on the severity of the risk or conduct event, a fair and proportionate consequence outcome will be applied. Determination of the appropriate consequence is guided by an assessment of the quantitative and qualitative impacts of the event including financial impacts, physical, informational or reputational damage to the organisation and harm to colleagues or customers.

The Group CEO and Group Executives actively demonstrate strong risk management to set the "tone from the top" about expectations and behaviours. Risk issues that are identified are prioritised, clear accountability is defined, and an action plan is created to resolve the issue. This has resulted in an improvement in conduct risk, driven by the increased use of analytical monitoring tools and implementation of assurance capabilities. Enhancements in the use of risk monitoring tools has resulted in improved identification of risk events and an increase in the number of risk cases investigated relative to 2022.

Remuneration adjustments and consequence outcomes applied to employees (including the Group CEO and Group Executives) during 2023 are provided in the table below.

|  | 2023 | 2022
--- | --- | --- | ---
Employees recognised for their positive contribution to risk culture |  | 6,353 | 6,036
Employees identified as not having met risk expectations and accountabilities |  | 2,535 | 2,737
Code of Conduct breaches identified that resulted in formal consequences |  | 6,1861 | 5,788
Employees leaving due to consequence outcomes |  | 156 | 166
Employees receiving coaching, warnings or other remedial actions |  | 5,874 | 5,453
Employees recommended to receive an in-year performance rating and / or variable reward reduction of 5% to 100% |  | 151 | 168
Deferred VR forfeitures and in-year VR adjustments as a result of Code of Conduct breaches and revisiting previous reward decisions |  | $1.19m2 | $0.60m3

1. Conduct outcomes are applied as conduct matters arise throughout the year. During the end of year performance and remuneration review process, governance checks and controls are applied to determine final performance and reward outcomes. Total number of cases may vary due to attrition.
2. This is an indicative figure as the full performance and reward review cycle has not concluded. The final figure will be reflected in the 2024 Remuneration Report. For 2023, deferred VR forfeitures includes equity and cash.
3. For 2022 this includes the value pertaining to in-year adjustments to VR as well as employees who left the organisation due to consequence outcomes (including on a voluntary basis).

# 7 - Group CEO and Group Executive statutory remuneration disclosures

# 7.1 Group CEO and Group Executive statutory remuneration

The following table has been prepared in accordance with Australian Accounting Standards and section 300A of the Corporations Act 2001 (Cth). The table shows details of the nature and amount of each element of remuneration paid or awarded to the Group CEO and Group Executives for services provided during the year while they were KMP (including variable reward amounts in respect of performance during the year which are paid following the end of the year).

|  |  |  | Short-term benefits |  | Post-employment benefits |  |  |  | Equity-based benefits |  |  |  |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
|  |  |  | Cash salary1 | Annual VR cash2 | Non-monetary3 |  | Superannuation4 |  | Other long-term benefits5 |  | Shares6 | Rights7 |  | Other remuneration |  | Total89
Name |  |  |  | $ | $ | $ |  | $ |  | $ |  | $ | $ |  | $ |  | $
Group CEO |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ross McEwan |  | 2023 |  | 2,383,654 | 1,350,000 | 626 |  | 24,554 |  | 20,463 |  | - | 2,396,795 |  | - |  | 6,176,092
|  | 2022 |  | 2,450,563 | 1,387,500 | - |  | 23,410 |  | 17,170 |  | - | 2,392,323 |  | - |  | 6,270,966
Group Executives |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sharon Cook |  | 2023 |  | 941,248 | 460,097 | - |  | 25,123 |  | 10,315 |  | 6,691 | 913,654 |  | - |  | 2,357,128
|  | 2022 |  | 882,372 | 441,372 | 585 |  | 23,685 |  | 8,886 |  | 53,093 | 680,593 |  | - |  | 2,090,586
Shaun Dooley |  | 2023 |  | 1,194,244 | 435,881 | - |  | 24,944 |  | 41,735 |  | - | 1,022,839 |  | - |  | 2,719,643
|  | 2022 |  | 1,123,618 | 416,250 | 585 |  | 23,616 |  | 40,042 |  | - | 1,012,079 |  | - |  | 2,616,190
Susan Ferrier10 |  | 2023 |  | 759,132 | 329,598 | 3,972 |  | 25,160 |  | 6,661 |  | 107,481 | 567,918 |  | 566,986 |  | 2,366,908
|  | 2022 |  | 833,168 | 418,142 | 585 |  | 23,685 |  | 6,209 |  | 109,365 | 783,776 |  | - |  | 2,174,930
David Gall |  | 2023 |  | 1,176,909 | 691,875 | 2,257 |  | 29,903 |  | 18,880 |  | - | 1,303,310 |  | - |  | 3,223,134
|  | 2022 |  | 1,151,208 | 641,151 | 2,842 |  | 28,495 |  | 19,370 |  | - | 946,763 |  | - |  | 2,789,829
Nathan Goonan11 |  | 2023 |  | 860,389 | 532,508 | 415 |  | 25,160 |  | 17,423 |  | 2,164 | 932,098 |  | - |  | 2,370,157
|  | 2022 |  | 808,894 | 418,142 | 585 |  | 23,685 |  | 14,776 |  | 17,211 | 815,077 |  | - |  | 2,098,370
Andrew Irvine12 |  | 2023 |  | 1,139,383 | 719,550 | 50,000 |  | 24,940 |  | 8,651 |  | 259,642 | 1,270,779 |  | - |  | 3,472,945
|  | 2022 |  | 1,146,875 | 669,027 | 117,079 |  | 23,581 |  | 6,800 |  | 496,345 | 1,221,057 |  | - |  | 3,680,764
Gary Lennon13 |  | 2023 |  | 1,128,646 | 583,481 | 1,267 |  | 25,014 |  | 17,372 |  | 7,724 | 858,372 |  | 562,205 |  | 3,184,081
|  | 2022 |  | 1,062,018 | 562,169 | 585 |  | 23,616 |  | 17,823 |  | 61,286 | 748,848 |  | - |  | 2,476,345
Les Matheson |  | 2023 |  | 1,022,367 | 532,744 | 9,488 |  | 25,050 |  | 7,570 |  | - | 1,030,559 |  | - |  | 2,627,778
|  | 2022 |  | 1,012,014 | 487,832 | 585 |  | 23,633 |  | 5,950 |  | - | 967,032 |  | - |  | 2,497,046
Angela Mentis14 |  | 2023 |  | 1,224,399 | 608,850 | 16,562 |  | 24,940 |  | 18,607 |  | 21,065 | 1,060,696 |  | 613,315 |  | 3,588,434
|  | 2022 |  | 1,163,359 | 692,367 | 13,977 |  | 23,461 |  | 19,103 |  | 167,181 | 938,526 |  | - |  | 3,017,974
Rachel Slade |  | 2023 |  | 1,162,972 | 664,200 | 415 |  | 24,940 |  | 14,748 |  | 7,659 | 1,246,085 |  | - |  | 3,121,019
|  | 2022 |  | 1,160,503 | 585,399 | 585 |  | 23,581 |  | 12,832 |  | 60,774 | 1,213,405 |  | - |  | 3,057,079
Patrick Wright |  | 2023 |  | 1,495,553 | 795,656 | 84,477 |  | 24,721 |  | 16,287 |  | 39,497 | 1,567,781 |  | - |  | 4,023,972
|  | 2022 |  | 1,555,186 | 696,903 | 134,929 |  | 23,476 |  | 14,030 |  | 313,399 | 1,082,488 |  | - |  | 3,820,411
Daniel Huggins |  | 2023 |  | 997,754 | 608,240 | 1,461 |  | 100,259 |  | - |  | 19,484 | 757,763 |  | - |  | 2,484,961
|  | 2022 |  | 1,050,508 | 580,127 | - |  | 94,514 |  | - |  | 198,570 | 631,168 |  | - |  | 2,554,887
Sarah White15 |  | 2023 |  | 110,342 | - | - |  | - |  | 1,750 |  | 17,819 | 26,705 |  | - |  | 156,616
Total |  | 2023 |  | 15,596,992 | 8,312,680 | 170,940 |  | 404,708 |  | 200,462 |  | 489,226 | 14,955,354 |  | 1,742,506 |  | 41,872,868
Total |  | 2022 |  | 15,400,286 | 7,996,381 | 272,922 |  | 382,438 |  | 182,991 |  | 1,477,224 | 13,433,135 |  | - |  | 39,145,377

1. Includes cash allowances, payroll remediation payments, motor vehicle benefits and short-term compensated absences, such as annual leave entitlements accrued. Any related fringe benefits tax is included.
2. The VR cash received in respect of 2023 is scheduled to be paid on 22 November 2023 in Australia and New Zealand.
3. Includes relocation costs considered to provide a benefit to the individual (including temporary accommodation, furniture rental, utility costs, dependant travel costs, insurance, stamp duty, associated fringe benefit tax and other benefits). For international assignees this may also include the provision of health fund benefits and tax advisory services.
4. Includes company contributions to superannuation and allocations by employees made by way of salary sacrifice of post-tax fixed remuneration. Superannuation contributions are not required to be paid to individuals based in New Zealand, but such payments may be made as part of cash salary.
5. Includes long service leave entitlements accrued based on an actuarial calculation.
6. 2023 expense based on the grant date fair value, amortised on a straight line basis over the vesting period for:
   (a) Recognition shares granted to Susan Ferrier in February 2021, restricted until December 2023. The shares are subject to malus and clawback provisions.
   (b) Commencement shares granted to Andrew Irvine in November 2020. 21% of the shares were restricted until December 2020, 21% until December 2021, 24% until December 2022, 31% until December 2023 and 3% in December 2024. The shares are subject to continued employment, malus and clawback provisions.
   (c) 2018 VR deferred shares granted in February 2019 to Sharon Cook, Gary Lennon, Angela Mentis, Rachel Slade and Patrick Wright. The shares are restricted for approximately four years, subject to performance and service conditions. 2019 VR deferred shares granted in February 2020 to Nathan Goonan and Sarah White for performance in their previous roles. The shares are restricted for approximately three years, subject to performance and service conditions. 2020 and 2021 VR deferred shares granted in February 2021 and February 2022 respectively to Sarah White for performance in her previous role, restricted until November 2023 (2020 VR) and November 2024 (2021 VR). 2021 VR deferred shares granted in February 2022 to Daniel Huggins for performance in his previous role, restricted until November 2022. 2023 VR deferred shares to be granted in February 2024 to Sarah White for performance in her previous role, restricted until November 2026.
   (d) 2022 Annual Equity Award granted in November 2022 to Sarah White for performance in her previous role, vesting across 3 years.
7. 2023 expense based on the grant date fair value, amortised on a straight line basis over the vesting period for:
   (a) 2023 VR deferred rights scheduled to be granted in February 2024. The VR deferred rights are restricted for up to four years, with 25% scheduled to vest in November 2024, 25% in November 2025, 25% in November 2026 and 25% in November 2027. The deferred rights are subject to continued employment, malus and clawback.
   (b) 2022 VR deferred rights granted in February 2023. The VR deferred rights are restricted for up to four years, with 25% scheduled to vest in November 2023, 25% in November 2024, 25% in November 2025 and 25% in November 2026. The deferred rights are subject to continued employment, malus and clawback.
   (c) 2021 VR deferred rights granted in February 2022, with 25% vested in November 2022, 25% scheduled to vest in November 2023, 25% in November 2024 and 25% in November 2025. The deferred rights are subject to continued employment, malus and clawback.
   (d) LTVR performance rights granted in February 2020, February 2021, February 2022 and February 2023 respectively.
   (e) LTVR and LTEA performance rights scheduled to be granted in February 2024 as a part of the new ELT Remuneration Framework for 2024.
   (f) The increase for 2023 is due to expensing of new performance rights allocated in respect of the 2023 financial year, in addition to continued expensing of existing performance rights not yet vested.
8. The percentage of 2023 total remuneration which was performance-based was: Ross McEwan 60%, Sharon Cook 56%, Shaun Dooley 55%, Susan Ferrier 60%, David Gall 57%, Nathan Goonan 60%, Andrew Irvine 65%, Gary Lennon 55%, Les Matheson 58%, Angela Mentis 60%, Rachel Slade 61%, Daniel Huggins 55%, Patrick Wright 55%.
9. In addition to the remuneration benefits below, NAB paid an insurance premium for a contract insuring the Group CEO and Group Executives as officers. It is not possible to allocate the benefit of this premium between individuals. In accordance with usual commercial practice, the insurance contract prohibits disclosure of details of the premium paid.
10. On her retirement on 31 October 2023, Susan Ferrier received a $566,986 payment in respect of statutory entitlements, support for transition to retirement and in recognition of her contribution to the Group. Ms Ferrier retained her 2021 deferred VR rights, 2021 recognition shares, 2022 deferred VR rights and her LTVR rights granted in 2021-2023. The value of the retained equity has been fully accounted for on retirement. That equity remains subject to the relevant performance measures and restriction periods.
11. Nathan Goonan was appointed as the Group Chief Financial Officer effective 1 July 2023. The figures disclosed reflect both his remuneration received as the former Group Executive, Strategy & Innovation and in his current role.
12. Non-monetary benefit received as Andrew Irvine's 2023 relocation entitlement on 12 October 2022.
13. On his retirement on 1 October 2023, Gary Lennon received a $562,205 payment in respect of statutory entitlements and in recognition of his contribution to the Group. Mr Lennon retained his 2021 deferred VR rights, 2022 deferred VR rights and his LTVR rights granted in 2020-2023. The value of the retained equity has been fully accounted for on retirement. That equity remains subject to the relevant performance measures and restriction periods.
14. On her retirement on 31 October 2023, Angela Mentis received a $613,315 payment in respect of statutory entitlements and in recognition of her contribution to the Group. Ms Mentis retained her 2021 deferred VR rights, 2022 deferred VR rights and her LTVR rights granted in 2020-2023. The value of the retained equity has been fully accounted for on retirement. That equity remains subject to the relevant performance measures and restriction periods.
15. Sarah White did not participate in the Annual VR from 18 August 2023 to 30 September 2023 when she was appointed Group Executive People and Culture and did not receive an Annual VR award in respect of this period.

# 7.2 Value of shares and rights

The following table shows the number and value of shares and rights that were granted by NAB and held by the Group CEO and each Group Executive under NAB's employee equity plans during the year to 30 September 2023. Rights refers to VR deferred rights, LTVR performance rights and any other deferred rights or performance rights provided under a current or previous VR plan. A right is a right to receive one NAB share subject to the satisfaction of the relevant performance and service conditions. The grant value shown is the full accounting value to be expensed over the vesting period, which is generally longer than the current year. The Group CEO and Group Executives did not pay any amounts for rights that vested and were exercised during 2023. There are no amounts unpaid on any of the shares exercised.

There have been no changes to the terms and conditions of these awards, or any other awards since the awards were granted.

All rights that vest are automatically exercised when they vest. For the awards allocated during the year to 30 September 2023, the maximum number of shares or rights that may vest is shown for the Group CEO and each Group Executive. The maximum value of the equity awards is the number of shares or rights subject to NAB’s share price at the time of vesting. The minimum number of shares or rights and the value of the equity awards is zero if the equity is fully forfeited or lapsed.

|  |  |  | Total |  | 2023
--- | --- | --- | --- | --- | --- | ---
|  |  |  | Granted1 | Grant date |  | Granted | Forfeited / lapsed | Forfeited / lapsed2 | Vested3 | Vested4
Name |  |  |  | No. |  |  | $ | No. | $ | No | $
Group CEO |  |  |  |  |  |  |  |  |  |  |
Ross McEwan |  | LTVR rights |  | 180,655 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 54,806 | 23-02-2022 |  | - | - | - | 13,702 | 417,774
|  | LTVR rights |  | 118,010 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 47,664 | 23-02-2023 |  | 1,387,499 | - | - | - | -
|  | LTVR rights |  | 111,645 | 23-02-2023 |  | 1,300,664 | - | - | - | -
Group Executives |  |  |  |  |  |  |  |  |  |  |
Sharon Cook |  | Deferred VR shares |  | 9,850 | 27-02-2019 |  | - | - | - | 9,850 | 300,327
|  | LTVR Rights |  | 30,150 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR Rights |  | 65,036 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,411 | 23-02-2022 |  | - | - | - | 3,603 | 109,855
|  | LTVR Rights |  | 42,483 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 15,162 | 23-02-2023 |  | 441,366 | - | - | - | -
|  | LTVR rights |  | 43,485 | 23-02-2023 |  | 506,600 | - | - | - | -
Shaun Dooley |  | LTVR rights |  | 33,500 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR rights |  | 72,262 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 15,412 | 23-02-2022 |  | - | - | - | 3,853 | 117,478
|  | LTVR rights |  | 51,924 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,299 | 23-02-2023 |  | 416,244 | - | - | - | -
|  | LTVR rights |  | 54,929 | 23-02-2023 |  | 639,923 | - | - | - | -
Susan Ferrier |  | Recognition shares |  | 11,570 | 24-02-2021 |  | - | - | - | - | -
|  | LTVR rights |  | 65,036 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 12,610 | 23-02-2022 |  | - | - | - | 3,153 | 96,135
|  | LTVR rights |  | 42,483 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,364 | 23-02-2023 |  | 418,136 | - | - | - | -
|  | LTVR rights |  | 41,197 | 23-02-2023 |  | 479,945 | - | - | - | -
David Gall |  | LTVR rights |  | 52,261 | 26-2-2020 |  | - | - | - | - | -
|  | LTVR rights |  | 86,714 | 24-2-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 29,738 | 23-2-2022 |  | - | - | - | 7,435 | 226,693
|  | LTVR rights |  | 56,644 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 22,025 | 23-02-2023 |  | 641,148 | - | - | - | -
|  | LTVR rights |  | 54,929 | 23-02-2023 |  | 639,923 | - | - | - | -
Nathan Goonan |  | General employee shares |  | 39 | 11-12-2019 |  | - | - | - | 39 | 979
|  | Deferred VR shares |  | 2,604 | 26-02-2020 |  | - | - | - | 2,604 | 79,396
|  | LTVR rights |  | 65,036 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,411 | 23-02-2022 |  | - | - | - | 3,603 | 109,855
|  | LTVR rights |  | 42,483 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,364 | 23-02-2023 |  | 418,136 | - | - | - | -
|  | LTVR rights |  | 41,197 | 23-02-2023 |  | 479,945 | - | - | - | -
Andrew Irvine |  | Commencement shares |  | 63,367 | 6-11-2020 |  | - | - | - | 25,773 | 774,736
|  | LTVR rights |  | 86,714 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 28,594 | 23-02-2022 |  | - | - | - | 7,149 | 217,973
|  | LTVR rights |  | 56,644 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 22,982 | 23-02-2023 |  | 669,006 | - | - | - | -
|  | LTVR rights |  | 54,929 | 23-02-2023 |  | 639,923 | - | - | - | -
Gary Lennon |  | Deferred VR shares |  | 11,370 | 27-02-2019 |  | - | - | - | 11,370 | 346,671
|  | LTVR Rights |  | 47,906 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR Rights |  | 79,488 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 20,969 | 23-02-2022 |  | - | - | - | 5,243 | 159,859
|  | LTVR Rights |  | 51,924 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 19,311 | 23-02-2023 |  | 562,143 | - | - | - | -
|  | LTVR rights |  | 50,352 | 23-02-2023 |  | 586,601 | - | - | - | -
Les Matheson |  | LTVR rights |  | 75,875 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 14,422 | 23-02-2022 |  | - | - | - | 3,606 | 109,947
|  | LTVR rights |  | 49,564 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 16,758 | 23-02-2023 |  | 487,825 | - | - | - | -
|  | LTVR rights |  | 48,063 | 23-02-2023 |  | 559,934 | - | - | - | -
Angela Mentis |  | Deferred VR shares |  | 31,009 | 27-02-2019 |  | - | - | - | 31,009 | 945,464
|  | LTVR Rights |  | 52,261 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR Rights |  | 86,714 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 32,437 | 23-02-2022 |  | - | - | - | 8,110 | 247,274
|  | LTVR rights |  | 56,644 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 19,152 | 23-02-2023 |  | 557,515 | - | - | - | -
|  | LTVR rights |  | 54,929 | 23-02-2023 |  | 639,923 | - | - | - | -
Rachel Slade |  | Deferred VR shares |  | 11,275 | 27-02-2019 |  | - | - | - | 11,275 | 343,775
|  | LTVR rights |  | 39,195 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR rights |  | 86,714 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 28,594 | 23-02-2022 |  | - | - | - | 7,149 | 217,973
|  | LTVR rights |  | 56,644 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 20,109 | 23-02-2023 |  | 585,373 | - | - | - | -
|  | LTVR rights |  | 54,929 | 23-02-2023 |  | 639,923 | - | - | - | -
Patrick Wright |  | Deferred VR shares |  | 58,143 | 27-02-2019 |  | - | - | - | 58,143 | 1,772,780
|  | LTVR Rights |  | 65,326 | 26-02-2020 |  | - | - | - | - | -
|  | LTVR Rights |  | 108,393 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR rights |  | 35,743 | 23-02-2022 |  | - | - | - | 8,936 | 272,459
|  | LTVR rights |  | 70,806 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR rights |  | 23,940 | 23-02-2023 |  | 696,893 | - | - | - | -
|  | LTVR rights |  | 68,661 | 23-02-2023 |  | 799,901 | - | - | - | -
Daniel Huggins |  | LTVR rights |  | 54,019 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR shares |  | 6,005 | 23-02-2022 |  | - | - | - | 6,005 | 183,092
|  | Deferred VR rights |  | 18,997 | 23-02-2023 |  | 553,003 | - | - | - | -
|  | LTVR rights |  | 48,340 | 23-02-2023 |  | 563,161 | - | - | - | -
Sarah White |  | General employee shares |  | 39 | 11-12-2019 |  | - | - | - | 39 | 979
|  | Deferred VR shares |  | 1,853 | 26-02-2020 |  | - | - | - | 1,853 | 56,498
|  | General employee shares |  | 43 | 9-12-2020 |  | - | - | - | - | -
|  | Deferred VR shares |  | 1,442 | 24-02-2021 |  | - | - | - | - | -
|  | Deferred VR shares |  | 3,956 | 23-02-2022 |  | - | - | - | - | -
|  | Deferred VR shares |  | 1,950 | 10-11-2022 |  | 60,450 | - | - | - | -
|  | Deferred VR shares |  | 3,948 | 23-02-2023 |  | 117,492 | - | - | - | -

1. The following securities have been granted during 2023:
   a) LTVR performance rights allocated in February 2023 (in respect of 2022) to the Group CEO and all Group Executives at the time of allocation. The performance rights are restricted until December 2026 and subject to service and performance measures.
   b) Deferred VR rights allocated in February 2023 (in respect of 2022) to the Group CEO and all Group Executives at the time of allocation. The rights vest annually in four equal tranches between November 2023 and November 2026.
   c) Deferred VR shares allocated in November 2022 and February 2023 (in respect of 2022) to Sarah White for her role prior to becoming a KMP.
2. Calculated using NAB's closing share price on the forfeiture / lapsing date.
3. The following securities have vested during 2023:
   a) Deferred VR rights allocated in February 2022 partially vested in November 2022 for all ELT.
   b) Deferred VR shares allocated in February 2019 vested in December 2022 for Sharon Cook, Gary Lennon, Angela Mentis, Rachael Slade and Patrick Wright.
   c) Deferred VR shares allocated in February 2020 vested in December 2022 for Nathan Goonan and Sarah White.
   d) Commencement shares allocated in November 2020 vested in December 2022 for Andrew Irvine.
   e) General employee shares granted to Sarah White and Nathan Goonan in December 2019, fully vested in December 2022.
   f) Deferred VR shares allocation in February 2022 vested in November 2022 for Daniel Huggins.
4. Calculated using NAB's closing share price on the vesting date.

# 7.3 Determining the value of equity remuneration

The number of shares and rights provided to the Group CEO and Group Executives by NAB are determined using a face value methodology. The table below shows the fair value of shares and rights granted by NAB during 2023 in accordance with statutory requirements. The grant date fair value of each share is determined by the market value of NAB shares and is generally a five day weighted average share price. The grant date fair value of shares and rights with market performance measures is determined using a simulated version of the Black-Scholes model.

No performance options have been granted during the year. Shares and rights granted during 2023 were granted at no cost to the Group CEO or Group Executive and have a zero exercise price.

|  | Award type | Grant date |  | Grant share price1 | Fair value | Restriction period end2
Type of allocation |  |  |  |  | $ | $ |
Deferred VR3 |  | Performance rights | 23 February 2023 |  | 29.76 | 29.11 | 15 November 2023 - 15 November 2026
Deferred VR4 |  | Shares | 23 February 2023 |  |  | 30.60 | 15 November 2025
Long-Term Variable Reward5 |  | Performance rights | 23 February 2023 |  | 29.76 | 11.65 | 22 December 2026

1. The Grant share price is NAB's closing share price at the date of valuation (being the grant date of the relevant award). The Grant share price was used to determine the fair value for the LTVR performance rights.
2. Any performance rights that vest are automatically exercised at the end of the restriction period. The end of the restriction period for the performance rights is also the expiry date for those performance rights.
3. The number of deferred rights allocated to each eligible participant was calculated using the weighted average share price over the five trading days up to 30 September 2022, inclusive. The deferred rights are split across four equal tranches vesting on 15 November in 2023, 2024, 2025 and 2026.
4. Deferred shares provided to Sarah White relating to the period prior to becoming a KMP.
5. The number of LTVR performance rights allocated to each eligible participant was calculated using the weighted average share price over the five trading days up to 30 September 2022, inclusive.

Hedging policy

Directors and employees are prohibited from protecting the value of their equity awards by hedging. Further details are available in the Group Securities Trading Policy.

NAB’s Group Securities Trading Policy explains the law and the Policy our colleagues must comply with when trading in NAB securities. All employees are prohibited from using derivatives in relation to elements of their remuneration that are unvested. In addition, closely related parties of KMP are prohibited from using derivatives or otherwise entering into hedging arrangements in relation to elements of their remuneration that are unvested or which have vested but remain subject to forfeiture conditions.

The Group Securities Trading Policy is available at nab.com.au/content/dam/nabrwd/documents/policy/corporate/group-securities-trading-policy.pdf.

# 7.4 Rights holdings

Rights were granted to the Group CEO and Group Executives in 2023 under the Annual VR and LTVR plans. No rights or performance options (i.e. entitlements to NAB shares) are granted to the Group CEO or Group Executives' related parties.

No performance options (i.e. a right requiring payment of a subscription price on vesting) are currently held by the Group CEO or Group Executives. The number of rights that vested during the year was equivalent to the number of rights that were exercised during the year. As at 30 September 2023, no rights held by the Group CEO or Group Executives were: (i) vested and exercisable; nor (ii) vested but not exercisable.

|  | Balance at beginning of year1 | Granted during year as remuneration | Exercised during year | Forfeited / lapsed or expired during year | Balance at end of year
--- | --- | --- | --- | --- | --- | ---
Name |  | No. | No. | No. | No. | No.
Group CEO |  |  |  |  |  |
Ross McEwan |  | 353,471 | 159,309 | (13,702) | - | 499,078
Group Executives |  |  |  |  |  |
Sharon Cook |  | 152,080 | 58,647 | (3,603) | - | 207,124
Shaun Dooley |  | 173,098 | 69,228 | (3,853) | - | 238,473
Susan Ferrier |  | 120,129 | 55,561 | (3,153) | - | 172,537
David Gall |  | 225,357 | 76,954 | (7,435) | - | 294,876
Nathan Goonan |  | 121,930 | 55,561 | (3,603) | - | 173,888
Andrew Irvine |  | 171,952 | 77,911 | (7,149) | - | 242,714
Gary Lennon |  | 200,287 | 69,663 | (5,243) | - | 264,707
Les Matheson |  | 139,861 | 64,821 | (3,606) | - | 201,076
Angela Mentis |  | 228,056 | 74,081 | (8,110) | - | 294,027
Rachel Slade |  | 211,147 | 75,038 | (7,149) | - | 279,036
Patrick Wright |  | 280,268 | 92,601 | (8,936) | - | 363,933
Daniel Huggins |  | 54,019 | 67,337 | - | - | 121,356
Sarah White |  | - | - | - | - | -

1. Balance may include rights granted prior to individuals becoming KMP. For individuals who became KMP during 2023, the balance is at the date they became KMP.

# 7.5 Group CEO and Group Executives' share ownership

The number of NAB shares held (directly and nominally) by the Group CEO and each Group Executive or their related parties (their close family members or any entity they, or their close family members, control, jointly control or significantly influence) are set out below:

|  |  |  | Balance at beginning of year1 | Granted during year as remuneration | Received during year on exercise of rights | Other changes during year | Balance at end of year2
--- | --- | --- | --- | --- | --- | --- | --- | ---
Name |  |  |  | No. | No. | No. | No. | No.
Group CEO |  |  |  |  |  |  |  |
Ross McEwan |  |  |  | 53,897 | - | 13,702 | - | 67,599
Group Executives |  |  |  |  |  |  |  |
Sharon Cook |  |  |  | 33,424 | - | 3,603 | (25,177) | 11,850
Shaun Dooley |  |  |  | 71,104 | - | 3,853 | - | 74,957
Susan Ferrier |  |  |  | 11,570 | - | 3,153 | (3,153) | 11,570
David Gall |  |  |  | 119,848 | - | 7,435 | (7,335) | 119,948
Nathan Goonan |  |  |  | 3,590 | - | 3,603 | - | 7,193
Andrew Irvine |  |  |  | 86,371 | - | 7,149 | (55,926) | 37,594
Gary Lennon |  |  |  | 136,913 | - | 5,243 | (11,370) | 130,786
Les Matheson |  |  |  | - | - | 3,606 | - | 3,606
Angela Mentis |  |  |  | 196,304 | - | 8,110 | - | 204,414
Rachel Slade |  |  |  | 48,435 | - | 7,149 | - | 55,584
Patrick Wright |  |  |  | 125,141 | - | 8,936 | (57,077) | 77,000
Daniel Huggins |  |  |  | 6,005 | - | - | (6,005) | -
Sarah White |  |  |  | 11,992 | - | - | - | 11,992

1. Balance may include shares held prior to individuals becoming KMP. For individuals who became KMP during 2023, the balance is at the date they became KMP.
2. NAB maintains a minimum shareholding policy. Holdings included in meeting the minimum shareholding requirement are NAB shares, unvested deferred shares and deferred rights not subject to further performance conditions held by the executive and shares held by a closely related party or self-managed superannuation fund for the benefit of the executive. Refer to section 7.6 for further details. The Group CEO and Executives have all met or are on track to meet the minimum shareholding requirement.

# 7.6 Group CEO and Group Executive contract terms

The Group CEO and Group Executives are employed on the following contractual terms:

Contractual term | Arrangement
Duration | Permanent ongoing employment
Notice period1 | 26 weeks2
Other key arrangements on separation | If the Group CEO or Group Executive resigns they do not receive any annual or long-term variable reward in that year and any unvested awards are forfeited. If the Group CEO or Group Executive ceases employment for any reason other than resignation (for example, retrenchment or retirement), they will retain all of their unvested awards unless the Board exercises its discretion to determine a different treatment.3 All statutory entitlements are paid.
Change of Control | If a change of control occurs, the Board has discretion to determine the treatment of unvested shares and rights. Vesting of shares and rights will not be automatic or accelerated and the Board will retain discretion in relation to the vesting outcome including absolute discretion to forfeit all shares and rights.
Post-employment obligations | Non-compete and non-solicitation obligations apply.
Minimum shareholding policy | The Group CEO is required to hold NAB shares to the value of two times FR and Group Executives are required to hold NAB shares equal to their individual FR. The Group CEO and Group Executives are required to satisfy the minimum shareholding requirement within a five-year period from the date of commencement in their role. Holdings included in meeting the minimum shareholding requirement are NAB shares, unvested deferred shares and deferred rights not subject to further performance conditions held by the executive and shares held by a closely related party or self-managed superannuation fund for the benefit of the executive.

1. Payment in lieu of notice for some or all of the notice period may be approved by the Board in certain circumstances. Termination payments are not paid on resignation, summary termination or termination for unsatisfactory performance, although the Board may determine exceptions to this.
2. Subject to the terms of the Group policy on resignation.
3. Any unvested awards retained will be held by the Group CEO or Group Executive on the same terms. Unvested LTI awards retained (including the LTEA and LTVR components) will remain subject to the performance measure, with that measure tested in accordance with the normal timetable.

# 8 - Non-executive director remuneration

# 8.1 Fee policy and pool

Non-executive directors receive fees to recognise their contribution to the work of the Board. Additional fees are paid, where applicable, for serving on Board Committees, on Boards of controlled entities and internal advisory boards. Fees include NAB’s compulsory contributions to superannuation. Fees are set to reflect the time commitment and responsibilities of the role.

To maintain independence and objectivity, non-executive directors do not receive any performance related remuneration. Non-executive directors do not receive any termination payments.

The total amount of non-executive directors' remuneration is capped at a maximum aggregate fee pool that is approved by shareholders. The current aggregate fee pool of $4.5 million per annum was approved by shareholders at NAB's 2008 AGM.

The total Board and Committee fees, including superannuation, paid to non-executive directors in 2023 is within the approved aggregate fee pool.

The following table shows the 2023 non-executive director Board and Committee fee policy structure.

|  | Chair ($pa) | Non-executive director ($pa)
--- | --- | --- | ---
Board |  | 825,000 | 240,000
Audit Committee |  | 65,000 | 32,500
Risk & Compliance Committee |  | 65,000 | 32,500
People & Remuneration Committee |  | 55,000 | 27,500
Customer Committee |  | 40,000 | 20,000
Nomination & Governance Committee |  | - | 10,000

# 8.2 Minimum shareholding policy

To align with shareholder interests, the Board has adopted a policy that within five years of appointment, non-executive directors must hold ordinary shares equal in value of the annual Chair fee for the Chair and base fee for all other non-executive directors.

The value of a non-executive director's shareholding is based on the total amount spent to purchase the shares (using the share price at the time the shares were acquired). Accordingly, the share price at the time of purchase will impact the number of shares a non-executive director must own to meet the minimum shareholding requirement.

All non-executive directors who have been on the Board for the full year have met their minimum shareholding requirements in full. Directors appointed during 2023 (Christine Fellowes, Carolyn Kay and Alison Kitchen) will be required to meet the minimum shareholding requirements by 2028.

# 8.3 Statutory remuneration

The fees paid to the non-executive directors are set out in the table below.

|  |  |  | Short-term benefits |  | Post-employment benefits |  |
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  |  |  | Cash salary and fees1 | Non-monetary2 |  | Superannuation3 |  | Total
Name |  |  |  | $ | $ |  | $ |  | $
Non-executive directors |  |  |  |  |  |  |  |  |
Philip Chronican (Chair) |  | 2023 |  | 799,181 | 415 |  | 25,819 |  | 825,415
|  | 2022 |  | 801,001 | - |  | 23,999 |  | 825,000
David Armstrong |  | 2023 |  | 337,500 | - |  | - |  | 337,500
|  | 2022 |  | 313,501 | - |  | 23,999 |  | 337,500
Kathryn Fagg4 |  | 2023 |  | 276,319 | - |  | 25,819 |  | 302,138
|  | 2022 |  | 281,001 | - |  | 23,999 |  | 305,000
Peeyush Gupta5 |  | 2023 |  | 277,043 | - |  | 25,819 |  | 302,862
6 |  | 2022 |  | 329,543 | - |  | 23,999 |  | 353,542
Anne Loveridge |  | 2023 |  | 318,677 | 415 |  | 6,323 |  | 325,415
|  | 2022 |  | 325,000 | - |  | - |  | 325,000
Douglas McKay7 |  | 2023 |  | 557,145 | 415 |  | 25,819 |  | 583,379
|  | 2022 |  | 545,444 | - |  | 23,999 |  | 569,443
Simon McKeon |  | 2023 |  | 289,181 | - |  | 25,819 |  | 315,000
|  | 2022 |  | 308,677 | - |  | 6,323 |  | 315,000
Ann Sherry |  | 2023 |  | 281,681 | 415 |  | 25,819 |  | 307,915
|  | 2022 |  | 283,501 | - |  | 23,999 |  | 307,500
Alison Kitchen (for part year)8 |  | 2023 |  | 2,923 | - |  | 321 |  | 3,244
Carolyn Kay (for part year)9 |  | 2023 |  | 41,890 | - |  | 3,998 |  | 45,888
Christine Fellowes (for part year)10 |  | 2023 |  | 82,007 | - |  | 8,500 |  | 90,507
Total |  | 2023 |  | 3,263,547 | 1,660 |  | 174,056 |  | 3,439,263
|  | 2022 |  | 3,187,668 | - |  | 150,317 |  | 3,337,985

1. The portion of fees in connection with their roles, duties and responsibilities as a non-executive director, and includes attendance at meetings of the Board, Board committees and boards of controlled entities, received as cash.
2. Relates to incidental tourism costs incurred beyond work related travel that is considered to provide a benefit to the individual.
3. Reflects compulsory company contributions to superannuation. David Armstrong and Anne Loveridge elected to receive all or part of their payments in fees and therefore received reduced or nil superannuation contributions during this period.
4. Katherine Fagg's fees reflect her membership on the Board Audit Committee until 6 March 2023 and her membership on the People & Remuneration Committee commencing on the same date until the end of the financial year.
5. Peeyush Gupta's fees reflect his membership on the People & Remuneration Committee until 6 March 2023 and his membership on the Board Audit Committee commencing on the same date until the end of the financial year.
6. Peeyush Gupta received fees of $58,000 in 2022 in his capacity as a non-executive director of BNZ Life which were paid in NZD.
7. Douglas McKay received fees of $315,000 in his capacity as Chair of Bank of New Zealand, which were paid in NZD.
8. Alison Kitchen’s fee reflects a pro rata for the period from her appointment on 27 September to 30 September 2023, during which she prepared for the October Board and Committee meetings.
9. Carolyn Kay's fees reflect her remuneration since her appointment on 31 July 2023.
10. Christine Fellowes' fees reflect her remuneration since her appointment on 5 June 2023.

# 8.4 Non-executive directors' share ownership and other interests

The number of NAB shares held (directly and nominally) by each non-executive director of NAB and the Group or their related parties (their close family members or any entity they, or their close family members, control, jointly control or significantly influence) are set out below. No rights or performance options are granted to non-executive directors or their related parties.

|  |  |  | Balance at beginning of year1 | Acquired | Other changes during year | Balance at end of year2
--- | --- | --- | --- | --- | --- | --- | ---
Name |  |  |  | No. | No. | No. | No.
Non-executive directors |  |  |  |  |  |  |
Philip Chronican (Chair) |  |  |  | 42,120 | - | - | 42,120
David Armstrong |  |  |  | 20,740 | 1,186 | - | 21,926
Kathryn Fagg |  |  |  | 9,426 | - | - | 9,426
Peeyush Gupta |  |  |  | 9,571 | - | - | 9,571
Anne Loveridge |  |  |  | 12,120 | - | - | 12,120
Douglas McKay |  |  |  | 11,972 | - | - | 11,972
Simon McKeon |  |  |  | 15,000 | - | - | 15,000
Ann Sherry |  |  |  | 12,698 | - | - | 12,698
Alison Kitchen3 |  |  |  | - | - | - | -
Carolyn Kay4 |  |  |  | - | 5,567 | - | 5,567
Christine Fellowes5 |  |  |  | - | 3,438 | - | 3,438

1. Balance may include shares held prior to individuals becoming a non-executive director.
2. All non-executive directors met or are on track to meet the minimum shareholding requirements for the year.
3. Alison Kitchen's appointment was effective 27 September 2023.
4. Carolyn Kay's appointment was effective 31 July 2023.
5. Christine Fellowes' appointment was effective 5 June 2023.

# 9 - Loans, other transactions and other interests

# 9.1 Loans

Loans made to non-executive directors of NAB are made in the ordinary course of business on terms equivalent to those that prevail in arm's length transactions. Loans to the Group CEO and Group Executives may be made on similar terms and conditions generally available to other employees of the Group. Loans to KMP of NAB and the Group may be subject to restrictions under applicable laws and regulations including the Corporations Act 2001 (Cth). The opening balance is 1 October and closing balance is 30 September, or the date of commencement or cessation of a KMP.

Total aggregated loans provided to KMP and their related parties

|  |  | Terms and conditions | Balance at beginning of year1 | Interest charged2 | Interest not charged2 | Write-off2 | Balance at end of year3
--- | --- | --- | --- | --- | --- | --- | --- | ---
NAB and the Group |  |  |  | $ | $ | $ | $ | $
KMP4 |  |  | Normal | 11,938,677 | 550,119 | - | - | 14,634,986
|  |  | Employee | 22,120,918 | 765,091 | - | - | 25,642,304
Other related parties5 |  |  | Normal | 17,103,246 | 661,749 | - | - | 18,879,701

1. For KMPs who commenced during the year, the balance is as at the date they became a KMP.
2. Relates to the period during which the Group Executive was KMP.
3. For KMPs who ceased during the year, the balance is as at the date they ceased to be a KMP.
4. The aggregated loan balance at the end of the year includes loans issued to 19 KMP.
5. Includes the KMP's related parties, which includes their close family members or any entity they or their close family members control, jointly control or significantly influence.

Aggregated loans to KMP and their related parties above $100,000

|  | Balance at beginning of year1 | Interest charged2 | Interest not charged | Write-off | Balance at end of year3 | KMP highest indebtedness during 20234
--- | --- | --- | --- | --- | --- | --- | ---
NAB and the Group |  | $ | $ | $ | $ | $ | $
Non-executive directors |  |  |  |  |  |  |
David Armstrong |  | 959,296 | 53,779 | - | - | 988,994 | -
Kathryn Fagg |  | 2,843,867 | 73,134 | - | - | 2,755,514 | 2,838,472
Doug McKay |  | 1,067,314 | 66,076 | - | - | 2,226,851 | 5,475
Carolyn Kay |  | 833,250 | 13,043 | - | - | 719,290 | 715,318
Group CEO |  |  |  |  |  |  |
Ross McEwan |  | 1,306,449 | 11,584 | - | - | 1,089,706 | 1,125,000
Group Executives |  |  |  |  |  |  |
Sharon Cook |  | 3,438,081 | 112,044 | - | - | 3,354,097 | 984,930
Shaun Dooley |  | 594,739 | 26,448 |  |  | 1,047,745 | 602,914
Susan Ferrier |  | 456,103 | 9,534 | - | - | 369,576 | 145,892
David Gall |  | 4,169,411 | 121,135 | - | - | 4,338,972 | 783,481
Nathan Goonan |  | 4,381,817 | 119,667 | - | - | 4,273,509 | 4,379,398
Daniel Huggins |  | 1,989,223 | 329,318 | - | - | 4,835,215 | 8,325,773
Andrew Irvine |  | 11,533,558 | 309,588 | - | - | 14,374,813 | 14,674,799
Gary Lennon |  | 3,006,775 | 118,113 | - | - | 2,792,057 | 2,274,816
Les Matheson |  | 5,051,657 | 174,356 | - | - | 3,655,493 | 1,262,142
Angela Mentis |  | 699,377 | 43,892 | - | - | 639,676 | 42,455
Rachel Slade |  | 2,250,667 | 313,109 | - | - | 5,240,616 | 9,434,948
Patrick Wright |  | 3,131,905 | 61,156 | - | - | 3,006,150 | 45,680
Sarah White |  | 3,448,737 | 20,982 | - | - | 3,448,696 | 3,465,805

1. For KMPs who commenced during the year, the balance is as at the date they became a KMP.
2. The interest charged may include the impact of interest offset facilities and only relates to the period during which the non-executive director, Group CEO or Group Executive was KMP.
3. For KMPs who ceased during the year, the balance is as at the date they ceased to be a KMP.
4. Represents aggregate highest indebtedness of the KMP during 2023. All other items in this table relate to the KMP and their related parties.

# 9.2 Other transactions

From time to time various KMP and their related parties will hold investments in funds that are either managed, related to or controlled by the Group. All such transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm's length transactions.

All other transactions that have occurred with KMP are made on terms equivalent to those that prevail in arm's length transactions. These transactions generally involve the provision of financial and investment services including services to eligible international assignees ensuring they are neither financially advantaged nor disadvantaged by their relocation. All such transactions that have occurred with KMP and their related parties have been trivial or domestic in nature. In this context, transactions are trivial in nature when they are considered of little or no interest to the users of the Remuneration Report in making and evaluating decisions about the allocation of scarce resources. Transactions are domestic in nature when they relate to personal household activities.

# 9.3 Other equity instrument holdings

In the year ending 30 September 2023, no KMP or their related parties held or transacted any equity instruments (either directly or indirectly) other than the NAB shares and equity-based compensation disclosed in sections 7 and 8 .

# 9.4 Other relevant interests

Each KMP or their related parties from time to time invest in various debentures, registered schemes and securities offered by NAB and certain subsidiaries of NAB. The level of interests held directly and indirectly as at 30 September 2023 were:

Name |  | Nature of product |  | Relevant Interest (Units)
--- | --- | --- | --- | ---
Non-executive directors |  |  |  |
Ann Sherry |  | NAB Capital Notes 3 |  | 1,500
Group Executives |  |  |  |
Sharon Cook1 |  | NAB Capital Notes 3 |  | 2,000
|  | NAB Subordinated Notes 2 |  | -
David Gall |  | NAB Capital Notes 5 |  | 700

1. Sharon Cook redeemed 820 units of NAB Subordinated Notes 2 during the year on maturity.

There are no contracts, other than those disclosed in table 9.4 immediately above, to which directors are a party, or under which the directors are entitled to a benefit and that confer the right to call for, or deliver shares in, debentures of, or interests in, a registered scheme made available by NAB or a related body corporate. All of the directors have disclosed interests in organisations not related to the Group and are to be regarded as interested in any contract or proposed contract that may be made between NAB and any such organisations.

# Directors' signatures

This report of directors is signed in accordance with a resolution of the directors:

Philip ChronicanChair9 November 2023 |

Ross McEwan CBEGroup Chief Executive Officer9 November 2023 |

# Auditor's independence declaration

# Financial report

# Income statements

|  |  |  | Group
--- | --- | --- | --- | ---
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Interest income |  |  |  |  |
Effective interest rate method |  |  |  | 46,358 | 21,465
Fair value through profit or loss |  |  |  | 1,714 | 913
Interest expense |  |  |  | (31,265) | (7,538)
Net interest income |  | 3 |  | 16,807 | 14,840
Other income |  | 4 |  | 3,841 | 3,730
Operating expenses |  | 5 |  | (9,382) | (8,702)
Credit impairment charge |  | 17 |  | (816) | (124)
Profit before income tax |  |  |  | 10,450 | 9,744
Income tax expense |  | 6 |  | (2,980) | (2,684)
Net profit for the year from continuing operations |  |  |  | 7,470 | 7,060
Net loss after tax for the year from discontinued operations |  |  |  | (51) | (169)
Net profit for the year |  |  |  | 7,419 | 6,891
Attributable to non-controlling interests |  |  |  | 5 | -
Attributable to owners of the Company |  |  |  | 7,414 | 6,891
Earnings per share |  | cents | cents
Basic |  | 7 |  | 236.4 | 214.1
Diluted |  | 7 |  | 228.7 | 205.6
Basic from continuing operations |  | 7 |  | 238.0 | 219.3
Diluted from continuing operations |  | 7 |  | 230.2 | 210.5

|  |  |  | Company
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Interest income |  |  |  |  |
Effective interest rate method |  |  |  | 42,478 | 19,167
Fair value through profit or loss |  |  |  | 1,404 | 805
Interest expense |  |  |  | (30,894) | (8,799)
Net interest income |  | 3 |  | 12,988 | 11,173
Other income |  | 4 |  | 10,301 | 4,478
Operating expenses |  | 5 |  | (8,423) | (7,765)
Credit impairment charge |  | 17 |  | (654) | (48)
Profit before income tax |  |  |  | 14,212 | 7,838
Income tax expense |  | 6 |  | (2,200) | (1,893)
Net profit for the year from continuing operations |  |  |  | 12,012 | 5,945
Net loss after tax for the year from discontinued operations |  |  |  | - | -
Net profit for the year |  |  |  | 12,012 | 5,945
Attributable to non-controlling interests |  |  |  | - | -
Attributable to owners of the Company |  |  |  | 12,012 | 5,945
Earnings per share |  |  |
Basic |  | 7 |  |  |
Diluted |  | 7 |  |  |
Basic from continuing operations |  | 7 |  |  |
Diluted from continuing operations |  | 7 |  |  |

# Statements of comprehensive income

|  |  |  | Group
--- | --- | --- | --- | ---
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Net profit for the year from continuing operations |  |  |  | 7,470 | 7,060
Other comprehensive income |  |  |  |  |
Items that will not be reclassified to profit or loss |  |  |  |  |
Fair value changes on financial liabilities designated at fair value attributable to the Group's own credit risk |  |  |  | (67) | 149
Revaluation of land and buildings |  |  |  | (4) | 1
Equity instruments at fair value through other comprehensive income reserve: |  |  |  |  |
Revaluation gains / (losses) |  |  |  | 17 | 11
Tax on items transferred directly to equity |  |  |  | 20 | (43)
Total items that will not be reclassified to profit or loss |  |  |  | (34) | 118
Items that will be reclassified subsequently to profit or loss |  |  |  |  |
Cash flow hedge reserve |  |  |  | 66 | (2,510)
Cost of hedging reserve |  |  |  | (160) | 488
Foreign currency translation reserve: |  |  |  |  |
Currency adjustments on translation of foreign operations, net of hedging |  |  |  | 709 | (776)
Transfer to the income statement on disposal or partial disposal of foreign operations1 |  |  |  | (29) | (29)
Debt instruments at fair value through other comprehensive income reserve: |  |  |  |  |
Revaluation losses |  |  |  | (14) | (125)
Transferred to the income statement |  |  |  | (32) | (199)
Tax on items transferred directly to equity |  |  |  | 38 | 705
Total items that will be reclassified subsequently to profit or loss |  |  |  | 578 | (2,446)
Other comprehensive income for the year, net of income tax |  |  |  | 544 | (2,328)
Total comprehensive income for the year from continuing operations |  |  |  | 8,014 | 4,732
Net loss after tax for the year from discontinued operations |  |  |  | (51) | (169)
Total comprehensive income for the year |  |  |  | 7,963 | 4,563
Attributable to non-controlling interests2 |  |  |  | 13 | -
Total comprehensive income attributable to owners of the Company |  |  |  | 7,950 | 4,563

1. Partial disposals of foreign operations include returns of capital made by foreign branches.
2. The Group includes $8 million (2022: $nil) relating to foreign currency translation of the non-controlling interests in BNZ.

|  |  |  | Company
--- | --- | --- | --- | ---
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Net profit for the year from continuing operations |  |  |  | 12,012 | 5,945
Other comprehensive income |  |  |  |  |
Items that will not be reclassified to profit or loss |  |  |  |  |
Fair value changes on financial liabilities designated at fair value attributable to the Group's own credit risk |  |  |  | (70) | 88
Revaluation of land and buildings |  |  |  | - | -
Equity instruments at fair value through other comprehensive income reserve: |  |  |  |  |
Revaluation gains / (losses) |  |  |  | 16 | (4)
Tax on items transferred directly to equity |  |  |  | 22 | (26)
Total items that will not be reclassified to profit or loss |  |  |  | (32) | 58
Items that will be reclassified subsequently to profit or loss |  |  |  |  |
Cash flow hedge reserve |  |  |  | 303 | (2,813)
Cost of hedging reserve |  |  |  | (44) | 283
Foreign currency translation reserve: |  |  |  |  |
Currency adjustments on translation of foreign operations, net of hedging |  |  |  | 117 | (22)
Transfer to the income statement on disposal or partial disposal of foreign operations1 |  |  |  | (29) | -
Debt instruments at fair value through other comprehensive income reserve: |  |  |  |  |
Revaluation losses |  |  |  | (14) | (125)
Transferred to the income statement |  |  |  | (32) | (199)
Tax on items transferred directly to equity |  |  |  | (63) | 852
Total items that will be reclassified subsequently to profit or loss |  |  |  | 238 | (2,024)
Other comprehensive income for the year, net of income tax |  |  |  | 206 | (1,966)
Total comprehensive income for the year from continuing operations |  |  |  | 12,218 | 3,979
Net loss after tax for the year from discontinued operations |  |  |  | - | -
Total comprehensive income for the year |  |  |  | 12,218 | 3,979
Attributable to non-controlling interests2 |  |  |  | - | -
Total comprehensive income attributable to owners of the Company |  |  |  | 12,218 | 3,979

1. Partial disposals of foreign operations include returns of capital made by foreign branches.
2. The Group includes $8 million (2022: $nil) relating to foreign currency translation of the non-controlling interests in BNZ.

# Balance sheets

|  |  |  | Group
--- | --- | --- | --- | ---
As at 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Assets |  |  |  |  |
Cash and liquid assets |  | 8 |  | 24,699 | 56,451
Due from other banks |  | 8 |  | 117,306 | 141,861
Collateral placed |  |  |  | 11,286 | 13,115
Trading assets |  | 9 |  | 101,168 | 40,573
Debt instruments |  | 10 |  | 46,357 | 42,080
Other financial assets |  | 11 |  | 1,430 | 2,061
Derivative assets |  | 18 |  | 34,269 | 61,016
Loans and advances |  | 12 |  | 702,702 | 680,434
Current tax assets |  |  |  | 20 | 16
Due from controlled entities |  |  |  | - | -
Deferred tax assets |  | 6 |  | 3,499 | 3,385
Property, plant and equipment |  |  |  | 3,016 | 3,009
Investments in controlled entities |  |  |  | - | -
Goodwill and other intangible assets |  | 22 |  | 4,952 | 4,652
Other assets |  | 23 |  | 8,379 | 6,473
Total assets |  |  |  | 1,059,083 | 1,055,126
Liabilities |  |  |  |  |
Due to other banks |  | 8 |  | 39,516 | 74,679
Collateral received |  |  |  | 10,672 | 17,245
Other financial liabilities |  | 16 |  | 66,352 | 23,286
Derivative liabilities |  | 18 |  | 35,633 | 57,486
Deposits and other borrowings |  | 13 |  | 682,120 | 683,526
Current tax liabilities |  |  |  | 1,012 | 1,011
Provisions |  | 24 |  | 1,852 | 2,096
Due to controlled entities |  |  |  | - | -
Bonds, notes and subordinated debt |  | 14 |  | 135,645 | 119,283
Debt issues |  | 15 |  | 8,561 | 7,318
Other liabilities |  | 25 |  | 16,217 | 10,164
Total liabilities |  |  |  | 997,580 | 996,094
Net assets |  |  |  | 61,503 | 59,032
Equity |  |  |  |  |
Contributed equity |  | 27 |  | 38,546 | 39,399
Reserves |  | 29 |  | (1,192) | (1,839)
Retained profits |  |  |  | 23,800 | 21,472
Total equity (attributable to owners of the Company) |  |  |  | 61,154 | 59,032
Non-controlling interests |  | 28 |  | 349 | -
Total equity |  |  |  | 61,503 | 59,032

|  |  |  | Company
--- | --- | --- | --- | ---
As at 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Assets |  |  |  |  |
Cash and liquid assets |  | 8 |  | 23,959 | 56,121
Due from other banks |  | 8 |  | 106,955 | 133,144
Collateral placed |  |  |  | 10,214 | 10,636
Trading assets |  | 9 |  | 90,417 | 34,043
Debt instruments |  | 10 |  | 46,336 | 42,094
Other financial assets |  | 11 |  | 1,708 | 2,749
Derivative assets |  | 18 |  | 33,784 | 60,651
Loans and advances |  | 12 |  | 607,684 | 592,679
Current tax assets |  |  |  | 19 | 15
Due from controlled entities |  |  |  | 43,577 | 38,226
Deferred tax assets |  | 6 |  | 3,059 | 2,975
Property, plant and equipment |  |  |  | 1,935 | 2,091
Investments in controlled entities |  |  |  | 10,025 | 4,670
Goodwill and other intangible assets |  | 22 |  | 2,392 | 2,172
Other assets |  | 23 |  | 7,717 | 5,562
Total assets |  |  |  | 989,781 | 987,828
Liabilities |  |  |  |  |
Due to other banks |  | 8 |  | 33,965 | 69,295
Collateral received |  |  |  | 9,281 | 15,365
Other financial liabilities |  | 16 |  | 51,745 | 8,960
Derivative liabilities |  | 18 |  | 36,110 | 57,494
Deposits and other borrowings |  | 13 |  | 608,641 | 616,961
Current tax liabilities |  |  |  | 978 | 716
Provisions |  | 24 |  | 1,651 | 1,897
Due to controlled entities |  |  |  | 44,059 | 41,639
Bonds, notes and subordinated debt |  | 14 |  | 124,329 | 109,674
Debt issues |  | 15 |  | 8,561 | 7,318
Other liabilities |  | 25 |  | 13,938 | 8,381
Total liabilities |  |  |  | 933,258 | 937,700
Net assets |  |  |  | 56,523 | 50,128
Equity |  |  |  |  |
Contributed equity |  | 27 |  | 37,760 | 38,613
Reserves |  | 29 |  | (1,565) | (1,874)
Retained profits |  |  |  | 20,328 | 13,389
Total equity (attributable to owners of the Company) |  |  |  | 56,523 | 50,128
Non-controlling interests |  | 28 |  | - | -
Total equity |  |  |  | 56,523 | 50,128

# Statements of cash flows

|  |  |  | Group
--- | --- | --- | --- | ---
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Cash flows from operating activities |  |  |  |  |
Interest received |  |  |  | 47,338 | 21,518
Interest paid |  |  |  | (28,548) | (6,544)
Dividends received |  |  |  | 2 | 28
Net trading income received |  |  |  | 4,993 | 5,370
Other income received |  |  |  | 2,572 | 2,527
Operating expenses paid |  |  |  | (7,614) | (6,207)
Income tax paid |  |  |  | (2,973) | (1,641)
Cash flows from operating activities before changes in operating assets and liabilities |  |  |  | 15,770 | 15,051
Changes in operating assets and liabilities |  |  |  |  |
Net (increase) / decrease in |  |  |  |  |
Collateral placed |  |  |  | 2,075 | (6,720)
Deposits with central banks and other regulatory authorities |  |  |  | 10,490 | (19,703)
Trading assets |  |  |  | (58,148) | 6,273
Other financial assets designated at fair value |  |  |  | 682 | 624
Loans and advances |  |  |  | (15,854) | (53,384)
Other assets |  |  |  | (237) | 3,173
Net increase / (decrease) in |  |  |  |  |
Collateral received |  |  |  | (6,893) | 12,624
Deposits and other borrowings |  |  |  | (9,157) | 75,530
Other financial liabilities designated at fair value |  |  |  | 44,592 | (352)
Other liabilities |  |  |  | 296 | (2,667)
Net funds advanced to and receipts from other banks |  |  |  | (10,468) | 5,121
Net movement in derivative assets and liabilities |  |  |  | 153 | (7,349)
Changes in operating assets and liabilities arising from cash flow movements |  |  |  | (42,469) | 13,170
Net cash provided by / (used in) operating activities |  | 37 |  | (26,699) | 28,221
Cash flows from investing activities |  |  |  |  |
Movement in debt instruments |  |  |  |  |
Purchases |  |  |  | (34,455) | (33,697)
Proceeds from disposal and maturity |  |  |  | 31,296 | 29,084
Net movement in other debt and equity instruments |  |  |  | 59 | (2)
Net movement in amounts due from controlled entities |  |  |  | - | -
Net movement in shares in controlled entities |  |  |  | - | -
Net movement in shares in associates and joint ventures |  |  |  | - | (4)
Purchase of controlled entities and business combinations, net of cash acquired |  |  |  | - | (3,183)
Proceeds from sale of controlled entities and business closures, net of costs and cash disposed |  |  |  | 82 | 176
Purchase of property, plant, equipment and software |  |  |  | (1,192) | (1,076)
Proceeds from sale of property, plant, equipment and software, net of costs |  |  |  | - | (1)
Net cash provided by / (used in) investing activities |  |  |  | (4,210) | (8,703)
Cash flows from financing activities |  |  |  |  |
Repayments of bonds‚ notes and subordinated debt |  |  |  | (31,143) | (27,640)
Proceeds from issue of bonds‚ notes and subordinated debt‚ net of costs1 |  |  |  | 42,827 | 41,932
Payments for share buy-back |  |  |  | (904) | (3,917)
Purchase of shares for dividend reinvestment plan neutralisation |  |  |  | (693) | (500)
Purchase of treasury shares for employee share offer |  |  |  | (23) | -
Proceeds from debt issues, net of costs |  |  |  | 1,243 | 1,983
Proceeds from issue of BNZ perpetual preference shares |  |  |  | 336 | -
Repayments of debt issues |  |  |  | - | (1,504)
Dividends and distributions paid (excluding dividend reinvestment plan) |  |  |  | (4,339) | (4,006)
Repayments of other financing activities |  |  |  | (328) | (339)
Net cash provided by / (used in) financing activities |  |  |  | 6,976 | 6,009
Net increase / (decrease) in cash and cash equivalents |  |  |  | (23,933) | 25,527
Cash and cash equivalents at beginning of period |  |  |  | 62,179 | 37,881
Effects of exchange rate changes on balance of cash held in foreign currencies |  |  |  | 2,343 | (1,229)
Cash and cash equivalents at end of year |  | 37 |  | 40,589 | 62,179

1. Includes RBNZ's FLP.

|  |  |  | Company
--- | --- | --- | --- | ---
For the year ended 30 September |  | Note |  | 2023 | 2022
|  |  |  | $m | $m
Cash flows from operating activities |  |  |  |  |
Interest received |  |  |  | 43,275 | 19,164
Interest paid |  |  |  | (28,555) | (7,906)
Dividends received |  |  |  | 2,053 | 2,052
Net trading income received |  |  |  | 4,083 | 4,995
Other income received |  |  |  | 1,704 | 1,955
Operating expenses paid |  |  |  | (6,598) | (5,591)
Income tax paid |  |  |  | (2,034) | (956)
Cash flows from operating activities before changes in operating assets and liabilities |  |  |  | 13,928 | 13,713
Changes in operating assets and liabilities |  |  |  |  |
Net (increase) / decrease in |  |  |  |  |
Collateral placed |  |  |  | 528 | (4,713)
Deposits with central banks and other regulatory authorities |  |  |  | 10,490 | (19,703)
Trading assets |  |  |  | (53,920) | 6,661
Other financial assets designated at fair value |  |  |  | 1,036 | 491
Loans and advances |  |  |  | (13,534) | (50,274)
Other assets |  |  |  | (432) | 2,641
Net increase / (decrease) in |  |  |  |  |
Collateral received |  |  |  | (6,297) | 11,245
Deposits and other borrowings |  |  |  | (12,366) | 73,298
Other financial liabilities designated at fair value |  |  |  | 43,099 | 2,910
Other liabilities |  |  |  | 814 | (2,169)
Net funds advanced to and receipts from other banks |  |  |  | (10,857) | 4,452
Net movement in derivative assets and liabilities |  |  |  | 2,300 | (9,971)
Changes in operating assets and liabilities arising from cash flow movements |  |  |  | (39,139) | 14,868
Net cash provided by / (used in) operating activities |  | 37 |  | (25,211) | 28,581
Cash flows from investing activities |  |  |  |  |
Movement in debt instruments |  |  |  |  |
Purchases |  |  |  | (34,435) | (33,697)
Proceeds from disposal and maturity |  |  |  | 31,280 | 29,071
Net movement in other debt and equity instruments |  |  |  | (32) | (80)
Net movement in amounts due from controlled entities |  |  |  | (3,320) | 3,162
Net movement in shares in controlled entities |  |  |  | 5 | (159)
Net movement in shares in associates and joint ventures |  |  |  | - | -
Purchase of controlled entities and business combinations, net of cash acquired |  |  |  | - | (3,138)
Proceeds from sale of controlled entities and business closures, net of costs and cash disposed |  |  |  | 82 | -
Purchase of property, plant, equipment and software |  |  |  | (900) | (784)
Proceeds from sale of property, plant, equipment and software, net of costs |  |  |  | - | (1)
Net cash provided by / (used in) investing activities |  |  |  | (7,320) | (5,626)

|  |  |  | Company
For the year ended 30 September |  |  |  | 2023 | 2022
|  |  |  | $m | $m
Cash flows from financing activities |  |  |  |  |
Repayments of bonds‚ notes and subordinated debt |  |  |  | (26,937) | (24,319)
Proceeds from issue of bonds‚ notes and subordinated debt‚ net of costs |  |  |  | 38,948 | 35,188
Payments for share buy-back |  |  |  | (904) | (3,917)
Purchase of shares for dividend reinvestment plan neutralisation |  |  |  | (693) | (500)
Purchase of treasury shares for employee share offer |  |  |  | (23) | -
Proceeds from debt issues, net of costs |  |  |  | 1,243 | 1,983
Proceeds from issue of BNZ perpetual preference shares |  |  |  | - | -
Repayments of debt issues |  |  |  | - | (1,504)
Dividends and distributions paid (excluding dividend reinvestment plan) |  |  |  | (4,334) | (4,006)
Repayments of other financing activities |  |  |  | (284) | (299)
Net cash provided by / (used in) financing activities |  |  |  | 7,016 | 2,626
Net increase / (decrease) in cash and cash equivalents |  |  |  | (25,515) | 25,581
Cash and cash equivalents at beginning of period |  |  |  | 55,183 | 30,462
Effects of exchange rate changes on balance of cash held in foreign currencies |  |  |  | 2,113 | (860)
Cash and cash equivalents at end of year |  | 37 |  | 31,781 | 55,183

# Statements of changes in equity

|  | Contributed equity1 | Reserves2 | Retained profits | Total | Non-controlling interests | Total equity
--- | --- | --- | --- | --- | --- | --- | ---
Group |  | $m | $m | $m | $m | $m | $m
Year to 30 September 2022 |  |  |  |  |  |  |
Balance at 1 October 2021 |  | 43,247 | 550 | 18,982 | 62,779 | - | 62,779
Net profit for the year from continuing operations |  | - | - | 7,060 | 7,060 | - | 7,060
Net loss for the year from discontinued operations |  | - | - | (169) | (169) | - | (169)
Other comprehensive income for the year from continuing operations |  | - | (2,429) | 101 | (2,328) | - | (2,328)
Total comprehensive income for the year |  | - | (2,429) | 6,992 | 4,563 | - | 4,563
Transactions with owners, recorded directly in equity |  |  |  |  |  |  |
Contributions by and distributions to owners |  |  |  |  |  |  |
Issue of ordinary shares |  | 500 | - | - | 500 | - | 500
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (500) | - | - | (500) | - | (500)
Share buy-back |  | (3,917) | - | - | (3,917) | - | (3,917)
Transfer from / (to) retained profits |  | - | (4) | 4 | - | - | -
Transfer from / (to) equity-based compensation reserve |  | 69 | (69) | - | - | - | -
Equity-based compensation |  | - | 113 | - | 113 | - | 113
Dividends paid3 |  | - | - | (4,506) | (4,506) | - | (4,506)
Balance as at 30 September 2022 |  | 39,399 | (1,839) | 21,472 | 59,032 | - | 59,032
Year to 30 September 2023 |  |  |  |  |  |  |
Net profit for the year from continuing operations |  | - | - | 7,465 | 7,465 | 5 | 7,470
Net loss for the year from discontinued operations |  | - | - | (51) | (51) | - | (51)
Other comprehensive income for the year from continuing operations |  | - | 583 | (47) | 536 | 8 | 544
Total comprehensive income for the year |  | - | 583 | 7,367 | 7,950 | 13 | 7,963
Transactions with owners, recorded directly in equity |  |  |  |  |  |  |
Contributions by and distributions to owners |  |  |  |  |  |  |
Issue of ordinary shares |  | 693 | - | - | 693 | - | 693
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (693) | - | - | (693) | - | (693)
Share buy-back |  | (904) | - | - | (904) | - | (904)
Purchase of treasury shares for employee share offer4 |  | (23) | - | - | (23) | - | (23)
Transfer from / (to) retained profits |  | - | 7 | (7) | - | - | -
Transfer from / (to) equity-based compensation reserve |  | 74 | (74) | - | - | - | -
Equity-based compensation |  | - | 131 | - | 131 | - | 131
Dividends paid3 |  | - | - | (5,027) | (5,027) | (5) | (5,032)
Other equity movements |  |  |  |  |  |  |
Issue of BNZ perpetual preference shares5 |  | - | - | (5) | (5) | 341 | 336
Balance as at 30 September 2023 |  | 38,546 | (1,192) | 23,800 | 61,154 | 349 | 61,503

1. Refer to Note 27 Contributed equity for further details.
2. Refer to Note 29 Reserves for further details.
3. Refer to Note 30 Dividends for further details.
4. This represents an on-market purchase of 748,032 shares at an average price of $30.70 per share.
5. Refer to Note 28 Non-controlling interests for further details.

|  | Contributed equity1 | Reserves2 | Retained profits | Total equity
--- | --- | --- | --- | --- | ---
Company |  | $m | $m | $m | $m
Year to 30 September 2022 |  |  |  |  |
Balance at 1 October 2021 |  | 42,461 | 99 | 11,899 | 54,459
Net profit for the year from continuing operations |  | - | - | 5,945 | 5,945
Other comprehensive income for the year from continuing operations |  | - | (2,023) | 57 | (1,966)
Total comprehensive income for the year |  | - | (2,023) | 6,002 | 3,979
Transactions with owners, recorded directly in equity |  |  |  |  |
Contributions by and distributions to owners |  |  |  |  |
Issue of ordinary shares |  | 500 | - | - | 500
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (500) | - | - | (500)
Share buy-back |  | (3,917) | - | - | (3,917)
Transfer from / (to) retained profits |  | - | 6 | (6) | -
Transfer from / (to) equity-based compensation reserve |  | 69 | (69) | - | -
Equity-based compensation |  | - | 113 | - | 113
Dividends paid3 |  | - | - | (4,506) | (4,506)
Balance as at 30 September 2022 |  | 38,613 | (1,874) | 13,389 | 50,128
Year to 30 September 2023 |  |  |  |  |
Net profit for the year from continuing operations |  | - | - | 12,012 | 12,012
Other comprehensive income for the year from continuing operations |  | - | 254 | (48) | 206
Total comprehensive income for the year |  | - | 254 | 11,964 | 12,218
Transactions with owners, recorded directly in equity |  |  |  |  |
Contributions by and distributions to owners |  |  |  |  |
Issue of ordinary shares |  | 693 | - | - | 693
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (693) | - | - | (693)
Purchase of treasury shares for employee share offer4 |  | (23) | - | - | (23)
Share buy-back |  | (904) | - | - | (904)
Transfer from / (to) retained profits |  | - | (2) | 2 | -
Transfer from / (to) equity-based compensation reserve |  | 74 | (74) | - | -
Equity-based compensation |  | - | 131 | - | 131
Dividends paid3 |  | - | - | (5,027) | (5,027)
Balance as at 30 September 2023 |  | 37,760 | (1,565) | 20,328 | 56,523

1. Refer to Note 27 Contributed equity for further details.
2. Refer to Note 29 Reserves for further details.
3. Refer to Note 30 Dividends for further details.
4. This represents an on-market purchase of 748,032 shares at an average price of $30.70 per share.

# Notes to the financial statements

# Introduction

# 1 Basis of preparation

This is the financial report of National Australia Bank Limited (the Company) together with its controlled entities (Group) for the year ended 30 September 2023. The Company, incorporated and domiciled in Australia , is a for-profit company limited by shares which are publicly traded on the Australian Securities Exchange.

The directors resolved to authorise the issue of the financial report on 9 November 2023. The directors have the power to amend and reissue the financial report.

The financial report includes information to the extent the Group considers it material and relevant to the understanding of users. Disclosed information is considered material and relevant if, for example:

- The dollar amount is significant in size or by nature.

- The Group’s results cannot be understood by users without the specific disclosure.

- The information is important to help users understand the impact of significant changes in the Group’s business during the financial year, for example, a business acquisition, disposal, or an impairment / write-down.

- The information relates to an aspect of the Group’s operations which is important to its future performance.

- The information is required under legislative requirements of the Corporations Act 2001 (Cth), the Banking Act 1959 (Cth) or by the Group’s principal regulators, including the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

Basis of preparation

This general purpose financial report has been prepared by a for-profit company, in accordance with the requirements of the Corporations Act 2001 (Cth) and accounting standards and interpretations issued by the Australian Accounting Standards Board (AASB). Compliance with standards and interpretations issued by the AASB ensures that this financial report complies with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Amounts are presented in Australian dollars (unless otherwise stated), which is the Company’s functional and presentation currency. These amounts have been rounded to the nearest million dollars ($m), except where indicated, as allowed by ASIC Corporations Instrument 2016/191.

Unless otherwise stated, comparative information has been restated for any changes to presentation made in the current year. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount in the Group's income statement and statement of comprehensive income.

To comply with its obligations as an Australian Financial Services Licence holder, the Group includes the separate financial statements of the Company in this financial report, which is permitted by ASIC Corporations (Parent Entity Financial Statements) Instrument 2021/195.

Basis of measurement

The financial report has been prepared under the historical cost convention, except for:

- Certain assets and liabilities (including derivative instruments) measured at fair value through profit or loss, or at fair value through other comprehensive income.

- Financial assets and liabilities that are otherwise measured on an amortised cost basis but adjusted for changes in fair value attributable to the risk being hedged in qualifying fair value hedge relationships.

Accounting policies

During the year ended 30 September 2023, the Group revised its accounting treatment of ongoing trail commission payable to mortgage brokers. The Group has recognised a liability within 'Other liabilities' equal to the present value of expected future trail commission payments and a corresponding increase in capitalised brokerage costs within 'Loans and advances'. Comparative information has not been restated.

Except as explained above, the accounting policies and methods of computation applied in this report are consistent with those applied in the Group's 2022 Annual Report. There were no substantial amendments to Australian Accounting Standards adopted during the year that have a material impact on the Group.

Critical accounting judgements and estimates

In the process of applying the Group’s accounting policies, management have made a number of judgements and assumptions and applied estimates of future events. Some of these areas include:

- Impairment charges on loans and advances.

- Fair value of financial assets and liabilities.

- Impairment assessment of goodwill and other intangible assets.

- Determination of income tax.

- Provisions for customer-related remediation and other regulatory matters.

Further details of these critical accounting judgements and estimates are provided in the respective notes to the financial statements.

Other developments
Interest rate benchmark reform

Over the 2023 financial year, the Group has transitioned materially all contracts referencing Interbank Offered Rates (IBOR) benchmarks subject to cessation at 30 June 2023. Additionally, fallback language continues to be updated for contracts referencing IBOR benchmarks subject to cessation in 2024.

The Group continues to meet jurisdictional regulatory guidance and national working group timelines to cease referencing IBOR benchmarks subject to cessation and IBOR benchmarks which have ceased in new transactions, and actively transition legacy contracts to alternative risk-free rates. The Group continues to manage the risk arising from transition to ensure a low probability of occurrence and impact to the Group and its customers. Following the cessation of some benchmarks on
31 December 2021 and 30 June 2023, and adoption of fallback rates in contracts with major counterparties (in particular, central clearing counterparties), there has been a significant reduction in transition risk since 30 September 2022. In particular:

- Following cessation of USD London Interbank Offered Rate (LIBOR) benchmarks on 30 June 2023, the Group’s exposure to these benchmarks has reduced significantly. As at 30 September 2023, there is an immaterial exposure referencing the synthetic version of some of the ceased benchmarks. These financial instruments are awaiting the next contractual rate reset or customers have chosen to not transition for administrative reasons as their financial instruments mature before the cessation of the relevant synthetic benchmark.

- Financial instruments referencing other ceased IBOR benchmarks are not material.

- Financial instruments referencing IBOR benchmarks subject to a future announced cessation are also not material.

Future accounting developments

AASB 17 Insurance Contracts (AASB 17) will be effective for the Group from 1 October 2023. The expected impact to the Group from this new accounting standard is limited to the Group’s equity-accounted associate MLC Life. The change in timing of profit recognition under AASB 17 is expected to result in a decrease in the carrying value of the MLC Life investment (included within Note 23 Other assets) by approximately $200 million with a corresponding decrease in retained earnings as at 1 October 2023. Refer to Note 32 Interest in subsidiaries and other entities for further information.

There are no other new standards or amendments to existing standards that are not yet effective which are expected to have a material impact on the Group’s financial statements.

# Financial performance

# Overview

The Group’s reportable segments are unchanged from the 2022 Annual Report.

A description of the operating activities of each reportable segment is provided below:

- Business and Private Banking focuses on NAB's priority small and medium (SME) customer segments. This includes diversified businesses, as well as specialised Agriculture, Health, Professional Services, Franchisees, Government, Education and Community service segments along with Private Banking and JBWere.

- Personal Banking provides banking products and services to customers including securing a home loan and managing personal finances through deposits, credit card or personal loan facilities. Customers are supported through a network of branches and ATMs, call centres, digital capabilities as well as through proprietary lenders and mortgage brokers. Personal Banking results include the financial performance of the Citi consumer business, acquired effective 1 June 2022.

- Corporate and Institutional Banking provides a range of products and services including client coverage, corporate finance, markets, asset servicing, transactional banking and enterprise payments. The division serves its customers across Australia, the United States, Europe and Asia, with specialised industry relationships and product teams. It includes Bank of New Zealand's Markets Trading operations.

- New Zealand Banking provides banking and financial services across customer segments in New Zealand. It consists of Partnership Banking servicing retail, business and private customers; Corporate and Institutional Banking servicing corporate and institutional customers, and includes Markets Sales operations in New Zealand. New Zealand Banking also includes the Wealth franchise operating under the ‘Bank of New Zealand’ brand. It excludes the Bank of New Zealand’s Markets Trading operations. New Zealand Banking results include the financial performance of the New Zealand liquidity management portfolio, effective 1 October 2022.

- Corporate Functions and Other includes ubank and enabling units that support all businesses including Treasury, Technology and Enterprise Operations, Digital, Data and Analytics, Support Units and eliminations.

The Group evaluates performance on the basis of cash earnings as it better reflects what is considered to be the underlying performance of the Group. Cash earnings is a non-IFRS key financial performance measure used by the Group and the investment community.

Cash earnings is calculated by adjusting statutory net profit from continuing operations for certain non-cash earnings items. Non-cash earnings items are those items which are considered separately when assessing performance and analysing the underlying trends in the business. Cash earnings for the year ended 30 September 2023 has been adjusted for hedging and fair value volatility, amortisation of acquired intangible assets, and certain other items associated with acquisitions, disposals and business closures. Cash earnings does not purport to represent the cash flows, funding or liquidity position of the Group, nor any amount represented on a statement of cash flows.

The Group earns the vast majority of its revenue in the form of net interest income, being the difference between interest earned on financial assets and interest paid on financial liabilities and other financing costs.

# 2 Segment information

|  | 2023
--- | --- | ---
|  | Business and Private Banking | Personal Banking | Corporate and Institutional Banking1 | New Zealand Banking1 | Corporate Functions and Other2 | Total Group
|  | $m | $m | $m | $m | $m | $m
Reportable segment information |  |  |  |  |  |  |
Net interest income |  | 7,270 | 4,329 | 2,361 | 2,616 | 231 | 16,807
Other income |  | 976 | 567 | 1,593 | 536 | 175 | 3,847
Net operating income |  | 8,246 | 4,896 | 3,954 | 3,152 | 406 | 20,654
Operating expenses |  | (2,931) | (2,561) | (1,452) | (1,105) | (974) | (9,023)
Underlying profit / (loss) |  | 5,315 | 2,335 | 2,502 | 2,047 | (568) | 11,631
Credit Impairment (charge) / write-back |  | (568) | (287) | (32) | (85) | 170 | (802)
Cash earnings / (loss) before tax and distributions |  | 4,747 | 2,048 | 2,470 | 1,962 | (398) | 10,829
Income tax (expense) / benefit |  | (1,429) | (602) | (600) | (553) | 91 | (3,093)
Cash earnings / (loss) before non-controlling interests |  | 3,318 | 1,446 | 1,870 | 1,409 | (307) | 7,736
Non-controlling interests |  | - | - | - | (5) | - | (5)
Cash earnings / (loss) |  | 3,318 | 1,446 | 1,870 | 1,404 | (307) | 7,731
Hedging and fair value volatility |  | (2) | (6) | (95) | (8) | 82 | (29)
Other non-cash earnings items |  | (9) | (17) | - | - | (211) | (237)
Net profit / (loss) for the year from continuing operations |  | 3,307 | 1,423 | 1,775 | 1,396 | (436) | 7,465
Net loss from discontinued operations attributable to owners of the Company |  | - | - | - | - | (51) | (51)
Net profit / (loss) attributable to owners of the Company |  | 3,307 | 1,423 | 1,775 | 1,396 | (487) | 7,414
Reportable segment assets3 |  | 255,451 | 247,934 | 282,809 | 117,090 | 155,799 | 1,059,083

1. For the year ended 30 September 2023, the New Zealand liquidity management portfolio of $18.3 billion of assets is reported within New Zealand Banking. Previously the assets and liabilities together with the related income was reported as part of Corporate and Institutional Banking. Comparative information has not been restated.
2. Corporate Functions and Other includes eliminations.
3. Reportable segment assets include inter-company balances which are eliminated within the Corporate Functions and Other segment.

|  | 2022
--- | --- | ---
|  | Business and Private Banking | Personal Banking | Corporate and Institutional Banking | New Zealand Banking | Corporate Functions and Other1 | Total Group
|  | $m | $m | $m | $m | $m | $m
Reportable segment information |  |  |  |  |  |  |
Net interest income |  | 6,074 | 4,055 | 2,058 | 2,302 | 363 | 14,852
Other income |  | 962 | 524 | 1,413 | 518 | 27 | 3,444
Net operating income |  | 7,036 | 4,579 | 3,471 | 2,820 | 390 | 18,296
Operating expenses |  | (2,664) | (2,311) | (1,377) | (971) | (951) | (8,274)
Underlying profit / (loss) |  | 4,372 | 2,268 | 2,094 | 1,849 | (561) | 10,022
Credit Impairment (charge) / write-back |  | (60) | 5 | 26 | (47) | (49) | (125)
Cash earnings / (loss) before tax and distributions |  | 4,312 | 2,273 | 2,120 | 1,802 | (610) | 9,897
Income tax (expense) / benefit |  | (1,299) | (682) | (492) | (507) | 187 | (2,793)
Cash earnings / (loss) |  | 3,013 | 1,591 | 1,628 | 1,295 | (423) | 7,104
Hedging and fair value volatility |  | (2) | 9 | 90 | 40 | (68) | 69
Other non-cash earnings items |  | (2) | (7) | - | - | (104) | (113)
Net profit / (loss) for the year from continuing operations |  | 3,009 | 1,593 | 1,718 | 1,335 | (595) | 7,060
Net loss from discontinued operations attributable to owners of the Company |  | - | - | - | - | (169) | (169)
Net profit / (loss) attributable to owners of the Company |  | 3,009 | 1,593 | 1,718 | 1,335 | (764) | 6,891
Reportable segment assets2 |  | 235,322 | 244,822 | 348,035 | 93,243 | 133,704 | 1,055,126

1. Corporate Functions and Other includes eliminations.
2. Reportable segment assets include inter-company balances which are eliminated within the Corporate Functions and Other segment.

Major customers

No single customer contributes revenue greater than 10% of the Group’s revenues.

Geographical information

The Group has operations in Australia (the Company’s country of domicile), New Zealand, Europe, the United States and Asia. The allocation of income and non-current assets is based on the geographical location in which transactions are booked.

|  | Group
--- | --- | ---
|  | Income |  | Non-current assets1
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Australia |  | 16,674 | 14,746 |  | 7,115 | 7,081
New Zealand |  | 3,218 | 2,953 |  | 1,275 | 986
Other International |  | 1,051 | 936 |  | 118 | 108
Total before inter-geographic eliminations |  | 20,943 | 18,635 |  | 8,508 | 8,175
Elimination of inter-geographic items |  | (295) | (65) |  | - | -
Total |  | 20,648 | 18,570 |  | 8,508 | 8,175

1. Non-current assets includes goodwill and other intangible assets, property, plant and equipment and investments in joint ventures and associates.

# 3 Net interest income

Accounting policy

Interest income and expense are recognised in the income statement using the effective interest method. The effective interest method measures the amortised cost of a financial asset or financial liability using the effective interest rate. The effective interest rate discounts the estimated stream of future cash payments or receipts over the expected life of the financial instrument to the net carrying amount of the financial instrument.

Fees and costs which form an integral part of the effective interest rate of a financial instrument (for example, loan origination fees) are recognised using the effective interest method and recorded in interest income or expense depending on whether the underlying instrument is a financial asset or liability.

Included in net interest income are interest income and expense on trading assets, hedging instruments and financial instruments measured at fair value through profit or loss.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Interest income |  |  |  |  |  |
Effective interest rate method |  |  |  |  |  |
Amortised cost |  |  |  |  |  |
Due from other banks |  | 5,253 | 930 |  | 4,713 | 767
Loans and advances |  | 35,807 | 19,542 |  | 30,175 | 16,264
Due from controlled entities |  | - | - |  | 2,586 | 1,183
Other interest income |  | 3,554 | 592 |  | 3,261 | 553
Fair value through other comprehensive income |  |  |  |  |  |
Debt instruments |  | 1,744 | 401 |  | 1,743 | 400
Total effective interest method |  | 46,358 | 21,465 |  | 42,478 | 19,167
Fair value through profit or loss |  |  |  |  |  |
Trading instruments |  | 1,607 | 803 |  | 1,328 | 712
Other financial assets |  | 107 | 110 |  | 76 | 93
Total fair value through profit or loss |  | 1,714 | 913 |  | 1,404 | 805
Total interest income |  | 48,072 | 22,378 |  | 43,882 | 19,972
Interest expense |  |  |  |  |  |
Effective interest rate method |  |  |  |  |  |
Due to other banks |  | 1,705 | 375 |  | 1,525 | 343
Deposits and other borrowings |  | 19,889 | 3,832 |  | 17,636 | 3,191
Bonds, notes and subordinated debt |  | 7,083 | 1,726 |  | 6,413 | 1,598
Due to controlled entities |  | - | - |  | 3,515 | 2,527
Debt issues |  | 362 | 224 |  | 362 | 224
Other interest expense |  | 640 | 394 |  | 555 | 371
Total effective interest method |  | 29,679 | 6,551 |  | 30,006 | 8,254
Fair value through profit or loss |  |  |  |  |  |
Trading instruments |  | 51 | 5 |  | 51 | 5
Other financial liabilities |  | 1,163 | 635 |  | 465 | 193
Total fair value through profit or loss |  | 1,214 | 640 |  | 516 | 198
Bank levy |  | 372 | 347 |  | 372 | 347
Total interest expense |  | 31,265 | 7,538 |  | 30,894 | 8,799
Net interest income |  | 16,807 | 14,840 |  | 12,988 | 11,173

# 4 Other income

Accounting policy

Categories of other income are measured as follows:

Item |  | Measurement basis
Trading instruments |  | Trading derivatives - Total fair value change (including interest income or expense).Trading assets - All fair value changes except for interest income or expense, which is recognised within net interest income.
Hedge ineffectiveness |  | Represents hedge ineffectiveness arising from hedge accounting, which are the fair value movements (excluding interest income or expense) that do not offset the hedged risk.
Financial instruments designated at fair value |  | Includes fair value movements on such items, other than interest income or expense and movements attributable to the Group’s own credit risk.
Dividend revenue |  | Dividend revenue is recognised in the income statement when the Group’s right to receive the dividend is established.
Lending fees and other fees and commissions |  | Unless included in the effective interest rate, fees and commissions are recognised on an accruals basis when the service has been provided or on completion of the underlying transaction. Fees charged for providing ongoing services (for example, maintaining and administering existing facilities) are recognised as income over the period the service is provided. When a third party is involved in providing goods or services to the Group's customer, the Group assesses whether the nature of the arrangement with its customer is as a principal or an agent of the third party. When the Group is not acting in a principal capacity, the income earned by the Group is net of the amounts paid to the third party provider. The net consideration represents the Group's income for facilitating the transaction.
Net investment management income |  | Investment management income is recognised on an accruals basis as the services are provided and is presented net of direct and incremental investment management expenses incurred in the provision of these services.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Net fees and commissions |  |  |  |  |  |
Lending fees |  | 1,141 | 1,125 |  | 932 | 925
Other fees and commissions1 |  | 893 | 838 |  | 667 | 618
Net investment management income |  |  |  |  |  |
Investment management income |  | 304 | 296 |  | - | -
Investment management expense |  | (155) | (140) |  | - | -
Total net fees and commissions |  | 2,183 | 2,119 |  | 1,599 | 1,543
Gains less losses on financial instruments at fair value |  |  |  |  |  |
Trading instruments |  | 1,141 | (196) |  | 813 | 30
Hedge ineffectiveness |  | (21) | 58 |  | (27) | 31
Financial instruments designated at fair value |  | 390 | 1,205 |  | 418 | 592
Total gains less losses on financial instruments at fair value |  | 1,510 | 1,067 |  | 1,202 | 653
Other operating income |  |  |  |  |  |
Dividend revenue2 |  | 2 | 28 |  | 7,423 | 2,053
Net other income3 |  | 146 | 516 |  | 77 | 229
Total net other operating income |  | 148 | 544 |  | 7,500 | 2,282
Total other income |  | 3,841 | 3,730 |  | 10,301 | 4,478

1. The Group recognised customer-related remediation charges of $29 million (2022: $71 million charge) and the Company recognised customer-related remediation charges of $39 million (2022: $40 million charge) in other fees and commissions. Customer-related remediation charges in the Company include MLC Wealth-related matters which are presented in discontinued operations at the Group level.
2. In the 2023 financial year, the Company received a dividend of $5.4 billion from National Equities Limited (following a dividend payment by BNZ) which was reinvested into additional ordinary shares.
3. On 30 September 2022, the Group completed the disposal of BNZ Life, resulting in an overall gain on disposal of $197 million in other income.

# 5 Operating expenses

Accounting policy

Operating expenses are recognised as services are provided to the Group, over the period in which an asset is consumed or once a liability is created.

Amounts received by the Group as a reimbursement for costs incurred are recognised as a reduction of the related expense.

Annual leave, long service leave and other personnel expenses

Salaries, annual leave and other employee entitlements expected to be paid or settled within 12 months of employees rendering service are measured at their nominal amounts using remuneration rates that the Group expects to pay when the liabilities are settled. A liability is recognised for the amount expected to be paid under short-term cash bonuses when the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. All other employee entitlements that are not expected to be paid or settled within 12 months of the reporting date are measured at the present value of net future cash flows. Employee entitlements to long service leave are accrued using an actuarial calculation, which includes assumptions regarding employee departures, leave utilisation and future salary increases.

Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancy are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.

Refer to Note 24 Provisions for balances of provisions for employee entitlements.

|  | Group |  | Company1
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Personnel expenses |  |  |  |  |  |
Salaries and related on-costs |  | 4,353 | 3,964 |  | 3,590 | 3,355
Superannuation costs-defined contribution plans |  | 366 | 319 |  | 348 | 302
Performance-based compensation |  | 557 | 517 |  | 510 | 471
Other expenses |  | 215 | 177 |  | 196 | 166
Total personnel expenses |  | 5,491 | 4,977 |  | 4,644 | 4,294
Occupancy and depreciation expenses |  |  |  |  |  |
Rental expense |  | 100 | 103 |  | 209 | 203
Depreciation and impairment |  | 594 | 577 |  | 408 | 411
Other expenses |  | 57 | 42 |  | 53 | 39
Total occupancy and depreciation expenses |  | 751 | 722 |  | 670 | 653
General expenses |  |  |  |  |  |
Fees and commissions expense |  | 18 | 44 |  | 17 | 29
Amortisation of intangible assets |  | 620 | 535 |  | 519 | 460
Advertising and marketing |  | 220 | 187 |  | 166 | 142
Charges to provide for operational risk event losses |  | 103 | 107 |  | 72 | 328
Communications, postage and stationery |  | 150 | 137 |  | 125 | 114
Computer equipment and software |  | 888 | 789 |  | 740 | 694
Data communication and processing charges |  | 127 | 90 |  | 109 | 78
Professional fees |  | 711 | 729 |  | 679 | 689
Impairment losses recognised |  | 13 | 10 |  | 14 | 18
Other expenses |  | 290 | 375 |  | 668 | 266
Total general expenses |  | 3,140 | 3,003 |  | 3,109 | 2,818
Total operating expenses |  | 9,382 | 8,702 |  | 8,423 | 7,765

1. Operating expenses in the Company include amounts which are presented in discontinued operations at the Group level.

Customer-related and payroll remediation

Customer-related remediation recognised by the Group relates to costs for executing the remediation programs for banking-related matters. Payroll remediation relates to costs to address potential payroll issues relating to both current and former Australian colleagues, comprising payments to colleagues and costs to execute the remediation program. The charges recognised by the Company include costs related to the remediation programs for banking and MLC Wealth-related matters.

In the 2023 financial year, the Group recognised a charge of $20 million (2022: $45 million) and the Company recognised a charge of $45 million (2022: $219 million) for customer-related remediation.

The payroll remediation program was largely completed in December 2022 with all known remediation matters resolved. No charges were recognised in the 2023 financial year (2022: $55 million for the Group and $72 million for the Company).

# 6 Income tax

Accounting policy

Income tax expense (or benefit) is the tax payable (or receivable) on the current year's taxable income based on the applicable tax rate in each jurisdiction, adjusted by changes in deferred tax assets and liabilities. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement of comprehensive income. The tax associated with these transactions will be recognised in the income statement at the same time as the underlying transaction.

Deferred tax assets and liabilities are recognised for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted as at the reporting date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are only recognised for temporary differences, unused tax losses and unused tax credits if it is probable that future taxable amounts will arise to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and deferred tax liabilities are offset where there is a legally enforceable right to offset current tax assets and current tax liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities which intend either to settle current tax liabilities and assets on a net basis or to realise the assets and settle the liabilities simultaneously.

The Company and its wholly owned Australian subsidiaries are part of a tax consolidated group. The Company is the head entity in the tax consolidated group. The members of the tax consolidated group have entered into tax funding and tax sharing agreements, which set out the funding obligations of members. Any current tax liabilities / assets and deferred tax assets from unused tax losses of subsidiaries in the tax consolidated group are recognised by the Company and funded in line with the tax funding arrangements.

Critical accounting judgements and estimates

The Group undertakes transactions in the ordinary course of business where the income tax treatment requires the exercise of judgement. The Group estimates the amount expected to be paid to tax authorities based on its understanding and interpretation of relevant tax laws. The effect of uncertainty over income tax treatments is reflected in determining the relevant taxable profit or tax loss, tax bases, unused tax losses and unused tax credits or tax rates. Uncertain tax positions are presented as current or deferred tax assets or liabilities as appropriate.

Income tax expense

The income tax expense for the year reconciles to the profit before income tax as follows:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Profit before income tax |  | 10,450 | 9,744 |  | 14,212 | 7,838
Prima facie income tax expense at 30% |  | 3,135 | 2,923 |  | 4,264 | 2,351
Tax effect of permanent differences: |  |  |  |  |  |
Assessable foreign income |  | 11 | 7 |  | 11 | 7
Foreign tax rate differences |  | (68) | (65) |  | (24) | (25)
Adjustments to deferred tax balances for tax losses1 |  | (142) | (82) |  | (142) | (82)
Foreign branch income not deductible / (assessable) |  | 6 | (12) |  | 6 | (12)
Over provision in prior years |  | (11) | (5) |  | (11) | (5)
Offshore banking unit adjustment |  | (77) | (97) |  | (65) | (57)
Restatement of deferred tax balances for tax rate changes |  | (1) | (5) |  | (1) | 4
Non-deductible interest on convertible instruments |  | 109 | 67 |  | 109 | 67
Dividend income adjustments |  | - | - |  | (1,954) | (345)
Gain on disposal of BNZ Life |  | - | (59) |  | - | -
Other |  | 18 | 12 |  | 7 | (10)
Income tax expense |  | 2,980 | 2,684 |  | 2,200 | 1,893
Current tax expense |  | 3,081 | 2,365 |  | 2,323 | 1,569
Deferred tax (benefit) / expense |  | (101) | 319 |  | (123) | 324
Total income tax expense |  | 2,980 | 2,684 |  | 2,200 | 1,893

1. In the 2023 financial year, adjustments relating to certain tax losses have been disaggregated from the line item 'Other,' and presented separately in the reconciliation. Comparative information has been restated to align to the presentation in the 2023 financial year.

Deferred tax assets and liabilities

The balance comprises temporary differences attributable to:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Deferred tax assets |  |  |  |  |  |
Specific provision for credit impairment |  | 159 | 148 |  | 137 | 129
Collective provision for credit impairment |  | 1,485 | 1,281 |  | 1,239 | 1,078
Employee entitlements |  | 275 | 286 |  | 257 | 269
Tax losses |  | 131 | 50 |  | 121 | 47
Unrealised derivatives in funding vehicles |  | 39 | 90 |  | - | -
Other provisions |  | 91 | 169 |  | 91 | 168
Depreciation |  | 327 | 309 |  | 244 | 240
Reserves |  |  |  |  |  |
Cash flow hedge reserve |  | 732 | 821 |  | 724 | 814
Other reserves |  | 45 | 4 |  | 42 | 23
Other |  | 324 | 353 |  | 304 | 321
Total deferred tax assets |  | 3,608 | 3,511 |  | 3,159 | 3,089
Set-off of deferred tax liabilities pursuant to set-off provisions |  | (109) | (126) |  | (100) | (114)
Net deferred tax assets |  | 3,499 | 3,385 |  | 3,059 | 2,975
Deferred tax liabilities |  |  |  |  |  |
Intangible assets |  | 32 | 27 |  | 27 | 23
Defined benefit superannuation plan assets |  | 12 | 11 |  | 10 | 9
Reserves |  | 28 | 63 |  | 28 | 63
Other |  | 37 | 25 |  | 35 | 19
Total deferred tax liabilities |  | 109 | 126 |  | 100 | 114
Deferred tax liabilities set off against deferred tax assets pursuant to set-off provisions |  | (109) | (126) |  | (100) | (114)
Net deferred tax liability |  | - | - |  | - | -

Deferred tax assets not brought to account

Deferred tax assets have not been brought to account for the following realised losses as the utilisation of the losses is not regarded as probable:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Capital gains tax losses |  | 1,909 | 1,910 |  | 1,909 | 1,910
Income tax losses |  | 125 | 239 |  | 125 | 239

Income tax losses of $119m for the Group and Company are expected to expire between the 2030 to 2036 financial years. Capital gains tax losses of the Group and Company do not have any expiry date.

# 7 Earnings per share

|  | Group
--- | --- | ---
|  | Basic |  | Diluted
|  | 2023 | 2022 |  | 2023 | 2022
Earnings ($m) |  |  |  |  |  |
Net profit attributable to owners of the Company |  | 7,414 | 6,891 |  | 7,414 | 6,891
Potential dilutive adjustments |  |  |  |  |  |
Interest expense on convertible notes |  | - | - |  | 371 | 232
Adjusted earnings |  | 7,414 | 6,891 |  | 7,785 | 7,123
Net loss from discontinued operations attributable to owners of the Company |  | 51 | 169 |  | 51 | 169
Adjusted earnings from continuing operations |  | 7,465 | 7,060 |  | 7,836 | 7,292
Weighted average number of ordinary shares (millions) |  |  |  |  |  |
Weighted average number of ordinary shares (net of treasury shares) |  | 3,136 | 3,219 |  | 3,136 | 3,219
Weighted average number of dilutive potential ordinary shares |  |  |  |  |  |
Convertible notes |  | - | - |  | 258 | 240
Share-based payments |  | - | - |  | 10 | 6
Total weighted average number of ordinary shares |  | 3,136 | 3,219 |  | 3,404 | 3,465
Earnings per share attributable to owners of the Company (cents) |  | 236.4 | 214.1 |  | 228.7 | 205.6
Earnings per share from continuing operations |  | 238.0 | 219.3 |  | 230.2 | 210.5
Earnings per share from discontinued operations |  | (1.6) | (5.2) |  | (1.5) | (4.9)

# Financial instruments

# Overview

Financial instruments represent the majority of the Group's balance sheet, including loans and advances, deposits, trading assets and derivatives.

Initial recognition of financial instruments

A financial asset or financial liability is recognised on the balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group recognises regular way transactions on the trade date.

All financial instruments are initially recognised at fair value. Directly attributable transaction costs are added to or deducted from the carrying value of the asset or liability on initial recognition, unless the instrument is measured at fair value through profit or loss, in which case they are recognised in profit or loss.

Classification

Subsequently, financial instruments are measured either at amortised cost or fair value depending on their classification. Classification of financial assets is driven by the Group's business model for managing the asset and the contractual cash flows of the asset. The Group uses the following flowchart to determine the appropriate classification for financial assets.

Non-derivative financial liabilities are measured at amortised cost unless the Group elects to measure the financial liability at fair value through profit or loss. The Group will elect to measure a financial liability at fair value through profit or loss if such measurement significantly reduces or eliminates an accounting mismatch.

Refer to the table at the end of this section for a summary of the classification of the Group's financial instruments.

Measurement
Financial instruments measured at amortised cost

Amortised cost is the amount at which a financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation of transaction costs, premiums or discounts using the effective interest method, and for financial assets, adjusted for any loss allowance.

Financial assets measured at fair value through other comprehensive income

Gains or losses arising from changes in the fair value of debt instruments measured at fair value through other comprehensive income are recognised in other comprehensive income and accumulated in a separate component of equity. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to the income statement.

Investments in equity instruments that are neither held for trading nor contingent consideration recognised by the Group in a business combination to which AASB 3 Business Combinations applies, are measured at fair value through other comprehensive income, where an irrevocable election has been made by management. Amounts recognised in other comprehensive income are not subsequently transferred to profit or loss. Dividends on such investments are recognised in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.

Financial instruments at fair value through profit or loss

Changes in the fair value of financial assets are recognised in profit or loss.

Where a financial liability is designated at fair value through profit or loss, the movement in fair value attributable to changes in the Group’s own credit risk is calculated by determining the changes in own credit spreads and is recognised separately in other comprehensive income.

Derivative financial instruments and hedge accounting

Derivative financial instruments are contracts whose value is derived from an underlying price, index or other variable, and include instruments such as swaps, forward rate agreements, futures and options.

All derivatives are recognised initially on the balance sheet at fair value and are subsequently measured at fair value through profit or loss, except where they are designated as a part of an effective hedge relationship and classified as hedging derivatives. Derivatives are presented as assets when their fair value is positive and as liabilities when their fair value is negative.

The method of recognising the resulting fair value gain or loss on a derivative depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Refer to Note 18 Derivatives and hedge accounting.

Derecognition of financial instruments

The Group derecognises a financial asset when the contractual cash flows from the asset expire or it transfers its rights to receive contractual cash flows from the financial asset in a transaction in which substantially all the risks and rewards of ownership are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires.

Reverse repurchase and repurchase agreements (and similar lending and borrowing)

The Group executes reverse repurchase agreements where it purchases a security under an agreement to resell that security at a predetermined price. These securities are not recognised on the balance sheet because the Group does not acquire the risks and rewards of ownership of the security. Consideration paid for the purchase is accounted for as a reverse repurchase agreement and classified as a financial asset. Reverse repurchase agreements that are part of a portfolio of financial instruments managed together for short-term profit taking are measured at fair value through profit or loss and are included within Note 9 Trading assets. All other reverse repurchase agreements are measured at amortised cost.

The Group also executes repurchase agreements, where it sells a security under an agreement to repurchase that security at a predetermined price. These securities are not derecognised from the balance sheet because the Group retains substantially all of the risks and rewards of ownership of the security. Consideration received for the sale is accounted for as a repurchase agreement and classified as a financial liability. Repurchase agreements that are part of a portfolio of financial instruments managed together for short-term profit taking are measured at fair value through profit or loss and are included within Note 16 Other financial liabilities. All other repurchase agreements are measured at amortised cost.

Summary of classification and measurement basis

Financial assets |  |  |  |
Loans and advances (customer loans and facilities) | Amortised cost |  | Cash flows represent solely payments of principal and interest, held with the objective to collect contractual cash flows | Note 12 Loans and advances
Trading assets (bonds, reverse repurchase agreements, notes or securities issued by government, financial institutions or other corporates) | Fair value through profit or loss |  | Principal purpose is selling or repurchasing in the near term, or part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking | Note 9 Trading assets
Other financial assets |  | Cash flows are not solely payments of principal and interest or designated at fair value through profit or loss to eliminate an accounting mismatch | Note 11 Other financial assets
Debt instruments (bonds, notes or securities issued by government, financial institutions or other corporates) | Fair value through other comprehensive income |  | Cash flows represent solely payments of principal and interest, held with the objective to both collect contractual cash flows or to sell | Note 10 Debt instruments
Derivatives (forwards, swaps, futures, options) | Fair value1 |  | Trading derivatives - not in a qualifying hedging relationship | Note 18 Derivatives and hedge accounting
| Hedging derivatives - designated in a qualifying hedging relationship
Financial liabilities |  |  |  |
Type of instrument | Classification and measurement |  | Reason | Note
Deposits and other borrowings (deposits, commercial paper, repurchase agreements) | Amortised cost |  | Not designated at fair value through profit or loss | Note 13 Deposits and other borrowings
Bonds and notes |  | Note 14 Bonds, notes and subordinated debt
Perpetual notes and convertible notes |  | Note 15 Debt issues
Certain bonds, notes and deposits | Fair value through profit or loss2 |  | Designated at fair value through profit or loss to eliminate an accounting mismatch | Note 16 Other financial liabilities
Repurchase agreements, securities short sold, other financial liabilities |  | Part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking
Derivatives (forwards, swaps, futures, options) | Fair value1 |  | Trading derivatives - not in a qualifying hedging relationship | Note 18 Derivatives and hedge accounting
| Hedging derivatives - designated in a qualifying hedging relationship

1. Fair value movements on trading derivatives are recognised in profit or loss. The recognition of the fair value movements on hedging derivatives will depend on the type of hedge (i.e. fair value hedge or cash flow hedge). Refer to Note 18 Derivatives and hedge accounting.
2. Except for changes in own credit risk which are recognised in other comprehensive income.

# 8 Cash and balances with other banks

Accounting policy

Cash and liquid assets, and balances with other banks are initially measured at fair value and subsequently at amortised cost. For the purposes of the statement of cash flows, cash and cash equivalents include cash and liquid assets (including reverse repurchase agreements and short-term government securities) and amounts due from other banks net of amounts due to other banks that are highly liquid, readily convertible to known amounts of cash within three months and are subject to an insignificant risk of changes in value. They are held for the purposes of meeting short-term cash commitments (rather than for investment or other purposes). Refer to Note 37 Notes to the statement of cash flows for a detailed reconciliation of cash and cash equivalents.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Cash and liquid assets |  |  |  |  |  |
Coins, notes and cash at bank |  | 1,030 | 1,147 |  | 937 | 1,021
Reverse repurchase agreements1 |  | 21,808 | 53,785 |  | 21,350 | 53,725
Other (including bills receivable and remittances in transit) |  | 1,861 | 1,519 |  | 1,672 | 1,375
Total cash and liquid assets |  | 24,699 | 56,451 |  | 23,959 | 56,121
Due from other banks |  |  |  |  |  |
Central banks |  | 105,034 | 113,232 |  | 95,638 | 105,857
Other banks1 |  | 12,272 | 28,629 |  | 11,317 | 27,287
Total due from other banks |  | 117,306 | 141,861 |  | 106,955 | 133,144
Due to other banks |  |  |  |  |  |
Central banks2 |  | 25,394 | 40,824 |  | 21,041 | 37,713
Other banks1 |  | 14,122 | 33,855 |  | 12,924 | 31,582
Total due to other banks |  | 39,516 | 74,679 |  | 33,965 | 69,295

1. During the 2023 financial year, the Group established a new portfolio of reverse repurchase agreements, which is managed together with other financial instruments for short-term profit taking. These agreements are measured at fair value through profit or loss and are included in Note 9 Trading assets.
2. Included within amounts due to central banks is $21,869 million (2022: $35,316 million) for the Group and $17,596 million (2022: $32,275 million) for the Company relating to the TFF provided by the RBA and the TLF, FLP provided by the RBNZ.

# 9 Trading assets

Accounting policy

Trading assets comprise assets that are classified as held for trading because they are acquired or incurred principally for the purpose of selling or repurchasing in the near term, or form part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking. Trading assets are measured at fair value through profit or loss. Trading assets include commodities measured at fair value less cost to sell in accordance with AASB 102 Inventories.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Trading assets |  |  |  |  |  |
Government bonds, notes and securities |  | 29,237 | 26,127 |  | 26,690 | 23,036
Semi-government bonds, notes and securities |  | 10,092 | 5,346 |  | 6,887 | 2,989
Corporate / financial institution bonds, notes and securities |  | 5,360 | 8,681 |  | 3,392 | 7,598
Reverse repurchase agreements1 |  | 55,403 | - |  | 52,373 | -
Commodity inventory at fair value |  | 610 | - |  | 610 | -
Other bonds, notes, securities, equities and other assets |  | 466 | 419 |  | 465 | 420
Total trading assets |  | 101,168 | 40,573 |  | 90,417 | 34,043

1. During the 2023 financial year, the Group established a new portfolio of reverse repurchase agreements, which is managed together with other financial instruments for short-term profit taking.

# 10 Debt instruments

Accounting policy

Debt instruments are measured at fair value through other comprehensive income as they are held in a business model with the objective of both collecting contractual cash flows and realising assets through sale and they have contractual cash flows which are considered to be solely payments of principal and interest.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Debt instruments |  |  |  |  |  |
Government bonds, notes and securities |  | 2,691 | 3,626 |  | 2,691 | 3,626
Semi-government bonds, notes and securities |  | 28,892 | 25,275 |  | 28,892 | 25,275
Corporate / financial institution bonds, notes and securities |  | 8,238 | 6,933 |  | 8,238 | 6,933
Other bonds, notes and securities |  | 6,536 | 6,246 |  | 6,515 | 6,260
Total debt instruments |  | 46,357 | 42,080 |  | 46,336 | 42,094

# 11 Other financial assets

Accounting policy

Other financial assets are measured at fair value through profit or loss. Changes in fair value and transaction costs are recognised in the income statement. Financial assets are measured at fair value through profit or loss when they have contractual cash flow characteristics that are not considered to be solely payments of principal and interest or they have been designated as such to eliminate or reduce an accounting mismatch.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Other financial assets |  |  |  |  |  |
Loans at fair value |  | 1,243 | 1,876 |  | 682 | 1,305
Other financial assets at fair value |  | 187 | 185 |  | 1,026 | 1,444
Total other financial assets |  | 1,430 | 2,061 |  | 1,708 | 2,749

The maximum credit exposure of loans (excluding any undrawn facility limits) included in other financial assets is $1,243 million (2022: $1,876 million) for the Group and $682 million (2022: $1,305 million) for the Company. The cumulative change in fair value of the loans attributable to changes in credit risk amounted to a $33 million loss (2022: $49 million loss) for the Group and a $27 million loss (2022: $28 million loss) for the Company.

# 12 Loans and advances

Accounting policy

Loans and advances are financial assets for which the contractual cash flows are solely payments of principal and interest and that are held in a business model with the objective of collecting contractual cash flows.

Loans and advances are initially recognised at fair value plus transaction costs directly attributable to the origination of the loan or advance, which are primarily brokerage and origination fees. Subsequently, loans and advances are measured at amortised cost using the effective interest rate method, net of any provision for credit impairment.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Loans and advances |  |  |  |  |  |
Housing loans |  | 406,298 | 389,124 |  | 352,113 | 340,278
Other term lending |  | 261,520 | 260,487 |  | 223,490 | 224,128
Asset and lease financing |  | 17,214 | 14,988 |  | 17,158 | 14,937
Overdrafts |  | 5,459 | 4,689 |  | 3,420 | 2,819
Credit card outstandings |  | 9,528 | 8,684 |  | 8,609 | 7,816
Other lending |  | 7,209 | 7,867 |  | 6,766 | 7,467
Total gross loans and advances |  | 707,228 | 685,839 |  | 611,556 | 597,445
Unearned income and deferred net fee income1 |  | (1,453) | (1,020) |  | (1,536) | (1,067)
Capitalised brokerage costs12 |  | 2,512 | 671 |  | 2,357 | 633
Provision for credit impairment |  | (5,585) | (5,056) |  | (4,693) | (4,332)
Total net loans and advances |  | 702,702 | 680,434 |  | 607,684 | 592,679

1. During the 2023 financial year, upfront brokerage costs previously presented as a net number within Unearned income and deferred net fee income were separately classified as Capitalised brokerage costs to better align with the nature of the balances. Comparative information has been restated accordingly.
2. The balance as at 30 September 2023 includes $1,795 million for the Group and $1,684 million for the Company of capitalised brokerage costs reflecting the revised accounting treatment of trail commissions payable to mortgage brokers. Comparative information has not been restated. Refer to Note 1 Basis of preparation for further information.

# 13 Deposits and other borrowings

Accounting policy

Deposits and other borrowings are initially recognised at fair value less directly attributable transaction costs and subsequently measured at amortised cost.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Deposits and other borrowings |  |  |  |  |  |
Term deposits |  | 191,924 | 156,049 |  | 159,535 | 131,275
On-demand and short-term deposits |  | 299,969 | 310,347 |  | 272,035 | 281,021
Certificates of deposit |  | 55,290 | 48,555 |  | 55,290 | 48,555
Deposits not bearing interest |  | 95,491 | 100,289 |  | 82,754 | 89,029
Commercial paper and other borrowings |  | 35,255 | 44,346 |  | 34,835 | 43,150
Repurchase agreements1 |  | 4,191 | 23,940 |  | 4,192 | 23,931
Total deposits and other borrowings |  | 682,120 | 683,526 |  | 608,641 | 616,961

1. During the 2023 financial year, the Group established a new portfolio of repurchase agreements, which is managed together with other financial instruments for short-term profit taking. These agreements are measured at fair value through profit or loss and are included in Note 16 Other financial liabilities.

# 14 Bonds, notes and subordinated debt

Accounting policy

Bonds, notes and subordinated debt are initially recognised at fair value less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. Premiums, discounts and associated issue expenses are recognised using the effective interest method through the income statement from the date of issue.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Bonds, notes and subordinated debt |  |  |  |  |  |
Medium-term notes |  | 83,218 | 74,076 |  | 76,801 | 69,042
Securitisation notes |  | 2,593 | 3,504 |  | - | -
Covered bonds |  | 30,093 | 23,511 |  | 27,787 | 22,440
Subordinated medium-term notes |  | 19,741 | 18,192 |  | 19,741 | 18,192
Total bonds, notes and subordinated debt |  | 135,645 | 119,283 |  | 124,329 | 109,674
Issued bonds, notes and subordinated debt by currency |  |  |  |  |  |
AUD |  | 40,873 | 37,972 |  | 38,245 | 34,432
USD |  | 46,363 | 37,002 |  | 40,838 | 32,727
EUR |  | 24,979 | 23,463 |  | 22,487 | 22,289
GBP |  | 10,342 | 8,240 |  | 10,389 | 8,298
JPY |  | 3,952 | 4,285 |  | 3,952 | 4,285
CHF |  | 3,756 | 3,589 |  | 3,011 | 2,908
Other |  | 5,380 | 4,732 |  | 5,407 | 4,735
Total bonds, notes and subordinated debt |  | 135,645 | 119,283 |  | 124,329 | 109,674

Subordinated medium-term notes

|  |  |  |  |  | Group |  | Company
--- | --- | --- | --- | --- | --- | --- | --- | ---
Currency | Notional amount Currency amount (m)1 | Rate | First optional call date2 | Maturity date3 |  | 2023 $m | 2022 $m |  | 2023 $m | 2022 $m
SGD | 450 | Fixed | n/a | Matured 2023 |  | - | 479 |  | - | 479
AUD | 943 | Float | n/a | Matured 2023 |  | - | 942 |  | - | 942
AUD | 20 | Fixed | n/a | Buy-back 2023 |  | - | 23 |  | - | 23
AUD | 20 | Fixed | n/a | Buy-back 2023 |  | - | 23 |  | - | 23
AUD | 1,000 | Float | 2024 | 2029 |  | 1,000 | 1,000 |  | 1,000 | 1,000
CAD | 1,000 | Fixed | 2025 | 2030 |  | 1,080 | 1,061 |  | 1,080 | 1,061
AUD | 1,250 | Float | 2025 | 2030 |  | 1,250 | 1,250 |  | 1,250 | 1,250
USD | 1,500 | Fixed | n/a | 2030 |  | 1,785 | 1,806 |  | 1,785 | 1,806
USD | 1,250 | Fixed | n/a | 2031 |  | 1,561 | 1,603 |  | 1,561 | 1,603
GBP | 600 | Fixed | 2026 | 2031 |  | 994 | 858 |  | 994 | 858
AUD | 1,175 | Float | 2026 | 2031 |  | 1,175 | 1,175 |  | 1,175 | 1,175
AUD | 225 | Fixed | 2026 | 2031 |  | 205 | 201 |  | 205 | 201
AUD | 275 | Fixed | 2027 | 2032 |  | 262 | 260 |  | 262 | 260
JPY | 17,000 | Fixed | 2027 | 2032 |  | 174 | 180 |  | 174 | 180
AUD | 1,000 | Fixed | 2027 | 2032 |  | 1,000 | 1,000 |  | 1,000 | 1,000
AUD | 250 | Float | 2027 | 2032 |  | 250 | 250 |  | 250 | 250
HKD | 382 | Fixed | 2027 | 2032 |  | 71 | 71 |  | 71 | 71
AUD | 950 | Fixed | 2028 | 2033 |  | 950 | - |  | 950 | -
AUD | 300 | Float | 2028 | 2033 |  | 300 | - |  | 300 | -
HKD | 640 | Fixed | 2028 | 2033 |  | 122 | - |  | 122 | -
USD | 1,250 | Fixed | n/a | 2033 |  | 1,796 | - |  | 1,796 | -
USD | 1,500 | Fixed | 2029 | 2034 |  | 2,004 | 2,037 |  | 2,004 | 2,037
AUD | 205 | Fixed | n/a | 2035 |  | 205 | 205 |  | 205 | 205
USD | 1,250 | Fixed | 2032 | 2037 |  | 1,549 | 1,602 |  | 1,549 | 1,602
AUD | 85 | Fixed | n/a | 2037 |  | 85 | 85 |  | 85 | 85
AUD | 215 | Fixed | n/a | 2040 |  | 122 | 129 |  | 122 | 129
AUD | 245 | Fixed | n/a | 2040 |  | 140 | 148 |  | 140 | 148
AUD | 100 | Fixed | n/a | 2040 |  | 57 | 60 |  | 57 | 60
USD | 1,250 | Fixed | n/a | 2041 |  | 1,206 | 1,346 |  | 1,206 | 1,346
AUD | 195 | Fixed | n/a | 2041 |  | 195 | 195 |  | 195 | 195
AUD | 203 | Fixed | n/a | 2042 |  | 203 | 203 |  | 203 | 203
Total |  |  |  |  |  | 19,741 | 18,192 |  | 19,741 | 18,192

1. Subordinated medium-term notes qualify as Tier 2 capital, in some cases subject to transitional Basel III treatment.
2. Reflects calendar year of first optional call date (subject to APRA's prior written approval).
3. Reflects calendar year of maturity date.

# 15 Debt issues

Accounting policy

Convertible notes are initially recognised at fair value less directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Debt issues |  |  |  |  |  |
Convertible notes |  | 8,561 | 7,318 |  | 8,561 | 7,318
Total debt issues |  | 8,561 | 7,318 |  | 8,561 | 7,318

The table below highlights the key features of the Group’s debt issuances.

Convertible notes1 | Outstanding amount | Issued date | Interest payment frequency (in arrears) | Interest rate (per annum) | Maturity / Conversion
--- | --- | --- | --- | --- | ---
Mandatory conversion | Issuer conversion option
NAB Capital Notes 3 | $1.87bn | 20 March 2019 | Quarterly | 4.00% above 3 month BBSW | 19 June 2028 | 17 June 2026
NAB Capital Notes 5 | $2.39bn | 17 December 2020 | Quarterly | 3.50% above 3 month BBSW | 17 December 2029 | 17 December 2027
NAB Capital Notes 6 | $2.00bn | 7 July 2022 | Quarterly | 3.15% above 3 month BBSW | 17 September 2032 | 17 December 20292
NAB Capital Notes 7 | $1.25bn | 14 September 2023 | Quarterly | 2.80% above 3 month BBSW | 17 June 2033 | 17 September 20303
NAB Wholesale Capital Notes | $500m | 12 December 2019 | Semi-annually until the optional call date. Quarterly thereafter. | 4.95% until the optional call date. 3.75% above 3 month BBSW thereafter. | 12 December 2031 | 12 December 2029
NAB Wholesale Capital Notes 2 | $600m | 17 July 2020 | Quarterly | 4.00% above 3 month BBSW | 17 July 2027 | 17 July 2025

1. All convertible notes are treated as AT1 capital.
2. First optional conversion date of 17 December 2029, with subsequent optional conversion dates on 17 March 2030, 17 June 2030 and 17 September 2030.
3. First optional conversion date of 17 September 2030, with subsequent optional conversion dates on 17 December 2030, 17 March 2031 and 17 June 2031.

# 16 Other financial liabilities

Accounting policy

In certain circumstances, the Group applies the fair value measurement option to financial liabilities. This option is applied where an accounting mismatch is significantly reduced or eliminated by measuring the financial liability at fair value through profit or loss.

Where liabilities are designated at fair value through profit or loss, they are initially recognised at fair value, with transaction costs recognised in the income statement as incurred. Subsequently, they are measured at fair value and any gains or losses are recognised in the income statement, with the exception of changes in own credit risk which are recognised in other comprehensive income.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Other financial liabilities designated at fair value |  |  |  |  |  |
Bonds, notes and subordinated debt |  | 13,741 | 15,061 |  | 4,371 | 4,479
Deposits and other borrowings |  |  |  |  |  |
Certificates of deposit |  | 1,477 | 1,463 |  | - | -
Commercial paper and other borrowings |  | 854 | 2,016 |  | - | -
Other financial liabilities measured at fair value |  |  |  |  |  |
Repurchase agreements1 |  | 42,547 | - |  | 39,860 | -
Securities sold short |  | 6,697 | 3,575 |  | 6,476 | 3,310
Other financial liabilities |  | 1,036 | 1,171 |  | 1,038 | 1,171
Total other financial liabilities |  | 66,352 | 23,286 |  | 51,745 | 8,960

1. During the 2023 financial year, the Group established a new portfolio of repurchase agreements, which is managed together with other financial instruments for short-term profit taking and measured at fair value through profit or loss.

The change in fair value of bonds, notes and subordinated debt attributable to changes in credit risk amounted to a loss for the 2023 financial year of $67 million (2022: $149 million gain) for the Group and a loss of $75 million (2022: $88 million gain) for the Company. The cumulative change in fair value of bonds, notes and subordinated debt attributable to changes in credit risk amounted to a loss of $79 million (2022: $12 million loss) for the Group and a loss of $39 million (2022: $35 million gain) for the Company. The contractual amount to be paid at the maturity of the bonds, notes and subordinated debt is $14,964 million (2022: $15,958 million) for the Group and $5,335 million (2022: $5,079 million) for the Company.

# 17 Provision for credit impairment on loans at amortised cost

Accounting policy

The Group applies a three-stage approach to measuring expected credit losses (ECL) for the following categories of financial assets that are not measured at fair value through profit or loss:

- Debt instruments measured at amortised cost and fair value through other comprehensive income.

- Loan commitments.

- Financial guarantee contracts.

Exposures are assessed on a collective basis in each stage unless there is sufficient evidence that one or more events associated with an exposure could have a detrimental impact on estimated future cash flows. Where such evidence exists, the exposure is assessed on an individual basis.

Stage | Measurement basis
Performing - 12-month ECL (Stage 1) | The portion of lifetime ECL associated with the probability of default events occurring within the next 12 months.
Performing - Lifetime ECL (Stage 2) | ECL associated with the probability of default events occurring throughout the life of an instrument.
Non-performing - Lifetime ECL(Stage 3) | Lifetime ECL, but interest revenue is measured based on the carrying amount of the instrument net of the associated ECL.

At each reporting date, the Group assesses the default risk of exposures in comparison to the default risk at initial recognition, to determine the stage that applies to the associated ECL measurement. If no significant increase in default risk is observed, the exposure will remain in Stage 1. If the default risk of an exposure has increased significantly since initial recognition, the exposure will migrate to Stage 2. Should an exposure become non-performing it will migrate to Stage 3.

For this purpose, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes quantitative and qualitative information and also forward looking analysis.

ECL are derived from probability-weighted estimates of expected loss, and are measured as follows:

- Financial assets that are performing at the reporting date: as the present value of all cash shortfalls over the expected life of the financial asset discounted by the effective interest rate. The cash shortfall is the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive.

- Financial assets that are non-performing at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows discounted by the effective interest rate.

- Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive.

- Financial guarantee contracts: as the expected payments to reimburse the holder less any amounts that the Group expects to recover.

Credit quality of financial assets

The Group’s internally developed credit rating system utilises historical default data drawn from a number of sources to assess the potential default risk of lending, or other financial services products, provided to counterparties or customers. The Group has defined counterparty probabilities of default across retail and non-retail loans and advances, including performing (pre-default) and non-performing (post-default) rating grades. In assessing for credit impairment of financial assets under the ECL model, the Group aligns credit impairment with the definition of default prescribed in its Credit Policy and Procedures.

Assessment of significant increase in credit risk

When determining whether the default risk has increased significantly since initial recognition, the Group considers both quantitative and qualitative information, including expert credit risk assessment, forward looking information and analysis based on the Group’s historical default experience.

- For non-retail facilities, internally derived credit ratings, as described above, represent a key determinant of default risk. The Group assigns each customer a credit rating at initial recognition based on available information. Credit risk is deemed to have increased significantly if the credit rating has significantly deteriorated at the reporting date, relative to the credit rating at the date of initial recognition.

- Retail facilities use the number of days past due (DPD) or the relative change in probability of default at an account level, to determine whether or not there has been a significant increase in credit risk.

- In addition, the Group considers that significant increase in credit risk occurs when a facility is more than 30 DPD.

Definition of default

Default occurs when a loan obligation is contractually 90+ DPD, or when it is considered unlikely that the credit obligation to the Group will be paid in full without remedial action, such as realisation of security. Exposures which are in default align to the non-performing exposures definition in APS 220 Credit Risk Management.

Calculation of ECL

- ECL are calculated using three main parameters being probability of default (PD), loss given default (LGD) and exposure at default (EAD). These parameters are generally derived from internally developed statistical models combined with historical, current and forward looking information, including macro-economic data.

- For accounting purposes, the 12-month and lifetime PD represent the expected point-in-time probability of a default over the next 12 months and remaining expected lifetime of the financial instrument, respectively, based on conditions existing at the balance sheet date and future economic conditions that affect credit risk.

- The LGD represents expected loss conditional on default, taking into account the mitigating effect of collateral, its expected value when realised and the time value of money.

- The EAD represents the expected exposure at default, taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdown of a facility.

- The 12-month ECL is equal to the discounted sum over the next 12-months of monthly PD multiplied by LGD and EAD. Lifetime ECL is calculated using the discounted sum of monthly PD over the expected remaining life multiplied by LGD and EAD.

Incorporation of forward looking information

- The Group uses internal subject matter experts from Risk, Economics and customer divisions to consider a range of relevant forward looking data, including macro-economic forecasts and assumptions, for the determination of general economic adjustments and any idiosyncratic or targeted portfolio / industry adjustments, to support the calculation of ECL.

- Forward looking provisions for both general macro-economic adjustments (EA) and more targeted portfolio / industry forward looking adjustments (FLAs), reflect reasonable and supportable forecasts of potential future conditions that are not captured within the base ECL calculations.

- Macro-economic factors taken into consideration include (but are not limited to) the cash rate, unemployment rates, GDP growth rates, inflation and residential and commercial property prices, and require an evaluation of both the current and forecast direction of the macro-economic cycle.

- Incorporating forward looking information, including macro-economic forecasts, increases the degree of judgement required to assess how changes in these data points will affect ECL. The methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

Critical accounting judgements and estimates

Judgement is applied in determining ECL using objective, reasonable and supportable information about current and forecast economic conditions. Macro-economic variables used in these scenarios include (but are not limited to) the cash rate, unemployment rates, GDP growth rates, inflation and residential and commercial property prices. When determining whether the risk of default has increased significantly since initial recognition, both quantitative and qualitative information is considered, including expert credit assessment, forward looking information and analysis based on the Group’s historical loss experience.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Credit impairment charge on loans at amortised cost |  |  |  |  |  |
New and increased provisions (net of collective provision releases) |  | 1,043 | 355 |  | 820 | 257
Write-backs of specific provisions |  | (148) | (161) |  | (93) | (147)
Recoveries of specific provisions |  | (79) | (70) |  | (73) | (62)
Total charge to the income statement |  | 816 | 124 |  | 654 | 48

|  | Stage 1 |  | Stage 2 |  | Stage 3 |  |
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  | Performing 12-mth ECL |  | Performing Lifetime ECL |  | Non-performing Lifetime ECL |  |
|  | Collective provision |  | Collective provision |  | Collective provision | Specific provision |  | Total
Group |  | $m |  | $m |  | $m | $m |  | $m
Balance at 1 October 2021 |  | 256 |  | 3,376 |  | 889 | 650 |  | 5,171
Changes due to financial assets recognised in the opening balance that have: |  |  |  |  |  |  |  |  |
Transferred to performing - 12-mth ECL - collective provision |  | 238 |  | (221) |  | (17) | - |  | -
Transferred to performing - Lifetime ECL - collective provision |  | (39) |  | 155 |  | (116) | - |  | -
Transferred to non-performing - Lifetime ECL - collective provision |  | (1) |  | (47) |  | 48 | - |  | -
Transferred to non-performing - Lifetime ECL - specific provision |  | - |  | (25) |  | (45) | 70 |  | -
New and increased provisions (net of collective provision releases) |  | (42) |  | 22 |  | 47 | 328 |  | 355
Write-backs of specific provisions |  | - |  | - |  | - | (161) |  | (161)
Write-offs from specific provisions |  | - |  | - |  | - | (362) |  | (362)
Foreign currency translation and other adjustments1 |  | 36 |  | 16 |  | 11 | (10) |  | 53
Balance as at 30 September 2022 |  | 448 |  | 3,276 |  | 817 | 515 |  | 5,056
Changes due to financial assets recognised in the opening balance that have: |  |  |  |  |  |  |  |  |
Transferred to performing - 12-mth ECL - collective provision |  | 247 |  | (234) |  | (13) | - |  | -
Transferred to performing - Lifetime ECL - collective provision |  | (26) |  | 104 |  | (78) | - |  | -
Transferred to non-performing - Lifetime ECL - collective provision |  | (1) |  | (49) |  | 50 | - |  | -
Transferred to non-performing - Lifetime ECL - specific provision |  | - |  | (14) |  | (46) | 60 |  | -
New and increased provisions (net of collective provision releases) |  | (143) |  | 428 |  | 242 | 516 |  | 1,043
Write-backs of specific provisions |  | - |  | - |  | - | (148) |  | (148)
Write-offs from specific provisions |  | - |  | - |  | - | (409) |  | (409)
Foreign currency translation and other adjustments |  | 4 |  | 29 |  | 5 | 5 |  | 43
Balance as at 30 September 2023 |  | 529 |  | 3,540 |  | 977 | 539 |  | 5,585

1. Includes the impact on provisions of the acquisition of the Citi consumer business.

Impact of movements in gross carrying amount on provision for ECL for the Group

Provision for credit impairment reflects ECL measured using the three-stage approach. The following explains how significant changes in the gross carrying amount of loans and advances during the 2023 financial year have contributed to the changes in the provision for credit impairment for the Group under the ECL model.

Overall, the total provision for credit impairment increased by $529 million compared to the balance as at 30 September 2022.

Specific provisions increased by $24 million compared to the balance as at 30 September 2022, mainly due to new and increased specific provisions in the Business and Private Banking business lending portfolio, partially offset by work-outs for a small number of larger exposures in the business lending portfolio in Australia and New Zealand.

Collective provisions increased by $505 million compared to the balance as at 30 September 2022, comprised of:

Collective provision performing – 12-months ECL (Stage 1) increased by $81 million as a result of:

- $149 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or Stage 3 due to credit quality improvement.

This was partially offset by:

- $120 billion of loans and advances that were repaid, experienced movement in underlying account balances during the period or migrated from Stage 1 to Stage 2 or Stage 3 due to deterioration in credit quality.

- A decrease in net forward looking provisions.

Collective provision performing – Lifetime ECL (Stage 2) increased by $264 million as a result of:

- $72 billion of loans and advances that were originated and migrated over the year to Stage 2, including the impact of forward looking economic information applied in the ECL model or migrating into Stage 2 as a result of loans and advances transferred from Stage 1 or Stage 3.

This was partially offset by:

- $86 billion of loans and advances that migrated to Stage 1 as a result of improved credit quality or into Stage 3 due to deterioration in credit quality, were repaid or experienced movement in underlying account balances during the period.

- A decrease in net forward looking provisions.

Collective provision non-performing - Lifetime ECL (Stage 3) increased by $160 million as a result of:

- $5 billion of loans and advances that experienced movement in underlying account balances during the period or were transferred into Stage 3 from Stage 1 and Stage 2 due to credit quality deterioration.

This was partially offset by:

- $4 billion of loans and advances that were repaid or migrated to Stage 1 or Stage 2 due to credit quality improvement or migrated to individually credit assessed with specific provisions raised.

- A decrease in net forward looking provisions.

ECL scenario analysis

The Group’s ECL measurement is derived from a probability weighted average of three distinct scenarios (base case, upside and downside) applied across each of the Group’s major loan portfolios, in addition to FLAs for emerging risk at an industry, geography or segment level. The probability of each scenario is determined by considering relevant macro-economic outlooks and their likely impact on the Group’s credit portfolio.

The following table shows the key macro-economic variables for the Australian economy used in the base case and downside scenarios as at 30 September 2023.

|  | Base case |  | Downside
--- | --- | --- | --- | ---
|  | Financial year |  | Financial year
|  | 2024 | 2025 | 2026 |  | 2024 | 2025 | 2026
|  | % | % | % |  | % | % | %
GDP change (year ended September) |  | 0.8 | 2.0 | 2.6 |  | (1.2) | (2.6) | 2.8
Unemployment (as at 30 September) |  | 4.7 | 4.7 | 4.5 |  | 4.7 | 7.9 | 9.1
House price change (year ended September) |  | 4.1 | 3.3 | 3.0 |  | (24.5) | (20.3) | 5.5

The following table shows the reported total provisions for ECL based on the probability weighting of scenarios, with the sensitivity range reflecting the ECL impacts assuming a 100% weighting is applied to the base case scenario or the downside scenario (with all other assumptions held constant).

|  | Group
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Total provisions for ECL |  |  |
Probability weighted |  | 5,585 | 5,056
100% Base case |  | 4,000 | 4,292
100% Downside |  | 7,546 | 6,008

Applying the average provision coverage ratios by stage, if 1% of the Group's Stage 1 gross loans and advances, contingent liabilities and credit commitments were included as Stage 2 the provision for ECL as at September 2023 would increase by $111 million (September 2022: $90 million).

Applying the average provision coverage ratios by stage, if 1% of the Group's Stage 2 gross loans and advances, contingent liabilities and credit commitments were included as Stage 1 the provision for ECL as at September 2023 would decrease by $34 million (September 2022: $31 million).

The table below shows weightings applied to the Australian portfolio to derive the probability weighted ECL.

|  | 2023 | 2022
--- | --- | --- | ---
|  | % | %
Macro-economics scenario weightings |  |  |
Upside |  | 2.5 | 2.5
Base case |  | 52.5 | 52.5
Downside |  | 45.0 | 45.0

- The September 2023 provisions for ECL in the 100% base case have decreased since September 2022 primarily due to an improved economic outlook. This was partially offset by deterioration in asset quality across the Group’s lending portfolio combined with volume growth and updated methodology in Business and Private Banking.

- The September 2023 provisions for ECL in the 100% downside scenario have increased since September 2022 primarily due to an increase in the severity of the stress applied in the downside scenario and deterioration in asset quality across the Group’s lending portfolio combined with volume growth and updated methodology in Business and Private Banking.

- The upside, downside and base case scenario weightings for the Australian portfolio have remained constant compared with September 2022.

The table below provides a breakdown of the probability weighted ECL by key portfolios:

|  | Group
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Total provision for ECL for key portfolios |  |  |
Housing |  | 1,424 | 1,296
Business |  | 3,744 | 3,429
Others |  | 417 | 331
Total |  | 5,585 | 5,056

|  | Stage 1 |  | Stage 2 |  | Stage 3 |  |
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  | Performing 12-mth ECL |  | Performing Lifetime ECL |  | Non-performing Lifetime ECL |  |
|  | Collective provision |  | Collective provision |  | Collective provision | Specific provision |  | Total
Company |  | $m |  | $m |  | $m | $m |  | $m
Balance at 1 October 2021 |  | 203 |  | 2,872 |  | 806 | 526 |  | 4,407
Changes due to financial assets recognised in the opening balance that have: |  |  |  |  |  |  |  |  |
Transferred to performing - 12-mth ECL - collective provision |  | 210 |  | (196) |  | (14) | - |  | -
Transferred to performing - Lifetime ECL - collective provision |  | (31) |  | 143 |  | (112) | - |  | -
Transferred to non-performing - Lifetime ECL - collective provision |  | (1) |  | (38) |  | 39 | - |  | -
Transferred to non-performing - Lifetime ECL - specific provision |  | - |  | (23) |  | (39) | 62 |  | -
New and increased provisions (net of collective provision releases) |  | (39) |  | (54) |  | 51 | 299 |  | 257
Write-backs of specific provisions |  | - |  | - |  | - | (147) |  | (147)
Write-offs from specific provisions |  | - |  | - |  | - | (294) |  | (294)
Foreign currency translation and other adjustments1 |  | 43 |  | 54 |  | 16 | (4) |  | 109
Balance as at 30 September 2022 |  | 385 |  | 2,758 |  | 747 | 442 |  | 4,332
Changes due to financial assets recognised in the opening balance that have: |  |  |  |  |  |  |  |  |
Transferred to performing - 12-mth ECL - collective provision |  | 223 |  | (212) |  | (11) | - |  | -
Transferred to performing - Lifetime ECL - collective provision |  | (18) |  | 88 |  | (70) | - |  | -
Transferred to non-performing - Lifetime ECL - collective provision |  | (1) |  | (42) |  | 43 | - |  | -
Transferred to non-performing - Lifetime ECL - specific provision |  | - |  | (11) |  | (32) | 43 |  | -
New and increased provisions (net of collective provision releases) |  | (135) |  | 360 |  | 160 | 435 |  | 820
Write-backs of specific provisions |  | - |  | - |  | - | (93) |  | (93)
Write-offs from specific provisions |  | - |  | - |  | - | (367) |  | (367)
Foreign currency translation and other adjustments |  | - |  | - |  | - | 1 |  | 1
Balance as at 30 September 2023 |  | 454 |  | 2,941 |  | 837 | 461 |  | 4,693

1. Includes the impact on provisions of the acquisition of the Citi consumer business.

Impact of movements in gross carrying amount on provision for ECL for the Company

Provision for credit impairment reflects ECL measured using the three-stage approach. The following explains how significant changes in the gross carrying amount of loans and advances during the 2023 financial year have contributed to the changes in the provision for credit impairment for the Company under the ECL model.

Overall, the total provision for credit impairment increased by $361 million compared to the balance as at 30 September 2022.

Specific provisions increased by $19 million compared to the balance as at 30 September 2022, mainly due to new and increased specific provisions in the Business and Private Banking business lending portfolio, partially offset by work-outs for a small number of larger exposures in the Australian business lending portfolio.

Collective provisions increased by $342 million compared to the balance as at 30 September 2022, comprised of:

Collective provision performing – 12-months ECL (Stage 1) increased by $69 million due to:

- $131 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or Stage 3 due to credit quality improvement.

This was partially offset by:

- $105 billion of loans and advances that were repaid, experienced movement in underlying account balances during the period or migrated from Stage 1 to Stage 2 or Stage 3 due to deterioration in credit quality.

- A decrease in net forward looking provisions.

Collective provision performing – Lifetime ECL (Stage 2) increased by $183 million due to:

- $60 billion of loans and advances that were originated and migrated over the year to Stage 2, including the impact of forward looking economic information applied in the ECL model or migrating into Stage 2 as a result of loans and advances transferred from Stage 1 or Stage 3.

This was partially offset by:

- $72 billion of loans and advances that were repaid, experienced movement in underlying account balances during the period, migrated to Stage 1 as a result of improved credit quality or into Stage 3 due to deterioration in credit quality.

- A decrease in net forward looking provisions.

Collective provision non-performing - Lifetime ECL (Stage 3) increased by $90 million due to:

- $4 billion of existing loans and advances that were transferred into Stage 3 from Stage 1 and Stage 2 due to credit quality deterioration or experienced movement in underlying account balances during the period.

This was partially offset by:

- $3 billion of loan and advances that were repaid, migrated to Stage 1 or Stage 2 due to credit quality improvement or migrated to individually credit assessed with specific provisions raised.

- A decrease in net forward looking provisions.

Write-offs still under enforcement activity

The contractual amount outstanding on loans and advances that were written off during the 2023 financial year, which are still subject to enforcement activity was $9 million (2022: $68 million) for the Group and $8 million (2022: $45 million) for the Company.

Information about gross impaired assets

Stage 3 non-performing exposures include both default but not impaired and gross impaired assets. The following table provides details on gross impaired assets. Gross amounts are shown before taking into account any collateral held or other credit enhancements. Refer to Note 19 Financial risk management for analysis of the credit quality of the Group’s loans and advances, including by provision stage.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Summary of gross impaired assets |  |  |  |  |  |
Gross impaired assets1 |  | 1,260 | 1,029 |  | 853 | 878
Specific provision for credit impairment2 |  | (539) | (531) |  | (461) | (442)
Net impaired assets3 |  | 721 | 498 |  | 392 | 436

1. Gross impaired assets include $nil (2022: $29 million) for the Group and $nil (2022: $nil) for the Company of gross impaired loans at fair value, $10 million (2022: $7 million) of impaired off-balance sheet credit exposures for the Group and $7 million (2022: $6 million) for the Company.
2. Specific provision for credit impairment includes $nil (2022: $16 million) for the Group and $nil (2022: $nil) for the Company of fair value credit adjustments on loans at fair value.
3. The fair value of security in respect of impaired assets is $498 million (2022: $499 million) for the Group and $433 million (2022: $444 million) for the Company. Fair value amounts of security held in excess of the outstanding balance of individual impaired assets are not included in these amounts.

# 18 Derivatives and hedge accounting

Accounting policy

Trading derivatives

Trading derivatives are not in a qualifying hedging relationship and are measured at fair value through profit or loss.

Hedge accounting

The Group utilises the following types of hedge relationships in managing its exposure to risk. At inception of all hedge relationships the Group documents the relationship between the hedging instrument and hedged item, the risk being hedged, the Group’s risk management objective and strategy and how effectiveness will be measured throughout the hedge relationship.

| Cash flow hedge | Fair value hedge
Objective | To hedge changes to cash flows arising from interest rate and foreign currency risk. | To hedge fair value changes to recognised assets and liabilities arising from interest rate and foreign currency risk.
Methods for testing hedge effectiveness | Critical terms matching, regression analysis or cumulative dollar offset. | Critical terms matching or cumulative dollar offset.
Potential sources of ineffectiveness | Primarily mismatches in terms of the hedged item and the hedging instrument.Discounting basis between the hedged item and hedging instrument. | Primarily mismatches in terms of the hedged item and the hedging instrument, prepayment risk and reset risk.Discounting basis between the hedged item and hedging instrument.
Recognition of effective hedge portion | Fair value changes of the hedging instrument associated with the hedged risk are recognised in the cash flow hedge reserve in equity. | Fair value changes of the hedging instrument and those arising from the hedged risk on the hedged item are recognised in the income statement.
Recognition of ineffective hedge portion | Recognised in the income statement as ineffectiveness arises.
Hedging instrument expires, is sold, or when hedging criteria are no longer met | Transferred to the income statement as / when the hedged item affects the income statement. If the hedged item is no longer expected to occur the effective portion accumulated in equity is transferred to the income statement immediately. | Cumulative hedge adjustment to the hedged item is amortised to the income statement on an effective yield basis.
Cost of hedging reserve | For qualifying hedging instruments, the Group excludes foreign currency basis spreads from hedge designations. Any change in the fair value of these hedging instruments for changes in cross currency basis spreads is deferred to the cost of hedging reserve and released to profit or loss either when the hedged exposure affects profit or loss or on a systematic basis over the life of the hedge. The cumulative movements are expected to be nil by maturity of the hedging instruments.

# Derivative assets and liabilities

The tables below set out total derivative assets and liabilities disclosed as trading and hedging derivatives.

Total derivatives

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | Assets |  | Liabilities |  | Assets |  | Liabilities
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Trading derivatives |  | 30,770 | 53,429 |  | 31,122 | 50,729 |  | 31,079 | 54,932 |  | 33,587 | 53,397
Hedging derivatives |  | 3,499 | 7,587 |  | 4,511 | 6,757 |  | 2,705 | 5,719 |  | 2,523 | 4,097
Total derivatives |  | 34,269 | 61,016 |  | 35,633 | 57,486 |  | 33,784 | 60,651 |  | 36,110 | 57,494

Trading derivatives

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | Assets |  | Liabilities |  | Assets |  | Liabilities
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Foreign exchange rate-related contracts |  |  |  |  |  |  |  |  |  |  |  |
Spot and forward contracts |  | 11,514 | 26,167 |  | 10,284 | 21,887 |  | 11,209 | 24,668 |  | 10,022 | 20,612
Cross currency swaps |  | 8,656 | 15,825 |  | 7,969 | 14,418 |  | 10,545 | 19,941 |  | 11,446 | 19,076
Options / swaptions |  | 138 | 427 |  | 133 | 400 |  | 136 | 431 |  | 133 | 400
Total foreign exchange rate-related contracts |  | 20,308 | 42,419 |  | 18,386 | 36,705 |  | 21,890 | 45,040 |  | 21,601 | 40,088
Interest rate-related contracts |  |  |  |  |  |  |  |  |  |  |  |
Swaps |  | 8,710 | 8,444 |  | 10,671 | 10,903 |  | 7,429 | 7,320 |  | 9,919 | 10,184
Options / swaptions |  | 1,148 | 1,045 |  | 1,393 | 1,356 |  | 1,148 | 1,045 |  | 1,389 | 1,352
Total interest rate-related contracts |  | 9,858 | 9,489 |  | 12,064 | 12,259 |  | 8,577 | 8,365 |  | 11,308 | 11,536
Credit derivatives |  | 146 | 234 |  | 134 | 157 |  | 146 | 234 |  | 134 | 157
Commodity derivatives |  | 453 | 1,268 |  | 533 | 1,592 |  | 461 | 1,274 |  | 541 | 1,600
Other derivatives |  | 5 | 19 |  | 5 | 16 |  | 5 | 19 |  | 3 | 16
Total trading derivatives |  | 30,770 | 53,429 |  | 31,122 | 50,729 |  | 31,079 | 54,932 |  | 33,587 | 53,397

Risk management strategy for hedge accounting
Overview

The Group’s hedging strategy is to manage its exposure to interest rate risk on a net variable basis in Australian or New Zealand dollars. For Australian and New Zealand denominated exposures the Group will enter into interest rate swaps where the exposure is to a fixed interest rate. In some instances, cash flow hedges of interest rate risk are also used to arrive at a net variable rate position. Foreign currency exposures are swapped to Australian or New Zealand dollars using cross-currency swaps and interest rate swaps. The material risks and the risk management strategy are explained further below.

Cash flow hedges – interest rate risk

The Group manages interest rate risk exposure on deposits and loans via interest rate derivatives. The Group accounts for these hedge relationships as a macro cash flow hedge. The gross exposures are allocated to time buckets based on expected repricing dates, with interest rate derivatives allocated to hedge accordingly. The benchmark interest rate is hedged which represents the largest component of changes in fair value and is observable in relevant financial markets.

Cash flow hedges – foreign currency risk

The Group is exposed to foreign currency risk on credit margin cash flows and foreign currency risk on the principal cash flows, both of which arise from foreign currency debt issuances.

The Group uses foreign currency derivatives to manage changes between the foreign currency and Australian and New Zealand dollars for the above mentioned cash flows.

Fair value hedges – interest rate risk

Interest rate risk arises on fixed rate bonds, notes and subordinated debt issuances, fixed rate debt instruments held for liquidity purposes and fixed rate loans and advances. The Group hedges its interest rate risk on these instruments with relevant interest rate derivatives to reduce its exposure to changes in fair value due to interest rate fluctuations.

Hedging relationships are predominantly one-to-one, with the exception of fixed rate housing loans which were previously designated on a macro basis until de-designation in the 2022 financial year.

With all the fair value hedges, the benchmark interest rate is hedged which represents the largest component of changes in fair value and is observable in relevant financial markets.

Hedging derivatives

Hedging derivative assets and liabilities are disclosed by the hedged risk and type of hedge relationship in which they are designated. The Group may designate separate derivatives to hedge different risk components of one hedged item. In such scenario the notional amount of hedging derivatives will, in sum, exceed the notional amount of the hedged item. In the case of cross-currency swaps, the Group can designate a single instrument to hedge both interest rate risk in a fair value hedge and currency risk in a cash flow hedge.

|  |  |  |  |  | Group |  | Company
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  |  | 2023 | 2022 |  | 2023 | 2022
|  |  |  |  |  | Carrying amount | Notional | Carrying amount | Notional |  | Carrying amount | Notional | Carrying amount | Notional
|  | Hedging instrument |  | Risk |  | $m | $m | $m | $m |  | $m | $m | $m | $m
Derivative assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | Interest rate swaps |  | Interest |  | - | 177,400 | - | 160,449 |  | - | 159,050 | - | 144,670
Cash flow hedges |  | Cross-currency swaps |  | Currency |  | 3,370 | 90,389 | 7,340 | 119,820 |  | 2,576 | 70,629 | 5,493 | 93,038
Cash flow hedges |  | Foreign exchange contracts |  | Currency |  | 98 | 7,908 | 212 | 6,257 |  | 98 | 7,908 | 212 | 6,257
Fair value hedges |  | Interest rate swaps |  | Interest |  | 28 | 67,540 | 19 | 75,768 |  | 28 | 65,635 | 11 | 73,012
Fair value and cash flow hedges |  | Cross-currency swaps |  | Interest and currency |  | 1 | 21 | 16 | 475 |  | 1 | 21 | 3 | 167
Cash flow hedges |  | Futures1 |  | Interest |  | 2 | 1,866 | - | 59 |  | 2 | 1,866 | - | 59
Total derivative assets |  |  |  |  |  | 3,499 | 345,124 | 7,587 | 362,828 |  | 2,705 | 305,109 | 5,719 | 317,203
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges |  | Interest rate swaps |  | Interest |  | 3 | 165,627 | 5 | 206,451 |  | 3 | 152,929 | 5 | 201,808
Cash flow hedges |  | Cross-currency swaps |  | Currency |  | 2,580 | 94,734 | 4,152 | 64,945 |  | 1,844 | 56,839 | 3,513 | 49,626
Cash flow hedges |  | Foreign exchange contracts |  | Currency |  | 151 | 15,864 | 1 | 506 |  | 151 | 15,864 | 1 | 506
Fair value hedges |  | Interest rate swaps |  | Interest |  | 425 | 108,249 | 383 | 108,169 |  | 290 | 81,548 | 279 | 90,448
Fair value and cash flow hedges |  | Cross-currency swaps |  | Interest and currency |  | 1,352 | 6,773 | 2,209 | 8,589 |  | 235 | 1,934 | 292 | 2,612
Cash flow hedges2 |  | Futures1 |  | Interest |  | - | 465 | 7 | 1,128 |  | - | 465 | 7 | 1,128
Total derivative liabilities |  |  |  |  |  | 4,511 | 391,712 | 6,757 | 389,788 |  | 2,523 | 309,579 | 4,097 | 346,128

1. Futures notional amounts are netted for presentation purposes.
2. Comparative information has been restated to align to the presentation in the current period.

The following table shows the maturity profile of hedging instruments based on their notional amounts.

|  | 2023 |  | 2022
--- | --- | --- | --- | ---
|  | 0 to 12 months | 1 to 5 years | Over 5 years | Total |  | 0 to 12 months | 1 to 5 years | Over 5 years | Total
|  | $m | $m | $m | $m |  | $m | $m | $m | $m
Group |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 235,775 | 229,751 | 53,290 | 518,816 |  | 247,746 | 245,893 | 57,198 | 550,837
Foreign exchange contracts |  | 23,714 | 58 | - | 23,772 |  | 6,622 | 141 | - | 6,763
Futures12 |  | 1,681 | 650 | - | 2,331 |  | 892 | 295 | - | 1,187
Cross-currency swaps - interest and currency |  | 744 | 5,746 | 304 | 6,794 |  | 3,178 | 5,144 | 742 | 9,064
Cross-currency swaps - currency |  | 28,518 | 120,530 | 36,075 | 185,123 |  | 37,059 | 104,868 | 42,838 | 184,765
Company |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | 220,232 | 191,754 | 47,176 | 459,162 |  | 241,175 | 216,746 | 52,017 | 509,938
Foreign exchange contracts |  | 23,714 | 58 | - | 23,772 |  | 6,622 | 141 | - | 6,763
Futures1 |  | 1,681 | 650 | - | 2,331 |  | 892 | 295 | - | 1,187
Cross-currency swaps - interest and currency |  | 404 | 1,247 | 304 | 1,955 |  | 1,358 | 982 | 439 | 2,779
Cross-currency swaps - currency |  | 26,676 | 75,784 | 25,008 | 127,468 |  | 33,441 | 75,627 | 33,596 | 142,664

1. Futures notional amounts are netted for presentation purposes.
2. Comparative information has been restated to align to the presentation in the current period.

The average rate for major currencies of the final exchange of cross-currency swaps designated in hedge accounting relationships is as follows:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
USD:AUD |  | 1.416 | 1.362 |  | 1.412 | 1.361
EUR:AUD |  | 1.514 | 1.497 |  | 1.546 | 1.551
GBP:AUD |  | 1.867 | 1.868 |  | 1.861 | 1.863
USD:NZD |  | 1.488 | 1.458 |  | n/a | n/a
CHF:NZD |  | 1.554 | 1.554 |  | n/a | n/a
EUR:NZD |  | 1.715 | 1.683 |  | n/a | n/a

The average executed rate for interest rate swaps in hedge accounting relationships for major currencies is as follows:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | Fair value hedges | Cash flow hedges | Fair value hedges | Cash flow hedges |  | Fair value hedges | Cash flow hedges | Fair value hedges | Cash flow hedges
|  | % | % | % | % |  | % | % | % | %
NZD interest rates |  | 1.95 to 3.05 | 0.04 to 7.30 | 1.95 to 4.50 | (0.01) to 4.87 |  | 1.95 to 3.05 | - | 1.95 to 3.05 | -
USD interest rates |  | 0.61 to 4.85 | - | 0.61 to 2.96 | - |  | 0.61 to 2.73 | - | 0.61 to 2.73 | -
AUD interest rates |  | 0.40 to 4.37 | 0.06 to 7.02 | 0.40 to 7.13 | 0.06 to 7.29 |  | 0.40 to 3.99 | 0.06 to 7.02 | 0.40 to 7.13 | 0.06 to 7.29
EUR interest rates |  | (0.22) to 3.71 | - | (0.22) to 2.61 | - |  | (0.22) to 2.61 | - | (0.22) to 2.61 | -

Hedged items

The balance of the cash flow hedge reserve, which represents the effective portion of the movements in the hedging instrument, is presented in Note 29 Reserves. The movements in hedging instruments recognised in other comprehensive income are reported in the Group’s Statement of other comprehensive income. As at 30 September, the amounts recognised in the cash flow hedge reserve for which hedge accounting is no longer applied is a loss of $11 million (2022: loss of $14 million).

The following table shows the carrying amount of fair value hedged items in hedge relationships, and the accumulated amount of fair value hedge adjustments in these carrying amounts. The Group does not hedge its entire exposure to a class of financial instruments, therefore the carrying amounts below do not equal the total carrying amounts disclosed in other notes.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | Carrying amount | Fair value hedge adjustments | Carrying amount | Fair value hedge adjustments |  | Carrying amount | Fair value hedge adjustments | Carrying amount | Fair value hedge adjustments
|  | $m | $m | $m | $m |  | $m | $m | $m | $m
Debt instruments1 |  |  |  |  |  |  |  |  |  |
Semi-government bonds, notes and securities |  | 22,872 | - | 19,075 | - |  | 22,872 | - | 19,075 | -
Loans and advances |  |  |  |  |  |  |  |  |  |
Housing loans2 |  | (13) | (13) | (26) | (26) |  | - | - | - | -
Other term lending |  | 763 | (54) | 984 | (55) |  | 763 | (54) | 984 | (55)
Bonds, notes and subordinated debt |  |  |  |  |  |  |  |  |  |
Medium-term notes |  | 46,451 | (2,876) | 41,765 | (2,698) |  | 40,033 | (2,348) | 36,730 | (2,204)
Covered bonds3 |  | 22,969 | (1,463) | 18,126 | (1,219) |  | - | - | - | -
Subordinated medium-term notes |  | 13,128 | (2,906) | 11,887 | (2,464) |  | 13,128 | (2,906) | 11,887 | (2,464)

1. The carrying amount of debt instruments at fair value through other comprehensive income does not include a fair value hedge adjustment as the hedged asset is measured at fair value. The accounting for the hedge relationship results in a transfer from other comprehensive income to the income statement.
2. On 1 April 2022, BNZ discontinued portfolio fair value hedge accounting for its housing loans. The carrying amount represents the accumulated unamortised portion of the fair value hedge adjustment which will be amortised to profit or loss over the remaining term of the loans. The amount that has ceased to be adjusted for hedging gains and losses is a loss of $13 million (2022: loss of $26 million) for the Group and $nil (2022: $nil) for the Company.
3. The Company does not apply hedge accounting to covered bonds, however these are designated for hedge accounting purposes at the Group level.

# Hedge ineffectiveness

Fair value and cash flow hedge relationships result in the following changes in value used as the basis for recognising hedge ineffectiveness for the years ended 30 September:

|  | Change in fair value on hedging instruments |  | Change in fair value on hedged items |  | Hedge ineffectiveness recognised in income statement
--- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m
Group |  |  |  |  |  |  |  |
Fair value hedges (interest rate risk) |  | (1,660) | (4,259) |  | 1,610 | 4,286 |  | (50) | 27
Cash flow hedges (interest rate risk) |  | 151 | (2,748) |  | (149) | 2,749 |  | 2 | 1
Cash flow hedges (currency risk) |  | 3,065 | 2,836 |  | (3,038) | (2,806) |  | 27 | 30
Fair value and Cash flow hedges (interest rate and currency risk) |  | 21 | (73) |  | (21) | 73 |  | - | -
Total |  | 1,577 | (4,244) |  | (1,598) | 4,302 |  | (21) | 58
Company |  |  |  |  |  |  |  |
Fair value hedges (interest rate risk) |  | (1,488) | (1,966) |  | 1,439 | 1,970 |  | (49) | 4
Cash flow hedges (interest rate risk) |  | 352 | (3,004) |  | (352) | 3,004 |  | - | -
Cash flow hedges (currency risk) |  | 1,502 | 2,701 |  | (1,480) | (2,674) |  | 22 | 27
Total |  | 366 | (2,269) |  | (393) | 2,300 |  | (27) | 31

|  |  |  |  | Group |  | Company
--- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  | 2023 | 2022 |  | 2023 | 2022
|  |  |  |  | $m | $m |  | $m | $m
Cash flow hedge (interest rate risk) |  |  |  |  |  |
Cash flow hedges - gains / (losses) recognised in other comprehensive income1 |  | (292) | (2,509) |  | (357) | (2,804)
Amount reclassified from the cash flow hedge reserve to income statement1 |  | 427 | (205) |  | 711 | (200)

1. Comparative information has been restated to align to the disclosure in the current period.

|  |  |  |  | Group |  | Company
--- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  | 2023 | 2022 |  | 2023 | 2022
|  |  |  |  | $m | $m |  | $m | $m
Cash flow hedge (currency risk) |  |  |  |  |  |
Cash flow hedges - gains / (losses) recognised in other comprehensive income |  | 3,034 | 2,787 |  | 1,480 | 2,674
Amount reclassified from the cash flow hedge reserve to income statement |  | (3,103) | (2,583) |  | (1,531) | (2,483)

# 19 Financial risk management

Overview of Risk Management Framework

Risk is the potential for harm and an inherent part of the Group's business. The Group's ability to manage risk effectively is critical to being a safe and secure bank that can serve customers well and help our communities prosper. The Group's risk management is in line with APRA Prudential Standard CPS 220 Risk Management.

The Group's Risk Management Framework (RMF) consists of systems, structures, policies, processes and people within the Group that manage the Group's material risks. The RMF is comprehensively reviewed every three years for appropriateness, effectiveness and adequacy by an operationally independent party. The Board is ultimately responsible for the Risk Management Framework and oversees its operation by management. In addition, directors and senior executives are held accountable for the parts of the Group’s operations they manage or control.

The Group applies a 'Three Lines of Accountability' operating model in relation to the management of risk. The overarching principle of the model is that risk management capability must be embedded within the business to be effective. The role of each line is:

- First Line - Businesses own risks and obligations, and the controls and mitigation strategies that help manage them.

- Second Line - A functionally segregated Risk function develops risk management frameworks, defines risk boundaries, provides objective review and challenge regarding the effectiveness of risk management within the first line businesses, and executes specific risk management activities where a functional segregation of duties and/or specific risk capability is required.

- Third Line - An independent Internal Audit function reporting to the Board monitors the end-to-end effectiveness of risk management and compliance with the RMF.

Further risk management information for the Group is disclosed in the Corporate Governance section of the Group’s website at nab.com.au/about-us/corporate-governance.

# Credit risk

Credit risk overview, management and control responsibilities

Credit is any transaction that creates an actual or potential obligation for a counterparty or a customer to pay the Group. Credit risk is the potential that a counterparty or customer will fail to meet its obligations to the Group in accordance with the agreed terms. Lending activities account for most of the Group’s credit risk, however other sources of credit risk also exist throughout the activities of the Group. These activities include the trading book, and other financial instruments and loans (including, but not limited to, acceptances, placements, inter-bank transactions, trade financing, foreign exchange transactions, swaps, bonds and options), as well as in the extension of commitments and guarantees and the settlement of transactions.

The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to existing or potential counterparties or customers, groups of related counterparties or groups of related customers, and to geographical and industry segments. Such risks are monitored on an ongoing basis and are subject to annual or more frequent review.

In general, the Group does not take possession of collateral it holds as security or call on other credit enhancements that would result in recognition of an asset on the balance sheet.

Exposure to credit risk is managed through regular analysis of the ability of existing or potential counterparties, customers, groups of related counterparties or groups of related customers to meet repayment obligations, primarily interest and principal, and by changing credit limits where appropriate. Exposure to credit risk is also managed in part, by obtaining collateral and corporate and personal guarantees.

The Group further restricts its exposure to credit losses by entering into master netting arrangements for derivatives, repurchase and securities lending transactions with counterparties with which it undertakes a significant volume of transactions. The credit risk associated with contracts favourable to a Group entity is reduced by a master netting arrangement to the extent that if a counterparty failed to meet its obligations in accordance with agreed terms, all contracts with a counterparty can be terminated and settled on a net basis.

ESG risks

The Group is exposed to ESG and other emerging risks. The following items are examples of how these risks may impact the Group:

- Increases in the frequency and severity of climatic events could impact customers’ ability to service their loans or the value of the collateral held to secure the loans.

- Action taken by governments, regulators and society more generally, to transition to a low-carbon economy, could impact the ability of some customers to generate long-term returns in a sustainable way or lead to certain assets being stranded in the future.

- Failure to comply with environmental and social legislation (emerging and current) may impact customers’ ability to generate sustainable returns and service their loans.

- If in future customers don’t hold appropriate levels of insurance for physical assets against certain risks, this may impact the value the Group can recover in the event of certain natural disasters.

The Group considers these risks as part of the credit risk assessment and due diligence process before relevant customers are granted credit and for new product development. The Group also manages its total credit portfolio within established risk appetite and limits, particularly for specific industries or regions that are more exposed to these types of risks. In addition, the Group may recognise FLAs to the provision for credit impairment for the impact of adverse climate events. In the 2022 financial year, the Group recognised a FLA of $14 million for the potential impact of the Lismore floods (2023: nil).

# Maximum exposure to credit risk

For financial assets recognised on the balance sheet, the maximum exposure to credit risk is the carrying amount. In certain circumstances, there may be differences between the carrying amounts reported on the balance sheet and the amounts reported in the tables below. Principally, these differences arise in respect of financial assets that are subject to risks other than credit risk, such as equity instruments which are primarily subject to market risk, or bank notes and coins.

For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group would have to pay if the guarantees are called upon. For irrevocable loan commitments and other credit-related commitments, the maximum exposure to credit risk is the full amount of committed facilities.

The table below shows the Group’s maximum exposure to credit risk for on-balance sheet and off-balance sheet positions before taking into account any collateral held or other credit enhancements.

|  |  |  | Group |  | Company
--- | --- | --- | --- | --- | --- | ---
|  |  |  | 2023 | 2022 |  | 2023 | 2022
|  | Footnote |  | $m | $m |  | $m | $m
Financial assets |  |  |  |  |  |  |  |
Cash and liquid assets |  | (a) |  | 23,669 | 55,304 |  | 23,022 | 55,100
Due from other banks |  | (b) |  | 117,306 | 141,861 |  | 106,955 | 133,144
Collateral placed |  | (c) |  | 11,286 | 13,115 |  | 10,214 | 10,636
Trading assets |  | (d) |  | 101,168 | 40,573 |  | 90,417 | 34,043
Debt instruments |  | (e) |  | 46,357 | 42,080 |  | 46,336 | 42,094
Other financial assets |  | (f) |  | 1,430 | 2,061 |  | 1,708 | 2,749
Derivative assets |  | (d) |  | 34,269 | 61,016 |  | 33,784 | 60,651
Gross loans and advances |  | (f) |  | 707,228 | 685,839 |  | 611,556 | 597,445
Due from controlled entities |  | (g) |  | - | - |  | 43,577 | 38,226
Other assets |  | (g) |  | 6,869 | 4,861 |  | 6,572 | 4,181
Total |  |  |  | 1,049,582 | 1,046,710 |  | 974,141 | 978,269
Bank guarantees and letters of credit |  | (h) |  | 26,321 | 25,683 |  | 24,637 | 23,958
Credit commitments |  | (h) |  | 208,853 | 201,147 |  | 188,268 | 182,667
Total |  |  |  | 235,174 | 226,830 |  | 212,905 | 206,625
Total credit risk exposure |  |  |  | 1,284,756 | 1,273,540 |  | 1,187,046 | 1,184,894

(a) The balance of Cash and liquid assets that is exposed to credit risk is comprised primarily of reverse repurchase agreements and securities borrowing agreements.

(b) The balance of Due from other banks that is exposed to credit risk is comprised primarily of securities borrowing agreements and reverse repurchase agreements, as well as balances held with central supervisory banks and other interest earning assets. Securities borrowing agreements and reverse repurchase agreements are collateralised with highly liquid securities and the collateral is in excess of the borrowed or loaned amount.

Balances held with central supervisory banks and other interest earning assets that are due from other banks are managed based on the counterparty’s creditworthiness. The Group will utilise master netting arrangements where possible to reduce its exposure to credit risk.

(c) The maximum exposure to credit risk from Collateral placed is the collateral placed with the counterparty before consideration of any netting arrangements.

(d) At any one time, the maximum exposure to credit risk from Trading assets and Derivative assets is limited to the current fair value of instruments that are favourable to the Group less collateral obtained. This credit risk is managed as part of the overall lending limits with customers, together with potential exposures from market movements.

The Group uses documentation including International Swaps and Derivatives Association (ISDA) Master Agreements to document derivative activities. Under ISDA Master Agreements, if a default of a counterparty occurs, all contracts with the counterparty are terminated. They are then settled on a net basis at market levels current at the time of default. The Group also executes Credit Support Annexes in conjunction with ISDA Master Agreements.

Credit risk from over-the-counter trading and hedging derivatives is mitigated where possible through netting arrangements whereby derivative assets and liabilities with the same counterparty can be offset in certain circumstances. Derivatives that are cleared through a central clearing counterparty or an exchange have less credit risk than over-the-counter derivatives and are subject to relevant netting and collateral agreements.

Collateral is obtained against derivative assets, depending on the creditworthiness of the counterparty and / or the nature of the transaction.

(a) Debt instruments are generally comprised of government, semi-government, corporate and financial institution bonds, notes and securities. The amount of collateral held against such instruments will depend on the counterparty and the nature of the specific financial instrument.

The Group may utilise credit default swaps, guarantees provided by central banks, other forms of credit enhancements or collateral to minimise the Group’s exposure to credit risk.

(b) Gross loans and advances and Other financial assets primarily comprise general lending and line of credit products. The distinction is due to accounting classification and measurement. These lending products will generally have a significant level of collateralisation depending on the nature of the product.

Other lending to non-retail customers may be provided on an unsecured basis or secured (partially or fully) by acceptable collateral defined in specific Group credit policy and business unit procedures. Collateral is generally comprised of business assets, inventories and in some cases personal assets of the borrower. The Group manages its exposure to these products by completing a credit evaluation to assess the customer’s character, industry, business model and capacity to meet their commitments without distress. Collateral provides a secondary source of repayment for funds advanced in the event that a customer cannot meet their contractual repayment obligations. For amounts due from customers on acceptances the Group generally has recourse to guarantees, underlying inventories or other assets in the event of default which significantly mitigates the credit risk associated with accepting the customer’s credit facility with a third party.

Housing loans are secured against residential property as collateral and, where applicable, Lenders Mortgage Insurance (LMI) is obtained by the Group (mostly in Australia) to cover any shortfall in outstanding loan principal and accrued interest. LMI is generally obtained for residential mortgages with a Loan to Valuation Ratio (LVR) in excess of 80%. The financial effect of these measures is that remaining credit risk on residential mortgage loans is minimal. Other retail lending products are mostly unsecured (e.g. credit card outstandings and other personal lending).

(c) The balance of Other assets which is exposed to credit risk includes securities sold not delivered, interest receivable accruals and other receivables. Interest receivable accruals are subject to the same collateral as the underlying borrowings. Other receivables will mostly be unsecured. There are typically no collateral or other credit enhancements obtained in respect of amounts Due from controlled entities.

(d) Bank guarantees and letters of credit are comprised primarily of guarantees to customers, standby or documentary letters of credit and performance related contingencies. The Group will typically have recourse to specific assets pledged as collateral in the event of a default by a party for which the Group has guaranteed its obligations to a third party and therefore tend to carry the same credit risk as loans.
Credit commitments represent binding commitments to extend credit where the Group is potentially exposed to loss of an amount equal to the total unused commitments. However, the likely amount of loss is generally less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The Group monitors the term to maturity of credit commitments because, in general, longer-term commitments have a greater degree of credit risk than shorter term commitments.

# Offsetting financial assets and liabilities

The tables below present the amounts of financial instruments that have been offset on the balance sheet, as well as those amounts that are subject to enforceable master netting arrangements or similar agreements. The tables exclude financial instruments that are not subject to offsetting arrangements but are instead only subject to collateral arrangements.

The ‘Net amounts’ presented in the tables are not intended to represent the Group’s actual exposure to credit risk. The Group utilises a wide range of strategies to mitigate credit risk in addition to netting and collateral arrangements, including placing limits on the amount of risk accepted in relation to counterparties, customers, groups of related counterparties or customers and geographical and industry segments.

The amounts recognised on the balance sheet are presented in the 'Total balance sheet amount' column in the tables below, and comprise the sum of the 'Net amount reported on balance sheet' and 'Amounts not subject to enforceable netting arrangements'.

|  | 2023 |  |  |  |
--- | --- | --- | --- | --- | --- | ---
|  | Subject to enforceable netting arrangements |  | Amounts not subject to enforceable netting arrangements |  | Total balance sheet amount
|  | Amounts offset on balance sheet |  | Amounts not offset on balance sheet |
|  | Gross amount | Amount offset | Net amount reported on balance sheet |  | Financial Instruments | Non-cash collateral | Cash collateral | Net Amount |
Group |  | $m | $m | $m |  | $m | $m | $m | $m |  | $m |  | $m
Derivative assets1 |  | 157,389 | (127,890) | 29,499 |  | (14,611) | (362) | (10,164) | 4,362 |  | 4,770 |  | 34,269
Reverse repurchase agreements |  | 95,197 | (14,542) | 80,655 |  | - | (80,655) | - | - |  | - |  | 80,655
Loans and advances |  | 5,748 | (5,705) | 43 |  | - | - | - | 43 |  | 708,428 |  | 708,471
Total assets |  | 258,334 | (148,137) | 110,197 |  | (14,611) | (81,017) | (10,164) | 4,405 |  | 713,198 |  | 823,395
Derivative liabilities1 |  | (154,459) | 127,891 | (26,568) |  | 14,611 | 210 | 9,171 | (2,576) |  | (9,065) |  | (35,633)
Repurchase agreements |  | (88,674) | 14,542 | (74,132) |  | - | 74,132 | - | - |  | - |  | (74,132)
Deposits and other borrowings |  | (9,122) | 5,705 | (3,417) |  | - | - | - | (3,417) |  | (681,034) |  | (684,451)
Total liabilities |  | (252,255) | 148,138 | (104,117) |  | 14,611 | 74,342 | 9,171 | (5,993) |  | (690,099) |  | (794,216)
Company |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets1 |  | 143,179 | (114,623) | 28,556 |  | (12,808) | (83) | (8,822) | 6,843 |  | 5,228 |  | 33,784
Reverse repurchase agreements |  | 91,333 | (14,166) | 77,167 |  | - | (77,167) | - | - |  | - |  | 77,167
Loans and advances |  | 4,203 | (4,191) | 12 |  | - | - | - | 12 |  | 612,226 |  | 612,238
Total assets |  | 238,715 | (132,980) | 105,735 |  | (12,808) | (77,250) | (8,822) | 6,855 |  | 617,454 |  | 723,189
Derivative liabilities1 |  | (141,028) | 114,624 | (26,404) |  | 12,808 | 210 | 8,701 | (4,685) |  | (9,706) |  | (36,110)
Repurchase agreements |  | (81,339) | 14,166 | (67,173) |  | - | 67,173 | - | - |  | - |  | (67,173)
Deposits and other borrowings |  | (6,163) | 4,191 | (1,972) |  | - | - | - | (1,972) |  | (606,669) |  | (608,641)
Total liabilities |  | (228,530) | 132,981 | (95,549) |  | 12,808 | 67,383 | 8,701 | (6,657) |  | (616,375) |  | (711,924)

1. As at 30 September 2023, the amount offset for derivative assets includes $9,495 million (Company: $8,377 million) of cash collateral netting and the amount offset for derivative liabilities includes $4,828 million (Company: $4,758 million) of cash collateral netting.

|  | 2022 |  |  |  |
--- | --- | --- | --- | --- | --- | ---
|  | Subject to enforceable netting arrangements |  | Amounts not subject to enforceable netting arrangements |  | Total balance sheet amount
|  | Amounts offset on balance sheet |  | Amounts not offset on balance sheet |
|  | Gross amount | Amount offset | Net amount reported on balance sheet |  | Financial Instruments | Non-cash collateral | Cash collateral | Net Amount |
Group |  | $m | $m | $m |  | $m | $m | $m | $m |  | $m |  | $m
Derivative assets1 |  | 171,721 | (117,807) | 53,914 |  | (33,670) | (956) | (15,053) | 4,235 |  | 7,102 |  | 61,016
Reverse repurchase agreements2 |  | 95,371 | (18,831) | 76,540 |  | - | (76,540) | - | - |  | - |  | 76,540
Loans and advances2 |  | 1,399 | (1,344) | 55 |  | - | - | - | 55 |  | 687,660 |  | 687,715
Total assets |  | 268,491 | (137,982) | 130,509 |  | (33,670) | (77,496) | (15,053) | 4,290 |  | 694,762 |  | 825,271
Derivative liabilities1 |  | (165,410) | 117,807 | (47,603) |  | 33,670 | 503 | 7,655 | (5,775) |  | (9,883) |  | (57,486)
Repurchase agreements2 |  | (104,094) | 18,831 | (85,263) |  | - | 85,263 | - | - |  | - |  | (85,263)
Deposits and other borrowings2 |  | (6,906) | 1,344 | (5,562) |  | - | - | - | (5,562) |  | (681,443) |  | (687,005)
Total liabilities |  | (276,410) | 137,982 | (138,428) |  | 33,670 | 85,766 | 7,655 | (11,337) |  | (691,326) |  | (829,754)
Company |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets1 |  | 160,532 | (106,481) | 54,051 |  | (34,420) | (814) | (13,299) | 5,518 |  | 6,600 |  | 60,651
Reverse repurchase agreements2 |  | 95,092 | (18,831) | 76,261 |  | - | (76,261) | - | - |  | - |  | 76,261
Loans and advances2 |  | 582 | (556) | 26 |  | - | - | - | 26 |  | 598,724 |  | 598,750
Total assets |  | 256,206 | (125,868) | 130,338 |  | (34,420) | (77,075) | (13,299) | 5,544 |  | 605,324 |  | 735,662
Derivative liabilities1 |  | (154,789) | 106,481 | (48,308) |  | 34,420 | 503 | 6,115 | (7,270) |  | (9,186) |  | (57,494)
Repurchase agreements2 |  | (100,922) | 18,831 | (82,091) |  | - | 82,091 | - | - |  | - |  | (82,091)
Deposits and other borrowings2 |  | (4,959) | 556 | (4,403) |  | - | - | - | (4,403) |  | (612,558) |  | (616,961)
Total liabilities |  | (260,670) | 125,868 | (134,802) |  | 34,420 | 82,594 | 6,115 | (11,673) |  | (621,744) |  | (756,546)

1. As at 30 September 2022, the amount offset for derivative assets includes $7,663 million (Company: $6,667 million) of cash collateral netting and the amount offset for derivative liabilities includes $4,097 million (Company: $3,994 million) of cash collateral netting.
2. Comparative information has been restated to align to the presentation in the current period.

# Derivative assets and derivative liabilities

Derivative assets and derivative liabilities are only offset on the balance sheet where the Group has a legally enforceable right to offset in all circumstances and there is an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously. The Group has applied offsetting to certain centrally cleared derivatives and their associated collateral amounts which satisfy the AASB 132 Financial Instruments: Presentation requirements.

# Reverse repurchase and repurchase agreements

Reverse repurchase and repurchase agreements will typically be subject to Global Master Repurchase Agreements or similar agreements whereby all outstanding transactions with the same counterparty can only be offset and closed out upon a default or insolvency event. In some instances, the agreement provides the Group with a legally enforceable right to offset in all circumstances. In such a case and where there is an intention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously, the amounts with that counterparty are offset on the balance sheet.

Where the Group has a right to offset on default or insolvency only, the related non-cash collateral amounts comprise highly liquid securities, either obtained or pledged, which can be realised in the event of a default or insolvency by one of the counterparties. The value of such securities obtained or pledged must at least equate to the value of the exposure to the counterparty, therefore the net exposure is considered to be nil.

# Loans and advances, deposits and other borrowings

The amounts offset for loans and advances and deposits and other borrowings represent amounts subject to set-off agreements that satisfy the AASB 132 requirements. The 'Net amounts reported on balance sheet' are included within ‘Overdrafts’ in Note 12 Loans and Advances and ‘On-demand and short-term deposits’ and ‘Deposits not bearing interest’ in Note 13 Deposits and other borrowings. The 'Amounts not subject to enforceable netting arrangements' represent all other loans and advances and deposits and other borrowings of the Group, including those measured at fair value.

# Credit risk exposure by risk grade

The following tables show the credit quality of credit risk exposures to which the expected credit loss model is applied, for both recognised and unrecognised financial assets, based on the following risk grades:

- Senior investment grade: broadly corresponds with Standard & Poor’s ratings of AAA to A- (internal rating 1 to 5).

- Investment grade: broadly corresponds with Standard & Poor’s ratings of BBB+ to BBB- (internal rating 6 to 11).

- Sub-investment grade: broadly corresponds with Standard & Poor’s ratings of BB+ (internal rating 12 to 23).

- Default: broadly corresponds with Standard & Poor’s rating of D (internal rating 98 and 99).

Notional stage allocations (Stage 1 and Stage 2) for credit risk exposures incorporate the impact of forward looking economic information applied in the expected credit loss model. Refer Accounting Policy section of Note 17 Provision for credit impairment on loans at amortised cost for further details.

|  | Stage 1 |  | Stage 2 |  | Stage 3 |  | Total
--- | --- | --- | --- | --- | --- | --- | --- | ---
Performing |  | Performing |  | Non-performing |  |
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
Group |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Gross loans and advances |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 124,634 | 127,878 |  | 2,356 | 4,376 |  | - | - |  | 126,990 | 132,254
Investment grade |  | 277,097 | 270,812 |  | 27,385 | 33,614 |  | - | - |  | 304,482 | 304,426
Sub-investment grade |  | 126,373 | 99,753 |  | 141,747 | 143,291 |  | - | - |  | 268,120 | 243,044
Default |  | - | - |  | - | - |  | 7,636 | 6,115 |  | 7,636 | 6,115
Total gross loans and advances |  | 528,104 | 498,443 |  | 171,488 | 181,281 |  | 7,636 | 6,115 |  | 707,228 | 685,839
Contingent liabilities and credit commitments |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 88,046 | 85,149 |  | 3,442 | 4,196 |  | - | - |  | 91,488 | 89,345
Investment grade |  | 75,102 | 70,260 |  | 12,832 | 15,775 |  | - | - |  | 87,934 | 86,035
Sub-investment grade |  | 25,753 | 18,517 |  | 29,643 | 32,577 |  | - | - |  | 55,396 | 51,094
Default |  | - | - |  | - | - |  | 356 | 356 |  | 356 | 356
Total contingent liabilities and credit commitments |  | 188,901 | 173,926 |  | 45,917 | 52,548 |  | 356 | 356 |  | 235,174 | 226,830
Total gross loans and advances, contingent liabilities and credit commitments |  | 717,005 | 672,369 |  | 217,405 | 233,829 |  | 7,992 | 6,471 |  | 942,402 | 912,669
Debt instruments |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 46,357 | 41,644 |  | - | - |  | - | - |  | 46,357 | 41,644
Investment grade |  | - | 436 |  | - | - |  | - | - |  | - | 436
Sub-investment grade |  | - | - |  | - | - |  | - | - |  | - | -
Default |  | - | - |  | - | - |  | - | - |  | - | -
Total debt instruments |  | 46,357 | 42,080 |  | - | - |  | - | - |  | 46,357 | 42,080

|  | Stage 1 |  | Stage 2 |  | Stage 3 |  | Total
--- | --- | --- | --- | --- | --- | --- | --- | ---
Performing |  | Performing |  | Non-performing |  |
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
Company |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Gross loans and advances |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 88,177 | 96,635 |  | 1,257 | 2,842 |  | - | - |  | 89,434 | 99,477
Investment grade |  | 255,873 | 250,467 |  | 22,003 | 26,761 |  | - | - |  | 277,876 | 277,228
Sub-investment grade |  | 114,773 | 89,083 |  | 122,956 | 126,225 |  | - | - |  | 237,729 | 215,308
Default |  | - | - |  | - | - |  | 6,517 | 5,432 |  | 6,517 | 5,432
Total gross loans and advances |  | 458,823 | 436,185 |  | 146,216 | 155,828 |  | 6,517 | 5,432 |  | 611,556 | 597,445
Contingent liabilities and credit commitments |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 82,623 | 80,614 |  | 2,484 | 3,326 |  | - | - |  | 85,107 | 83,940
Investment grade |  | 68,954 | 65,389 |  | 10,087 | 12,291 |  | - | - |  | 79,041 | 77,680
Sub-investment grade |  | 22,744 | 16,103 |  | 25,665 | 28,553 |  | - | - |  | 48,409 | 44,656
Default |  | - | - |  | - | - |  | 348 | 349 |  | 348 | 349
Total contingent liabilities and credit commitments |  | 174,321 | 162,106 |  | 38,236 | 44,170 |  | 348 | 349 |  | 212,905 | 206,625
Total gross loans and advances, contingent liabilities and credit commitments |  | 633,144 | 598,291 |  | 184,452 | 199,998 |  | 6,865 | 5,781 |  | 824,461 | 804,070
Debt instruments |  |  |  |  |  |  |  |  |  |  |  |
Senior investment grade |  | 46,336 | 41,658 |  | - | - |  | - | - |  | 46,336 | 41,658
Investment grade |  | - | 436 |  | - | - |  | - | - |  | - | 436
Sub-investment grade |  | - | - |  | - | - |  | - | - |  | - | -
Default |  | - | - |  | - | - |  | - | - |  | - | -
Total debt instruments |  | 46,336 | 42,094 |  | - | - |  | - | - |  | 46,336 | 42,094

# Concentration of exposure

Concentration of credit risk exists when a number of counterparties are engaged in similar activities, or operate in the same geographical areas or industry sectors and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes in economic, political or other conditions.

The diversification and size of the Group is such that its lending is widely spread both geographically and in terms of the types of industries it serves.

Industry concentration of financial assets

|  | Net loans and advances1 |  | Other financial assets2 |  | Contingent liabilities and credit commitments |  | Total
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Group |  |  |  |  |  |  |  |  |  |  |  |
Accommodation and hospitality |  | 9,337 | 8,712 |  | - | - |  | 2,101 | 1,771 |  | 11,438 | 10,483
Agriculture, forestry, fishing & mining |  | 55,912 | 51,518 |  | - | - |  | 14,112 | 13,280 |  | 70,024 | 64,798
Business services and property services |  | 19,266 | 18,502 |  | - | - |  | 8,754 | 8,023 |  | 28,020 | 26,525
Commercial property |  | 70,739 | 69,148 |  | - | - |  | 12,660 | 14,168 |  | 83,399 | 83,316
Construction |  | 8,500 | 7,777 |  | - | - |  | 7,109 | 6,306 |  | 15,609 | 14,083
Financial & insurance |  | 38,456 | 46,554 |  | 137,048 | 161,724 |  | 49,722 | 48,952 |  | 225,226 | 257,230
Government & public authorities |  | 1,820 | 2,794 |  | 31,005 | 28,773 |  | 2,884 | 3,769 |  | 35,709 | 35,336
Manufacturing |  | 13,383 | 12,497 |  | - | - |  | 8,313 | 7,373 |  | 21,696 | 19,870
Personal |  | 12,161 | 11,097 |  | - | - |  | 18,594 | 18,062 |  | 30,755 | 29,159
Residential mortgages |  | 404,870 | 387,817 |  | 6,489 | 6,166 |  | 68,943 | 66,554 |  | 480,302 | 460,537
Retail and wholesale trade |  | 20,679 | 20,385 |  | - | - |  | 12,699 | 12,124 |  | 33,378 | 32,509
Transport and storage |  | 15,662 | 15,514 |  | - | - |  | 9,246 | 8,471 |  | 24,908 | 23,985
Utilities |  | 10,818 | 9,984 |  | 157 | 203 |  | 7,187 | 5,919 |  | 18,162 | 16,106
Other |  | 21,283 | 20,360 |  | 250 | 190 |  | 12,850 | 12,058 |  | 34,383 | 32,608
Total |  | 702,886 | 682,659 |  | 174,949 | 197,056 |  | 235,174 | 226,830 |  | 1,113,009 | 1,106,545
Company |  |  |  |  |  |  |  |  |  |  |  |
Accommodation and hospitality |  | 8,103 | 7,557 |  | - | - |  | 1,955 | 1,630 |  | 10,058 | 9,187
Agriculture, forestry, fishing & mining |  | 41,642 | 38,099 |  | - | - |  | 11,963 | 11,290 |  | 53,605 | 49,389
Business services and property services |  | 17,640 | 17,029 |  | - | - |  | 7,851 | 7,273 |  | 25,491 | 24,302
Commercial property |  | 63,613 | 61,707 |  | - | - |  | 11,196 | 12,439 |  | 74,809 | 74,146
Construction |  | 7,072 | 6,651 |  | - | - |  | 6,118 | 5,382 |  | 13,190 | 12,033
Financial & insurance |  | 36,369 | 43,821 |  | 125,643 | 150,572 |  | 47,114 | 47,325 |  | 209,126 | 241,718
Government & public authorities |  | 1,753 | 2,734 |  | 30,987 | 28,759 |  | 2,224 | 3,122 |  | 34,964 | 34,615
Manufacturing |  | 10,189 | 9,562 |  | - | - |  | 6,374 | 5,713 |  | 16,563 | 15,275
Personal |  | 11,194 | 10,243 |  | - | - |  | 16,460 | 15,926 |  | 27,654 | 26,169
Residential mortgages |  | 350,823 | 339,061 |  | 6,467 | 6,150 |  | 65,403 | 63,186 |  | 422,693 | 408,397
Retail and wholesale trade |  | 16,638 | 16,721 |  | - | - |  | 10,695 | 10,442 |  | 27,333 | 27,163
Transport and storage |  | 13,914 | 13,891 |  | - | - |  | 7,738 | 7,138 |  | 21,652 | 21,029
Utilities |  | 9,775 | 9,185 |  | 157 | 203 |  | 6,612 | 5,270 |  | 16,544 | 14,658
Other |  | 18,820 | 18,157 |  | 251 | 190 |  | 11,202 | 10,489 |  | 30,273 | 28,836
Total |  | 607,545 | 594,418 |  | 163,505 | 185,874 |  | 212,905 | 206,625 |  | 983,955 | 986,917

1. Net loans and advances includes loans at fair value.
2. Other financial assets represents amounts due from other banks, debt instruments and collateral placed.

Geographic concentration of financial assets

|  | Australia |  | New Zealand |  | Other International
--- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m
Group |  |  |  |  |  |  |  |  |
Cash and liquid assets |  | 4,345 | 15,567 |  | 36 | 46 |  | 19,288 | 39,691
Due from other banks |  | 92,378 | 112,767 |  | 10,140 | 8,580 |  | 14,788 | 20,514
Collateral placed |  | 8,709 | 9,401 |  | 1,030 | 2,479 |  | 1,547 | 1,235
Trading assets |  | 65,086 | 34,025 |  | 7,782 | 6,530 |  | 28,300 | 18
Debt instruments |  | 35,377 | 31,449 |  | - | - |  | 10,980 | 10,631
Other financial assets |  | 869 | 1,355 |  | 561 | 570 |  | - | 136
Derivative assets |  | 24,329 | 47,115 |  | 2,720 | 4,882 |  | 7,220 | 9,019
Loans and advances |  | 588,961 | 571,773 |  | 94,206 | 87,006 |  | 19,535 | 21,655
Other assets |  | 6,110 | 4,836 |  | 764 | 938 |  | 1,321 | 554
Total |  | 826,164 | 828,288 |  | 117,239 | 111,031 |  | 102,979 | 103,453
Company |  |  |  |  |  |  |  |  |
Cash and liquid assets |  | 4,259 | 15,464 |  | - | - |  | 18,763 | 39,636
Due from other banks |  | 92,371 | 112,765 |  | - | - |  | 14,584 | 20,379
Collateral placed |  | 8,701 | 9,401 |  | - | - |  | 1,513 | 1,235
Trading assets |  | 65,086 | 34,025 |  | - | - |  | 25,331 | 18
Debt instruments |  | 35,378 | 31,479 |  | - | - |  | 10,958 | 10,615
Other financial assets |  | 869 | 1,354 |  | - | - |  | 839 | 1,395
Derivative assets |  | 26,247 | 50,953 |  | - | - |  | 7,537 | 9,698
Loans and advances |  | 588,288 | 571,074 |  | - | - |  | 19,396 | 21,605
Other assets |  | 6,255 | 4,877 |  | - | - |  | 1,300 | 551
Total |  | 827,454 | 831,392 |  | - | - |  | 100,221 | 105,132

# Market risk

Market risk overview and management

Market risk primarily stems from the Group’s trading and balance sheet management activities, the impact of changes and correlation between interest rates, foreign exchange rates, credit spreads and volatility in bond, commodity or equity prices.

Market risk is represented by the below two categories:

Traded Market Risk | Non-Traded Market Risk
--- | ---
Traded Market Risk is the potential for gains or losses to arise from trading activities undertaken by the Group as a result of movements in market prices. The trading activities of the Group are principally carried out by Corporate and Institutional Banking.Trading activities represent dealings that encompass both active management of market risk and supporting client sales businesses. The types of market risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and volatility risk. | The Group has exposure to non-traded market risk, primarily Interest Rate Risk in the Banking Book (IRRBB). IRRBB is the risk that the Group’s earnings or economic value will be affected or reduced by changes in interest rates. The sources of IRRBB are as follows: Repricing risk, arising from changes to the overall level of interest rates and inherent mismatches in the repricing term of banking book items. Yield curve risk, arising from a change in the relative level of interest rates for different tenors and changes in the slope or shape of the yield curve. Basis risk, arising from differences between the actual and expected interest margins on banking book items over the implied cost of funds of those items. Optionality risk, arising from the existence of stand-alone or embedded options in banking book items, to the extent that the potential for those losses is not included in the above risks.

Measurement of market risk

The Group primarily manages and controls market risk using Value at Risk (VaR), which is a standard measure used throughout the industry. VaR gauges the Group’s possible loss for the holding period based on historical market movements. VaR is measured at a 99% confidence interval. This means that there is a 99% chance that the loss will not exceed the VaR estimate during the holding period.

The Group employs other risk measures to supplement VaR, with appropriate limits to manage and control risks, and communicate the specific nature of market exposures to management, the Board Risk & Compliance Committee and ultimately the Board. These supplementary measures include stress testing, stop loss, position and sensitivity limits.

# Traded market risk

The VaR methodology involves multiple revaluations of the trading books using 550 days of historical pricing shifts. The pricing data is rolled daily.

The use of VaR methodology has limitations, which include:

- The historical data used to calculate VaR is not always an appropriate proxy for current market conditions. If market volatility or correlation conditions change significantly, losses may occur more frequently and to a greater magnitude than the VaR measure suggests.

- VaR methodology assumes that positions are held for one day and may underestimate losses on positions that cannot be hedged or reversed inside that timeframe.

- VaR is calculated on positions at the close of each trading day, and does not measure risk on intra-day positions.

- VaR does not describe the directional bias or size of the positions generating the risk.

The table below shows the Group and Company VaR for the trading portfolio, including both physical and derivative positions:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | As at 30 September |  | Average value |  | Minimum value |  | Maximum value |  | As at 30 September |  | Average value |  | Minimum value |  | Maximum value
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Value at Risk at a 99% confidence level |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange risk |  | 3.3 | 2.4 |  | 2.7 | 3.0 |  | 1.0 | 1.3 |  | 5.7 | 5.8 |  | 3.7 | 2.3 |  | 2.2 | 2.7 |  | 0.8 | 1.3 |  | 5.0 | 5.4
Interest rate risk |  | 6.7 | 5.4 |  | 8.4 | 8.9 |  | 5.3 | 5.2 |  | 17.8 | 14.1 |  | 6.1 | 5.2 |  | 7.5 | 7.6 |  | 5.1 | 4.5 |  | 17.4 | 12.3
Volatility risk |  | 1.8 | 2.3 |  | 1.8 | 2.9 |  | 0.9 | 2.0 |  | 2.7 | 6.4 |  | 1.8 | 2.3 |  | 1.8 | 2.9 |  | 0.9 | 2.0 |  | 2.8 | 6.4
Commodities risk |  | 1.0 | 1.6 |  | 1.4 | 1.6 |  | 0.9 | 0.5 |  | 2.9 | 2.9 |  | 1.0 | 1.6 |  | 1.4 | 1.6 |  | 0.9 | 0.5 |  | 2.9 | 2.9
Credit risk |  | 2.0 | 1.2 |  | 1.8 | 1.8 |  | 0.9 | 0.9 |  | 3.2 | 3.4 |  | 1.8 | 1.0 |  | 1.5 | 1.4 |  | 0.7 | 0.7 |  | 2.9 | 2.9
Inflation risk |  | 2.3 | 1.7 |  | 2.4 | 2.2 |  | 1.6 | 1.4 |  | 3.4 | 3.4 |  | 2.3 | 1.7 |  | 2.4 | 2.0 |  | 1.6 | 1.4 |  | 3.4 | 3.2
Diversification benefit |  | (7.1) | (7.5) |  | (7.8) | (9.1) |  | n/a | n/a |  | n/a | n/a |  | (6.7) | (7.2) |  | (7.2) | (8.1) |  | n/a | n/a |  | n/a | n/a
Total Diversified VaR at 99% confidence interval |  | 10.0 | 7.1 |  | 10.7 | 11.3 |  | 7.2 | 7.1 |  | 20.3 | 18.7 |  | 10.0 | 6.9 |  | 9.6 | 10.1 |  | 6.8 | 6.5 |  | 17.5 | 17.0
Other market risks |  | 2.3 | 3.4 |  | 1.9 | 4.5 |  | 0.6 | 1.0 |  | 3.2 | 8.4 |  | 2.3 | 3.4 |  | 1.9 | 4.5 |  | 0.6 | 1.0 |  | 3.2 | 8.4
Total |  | 12.3 | 10.5 |  | 12.6 | 15.8 |  | 7.8 | 8.1 |  | 23.5 | 27.1 |  | 12.3 | 10.3 |  | 11.5 | 14.6 |  | 7.4 | 7.5 |  | 20.7 | 25.4

Non-traded market risk - Balance sheet risk management

The principal objective of balance sheet risk management is to maintain acceptable levels of interest rate and liquidity risk to mitigate the negative impact of movements in interest rates on the earnings and market value of the Group’s banking book, while ensuring the Group maintains sufficient liquidity to meet its obligations as they fall due.

Non-traded market risk – Interest rate risk management

IRRBB is measured, monitored, and managed from both an internal management and regulatory perspective. The Risk Management Framework incorporates both market valuation and earnings based approaches in accordance with the IRRBB Policy and Prudential Practice Guides. Risk measurement techniques include VaR, Earnings at Risk (EaR), interest rate risk stress testing, repricing analysis, cash flow analysis and scenario analysis. The IRRBB regulatory capital calculation incorporates repricing, yield curve, basis, and optionality risk, embedded gains / losses and any inter-risk and / or inter-currency diversification. The Group has been accredited by APRA to use its internal model for the measurement of IRRBB.

Key features of the internal interest rate risk management model include:

- Historical simulation approach utilising instantaneous interest rate shocks.

- Static balance sheet (i.e. any new business is assumed to be matched, hedged or subject to immediate repricing).

- VaR and EaR are measured on a consistent basis.

- 99% confidence level.

- Three month holding period.

- EaR utilises a 12 month forecast period.

- At least six years of business day historical data (updated daily).

- Investment term for capital is modelled with an established benchmark term of between one and five years.

- Investment term for core non-interest bearing assets and liabilities is modelled on a behavioural basis with a term that is consistent with sound statistical analysis.

The following table shows the Group and the Company aggregate VaR and EaR for the IRRBB:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | As at 30 September |  | Average value |  | Minimum value |  | Maximum value |  | As at 30 September |  | Average value |  | Minimum value |  | Maximum value
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Value at Risk |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Australia |  | 379.1 | 300.5 |  | 375.1 | 307.3 |  | 315.0 | 289.0 |  | 407.9 | 326.4 |  | 379.1 | 300.5 |  | 375.1 | 307.3 |  | 315.0 | 289.0 |  | 407.9 | 326.4
New Zealand |  | 33.6 | 25.5 |  | 31.6 | 31.6 |  | 24.1 | 22.5 |  | 36.7 | 39.4 |  | - | - |  | - | - |  | - | - |  | - | -
Other International |  | 34.6 | 47.9 |  | 44.0 | 37.1 |  | 27.0 | 30.8 |  | 62.8 | 47.9 |  | 34.6 | 47.9 |  | 44.0 | 37.1 |  | 27.0 | 30.8 |  | 62.8 | 47.9
Earnings at Risk1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Australia |  | 59.1 | 29.6 |  | 55.3 | 24.3 |  | 38.2 | 14.0 |  | 73.3 | 50.7 |  | 59.1 | 29.6 |  | 55.3 | 24.3 |  | 38.2 | 14.0 |  | 73.3 | 50.7
New Zealand |  | 9.6 | 18.4 |  | 15.0 | 18.8 |  | 7.8 | 10.0 |  | 22.7 | 28.1 |  | - | - |  | - | - |  | - | - |  | - | -
Other International |  | - | - |  | - | - |  | - | - |  | 0.1 | - |  | - | - |  | - | - |  | - | - |  | - | -

1. EaR amounts calculated under the IRRBB model include Australian banking and other overseas banking subsidiary books, however excludes offshore branches.

Residual value risk
As part of its normal lending activities, the Group takes residual value risk on assets such as industrial, mining, rail, aircraft, marine, technology, healthcare and other equipment. This exposes the Group to a potential fall in prices of these assets below the outstanding residual exposure at the facility expiry.

# Liquidity risk and funding mix

Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. These obligations include the repayment of deposits on demand or at their contractual maturity, the repayment of wholesale borrowings and loan capital as they mature and the payment of interest on borrowings.

These risks are governed by the Group’s funding and liquidity risk appetite which is set by the Board. Group Treasury is responsible for the management of these risks. Objective review and challenge of the effectiveness of risk management is provided by Group Balance Sheet and Liquidity Risk Management with oversight by the Group Asset and Liability Committee. The Board has the ultimate responsibility to monitor and review the adequacy of the Group’s funding and liquidity RMF and the Group’s compliance with risk appetite.

Key principles adopted in the Group’s approach to managing liquidity risk include:

- Monitoring the Group’s liquidity position on a daily basis, using a combination of contractual and behavioural modelling of balance sheet and cash flow information.

- Maintaining a HQLA portfolio which supports intra-day operations and may be sold in times of market stress.

- Operating a prudent funding strategy which ensures appropriate diversification and limits maturity concentrations. The Group undertakes a conservative approach by imposing internal limits that are in addition to regulatory requirements.

- Maintaining a contingent funding plan designed to respond to an accelerated outflow of funds from the Group.

- Requiring the Group to have the ability to meet a range of survival horizon scenarios, including name-specific and general liquidity stress scenarios.

The Group maintained funding and liquidity metrics well above regulatory minimums throughout the 2023 financial year. The CLF has been fully phased out to zero on 1 January 2023.

The liquid asset portfolio held as part of these principles is well diversified by currency, counterparty and product type with the mix consistent with the liquidity risks of the Group. The composition of the portfolio includes cash, government securities and highly rated investment grade paper. The market value of total on-balance sheet liquid assets held as at 30 September 2023 was $222,463 million (2022: $220,415 million). In addition, the Group holds internal RMBS as a source of contingent liquidity. As at 30 September 2023, the cash value of unencumbered internal RMBS held and available was $80,089 million (2022: $66,114 million).

Funding mix

The Group’s funding is comprised of a mix of deposits, term wholesale funding, short-term wholesale funding and equity. The Group manages this within risk appetite settings to ensure suitable funding of its asset base and to enable it to respond to changing market conditions and regulatory requirements.

The Group maintains a strong focus on stable deposits both from a growth and quality perspective and continues to utilise deposits as a key funding source for funded assets.

The Group supplements deposit-raising via its term funding programmes, raising $40,254 million1 of term wholesale funding in the 2023 financial year (2022: $38,676 million). The weighted average maturity of term wholesale funding issued by the Group was 4.32 years to first call (2022: 5.0 years). In addition, during the 2023 financial year, the Group continued to access international and domestic short-term wholesale markets.

On 19 March 2020, the RBA announced the establishment of the TFF for the Australian banking system to support ADIs in providing credit into the economy. The TFF provided access to three-year secured funding, supporting lending to the Group's customers and reducing wholesale funding refinancing risks at the time. The total available TFF allocation of $31,866 million (excluding the TFF acquired via the Citi consumer business acquisition) was drawn, consisting of $14,270 million of Initial Allowance in the 2020 financial year and $17,596 million of Additional and Supplementary Allowances in the 2021 financial year. As at 30 September 2023, the full Initial Allowance amount has been repaid. The Additional and Supplementary Allowances are due to mature by 30 June 2024.

1. Includes FLP.
2. Excludes AT1 capital, Residential Mortgage Backed Securities (RMBS), TFF and FLP.

# Contractual maturity of assets and liabilities

The following tables show an analysis of contractual maturities of assets and liabilities at the reporting date. The Group expects that certain assets and liabilities will be recovered or settled at maturities which are different to their contractual maturities, including deposits where the Group expects as part of normal banking operations that a large proportion of these balances will roll over.

|  | Less than 12 months |  | Greater than 12 months |  | No specific maturity |  | Total
--- | --- | --- | --- | --- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Group |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and liquid assets |  | 24,699 | 56,451 |  | - | - |  | - | - |  | 24,699 | 56,451
Due from other banks |  | 116,984 | 141,530 |  | 322 | 331 |  | - | - |  | 117,306 | 141,861
Collateral placed |  | 11,286 | 13,115 |  | - | - |  | - | - |  | 11,286 | 13,115
Trading assets |  | 66,717 | 13,948 |  | 34,434 | 26,524 |  | 17 | 101 |  | 101,168 | 40,573
Debt instruments |  | 6,505 | 7,081 |  | 39,852 | 34,999 |  | - | - |  | 46,357 | 42,080
Other financial assets |  | 858 | 966 |  | 572 | 1,095 |  | - | - |  | 1,430 | 2,061
Derivative assets |  | 236 | 1,379 |  | 3,263 | 6,208 |  | 30,770 | 53,429 |  | 34,269 | 61,016
Loans and advances |  | 130,430 | 117,119 |  | 562,744 | 554,631 |  | 9,528 | 8,684 |  | 702,702 | 680,434
All other assets |  | 7,429 | 5,418 |  | 97 | 347 |  | 12,340 | 11,770 |  | 19,866 | 17,535
Total assets |  | 365,144 | 357,007 |  | 641,284 | 624,135 |  | 52,655 | 73,984 |  | 1,059,083 | 1,055,126
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Due to other banks |  | 37,200 | 55,140 |  | 2,316 | 19,539 |  | - | - |  | 39,516 | 74,679
Collateral received |  | 10,672 | 17,245 |  | - | - |  | - | - |  | 10,672 | 17,245
Other financial liabilities |  | 52,386 | 8,941 |  | 13,966 | 14,345 |  | - | - |  | 66,352 | 23,286
Derivative liabilities |  | 985 | 1,528 |  | 3,526 | 5,229 |  | 31,122 | 50,729 |  | 35,633 | 57,486
Deposits and other borrowings |  | 631,645 | 654,090 |  | 50,475 | 29,436 |  | - | - |  | 682,120 | 683,526
Bonds, notes and subordinated debt |  | 20,848 | 26,080 |  | 114,797 | 93,203 |  | - | - |  | 135,645 | 119,283
Debt issues |  | - | - |  | - | - |  | 8,561 | 7,318 |  | 8,561 | 7,318
All other liabilities |  | 12,726 | 8,266 |  | 4,456 | 2,213 |  | 1,899 | 2,792 |  | 19,081 | 13,271
Total liabilities |  | 766,462 | 771,290 |  | 189,536 | 163,965 |  | 41,582 | 60,839 |  | 997,580 | 996,094
Net (liabilities) / assets |  | (401,318) | (414,283) |  | 451,748 | 460,170 |  | 11,073 | 13,145 |  | 61,503 | 59,032
Company |  |  |  |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and liquid assets |  | 23,959 | 56,121 |  | - | - |  | - | - |  | 23,959 | 56,121
Due from other banks |  | 106,634 | 132,813 |  | 321 | 331 |  | - | - |  | 106,955 | 133,144
Collateral placed |  | 10,214 | 10,636 |  | - | - |  | - | - |  | 10,214 | 10,636
Trading assets |  | 61,684 | 11,044 |  | 28,716 | 22,898 |  | 17 | 101 |  | 90,417 | 34,043
Debt instruments |  | 6,499 | 7,092 |  | 39,837 | 35,002 |  | - | - |  | 46,336 | 42,094
Other financial assets |  | 1,147 | 405 |  | 561 | 2,344 |  | - | - |  | 1,708 | 2,749
Derivative assets |  | 571 | 1,311 |  | 2,134 | 4,408 |  | 31,079 | 54,932 |  | 33,784 | 60,651
Loans and advances |  | 108,016 | 96,689 |  | 491,059 | 488,174 |  | 8,609 | 7,816 |  | 607,684 | 592,679
All other assets |  | 6,472 | 4,357 |  | 609 | 643 |  | 61,643 | 50,711 |  | 68,724 | 55,711
Total assets |  | 325,196 | 320,468 |  | 563,237 | 553,800 |  | 101,348 | 113,560 |  | 989,781 | 987,828
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Due to other banks |  | 33,965 | 51,635 |  | - | 17,660 |  | - | - |  | 33,965 | 69,295
Collateral received |  | 9,281 | 15,365 |  | - | - |  | - | - |  | 9,281 | 15,365
Other financial liabilities |  | 42,512 | 2,340 |  | 9,233 | 6,620 |  | - | - |  | 51,745 | 8,960
Derivative liabilities |  | 957 | 1,021 |  | 1,566 | 3,076 |  | 33,587 | 53,397 |  | 36,110 | 57,494
Deposits and other borrowings |  | 560,238 | 589,160 |  | 48,403 | 27,801 |  | - | - |  | 608,641 | 616,961
Bonds, notes and subordinated debt |  | 20,587 | 25,995 |  | 103,742 | 83,679 |  | - | - |  | 124,329 | 109,674
Debt issues |  | - | - |  | - | - |  | 8,561 | 7,318 |  | 8,561 | 7,318
All other liabilities |  | 11,567 | 6,670 |  | 3,324 | 1,745 |  | 45,735 | 44,218 |  | 60,626 | 52,633
Total liabilities |  | 679,107 | 692,186 |  | 166,268 | 140,581 |  | 87,883 | 104,933 |  | 933,258 | 937,700
Net (liabilities) / assets |  | (353,911) | (371,718) |  | 396,969 | 413,219 |  | 13,465 | 8,627 |  | 56,523 | 50,128

# 20 Fair value of financial instruments

Accounting policy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where the classification of a financial asset or liability results in it being measured at fair value, wherever possible, the fair value is determined with reference to the quoted bid or offer price in the most advantageous active market to which the Group has immediate access. An adjustment for credit risk (CVA) is also incorporated into the fair value as appropriate as well as an adjustment for funding costs (FVA) related to uncollateralised over-the-counter derivatives. The fair value measurement technique of each class of instrument is described below.

Instrument | Fair value measurement technique
Loans and advances | The fair value of loans and advances that are priced based on a variable rate with no contractual repricing tenor is assumed to equate to the carrying value. The fair value of all other loans and advances is calculated using discounted cash flow models based on the maturity of the loans and advances. The discount rates applied are based on interest rates at the reporting date for similar types of loans and advances, if the loans and advances were performing at the reporting date.
Deposits and other borrowings | The fair value of deposits and other borrowings that are non-interest bearing or at call, is assumed to equate to the carrying value. The fair value of other deposits and other borrowings is calculated using discounted cash flow models based on the deposit type and maturity.
Bonds, notes and subordinated debt and debt issues | The fair values of bonds, notes and subordinated debt and debt issues are calculated based on a discounted cash flow model using a yield curve appropriate to the remaining maturity of the instruments and appropriate credit spreads, or in some instances are calculated based on market quoted prices when there is sufficient liquidity in the market.
Derivatives | The fair values of trading and hedging derivative assets and liabilities are obtained from quoted closing market prices at the reporting date, discounted cash flow models or option pricing models as appropriate.
Trading assets and debt instruments | The fair values of trading assets and debt instruments are based on quoted closing market prices at the reporting date. Where securities are unlisted and quoted market prices are not available, the Group obtains the fair value by means of discounted cash flows and other valuation techniques that are commonly used by market participants. These techniques address factors such as interest rates, credit risk and liquidity.
Equity instruments | The fair value of equity instruments at fair value through other comprehensive income is estimated on the basis of the actual and forecasted financial position and results of the underlying assets or net assets taking into consideration their risk profile.
Other financial assets and liabilities | The fair values of other financial assets and liabilities are based on quoted closing market prices and data or valuation techniques, appropriate to the nature and type of the underlying instrument.
Due to controlled entities and due from controlled entities | Includes reverse repurchase agreements and repurchase agreements that are classified as held for trading and measured at fair value through profit and loss. The fair values are based on a discounted cash flow model using an appropriate yield curve.

The carrying amounts of cash and liquid assets, due from and to other banks, other assets, other liabilities and amounts due from and to controlled entities, approximate their fair value as they are short-term in nature or are receivable or payable on demand.

Guarantees, letters of credit, performance related contingencies and credit related commitments are generally not sold or traded and estimated fair values are not readily ascertainable. The fair value of these items are not calculated, as very few of the commitments extending beyond six months would commit the Group to a predetermined rate of interest, and the fees attaching to these commitments are the same as those currently charged for similar arrangements.

Fair value for a net open position is the offer price for a financial liability and the bid price for a financial asset, multiplied by the number of units of the instrument issued or held.

Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period in which the transfer occurs.

Critical accounting judgements and estimates

A significant portion of financial instruments are carried on the balance sheet at fair value.

Where no active market exists for a particular asset or liability, the Group uses a valuation technique to arrive at the fair value, including the use of transaction prices obtained in recent arm’s length transactions, discounted cash flow analysis, option pricing models and other valuation techniques, based on market conditions and risks existing at the reporting date. In doing so, fair value is estimated using a valuation technique that makes maximum use of observable market inputs and places minimal reliance upon entity-specific inputs.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. When such evidence exists, the Group recognises the difference between the transaction price and the fair value in profit or loss on initial recognition (i.e. on day one).

Fair value hierarchy

The level in the fair value hierarchy within which a fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. The fair value hierarchy is as follows:

- Level 1 – Financial instruments that have been valued by reference to unadjusted quoted prices for identical financial assets or financial liabilities in active markets. Financial instruments included in this category are Commonwealth of Australia and New Zealand government bonds, and spot and exchange traded derivatives.

- Level 2 – Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within Level 1 that are observable for the financial asset or financial liability, either directly (as prices) or indirectly (derived from prices). Financial instruments included in this category are over-the-counter trading and hedging derivatives, semi-government bonds, financial institution and corporate bonds, mortgage-backed securities, loans measured at fair value, and issued bonds, notes and subordinated debt measured at fair value.

- Level 3 – Financial instruments that have been valued through valuation techniques incorporating inputs that are not based on observable market data. Unobservable inputs are those not readily available in an active market due to market illiquidity or complexity of the product. Financial instruments included in this category are bespoke trading derivatives, trading derivatives where the credit valuation adjustment is considered unobservable and significant to the valuation, and certain asset-backed securities valued using unobservable inputs.

Transfers into and out of Level 3 take place when there are changes to the inputs in the valuation technique. Where inputs are no longer observable the fair value measurement is transferred into Level 3. Conversely, a measurement is transferred out of Level 3 when inputs become observable.

The Group’s exposure to fair value measurements based in full or in part on unobservable inputs is restricted to a small number of financial instruments, which comprise an insignificant component of the portfolios in which they belong. As such, a change in the assumption used to value the instruments as at 30 September 2023 attributable to reasonably possible alternatives would not have a material effect.

Fair value of financial instruments, carried at amortised cost

The financial assets and financial liabilities listed in the table below are carried at amortised cost. While this is the value at which the Group expects the assets to be realised and the liabilities to be settled, the table below includes their fair values as at 30 September:

|  | 2023 |  | 2022
--- | --- | --- | --- | ---
|  | Carrying value | Level 1 | Level 2 | Level 3 | Fair value |  | Carrying value | Level 1 | Level 2 | Level 3 | Fair value
|  | $m | $m | $m | $m | $m |  | $m | $m | $m | $m | $m
Group |  |  |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |
Loans and advances |  | 702,702 | - | 5,530 | 693,672 | 699,202 |  | 680,434 | - | 4,744 | 670,807 | 675,551
Total financial assets |  | 702,702 | - | 5,530 | 693,672 | 699,202 |  | 680,434 | - | 4,744 | 670,807 | 675,551
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deposits and other borrowings |  | 682,120 | - | 683,857 | - | 683,857 |  | 683,526 | - | 683,530 | - | 683,530
Bonds, notes and subordinated debt |  | 135,645 | - | 135,405 | 7 | 135,412 |  | 119,283 | - | 118,417 | - | 118,417
Debt issues |  | 8,561 | 7,802 | 1,040 | - | 8,842 |  | 7,318 | 6,466 | 1,065 | - | 7,531
Total financial liabilities |  | 826,326 | 7,802 | 820,302 | 7 | 828,111 |  | 810,127 | 6,466 | 803,012 | - | 809,478
Company |  |  |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |
Loans and advances |  | 607,684 | - | 3,414 | 602,221 | 605,635 |  | 592,679 | - | 2,811 | 586,399 | 589,210
Total financial assets |  | 607,684 | - | 3,414 | 602,221 | 605,635 |  | 592,679 | - | 2,811 | 586,399 | 589,210
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |
Deposits and other borrowings |  | 608,641 | - | 610,438 | - | 610,438 |  | 616,961 | - | 617,073 | - | 617,073
Bonds, notes and subordinated debt |  | 124,329 | - | 122,888 | - | 122,888 |  | 109,674 | - | 107,792 | - | 107,792
Debt issues |  | 8,561 | 7,802 | 1,040 | - | 8,842 |  | 7,318 | 6,466 | 1,065 | - | 7,531
Total financial liabilities |  | 741,531 | 7,802 | 734,366 | - | 742,168 |  | 733,953 | 6,466 | 725,930 | - | 732,396

Fair value measurements recognised on the balance sheet

|  | 2023 |  | 2022
--- | --- | --- | --- | ---
|  | Level 1 | Level 2 | Level 3 | Total |  | Level 1 | Level 2 | Level 3 | Total
|  | $m | $m | $m | $m |  | $m | $m | $m | $m
Group |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |
Trading assets |  | 30,482 | 70,686 | - | 101,168 |  | 27,393 | 13,180 | - | 40,573
Debt instruments |  | 2,691 | 43,377 | 289 | 46,357 |  | 3,625 | 37,732 | 723 | 42,080
Other financial assets |  | - | 1,243 | 187 | 1,430 |  | - | 1,740 | 321 | 2,061
Derivative assets |  | - | 33,946 | 323 | 34,269 |  | - | 60,567 | 449 | 61,016
Equity instruments1 |  | - | - | 257 | 257 |  | - | - | 187 | 187
Total financial assets measured at fair value |  | 33,173 | 149,252 | 1,056 | 183,481 |  | 31,018 | 113,219 | 1,680 | 145,917
Financial liabilities |  |  |  |  |  |  |  |  |  |
Other financial liabilities |  | 5,453 | 60,899 | - | 66,352 |  | 2,441 | 20,845 | - | 23,286
Derivative liabilities |  | - | 35,362 | 271 | 35,633 |  | - | 57,117 | 369 | 57,486
Total financial liabilities measured at fair value |  | 5,453 | 96,261 | 271 | 101,985 |  | 2,441 | 77,962 | 369 | 80,772
Company |  |  |  |  |  |  |  |  |  |
Financial assets |  |  |  |  |  |  |  |  |  |
Trading assets |  | 27,935 | 62,482 | - | 90,417 |  | 24,303 | 9,740 | - | 34,043
Debt instruments |  | 2,691 | 43,356 | 289 | 46,336 |  | 3,626 | 37,745 | 723 | 42,094
Other financial assets |  | - | 1,521 | 187 | 1,708 |  | - | 2,428 | 321 | 2,749
Derivative assets |  | - | 33,461 | 323 | 33,784 |  | - | 60,202 | 449 | 60,651
Equity instruments1 |  | - | - | 122 | 122 |  | - | - | 86 | 86
Due from controlled entities |  | - | 1,238 | - | 1,238 |  | - | - | - | -
Total financial assets measured at fair value |  | 30,626 | 142,058 | 921 | 173,605 |  | 27,929 | 110,115 | 1,579 | 139,623
Financial liabilities |  |  |  |  |  |  |  |  |  |
Other financial liabilities |  | 5,254 | 46,491 | - | 51,745 |  | 2,198 | 6,762 | - | 8,960
Derivative liabilities |  | - | 35,839 | 271 | 36,110 |  | - | 57,125 | 369 | 57,494
Due to controlled entities |  | - | 1,159 | - | 1,159 |  | - | - | - | -
Total financial liabilities measured at fair value |  | 5,254 | 83,489 | 271 | 89,014 |  | 2,198 | 63,887 | 369 | 66,454

1. Includes fair value through profit or loss instruments.

There were no material transfers between Level 1 and Level 2 during the 2023 financial year for the Group and the Company.

The table below summarises changes in fair value classified as Level 3:

|  | Assets |  | Liabilities
--- | --- | --- | --- | ---
|  | Derivatives | Debt instruments | Other1 |  | Derivatives
|  | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m | $m | $m | $m | $m |  | $m | $m
Group |  |  |  |  |  |  |  |  |  |
Balance at the beginning of year |  | 449 | 148 | 723 | 919 | 508 | 369 |  | 369 | 96
Gains / (losses) on assets and (gains) / losses on liabilities recognised: |  |  |  |  |  |  |  |  |  |
In profit or loss2 |  | (20) | 245 | - | - | 7 | (50) |  | (18) | 253
In other comprehensive income2 |  | - | - | 5 | (15) | 17 | 12 |  | - | -
Purchases and issues |  | 25 | 72 | 77 | 386 | 59 | 461 |  | - | 20
Sales and settlements |  | - | (13) | (237) | (380) | (112) | (280) |  | - | -
Transfers into Level 3 |  | 20 | - | 72 | 250 | - | - |  | - | 1
Transfers out of Level 3 |  | (153) | (1) | (351) | (438) | (49) | - |  | (81) | -
Foreign currency translation adjustments |  | 2 | (2) | - | 1 | 14 | (4) |  | 1 | (1)
Balance at end of year |  | 323 | 449 | 289 | 723 | 444 | 508 |  | 271 | 369
Gains / (losses) on assets and (gains) / losses on liabilities for the reporting period related to financial instruments held at the end of the reporting period recognised: |  |  |  |  |  |  |  |  |  |
In profit or loss2 |  | (20) | 245 | - | - | 7 | (50) |  | (18) | 253
In other comprehensive income2 |  | - | - | 5 | (15) | 17 | 12 |  | - | -
Company |  |  |  |  |  |  |  |  |  |
Balance at the beginning of year |  | 449 | 148 | 723 | 919 | 407 | 285 |  | 369 | 96
Gains / (losses) on assets and (gains) / losses on liabilities recognised: |  |  |  |  |  |  |  |  |  |
In profit or loss2 |  | (20) | 245 | - | - | 7 | (50) |  | (18) | 253
In other comprehensive income2 |  | - | - | 5 | (15) | 16 | (4) |  | - | -
Purchases and issues |  | 25 | 72 | 77 | 386 | 20 | 419 |  | - | 20
Sales and settlements |  | - | (13) | (237) | (380) | (105) | (242) |  | - | -
Transfers into Level 3 |  | 20 | - | 72 | 250 | - | - |  | - | 1
Transfers out of Level 3 |  | (153) | (1) | (351) | (438) | (49) | - |  | (81) | -
Foreign currency translation adjustments |  | 2 | (2) | - | 1 | 13 | (1) |  | 1 | (1)
Balance at end of year |  | 323 | 449 | 289 | 723 | 309 | 407 |  | 271 | 369
Gains / (losses) on assets and (gains) / losses on liabilities for the reporting period related to financial instruments held at the end of the reporting period recognised: |  |  |  |  |  |  |  |  |  |
In profit or loss2 |  | (20) | 245 | - | - | 7 | (50) |  | (18) | 253
In other comprehensive income2 |  | - | - | 5 | (15) | 16 | (4) |  | - | -

1. Includes other financial assets and equity instruments.
2. Comparative information has been restated to align to the presentation in the current period.

# 21 Financial asset transfers

The Group and the Company enter into transactions by which they transfer financial assets to counterparties or to structured entities. Financial assets that do not qualify for derecognition are typically associated with repurchase agreements, covered bonds and securitisation program agreements. The following table sets out the carrying amount of financial assets that did not qualify for derecognition and their associated liabilities. Where relevant, the table also sets out the net position of the fair value of financial assets where the counterparty to the associated liabilities has recourse only to the transferred assets.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | Repurchase agreements |  | Covered bonds |  | Securitisation |  | Repurchase agreements |  | Covered bonds |  | Securitisation12
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m |  | $m | $m
Carrying amount of transferred assets |  | 44,955 | 60,136 |  | 40,508 | 35,343 |  | 2,545 | 3,477 |  | 39,401 | 56,327 |  | 33,439 | 29,742 |  | 2,738 | 3,757
Carrying amount of associated liabilities |  | 40,282 | 54,005 |  | 33,617 | 26,874 |  | 2,545 | 3,477 |  | 35,646 | 50,823 |  | 27,701 | 22,298 |  | 2,738 | 3,757
For those liabilities that have recourse only to the transferred assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fair value of transferred assets |  | n/a | n/a |  | n/a | n/a |  | 2,532 | 3,452 |  | n/a | n/a |  | n/a | n/a |  | 2,729 | 3,735
Fair value of associated liabilities |  | n/a | n/a |  | n/a | n/a |  | 2,541 | 3,452 |  | n/a | n/a |  | n/a | n/a |  | 2,706 | 3,693
Net position |  | n/a | n/a |  | n/a | n/a |  | (9) | - |  | n/a | n/a |  | n/a | n/a |  | 23 | 42

1. Securitisation assets exclude $124,807 million of assets (2022: $127,801 million) where the Company holds all of the issued instruments of the securitisation vehicle.
2. Comparative information has been restated to align to the presentation in the current period.

# Other assets and liabilities

# 22 Goodwill and other intangible assets

Accounting policy
Goodwill

Goodwill arises on the acquisition of an entity and represents the excess of the consideration paid over the fair value of the identifiable net assets acquired.

Software costs

External and internal costs that are incurred to acquire or develop software are capitalised and recognised as an intangible asset. Capitalised software costs and other intangible assets are amortised on a systematic basis once deployed, using the straight-line method over their expected useful lives which are between three and ten years.

Impairment of intangible assets

Assets with an indefinite useful life, including goodwill, are not subject to amortisation and are tested on an annual basis for impairment, and additionally whenever an indication of impairment exists. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds its recoverable amount.

The recoverable amount of an asset is the higher of its fair value less costs of disposal or its value in use. For assets that do not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit (CGU) to which that asset belongs.

Goodwill impairment is assessed for each CGU or group of CGUs that represents the lowest level within the Group at which goodwill is monitored for internal management purposes.

Recoverable amounts of CGUs

The recoverable amount of a CGU is determined using either value in use or fair value less costs of disposal. Assumptions for determining the recoverable amount of each CGU are based on past experience and expectations for the future. Cash flow projections for value in use are based on the latest management approved forecasts and are then extrapolated using a constant growth rate for up to a further five years. These forecasts use management estimates to determine income, expenses, capital expenditure and cash flows for each CGU.

The discount rate used reflects the market determined post-tax discount rate which is adjusted for specific risks relating to the CGUs and the countries in which they operate. The growth rate applied to extrapolate cash flows beyond the forecast period are based on forecast assumptions of the CGUs’ long-term performance in their respective markets.

Critical accounting judgements and estimates

The measurement of goodwill is subject to a number of key judgements and estimates. These include:

- The allocation of goodwill to CGUs on initial recognition.

- The re-allocation of goodwill in the event of disposal or reorganisation.

- The appropriate cash flow forecasts, growth rates and discount rates.

Further details about these items are provided below.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Goodwill and other intangible assets |  |  |  |  |  |
Goodwill |  | 2,070 | 2,089 |  | 80 | 99
Internally generated software |  | 2,484 | 2,174 |  | 2,052 | 1,837
Acquired software |  | 238 | 208 |  | 115 | 71
Other acquired intangible assets1 |  | 160 | 181 |  | 145 | 165
Total goodwill and other intangible assets |  | 4,952 | 4,652 |  | 2,392 | 2,172
At cost |  | 11,560 | 10,627 |  | 7,949 | 7,207
Deduct: Accumulated amortisation / impairment losses |  | (6,608) | (5,975) |  | (5,557) | (5,035)
Total goodwill and other intangible assets |  | 4,952 | 4,652 |  | 2,392 | 2,172

1. Other acquired intangible assets primarily relate to the Citi consumer business customer relationships and core deposits.

Reconciliation of movements in goodwill and internally generated software

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Goodwill |  |  |  |  |  |
Balance at beginning of year |  | 2,089 | 1,964 |  | 99 | -
Acquisition of controlled entities and business combinations12 |  | (19) | 125 |  | (19) | 99
Balance at end of year |  | 2,070 | 2,089 |  | 80 | 99
Internally generated software |  |  |  |  |  |
Balance at beginning of year |  | 2,174 | 1,956 |  | 1,837 | 1,703
Additions from internal development |  | 863 | 730 |  | 702 | 584
Disposals, impairments and write-offs |  | (9) | (23) |  | (2) | (23)
Amortisation |  | (558) | (497) |  | (485) | (449)
Foreign currency translation adjustments |  | 14 | 8 |  | - | 22
Balance at end of year |  | 2,484 | 2,174 |  | 2,052 | 1,837

1. Goodwill decreased by $19 million compared to the September 2022 financial year due to post-completion adjustments arising from the Group's acquisition of the Citi consumer business during the September 2022 financial year.
2. Refer to Note 38 Acquisitions of subsidiaries for further details.

Goodwill allocation to CGUs

The key assumptions used in determining the recoverable amount of CGUs, to which goodwill has been allocated, are as follows:

|  | Goodwill |  | Discount rate per annum | Terminal growth rate per annum
--- | --- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2023
|  | $m | $m |  | % | %
CGUs |  |  |  |  |  |
Business and Private Banking |  | 94 | 94 |  | 9.9 | 3.4
New Zealand Banking |  | 258 | 258 |  | 10.4 | 3.1
Personal Banking1 |  | 1,592 | 1,611 |  | 9.9 | 3.4
ubank |  | 126 | 126 |  | 10.4 | 3.4
Total goodwill |  | 2,070 | 2,089 |  | n/a | n/a

1. Goodwill in the Personal Banking CGU decreased by $19 million compared to the September 2022 financial year due to post-completion adjustments arising from the Group's acquisition of the Citi consumer business during the September 2022 financial year.

# 23 Other assets

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Other assets |  |  |  |  |  |
Accrued interest receivable |  | 2,527 | 1,608 |  | 2,285 | 1,459
Prepayments |  | 328 | 314 |  | 264 | 260
Receivables |  | 349 | 555 |  | 102 | 80
Other debt instruments at amortised cost |  | 97 | 197 |  | 608 | 586
Equity instruments at fair value through other comprehensive income |  | 245 | 175 |  | 111 | 75
Investment in associates - MLC Life1 |  | 515 | 486 |  | 477 | 477
Securities sold not delivered |  | 3,742 | 2,402 |  | 3,447 | 1,980
Other |  | 576 | 736 |  | 423 | 645
Total other assets |  | 8,379 | 6,473 |  | 7,717 | 5,562

1. Refer to table (b) in Note 32 Interest in subsidiaries and other entities for further details.

# 24 Provisions

Accounting policy
Provisions

Provisions are recognised when the Group has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are not discounted to the present value of their expected net future cash flows except where the time value of money is material.

Operational risk event losses

Provisions are recognised for non-lending losses which include losses arising from specific legal actions not directly related to amounts of principal outstanding for loans and advances, and losses arising from forgeries, fraud and the correction of operational issues.

Customer-related and payroll remediation

Provisions for customer-related and payroll remediation include provisions for potential refunds and other compensation to customers, payments to colleagues, as well as associated program costs.

Critical accounting judgements and estimates

Provisions are held in respect of a range of future obligations such as employee entitlements, restructuring costs, customer-related and payroll remediation. The recognition and measurement of some of these provisions involves significant judgement about the existence of a present obligation, the likely outcome of various future events and the related estimated future cash flows. If the future events are uncertain or where the outflows cannot be reliably measured a contingent liability is disclosed, refer to Note 31 Commitments and contingent liabilities.

Payments that are expected to be incurred after more than one year from the reporting date are discounted at a rate which reflects both current interest rates and the risks specific to that provision.

In relation to customer-related remediation, determining the amount of the provision requires the exercise of significant judgement. This includes forming a view on a number of different estimates, including the number of impacted customers, average refund per customer and the associated costs required to complete the remediation activities. The appropriateness of underlying assumptions is reviewed on a regular basis against actual experience and other available evidence, and adjustments are made to the provision where required.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Provisions |  |  |  |  |  |
Employee entitlements |  | 1,021 | 1,026 |  | 872 | 905
Operational risk event losses |  | 43 | 47 |  | 25 | 29
Customer-related and payroll remediation |  | 305 | 557 |  | 305 | 554
Other |  | 483 | 466 |  | 449 | 409
Total provisions |  | 1,852 | 2,096 |  | 1,651 | 1,897

Reconciliation of movements in provisions

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Operational risk event losses |  |  |  |  |  |
Balance at beginning of year |  | 47 | 134 |  | 29 | 81
Provisions made1 |  | 90 | 35 |  | 68 | 32
Payments out of provisions |  | (94) | (92) |  | (72) | (84)
Provisions no longer required and net foreign currency movements |  | - | (30) |  | - | -
Balance at end of year |  | 43 | 47 |  | 25 | 29
Customer-related and payroll remediation |  |  |  |  |  |
Balance at beginning of year |  | 557 | 1,231 |  | 554 | 1,221
Provisions made (continuing operations) |  | 52 | 179 |  | 51 | 181
Provisions made (discontinued operations) |  | 35 | 160 |  | 35 | 160
Payments out of provisions |  | (339) | (1,013) |  | (335) | (1,008)
Balance at end of year |  | 305 | 557 |  | 305 | 554

1. Amounts include provisions made in both continuing and discontinued operations.

# 25 Other liabilities

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Other liabilities |  |  |  |  |  |
Accrued interest payable |  | 4,599 | 1,840 |  | 4,011 | 1,644
Payables and accrued expenses |  | 1,094 | 1,377 |  | 684 | 692
Securities purchased not delivered |  | 5,341 | 2,824 |  | 5,048 | 2,223
Lease liabilities |  | 2,259 | 2,238 |  | 1,816 | 1,978
Trail commission payable1 |  | 1,795 | - |  | 1,330 | -
Other |  | 1,129 | 1,885 |  | 1,049 | 1,844
Total other liabilities |  | 16,217 | 10,164 |  | 13,938 | 8,381

1. During the 2023 financial year, the Group revised its accounting treatment of trail commissions payable to mortgage brokers to recognise a liability representing the present value of expected future trail commission payments and a corresponding increase in capitalised brokerage costs within 'Loans and advances'. Comparative information has not been restated. Refer to Note 1 Basis of preparation for further information.

# 26 Leases

Accounting policy

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative stand-alone selling prices. For leases of land and buildings where the Group is the lessee, the Group has elected not to separate non-lease components, and accounts for the lease and non-lease components as a single lease component.

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset, less any lease incentives received.

The right-of-use asset is subsequently measured under the cost model and depreciated using the straight-line method from the commencement date to the end of the lease term. In addition, the right-of-use asset is reviewed for impairment and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that have not been paid at the commencement date, discounted using the Group’s incremental borrowing rate which is based on the Group’s funds transfer pricing curve. The lease liability is subsequently measured at amortised cost using the effective interest method. It is remeasured when there is a lease modification that is not accounted for as a separate lease, there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. The Group does not include extension options in the measurement of the lease liability until such time that it is reasonably certain that the options will be exercised.

The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all the risks and rewards incidental to ownership of the underlying asset. Where this is the case, the lease is a finance lease. All other leases are classified as operating leases.

Effect of leases on the balance sheets

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Right-of-use assets |  |  |  |  |  |
Property, plant and equipment |  |  |  |  |  |
Buildings |  | 1,912 | 1,883 |  | 1,481 | 1,628
Technology |  | 47 | 63 |  | 45 | 60
Total right-of-use assets |  | 1,959 | 1,946 |  | 1,526 | 1,688
Additions to right-of-use assets during the period |  | 334 | 601 |  | 121 | 589
Lease liabilities |  |  |  |  |  |
Other liabilities |  | 2,259 | 2,238 |  | 1,816 | 1,978
Total lease liabilities |  | 2,259 | 2,238 |  | 1,816 | 1,978

Effect of leases on the income statements

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Depreciation |  |  |  |  |  |
Buildings |  | 318 | 331 |  | 264 | 284
Technology |  | 20 | 17 |  | 18 | 16
Total depreciation on right-of-use assets |  | 338 | 348 |  | 282 | 300
Interest |  |  |  |  |  |
Interest expense on lease liabilities |  | 49 | 46 |  | 39 | 40
Total interest expense on lease liabilities |  | 49 | 46 |  | 39 | 40
Short-term lease expense |  |  |  |  |  |
Short-term lease expense |  | 7 | 11 |  | 4 | 5
Total short-term lease expense |  | 7 | 11 |  | 4 | 5

Future cash flow effect of leases

The table below is a maturity analysis of future lease payments in respect of existing lease arrangements on an undiscounted basis.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Due within one year |  | 361 | 339 |  | 306 | 294
Due after one year but no later than five years |  | 1,151 | 1,120 |  | 974 | 992
Due after five years |  | 1,176 | 997 |  | 686 | 855
Total future lease payments |  | 2,688 | 2,456 |  | 1,966 | 2,141

# Capital management

# 27 Contributed equity

In accordance with the Corporations Act 2001 (Cth), the Company does not have authorised capital and all ordinary shares have no par value. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are included within equity. Holders of ordinary shares are entitled to receive dividends as determined from time to time and are entitled to one vote, on a show of hands or on a poll, for each fully paid ordinary share held at shareholders’ meetings. In the event of a winding-up of the Company, ordinary shareholders rank after all other shareholders and creditors and are fully entitled to any residual proceeds of liquidation.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Issued and paid-up ordinary share capital |  |  |  |  |  |
Ordinary shares, fully paid |  | 38,546 | 39,399 |  | 37,760 | 38,613
Total contributed equity |  | 38,546 | 39,399 |  | 37,760 | 38,613

Reconciliation of movement in ordinary shares

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Balance at beginning of year |  | 39,399 | 43,247 |  | 38,613 | 42,461
Shares issued: |  |  |  |  |  |
Dividend reinvestment plan |  | 693 | 500 |  | 693 | 500
Transfer from equity-based compensation reserve |  | 74 | 69 |  | 74 | 69
Purchase of treasury shares for employee share offer |  | (23) | - |  | (23) | -
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (693) | (500) |  | (693) | (500)
Share buy-back |  | (904) | (3,917) |  | (904) | (3,917)
Balance at end of year |  | 38,546 | 39,399 |  | 37,760 | 38,613

The number of ordinary shares on issue for the last two years as at 30 September was as follows:

|  | Company
--- | --- | ---
|  | 2023 | 2022
|  | No. ’000 | No. ’000
Ordinary shares, fully paid |  |  |
Balance at beginning of year |  | 3,153,813 | 3,281,991
Shares issued: |  |  |
Dividend reinvestment plan |  | 24,676 | 16,890
Bonus share plan |  | 1,338 | 1,227
Share-based payments |  | 3,628 | 5,547
Paying up of partly paid shares |  | 3 | -
On-market purchase of shares for dividend reinvestment plan neutralisation |  | (24,676) | (16,890)
Share buy-back |  | (29,833) | (134,952)
Total ordinary shares, fully paid |  | 3,128,949 | 3,153,813
Ordinary shares, partly paid to 25 cents |  |  |
Balance at beginning of year |  | 12 | 12
Paying up of partly paid shares |  | (3) | -
Total ordinary shares, partly paid to 25 cents |  | 9 | 12
Total ordinary shares (including treasury shares) |  | 3,128,958 | 3,153,825
Less: Treasury shares |  | (8,137) | (6,331)
Total ordinary shares (excluding treasury shares) |  | 3,120,821 | 3,147,494

# 28 Non-controlling interests

Non-controlling interests represent the share in the net assets of controlled entities attributable to equity interests which the Company does not own directly or indirectly.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Non-controlling interests |  |  |  |  |  |
BNZ perpetual preference shares |  | 349 | - |  | - | -
Total |  | 349 | - |  | - | -

Bank of New Zealand preference shares

On 14 June 2023, Bank of New Zealand (BNZ), a wholly owned subsidiary of the Group, issued NZD $375 million of perpetual preference shares (PPS) that are classified as non-controlling interests to the Group. The balance as at 30 September 2023 represents an AUD equivalent of $341 million of PPS issued and $8 million impact of changes in the exchange rate between AUD and NZD during the 2023 financial year.

The key terms of the PPS are summarised below:

PPS distributions

Distributions on the PPS are discretionary and non-cumulative. If a PPS distribution is not paid in full within 3 business days of a distribution payment date, BNZ must not authorise or pay a dividend on its ordinary shares, acquire its ordinary shares or otherwise undertake a capital reduction in respect of its ordinary shares, until a subsequent PPS distribution is paid in full or there are no longer any PPS outstanding.

The distribution rate for the PPS is fixed at 7.30% per annum until the first optional redemption date of 14 June 2029. After this date the distribution rate will be a floating rate, reset quarterly, equal to the New Zealand 3 month bank bill rate plus 3.0%. Scheduled distribution payment dates are on 14 March, 14 June, 14 September and 14 December each year. Any distributions will comprise a cash amount and imputation credits.

Redemption

The PPS have no fixed maturity date and will remain on issue indefinitely if not redeemed by BNZ.

BNZ may redeem the PPS on the first optional redemption date of 14 June 2029 or on each quarterly scheduled distribution payment date thereafter, or at any time if a tax event or regulatory event occurs. Redemption is subject to certain conditions being met, including obtaining the RBNZ’s approval. Holders of PPS have no right to require that the PPS be redeemed.

# 29 Reserves

Accounting policy
Foreign currency translation reserve

Exchange differences arising on translation of the Group’s foreign operations, any offsetting gains or losses on net investment hedges and any associated tax effect are reflected in the foreign currency translation reserve.

The results and financial position of the Group entities that have a functional currency different from Australian dollars are translated into Australian dollars as follows:

- Assets and liabilities are translated at the closing exchange rate at the balance sheet date.

- Income and expenses are translated at average exchange rates for the period.

- All resulting exchange differences are recognised in the foreign currency translation reserve.

A cumulative credit balance in this reserve would not normally be regarded as available for payment of dividends until such gains are realised and recognised in the income statement on sale or disposal of the foreign operation.

Asset revaluation reserve

The asset revaluation reserve is used to record revaluation adjustments on land and buildings. When an asset is sold or disposed of the related balance in the reserve is transferred directly to retained profits.

Cash flow hedge reserve and cost of hedging reserve

For qualifying hedging instruments, the Group excludes foreign currency basis spreads from hedge designations. Any change in the fair value of these hedging instruments for changes in cross currency basis spreads is deferred to the cost of hedging reserve and released to profit or loss either when the hedged exposure affects profit or loss or on a systematic basis over the life of the hedge. The cumulative movements are expected to be nil by maturity of the hedging instruments.

Equity-based compensation reserve

The equity-based compensation reserve comprises the fair value of shares and rights provided to employees.

Debt instruments at fair value through other comprehensive income reserve

The reserve includes all changes in the fair value of investments in debt instruments that are measured at fair value through other comprehensive income, other than impairment losses, foreign exchange gains and losses, interest income and net of any related hedge accounting adjustments. The cumulative amount recognised in the reserve is transferred to profit or loss when the related asset is derecognised.

Equity instruments at fair value through other comprehensive income reserve

The Group has made an irrevocable election to measure certain investments in equity instruments that are not held for trading purposes at fair value through other comprehensive income. Changes in the fair value of these investments are recognised in this reserve, while dividends are recognised in profit or loss. The cumulative amount recognised in the reserve is transferred directly to retained profits when the related asset is derecognised.

Reserves

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Foreign currency translation reserve |  | 156 | (516) |  | (134) | (222)
Asset revaluation reserve |  | 21 | 25 |  | - | -
Cash flow hedge reserve |  | (1,611) | (1,667) |  | (1,688) | (1,900)
Cost of hedging reserve |  | (34) | 81 |  | (5) | 28
Equity-based compensation reserve |  | 237 | 180 |  | 237 | 180
Debt instruments at fair value through other comprehensive income reserve |  | 5 | 36 |  | 5 | 36
Equity instruments at fair value through other comprehensive income reserve |  | 34 | 22 |  | 20 | 4
Total reserves |  | (1,192) | (1,839) |  | (1,565) | (1,874)

Foreign currency translation reserve

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Balance at beginning of year |  | (516) | 288 |  | (222) | (200)
Transfer from retained profits |  | - | 1 |  | - | -
Currency adjustments on translation of foreign operations, net of hedging |  | 701 | (776) |  | 117 | (22)
Transfer to the income statement on disposal or partial disposal of foreign operations1 |  | (29) | (29) |  | (29) | -
Balance at end of year |  | 156 | (516) |  | (134) | (222)

1. Partial disposals of foreign operations include returns of capital made by foreign branches.

# 30 Dividends

|  | Amount per share | Total amount
--- | --- | --- | ---
|  | cents | $m
Dividends paid |  |  |
For the year ended 30 September 2023 |  |  |
Final dividend determined in respect of the year ended 30 September 2022 |  | 78 | 2,460
Interim dividend determined in respect of the year ended 30 September 2023 |  | 83 | 2,605
Deduct: Bonus shares in lieu of dividend |  | n/a | (38)
Dividends paid by the Company during the year ended 30 September 2023 |  | n/a | 5,027
Add: Dividends paid to non-controlling interests in controlled entities |  | n/a | 5
Total dividends paid by the Group (before dividend reinvestment plan) |  | n/a | 5,032
For the year ended 30 September 2022 |  |  |
Final dividend determined in respect of the year ended 30 September 2021 |  | 67 | 2,196
Interim dividend determined in respect of the year ended 30 September 2022 |  | 73 | 2,347
Deduct: Bonus shares in lieu of dividend |  | n/a | (37)
Total dividends paid by the Group (before dividend reinvestment plan) |  | n/a | 4,506

Dividends paid during 2023 were fully franked at a tax rate of 30% (2022: 30%).

Final dividend

On 9 November 2023, the directors determined the following dividend:

|  | Amount per share | Total amount |  | Franked amount per share
--- | --- | --- | --- | --- | ---
|  | cents | $m |  | %
Final dividend determined in respect of the year ended 30 September 2023 |  | 84 | 2,628 |  | 100

The 2023 final dividend is payable on 15 December 2023. The DRP discount for the 2023 final dividend is nil. Eligible shareholders have the ability to participate in the DRP for the 2023 final dividend for up to 5 million NAB ordinary shares per participant. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 September 2023 and will be recognised in subsequent financial reports.

Australian franking credits

The franking credits available to the Company as at 30 September 2023 are estimated to be $768 million (2022: $665 million) after allowing for Australian tax payable in respect of the current reporting period's profit and the receipt of dividends recognised as a receivable at reporting date.

The final 2023 dividend will utilise the balance of franking credits available as at 30 September 2023. The Company's franking account will fluctuate during the year depending on the timing of tax and dividend payments. A surplus franking account balance is only required as at 30 June each year for the purpose of complying with Australian income tax legislation. Instalment tax payments made after 30 September 2023 will generate sufficient franking credits to enable the final 2023 dividend to be fully franked and comply with the income tax legislation.

Franking is not guaranteed. The extent to which future dividends on ordinary shares and distributions on frankable hybrids will be franked will depend on a number of factors, including capital management activities and the level of profits that will be subject to tax in Australia.

New Zealand imputation credits

The New Zealand imputation credits available to the Company as at 30 September 2023 are estimated to be NZD $2,273 million (2022: NZD $232 million). The increase in this balance is due to the NZD $5.0 billion dividend that was paid by BNZ in the 2023 financial year.

The Company is able to attach available New Zealand imputation credits to dividends paid. As a result, New Zealand imputation credits of NZD $0.15 per share will be attached to the final 2023 dividend payable by the Company. New Zealand imputation credits are only relevant for shareholders who are required to file New Zealand income tax returns.

# Unrecognised items

# 31 Commitments and contingent liabilities

Accounting policy

The Group discloses certain items as contingent liabilities, as they are either possible obligations whose existence will be confirmed only by uncertain future events, or they are present obligations where a transfer of economic resources is not probable or cannot be reliably measured. Contingent liabilities are not recognised on the balance sheet but are disclosed unless an outflow of economic resources is remote.

Commitments

Financial assets are pledged as collateral predominantly under repurchase agreements with other banks. The financial assets pledged by the Group are strictly for the purpose of providing collateral for the counterparty. These transactions are conducted under terms that are usual and customary to standard lending and securities borrowing and lending activities, as well as requirements determined by exchanges where the Group acts as an intermediary. Repurchase agreements that do not qualify for derecognition are reported in Note 21 Financial asset transfers.

Bank guarantees and letters of credit

The Group provides guarantees in its normal course of business on behalf of its customers. Guarantees written are conditional commitments issued by the Group to guarantee the performance of a customer to a third party. Guarantees are primarily issued to support direct financial obligations such as commercial bills or other debt instruments issued by a counterparty. The Group has four principal types of guarantees:

- Bank guarantees.

- Standby letters of credit.

- Documentary letters of credit.

- Performance-related contingencies.

The Group considers all bank guarantees and letters of credit as “at call” for liquidity management purposes because it has no control over when the holder might call upon the instrument.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Bank guarantees and letters of credit |  |  |  |  |  |
Bank guarantees |  | 5,249 | 4,912 |  | 5,421 | 4,859
Standby letters of credit |  | 7,380 | 7,270 |  | 7,380 | 7,270
Documentary letters of credit |  | 2,767 | 3,358 |  | 2,434 | 2,942
Performance-related contingencies1 |  | 10,925 | 10,143 |  | 9,402 | 8,887
Total bank guarantees and letters of credit |  | 26,321 | 25,683 |  | 24,637 | 23,958

1. Comparative information has been restated to reflect product reclassification in the 2023 financial year

Clearing and settlement obligations

The Group is subject to a commitment in accordance with the rules governing clearing and settlement arrangements contained in the Australian Payments Network Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing System, the Consumer Electronic Clearing System and the High Value Clearing System which could result in a credit risk exposure and loss in the event of a failure to settle by a member institution. The Group also has a commitment in accordance with the Austraclear System Regulations and the Continuous Linked Settlement Bank Rules to participate in loss-sharing arrangements in the event that another financial institution fails to settle.

The Group is a member of various central clearing houses, most notably the London Clearing House (LCH) SwapClear and RepoClear platforms and the ASX Over-The-Counter Central Counterparty, which enables the Group to centrally clear derivative and repurchase agreement instruments respectively. As a member of these central clearing houses, the Group is required to make a default fund contribution. The exposure to risk associated with this commitment is reflected for capital adequacy purposes in the Group’s Pillar 3 reporting. In the event of a default of another clearing member, the Group could be required to commit additional funds to the default fund contribution.

Credit-related commitments

Binding credit-related commitments to extend credit are agreements to lend to a customer provided that there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Since many of the commitments are expected to expire without being drawn down, the total commitment amounts do not necessarily represent future cash requirements. Nevertheless, credit-related commitments are considered “at call” for liquidity management purposes.

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Credit-related commitments |  |  |  |  |  |
Binding credit commitments1 |  | 208,853 | 201,147 |  | 188,268 | 182,667
Total credit-related commitments |  | 208,853 | 201,147 |  | 188,268 | 182,667
Credit-related commitments by geographical location |  |  |  |  |  |
Australia |  | 165,594 | 162,265 |  | 164,994 | 161,686
New Zealand |  | 19,985 | 17,901 |  | - | -
Other International |  | 23,274 | 20,981 |  | 23,274 | 20,981
Total credit-related commitments |  | 208,853 | 201,147 |  | 188,268 | 182,667

1. Comparative information has been restated to reflect product reclassification in the 2023 financial year

Parent entity guarantees and undertakings

The Company has provided the following guarantees and undertakings relating to entities in the Group. These guarantees and undertakings are not included in previous tables in this note:

- The Company will guarantee up to $30,881 million (2022: $29,023 million) of commercial paper issuances by National Australia Funding (Delaware) Inc. Commercial paper of $419 million (2022: $1,196 million) has been issued.

- The Company is responsible to its customers for any direct loss suffered as a result of National Nominees Limited failing to perform its obligations to the Company.

- The Company and MLC Wealth had both been granted a licence (the Licence) in 2007 by the Safety, Rehabilitation and Compensation Commission (the Commission) to operate as self-insurers under the Commonwealth Government Comcare Scheme (the Commonwealth Scheme). The Company still holds its Licence and continues to be self-insured under the Commonwealth Scheme. Following the sale of MLC Wealth to Insignia Financial Ltd (formerly IOOF) in 2021, the Commission agreed to revoke MLC Wealth’s Licence effective from the date of the sale. As required by legislation and the Commission, the Company has provided a guarantee in respect of any workers' compensation liabilities of employees of MLC Wealth in respect of injuries that arose before the completion of the sale.

- The Company has issued letters of support in respect of certain subsidiaries and associates in the normal course of business. The letters recognise that the Company has a responsibility to ensure that those subsidiaries and associates continue to meet their obligations.

Contingent liabilities

The Group is exposed to contingent risks and liabilities arising from the conduct of its business including:

- Actual and potential disputes, claims and legal proceedings.

- Investigations into past conduct, including actual and potential regulatory breaches carried out by regulatory authorities on either an industry-wide or Group-specific basis.

- Internal investigations and reviews into past conduct, including actual and potential regulatory breaches, carried out by or on behalf of the Group.

- Contracts that involve giving contingent commitments such as warranties, indemnities or guarantees.

There are contingent liabilities in respect of all such matters. Such matters are often highly complex and uncertain. Where appropriate, provisions have been made. The aggregate potential liability of the Group in relation to these matters cannot be accurately assessed.

Further details on some specific contingent liabilities that may impact the Group are set out below.

Legal proceedings
United Kingdom matters

Nine separate claims (comprising 904 individual claimants) focused on Tailored Business Loans (TBLs) have been commenced against the Company and Clydesdale Bank Plc, now owned by Virgin Money UK Plc and trading as Virgin Money (Virgin Money) by former customers of Virgin Money, represented by RGL Management Limited (a claims management company) (RGL) and law firm Fladgate LLP, in the English Courts. The cases involving four individual claimants (being the first and fourth claims) proceeded to a 12 week trial which commenced on 2 October 2023, effectively as test cases. The cases of the remaining individual claimants are currently stayed pending the outcome of the first and fourth claims.

The claims concern TBLs which customers entered into with Virgin Money and in respect of which NAB employees performed various functions. The claimants allege they were misled about: (1) the cost of repaying (or restructuring) their TBLs early; and (2) the composition of fixed interest rates/other rates offered under the TBLs. The alleged misconduct is said to give rise to several causes of action, including negligent misstatement, misrepresentation and deceit.

The potential outcome and total costs associated with the claims remain uncertain.

Walton Construction Group class action

In January 2022, a class action complaint was filed in the Federal Court by a number of subcontractors regarding the Company's alleged conduct in connection with the collapse of the Walton Construction Group (WCG). It is alleged that the Company's conduct in the period prior to the collapse of WCG contributed to losses incurred by subcontractors following the liquidation of WCG. The Company filed and served its defence to the claims on 16 December 2022, however, the Applicant is seeking to file a second Further Amended Statement of Claim (FASC) and has been given until 7 February 2024 to provide a draft FASC. The potential outcome and total costs associated with the claims under this class action remain uncertain.

Regulatory activity, compliance investigations and associated proceedings
Anti-Money Laundering and Counter-Terrorism Financing program uplift and compliance issues

The Group continues to enhance its systems and processes to comply with AML and CTF requirements. The Group continues to keep AUSTRAC informed of its progress. In addition to an ongoing general uplift in capability, the Group is remediating specific known compliance issues and weaknesses. The Group has reported a number of compliance issues to relevant regulators, including in relation to ‘Know Your Customer’ (KYC) requirements (particularly with enhanced customer due diligence for non-individual customers), systems and process issues that impacted some aspects of transaction monitoring and reporting, and other financial crime risks. As this work progresses, further compliance issues may be identified and reported to AUSTRAC or equivalent foreign regulators, and additional uplifting and strengthening may be required.

On 29 April 2022, the Company entered into an enforceable undertaking (EU) with AUSTRAC to address AUSTRAC’s concerns with the Group’s compliance with certain AML and CTF requirements. In accepting the EU, AUSTRAC stated that the regulator had “formed the view at the start of the investigation that a civil penalty proceeding was not appropriate at that time” and that it had “not identified any information during the investigation to change that view”. Under the terms of the EU, the Company and certain subsidiaries are required to:

- Complete a Remedial Action Plan (RAP) approved by AUSTRAC.

- Address to AUSTRAC’s satisfaction any deficiencies or concerns with activities in the RAP identified by AUSTRAC.

Whilst the Company has delivered the approved RAP and approximately three quarters of the required deliverables, the total costs of the above remains uncertain and the conclusion or otherwise of the EU will be determined by AUSTRAC.

Banking matters

A number of reviews into banking-related matters are being carried on across the Group, both internally and in some cases by regulatory authorities, including matters regarding:

- Incorrect fees being applied in connection with certain products.

- Incorrect interest rates being applied in relation to certain products, including home lending products on conversion from interest only to principal.

- Capturing customer consent to receive electronic statements and inconsistencies with recording statement preferences.

- Issues with treatment of deregistered companies identified in the customer base.

The potential outcome and total costs associated with these matters remains uncertain.

Employment matters

In December 2019, NAB announced an end-to-end payroll review examining internal pay processes and compliance with pay related obligations under Australian employment laws. The review identified a range of issues, which have been notified to the Fair Work Ombudsman (FWO). A remediation program was undertaken, which is now largely complete save for some discrete residual matters still being addressed. There remains some potential for further developments regarding this matter, including possible enforcement action by the FWO or other legal actions, so the final outcome and total costs associated with this matter remain uncertain.

In March 2023, the Finance Sector Union (FSU) filed proceedings against NAB and MLC Wealth Ltd in the Federal Court alleging that those parties had breached provisions of the Fair Work Act which prohibit an employer from requesting or requiring an employee to work unreasonable additional hours. The claim relates to four current and former employees. The FSU is seeking declarations that NAB and MLC Wealth Ltd breached the Fair Work Act, the imposition of penalties in respect of the alleged breaches, as well as compensation for loss and damage to the four named current and former employees and the payment of legal costs. The final outcome and total costs associated with this matter remain uncertain.

Wealth - Advice review

In October 2015, the Group began contacting certain groups of customers where there was a concern that they may have received non-compliant financial advice since 2009 to: (a) assess the appropriateness of that advice; and (b) identify whether customers had suffered loss as a result of non-compliant advice that would warrant compensation. Subsequent to this, these cases are now progressing through the Customer Response Initiative review program, the scope of which includes the advice businesses of MLC Advice, NAB Advice Partnerships and JBWere, with compensation offered and paid in a number of cases1. Where customer compensation is able to be reliably estimated, provisions have been recognised. The final outcome and total costs associated with this work remain uncertain.

Wealth - Adviser service fees

The Group is undertaking a remediation program in relation to financial advice fees paid by customers pursuant to ongoing service arrangements. This matter relates to JBWere and the various advice businesses, which were operated by the Group prior to completion of the MLC Wealth Transaction discussed below, including MLC Advice (formerly known as NAB Financial Planning) and NAB Advice Partnerships.1 Payments with respect to MLC Advice are now complete. Payments with respect to NAB Advice Partnerships are largely complete.

JBWere has identified its potentially impacted customers and has commenced making remediation payments where appropriate. JBWere continues to assess further matters which may impact clients including clients who are members of an APRA regulated superannuation fund and their treatment as a wholesale client instead of retail.

While the Group has taken provisions in relation to these matters based on current information, there remains the potential for further developments and the potential outcomes and total costs associated with these matters remains uncertain.

Contractual commitments
BNZ Life transaction

On 30 September 2022, National Wealth Management International Holdings Limited (NWMIH), a wholly owned subsidiary of the Company, completed the sale of BNZ Life to Partners Life. Under the sale agreements, NWMIH has provided certain warranties and indemnities in favour of Partners Life, a breach of which may result in NWMIH or the Company (as a guarantor to NWMIH under the terms of the sale) being liable to Partners Life. NWMIH has novated its obligations under the sale agreements, including with regards to the warranties and indemnities in favour of Partners Life, to the Company. The potential outcome and total costs associated with this transaction remain uncertain.

MLC Life insurance transaction

In connection with the sale of 80% of MLC Life to Nippon Life Insurance Company (Nippon Life) in October 2016, the Company gave certain covenants, warranties and indemnities in favour of Nippon Life and MLC Life. The claims periods for some of these covenants, warranties and indemnities have expired. The potential outcome and total costs associated with any claims under these covenants, warranties and indemnities remain uncertain.

MLC Wealth Transaction

On 31 May 2021, the Group completed the sale of MLC Wealth, comprising its advice, platforms, superannuation and investments, and asset management businesses to Insignia Financial. As part of the MLC Wealth Transaction, the Company has provided Insignia Financial with indemnities relating to certain pre-completion matters, including:

- A remediation program relating to workplace superannuation (including matters where some employer superannuation plans and member entitlements were not correctly set up in the administration systems, and matters relating to disclosure and administration of certain features of the super product such as insurance and fees).

- Breaches of anti-money laundering laws and regulations.

- Regulatory fines and penalties.

- Certain litigation and regulatory investigations (including the NULIS and MLCN class actions described below).

The Company also provided covenants and warranties in favour of Insignia Financial. A breach or triggering of these contractual protections may result in the Company being liable to Insignia Financial. The claims periods for some of these covenants, warranties and indemnities have expired.

As part of the MLC Wealth Transaction, the Group retained the companies that operated the advice business, such that the Group has retained all liabilities associated with the conduct of that business pre-completion.

The Company has also agreed to provide Insignia Financial with certain transitional services and continuing access to records, as well as support for data migration activities. The Company may be liable to Insignia Financial if it fails to perform its obligations under these agreements.

The final financial impact associated with the MLC Wealth Transaction remains uncertain and subject to finalisation of the completion accounts process and other contingencies as outlined above.

NULIS and MLCN - class actions

In October 2019, litigation funder Omni Bridgeway (formerly IMF Bentham) and William Roberts Lawyers commenced a class action against NULIS Nominees (Australia) Limited (NULIS) alleging breaches of NULIS’s trustee obligations to act in the best interests of the former members of The Universal Super Scheme in deciding to maintain grandfathered commissions on their transfer into the MLC Super Fund on 1 July 2016. NULIS filed its first defence in the proceeding in February 2020. An initial trial to make determinations on the individual claims of the applicant and one sample group member was held on 9 October 2023. Judgment has been reserved.

In January 2020, Maurice Blackburn commenced a class action in the Supreme Court of Victoria against NULIS and MLC Nominees Pty Ltd (MLCN) alleging breaches of NULIS's trustee obligations in connection with the speed with which NULIS and MLCN effected transfers of members’ accrued default amounts to the MySuper product (Supreme Court Class Action). NULIS and MLCN filed their joint defence in the proceeding in April 2020.

The potential outcomes and total costs associated with these matters remains uncertain. While NULIS and MLCN are no longer part of the Group following completion of the MLC Wealth Transaction, the Company remains liable for the costs associated with, and retains conduct of, these matters pursuant to the terms of the MLC Wealth Transaction.

1. While the businesses of MLC Advice and NAB Advice Partnerships relevant to these matters have been sold to Insignia Financial Ltd (formerly known as IOOF) pursuant to the MLC Wealth Transaction, the Group has retained the companies that operated the advice business, such that the Group has retained all liabilities associated with the conduct of these businesses pre-completion of the MLC Wealth Transaction. JBWere is not within the scope of the MLC Wealth Transaction.

# Other disclosures

# 32 Interest in subsidiaries and other entities

Accounting policy
Investments in controlled entities

Controlled entities are all those entities (including structured entities) to which the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. An assessment of control is performed on an ongoing basis. Entities are consolidated from the date on which control is obtained by the Group. Entities are deconsolidated from the date that control ceases. The effects of transactions between entities within the Group are eliminated in full upon consolidation.

Investments in associates

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. The Group's investments in associates are accounted for using the equity method, with the carrying amount of the investment increased or decreased to recognise the Group's share of the profit or loss of the investee.

Structured entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Structured entities generally have restricted activities and a narrow and well-defined objective which is created through contractual arrangement. Depending on the Group's power over the relevant activities of the structured entity and its exposure to and ability to influence its own returns, it may or may not consolidate the entity.

Unconsolidated structured entities refer to all structured entities that are not controlled by the Group. The Group enters into transactions with unconsolidated structured entities in the normal course of business to facilitate customer transactions or for specific investment opportunities.

Interests in unconsolidated structured entities include, but are not limited to, debt and equity investments, guarantees, liquidity arrangements, commitments, fees from investment structures, and derivative instruments that expose the Group to the risks of the unconsolidated structured entities. Interests do not include plain vanilla derivatives (e.g. interest rate swaps and cross currency swaps) and positions where the Group:

- Creates rather than absorbs variability of the unconsolidated structured entity.

- Provides administrative, trustee or other services as agent to third party managed structured entities.

Involvement is considered on a case by case basis, taking into account the nature of the structured entity’s activities. This excludes involvement that exists only because of typical customer-supplier relationships.

# (a) Investments in controlled entities

The following table presents the material controlled entities as at 30 September 2023:

Entity name |  |  |  |  |  | Ownership % | Incorporated / formed in
--- | --- | --- | --- | --- | --- | --- | ---
National Equities Limited |  |  |  |  |  | 100 | Australia
National Australia Group (NZ) Limited |  |  |  |  |  | 100 | New Zealand
Bank of New Zealand |  |  |  |  |  | 100 | New Zealand

Significant restrictions

Subsidiary companies that are subject to prudential regulation are required to maintain minimum capital and other regulatory requirements that may restrict the ability of these entities to make distributions of cash or other assets to the parent company. These restrictions are managed in accordance with the Group’s normal risk management policies set out in Note 19 Financial risk management and capital adequacy requirements in Note 36 Capital adequacy.

# (b) Investments in associates

The Group’s investments in associates include a 20% interest in MLC Life, a provider of life insurance products in Australia. Set out below is the summarised financial information of MLC Life based on its financial information (and not the Group’s 20% share of those amounts) and a reconciliation of that information to the equity-accounted carrying amount as at 30 September:

|  |  |  |  |  | 2023 | 2022
--- | --- | --- | --- | --- | --- | --- | ---
|  |  |  |  |  | $m | $m
Summarised income statement of MLC Life |  |  |  |  |  |  |
Revenue |  |  |  |  |  | 1,656 | 949
Net profit for the period |  |  |  |  |  | 146 | 69
Total comprehensive income for the period |  |  |  |  |  | 146 | 69
Reconciliation to the Group's share of profit |  |  |  |  |  |  |
MLC Life's net profit for the period |  |  |  |  |  | 146 | 69
Prima facie share of profit at 20% |  |  |  |  |  | 29 | 14
Group's share of profit for the period |  |  |  |  |  | 29 | 14
Summarised balance sheet of MLC Life |  |  |  |  |  |  |
Total assets |  |  |  |  |  | 7,137 | 6,841
Total liabilities |  |  |  |  |  | 4,129 | 3,979
Net assets |  |  |  |  |  | 3,008 | 2,862
Reconciliation to the Group's investment in MLC Life |  |  |  |  |  |  |
Prima facie share of net assets at 20% |  |  |  |  |  | 601 | 572
Accumulated impairment losses |  |  |  |  |  | (86) | (86)
Group's carrying amount of the investment in MLC Life |  |  |  |  |  | 515 | 486

There was no dividend received from MLC Life during the 2023 financial year (2022: $nil).

Impact of AASB 17 Insurance Contracts

AASB 17 will be effective for the Group from 1 October 2023. AASB 17 will change the timing of profit recognition from insurance contracts. In general, profits will be recognised later than under the current accounting standard.

On transition to AASB 17 the value of MLC Life’s insurance and reinsurance contract liabilities, net of insurance and reinsurance contract assets, is expected to increase by approximately $1.5 billion, before associated tax impacts. As a result, the carrying value of the Group's investment in MLC Life is expected to reduce by approximately $200 million with a corresponding decrease in retained earnings as at 1 October 2023.

Significant restrictions

Assets in a statutory fund of MLC Life can only be used to meet the liabilities and expenses of that fund, to acquire investments to further the business of that fund, or to make profit distributions when solvency and capital adequacy requirements of the Life Insurance Act 1995 (Cth) are met. This may impact MLC Life's ability to transfer funds to the Group in the form of dividends. In addition, in certain circumstances the payment of dividends may require approval by APRA.

Transactions

As part of a long-term commercial arrangement with Nippon Life and MLC Life, the Group refers certain bank customers to MLC Life. Under a financial services agreement and certain linked arrangements, the Group provides MLC Life with certain financial services on an arm’s length basis, including custody, transactional banking facilities, fixed income and currency services.

# (c) Consolidated structured entities

The Group has interests in the following types of consolidated structured entities:

Type | Details
Securitisation | The Group engages in securitisation activities for funding, liquidity and capital management purposes. The Group principally packages and sells residential mortgage loans as securities to investors through a series of bankruptcy remote securitisation vehicles. The Group is entitled to any residual income after all payments to investors and costs related to the program have been met. The note holders only have recourse to the pool of assets. The Group is considered to hold the majority of the residual risks and benefits of the vehicles. All relevant financial assets continue to be held on the Group balance sheet, and a liability is recognised for the proceeds of the funding transaction.The Group provides liquidity facilities to the securitisation vehicles. These facilities can only be drawn to manage the timing mismatch of cash inflows from securitised loans and cash outflows due to investors. The Group also provides redraw facilities to certain securitisation vehicles to manage the timing mismatch of principal collections from securitised loans and cash outflows in respect of customer redraws. The aggregate limit of these liquidity and redraw facilities as at 30 September 2023 is $1,364 million.
Covered bonds | The Group is entitled to any residual income after all payments due to covered bonds investors and costs related to the program have been met. Residential mortgage loans are assigned to a bankruptcy remote structured entity, which provides guarantees on the payments to covered bondholders. The covered bondholders have recourse to the Group and, following certain trigger events including payment default, the covered pool assets.

# (d) Unconsolidated structured entities

The Group has interests in the following types of unconsolidated structured entities:

Type | Details
Securitisation | The Group engages with third party (client) securitisation vehicles by providing warehouse facilities, liquidity support and derivatives. The Group invests in residential mortgage and asset-backed securities.
Other financing | The Group provides tailored lending to limited recourse single purpose vehicles which are established to facilitate asset financing for clients. The assets are pledged as collateral to the Group. The Group engages in raising finance for leasing assets such as aircraft, trains, shipping vessels and other infrastructure assets. The Group may act as a lender, arranger or derivative counterparty to these vehicles.Other financing transactions are generally senior, secured self-liquidating facilities in compliance with Group credit lending policies. Regular credit and financial reviews of the borrowers are conducted to ensure collateral is sufficient to support the Group’s maximum exposures.
Investment funds | The Group has direct interests in unconsolidated investment funds. The Group’s interests include holding units and receiving fees for services. The Group’s interest in unconsolidated investment funds is immaterial.

The table below shows the carrying value and maximum exposure to loss of the Group’s interests in unconsolidated structured entities:

|  | Group
--- | --- | ---
|  | Securitisations |  | Other financing |  | Total
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m
Loans and advances |  | 19,833 | 22,849 |  | 2,564 | 3,132 |  | 22,397 | 25,981
Debt instruments |  | 6,536 | 6,283 |  | - | - |  | 6,536 | 6,283
Total carrying value of assets in unconsolidated structured entities |  | 26,369 | 29,132 |  | 2,564 | 3,132 |  | 28,933 | 32,264
Commitment / contingencies |  | 7,486 | 8,490 |  | 62 | 121 |  | 7,548 | 8,611
Total maximum exposure to loss in unconsolidated structured entities |  | 33,855 | 37,622 |  | 2,626 | 3,253 |  | 36,481 | 40,875

Exposure to loss is managed as part of the Group's RMF. The Group’s maximum exposure to loss is the total of its on-balance sheet positions and its off-balance sheet arrangements, being loan commitments, financial guarantees, and liquidity support. Consequently, the Group has presented these measures rather than the total assets of the unconsolidated structured entities. Refer to Note 19 Financial risk management for further details. Income earned from interests in unconsolidated structured entities primarily results from interest income, mark-to-market movements and fees and commissions.

The majority of the Group’s exposures are senior investment grade, but in some limited cases, the Group may be required to absorb losses from unconsolidated structured entities before other parties because the Group’s interests are subordinated to others in the ownership structure. The table below shows the credit quality of the Group’s exposures in unconsolidated structured entities:

|  | Group
--- | --- | ---
|  | Securitisations |  | Other financing |  | Total
|  | 2023 | 2022 |  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m |  | $m | $m
Senior investment grade |  | 26,358 | 29,065 |  | 708 | 790 |  | 27,066 | 29,855
Investment grade |  | 9 | 57 |  | 1,352 | 1,419 |  | 1,361 | 1,476
Sub-investment grade |  | 2 | 10 |  | 504 | 923 |  | 506 | 933
Total1 |  | 26,369 | 29,132 |  | 2,564 | 3,132 |  | 28,933 | 32,264

1. Of the total, $28,798 million (2022: $32,051 million) represents the Group's interest in senior notes and $135 million in subordinated notes (2022: $213 million).

# 33 Related party disclosures

The Group provides a range of services to related parties including the provision of banking facilities and standby financing arrangements. Other dealings include granting loans and accepting deposits, and the provision of finance. These transactions are normally entered into on terms equivalent to those that prevail on an arm’s length basis in the ordinary course of business.

Other transactions with controlled entities may involve leases of properties, plant and equipment, provision of data processing services or access to intellectual or other intangible property rights. Charges for these transactions are normally on an arm’s length basis and are otherwise on the basis of equitable rates agreed between the parties. The Company also provides various administrative services to the Group, which may include accounting, secretarial and legal. Fees may be charged for these services.

Loans made to subsidiaries are generally entered into on terms equivalent to those that prevail on an arm’s length basis, except that there are often no fixed repayment terms for the settlement of loans between parties. Outstanding balances are unsecured and are repayable in cash.

The Company may incur costs on behalf of controlled entities in respect of customer-related remediation, regulatory activity, compliance investigations and associated proceedings. Refer to Note 31 Commitments and contingent liabilities for further details in respect of these matters.

Subsidiaries

The table below shows the net amounts payable to subsidiaries for the years ended 30 September:

|  | Company
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Balance at beginning of year |  | (3,413) | (83)
Net cash outflows / (inflows) |  | 3,320 | (3,162)
Net foreign currency translation movements and other amounts receivable |  | (389) | (168)
Balance at end of year |  | (482) | (3,413)

The table below shows material transactions with subsidiaries for the years ended 30 September:

|  | Company
--- | --- | ---
|  | 2023 | 2022
|  | $m | $m
Net interest expense |  | (929) | (1,344)
Dividend revenue |  | 7,421 | 2,024

Superannuation plans

The following payments were made to superannuation plans sponsored by the Group:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
Payment to: |  | $m | $m |  | $m | $m
National Australia Bank Group Superannuation Fund A |  | 298 | 272 |  | 298 | 272
Other |  | 9 | 9 |  | 9 | 8

Transactions between the Group and superannuation plans sponsored by the Group were made on commercial terms and conditions.

Key Management Personnel (KMP)

The list of the Company's KMP is assessed each year and comprises the non-executive directors of the Company, the Group CEO (an executive director of the Company) and those employees of the Group who have authority and responsibility for planning, directing and controlling the activities of both the Company and the Group. Details of KMP are set out in Section 7.1 and Section 8.3 of the Remuneration Report included in the Report of the Directors.

Remuneration

Total remuneration of KMP is included within total personnel expenses in Note 5 Operating expenses. The total remuneration is as follows:

|  | Group
--- | --- | ---
|  | 2023 | 2022
|  | $ | $
Short-term benefits |  |  |
Cash salary |  | 18,860,539 | 18,587,954
Variable reward cash |  | 8,312,680 | 7,996,381
Non-monetary |  | 172,600 | 272,922
Post-employment benefits |  |  |
Superannuation |  | 578,764 | 532,755
Other long-term benefits |  |  |
Other long-term benefits |  | 200,462 | 182,991
Equity-based benefits |  |  |
Shares |  | 489,226 | 1,477,224
Performance rights |  | 14,955,354 | 13,433,135
Other |  |  |
Other remuneration |  | 1,742,506 | -
Total |  | 45,312,131 | 42,483,362

Performance rights and shareholdings of KMP are set out in the Remuneration Report included in the Report of the Directors.

Loans to KMP and their related parties

During the 2023 financial year, loans made to KMP and other related parties of the Group and Company were $21 million (2022: $13 million). Loans to non-executive directors of the Company are made in the ordinary course of business on terms equivalent to those that prevail in arm's length transactions. Loans to the Group CEO and Group Executives may be made on similar terms and conditions generally available to other employees of the Group. Loans may be secured or unsecured depending on the nature of the lending product advanced. As at 30 September 2023, the total loan balances outstanding were $59 million (2022: $47 million).

No amounts were written off in respect of any loans made to directors or other KMP of the Group and Company during the current or prior reporting period.

Further details regarding loans advanced to KMP of the Group and Company are included in the Remuneration Report within the Report of the Directors.

86 400 Transfer of banking business

On 8 December 2021, 86 400 transferred approximately $1,286 million of its banking related mortgage assets and $663 million of its banking related deposit liabilities to the Company on an arms-length basis under the Financial Sector (Transfer and Restructure) Act 1999 (Cth) (FSTRA). In addition, 86 400 transferred approximately $285 million of its fixed income securities portfolio, held for liquidity purposes, to the Company on an arm’s length basis under the FSTRA. These fixed income securities were previously measured at amortised cost as they were managed within a ‘hold to collect’ business model. Following the transfer to the Company, these securities were reclassified to fair value through profit or loss as the revised business model is neither ‘hold to collect’ nor ‘hold to collect and sell’. The difference between the previous amortised cost of these assets and their fair value at the reclassification date was not material. Following these transfers 86 400 surrendered its ADI Licence to APRA and returned approximately $144 million of share capital to the Company. On a prospective basis, 86 400 will perform various technology and operational services to support and grow the Company's digital banking activities and business.

# 34 Remuneration of external auditor

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $'000 | $'000 |  | $'000 | $'000
EY Australia |  |  |  |  |  |
Audit services |  | 12,862 | 12,457 |  | 10,527 | 10,405
Audit-related services |  | 5,660 | 5,475 |  | 5,303 | 5,094
Taxation-related services |  | 50 | 47 |  | 50 | 47
Non-audit services1 |  | 500 | - |  | 500 | -
Total Australia |  | 19,072 | 17,979 |  | 16,380 | 15,546
EY Overseas |  |  |  |  |  |
Audit services |  | 4,152 | 4,079 |  | 1,991 | 1,962
Audit-related services |  | 1,027 | 865 |  | 355 | 344
Taxation-related services |  | 5 | - |  | - | -
Non-audit services1 |  | 56 | 1,163 |  | - | -
Total Overseas |  | 5,240 | 6,107 |  | 2,346 | 2,306
Total Australia and Overseas |  | 24,312 | 24,086 |  | 18,726 | 17,852
Fees paid to the external auditor for services to non-consolidated entities of the Group |  | 673 | 435 |  | - | -
Total remuneration paid to the external auditor |  | 24,985 | 24,521 |  | 18,726 | 17,852

1. The Board Audit Committee considered all non-audit services and were satisfied that these are compatible with maintaining audit independence.

Total remuneration paid to another audit firm where EY is in a joint audit arrangement for the audit of a Group subsidiary is $104,000.

The Joint Parliamentary Committee inquiry into the Regulation of Auditing in Australia highlighted the disparity and lack of comparability of the external auditor fee remuneration disclosure for ASX listed corporates. ASIC are proposing four categories to define external auditor services as the basis of the proposed future disclosure requirements which are set out below.

Auditor’s remuneration - ASIC disclosures

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $'000 | $'000 |  | $'000 | $'000
EY Australia - consolidated entities |  |  |  |  |  |
Audit services for the statutory financial report of the parent and any of its controlled entities |  | 12,862 | 12,457 |  | 10,527 | 10,405
Assurance services that are required by legislation to be provided by the external auditor |  | 196 | 224 |  | 139 | 128
Other assurance and agreed-upon-procedures under other legislation or contractual arrangements |  | 5,305 | 5,099 |  | 5,005 | 4,814
Other services |  | 709 | 199 |  | 709 | 199
Total Australia |  | 19,072 | 17,979 |  | 16,380 | 15,546
EY Overseas - consolidated entities |  |  |  |  |  |
Audit services for the statutory financial report of the parent and any of its controlled entities |  | 4,152 | 4,079 |  | 1,991 | 1,962
Other assurance and agreed-upon-procedures under other legislation or contractual arrangements |  | 1,032 | 865 |  | 355 | 344
Other services |  | 56 | 1,163 |  | - | -
Total Overseas |  | 5,240 | 6,107 |  | 2,346 | 2,306
Total Australia and Overseas |  | 24,312 | 24,086 |  | 18,726 | 17,852
EY Australia and Overseas - non-consolidated entities |  |  |  |  |  |
Other assurance and agreed-upon-procedures under other legislation or contractual arrangements |  | 673 | 435 |  | - | -
Total remuneration paid to the external auditor |  | 24,985 | 24,521 |  | 18,726 | 17,852

A description of the Board Audit Committee’s pre-approval policies and procedures are set out in Assurance and Control in the Corporate Governance section and included in the Report of the Directors.

# 35 Equity-based plans

Accounting policy

The value of shares and rights provided to employees are measured by reference to their grant date fair value. The grant date fair value of each share is determined by the market value of NAB shares and is generally a five-day weighted average share price. The grant date fair value of shares and rights with market performance hurdles is determined using a simulated version of the Black-Scholes model.

With the exception of general employee shares in Australia, the expense for each tranche of shares or rights granted is recognised in the income statement on a straight-line basis, adjusted for forfeitures, over the vesting period for the shares or rights. The expense for general employee shares in Australia is recognised in the income statement in the year the shares are granted as they are not subject to forfeiture. A corresponding increase is recorded in the equity-based compensation reserve.

Critical accounting judgements and estimates

The key estimates and inputs used in the Black-Scholes model vary depending on the award and type of security granted. They include the NAB share price at the time of the grant, exercise price of the rights (which is nil), the expected volatility of NAB’s share price, the risk-free interest rate and the expected dividend yield on NAB shares for the life of the rights. When estimating expected volatility, historic daily share prices are analysed to arrive at annual and cumulative historic volatility estimates (which may be adjusted for any abnormal periods or non-recurring significant events). Trends in the data are analysed to estimate volatility movements in the future for use in the numeric pricing model. The simulated version of the Black-Scholes model takes into account both the probability of achieving market performance conditions and the potential for early exercise of vested rights.

While market performance conditions are incorporated into the grant date fair values, non-market conditions are not taken into account when determining the fair value and expected time to vesting of shares and rights. Instead, non-market conditions are taken into account by adjusting the number of shares and rights included in the measurement of the expense so that the amount recognised in the income statement reflects the number of shares or rights that actually vest.

Under the Group’s employee equity plans, employees of the Group are awarded shares and rights. An employee’s right to participate in a plan is often dependent on their performance or the performance of the Group, and shares and rights awarded under the plans are often subject to service and/or performance conditions.

Generally, a right entitles its holder to be allocated one share when the right vests and is exercised. However, under certain bespoke plans, a right entitles its holder to be allocated a number of shares equal to a predetermined value on vesting and exercise of the right.

The Board determines the maximum total value of shares or rights offered under each plan having regard to the rules of the relevant plan and, where required, the method used in calculating the fair value per security. Under ASX Listing Rules, shares and rights may not be issued to the Company's directors under an employee equity plan without specific shareholder approval.

Under the terms of most offers, there is a period during which shares are held on trust for the employee they are allocated to and cannot be dealt with, or rights granted to an employee cannot be exercised, by that employee. There may be forfeiture or lapse conditions which apply to shares or rights allocated to an employee (as described below), including as a result of the employee ceasing employment with the Group during those periods or conduct standards not being met. Shares allocated to employees are eligible for any cash dividends paid by the Company on those shares from the time those shares are allocated to the trustee on their behalf. Rights granted to employees are not eligible for any cash dividends paid by the Company. In some limited circumstances, there may be a cash dividend equivalent payment made in the event that rights vest.

The table below sets out details of the Group’s employee equity plans that are offered on a regular basis. As noted above, the Group also offers bespoke plans in certain circumstances, including in connection with material transactions, as a retention mechanism and to encourage the achievement of certain specific business growth targets.

| Variable Reward (VR) | Long-term Variable Reward (LTVR)(Up to 30 September 2023) | Long-term Incentive (LTI) - LTEA & LTVR(From 1 October 2023) | Annual Equity Award (AEA) | Commencement awards | Recognition/ Retention awards | General employee shares
--- | --- | --- | --- | --- | --- | --- | ---
Description | A proportion of an employee’s annual VR is provided in equity and is deferred for a specified period. The deferred amount and the deferral period is different based on the incentive plan participated in, and the level of risk, responsibility and seniority of the employees.VR was referred to as ‘short-term incentive’ before the 2019 financial year. | LTVRs (including prior year Long-term Incentive (LTI) grants) are awarded to encourage long-term decision-making critical to creating long-term value for shareholders through the use of challenging long-term performance hurdles. | LTI consists of two equally weighted components:Long-term Equity Award (LTEA) - Represents the non-financial measure component of LTI, focused on risk. It is awarded to ensure risk management is front of mind in making long-term decisions and encourage the creation of safe, sustainable growth in shareholder value.Long-term Variable Reward (LTVR) - Represents the financial measure component of LTI. It is awarded to encourage long-term decision-making critical to creating long-term value for shareholders. | Annual awards of deferred shares under the AEA to create shareholder alignment, drive continued sustainable performance and emphasise focus on risk management and good conduct and behaviour outcomes. Deferred shares are subject to restrictions and certain forfeiture or lapsing conditions, including forfeiture or lapsing on resignation from the Group, or if conduct standards are not met. | Provided to enable the buy-out of equity or other incentives from an employee’s previous employment. | Offered to key individuals in roles where retention is critical over the medium-term (generally between 2 and 3 years). | Shares up to a target value of $1,000 are offered to eligible employees.
Eligibility | Certain employees based in Australia and certain overseas jurisdictions having regard to their individual performance and the performance of the Group. | The ELT up to and including the 2023 financial year (except for the 2018 financial year when no LTVRs were awarded). | The ELT from the 2024 financial year onwards, subject to pre-grant assessments undertaken by the Board. | Certain employees appointed to Group 5 and 6 roles based in Australia and certain overseas jurisdictions. | Provided on a case by case basis, with the recommendation of the People & Remuneration Committee and the approval of the Board. | Provided on a case by case basis, with the recommendation of the People & Remuneration Committee and the approval of the Board. | Permanent employees in Australia.

| Variable Reward (VR) | Long-term Variable Reward (LTVR)(Up to 30 September 2023) | Long-term Incentive (LTI) - LTEA & LTVR(From 1 October 2023) | Annual Equity Award (AEA) | Commencement awards | Recognition/ Retention awards | General employee shares
--- | --- | --- | --- | --- | --- | --- | ---
Type of equity- based payment | Generally shares. However, rights are also granted for jurisdictional reasons. | Performance rights. | Performance rights. | Generally shares. | Generally shares. However, rights are also granted for jurisdictional reasons. | Generally shares. However, rights are also granted for jurisdictional reasons. | Shares.
Service conditions and performance hurdles | Deferred shares or rights are forfeited or lapsed during the vesting period if: the employee resigns the employee does not meet conduct standards the employee's employment with the Group is terminated, subject to certain exclusions. | During the vesting period, all of an executive’s performance rights will lapse on the executive’s resignation from the Group. Performance rights will also lapse if conduct standards or performance hurdles are not met. The Board has absolute discretion to determine vesting or lapsing outcomes for the performance rights. | During the performance period and post-vesting deferral period, all of an executive’s performance rights will lapse on the executive’s resignation from the Group.Performance rights will also lapse if risk management, conduct standards or performance hurdles are not met. The Board has absolute discretion to determine vesting or lapsing outcomes for the performance rights. | Deferred shares are subject to restrictions and certain forfeiture or lapsing conditions, including forfeiture or lapsing on resignation from the Group, or if conduct standards are not met. | Shares or rights are subject to restrictions and certain forfeiture or lapsing conditions, including forfeiture or lapsing on resignation from the Group or if conduct standards are not met. | Shares or rights are subject to restrictions and certain forfeiture or lapsing conditions, including forfeiture or lapsing on resignation from the Group or if conduct standards are not met. | Shares are subject to restrictions on dealing for three years and are not subject to forfeiture.

| Variable Reward (VR) | Long-term Variable Reward (LTVR)(Up to 30 September 2023) | Long-term Incentive (LTI) - LTEA & LTVR(From 1 October 2023) | Annual Equity Award (AEA) | Commencement awards | Recognition/ Retention awards | General employee shares
--- | --- | --- | --- | --- | --- | --- | ---
Vesting, performance or deferral period | Defined period which differs based on the VR plan participated in and the employee's seniority. The period aligns with the level of risk, impact of the role on business performance and results and regulatory requirements. The vesting period will generally be between 1 and 7 years. | Defined period set at time of grant, generally between 4 and 5 years. | Defined performance period of 4 years, followed by a further 2 years (for CEO) or 1 year (all other ELT) restriction period.A risk and conduct assessment will be undertaken by the Board prior to vesting. | Defined period set at time of grant. Deferred Shares vest in equal tranches over 3 years. | Defined period set at time of grant, based on satisfactory evidence of foregone awards from previous employment. | Defined period set at time of grant. | 3 years.
Exercise period (only applicable for rights) | If the applicable conditions are met, deferred rights will vest and each right will be automatically exercised.n/a for share grants. | Performance rights will be automatically exercised if they vest. | Performance rights will be automatically exercised if they vest. | n/a | If the applicable conditions are met, rights will vest and each right will be automatically exercised.n/a for share grants. | If the applicable conditions are met, rights will vest and each right will be automatically exercised.n/a for share grants. | n/a
Board discretion | The Board regularly reviews Group performance for risk, reputation, conduct and performance considerations and has the ability to: Extend the vesting, performance or deferral period beyond the original period for the ELT, other Accountable Persons and, in certain circumstances, other employees. Forfeit or lapse the deferred shares or rights. Clawback the deferred shares or rights from the ELT, other Accountable Persons and in certain circumstances, other employees. In addition, the Board generally has discretion to determine the treatment of unvested shares and rights at the time a change of control event occurs. Vesting of shares and rights will not be automatic or accelerated and the Board will retain discretion in relation to the vesting outcome including absolute discretion to forfeit all shares and rights. | n/a

Employee share plan

|  | 2023 | 2022
--- | --- | --- | ---
|  | Fully paid ordinary shares granted during the year | Weighted average grant date fair value | Fully paid ordinary shares granted during the year | Weighted average grant date fair value
|  | No. | $ | No. | $
Employee share plans |  |  |  |  |
Variable reward deferred shares |  | 2,666,264 | 30.60 | 3,309,953 | 28.99
Commencement and recognition shares |  | 235,641 | 30.23 | 889,923 | 29.12
General employee shares |  | 747,328 | 30.71 | 747,285 | 28.39
Annual Equity Award shares |  | 771,935 | 29.11 | 453,216 | 30.09

The closing market price of NAB shares as at 30 September 2023 was $29.07 (2022: $28.81). The volume weighted average share price during the year ended 30 September 2023 was $28.86 (2022: $29.44).

Rights movements

|  | 2023 | 2022
--- | --- | --- | ---
Number of rights |  |  |
Opening balance as at 1 October |  | 2,935,432 | 2,645,771
Granted1 |  | 1,194,372 | 1,029,947
Forfeited1 |  | (116,286) | (405,781)
Exercised |  | (166,898) | (334,505)
Closing balance as at 30 September |  | 3,846,620 | 2,935,432
Exercisable as at 30 September |  | - | -

1. Where rights have been allocated or forfeited to a predetermined value, the total number granted or forfeited has been estimated using a share price of $28.86, being the volume weighted average share price of NAB shares during the financial year ended 30 September 2023 (2022: $29.44).

|  | 2023 | 2022
--- | --- | --- | ---
|  | Outstanding at 30 Sep | Weighted average remaining life | Outstanding at 30 Sep | Weighted average remaining life
|  | No. | months | No. | months
Terms and conditions |  |  |  |  |
Market hurdle |  | 2,867,981 | 23 | 2,140,396 | 32
Non-market hurdle1 |  | 211,210 | 8 | 361,180 | 21
Individual hurdle1 |  | 767,429 | 17 | 433,856 | 23

1. Where rights have been allocated or forfeited to a predetermined value, the total number granted or forfeited has been estimated using a share price of $28.86, being the volume weighted average share price of NAB shares during the financial year ended 30 September 2023 (2022: $29.44).

Information on fair value calculation

The table below shows the significant assumptions used as inputs into the grant date fair value calculation of rights granted during each of the last two years. In the following table, values have been presented as weighted averages, but the specific values for each grant are used for the fair value calculation. The table also shows a ‘no hurdle’ value for rights that do not have any market-based performance hurdles attached. The 'no hurdle' value is calculated as the grant date fair value of the rights, and in most instances is adjusted for expected dividends over the vesting period.

|  | 2023 | 2022
--- | --- | --- | ---
Weighted average values |  |  |
Contractual life (years) |  | 3.3 | 3.5
Risk-free interest rate (per annum) (%) |  | 3.45 | 1.61
Expected volatility of share price (%) |  | 31 | 30
Closing share price on grant date ($) |  | 30.12 | 28.81
Dividend yield (per annum) (%) |  | 5.00 | 4.93
Fair value of rights with a market hurdle ($) |  | 11.62 | 17.30
Fair value of rights without a market hurdle ($) |  | 27.35 | 23.41
Expected time to vesting (years) |  | 3.18 | 3.30

# 36 Capital adequacy

As an ADI, the Company is subject to regulation by APRA under the authority of the Banking Act 1959 (Cth). APRA has set minimum Prudential Capital Requirements (PCR) for ADIs consistent with the Basel Committee on Banking Supervision capital adequacy framework. PCR are expressed as a percentage of total RWA. APRA requirements are summarised below:

CET1 capital | Tier 1 capital | Total capital
--- | --- | ---
CET1 capital ranks behind the claims of depositors and other creditors in the event of winding-up of the issuer, absorbs losses as and when they occur, has full flexibility of dividend payments and has no maturity date. CET1 capital consists of the sum of paid-up ordinary share capital, retained profits plus certain other items as defined in APS 111 Capital Adequacy: Measurement of Capital. | CET1 capital plus AT1 capital. AT1 capital comprises high quality components of capital that satisfy the following essential characteristics: provide a permanent and unrestricted commitment of funds are freely available to absorb losses rank behind the claims of depositors and other more senior creditors in the event of winding up of the issuer provide for fully discretionary capital distributions. | Tier 1 capital plus Tier 2 capital. Tier 2 capital comprises other components of capital that, to varying degrees, do not meet the requirements of Tier 1 capital but nonetheless contribute to the overall strength of an ADI and its capacity to absorb losses.

Reporting levels

Regulatory capital requirements are measured on a Level 1 and Level 2 basis. Level 1 comprises the Company and Extended Licenced Entities approved by APRA. Level 2 comprises the Company and the entities it controls, excluding securitisation special purpose vehicles (SPVs) to which assets have been transferred in accordance with the requirements for regulatory capital relief in APS 120 Securitisation and funds management entities.

APRA minimum requirements

APRA’s revised capital framework has applied since 1 January 2023. Under this framework, APRA’s minimum PCR as a percentage of the ADI’s total RWA are: 4.5% of RWA for CET1 capital, 6% for Tier 1 capital and 8% for Total capital.

An ADI must hold a capital conservation buffer above the PCR for CET1 capital. The capital conservation buffer is 3.75% of the ADI’s total RWA. As a D-SIB in Australia, the Group is also required to hold an additional buffer of 1% in CET1 capital.

In addition, APRA requires the Group to hold a countercyclical capital buffer set on a jurisdictional basis, with a default setting of 1% for Australia.

APRA may determine higher PCRs for an ADI and may change an ADI’s PCRs at any time. A breach of the required ratios under APRA's prudential standards may trigger legally enforceable directions by APRA, which can include a direction to raise additional capital.

Capital Management

The Group’s capital management strategy is focused on adequacy, efficiency and flexibility. The capital adequacy objective seeks to ensure sufficient capital is held in excess of regulatory requirements, and within the Group’s balance sheet risk appetite. This approach is consistent across the Group’s subsidiaries.

Capital ratios are monitored against operating targets that are set by the Board above minimum capital requirements set by APRA.

The Group’s capital ratio operating targets are regularly reviewed in the context of the external economic and regulatory outlook with the objective of maintaining balance sheet strength.

From 1 January 2023, the Group’s CET1 target range moved to 11.00-11.50% to align with the new calculation methodology under APRA’s revised capital framework.

# 37 Notes to the statement of cash flows

Reconciliation of net profit attributable to owners the Company to net cash provided by / (used in) operating activities

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Net profit attributable to owners of the Company |  | 7,414 | 6,891 |  | 12,012 | 5,945
Add / (deduct) non-cash items in the income statement: |  |  |  |  |  |
(Increase) in interest receivable |  | (1,086) | (981) |  | (995) | (922)
Increase in interest payable |  | 2,717 | 994 |  | 2,339 | 843
Increase in unearned income and deferred net fee income |  | 381 | 166 |  | 419 | 159
Fair value movements on assets, liabilities and derivatives held at fair value |  | 3,482 | 4,299 |  | 2,879 | 4,389
Increase in provisions |  | 834 | 1,341 |  | 813 | 1,242
Equity-based compensation recognised in equity or reserves |  | 131 | 113 |  | 131 | 113
Superannuation costs - defined benefit plans |  | (2) | - |  | (2) | -
Impairment losses on non-financial assets |  | 13 | 10 |  | 14 | 18
Impairment losses on financial assets |  | - | 1 |  | - | -
Credit Impairment write-back |  | 895 | 194 |  | 727 | 110
Depreciation and amortisation expense |  | 1,214 | 1,112 |  | 927 | 871
(Increase) / decrease in other assets |  | 150 | 84 |  | (5,430) | 233
Increase / (decrease) in other liabilities |  | (293) | 280 |  | (8) | 48
Increase in income tax payable |  | 77 | 659 |  | 289 | 610
(Increase) / decrease in deferred tax assets |  | (109) | 352 |  | (134) | 307
Increase / (decrease) in deferred tax liabilities |  | 8 | (13) |  | 11 | 20
Operating cash flow items not included in profit |  | (42,474) | 13,170 |  | (39,141) | 14,868
Investing or financing cash flows included in profit |  |  |  |  |  |
(Gain) on sale of controlled entities, before income tax |  | (29) | (197) |  | (29) | -
(Gain) on sale of other debt and equity instruments |  | (32) | (199) |  | (32) | (199)
(Gain) / loss on sale of property, plant, equipment and other assets |  | 10 | (55) |  | (1) | (74)
Net cash provided by / (used in) operating activities |  | (26,699) | 28,221 |  | (25,211) | 28,581

Reconciliation of liabilities arising from financing activities

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | Bonds‚ notes and subordinated debt | Debt issues | Lease liabilities |  | Bonds‚ notes and subordinated debt | Debt issues | Lease liabilities
|  | At fair value | At amortised cost |  |  |  | At fair value | At amortised cost |  |
|  | $m | $m | $m | $m |  | $m | $m | $m | $m
Balance at 1 October 2021 |  | 18,416 | 109,154 | 6,831 | 1,967 |  | 5,570 | 102,501 | 6,831 | 1,659
Cash flows |  |  |  |  |  |  |  |  |  |
Proceeds from issue |  | 1,500 | 40,432 | 1,983 | - |  | 268 | 34,919 | 1,983 | -
Repayments |  | (3,280) | (24,359) | (1,504) | (339) |  | (742) | (23,577) | (1,504) | (299)
Non-cash changes |  |  |  |  |  |  |  |  |  |
Additions to lease liabilities |  | - | - | - | 631 |  | - | - | - | 617
Fair value changes, including fair value hedge adjustments |  | (1,497) | (7,718) | - | - |  | (900) | (5,371) | - | -
Foreign currency translation and other adjustments |  | (78) | 1,774 | 8 | (21) |  | 283 | 1,202 | 8 | 1
Balance as at 30 September 2022 |  | 15,061 | 119,283 | 7,318 | 2,238 |  | 4,479 | 109,674 | 7,318 | 1,978
Cash flows |  |  |  |  |  |  |  |  |  |
Proceeds from issue |  | 1,466 | 41,361 | 1,243 | - |  | 78 | 38,870 | 1,243 | -
Repayments |  | (3,325) | (27,819) | - | (328) |  | (93) | (26,844) | - | (284)
Non-cash changes |  |  |  |  |  |  |  |  |  |
Additions to lease liabilities |  | - | - | - | 333 |  | - | - | - | 120
Fair value changes, including fair value hedge adjustments |  | (99) | (817) | - | - |  | (159) | (623) | - | -
Foreign currency translation and other adjustments |  | 638 | 3,637 | - | 16 |  | 66 | 3,252 | - | 2
Balance as at 30 September 2023 |  | 13,741 | 135,645 | 8,561 | 2,259 |  | 4,371 | 124,329 | 8,561 | 1,816

Reconciliation of cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents includes cash and liquid assets and amounts due from other banks (including reverse repurchase agreements and short-term government securities) net of amounts due to other banks that are readily convertible to known amounts of cash within three months.

Cash and cash equivalents as shown in the cash flow statement is reconciled to the related items on the balance sheet as follows:

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Assets |  |  |  |  |  |
Cash and liquid assets |  | 24,699 | 56,451 |  | 23,959 | 56,121
Treasury and other eligible bills |  | 53 | 505 |  | - | -
Due from other banks (excluding mandatory deposits with supervisory central banks) |  | 28,114 | 38,822 |  | 17,772 | 30,142
Total cash and cash equivalent assets |  | 52,866 | 95,778 |  | 41,731 | 86,263
Liabilities |  |  |  |  |  |
Due to other banks |  | (12,277) | (33,599) |  | (9,950) | (31,080)
Total cash and cash equivalents |  | 40,589 | 62,179 |  | 31,781 | 55,183

Non-cash investing activities

In the 2023 financial year, the Company received a dividend of $5.4 billion from National Equities Limited (following a dividend payment by BNZ) which was reinvested into additional ordinary shares. These transactions were settled on a net basis and no cash was transferred. As these are transactions between entities within the Group they are eliminated in full upon consolidation.

Non-cash financing activities

|  | Group |  | Company
--- | --- | --- | --- | ---
|  | 2023 | 2022 |  | 2023 | 2022
|  | $m | $m |  | $m | $m
Shares issued under the Dividend Reinvestment Plan |  | 693 | 500 |  | 693 | 500

There was no DRP discount on dividends paid in the 2023 financial year (2022: $nil).

# 38 Acquisition of subsidiaries

Acquisition of Citigroup's Australian consumer business - 1 June 2022

On 1 June 2022, the Company completed the acquisition of the Citi consumer business, including its home lending portfolio, unsecured lending business (personal loans and credit cards), retail deposits business and private wealth management business. The acquisition qualified as a business combination as defined in AASB 3 Business Combinations.

The acquisition was undertaken to support NAB’s ambition to build a leading personal bank with a simpler, more digital experience.

The net assets recognised in the 2022 financial year were recorded on a provisional basis using preliminary completion accounts and a draft purchase price allocation. During the 2023 financial year the final completion payment was made and the purchase price allocation was finalised.

The final fair values of the assets and liabilities are summarised in the table below:

|  | Group
--- | --- | ---
|  | $m
Consideration |  |
Total cash consideration for the acquisition |  | 3,135
Assets and liabilities acquired |  |
Loans and advances |  | 12,832
Other assets |  | 523
Total assets |  | 13,355
Deposits and other borrowings |  | 9,488
Other liabilities |  | 732
Total liabilities |  | 10,220
Net assets |  | 3,135
Goodwill and other intangible assets |  | 248
Goodwill |  | 80
Intangible assets |  | 168

The most significant adjustments to the provisional amounts disclosed in the 2022 Annual Report are in relation to a $19 million increase in net deferred tax assets recognised and a $3 million decrease in intangible assets.

The final goodwill value of $80 million is supported by the scale and expertise in unsecured lending acquired, together with anticipated synergies. Other intangible assets comprise customer relationships and core deposits.

The goodwill has been allocated to the Personal Banking CGU (refer to Note 22 Goodwill and other intangible assets).

# 39 Events subsequent to reporting date

There are no items, transactions or events of a material or unusual nature that have arisen in the interval between 30 September 2023 and the date of this report that, in the opinion of the directors, have significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in future years.

# Directors' declaration

The directors of National Australia Bank Limited declare that:

(a) in the opinion of the directors, the financial statements and notes for the year ended 30 September 2023, as set out on pages to , are in accordance with the Corporations Act 2001 (Cth), including:

i) in compliance with Australian Accounting Standards (including Australian Accounting Interpretations), International Financial Reporting Standards as stated in Note 1 Basis of preparation, and any further requirements of the Corporations Regulations 2001; and

ii) give a true and fair view of the financial position of the Company and the Group as at 30 September 2023, and of the performance of the Company and the Group for the year ended 30 September 2023.

(b) in the opinion of the directors, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

(c) the directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth) for the year ended 30 September 2023.

Signed in accordance with a resolution of the directors.

Philip ChronicanChair9 November 2023 |  | Ross McEwan CBEGroup Chief Executive Officer9 November 2023 |

# Report on the audit of the financial report

# Additional information

# Shareholder information

Ordinary shares
Twenty largest registered fully paid ordinary shareholders of the Company as at 12 October 2023

| Number of shares | % of total shares
--- | --- | ---
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 781,134,305 | 24.96
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 494,826,750 | 15.81
CITICORP NOMINEES PTY LIMITED | 265,695,811 | 8.49
NATIONAL NOMINEES LIMITED | 82,304,621 | 2.63
BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> | 52,559,781 | 1.68
BNP PARIBAS NOMS PTY LTD <DRP> | 42,493,694 | 1.36
CITICORP NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C> | 30,961,117 | 0.99
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C> | 20,132,920 | 0.64
BNP PARIBAS NOMS PTY LTD DEUTSCHE BANK TCA <DRP> | 15,027,858 | 0.48
NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> | 14,387,848 | 0.46
AUSTRALIAN FOUNDATION INVESTMENT COMPANY LIMITED | 14,072,289 | 0.45
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD <DRP A/C> | 9,361,385 | 0.30
ARGO INVESTMENTS LIMITED | 5,934,685 | 0.19
BNP PARIBAS NOMS (NZ) LTD <DRP> | 5,594,998 | 0.18
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM | 5,042,859 | 0.16
NATIONAL NOMINEES LIMITED <AUSTRALIAN ETHICAL INV LTD> | 3,870,904 | 0.12
NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C> | 3,408,960 | 0.11
NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C> | 3,377,780 | 0.11
IOOF INVESTMENT SERVICES LIMITED <IPS SUPERFUND A/C> | 3,241,846 | 0.10
BKI INVESTMENT COMPANY LIMITED | 3,238,000 | 0.10
Total | 1,856,668,411 | 59.32

Substantial shareholders

The following organisations have disclosed a substantial shareholding notice to ASX. As at 12 October 2023, the Company has received no further update in relation to these substantial shareholdings.

Name | Number of shares | % of voting power
--- | --- | ---
BlackRock Group1 | 177,651,034 | 6.02%
State Street Corporation2 | 163,528,467 | 5.21%
The Vanguard Group, Inc3 | 162,322,845 | 5.00%

1. Substantial shareholding as at 18 March 2020, as per notice lodged on 20 March 2020.
2. Substantial shareholding as at 12 May 2023, as per notice lodged on 16 May 2023.
3. Substantial shareholding as at 1 February 2022, as per notice lodged on 4 February 2022.

Distribution of fully paid ordinary shareholdings

| Number of shareholders | % of holders | Number of shares | % of shares
--- | --- | --- | --- | ---
Range (number) |  |  |  |
1 - 1,000 | 349,348 | 59.80 | 121,187,336 | 3.87
1,001 - 5,000 | 181,788 | 31.12 | 414,297,940 | 13.24
5,001 - 10,000 | 32,947 | 5.64 | 229,913,635 | 7.35
10,001 - 100,000 | 19,619 | 3.36 | 395,788,949 | 12.65
100,001 and over | 444 | 0.08 | 1,967,761,067 | 62.89
Total | 584,146 | 100 | 3,128,948,927 | 100
Less than marketable parcel of $500 | 15,823 |  | 108,757 |

Voting rights

Each ordinary shareholder present at a general meeting (whether in person or by proxy or representative) is entitled to one vote on a show of hands or, on a poll, one vote for each fully paid ordinary share held. Holders of partly paid shares voting on a poll are entitled to a number of votes based upon the proportion that the amount of capital call and paid up on the shares bears to the total issue price of the shares.

NAB Capital Notes 3 (NCN 3)
Twenty largest holders of NCN 3 as at 12 October 2023

| Number of securities | % of total securities
--- | --- | ---
BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> | 3,283,631 | 17.52
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 1,113,484 | 5.94
CITICORP NOMINEES PTY LIMITED | 986,921 | 5.27
NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> | 353,201 | 1.88
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD <DRP A/C> | 232,264 | 1.24
NATIONAL NOMINEES LIMITED | 186,681 | 1.00
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 164,145 | 0.88
NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C> | 158,444 | 0.85
NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C> | 128,740 | 0.69
MUTUAL TRUST PTY LTD | 125,800 | 0.67
NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C> | 118,557 | 0.63
DIMBULU PTY LTD | 108,500 | 0.58
BNP PARIBAS NOMINEES PTY LTD <PITCHER PARTNERS DRP> | 100,301 | 0.54
CAPI PTY LTD | 90,000 | 0.48
INVIA CUSTODIAN PTY LIMITED <WEHI - INVESTMENT POOL A/C> | 75,325 | 0.40
IOOF INVESTMENT SERVICES LIMITED <IPS SUPERFUND A/C> | 70,561 | 0.38
WILLIMBURY PTY LTD | 65,609 | 0.35
BNP PARIBAS NOMINEES PTY LTD <IB AU NOMS RETAILCLIENT DRP> | 53,588 | 0.29
JDB SERVICES PTY LTD <RAC & JD BRICE INVEST A/C> | 53,429 | 0.29
BALMORAL FINANCIAL INVESTMENTS PTY LTD | 50,277 | 0.27
Total | 7,519,458 | 40.15

Distribution of NCN 3 holdings

| Number of security holders | % of holders | Number of securities | % of securities
--- | --- | --- | --- | ---
Range (number) |  |  |  |
1 - 1,000 | 14,966 | 88.29 | 5,324,547 | 28.41
1,001 - 5,000 | 1,758 | 10.37 | 3,727,016 | 19.89
5,001 - 10,000 | 145 | 0.86 | 1,083,175 | 5.78
10,001 - 100,000 | 68 | 0.40 | 1,545,475 | 8.25
100,001 and over | 14 | 0.08 | 7,060,369 | 37.67
Total | 16,951 | 100 | 18,740,582 | 100
Less than marketable parcel of $500 | 6 |  | 12 |

Voting rights

In accordance with their terms of issue, holders of NCN 3 have no right to vote at any general meeting of the Company prior to conversion into NAB ordinary shares.

If NCN 3 is converted into NAB ordinary shares in accordance with their terms of issue, then voting rights will be as outlined on page of this Additional information section for NAB ordinary shares.

NAB Capital Notes 5 (NCN 5)
Twenty largest holders of NCN 5 as at 12 October 2023

| Number of securities | % of total securities
--- | --- | ---
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 2,128,550 | 8.92
CITICORP NOMINEES PTY LIMITED | 1,666,366 | 6.98
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD <DRP A/C> | 610,183 | 2.56
NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> | 445,753 | 1.87
BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> | 378,025 | 1.58
CITICORP NOMINEES PTY LIMITED <143212 NMMT LTD A/C> | 261,889 | 1.10
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 226,434 | 0.95
NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C> | 192,143 | 0.81
NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C> | 161,216 | 0.68
LEDA HOLDINGS PTY LTD | 154,000 | 0.65
NULIS NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C> | 142,352 | 0.60
MUTUAL TRUST PTY LTD | 138,615 | 0.58
VALTELLINA PROPERTIES PTY LTD | 129,200 | 0.54
BNP PARIBAS NOMINEES PTY LTD <PITCHER PARTNERS DRP> | 126,151 | 0.53
JOHN E GILL TRADING PTY LTD | 107,866 | 0.45
AM & EM NEXT GEN PTY LTD <AM & EM NEXT GEN A/C> | 105,000 | 0.44
DIMBULU PTY LTD | 100,000 | 0.42
NATIONAL NOMINEES LIMITED | 90,822 | 0.38
BOND STREET CUSTODIANS LIMITED <KENDN - D90875 A/C> | 88,736 | 0.37
NAVIGATOR AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C> | 75,828 | 0.32
Total | 7,329,129 | 30.73

Distribution of NCN 5 holdings

| Number of security holders | % of holders | Number of securities | % of securities
--- | --- | --- | --- | ---
Range (number) |  |  |  |
1 - 1,000 | 20,936 | 87.59 | 7,822,240 | 32.78
1,001 - 5,000 | 2,679 | 11.21 | 5,555,668 | 23.29
5,001 - 10,000 | 172 | 0.72 | 1,239,406 | 5.19
10,001 - 100,000 | 97 | 0.41 | 2,269,263 | 9.51
100,001 and over | 17 | 0.07 | 6,973,103 | 29.23
Total | 23,901 | 100 | 23,859,680 | 100
Less than marketable parcel of $500 | 6 |  | 16 |

Voting rights

In accordance with their terms of issue, holders of NCN 5 have no right to vote at any general meeting of the Company prior to conversion into NAB ordinary shares.

If NCN 5 is converted into NAB ordinary shares in accordance with their terms of issue, then voting rights will be as outlined on page of this Additional information section for NAB ordinary shares.

NAB Capital Notes 6 (NCN 6)
Twenty largest holders of NCN 6 as at 12 October 2023

| Number of securities | % of total securities
--- | --- | ---
BNP PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C> | 5,219,123 | 26.10
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 1,487,321 | 7.44
CITICORP NOMINEES PTY LIMITED | 1,158,542 | 5.79
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD <DRP A/C> | 459,914 | 2.30
NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> | 285,016 | 1.43
NATIONAL NOMINEES LIMITED | 140,029 | 0.70
NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C> | 128,672 | 0.64
MUTUAL TRUST PTY LTD | 118,649 | 0.59
BNP PARIBAS NOMINEES PTY LTD <PITCHER PARTNERS DRP> | 103,223 | 0.52
TANDOM PTY LTD | 100,192 | 0.50
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 89,170 | 0.45
DIMBULU PTY LTD | 50,000 | 0.25
ELMORE HOLDINGS PTY LIMITED <PEABODY FAMILY A/C> | 50,000 | 0.25
IOOF INVESTMENT SERVICES LIMITED <IPS SUPERFUND A/C> | 48,531 | 0.24
FAMILY ENDEAVOURS PTY LTD <BEST ENDEAVOURS A/C> | 48,500 | 0.24
BNP PARIBAS NOMINEES PTY LTD ACF CLEARSTREAM | 45,041 | 0.23
PESUTU PTY LTD <KAREDIS SUPER A/C> | 43,729 | 0.22
JOHN E GILL TRADING PTY LTD | 37,217 | 0.19
ELPHINSTONE HOLDINGS PTY LIMITED | 36,012 | 0.18
NAVIGATOR AUSTRALIA LTD <MLC INVESTMENT SETT A/C> | 34,371 | 0.17
Total | 9,683,252 | 48.43

Distribution of NCN 6 holdings

| Number of security holders | % of holders | Number of securities | % of securities
--- | --- | --- | --- | ---
Range (number) |  |  |  |
1 - 1,000 | 13,012 | 87.02 | 4,636,755 | 23.18
1,001 - 5,000 | 1,740 | 11.64 | 3,652,671 | 18.26
5,001 - 10,000 | 110 | 0.74 | 824,229 | 4.12
10,001 - 100,000 | 79 | 0.53 | 1,685,664 | 8.43
100,001 and over | 11 | 0.07 | 9,200,681 | 46.01
Total | 14,952 | 100 | 20,000,000 | 100
Less than marketable parcel of $500 | 2 |  | 4 |

Voting rights

In accordance with their terms of issue, holders of NCN 6 have no right to vote at any general meeting of the Company prior to conversion into NAB ordinary shares.

If NCN 6 is converted into NAB ordinary shares in accordance with their terms of issue, then voting rights will be as outlined on page of this Additional information section for NAB ordinary shares.

NAB Capital Notes 7 (NCN 7)
Twenty largest holders of NCN 7 as at 12 October 2023

| Number of securities | % of total securities
--- | --- | ---
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED | 1,737,591 | 13.90
BNP PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD <DRP A/C> | 540,548 | 4.32
CITICORP NOMINEES PTY LIMITED | 489,503 | 3.92
NETWEALTH INVESTMENTS LIMITED <WRAP SERVICES A/C> | 170,097 | 1.36
HIGHAM HILL PTY LTD | 106,802 | 0.85
DIMBULU PTY LTD | 100,000 | 0.80
MR JOHN WILLIAM CUNNINGHAM | 90,680 | 0.73
BNP PARIBAS NOMINEES PTY LTD <PITCHER PARTNERS DRP> | 83,060 | 0.66
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED | 59,416 | 0.48
NETWEALTH INVESTMENTS LIMITED <SUPER SERVICES A/C> | 58,614 | 0.47
PARKYN CAPITAL PTY LTD | 55,000 | 0.44
MUTUAL TRUST PTY LTD | 46,104 | 0.37
2 KINANE STREET PTY LTD | 36,280 | 0.29
GILLIES FAMILY HOLDINGS PTY LTD | 34,190 | 0.27
POPEYE TREASURES PTY LTD | 30,220 | 0.24
KADOO PTY LIMITED <B & D FAMILY A/C> | 30,128 | 0.24
CORP OF THE TSTEES OF THE ROMAN CATH ARC | 30,000 | 0.24
MR TETSUO KAWAI | 29,000 | 0.23
NATIONAL NOMINEES LIMITED | 28,445 | 0.23
CERTANE CT PTY LTD <BIPETA> | 25,000 | 0.20
Total | 3,780,678 | 30.24

Distribution of NCN 7 holdings

| Number of security holders | % of holders | Number of securities | % of securities
--- | --- | --- | --- | ---
Range (number) |  |  |  |
1 - 1,000 | 9,295 | 84.41 | 3,536,895 | 28.30
1,001 - 5,000 | 1,505 | 13.67 | 3,258,170 | 26.07
5,001 - 10,000 | 128 | 1.16 | 899,972 | 7.20
10,001 - 100,000 | 78 | 0.71 | 1,760,422 | 14.08
100,001 and over | 6 | 0.05 | 3,044,541 | 24.35
Total | 11,012 | 100 | 12,500,000 | 100
Less than marketable parcel of $500 | - |  | - |

Voting rights

In accordance with their terms of issue, holders of NCN 7 have no right to vote at any general meeting of the Company prior to conversion into NAB ordinary shares.

If NCN 7 is converted into NAB ordinary shares in accordance with their terms of issue, then voting rights will be as outlined on page of this Additional information section for NAB ordinary shares.

Official quotation

Fully paid ordinary shares of the Company are quoted on the ASX.

The Group has also issued:

- NAB Capital Notes 3, NAB Capital Notes 5, NAB Capital Notes 6, NAB Capital Notes 7, covered bonds and residential mortgage backed securities which are quoted on the ASX.

- Medium-term notes, subordinated notes and covered bonds which are quoted on the Luxembourg Stock Exchange.

- Medium-term notes and perpetual preference shares which are quoted on the NZX Debt Market.

- Medium-term notes and covered bonds which are quoted on the SIX Swiss Exchange.

- Medium-term notes which are quoted on the Taipei Exchange.

Unquoted securities

NAB has the following unquoted securities on issue as at 31 October 2023:

- 8,950 partly paid ordinary shares, of which there are 13 holders

- 3,635,434 rights, of which there are 65 holders (refer to page of this report for further details).

# Shareholder information

Chair

Mr Philip Chronican
BCom (Hons), MBA (Dist), GAICD, SF Fin

Group Chief Executive Officer and Managing Director

Mr Ross McEwan CBE
BBus

Group Chief Financial Officer

Mr Nathan Goonan
BCom, BAgrSc (Hons)

Registered office

Level 28 395 Bourke Street MELBOURNE VIC 3000 Australia

Tel: 1300 889 398
Tel: +61 3 8615 3064

International locations

nab.com.au/corporate/global-relationships

Auditor

Ernst & Young
8 Exhibition Street
MELBOURNE VIC 3000
Australia
Tel: +61 3 9288 8000

Company Secretary

Mrs Louise Thomson BBus (Dist), FGIA

Group Investor Relations

National Australia Bank Limited

Level 2
2 Carrington Street
SYDNEY NSW 2000

Australia

Email: investorrelations@nab.com.au

Sustainability

National Australia Bank Limited

Level 21
395 Bourke Street
MELBOURNE VIC 3000

Australia

Email: sustainability@nab.com.au

Shareholder Centre website

The Group’s website at nab.com.au/shareholder has a dedicated separate section where shareholders can gain access to a wide range of information, including copies of recent announcements, annual reports as well as extensive historical information.

Shareholder information line

There is a convenient 24 hours a day, 7 days a week automated service. To obtain the current balance of your securities and relevant payment details, telephone 1300 367 647 (Australia) or +61 3 9415 4299 (outside Australia).

These services are secured to protect your interests. In all communications with the Share Registry, please ensure you quote your Securityholder Reference Number (SRN), or in case of broker sponsored shareholders, your Holder Identification Number (HIN).

Principal Share Register

Computershare Investor Services Pty Limited
Yarra Falls
452 Johnston Street
ABBOTSFORD VIC 3067
Australia

Postal address:
GPO Box 2333
MELBOURNE VIC 3001
Australia

Local call: 1300 367 647
Fax: +61 3 9473 2500
Telephone and fax (outside Australia):
Tel: +61 3 9415 4299; Fax: +61 3 9473 2500

Email: nabservices@computershare.com.au
Website: www.investorcentre.com/au

United Kingdom Share Register

Computershare Investor Services plc
The Pavilions
Bridgwater Road BRISTOL BS99 6ZZ
United Kingdom

Tel: +44 370 703 0197
Fax: +44 370 703 6101

Email: nabgroup@computershare.co.uk
Website: www.investorcentre.com/au

United States ADR Depositary, Transfer Agent and Registrar contact details for NAB ADR holders:

Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company Operations Center
6201 15th Avenue
Brooklyn, NY 11219
USA
Toll-free number: +1 866 706 0509
Direct Dial: +1 718 921 8137
Email: db@amstock.com

Contact details for NAB ADR brokers & institutional investors:

US Tel: +1 212 250 9100
UK Tel: +44 207 547 6500
Email: adr@db.com

# Responsibility statement

# Glossary

12-month expected credit losses (ECL) The portion of lifetime expected credit losses that represent the expected losses arising from default events that could occur within 12 months of the reporting date.

86 400 86 400 refers to 86 400 Holdings Limited,
86 400 Pty Ltd and 86 400 Technology Pty Ltd, the entities acquired by the Group in May 2021.

90+ days past due (DPD) and gross impaired assets to GLAs Calculated as the sum of ‘90+ DPD assets’ and ‘Gross impaired assets’, divided by gross loans and acceptances.

90+ DPD assets 90+ DPD assets consist of assets that are contractually 90 days or more past due, but not impaired.

AA1000 Stakeholder Engagement Standard The standard is designed to enable organisations to respond to stakeholders in a comprehensive and balanced way. These are based on the principles Inclusivity, Materiality, Responsiveness, and Impact.

AASB Australian Accounting Standards Board.

Accountable Person An accountable person for the purposes of the Banking Act 1959 (Cth).

Additional Tier 1 (AT1) capital AT1 capital comprises high quality components of capital that satisfy the criteria for inclusion as Additional Tier 1 capital as defined in APS 111 Capital Adequacy: Measurement of Capital.

ADI Authorised Deposit-taking Institution.

ADR American Depositary Receipt.

AGM Annual General Meeting of National Australia Bank Limited.

AML Anti-Money Laundering.

Annual Variable Reward (VR) An 'at risk' opportunity for individuals to receive an annual performance-based reward. The actual VR that an individual will receive in any particular year will reflect both business and individual performance.

APRA Australian Prudential Regulation Authority.

APS Prudential Standards issued by APRA applicable to ADIs.

ASIC Australian Securities and Investments Commission.

ASX Australian Securities Exchange Limited (or the market operated by it).

AUSTRAC Australian Transaction Reports and Analysis Centre.

Available stable funding (ASF) The portion of an ADI's capital and liabilities expected to be reliably provided over a one-year time horizon.

Average equity (adjusted) Average equity adjusted to exclude non-controlling interests and other equity instruments.

Average interest earning assets The average balance of assets held by the Group over the period that generate interest income.

Bank levy A levy imposed under the Major Bank Levy Act 2017 (Cth) on ADIs with total liabilities of more than $100 billion.

Basel III Basel III is a global regulatory framework designed to increase the resilience of banks and banking systems and was effective for ADIs from 1 January 2013.

BBSW Bank Bill Swap Rate.

BEAR Banking Executive Accountability Regime.

BEAR Accountable Person For the purposes of BEAR, NAB has registered certain individuals (the directors, Group Executives, Executive Internal Audit and Executive Group Money Laundering Reporting Officer) as ‘Accountable Persons’ with APRA.

BNZ Bank of New Zealand, a subsidiary of National Australia Bank Group.

BNZ Life BNZ Life was the Group's New Zealand life insurance business operating as BNZ Life. The sale of BNZ Life to New Zealand life insurance provider Partners Life completed on 30 September 2022.

Business lending Lending to non-retail customers including overdrafts, asset and lease financing, term lending, bill acceptances, foreign currency loans, international and trade finance, securitisation and specialised finance.

Carbon neutral in operations Refers to the process the Group follows to first avoid and reduce greenhouse gas emissions associated with NAB's operational Scope 1, 2 and 3 emissions (excluding financed emissions) and then to retire carbon offsets for residual emissions. NAB's Australian operations are certified carbon neutral under the Climate Active Standard for Organisations. BNZ and JBWere NZ are Toitū net carbonzero organisation certified.

Cash earnings Cash earnings is a non-IFRS key performance measure used by the Group and the investment community. Cash earnings is defined as net profit attributable to owners of the Company from continuing operations adjusted for non-cash items, including items such as hedging and fair value volatility, the amortisation of acquired intangible assets and gains or losses on certain other items associated with acquisitions, disposals and business closures.

Cash net interest income (Cash NII) Cash NII is derived from statutory net interest income, including management adjustments for fair value hedge ineffectiveness and a reclassification of income from the NAB Wealth Business that management considers better reflected in net interest income for their purposes. In these financial statements, there is no material difference between Cash NII and statutory net interest income.

Cash return on equity (cash ROE) Cash earnings after tax expressed as a percentage of average equity (adjusted).

CGU Cash-generating unit.

Citi consumer business Citi consumer business refers to Citigroup's Australian consumer business, acquired by the Group in June 2022.

Citigroup Citigroup Pty Limited and Citigroup Overseas Investment Corporation.

Committed Liquidity Facility (CLF) A facility provided by the RBA to certain ADIs to assist them in meeting the Basel III liquidity requirements. The CLF was reduced to zero on 1 January 2023.

Common Equity Tier 1 (CET1) capital CET1 capital ranks behind the claims of depositors and other creditors in the event of winding-up of the issuer, absorbs losses as and when they occur, has full flexibility of dividend payments and has no maturity date. CET1 capital consists of the sum of paid-up ordinary share capital, retained profits plus certain other items as defined in APS 111 Capital Adequacy: Measurement of Capital.

Common Equity Tier 1 capital ratio CET1 capital divided by risk-weighted assets.

Company National Australia Bank Limited (NAB) ABN 12 004 044 937.

Compensation Scheme of Last Resort (CSLR) The CSLR is a scheme designed to make payments on a last-resort basis to eligible consumers where determinations by the Australian Financial Complaints Authority (AFCA) for compensation remain unpaid, as approved by the Australian Parliament in June 2023.

Continuing operations Continuing operations are the components of the Group which are not discontinued operations.

Core assets Represents gross loans and advances including acceptances, financial assets at fair value, and other debt instruments at amortised cost.

Cost to income ratio (CTI) Represents operating expenses as a percentage of operating revenue.

CO₂-e (carbon dioxide equivalent) The common unit of measure for the expression of Greenhouse Gas (GHG) emissions. Each unit of GHG has a different global warming potential. Therefore, all greenhouse gases are converted back to tonnes (tCO₂-e) of carbon dioxide equivalent to enable consistent comparison and measurement.

CQiB Career Qualified in Banking program.

CTF Counter-Terrorism Financing.

Customer deposits The sum of interest bearing, non-interest bearing and term deposits (including retail and corporate deposits).

Customer Funding Index (CFI) Customer deposits (excluding certain short dated institutional deposits used to fund liquid assets) divided by core assets.

D-SIB Domestic Systemically Important Banks.

Default Default occurs when a loan obligation is contractually 90 days or more past due, or when it is considered unlikely that the credit obligation to the Group will be paid in full without remedial action, such as realisation of security.

Default but not impaired assets Calculated as the sum of '90+ DPD assets' and 'Default <90DPD but not impaired assets'.

Dilutive potential ordinary share A financial instrument or other contract that may entitle its holder to ordinary shares and which would have the effect of decreasing earnings per share. For the Group in the September 2023 full year, these include convertible notes and notes issued under employee incentive schemes.

Discontinued operations Discontinued operations are a component of the Group that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations, which is part of a single coordinated plan for disposal.

Distributions Payments to holders of equity instruments other than ordinary shares, including National Income Securities.

Dividend payout ratio Dividends paid on ordinary shares divided by cash earnings per share.

DLP Distinctive Leadership program.

EaR Earnings at risk.

Earnings per share - basic Calculated as net profit attributable to ordinary equity holders of the parent (statutory basis) or cash earnings (cash earnings basis), divided by the weighted average number of ordinary shares.

Earnings per share - diluted Calculated as net profit attributable to ordinary equity holders of the parent (statutory basis) or cash earnings (cash earnings basis), divided by the weighted average number of ordinary shares, after adjusting both earnings and the weighted average number of ordinary shares for the impact of dilutive potential ordinary shares.

Economic adjustments The economic adjustment forms part of the provision for credit impairment derived from reasonable and supportable forecasts of potential future conditions (forward looking information) that is not captured within the underlying credit provision. It incorporates general macro-economic forward looking information (for example, GDP, unemployment and interest rates).

Enforceable Undertaking (EU) An enforceable undertaking under subsection 197(1) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) entered into between NAB and the CEO of AUSTRAC on 29 April 2022, in relation to concerns identified by AUSTRAC with the Group’s compliance with certain AML and CTF requirements which were the subject of a formal investigation by AUSTRAC.

Environmental reporting year Environmental reporting period from 1 July to 30 June. Aligned with the National Greenhouse and Energy Reporting Act 2007 (Cth).

Executive Leadership Team (ELT) Executive Leadership Team means the Group CEO and the Group Executives.

Fair value The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date.

Fair value (for the purposes of equity awards set out in the Remuneration Report) The value of the awards provided are measured by reference to the grant date fair value of the shares and performance rights provided to employees. The grant date fair value of each share is determined by the market value of NAB shares, and is generally a five-day weighted average share price. The fair value of the shares and performance rights with market performance hurdles is determined using a simulated version of the Black-Scholes model.

FINSIA Financial Services Institute of Australasia.

Fixed Remuneration (FR) Base salary and superannuation paid regularly during the year.

Forward looking adjustment (FLA) Forward looking adjustments reflect part of the provision for credit impairment derived from reasonable and supportable forecasts of potential future conditions (forward looking information) that are not otherwise captured within the underlying credit provision or the economic adjustments. They incorporate more targeted sector-specific forward looking information.

Full-time equivalent employees (FTEs) Includes all full-time, part-time, temporary, fixed term and casual employee equivalents, as well as agency temporary employees and external contractors either self-employed or employed by a third party agency. Note: this excludes consultants, IT professional services, outsourced service providers and non-executive directors.

Greenhouse gas (GHG) emissions Gaseous pollutants released into the atmosphere that amplify the greenhouse effect. Gases responsible include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.

Gross Domestic Product (GDP) GDP is the market value of finished goods and services produced within a country in a given period of time.

Gross impaired assets Calculated as the sum of ‘Impaired assets’ and ‘Restructured loans’.

Gross loans and acceptances (GLAs) Total loans, advances and acceptances, including unearned and deferred fee income, excluding associated provisions for expected credit losses. Calculated as the sum of 'Acceptances', 'Loans and advances at fair value’ and ‘Loans and advances at amortised cost’.

Group NAB and its controlled entities.

Group Executives The ELT, excluding the Group CEO.

Group Performance Indicators (GPI) A scorecard of financial and non-financial performance measures linked to the Group’s key strategic priorities, overlaid by a qualitative assessment. The GPI is used to assess the Group’s performance for the purpose of the Annual VR Plan.

Hedging and fair value volatility This volatility represents timing differences between the unrealised gains or losses recognised over the term of the transactions and the ultimate economic outcome which will only be realised in future. This volatility arises primarily from fair value movements relating to trading derivatives held for risk management purposes; fair value movements relating to assets, liabilities and derivatives designated in hedge relationships; and fair value movements relating to assets and liabilities designated at fair value.

High-quality liquid assets (HQLA) Consists primarily of cash, deposits with central banks, Australian government and semi-government securities and securities issued by foreign sovereigns as defined in APS 210 Liquidity.

Housing lending Mortgages secured by residential properties as collateral.

IBOR Interbank Offered Rates.

IFRS International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

Impaired assets Consists of: Retail loans (excluding unsecured portfolio managed facilities) which are contractually 90 days or more past due with security insufficient to cover principal and interest or where sufficient doubt exists about the ability to collect principal and interest in a timely manner. Non-retail loans which are contractually past due and / or where there is sufficient doubt the ability to collect principal and interest. Off-balance sheet credit exposures where current circumstances indicate that losses may be incurred. Unsecured portfolio managed facilities that are 180 days or more past due (if not written off).

Imputation credit Tax credit passed on to shareholders who receive partially or fully franked dividend / distribution.

Interim 2030 sector-specific decarbonisation targets (sector decarbonisation targets) Refers to targets set at intervals towards over-arching net zero by 2050 targets. NAB's first wave of interim targets are set for 2030. Also referred to as 'sector targets'.

Internal ratings-based (IRB) An approach to calculate capital requirements for credit risk exposures, which utilises the outputs of internally developed credit risk measurement models.

Just transition Global effort to transition to a low carbon economy in a way that is as fair and inclusive as possible to all people, creating decent work opportunities and leaving no one behind.

Key Management Personnel (KMP) NAB's Key Management Personnel (KMP) is assessed each year and comprises the non-executive directors of NAB, the Group CEO (an executive director of NAB) and those employees of the Group who have authority and responsibility for planning, directing and controlling the activities of both NAB and the Group.

Leverage ratio Tier 1 capital divided by exposures as defined by APS 110 Capital Adequacy. It is a simple, non-risk based measure to supplement the risk-weighted assets based capital requirements. Exposures include on-balance sheet exposures, derivative exposures, securities financing transaction exposures and non-market related off-balance sheet exposures.

Lifetime expected credit losses (ECL) The ECL that result from all possible default events over the expected life of a financial instrument.

Liquidity Coverage Ratio (LCR) A metric that measures the adequacy of HQLA available to meet net cash outflows over a 30-day period during a severe liquidity stress scenario.

Location-based accounting An emissions accounting approach that calculates electricity emissions based on the average emissions intensity of the electricity grid in the location (state) in which the electricity consumption occurs. Location-based accounting therefore does not recognise the surrender of LGCs as evidence of renewable electricity use.

Long Term Variable Reward (LTVR) An 'at risk' opportunity for the ELT to receive a long-term performance-based reward, vesting after a four-year performance period subject to the applicable performance hurdle. The actual LTVR that an individual will receive on vesting will reflect achievement of the performance hurdle.

Market-based accounting An emissions accounting approach that allows total electricity consumption to be reduced by the megawatt hours of renewable electricity consumed by the company before applying an emissions factor to grid-imported electricity. Market-based accounting therefore recognises the surrender of LGCs as evidence of renewable electricity use.

MLC Life MLC Limited.

MLC Wealth MLC Wealth was the Group’s Wealth division which provided superannuation, investments, asset management and financial advice to retail, corporate and institutional customers, supported by several brands including MLC, Plum and investment brands under MLC Asset Management. The sale of MLC Wealth to Insignia Financial Ltd completed on 31 May 2021.

NAB 'NAB' or the 'Company' means National Australia Bank Limited ABN 12 004 044 937.

NAB Foundation A registered charity which does not form part of the Group.

NAB risk management Management of interest rate risk in the banking book, wholesale funding and liquidity requirements and trading market risk to support the Group’s franchises.

Net interest margin (NIM) Net interest income derived on a cash earnings basis expressed as a percentage of average interest earning assets.

Net Promoter Score (NPS) 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. Net Promoter Score measures the likelihood of a customer's recommendation to others.

Net Stable Funding Ratio (NSFR) A ratio of the amount of available stable funding (ASF) to the amount of required stable funding (RSF).

Non-performing exposures Exposures which are in default aligned to the definition in APS 220 Credit Risk Management.

NZBA Net Zero Banking Alliance.

Official Cash Rate Official Cash Rate is an interest rate set by the Reserve Bank of New Zealand.

PPS Perpetual preference shares.

PRB Principles for Responsible Banking

RBA Reserve Bank of Australia.

RBNZ Reserve Bank of New Zealand.

Required stable funding (RSF) The amount of stable funding an ADI is required to hold measured as a function of the liquidity characteristics and residual maturities of the various assets held by an ADI, including off-balance sheet exposures.

Risk-weighted assets (RWA) A quantitative measure of risk required by the APRA risk-based capital adequacy framework, covering credit risk for on and off-balance sheet exposures, market risk, operational risk and interest rate risk in the banking book.

RMBS Residential Mortgage Backed Securities.

Royal Commission The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry established on 14 December 2017 by the Governor-General of the Commonwealth of Australia to conduct a formal public inquiry into Australian financial institutions.

Scope 1 This includes direct emissions from within an organisation’s boundary. These emissions are from sources that the organisation owns or controls such as:
- Combustion of fuel in boilers, furnace or generators that are owned or controlled by the reporting company.
- Generation of electricity, steam or heat in equipment that is owned or controlled by the reporting company.
- Business travel in vehicles such as company cars or corporate jets that are owned or controlled by the reporting company, colleague commuting in company-owned or controlled vehicles, such as company cars.
- Hydrofluorocarbon emissions from company-owned or controlled refrigeration or air-conditioning equipment.

Scope 2 Indirect emissions from electricity that is used by the organisation but is generated outside the organisation’s boundary by another company, such as an electricity provider. This is called ‘purchased electricity’. This includes indirect emissions from purchased or acquired electricity, steam, heat or cooling.

Scope 3 All other indirect emissions that occur outside the boundary of the organisation as a result of the activities of the organisation, including indirect emissions from:
- Business travel in non-company owned or controlled vehicles, such as rental cars, colleague cars, rail and commercial planes.
- Combustion of fuel in boilers or furnaces not owned or controlled by the reporting company.
- Energy used by colleagues working from home.
- Third-party production or manufacture of materials and resources used by the reporting company, such as furniture, paper and equipment.
- Indirect losses resulting from the transmission of electricity and other fuels.
- Emissions generated through the investments a company makes, see definition for 'Financed emissions'.

Securitisation Structured finance technique which involves pooling, packaging cash flows and converting financial assets into securities that can be sold to investors.

SME Small and medium-sized enterprises.

Stable Funding Index (SFI) Term Funding Index (TFI) plus Customer Funding Index (CFI).

Standardised approach An alternative approach used to calculate the capital requirement for credit risk, which utilises regulatory prescribed risk-weights based on external ratings and / or the application of specific regulator defined metrics to determine risk-weighted assets.

Standardised Measurement Approach (SMA) An approach used to calculate the capital requirement for operational risk based on a business indicator, a financial statement proxy of operational risk exposure. This approach was applied by the Group from 1 January 2022.

Statutory net profit Net profit attributable to owners of the Company.

Statutory return on equity Statutory earnings after tax expressed as a percentage of average equity (adjusted), calculated on a statutory basis.

Structured entity An entity created to accomplish a narrow well-defined objective (e.g. securitisation of financial assets). A structured entity may take the form of a corporation, trust, partnership or unincorporated entity. Structured entities are often created with legal arrangements that impose strict limits on the activities of the structured entity.

TCFD The Financial Stability Board Task Force on Climate-related Financial Disclosures.

Term Funding Index (TFI) Term wholesale funding with remaining maturity to first call date greater than 12 months, including Term Funding Facility (TFF) drawdowns divided by core assets.

Tier 1 capital Tier 1 capital comprises CET1 capital and instruments that meet the criteria for inclusion as Additional Tier 1 capital set out in APS 111 Capital Adequacy: Measurement of Capital.

Tier 1 capital ratio Tier 1 capital divided by risk-weighted assets.

Tier 2 capital Tier 2 capital comprises other components of capital that, to varying degrees, do not meet the requirements as Tier 1 capital but nonetheless contribute to the overall strength of an ADI and its capacity to absorb losses.

Top quartile Top quartile comparison is based upon Glint’s client group (domestic and global, from all industries).

Total average assets The average balance of assets held by the Group over the period, adjusted for discontinued operations.

Total capital Tier 1 capital plus Tier 2 capital.

Total capital ratio Total capital divided by risk-weighted assets.

Total Shareholder Return (TSR) The return that a shareholder receives through dividends (and any other distributions) together with capital gains over a specific period.

Treasury shares Shares issued to meet the requirements of employee incentive schemes which have not yet been distributed.

UN PRB United Nations Principles for Responsible Banking.

Underlying profit / loss Underlying profit / loss is a non-IFRS performance measure used by the Group. It represents cash earnings before credit impairment charges and income tax expense.

UNEP FI Guidelines United Nations Environment Programme Finance Initiative Guidelines for Climate Target Setting for Banks.

Value at Risk (VaR) A mathematical technique that uses statistical analysis of historical data to estimate the likelihood that a given portfolio’s losses will exceed a certain amount.

Weighted average number of ordinary shares The number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period.

F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 F8SB4JFBSYQFRQEH3Z21 2023-09-30 F8SB4JFBSYQFRQEH3Z21 2022-09-30 F8SB4JFBSYQFRQEH3Z21 2021-09-30 F8SB4JFBSYQFRQEH3Z21 2021-09-30 ifrs-full:IssuedCapitalMember F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 ifrs-full:IssuedCapitalMember F8SB4JFBSYQFRQEH3Z21 2022-09-30 ifrs-full:IssuedCapitalMember F8SB4JFBSYQFRQEH3Z21 2021-09-30 ifrs-full:OtherReservesMember F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 ifrs-full:OtherReservesMember F8SB4JFBSYQFRQEH3Z21 2022-09-30 ifrs-full:OtherReservesMember F8SB4JFBSYQFRQEH3Z21 2021-09-30 ifrs-full:RetainedEarningsMember F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 ifrs-full:RetainedEarningsMember F8SB4JFBSYQFRQEH3Z21 2022-09-30 ifrs-full:RetainedEarningsMember F8SB4JFBSYQFRQEH3Z21 2021-09-30 ifrs-full:EquityAttributableToOwnersOfParentMember F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 ifrs-full:EquityAttributableToOwnersOfParentMember F8SB4JFBSYQFRQEH3Z21 2022-09-30 ifrs-full:EquityAttributableToOwnersOfParentMember F8SB4JFBSYQFRQEH3Z21 2021-09-30 ifrs-full:NoncontrollingInterestsMember F8SB4JFBSYQFRQEH3Z21 2021-10-01 2022-09-30 ifrs-full:NoncontrollingInterestsMember F8SB4JFBSYQFRQEH3Z21 2022-09-30 ifrs-full:NoncontrollingInterestsMember F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 ifrs-full:IssuedCapitalMember F8SB4JFBSYQFRQEH3Z21 2023-09-30 ifrs-full:IssuedCapitalMember F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 ifrs-full:OtherReservesMember F8SB4JFBSYQFRQEH3Z21 2023-09-30 ifrs-full:OtherReservesMember F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 ifrs-full:RetainedEarningsMember F8SB4JFBSYQFRQEH3Z21 2023-09-30 ifrs-full:RetainedEarningsMember F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 ifrs-full:EquityAttributableToOwnersOfParentMember F8SB4JFBSYQFRQEH3Z21 2023-09-30 ifrs-full:EquityAttributableToOwnersOfParentMember F8SB4JFBSYQFRQEH3Z21 2022-10-01 2023-09-30 ifrs-full:NoncontrollingInterestsMember F8SB4JFBSYQFRQEH3Z21 2023-09-30 ifrs-full:NoncontrollingInterestsMember iso4217:AUD iso4217:AUD xbrli:shares