April 17, 2019 / 11:23 PM / a month ago

UPDATE 3-Australia's NAB flags extra $537 mln provision for customer refunds, talks dividend review

* New provision for refunds to hit earnings by A$325 mln

* Total customer-remediation provisions stand at A$1.2 bln

* Board to review dividend policy - analysts expect cut to 90c

* Credit Suisse analysts say more refund charges to come (Adds dividend cut estimate, more provisions to come, former adviser sued by regulator)

By Paulina Duran

SYDNEY, April 18 (Reuters) - National Australia Bank Ltd , the country’s fourth-largest, on Thursday flagged an additional A$749 million ($537.18 million) in charges to refund thousands of wronged customers and said it would review its dividend policy.

Melbourne-based NAB said it has now put aside A$1.10 billion to compensate customers as it speeds up efforts to regain public trust after a damaging misconduct inquiry in the sector.

The inquiry has put banks and investment firms under pressure to clean up processes that led to customers being automatically billed for wealth management advice they did not receive.

NAB was singled out by the inquiry for an apparent unwillingness by its executives to accept responsibility for past wrongs, which resulted in the resignation of its CEO and chairman.

NAB’s extra provisions will result in a A$325 million hit to cash earnings for the first half of this year, which the lender is due to release on May. 2.

About 91 percent of the new provisions were related to its wealth management division such as non-compliant financial advice and incorrectly-charted fees, with the balance related to banking matters.

The new charges included an assumption it would have to refund 31 percent of service fees charged by employed advisers, and the costs of reviewing service fees provided by its much larger self-employed adviser network.

The provisions excluded, however, any customer refunds that might be necessary to refund customers of self-employed advisers, the bank said.

Credit Suisse analyst said that applying the same fee refund rate meant the bank might have to account for another A$200 million to A$300 million in refunds.

The Australian Securities and Investments Commission (ASIC) in March rebuked the banks for delays in fixing internal systems that resulted in customers paying fees for services they had not received.

On Thursday, the regulator said a former NAB adviser had been charged with criminal offences for “obtaining a financial advantage by deception”.

NAB’s wealth management unit is already defending a civil lawsuit launched by the regulator last year, accusing its pension funds of charging fees with no service to hundreds of thousands of retirees.

DIVIDEND CUTS

NAB also said that “as is the usual practice”, its board would review the bank’s dividend settings, a comment analysts believe increases the chances the lender could lower its dividend payout.

“We believe this statement supports our view that NAB’s dividend will be cut next month,” Azib Khan, a banking analyst at stockbroker Morgans said. Credit Suisse analysts said the bank would likely lower its interim dividend by nine cents to 90 cents per share.

Under pressure from regulators and lawmakers, all the major banks have increased material provisions related to efforts to remediate customers for banking misconduct.

NAB shares were largely unchanged on Thursday morning following the announcement, in line with the broader market.

“We are putting things right where we have treated our customers poorly and making sure that they are compensated more quickly,” NAB’s Chief Executive Officer, Philip Chronican said in a statement.

Chronican said there were currently around 350 employees dedicated to remediating customers, and that is expected to rise to around 500.

$1 = 1.3943 Australian dollars Reporting by Paulina Duran in Sydney. Additional reporting by Nikhil Subba in Bengaluru. Editing by Michael Perry

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