NAB reveals cost of technology upgrade

Mahesh Sharma | May 10, 2008 | The Australian

NATIONAL Australia Bank will spend up to $1 billion overhauling its legacy banking systems, after spending the past 18 months detailing the project rollout.

In a few months the bank will announce full details of the project, which will see it replace its core banking systems with newer, more agile technologies.

It expects to replace the legacy systems over four to five years and will absorb the expense within its current annual investment spend of $800-900 million.

"It could be a very substantial spend -- $800 million or a billion dollars -- but it is our intent that we will accommodate that spend within this run rate," said NAB Group chief financial officer Mark Joiner at yesterday's results announcement.

A critical focus of NAB's planning to date has revolved around strategic partnering options to support the delivery of the project and effective management of execution risks, NAB said in its half-year report.

Commonwealth Bank of Australia recently announced its four-year, $580 million core banking modernisation project, and claimed a significant first-mover advantage by tying up the technology resources required for the massive project. NAB spent $43 million on compliance projects, including the Anti-Money Laundering/Counter-Terrorism Financing Act and Basel II legislation, over the half but did not provide an exact breakdown.

It also identified technology outsourcing and offshoring, mainly involving back-office functions, as factors that helped reduce operating expenses.

In March, NAB outsourced some of its legacy banking applications to Indian technology companies, a move affecting more than 260 jobs, but the impact of this wouldn't be seen until the bank detailed its full-year results.

The news emerged as the bank reported its financial results for the half year to March 31, 2008.

Several areas within the business experienced a rise in technology expenditure.

Spending on data communication and processing for the period was $58 million, up a quarter compared with the same period in 2007.

The group's spending on computer equipment and software was up 12 per cent to $139 million and overall software capitalisation jumped 16 per cent to $902 million.

NAB said increased software investment contributed to a 2.7 per cent rise in its goodwill and other intangible assets, which was $5.4 billion for the half year.

This investment underpinned several of the group's strategic initiatives, including the consolidation of its local distribution network, and revamping the front and back-office technology platforms in Britain, as well as supporting nabCapital's Strategic Investment Program (SIP).