That Andrew Thorburn was prepared to knock back $16 billion in business last financial year says a lot about his vision for the remade National Australia Bank.
The bank's full-year results for 2016 mark something of a milestone for the chief executive, who started in August 2014.
His job as Mr Fix-it is over. The bank's troubled British operations are gone, and the wealth division's life insurance business has been sold off too.
What's left is what Thorburn describes as the "strong core" of the bank, focused very deliberately on the Australian and New Zealand markets – and nothing else.
"This is the first time in my 12 years in the bank that we are able to focus, really exclusively, on Australia and New Zealand," he said on Thursday as he delivered a $6.48 billion profit for a year he described as one of considerable change.
But having completed the clean-up operation that had plagued some of his predecessors and simplified the bank to focus on its traditional home ground, Thorburn will face a range of new and continuing challenges.
There are the ferocious pressures on margins, highlighted most prominently in the 2016 year by rising short-term funding costs.
There are lingering concerns about bad debts, particularly in New Zealand's struggling dairy sector and the Australian mining and mining services sectors.
Lack of growth in sector
And there is the distinct lack of growth in the Australian banking sector. The broad slowdown in growth momentum that we've seen across the banks in the last six or so months – and are likely to see when ANZ and Westpac report next week – was confirmed by NAB's numbers, which showed no revenue growth in the September half compared to the six months to March 31.
"It is likely to be a low-growth environment going forward," Thorburn says.
So why would he and his team be prepared to knock back $16 billion in business?
The answer goes to how Thorburn plans to maintain and hopefully lift returns at NAB by not chasing the right sort of business.
A lot of that $16 billion, Thorburn explained on Thursday, was providing debt facilities to large corporates, where the returns on offer are simply below the cost of capital.
But while some of those corporate and institutional customers are long-term, high-quality ones – and Thorburn says the bank will take a medium to long-term view on supporting them – the priority is chasing loans that provide better returns.
"We will be very disciplined about where we apply capital, not just chasing growth for growth's sake," Thorburn says.
In addition to passing on that $16 billion worth of business, a further $5.6 billion of single-digit return on equity loans were run off, replaced with loans delivering better returns.
The focus on how NAB allocates its capital plays to the broader story of banks looking to build their capital levels ahead of incoming regulatory requirements.
When the Basel Committee on Banking Supervision finalises its new capital requirements at the end of the calendar year, all of the majors are expected to have a fair bit of work to do to get their capital levels to a point where they can meet the Australian Prudential Regulation Authority's slightly fuzzy requirement of being "unquestionably strong".
Cut dividends
Analysts expect most banks will be forced to cut their dividends to help meet the new capital rules – and many had expected NAB could trim its payment on Thursday.
That didn't happen, with the dividend staying at 99c. Thorburn explained that the board had decided that this half at least, the payout was appropriate. The directors felt the bank's capital levels were appropriate, its earnings were solid and the outlook was strong enough to support the dividend.
There's also the issue of NAB's not insubstantial pool of franking credits – Thorburn says that it makes sense to distribute them when and where they can.
But that focus on ROE also helps reduce the need to cut the dividend to conserve capital. By targeting less capital-intensive and higher-return loans, NAB can decrease its level of risk-weighted asset growth, which in turn reduces its need for additional capital.
Thorburn was pleased, and analysts impressed, with the fact that the bank's return on equity has risen from 13.8 per cent a year ago to 14.3 per cent at the end of September, in line with the wider sector. Again, this a symbol of the work done to clean things up – the big drags on ROE, such as those coming from the UK operations, are now gone.
"The bank has been so distracted for so long, yet we've still managed to be basically competitive. Now we can look forward to a period of real focus," Thorburn says.
Productivity savings
"I think this is the start of a new chapter for the bank."
The challenge, of course, is to ensure that level of ROE is sustainable. As part of that effort, Thorburn will also go after costs, chasing $200 million of productivity savings per annum that will come from reducing its $3.8 billion pool of third-party payments (of which IT, property and postage and telecommunications are the biggest individual items), automating more processes within the bank (more than 30 will be done in 2016-17), and making customer transactions quicker.
But Thorburn emphasises that he will be careful not to "short term" the bank by cutting costs too hard – having revived ROE, he is determined to ensure it is sustainable for the long term.
For all that, though, there is still the question about whether the dividend would need to start coming down in the future. Thorburn side-stepped this on Thursday, saying that the board would "continue to monitor to the situation". Changes to capital requirements, earnings and/or the economic outlook facing the bank will determine where the payouts head.
Digging into that trio of criteria, it becomes clear that future dividend decisions are likely to come down to capital.
The outlook for earnings is pretty stable. Bad debts appear under control, despite ongoing concerns inside the bank about the situation in the New Zealand dairy sector and the Australian mining and mining services sectors. There are analyst concerns, too, about the Australian apartment market. Competitive pressures and rising funding costs are challenges too, but NAB is holding its own in personal and business banking market share.
The general economic outlook is reasonable too; Thorburn painted a reasonably rosy picture of the growing Australian and Kiwi economies, although he says global uncertainties remain.
Which leaves capital. Thorburn made it clear that NAB feels comfortable right now and analysts applauded the bank for lifting its common tier 1 equity by 8 basis points in the September half to 9.8 per cent, thanks in part to the sale of 80 per cent of its life insurance business.
The CT1 level is now well above the bank's target range of 8.75 per cent to 9.25 per cent. But whether capital levels remain adequate in the next few years will depend on how quickly the Basel Committee and APRA move.
It may well be that when the NAB board meets in March 2017 it will be time to gently take the knife to the dividend. But Thorburn's laser focus on the right loans delivering the right returns could yet see that timeline extended.
Dalla Valle departs
Don't be confused by the timing of the decision by BHP Billiton to part ways with Dean Dalla Valle, its chief commercial officer and the executive sent to Brazil to oversee the miner's response to the disaster at its Samarco iron ore operation.
While BHP was rocked last week by criminal charges against eight former and current executives over the disaster, we understand the timing of Dalla Valle's departure does not relate to his handling of the Samarco recovery. Rather, BHP is looking to change the way it manages its stakes in joint ventures where it is not the operator; Samarco will join other operations of this kind under the control of Minerals Americas boss Danny Malchuck.
