The Key Drivers of NAB's Cost of Funds December 2009

The key drivers of NAB’s cost of
funds
December 2009
Contents
1. How we fund our balance sheet
2. Customer deposits
3. Term wholesale funding
4. Short term wholesale
5. Overall funding cost picture
2
There are three key sources of funds for a bank
National Australia Bank Balance Sheet
Customer Deposits (55-60%): Mortgages Custom er Deposits
money which is deposited by retail

and business customers.
Wholesale term funding (20%): Credit Cards Term Wholesale
larger, institutional investors buying Bills
debt securities issued by the bank for Corporate Lending

Short Term
a fixed term (normally 2-5 years). Wholesale
Short term wholesale funding (20-

25%): larger investors buying shorter $300 B $300 B
term (normally 1-6 months) securities
issued by the bank.
Customer Deposits
• The global financial crisis has pushed up the cost of offshore wholesale borrowing and made access to
overseas markets more difficult
• This has forced all banks to rely more upon domestic deposits, which in turn has pushed up customer
deposit costs substantially.
•The cost of deposits has risen by around 1-1.2% over the past 12 months and we expect this cost to
increase further into 2010.
A v e r a g e 3 -5 M th B l a c k b o a r d R a te a n d B B S W
9 .0 0 %
8 .0 0 % 90 Da y B BS W
3 - 5 m o n th s B la c k b o a r d R a te
7 .0 0 %
6 .0 0 %
5 .0 0 %
4 .0 0 %
3 .0 0 %
5
9
5
9
5
9
6
07
8
5
9
5
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7
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3-
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10
28
16
12
19
14
27
12
23
23
23
19
25
10
19
25
10
Term Wholesale Funding
Cost of Wholesale Term Funding
200
Un-guaranteed UK and Recently, NAB has had to raise Offshore
Euro public issue term funding at ~150bps, and our FY10
180 Monthly Issuance Margin forecast (130bps) recognises that term
funding will need to be raised both on and
Culmulative W'td Avg Margin offshore
160 Lehman Brothers Collapse -
Forecast Issuance Margin Introduction of 70bp Govt
Guarantee
Forecast W'td Avg Margin
140
120 Bear Sterns Collapse

(Mar-Apr 08)
Cost (bps)
Weighted average cost of funding will

100 continue to increase even as the
marginal cost of funding falls.
80 ~100bps
60
40 Start of the Credit Crisis

(July-Aug 07)
20
-
5
Ja 5
Ja 6
Ja 7
Ja 8
Ja 9
Ja 0
1
5
No 5
06
M 6
No 6
07
M 7
No 7
M 8
M 8
No 8
M 9
M 9
No 9
10
M 0
No 0
11
M 1
11
Se 5
Se 6
Se 9
Se 0
Se 1
-0
-0
-0
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• Pre-crisis wholesale term funding costs averaged 0.15%-0.20%.

•Following the collapse of Lehman Bros, term funding costs increased sharply to over 1.70% in the half year
ending March (including Govt Guarantee fee).
• Recently, the cost of domestic issued debt has eased, but offshore issue costs are high.
•This month NAB issued un-guaranteed EUR2bn (AUD3.2b) 5 year term funding at a cost of 1.73%.
Short Term Wholesale
•Current Bills OIS spreads are now averaging around 0.3%.

•The global financial crisis caused short term funding costs to rise sharply as banks were forced to
raise more money onshore.
•Pre-crisis, short term funding costs averaged 0.07%-0.10%, but post-crisis, these costs have
averaged 0.40%.
•As financial markets have become more stabile, short term funding costs have eased. However
there is still volatility.
6
Overall Funding Cost Picture
Throughout 2008/2009 most of our increased funding costs were driven by higher short term funding
costs.
Recently short term funding costs have eased, however term wholesale and customer funding costs
have increased.
We expect overall costs to increase into 2010, driven mainly by the rising average cost of term wholesale
and retail deposit costs.
Cost of Funding a Standard Variable Rate Mortgage
140
Liquidity
120 Term Funding
Customer Deposits
Bills / OIS
100
Basis Points
80
60
40
20
0
07
08
09
9
is
)
7
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The Key Drivers of NAB's Cost of Funds December 2009

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The Key Drivers of NAB's Cost of Funds December 2009

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The key drivers of NAB’s cost of

1. How we fund our balance sheet

3. Term wholesale funding

4. Short term wholesale

5. Overall funding cost picture

National Australia Bank Balance Sheet

Customer Deposits (55-60%): Mortgages Custom er Deposits

money which is deposited by retail

debt securities issued by the bank for Corporate Lending

Short term wholesale funding (20-

120 Bear Sterns Collapse

Weighted average cost of funding will

40 Start of the Credit Crisis

• Pre-crisis wholesale term funding costs averaged 0.15%-0.20%.

•Current Bills OIS spreads are now averaging around 0.3%.

120 Term Funding

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