MAY 23, 2015 12:00AM
When National Australia Bank chief Andrew Thorburn this month formalised plans to sell the group’s British subsidiary Clydesdale, he ticked off one of the biggest problems on his lengthy to-do list.
But once the applause stopped, investors homed in on the need to fix the bank’s business-lending arm after NAB insisted allocating more capital and attention to Australia would drive stronger earnings and support its lofty dividend payout ratio.
On his first day in the top job on August 1, Thorburn gave the critical job of running the business bank to Angela Mentis, a long-time banker who was little known to the investment community.
With NAB the biggest player in the $800 billion business-lending market and Westpac boss Gail Kelly recently retiring, it made Mentis one of the nation’s most senior female bankers — with all the pressures that go with it.
“It’s a big call for Thorburn, as if she doesn’t work out it blows him up,” says one analyst, who declined to be named.
Mentis, whose Greek-born parents ran an array of small businesses including takeaway food outlets around Sydney, describes the appointment as a privilege that also comes with “great responsibility”.
“I have a strong sense of personal accountability and it is having the right team around me and an unwavering belief in what we are doing that helps in dealing with the pressure,” she tells The Weekend Australian.
After a good period following the global financial crisis when foreign banks departed and NAB’s margins expanded, the business bank has underperformed since 2011 and cost the group almost $500 million a year as market share slid, according to Macquarie.
But Mentis has time. Thorburn this month said it would take 18 months to get the business bank “completely match-fit” again. It won’t be cheap after the business unit’s cost to income ratio slid to unsustainably low levels in the wake of the GFC, according to analysts.
But Mentis says investments are being made in priority areas like small to medium business, agriculture and health, and has already hired 150 frontline business bankers as part of a $40m injection. “The key problem we had was under-investment in recent years in people, remuneration, training, products, policies and processes, so that resulted in a higher turnover of bankers,” says Mentis, who is hiring 70 more bankers.
“But we’re focused now and absolutely committed to investing and ensuring that we are an employer of choice ... making sure we can attract, retain and grow, and put the investment where it is needed.
“The return on equity in our priority segments is 10-15 per cent higher than in other segments — the top end of town — that we look after.
“So we are investing in the right segments … because we know that’s the core part of the franchise that will absolutely help us turn the business around.”
While NAB has been criticised for a culture of blaming others, several analysts have in recent years backed up Mentis’s claims.
According to Macquarie’s analysis in January, about 700 business bankers left NAB in 2012 and 2013 amid under-investment in its business bank, the group’s former “jewel in the crown”.
Mentis dismisses the suggestion the business bank was an unhappy place, but admits it was paying below market and has rectified that because “you can’t have the best people unless you are rewarding them accordingly”.
As ANZ and Westpac eagerly seek to add small business bankers, Mentis says NAB has been working on its overall “package” to staff, ensuring bankers have the “right” leadership, products and systems to perform.
“I am pleased we’ve been able to attract the amount of people we have,” says Mentis, who took the reins from Joseph Healy.
“We know when we talk to our clients there is a strong correlation between their engagement and advocacy for us and the tenure of our bankers.
“So we know we have to keep that relationship together for longer. There is more work to do on that. It’s a journey but it’s starting to show in the results.”
In the six months to March 31, business banking revenue rose 0.4 per cent to $3.9bn as it held market share in the key micro and SME markets.
While margins shrank six basis points to 2.11 per cent amid competition that Mentis describes as “absolutely intense”, business lending balances grew 4.5 per cent to $172bn.
Mentis says while there’s a “lag” between investment and returns, the results showed progress. She adds it takes time for new bankers to get comfortable in their roles and produce profits. Despite SMEs being small borrowers, they are lucrative for banks to cross-sell products. “Even though competition has been intense, we have been able through the investment and focus on discipline and relationship management to grow volumes, stabilise our revenue,” Mentis says. “We expect as people become more confident in their roles and the investment flows through, that should continue in the second half.”
A key problem for all banks is poor business customer satisfaction.
While NAB has the third worst net promoter score — customers’ likelihood to recommend institutions — of the big four in small and business banking, all the big four are in negative territory.
“None of us are where we should be but there is a big prize for the bank that absolutely understands that,” Mentis says.
“I have seen over 1000 customers face to face since I got into this job ... and it is about making sure we understand what is important to them.
“They want us to know them, they want us to bring them insights, they want us to help them grow, improve the service that lets them down and remove barriers that get in their way.”