Market Update

John FlavellGeneral Manager, NAB Broker

3

China’s investment in Australia cut in half

Australian, Oct 2012

Australian property riding on China’s back AFR, Nov 2012

Europe delays, US ‘fiscal cliff’ threatens growth: G20

AFR Nov 12

Britain on the brink of ‘triple-dip’ recession

AFR, Jan 2013

Congress votes to extend US debt limit

BBC News, Jan 2013

Lenders face off on out-of-cycle rate cuts

Australian Broker Feb 2013

Japan posts record trade deficit BBC News, Feb 2013

Aussie John sells to which bank?

AFR Dec 12

Financial markets have turned surprisingly optimistic. Equity markets up, fear index down.

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06/06/2011 29/08/2011 21/11/2011 13/02/2012 07/05/2012 30/07/2012 22/10/2012 14/01/2013

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Australian share market

Share markets in major developed economies

VIX index of market volatility LHS)

FINANCIAL MARKET INDICATORS

European sentiment may be bottoming but not their economy

European Economic (Consumer and Business) Sentiment- Measured as Deviation in European Sentiment From Long Run Average

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• European confidence still at historic lows

• But might have bottomed – re ECB and Fed

• Delaying Basel 3 liquidity will help further

• But can’t say the same about their economy

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GDP

BUSINESS CLIMATE INDICATOR

EUROPEAN GDP AND BUSINESS CLIMATE INDICATOR

(F)

Our forecast suggests moderate on-going US growth

Model based on: Real interest rates, House prices, Equity prices, Oil prices, TWI (currency), Commodity prices, Credit rationing and lags.

US Quarterly GDP v Nab Mini Model

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China Growth outlook: We expect further acceleration of growth to around 8 ¼% in 2013 – with policy helping

China - Monetary Policy ResponsePercentage points of GDP growth

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Ppts Ppts

Source: NAB Research

50bp cut to interest rate

50bp cut to reserve requirement ratio

Quarters

China Real GDP GrowthYear-ended percentage change

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SFM

Source: CEIC, NAB

Economic Forecasts

2012 2013 2011 2012 2013 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Real GDP 9.3 7.8 8.2 8.1 7.8 7.7 7.9 8.2 8.4 8.2 8.0Exchange Rate (USD/CNY) 6.3 6.3 6.2 6.3 6.3 6.3 6.2 6.2 6.2 6.1 6.1Monetary Policy (end of period)

Benchmark Lending Rate 6.56 6.00 6.5 6.56 6.31 6.00 6.00 6.00 6.00 6.25 6.5

Reserve Ratio Requirement* 21.0 19.5 19.5 20.5 20.0 20.0 20.0 19.5 19.5 19.5 19.5 Sources: CEIC; NAB Group Economics* For large depository institutions

Year Average Chng % Year-ended Chng %

World still very multi speedDeveloped v Developing

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US Japan Euro areaUK China IndiaBrazil

Gross domestic productSep qtr 2007 = 100

Developed world Emerging world

Sources: OECD Main Economic Indicators, CEIC, NAB

Globa l liquidity crisis Globa l liquidity crisis

AUD a proxy for global risk appetite and commodities. And of course China

Model driven by: commodity prices; USD/EURO – as measure of USD weakness; long and short run rates; relative unemployment; relative equity markets and VIX.

Model AUD and Forecasts v Actuals

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ACTUAL

Plus X2 Std Dev

Less X2 Std Dev

Saving ratio remains around GFC levels in trend terms

Deposit inflow both by consumer and (especially) business strong

Near- term Australian growth also constrained by consumer caution.

Personal (credit card) and business credit currently around flat to negative

Home loans at 5% a 30 year low

Key System Credit Aggregrates3 mths at annual rate - saar

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BUSINESS

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HOUSING

PERSONAL

Flattish house prices not helping perceptions of wealth. May be turning now but don’t expect much going forward

House price expectations at end 2012 have turned slightly positive

Very different by state – WA still strong: SA and VIC less so.

Over the medium term our model wants moderate growth.

Accelerating in near term but then flattens out by end 2013 as unemployment rises

Australian House Prices - 12 Mth %

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Actual / Forecasts

Model

Property Survey - House Price Expectations

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Australia Victoria NSW Qld SA/NT WA

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Expectations

Interest rates

• Our expectation RBA will cut by 75bps in 2013 to 2.25%

• First cut probably May

• As unemployment rises to 5.75% by mid-late 2013, RBA will need to respond again

• We expect a final cut in late 2013 as mining phasing heralds further labour market weakness (say November)

• Forecasts imply a bottom in rates between 2 and 2.5% depending on extent of the slow down

Australian economic forecasts

2012-13 2013-14 2012 2013 2014

GDP 2.3 2.8 3.5 2.0 3.3

Employment** 0.5 1.5 0.8 1.1 1.3

Unemployment rate* 5.6 5.7 5.2 5.6 5.8

CPI underlying **

(includes carbon)2.8 2.9 2.5 2.7 2.9

RBA cash rate* 2. 5 2.25 3.0 2.25 2.75

$US/$A* 0.97 0.99 1.03 .97 0.95

* at end of period; ** through-year growth

Customer deposits

^Represents advertised term deposit rates, used here as a peer comparison. These make up less than 15% of total term deposit costs.

Source: NAB Weekly Advertised Term Deposit Rates since 2007

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Average 3-12 Mth Blackboard Rate and BBSW

Average BBSW Average Blackboard Rate

Term Wholesale Funding

* Includes Covered Bonds Source: NAB Treasury

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Cost of Wholesale Term Funding

6m Avg Monthly Issuance Margin

Cumulative Weighted Average Margin

Cost(bps)

Bear Sterns Collapse(Mar/Apr 08)

Lehman Brothers Collapse -Introduction of 70bps Govt

Guarantee

Start of Credit Crises (Jul-

Aug 07)

European Sovereign Crisis

Short-term Wholesale Funding

Source: Bloomberg

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90d Rolling Avg Spot

Pre-Crisis Spread of 7bps

Bear Sterns Collapse

Lehman Brothers Collapse

European Sovereign Crisis

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Change in Cost of Funding a Variable Rate Mortgage

Liquidity & Other Wholesale Funding

Term Funding

Customer Deposits

Bank Bill / Overnight Index Swap Spread

Overall funding cost picture

Source: NAB Treasury & Bloomberg

In summary

• Environment will remain volatile both globally and domestically

• Confidence running ahead of the fundamentals

• Domestic downturn in growth post peak of mining boom

• Property prices sideways

• Credit growth slow

• Cash rate down

19

Get to grips with Gen Y or lose out, say brokers

Broker News, July 2012

Social media a missed opportunity for brokers The Adviser, May 12

Small firms say LinkedIn works, Twitter doesn’t

Wall St Journal, Jan 2013

New App promotes brokers to borrowers

The Adviser, Nov 12

5 tips for engaging clients on Facebook

Australian Broker Jan 13

Your choice: Embrace social media or bustAustralian Broker,

Jan 2013

Twitter move to Australia ‘imminent’ AFR, Jan 2013

MFAA uses social media to promote brokers

NAB Broker Update

John FlavellGeneral Manager, NAB Broker

Our view is the broker channel will continue to grow

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2010 + 5 Years + 10 Years

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Broker Online Branch

Broker Satisfaction

37%47%

39%

56%66%

76%83%

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Implementation of Single Document Pack

The basics…where are we today ?

At Market

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CommissionCommissionCreditCreditServiceService Product & Price

Product & Price PeoplePeople

Our Ramped Trail commission structure increasing broker profits on a daily basis.

We are at market with our credit policy

Service. Our objective is to deliver consistency. We have made good progress…with more enhancements to come

Product. Simple yet feature rich. Price for Risk. Continues to lead the market

Our people are regarded the best in the industry

Service…what have we delivered

• State-based teams

• Outbound calls, we pick up the phone and talk to you when there is an question

• Embedded DCAs in production team

• Construction Lending case management

• Customer on-boarding program

• Single Document Pack

• New NAB Broker website

NAB Broker/HomesideMajor Lender of the Year 2012

Product

• Homeplus package

− Bundled NAB Classic Banking (deposit offset) and Credit Card

• Homeside brand refresh

− New customer website (homeside.com.au)

− New broker to customer tools

• 3 Year Anniversary Homeside Price for Risk

Homeside HomeplusBest Product 2012

Homeside HomeplusCanstar Cannex 5 star rating

Our people

• Largest broker distribution team in the market

• Recently expanded with 10 new positions to provide greater levels of support and advice

• Realigned BDM panels to give you access to knowledgeable experienced staff in person, over the phone and online

• Tailored and flexible support

− Field-based

− Office-based

− Broker Support Specialist

− Lending Specialist

− Aggregator alignment

Nick MurrayBest Bank BDM 2012

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Upfront Trail

CommissionA win-win approach

Ramped trail benefits

• Longer customer relationships

• Increased revenue and book value for brokers

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Rewarding customer life vs loan lifeExample scenario

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1.00% • Existing Homeside client of 7 years wants to buy and investment property

• They take out an additional Homeside loan

In Summary

• Uncertain economic conditions

• Opportunity for broker channel to continue to grow

• NAB Broker will continue to grow our share

• Keynote - Digital marketing

• We will continue to focus and invest in:

− Compelling proposition for the end customer

− Our service proposition

− Compelling partnership proposition

− Our people