Robert Ravens Bridestowe Lavender EstateANNUAL FINANCIAL REPORT 2017Our vision is to be Australia and New Zealand s most respected bankNational Australia Bank Limited ABN 12 004 044 937This 2017 Annual Financial Report (Report) is lodged with the Australian Securities and Investments Commission and ASX Limited. National Australia Bank Limited (NAB) is publicly listed in Australia. The Report contains information prepared on the basis of the Banking Act 1959 (Cth), Corporations Act 2001 (Cth) and Accounting Standards and Interpretations issued by the Australian Accounting Standards Board. NAB also produces a non-statutory Annual Review which can be viewed online at view the Report online, visit Alternatively, to arrange for a copy to be sent to you free of charge, call Shareholder Services on 1300 367 647 from within Australia, or +61 3 9415 4299 from outside in the Report is, or should be taken as, an offer of securities in NAB for issue or sale, or an invitation to apply for the purchase of such figures in the Report are in Australian dollars unless otherwise of the Directors2Operating and financial review2Directors information19Other matters25Auditor s independence declaration29Remuneration report30Corporate governance56Financial Report57Income statements59Statements of comprehensive income60Balance sheets61Cash flow statements62Statements of changes in equity63Notes to the financial statements65Directors' declaration143Independent auditor's report144Shareholder information150Glossary156Table of Contents12017 Annual Financial ReportThe directors of National Australia Bank Limited (NAB) present theirreport, together with the financial statements of the Group, being NABand its controlled entities, for the year ended 30 September definitionsThe Group s financial year ends on 30 September. The financial yearended 30 September 2017 is referred to as 2017 and other financialyears are referred to in a corresponding manner. The abbreviations $mand $bn represent millions and thousands of millions ( billions) ofAustralian dollars respectively. Any discrepancies between total andsums of components in tables contained in this report are due terms used in this report are contained in the statementsThis report contains statements that are, or may be deemed to be,forward-looking statements. These forward-looking statements may beidentified by the use of forward-looking terminology, including the terms"believe", "estimate", "plan", "project", "anticipate", "expect", target ,"intend", likely , "may", "will", could or "should" or, in each case, theirnegative or other variations or other similar expressions, or bydiscussions of strategy, plans, objectives, targets, goals, future eventsor intentions. Indications of, and guidance on, future earnings andfinancial position and performance are also forward-lookingstatements. You are cautioned not to place undue reliance on suchforward-looking forward-looking statements are not guarantees of futureperformance and involve known and unknown risks, uncertainties andother factors, many of which are beyond the control of the Group,which may cause actual results to differ materially from thoseexpressed or implied in such statements. There can be no assurancethat actual outcomes will not differ materially from these 4 of this report describes certain initiatives relating to the Group sstrategic agenda ( Program ), including certain forward-lookingstatements. These statements are subject to a number of risks,assumptions and qualifications, including: (1) detailed business planshave not been developed for the entirety of the Program, and the fullscope and cost of the Program may vary as plans are developed andthird parties engaged; (2) the Group s ability to execute and managethe Program in a sequenced, controlled and effective manner and inaccordance with the relevant project and business plan (oncedeveloped); (3) the Group s ability to execute productivity initiativesand realise operational synergies, cost savings and revenue benefits inaccordance with the Program plan (including, in relation to CTI andROE targets, the extension of improvements beyond the currentProgram plan); (4) the Group s ability to meet its internal net FTEreduction targets; (5) the Group s ability to recruit and retain FTE andcontractors with the requisite skills and experience to deliver Programinitiatives; (6) there being no significant change in the Group s financialperformance or operating environment, including the economicconditions in Australia and New Zealand, changes to financial marketsand the Group s ability to raise funding and the cost of such funding,increased competition, changes in interest rates and changes incustomer behaviour; (7) there being no material change to law orregulation or changes to regulatory policy or interpretation, includingrelating to the capital and liquidity requirements of the Group; and (8)for the purpose of calculating FTE cost savings and redundancy costs,the Group has assumed an average FTE cost based on Group-wideaverages, and such costs are not calculated by reference to specificproductivity initiatives or individual employee information on important factors that could cause actual resultsto differ materially from those projected in such statements iscontained on page 11 under Disclosure on Risk Factors .Rounding of amountsIn accordance with ASIC Corporations (Rounding in Financial /Directors' Reports) Instrument 2016/191, all amounts have beenrounded to the nearest million dollars, except where activitiesThe principal activities of the Group during the year were bankingservices, credit and access card facilities, leasing, housing and generalfinance, international banking, investment banking, wealthmanagement services, funds management and custodian, trustee andnominee changes in the state of affairsDuring the 2017 financial year, a number of changes to thecomposition of the Board occurred: Non-executive director Mr Daniel Gilbert retired from the Board on16 December 2016. Non-executive director Ms Jillian Segal retired from the Board on16 December addition, non-executive director Ms Ann Sherry AO was appointedto the Board on 8 November November 2017, NAB announced changes to its ExecutiveLeadership Team. Ms Angela Mentis, currently Chief Customer Officer Business and Private Banking, was appointed Managing Directorand CEO of Bank of New Zealand. Mr Anthony Healy, currentlyManaging Director and CEO of Bank of New Zealand, was appointedChief Customer Officer Business and Private Banking. Theappointments, which are subject to regulatory approval, will take effectfrom 1 January Group s BusinessThe Group is a financial services organisation with approximately33,000 employees, operating through a network of more than 900locations, with more than 571,000 shareholders and serving over ninemillion majority of the Group's financial services businesses operate inAustralia and New Zealand, with branches located in Asia, the UnitedKingdom (UK) and the United States (US). The Group's brands sharea commitment to providing customers with quality products andservices. The Group's relationships are based on the principles ofproviding quality help, guidance and advice to achieve better financialoutcomes for 2017 the Group operated the following divisions: Consumer Banking and Wealth comprises the NAB and UBankconsumer banking divisions, and the Wealth divisions of Advice,Asset Management and Superannuation. The division providescustomers with access to independent advisers, includingmortgage brokers and the financial planning network of self-employed, aligned and salaried advisers in Australia. Business and Private Banking focusses on serving priority smalland medium (SME) customers via the NAB Business franchise andspecialist services in key segments including Agriculture, Health,Government, Education, Community and Franchise. The divisionalso serves NAB's micro and small business customers andincludes Private Banking and of the DirectorsOperating and financial review2 NATIONAL AUSTRALIA BANK Corporate and Institutional Banking provides a range of lending andtransactional products and services related to financial and debtcapital markets, specialised capital, custody and alternativeinvestments. The division serves its customers in Australia andglobally through branches in the US, UK and Asia with specialisedindustry relationships and product teams. NZ Banking comprises the Retail, Business, Agribusiness,Corporate and Insurance franchises and Markets Sales operationsin New Zealand, operating under the Bank of New Zealand excludes Bank of New Zealand's Markets Trading HighlightsVision and ObjectivesThe Group s strategic focus supports its vision of becoming Australiaand New Zealand s most respected bank. In the September 2017 fullyear, this was underpinned by three key objectives:1. Our customers are advocates2. Our people are engaged3. Our shareholders receive attractive returnsTo meet these objectives, execution was focussed around four keythemes deepening relationships in priority customer segments,delivering a great customer experience, reshaping our business toperform, and being known for great leadership, talent and relationships in priority customer segmentsThe Group has prioritised four customer segments where it isfocussing investment to deepen customer relationships. These aresmall and medium business customers given NAB s strong marketposition and attractive returns, combined with home owners in priority segments is driving improved results. This isevident in the performance of Business and PrivateBanking which, during the September 2017 full year, recorded positiverevenue growth on higher volumes and stronger a great customer experience and reshaping ourbusiness to performThe Group uses the Net Promoter Score (NPS) (1) system to accessreal-time, targeted feedback so it can understand and improve thecustomer experience. For the September 2017 full year, our prioritysegment NPS (1) (2) was first of the major peer Group is committed to using customer feedback and a new way ofworking to transform the end-to-end customer experience across arange of products and channels. This is known as Customer the September 2017 full year, the Group launched seven CustomerJourneys aimed at driving customer advocacy through increasedefficiencies and improved interactions with customers. Examplesinclude: A new 10 minute digital transaction account onboarding forbusiness customers with simple needs, significantly reducingprocessing time for onboarding new customers and removing theneed for a customer to visit a branch. A faster, easier application process for Everyday Accounts,reducing application time to seven minutes. A simplified digital Superannuation portal to help customers betterunderstand their retirement options and e-forms pre-populated withexisting customer data. A virtual banking assistant pilot for business customers usingartificial intelligence chat technology to help customers fulfill simpleneeds through Group continues to enhance its products and services forcustomers through digitisation and innovation, as evidenced by: Enabling small business customers to access funding quickly withQuickBiz unsecured lending expanded to include business cardsand overdraft facilities. The launch of the HICAPS Go mobile app solution in partnershipwith start-up, Medipass Solutions, which allows health patients tobook and pay for services via their mobile device while receiving fulltransparency of costs, and for practitioners removes the need for aphysical Group is also exploring new strategic alliances and direct equityinvestments through its dedicated innovation fund, NAB Ventures, tofast-track improvements in customer experience and leverageinnovative new technologies and business models. Examples ofinvestments made during the September 2017 full year includeinvestments in Veem (business-to-business global payments) andWave (a cloud-based integrated suite of small business tools includingaccounting, invoicing, payments, and payroll for micro businesses).Great leadership, talent and peopleThe Group is committed to attracting, developing and inspiring talent todrive a culture that delivers high performance. Key initiatives during theSeptember 2017 full year include: Significant investment in senior executive assessment tounderstand organisational leadership strengths drivingperformance. Implementing targeted development programs includingaccelerated streams for high potential female talent and executivesidentified as key talent. Introducing a new performance framework with leaders accountablefor coaching every day, supported by monthly performance anddevelopment conversations. Investment in new technology to track performance, talent,capability and deliver leadership data and attractive returnsThe Group has continued to shift its portfolio towards business withhigher returns where it has strong capability to compete. For theSeptember 2017 full year, the Group delivered a statutory ROE and a cash ROE of on a continuing operations and strengthen our foundationsThe Group underpins its strategy by maintaining strong foundations:balance sheet strength (including capital, funding and liquidity), riskmanagement capability (including credit and operational risk) and coretechnology platforms and Group remained well capitalised during the September 2017 fullyear, and expects to meet APRA's new unquestionably strong capitalrequirements in an orderly manner by 1 January 2020. The CommonEquity Tier 1 (CET1) ratio as at 30 September 2017 was (1)Net Promoter and NPS are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and FredReichheld.(2)Priority Segments Net Promoter Score (NPS) is a simple average of the NPS scores of four priority segments: Home Owners, Investors, Small Business ($ <$5m)and Medium Business ($5m-<$50m). The Priority Segments NPS data is based on six month moving averages from Roy Morgan Research and DBM BFSM of the DirectorsOperating and financial review (continued)32017 Annual Financial ReportThe Group has maintained strong liquidity through the September2017 full year with a quarterly average Liquidity Coverage Ratio (LCR)of 123%, which is above the APRA requirement of 100%. The30 September 2017 Net Stable Funding Ratio (NSFR) was 108%,above the APRA minimum regulatory requirement of 100% from1 January credit risk in the Group s portfolio remains sound, and bad anddoubtful debts are stable. Portfolio concentrations are managed withreference to established Group risk appetite our strategyThe environment in which the Group operates is one of rapid andconstant change. The Group s customers are now largely 'digital-first'and expect seamless, personal experiences. New competitorscontinue to emerge, and community and regulatory expectations havenever been greater. The risks faced by the Group are constantlyevolving, requiring ever greater vigilance around cybercrime and Group is optimistic about the future and the opportunities for NABin a changing world, and moves forward in a much stronger allows the Group to plan for the longer term and, on 2 November2017, the Group announced an acceleration of its strategy to enablethe Group to grow while staying focussed on includes an estimated $ billion increase in investment over thenext three years. A key focus will be driving a major uplift in innovationand capabilities in the Group s leading Australian SME franchise. Thetiming and amount of investment spend may vary depending on theoperating Group expects this to deliver benefits including: Improved customer experience with fewer, simpler products,delivered by digital channels. Cumulative cost savings, currently targeted at greater than $1billion by 30 September 2020, as the Group significantly simplifiesand automates processes, reduces procurement and third partycosts, and gets closer to its customers with a flatter organisationalstructure. Increased revenue from higher customer retention and targetedmarket share gains. Reduced operational and regulatory risks from a simplified, moreresponsive and resilient technology Group is reshaping its workforce to enable it to deliver for itscustomers and by 30 September 2020 expects to create up to 2,000new jobs while about 6,000 roles will be impacted as the Group furtherautomates and simplifies its business. This will result in a net reductionin staff currently targeted at approximately 4,000 by 30 September2020, which is expected to give rise to a restructuring provision of$ billion in the first half of the 2018 financial year. Throughoutthis process, the Group will treat its people with care and respect andequip them for the the accelerated investment impact, September 2018 fullyear expenses are expected to grow 5-8%, with expenses thentargeted to remain broadly flat through to 30 September 2020(excluding the restructuring provision and large one-off expenses).Taking account of the near term impact of these changes, the Boardexpects to maintain dividends for the September 2018 full year at thesame level as the September 2017 full year, subject to no materialchange in the external environment and satisfactory Group Group has set four new aspirational objectives: NPS positive and number 1 NPS of Australian major banks for theGroup's priority segments. Cost-to-income ratio towards 35%. Number 1 ROE of Australian major banks. Top quartile employee Group plans to achieve these by being the best business bank;becoming simpler and faster for its customers and its people;focussing on new and emerging growth opportunities; and having greatleaders, talent and is an ambitious and necessary plan. It will enable the Group tocontinue to deliver for all its stakeholders, live its purpose to 'back thebold who move Australia forward' and achieve the Group s vision to beAustralia and New Zealand s most respected performance summaryThe following financial discussion and analysis discloses net profit onboth a statutory and cash earnings basis. The statutory basis ispresented in accordance with the Corporations Act 2001 (Cth) andAustralian Accounting Standards and is audited by the auditors inaccordance with Australian Auditing key financial performance measures used bythe GroupCertain financial measures detailed in the Directors Report are notaccounting measures within the scope of IFRS. Management reviewthese financial metrics in order to measure the Group s overall financialperformance and position and believe the presentation of theseindustry standard financial measures provides useful information toanalysts and investors regarding the results of the Group's operationsand allows ready comparison with other industry participants. Thesefinancial performance measures include: Cash earnings Statutory ROE Cash ROE Net Interest Margin (NIM) Average equity (adjusted) Average interest earning assets Average Group regularly reviews the non-IFRS measures included in itsDirectors Report to ensure that only material financial measures areincorporated. Certain other financial performance measures detailed inthe Directors' Report are derived from IFRS measures and aresimilarly used by analysts and investors to assess the Group sperformance. These measures are defined in the non-IFRS measures included in this document are not a substitutefor IFRS measures and readers should consider the IFRS measuresas well. The non-IFRS financial measures referred to above have notbeen presented in accordance with Australian Accounting Standardsnor audited or reviewed in accordance with Australian AuditingStandards unless they are included in the Financial information in relation to these financial measures is set outbelow and in the about cash earningsCash earnings is a non-IFRS key financial performance measure usedby the Group, the investment community and NAB s Australian peersReport of the DirectorsOperating and financial review (continued)4 NATIONAL AUSTRALIA BANKwith similar business portfolios. The Group also uses cash earnings forits internal management reporting as it better reflects what it considersto be the underlying performance of the earnings is calculated by excluding discontinued operations andother items which are included within the statutory net profitattributable to owners of earnings does not purport to represent the cash flows, funding orliquidity position of the Group, nor any amount represented on a cashflow statement. It is not a statutory financial measure and is notpresented in accordance with Australian Accounting Standards noraudited or reviewed in accordance with Australian Auditing full reconciliation between statutory net profit and cash earningsincluding a description of each non-cash earnings item is included onpages 70 to 72 in Note 2 Segment information in the about net interest marginNet interest margin (NIM) is a non-IFRS key financial performancemeasure that is calculated as net interest income (derived on a cashearnings basis) expressed as a percentage of average interest earningassets. A full reconciliation between statutory net interest income andcash earnings derived net interest income including non-cashexplanations is included on pages 70 to 72 in Note 2Segment information in the Financial report. Further information inrespect of average interest earning assets is included under theheading 'Average balances' below and in the balancesAverage balances, including average equity (adjusted), total averageassets and average interest earning assets are based on dailystatutory balances derived from internally generated trial balancesfrom the Group's general ledger and are used for internal reportingpurposes including reporting to the Board on a monthly methodology used to obtain average balances is to take theaverage of the opening balance and the balances at the end of eachday in the period. This methodology produces numbers that moreaccurately reflect seasonality, timing of material accruals (such asdividends) and restructures (including discontinued operations), whichwould otherwise not be reflected in a simple to the following page for a five-year summary of the Group saverage equity (adjusted), total average assets and average interestearning of the DirectorsOperating and financial review (continued)52017 Annual Financial Report5 Year Financial Performance SummaryGroup (1)2017201620152014(2)2013(2)$m$m$m$m$mNet interest income13,18212,93012,46213,41513,351Total Other income4,8425,1925,9755,4414,852Total Operating expenses(8,539)(8,331)(8,189)(10,227)(8,305)Charge to provide for bad and doubtful debts(824)(813)(733)(847)(1,810)Profit before income tax expense8,6618,9789,5157,7828,088Income tax expense(2,480)(2,553)(2,709)(2,598)(2,725)Net profit for the period from continuing operations6,1816,4256,8065,1845,363Net (loss) / profit after tax for the year from discontinued operations(893)(6,068)(414)114-Net profit for the year5,2883576,3925,2985,363Attributable to owners of NAB5,2853526,3385,2955,355Attributable to non-controlling interests355438Group performance indicatorsYear toSep 17 Sep 16 Sep 15 Sep 14 Sep 13 Key IndicatorsStatutory earnings per share (cents) - basic (3) earnings per share (cents) - diluted (3) return on return on , performance and efficiency measuresDividend per share (cents)198198198198190Net interest margin (1) Equity Tier 1 1 capital assets ($bn) (4) ($bn)Gross loans and acceptances (1) (4) (5) interest earning assets (1) average assets (1) deposits (4) equity (adjusted) - equity (adjusted) - quality90+ days past due and gross impaired assets to gross loans and acceptances (1) under management and administration (FUM/A) (spot) ($bn) (6) under management (AUM) (spot) ($bn) (6) Time Equivalent Employees (FTE) (spot) (1)33,42234,26333,89441,42042,164Full Time Equivalent Employees (FTE) (average) (1)33,74634,56734,14841,15342,783(1)Information is presented on a continuing operations basis. September 2015 was restated for the demerger of CYBG and the sale of 80% of Wealth's life insurance business to Nippon Life in September 2016,with the exception of APRA information (capital). September 2014 was restated for the sale of Great Western Bancorp Inc. but has not been restated for the demerger of CYBG, the sale of 80% of theWealth's insurance business to Nippon Life nor APRA information (capital). No further comparative periods have been restated. The Group's consolidated financial statements for the financial years ended30 September 2013, 2014 and 2015 can be found in the corresponding reports published by the Group for the respective periods.(2)AASB 9 "Financial Instruments" was adopted from 1 October 2014. 2013 and 2014 periods were not restated.(3)In September 2015, Earnings per share was restated for September 2014 by adjusting the weighted average number of ordinary shares in order to incorporate the bonus element in the 2015 rights issue, asper AASB 133.(4)Spot balance as at reporting date.(5)Including loans and advances at fair value.(6)For September 2017, there has been a change to the presentation of FUM/A and AUM to include two separate disclosures that represent all managed funds and assets from which the Group derivesrevenue. Certain items will be represented in both FUM/A and AUM and therefore the two should not be summed. Comparative period information has been restated for September 2017 v September 2016On a statutory basis, net profit attributable to owners of NAB increasedby $4,933 million mainly due to the loss on discontinued operations in2016. From a continuing operations perspective, statutory net profitattributable to owners of NAB decreased by $242 million or driven by unfavourable volatility in fair value and hedgeineffectiveness. The volatility largely relates to the Group's long termfunding portfolio and is income neutral over the full term interest income increased $252 million or including adecrease of $281 million that was offset by movements in economichedges in other operating income. The underlying increase was drivenby growth in both housing and business lending volumes, combinedwith repricing activity. These movements were partially offset by aReport of the DirectorsOperating and financial review (continued)6 NATIONAL AUSTRALIA BANKlower earnings rate on capital and the impact of the bank levy for thefinal quarter of the 2017 financial other income decreased by $350 million or This includesan increase of $281 million due to movements in economic hedges,offset in net interest income. The underlying decrease was largelydriven by unfavourable movements in fair value and hedgeineffectiveness, combined with lower sales of risk managementproducts to the Group's customers as a result of reduced marketvolatility, and lower Wealth income largely from margin was partially offset by higher gains in Treasury from the narrowingof credit spreads in the liquidity operating expenses increased by $208 million or driven bycontinued investment in technology and associated depreciation andamortisation charges, higher redundancy costs, the impact of annualsalary increases and provisions for regulatory remediation and legalcosts. These were partially offset by productivity benefits includingworkforce restructuring, digitisation, and reduction in third party charge to provide for bad and doubtful debts increased by $11million or due to higher collective provision charges primarilydriven by overlays for the commercial real estate, retail trade andmortgage portfolios. This was partially offset by improvements in creditquality across business lending, and the New Zealand dairy portfolio,resulting in a lower level of new tax expense decreased by $73 million or largely due to adecrease in profit before of Group and Divisional ResultsGroup2017(1)2016(1)$m$mConsumer Banking and Wealth1,6331,565Business and Private Banking2,8412,673Corporate and Institutional Banking1,5351,367NZ Banking882804Corporate Functions and Other (2)(249)74Cash earnings6,6426,483Non-cash earnings items(464)(63)Net (loss) from discontinued operations(893)(6,068)Net profit attributable to owners of NAB5,285352(1)Information is presented on a continuing operations basis.(2)Corporate Functions & Other includes Treasury, Technology and Operations, and 2017 v September 2016GroupCash earnings increased by $159 million or largely driven byhigher net interest income from increased volumes and repricing,partially offset by higher operating expenses largely from continuedinvestment in the business, net of productivity savings. The charge forbad and doubtful debts rose slightly due to increased collectiveprovision Banking and WealthCash earnings increased by $68 million or driven by balancesheet growth and repricing. This was partially offset by reduced Wealthincome mainly from margin compression and higher expenses fromcontinued investment in core banking technology, the mobile platformand the Wealth business, net of productivity and Private BankingCash earnings increased by $168 million or driven by balancesheet growth and repricing benefits in the lending portfolio. This waspartially offset by higher expenses from continued investment intechnology and associated depreciation and amortisation charges, netof productivity savings, and increased charges for bad and doubtfuldebts from higher write-backs recognised in and Institutional BankingCash earnings increased by $168 million or largely driven bylower charges for bad and doubtful debts and productivity and FTEsavings. Productivity savings were achieved through restructuringoperations and simplification of infrastructure and back office supportservices. Revenue was flat with growth in business lending and lowerfunding costs offset by lower revenue from sales of customer riskmanagement BankingCash earnings increased by $78 million or driven by stronggrowth in both housing and business lending, partially offset by aweaker net interest margin mainly due to lower earnings on capital asa result of a low interest rate environment and a competitive market fordeposits. This was combined with a decrease in the charge to providefor bad and doubtful debts mainly driven by a recovery in the dairyportfolio. This was partially offset by higher expenses from continuedinvestment in digital capabilities and associated depreciation andamortisation charges, net of productivity Functions and OtherCash earnings decreased by $323 million mainly due to higherexpenses from redundancy costs recognised centrally and highercollective provision overlays within the Australian portfolio. This wascombined with lower income from capital management, funding andrisk management activities within Treasury and non-recurring assetsales in the 2016 financial Balance Sheet ReviewGroup2017 2016$m$mAssetsCash and liquid assets43,82630,630Due from other banks37,06645,236Trading derivatives29,13743,146Trading securities50,95445,971Debt instruments at fair value through other comprehensiveincome42,13140,689Other financial assets at fair value16,05821,496Loans and advances540,125510,045Due from customers on acceptances6,78612,205All other assets22,24227,292Total assets788,325776,710LiabilitiesDue to other banks36,68343,903Trading derivatives27,18741,559Other financial liabilities at fair value29,63133,224Deposits and other borrowings500,604459,714Bonds, notes and subordinated debt124,871127,942Other debt issues6,1876,248All other liabilities11,84512,805Total liabilities737,008725,395Total equity51,31751,315Total liabilities and equity788,325776,710Report of the DirectorsOperating and financial review (continued)72017 Annual Financial ReportSeptember 2017 v September 2016Total assets increased by $11,615 million or The increase wasmainly due to net growth in cash and liquid assets, due from otherbanks and trading securities of $10,009 million or reflecting theGroup s management of liquidity during the period. In addition, therewas an increase in loans and advances due to growth in housinglending in both Australia and New Zealand, combined with growth innon-housing lending reflecting the Group s focus on priority businesssegments. These increases were partially offset by a decrease intrading derivative assets of $14,009 million or predominantlydriven by foreign exchange rate and interest rate yield movementsduring the liabilities increased by $11,613 million or The increase wasdue to growth in deposits and other borrowings mainly to support theincrease in the lending and liquidity portfolios. This increase waspartially offset by a decrease in trading derivative liabilities of $14,372million or in line with the decrease in trading derivative assetsabove. Total equity was largely flat during the Management and Funding ReviewBalance Sheet Management OverviewThe Group aims to maintain a strong capital, funding and liquidityposition, in line with its ongoing commitment to balance sheet includes: Seeking to maintain a well-diversified wholesale funding portfoliowhich accesses a range of funding and capital options acrossvarious senior, subordinated, secured and hybrid markets. Continuing to assess its position in order to accommodate changingmarket conditions and regulatory ReformThe Group remains focussed on areas of regulatory change. Keyreforms that may affect its capital and funding include:Federal Government s Financial System Inquiry (FSI): In July 2017, APRA announced changes to its approach in settingcapital standards such that capital ratios are deemed to be unquestionably strong . APRA has advised that the majorAustralian banks, including NAB, are expected to have CommonEquity Tier 1 capital ratios of at least per cent to meet the unquestionably strong benchmark by 1 January 2020. An APRAconsultation on draft capital standards is expected in the III: The September 2017 Leverage Ratio is disclosed within NAB sSeptember 2017 Pillar 3 Report. The minimum Leverage Ratio isyet to be determined by APRA. The Basel Committee on Banking Supervision (BCBS) hasannounced its revised market risk framework, which is due to comeinto effect from 2019 globally. APRA has advised domesticimplementation is not expected prior to 2021. The Credit ValuationAdjustment (CVA) framework is currently in BCBS consultation. In December 2016, APRA released an amended PrudentialStandard APS 210 "Liquidity", which includes the Net StableFunding Ratio (NSFR) requirement. A ratio of at least 100% isrequired on both a Level 1 and Level 2 basis from 1 January Loss-Absorbing Capacity: The Financial Stability Board (FSB) issued the Total Loss-Absorbing Capacity (TLAC) standard in November 2015 for globalsystemically important banks (G-SIBs). In line with therecommendations in the FSI, APRA could implement a loss-absorbing capacity framework in accordance with emerginginternational practice. At this stage, APRA has not yet issuedguidance on how TLAC might be BCBS standards: Themes driving the BCBS's revision of standards include improvingtransparency, consistency and credibility of internal ratings based(IRB) models. Draft proposals include revisions to the standardisedapproaches for calculating regulatory capital for credit risk andoperational risk, revisions to IRB approaches for credit risk and theintroduction of a capital floor framework. Final BCBS Standards areexpected in the near future, with APRA's response expectedsometime thereafter. In April 2016, the BCBS released the revised interest rate risk in thebanking book (IRRBB) framework, which is due to come into effectinternationally by regulatory changesOther regulatory changes of note include: On 1 April 2017, the Group transitioned to a revised Level 2 Groupstructure, which had an immaterial impact on the Group s capitalposition. Remaining transitional arrangements arising from debtissued directly by National Wealth Management Holdings Limited(NWMH) are no longer required. APRA's revisions to Prudential Standard APS 120 "Securitisation"bring together proposals to simplify securitisation for originatingAuthorised Deposit-taking Institutions (ADIs) and the updatedBCBS securitisation framework. The revised APS 120 will takeeffect from 1 January 2018. APRA s consultation on the standardised approach to counterpartycredit risk (SA-CCR) introduces the new Prudential Standard APS180 "Counterparty Credit Risk". These requirements will not takeeffect until January 2019 at the earliest. APRA's standards on the non-capital components of thesupervision of conglomerate groups (Level 3 framework) took effecton 1 July 2017. Level 3 capital requirements are expected to bedetermined following the finalisation of other domestic andinternational policy initiatives, with APRA advising thatimplementation will be no earlier than 2019. In March 2017, the RBNZ announced a review of the framework forNew Zealand banks capital requirements. The review is in theinitial consultation phase. The RBNZ has signalled its intention toconclude the review in early ManagementThe Group s capital management strategy is focused on adequacy,efficiency and flexibility. The capital adequacy objective seeks toensure sufficient capital is held in excess of internal risk-basedrequired capital assessments and regulatory requirements, and iswithin the Group s balance sheet risk appetite. This approach isconsistent across the Group s Group s capital ratio operating targets are regularly reviewed inthe context of the external economic and regulatory outlook with theobjective of maintaining balance sheet strength. The Group expectsthat it can meet the new 'unquestionably strong' capital requirements inan orderly manner by 1 January of the DirectorsOperating and financial review (continued)8 NATIONAL AUSTRALIA BANKFundingThe Group continues to pursue opportunities to enhance and diversifyits funding IndicesThe Group employs a range of NAB Board approved metrics to set itsrisk appetite and measure balance sheet strength. A key structuralmeasure used is the Stable Funding Index (SFI), which is made up ofthe Customer Funding Index (CFI) and the Term Funding Index (TFI).The CFI represents the proportion of the Group s core assets that arefunded by customer deposits. Similarly, the TFI represents theproportion of the Group s core assets that are funded by termwholesale funding with a remaining term to maturity of greater than SFI increased over the September 2017 full year from 91% to93%. The TFI has strengthened to 23% at the September 2017 fullyear supported by term wholesale funding issuance of $ Termwholesale funding issuance over the September 2017 full year hasbeen executed in excess of term wholesale funding maturities. TheCFI increased to 70% with the focus on improving the quality of thedeposit Group has continued to focus on managing its funding profile overthe September 2017 full year in preparation for compliance with theNet Stable Funding Ratio (NSFR) which applies from 1 January Group's NSFR at 30 September 2017 was 108%.Customer FundingThe Group has continued to grow deposits over the September 2017full year. NAB s deposit strategy is to grow a stable and reliable depositbase informed by market conditions, funding requirements andcustomer Monthly Banking Statistics published by APRA show that for the12 months ended 30 September 2017, NAB has grown Australiandomestic household deposits by ( system), businessdeposits (excluding deposits from financial corporations) by ( ) and deposits from financial institutions by ( system).Term Wholesale FundingGlobal funding conditions remained supportive of term wholesalefunding issuance across all major markets during the September 2017full year, despite some periods of instability driven by global spreads widened at the start of the September 2017 full year asthe market cautiously monitored the lead up to the US presidentialelections. Post the election, market conditions and credit spreadsglobally have continued to improve. Whilst current conditions arereasonably stable, markets remain sensitive to ongoingmacroeconomic, geo-political and financial risks. Despite beingdowngraded, along with the other major banks, by Moody s InvestorServices, the Group continued to see strong investor demand for Group maintains a well-diversified funding profile based acrossissuance type, currency, investor location and tenor, and raised $ during the September 2017 full raised $ billion, including $ billion senior unsecured, $ of secured funding (comprised of covered bonds) and $ of Tier 2 subordinated debt. BNZ raised $ billion during theSeptember 2017 full weighted average maturity of term wholesale funding raised by theGroup over the September 2017 full year was approximately yearsto the first call date. The weighted average remaining maturity of theGroup s term wholesale funding portfolio is Wholesale FundingThe Group maintained consistent access to international and domesticshort-term wholesale funding markets during the September 2017 on offshore short term wholesale funding reduced slightlyover the September 2017 full year to of total funding and addition, repurchase agreements are primarily utilised to supportmarkets and trading activities. Repurchase agreements entered intoare materially offset by reverse repurchase agreements with similartenors and are not used to fund NAB's core Asset PortfolioThe Group maintains well-diversified and high quality liquid assetportfolios to support regulatory and internal requirements in the variouscountries in which it operates. The market value of total liquid assetsheld as at 30 September 2017 was $124 billion excluding contingentliquidity. This represents a reduction of $7 billion from 31 March 2017and increase of $6 billion from 30 September asset holdings include $108 billion of regulatory liquid assets(consisting of both High Quality Liquid Assets (HQLA) and CommittedLiquidity Facility (CLF) eligible assets) as at 30 September addition, the Group holds internal securitisation pools of ResidentialMortgage Backed Securities (RMBS) as a source of contingent liquidityand to support the CLF. Unencumbered internal RMBS held at30 September 2017 was $44 billion (post applicable central bankdeduction).Liquid assets that qualify for inclusion in the Group s LCR and InternalRMBS (net of applicable regulatory deductions) were on average $136billion for the quarter ending 30 September 2017 resulting in anaverage Group LCR of 123%.Credit RatingsThe Group closely monitors rating agency developments and regularlycommunicates with the rating agencies. Entities in the Group are ratedby S&P Global Ratings (S&P), Moody s Investors Service (Moody s)and Fitch Ratings (Fitch).The Group s current long-term debt ratings are: NAB AA-/Aa3/AA-(S&P/Moody s/Fitch); BNZ AA-/A1/AA- and NWMH A (S&P).On 19 June 2017, Moody s revised its Australian Macro Profile to Strong + from Very Strong -- reflecting Moody s view of elevatedrisks in the household sector. As a result, Moody s revised BaselineCredit Assessments and Counterparty Risk Assessments for 12Australian banks and their affiliates. Moody s also downgraded thelong term ratings of the four major Australian banks, including s long term rating was downgraded to Aa3 from Aa2 and BaselineCredit Assessment to a2 from a1. NAB s short-term rating was affirmedat P-1. On 19 June 2017, Moody s revised long-term ratings of fourmajor New Zealand Banks, including BNZ, in line with their parents, toA1 from 4 September 2017, S&P revised its long term rating of NWMH fromA+ to A, and removed it from CreditWatch. The change reflects S&P sview of NWMH following the completion of the divestment of Wealth'slife insurance of the DirectorsOperating and financial review (continued)92017 Annual Financial ReportDividendsThe directors have declared a final dividend of 99 cents per fully paidordinary share, 100% franked, payable on 13 December 2017. Theproposed payment amounts to approximately $2,659 million. TheGroup periodically adjusts the Dividend Reinvestment Plan (DRP) toreflect the capital position and outlook. The Group will offer a on the DRP, with no participation paid since the end of the previous financial year: The final dividend for the year ended 30 September 2016 of 99cents per fully paid ordinary share, 100% franked, paid on13 December 2016. The payment amount was $2,630 million. The interim dividend for the year ended 30 September 2017 of 99cents per fully paid ordinary share, 100% franked, paid on 5 July2017. The payment amount was $2,649 on the dividends paid and declared to date is contained inNote 29 Dividends and distributions in the Financial report. Thefranked portion of these dividends carries Australian franking credits ata tax rate of 30%, reflecting the current Australian company tax rate of30%. New Zealand imputation credits have also been attached to thedividend at a rate of NZ$ per share. The extent to which futuredividends will be franked, for Australian taxation purposes, will dependon a number of factors, including the proportion of the Group s profitsthat will be subject to Australian income tax and any future changes toAustralia s business tax of, and Outlook for, Group Operating EnvironmentGlobal Business EnvironmentGlobal economic growth improved towards the end of calendar year2016 and, after a pause early in calendar year 2017, lifted again inmid-2017. As a result growth is heading back to its trend pace. Theimprovement has been led by advanced economies: The US economy continues to show moderate growth. The economic recovery in the Euro-zone is now firmly established. Fears of a sharp downturn in China s economy have receded but itremains on a longer-term slowing trend. Brazil and Russia have moved out of recession but growth in theIndian economy has upturn in activity was initially accompanied by a solid recovery incommodity prices over calendar year 2016 and into early calendaryear 2017, although they have subsequently focus of major advanced economy central banks has generallyshifted away from easing monetary policy to when to tighten it. The US Federal Reserve has been raising rates, and has startedthe process of winding back its balance sheet. The European Central Bank has removed its interest rate easingbias and it will reduce the size of its monthly net asset purchasesfrom January 2018. The Bank of England has raised Bank Rate and is flagging furthergradual rate rises. The Bank of Japan, despite struggling to meet its inflation target, isnot providing any indications that it will further loosen around the global outlook now centre on a range of geo-politicalrisks. However, the global economy has been resilient in recent yearsand the outlook is for global growth to show a further modest lift incalendar year EconomyThe Australian economy grew by over the year to the Junequarter 2017, and while Australia has now gone 26 years without arecession, this represents the weakest annual growth rate since theglobal financial crisis in 2009. However, activity picked up in the Junequarter, with GDP up on the previous quarter. The modestannual growth rate reflects: A fall in dwelling construction over the year to the June quarter2017; however, the construction pipeline remains at a high level. Below average consumer spending, despite households loweringtheir savings to fund spending. Strong government investment. A detraction from net exports with weather disruptions negativelyaffecting exports and import growth strong. Falling business investment, principally reflecting weakness in non-dwelling construction driven by the mining sector. However, theworst of the fall-off may have passed with underlying privatebusiness investment increasing in the last three quarters, whilenon-mining business investment intentions have income growth, which has been modest by historicalstandards in recent years, strengthened over the year to the Marchquarter 2017, before easing in the June quarter, similar to the patternin commodity prices. In world price terms, the RBA commodity priceindex rose by 60% between January 2016 and February 2017,although subsequently prices eased again, giving up around one-thirdof this gain by October. The gains in national income are reflected inincreased corporate profits, but household disposable income growthremains is expected to be stronger in the second half of calendar year2017 as LNG exports continue to increase and coal and iron oreexports return to normal levels. Growth is expected to tail off somewhatthrough the following two years as LNG exports and dwellingconstruction peak at high levels and no longer contribute to growth. Inyear-average terms growth is expected to be in calendar year2017 and in calendar year 2018. Within these nationalaggregates there continues to be a wide disparity in conditions acrossindustries and geographies. Agricultural prices are mixed but recent data has been lower s Rural Commodities Index was down in AUD terms overthe year to October 2017. After a good season last year, parts ofAustralia (especially in NSW and Queensland) have experiencedtough growing conditions. Yields are likely to disappoint in these areasand livestock producers may face a shortage of labour market has been improving although wages growthremains subdued: Employment growth has strengthened. The unemployment rate has eased from in March 2017 in September 2017. However, there is still is a high level ofunderemployment. Wages pressure remains limited. Growth in the wage price indexhas been slowing since 2012, and it only grew by over theyear to the June quarter prices in Australian capital cities continue to rise: The CoreLogic hedonic dwelling price index for the eight capitalcities grew by over the year to October 2017, down from thepeak seen earlier in the year. Annual price growth has been strongest in Melbourne and dwelling prices in October were higher than a yearago, but have fallen over the last three months. Prices have alsofallen in Perth and Darwin over the last system credit growth remains modest by historical standards. Overall annual housing credit growth has been steady sincemid-2016. In recent months the momentum of investor housingcredit growth has slowed, likely due to prudential measuresReport of the DirectorsOperating and financial review (continued)10 NATIONAL AUSTRALIA BANKannounced in March 2017, but this has been largely offset bystronger owner-occupier credit. Annual business credit growth has slowed since April 2016,although it has shown improvement in recent months, while otherpersonal credit is consumer price inflation in the September quarter 2017was slightly below the RBA's 2-3% target band. However, if theexpected growth in the economy is realised, the unemployment rateshould ease further and give the RBA confidence that inflation willmove to within the target band over time. This would provide the basisfor the RBA to raise rates in the second half of calendar year Zealand EconomyWhile the outlook for the New Zealand (NZ) economy remains broadlypositive, and the economy has been performing strongly, analysts arenow assessing the impact of the change in government on economicpolicies and outcomes. It will take time to assess the full implications ofthe new government's policies as and when fuller details emerge. Priorto the election, GDP growth had already eased to over the yearto the June quarter 2017 but growth remained within the rangeexperienced since calendar year the year to the June quarter 2017 consumption and governmentspending growth was strong. Business investment growth was alsosolid and business investment intentions are building investment in the June quarter 2017 was a littlelower than a year ago. However, as a percentage of GDP it remainsrobust and the number of building consents have rebounded from theirrecent that have been supporting economic growth include: Strong population growth due to high net inward migration. Tourism, with short-term visitor arrivals for the year to September2017 higher than in the year to September 2016. Low interest rates. The official cash rate is currently at anhistorically low A recovery in commodity prices, which has helped take themerchandise terms of trade back to around record export prices increased between April 2016 andSeptember 2017, but have since levelled out and remain belowprevious highs. Between April 2016 and September 2017 commodity export pricesgrew by around 30% in world price terms and by over 20% in NZdollar terms. However, in world price terms they were still belowtheir early 2014 peak. Dairy export prices in September 2017 were almost 60% higherthan in April 2016 (world price terms) but are still more than 30%below their peak. Fonterra's 2016/17 farmgate milk price was NZ$ per kg milk solids, well above the 2015/16 season price of NZ$ A further moderate improvement in the farmgate milk pricefor the 2017/18 season is expected. Non-dairy commodity exportprices generally remain housing market has been cooling: The REINZ's House Price Index grew by only betweenSeptember 2016 and September 2017. House prices in Aucklandhave eased a little from their 2016 peak but have stabilised inrecent months. In the rest of the country annual house price growthhas slowed. The number of house sales has fallen across much of the country. According to the RBNZ, the slowdown in house price growth is dueto loan-to-value restrictions, tighter credit conditions andaffordability constraints. The recent election process may haveslowed property market activity more labour market continues to strengthen. The unemployment rate has gradually trended down since 2012,and was in the September quarter 2017, its lowest rate since2008. Wages growth remains moderate but has started to relatively low unemployment rate highlights the headwind togrowth from emerging domestic capacity constraints. Other measuresalso suggest growing supply sector resident credit growth has eased. Credit growth was over the year to September 2017, downfrom its most recent peak of over the year to October 2016. This reflects a slowing in agriculture, other business and housingcredit growth. In contrast, consumer credit growth strengthenedover this outlook for the Group s financial performance and outcomes isclosely linked to the levels of economic activity in each of the Group skey markets as outlined on Risk FactorsRisks specific to the Group, including those related to generalbanking, economic and financial conditionsSet out below are the principal risks and uncertainties associated withthe Company and its controlled entities (the Group). These risks anduncertainties are not listed in order of significance and it is not possibleto determine the likelihood of any such risks occurring. In the eventthat one or more of these risks occur, the Group s business,operations, financial condition and future performance could bematerially and adversely may be other risks faced by the Group that are currentlyunknown or are deemed immaterial, but which may subsequentlybecome known or become material. These may individually or inaggregate adversely impact the Group. Accordingly, no assurances orguarantees of future performance, profitability, distributions or returnsof capital are given by the specific to the banking and financial services industryThe nature and impact of these external risks are generally notpredictable and are often beyond the Group s direct Group may be adversely impacted by macro-economic andgeopolitical risks and financial market majority of the Group's businesses operate in Australia and NewZealand (NZ), with branches located in Asia, the United Kingdom (UK)and the United States (US). The business activities of the Group aredependent on the nature and extent of banking and financial servicesand products required by its customers globally. In particular, levels ofborrowing are heavily dependent on customer confidence, employmenttrends, market interest rates, economic and financial market conditionsand and international economic conditions and forecasts areinfluenced by a number of macro-economic factors, such as: economicgrowth rates, cost and availability of capital, central bank intervention,inflation and deflation rates, and market volatility and uncertainty. Thismay lead to: Increased cost of funding or lack of available of the DirectorsOperating and financial review (continued)112017 Annual Financial Report Deterioration in the value and liquidity of assets (includingcollateral). An inability to price certain assets. Increased likelihood of customer or counterparty default and creditlosses (including the purchase and sale of protection as part ofhedging strategies). Higher provisions for bad and doubtful debts. Mark-to-market losses in equity and trading positions. A lack of available or suitable derivative instruments for hedgingpurposes. Lower growth in business revenues and earnings. In particular, theGroup s wealth business earnings are highly dependent on assetvalues, particularly the value of listed equities. Increased cost of insurance, lack of available or suitable insurance,or failure of the insurance conditions may also be impacted by climate change andmajor shock events, such as: natural disasters, war and terrorism,political and social unrest, and sovereign debt restructuring following are examples of macro-economic and financial marketconditions that are currently relevant to the Group and may adverselyimpact its financial performance and position: Subdued growth in several large economies in recent years as thepace of expansion was curbed by weak household income growth,as well as a sluggish recovery in business investment from thedeep recession of 2008. Rapid expansion in China and India, largeemerging market economies, highlights the dependence of theglobal economic upturn on developments in a small number of keyeconomies. Historically low interest rates limit the extent to which monetarypolicy can be used to reduce the impact of cyclical downturn ineconomic conditions. In addition, high levels of public debt relativeto GDP could complicate efforts in many economies, which are partof the Organisation for Economic Cooperation and Development, touse fiscal policy (tax cuts or increased public spending) to stabiliseeconomic activity in the face of an economic downturn. Without sustained economic growth, existing high household debtratios present ongoing risks particularly in the event of any cyclicaleconomic downturns. Even in the absence of a downturn, high debtlevels may constrain future credit growth. Structural changes in theeconomy that could affect wages growth and the distribution ofincome may also impact future credit growth and asset quality. Higher government debt ratios in many advanced economies mayalso impact sovereign credit ratings and the terms and availability ofmarket funding for government debt. Decreases in the sovereigncredit rating of Australia may have an adverse impact on theAustralian banks, including the Company and NZ banks owned byAustralian parent banks. Likewise, decreases in NZ s sovereigncredit rating would be expected to impact credit ratings for theGroup s businesses based in NZ. Weaknesses continue to exist in a number of European banks, andnon-performing loans as a percentage of total assets remain inter-connectedness of the global banking system meansEuropean banking system problems have the potential to createdisruptions in global financial markets, raising questions over thestability of particular banks around the world. In the past this hasreduced market liquidity, which may negatively impact the Group saccess to wholesale funding. As interest rates in developed economies are expected to graduallyrise from historical lows, there is a risk that the valuation of a widerange of assets, from housing to government bonds, could fallsharply. In some countries, key assets like houses and sovereignbonds have been trading at high valuations by historical in markets can also decrease unexpectedly, and marketvolatility may increase following a shock to financial markets andeconomic conditions. Previous periods of tightening monetarypolicy in the US were associated with greater volatility in the volumeand pricing of capital flows in emerging market economies. Capitalimporting economies, including Australia and NZ, are generallyvulnerable to a sudden or marked change in global interest ratesand broader financial conditions. Continued economic growth in China is important to Australia andNZ, with ongoing concerns that its rapid pace of growth could slowsharply. Due to its export mix, Australia s economy is exposed to asudden downturn in Chinese investment, or a substantial orsustained decline in the Chinese economy. In addition, theincreasing level of bad debts in China poses a risk to its bankingsystem with potential flow-on impacts to credit availability andliquidity and to the broader Chinese economy. As commodity exporting economies, Australia and NZ are exposedto shifts in global commodity prices that can be sudden, sizeableand difficult to predict. Swings in commodity markets can affect keyeconomic variables like national income, tax receipts and exchangerates. Previous sharp declines in commodity prices in Australia andNZ were driven by sub-trend global growth constraining demand,combined with increases in commodity supply. Commodity pricevolatility remains substantial and the Group has sizeable exposuresto commodity producing and trading businesses. Changes in the political environment raise the risk that growth-promoting reforms may become more difficult to implement as wellas increasing market uncertainty, volatility and adverse economicconditions. Uncertainty remains over: key economic policies of theUS administration, the evolving situation in the Korean peninsula,Brexit (where the details of any agreement on the terms of UKaccess to the European Union market is unclear), and the impact ofseveral elections in European countries notably, the Italianelection scheduled in early 2018 which could lead to changes ingovernment and shifts in economic policy. The outcome of politicaluncertainty in the Spanish region of Catalonia is also unclear. InNZ, the change of government is expected to result in changes ineconomic policies that could affect the business environment andmarket conditions. The extent, implementation and outcome ofpolicy changes resulting from these political events, and theirimpact on global trade, the broader economies of the affectedcountries and global financial markets, are all Group is subject to extensive regulation. Regulatory changesmay adversely impact the Group s operations, and financialperformance and Group is highly regulated in Australia and in the other jurisdictionsin which it operates, trades or raises funds, and is subject tosupervision by a number of regulatory authorities and industry codes vary across jurisdictions and are designed to protect theinterests of depositors, policy holders, security holders, and thebanking and financial services system as a whole. Changes to lawsand regulations or changes to regulatory policy or interpretation can beunpredictable, are beyond the Group s control, and may not beharmonised across the jurisdictions in which the Group change may result in significant capital and compliancecosts, changes to corporate structure and increasing demands onmanagement, employees and information technology of current and potential regulatory changes impacting theGroup are set out of the DirectorsOperating and financial review (continued)12 NATIONAL AUSTRALIA BANKThe non-capital components of the APRA framework for thesupervision of conglomerate groups, including the Group, becameeffective on 1 July 2017. APRA deferred finalising the capitalcomponents of the framework, with implementation not expected priorto of the Basel Committee on Banking Supervision s(BCBS) reforms will continue over the coming years in Australia andthe Group s other jurisdictions. APRA has introduced prudentialstandards for BCBS Basel III requirements in Australia. These reformsincrease the quality and ratio of capital to risk weighted assets that theGroup is required to maintain, and the quality and proportion of assetsthat the Group is required to hold as high-quality liquid assets. OtherBCBS key changes impacting the Group that APRA is progressinginclude: Updated standard on liquidity, incorporating the net stable fundingratio that will take effect on 1 January 2018. This may impact thefunding profiles and associated costs of participants in theAustralian Banking industry, and NZ banks owned by Australianparent banks. Revised securitisation framework that will take effect from1 January 2018. This may impact the amount of regulatory capitalheld industry-wide for securitisation exposures. The BCBS revised market risk framework, which is due to comeinto effect from 2019 globally. Domestically, APRA has advised thenew market risk standard will not take effect before 2021. This mayimpact trading book capital requirements. Consultation on the standardised approach to counterparty creditrisk. Requirements will take effect from January 2019 at theearliest. This may impact the amount of regulatory capital held forcounterparty credit risk exposures. Consultation on a revised Large Exposures framework, with finalrequirements expected to take effect from 2019. This may impactlarge exposure limits, measurement and reporting. Signalling an intent to implement a minimum leverage ratiorequirement for Authorised Deposit-taking Institutions (ADIs) whichis not expected prior to 1 January 2018. The NAB leverage ratio at 30 September 2017 is above the current Baselminimum. The minimum leverage ratio requirement is not expectedto be a binding constraint on the NZ, the Reserve Bank of New Zealand (RBNZ) is currentlyreviewing the previously implemented Basel III Capital AdequacyFramework. This review may result in a departure from the framework,and lead to potential capital constraints and compromised efficiency ofcapital changes continue to be made by the BCBS as it focuseson improved consistency and comparability in banks regulatory capitalratios. Draft proposals include revisions to the internal ratings-basedand standardised approaches for calculating regulatory capital and theintroduction of a capital floor framework, with consultation on sovereignrisk expected. The BCBS also released the revised interest rate risk inthe banking book framework and is expected to implement revisions tothe operational risk capital framework. The full impact of the changeswill not be known until the BCBS requirements are implemented byAPRA or by other regulators. This may intersect with measuresadopted as a result of the Australian Financial System Inquiry (FSI),which recommended measures supported by the AustralianGovernment, on improving resilience, efficiency and fairness of thebanking system. APRA has responsibility for implementing FSIrecommendations in relation to strengthening the resilience of thefinancial following FSI recommendations have taken effect, or are inconsultation: From July 2016, APRA commenced raising the risk weight forAustralian residential mortgages from approximately 16% to anintended average of 25% for ADIs accredited to use internalmodels. On 19 July 2017, APRA released a paper outlining the amount andtiming of capital increases required for ADIs to achieve unquestionably strong capital ratios. APRA advised that the majorAustralian banks, including the Company, are expected to haveCommon Equity Tier 1 (CET1) capital ratios of at least by1 January 2020. Implementation of this and furtherrecommendations may result in impacts to regulation andlegislation, risk weighted assets or capital ratios. In March 2017, the Australian Government Treasury consulted onwhether the Australian Securities and Investments Commission(ASIC) should be given additional powers on the design anddistribution obligations for financial products. This would allow ASICto temporarily intervene in product design and distribution if itbelieves there is significant consumer harm. On 1 July 2017, the new ASIC Industry Funding Model came intoeffect, resulting in regulated entities being charged for ASIC sregulatory Financial Stability Board issued the total loss-absorbing capacity(TLAC) standard in November 2015 for global systemically importantbanks (G-SIBs). APRA could implement a loss absorbing capacityframework in accordance with emerging international practice. At thisstage, APRA has not yet issued guidance on how TLAC might beimplemented. This may have implications on the level of capital theGroup is required to Australian Government Treasury also recently consulted on anumber of proposed major regulatory reforms, including: The Banking Executive Accountability Regime that is designed toenhance the responsibility and accountability of ADIs and theirdirectors and senior executives. Superannuation reform, specifically draft legislation on improvingaccountability and member outcomes, together with proposedchanges to the superannuation prudential framework to liftoperational governance practices of APRA-regulatedsuperannuation trustees. Draft legislation to extend the powers of APRA to address any crisisaffecting the Company. The extension of the powers may increasethe risk of regulatory action that imposes losses on the holders ofregulatory capital securities. The introduction of an Open Banking regime in Australia designedto increase access to banking product and customer data byconsumers and third areas of ongoing regulatory change and review include: Global reform initiatives including US Dodd-Frank Wall StreetReform and Consumer Protection Act of 2010, and Over TheCounter derivative market reforms. The Productivity Commission s inquiries into competition in theAustralian financial system and the competitiveness and efficiencyof the superannuation industry. Together with the AustralianGovernment Treasury s Open Banking review, these inquiries coveralmost the entirety of the banking and financial services sector andany outcomes from them will be considered by the Government aspart of its ongoing focus on improving customer outcomes. Supervisory actions to reinforce sound residential mortgage lendingpractices, including restrictions on investor and interest onlylending. More broadly, the Australian Competition and ConsumerCommission is conducting an inquiry into residential mortgageReport of the DirectorsOperating and financial review (continued)132017 Annual Financial Reportproduct pricing. This may require the Company to explain anychanges or proposed changes to fees, charges or interest ratesapplicable to residential mortgage products. Changes to financial benchmarks, payments and privacy laws,accounting and reporting requirements, tax legislation and bankspecific tax levies. This includes the major bank levy which becameeffective from 1 July 2017, and similar levies that Australian Stateand Territory Governments may introduce. Increasing supervision and regulation on anti-bribery andcorruption, anti-money laundering, counter-terrorism financing andtrade sanctions. An ongoing focus on financial advice, data quality and controls,conduct, governance and culture, conflicts of interest andmanagement of life insurance RBNZ issued its revised Outsourcing Policy which focuses onbanking services provided by parent banks offshore. Implementationof, and compliance with, the final policy may impact the Group full scope, timeline and impact of these current and potentialinquiries and regulatory reforms, or how they will be implemented (if atall in some cases), is not known. Depending on the specific nature ofrequirements and how they are enforced, they may have an adverseimpact on the Group s business, operations, structure, compliancecosts or capital requirements, and ultimately its financial performanceand Group faces intense competition, which may adverselyimpact its financial performance and competitive is substantial competition across the markets in which the Groupoperates. Increasing competition for customers can lead tocompression in profit margins or loss of market share. The Groupfaces competition from established financial services providers as wellas new market entrants, including foreign banks and non-bankcompetitors with lower costs and new operating models. Evolvingindustry trends and anticipated rapid changes in technology are likelyto impact on customer needs and preferences. The Group may notpredict these changes accurately or quickly enough, or have theresources and flexibility to adapt in sufficient time to keep pace withindustry developments and to meet customer expectations. As a result,the Group s financial performance and competitive position may beadversely specific to the GroupThere are a number of risks which arise directly from the operations ofthe Group as a major participant in the banking and financial servicesindustry and from the specific structure of the Group. The Group sfinancial performance and position are, and in the future may continueto be, impacted by these risks, as set out Group is exposed to credit risk, which may adversely impactits financial performance and risk is the potential that a counterparty or customer will fail tomeet its obligations to the Group in accordance with agreed activities account for most of the Group s credit risk. However,other sources of credit risk also exist in: banking and trading books,other financial instruments and loans, extension of commitments andguarantees, and transaction sub-segments within the Group s lending portfolio includeresidential housing loans, a material component of the Group s totalgross loans and acceptances, and commercial real estate loans, themajority of these domiciled across Australia and NZ. Adverse businessor economic conditions, including deterioration in property valuationsor prices of residential and commercial property, decline inemployment markets, political environment volatility, or high levels ofhousehold debt in Australia and NZ may result in increased credit Group may also be exposed to the increased risk of counterpartyor customer default should interest rates rise above the record or nearrecord lows of recent years. In particular, the Group s portfolio ofinterest-only loans across retail and non-retail segments and theresidential investor mortgage portfolio, may be susceptible to losses inthe event of a rise in interest rates or a decline in property prices. TheGroup may also be exposed to counterparty default in the event ofdeterioration in the market for apartments, through retail lending andnon-retail lending to property Group s large business lending market share in Australia and NZexposes it to potential losses should adverse conditions beexperienced across this sector. Similarly, the Group has a large marketshare in the Australian and NZ agricultural sectors, particularly thedairy sector in NZ. Volatility in commodity prices, foreign exchange ratemovements, disease and introduction of pathogens and pests, exportand quarantine restrictions and other risks may adversely impact thesesectors and the Group s financial performance and NZ dairy market has been under financial pressure due to lowermilk solid payouts in 2015/16. While the outlook for milk prices hasrecently improved, it is expected that some level of financial pressurewill continue for a period of time across this sector. The Australiandairy industry has also faced lower milk prices and industry mining, oil and gas industries in Australia, as well as a number ofsectors that service them, were impacted by a slowdown in investmentand a period of low commodity prices in key segments. This continuesto present the risk of an increase in bad and doubtful change may present risks arising from: extreme weatherevents that affect property or business operations, effect of new lawsand Government policies designed to mitigate climate change, andimpacts on certain customer segments as the economy transitions torenewable and low-emission technology. A consequence of thesefactors includes the risk of the Group and its customers holdingstranded Group provides for losses in relation to loans, advances and otherassets. Estimating losses in the loan portfolio is, by its very nature,uncertain. The accuracy of these estimates depends on many factors,including general economic conditions, forecasts and assumptions,and involves complex modelling and judgements. If the information orthe assumptions upon which assessments are made prove to beinaccurate, the provisions for credit impairment may need to berevised. This may adversely impact the Group s financial performanceand Group may suffer losses due to its exposure to risk is the risk of loss resulting from inadequate internalprocesses and controls, people and systems or from external includes legal risk but excludes strategic and reputational risks are a core component of doing business arising fromthe day-to-day operational activities of the Group as well as strategicprojects and business change initiatives. Given that operational riskscannot be fully mitigated, the Group determines an appropriatebalance between accepting potential losses and incurring costs operational risk event may give rise to substantial losses, includingfinancial loss, fines, penalties, personal injuries, reputational damage,Report of the DirectorsOperating and financial review (continued)14 NATIONAL AUSTRALIA BANKloss of market share, theft of property, customer redress and from operational risk events may adversely impact the Group sreputation, and financial performance and of operational risk events include: Fraudulent or unauthorised acts by employees, contractors andexternal parties. Systems, technology and infrastructure failures, cyber incidents,including denial of service and malicious software attacks, orunauthorised access to customer or sensitive data. Process errors or failures arising from human error or inadequatedesign of processes or controls. Operational failures by third parties (including off-shored andoutsourced service providers). Weaknesses in employment practices, including those with respectto diversity, discrimination and workplace health and safety. Deficiencies in product design or maintenance. Business disruption and property damage arising from events suchas natural disasters, climate change, biological hazards or acts addition, the Group is dependent on its ability to retain and attractkey management and operating personnel. The unexpected loss ofkey resources, or the inability to attract personnel with suitableexperience, may adversely impact the Group s ability to operateeffectively and efficiently, or to meet strategic are used extensively in the conduct of the Group s business,for example, in calculating capital requirements and measuring andstressing exposures. If the models used prove to be inadequate or arebased on incorrect or invalid assumptions, judgements or inputs, thismay adversely affect the Group s financial performance and Group may be exposed to risk from non-compliance withlaws or standards and other forms of misconduct, which mayadversely impact its reputation, and financial performance Group is exposed to risk arising from failure or inability to complywith applicable laws, regulations, licence conditions, regulatorystandards, industry codes of conduct and Group policies andprocedures. This may include detrimental practices, such as: Selling or unduly influencing customers to purchase inappropriateproducts and services. Conducting inappropriate market practices or being a party tofraudulent transactions. Non-adherence to fiduciary requirements or provision of financialadvice which is inappropriate or not in the best interests the Group s compliance controls were to fail significantly, be setinappropriately, or not meet legal or regulatory expectations, then theGroup may be exposed to: fines, public censure, litigation, settlements,restitution to customers, regulators or other stakeholders,unenforceability of contracts such as loans, guarantees and othersecurity documents, enforced suspension of operations, or loss oflicence to operate all or part of the Group s businesses. This mayadversely impact the Group s reputation, and financial performanceand Group has ongoing discussions with key regulators on industry-wide issues and matters specific to the Group. Significant regulatorychange and public scrutiny of the global financial services industry byconduct based regulators, and at times government, is drivingincreased minimum standards and customer expectations. This hasled to a number of international firms facing high profile enforcementactions, including substantial fines, for breaches of laws orregulations. Refer to Notes to the Consolidated Financial Statements ,Note 32 Contingent liabilities and credit commitments on page 106 inthe Financial report for details on regulatory compliance investigationsand reviews, and court proceedings brought by regulators against theGroup. The potential outcome of these court proceedings,investigations and reviews remain uncertain at this time, and it ispossible that class actions could arise in relation to these addition to matters disclosed in the Financial report (as referencedabove), ASIC is also conducting the following investigations andreviews: In January 2017, the Group s superannuation trustee, NULISNominees (Australia) Ltd (NULIS), commissioned an independentassurance review in accordance with additional conditions on itsfinancial service licence. As agreed with ASIC, the scope of thereview covered NULIS risk management procedures, processes forimplementing product changes, disclosure and reporting tomembers, and conflicts management procedures. The first phaseInterim Review findings and NULIS responses were submitted toASIC. The review is ongoing. Conduct-related issues, including responsible lending, theconsumer credit insurance sales process and seeking furtherindustry action in relation to loan contracts for small businessesunder the Unfair Contract Terms regime. ASIC has reviewedlending practices in the home loan sector and commenced legalproceedings in March 2017 against another Australian bank foralleged contraventions of the responsible lending provisions of theNational Consumer Credit Protection Act held for conduct and litigation matters are based on anumber of assumptions derived from a combination of pastexperience, forecasts, industry comparison and the exercise ofsubjective judgement based on (where appropriate) externalprofessional advice. Risks and uncertainties remain in relation to theseassumptions and the ultimate costs of redress to the Group. Thesefactors mean that the eventual costs of conduct and compliance-related matters may differ materially from those estimated and furtherprovisions may be required, adversely impacting the Group sreputation, and financial performance and of technology systems or breaches of data securitymay adversely impact the Group s operations, reputation, andfinancial performance and of the day-to-day operations of the Group are computer-based,and therefore the reliability and security of the Group s informationtechnology systems and infrastructure are essential to its risk may arise from an array of factors including:complexity within the technology environment, a failure of thesesystems to operate effectively, an inability to restore or recover suchsystems in acceptable timeframes, failure to keep technology up-to-date, a breach of data security, or other forms of cyber-attack orphysical attack. These factors may be wholly or partially beyond thecontrol of the Group. Such events may result in disruption tooperations, adverse impact on speed and agility in the delivery ofchange and innovation, reputation damage, litigation, loss or theft ofcustomer data, or regulatory investigations and penalties. These risksmay adversely impact the Group s reputation, and financialperformance and rapid evolution of technology in the financial services industry andthe increased expectation of customers for internet and mobileservices on demand, expose the Group to new challenges in of the DirectorsOperating and financial review (continued)152017 Annual Financial ReportThe Group processes, stores and transmits large amounts of personaland confidential information through its computer systems andnetworks. The Group invests significant resources in protecting theconfidentiality and integrity of this information. However, threats toinformation security are constantly evolving and techniques used toperpetrate cyber-attacks are increasingly sophisticated. The Groupmay not be able to anticipate a security threat, or be able to implementeffective measures to prevent or minimise the resulting damage. Aninformation security breach may result in operational disruption,regulatory enforcement actions, financial losses, theft or loss ofcustomer data, or breach of privacy laws, all of which may adverselyimpact the Group s reputation, and financial performance and with other business activities, the Group uses select externalproviders (both in Australia and overseas) to continue to develop andprovide its technology solutions. There is increasing regulatory andpublic scrutiny of outsourced and off-shored activities and theirassociated risks, such as the appropriate management and control ofconfidential data. The failure of any external providers to perform theirobligations to the Group or the failure of the Group to appropriatelymanage those providers, may adversely impact the Group s reputation,and financial performance and and change programs across the Group may notdeliver some or all of their anticipated Group invests significantly in change across the organisation,including technology, infrastructure and cultural transformation. Thereis a risk that these programs may not realise some or all of theanticipated benefits. The Group also continues to pursue businessprocess improvement initiatives and invest in technology to achieve itsstrategic objectives, meet changing customer expectations andrespond to competitive pressures. These process changes mayincrease operational and compliance risks, which may adverselyimpact the Group s reputation, and financial performance and Group may be exposed to losses if critical accountingjudgements and estimates are subsequently found to of the Group s financial statements requires managementto make estimates and assumptions and to exercise judgement inapplying relevant accounting policies, each of which may directlyimpact the reported amounts of assets, liabilities, income andexpenses. Some areas involving a higher degree of judgement, orwhere assumptions are significant to the financial statements,include the estimates used in the calculation of provisions (includingthose pertaining to conduct-related matters), the valuation of goodwilland intangible assets, and the fair value of financial the judgements, estimates and assumptions used by the Group inpreparing consolidated financial statements are subsequently found tobe incorrect, there could be a significant loss to the Group beyond thatanticipated or provided for, which may adversely impact the Group sfinancial performance and and contingent liabilities arising from the Group sbusiness conduct may adversely impact its reputation, andfinancial performance and within the Group may be involved from time to time in legalproceedings arising from the conduct of their business. The aggregatepotential liability and costs in respect thereof cannot be to Notes to the Consolidated Financial Statements , Note 32Contingent liabilities and credit commitments on page 106 in theFinancial report for details in relation to the Group s material legalproceedings and contingent capital may adversely impact the Group s operationsand financial performance and risk is the risk that the Group does not have sufficient capitaland reserves to meet prudential requirements, achieve strategic plansand objectives, cover the risks to which it is exposed, or protectagainst unexpected losses. The Group is required in all jurisdictions inwhich it undertakes regulated activities to maintain minimum levels ofcapital and reserves relative to the balance sheet size and risk profileof its capital requirements and proposed changes to theserequirements may: Limit the Group s ability to manage capital across the entities withinthe Group. Limit payment of dividends or distributions on shares and hybridinstruments. Require the Group to raise or use more capital of higher quality, orto restrict balance sheet , if the information or the assumptions upon whichassessments of capital requirements are made prove to be inaccurate,this may adversely impact the Group s operations, and financialperformance and Group s funding and liquidity position may be adverselyimpacted by dislocation in global capital risk is the risk that the Group is unable to raise short and long-term funding to support its ongoing operations, strategic plans andobjectives. The Group accesses domestic and global capital marketsas well as raising customer deposits to help fund its in any of these capital markets, or reduced investor andcustomer appetite to hold the Group s securities or place depositfunds, may adversely affect the Group s ability to access funds orrequire access to funds at a higher cost or on unfavourable risk is the risk that the Group is unable to meet its financialobligations as they fall due. These obligations include the repayment ofdeposits on demand or at their contractual maturity, the repayment ofborrowings and loan capital as they mature, the payment of interest onborrowings and the payment of operating expenses and significant deterioration in the Group s liquidity position may leadto an increase in the Group s funding costs, constrain the volume ofnew lending, or result in the Group drawing upon its committed liquidityfacility with the Reserve Bank of Australia. This may adversely impactthe Group s financial performance and significant downgrade in the Group s credit ratings mayadversely impact its cost of funds, market access andcompetitive ratings are an opinion on the general creditworthiness of aborrower and may be an important reference for market participants inevaluating the Group and its products, services and rating agencies conduct ongoing review activities which canresult in changes to credit rating settings and outlooks for the Group,or for sovereign governments in countries in which the Group conductsbusiness. Credit ratings may be affected by operational and marketfactors, and changes in the rating methodologies used by downgrade in the credit ratings within the Group or of the Group ssecurities, or a downgrade in the sovereign rating of one or more of theReport of the DirectorsOperating and financial review (continued)16 NATIONAL AUSTRALIA BANKcountries in which the Group operates, may increase the Group s costof funds or limit its access to the capital markets. This may also causea deterioration of the liquidity position and trigger additional collateralrequirements in derivative contracts and other secured fundingarrangements. A downgrade to the Group s credit ratings relative topeers could also adversely impact the Group s competitive in interest rates may adversely impact the Group sfinancial performance and rate risk is the risk to the Group s financial performance andposition caused by changes in interest rates. As interest rates andyield curves change over time, including negative interest rates incountries in which the Group operates, the Group may be exposed to aloss in earnings and economic value due to the interest rate profile ofits balance sheet. In the banking industry, such exposure commonlyarises from the mismatch between the maturity profile of a bank slending portfolio compared to its deposit portfolio (and other fundingsources). Interest rate risk also includes the risk arising out ofcustomers demands for interest rate-related products with variousrepricing profiles. It is also possible that both short and long-terminterest rates may change in a way that the Group has not Group is exposed to foreign exchange and translation risk,which may adversely impact its financial performance exchange and translation risk arises from the impact ofcurrency movements on the value of the Group s cash flows, profitsand losses, and assets and liabilities due to participation in globalfinancial markets and international Group s ownership structure includes investment in overseassubsidiaries and associates and exposures from known foreigncurrency transactions (such as repatriation of capital and dividendsfrom off-shore subsidiaries). The Group also conducts businessoutside of Australia and transacts with customers, banks and othercounterparties in a number of different currencies. The Group sbusinesses may therefore be affected by a change in currencyexchange rates, a full or partial break-up of the Eurozone, or a changein the reserve status of any of these currencies. Any unfavourablemovement in foreign exchange rates may adversely impact theGroup s financial performance and Group s financial statements are prepared and presented inAustralian dollars, and any fluctuations in the Australian dollar againstother currencies in which the Group invests or transacts and generatesprofits (or incurs losses) may adversely impact its financialperformance and Group may suffer significant losses from its market risk is the risk of losses arising from trading activities,including proprietary trading, undertaken by the Group. Losses canarise from a change in the value of positions in financial instruments ortheir hedges due to adverse movements in market prices. Anysignificant losses from such trading activities may adversely impact theGroup s financial performance and to the Group s reputation may adversely impact itsfinancial performance and Group s reputation may be damaged by the actions, behaviour orperformance of the Group, its employees, affiliates, suppliers,intermediaries, counterparties or customers, or the financial servicesindustry generally. Together with ongoing political and media scrutinyof the Australian banking industry, reputational damage has thepotential to lead to further government intervention into the sector. Forexample, the Federal Opposition (Labor) has committed to establish aRoyal Commission (a formal public inquiry that can only be instigatedby the executive branch of the Australian Government and is directedby a terms of reference set by the Government) into the banking andfinancial services sector. Recommendations from this inquiry, iflegislated, could affect many of the Group s risk event, such as a compliance breach, fraud or an operational ortechnology failure, may expose the Group to losses as a result oflitigation, fines and penalties, remediation costs or loss of keypersonnel, and potentially impact the Company s share price. Inaddition, the event may adversely affect the perceptions of the Groupheld by the public, shareholders, investors, customers, regulators orratings agencies. The risk of reputational damage may be heightenedby the continuing growth and use of social damage may adversely impact the Group s ability toattract and retain customers or employees in the short and long-termand the ability to pursue new business opportunities. It may result in ahigher risk premium being applied to the Group, and impact the cost offunding, its operations, or its financial condition. It may also result inregulators requiring the Group to hold additional capital, pay fines orincur additional costs, including costs to undertake remedial to sell down underwriting risk may result in losses to financial intermediaries, members of the Group underwrite orguarantee many different types of transactions, risks and outcomes,including the placement of listed and unlisted debt, equity-linked andequity securities. The underwriting obligation or guarantee may beover the pricing and placement of these securities, and the Group maytherefore suffer losses if it fails to sell down some or all of this risk toother market failure of the Group s risk management frameworkmay adversely impact its reputation, and financial performanceand Group operates within a risk management framework that isbased on a Three Lines of Defence model. This model is the totality ofsystems, structures, policies, processes and people that manage allmaterial internal and external sources of identified material with any risk management strategy, there is no guarantee that thisframework is sufficient to mitigate known risks or to identify or addresschanging or new and emerging strategic decisions, including acquisitions ordivestments, may adversely impact the Group s reputation, andfinancial performance and is a risk that the assumptions underlying the Group s strategicdecisions are (or prove to be) incorrect, or that the conditionsunderpinning those strategic decisions may change. The Group maynot have the resources or flexibility to adapt quickly (or at all) to suchchange. In addition, any one or more of the Group s strategic initiativesmay prove to be too difficult or costly to execute Group regularly considers a range of corporate opportunitiesincluding acquisitions, divestments and joint ventures. Opportunitiesthat are pursued may change the Group s risk profile and capitalstructure, and inherently come with transaction risks including over-valuation of an acquisition (or under-valuation of a divestment), andexposure to reputational and financial of the DirectorsOperating and financial review (continued)172017 Annual Financial ReportRisks may arise through the integration or separation of a business,including failure to realise expected synergies, disruption to operations,diversion of management resources or higher than expected costs. Inaddition, the Group may have ongoing exposures to divestedbusinesses, including through the provision of continued services andinfrastructure (such as the transitional services being provided toCYBG PLC (CYBG) and MLC Limited) or the retention of liabilities,including through warranties and indemnities in sale agreements suchas the Conduct Indemnity Deed with CYBG. Refer to Notes to theConsolidated Financial Statements , Note 32 Contingent liabilities andcredit commitments on page 106 in the Financial report under theheading UK conduct issues and the Conduct Indemnity specific to the NAB Wealth (MLC Limited) life addition to the risks described above, a number of specific risksexist in connection with the MLC life insurance connection with the sale of 80% of MLC Limited to Nippon LifeInsurance Company (Nippon Life), the Company gave certaincovenants, warranties and indemnities in favour of Nippon Life, abreach or triggering of which may result in the Company being liable toNippon Life. The Company also entered into long term agreements inrelation to the distribution of life insurance products and the continueduse of the MLC brand by MLC Limited. The duration and nature ofthese agreements give rise to certain risks, including that changes inthe regulatory or commercial environment may impact the commercialattractiveness of these agreements and limit future opportunities forthe Company through non-compete Company agreed to take certain actions to establish MLC Limitedas a standalone entity, including data migration and the developmentof technology systems. As this work has yet to be completed, there is arisk that implementation costs may ultimately prove higher of the DirectorsOperating and financial review (continued)18 NATIONAL AUSTRALIA BANKDirectorsDetails of NAB directors in office at the date of this report (or holdingoffice during the year), and each director s qualifications, experienceand other directorships and interests are Board acknowledges that directors benefit from being involved ina broad range of governance roles and support such activitiesprovided directors have the capacity to devote sufficient time and effortto fulfil their NAB responsibilities in a thorough manner. The Chairman,with the assistance of the Nomination & Governance Committee, hasdetermined that each director has the capacity to devote sufficient timeand effort to fulfil their NAB responsibilities taking into account theirother Kenneth R Henry AC, BComm (Hons), PhD, DB , FASSA,FAIIAAge: 59Term of office: Director since November 2011. Chairman sinceDecember 2015. Chairman of the Board's Nomination & : YesSkills & Experience: Over 30 years of experience in economics,policy and regulation, governance and leadership. Dr Henry served asthe Secretary of the Department of the Treasury from 2001 to June 2011 until November 2012, he was special advisor to thePrime Minister with responsibility for leading the development of theWhite Paper on Australia in the Asian Century. He is a former memberof the Board of the Reserve Bank of Australia, the Board of Taxation,the Council of Financial Regulators, the Council of InfrastructureAustralia and was Chair of both the Howard Government s TaxationTaskforce ( A New Tax System , 1997-1998) and the Review intoAustralia s Future Tax System (the Henry Tax Review ) commissionedby the Rudd Government (2008-09). He was made a Companion ofthe Order of Australia in 2007 and received the Centenary Medal in2001. He is Co-Chair of NAB's Indigenous Advisory of listed entities:ASX Limited (since February 2013)Dr Henry s other directorships and interests include Sir Roland WilsonFoundation (Chairman), Cape York Partnership, Committee ofEconomic Development of Australia (Governor), John Grill Centre forProject Leadership s Advisory Board and Australia-China SeniorBusiness Leaders Andrew G Thorburn BCom, MBAAge: 52Term of office: Director since August : No Skills & Experience: Over 30 years of experience in banking andfinance. Mr Thorburn joined NAB in January 2005 as Head of RetailBanking, was appointed Managing Director and CEO of the Bank ofNew Zealand (BNZ) in 2008 and joined the NAB Group ExecutiveCommittee in January 2009. In August 2014, he was appointed to hiscurrent role as Group Chief Executive Officer and Managing Director. Mr Thorburn is Chairman of Australian Bankers' Association Inc. Histerm as Chairman ends in December David H Armstrong BBus, FCA, MAICDAge: 59Term of office: Director since August 2014. Chairman of the Board'sAudit Committee and a Member of the Risk : Yes Skills & Experience: Over 30 years of experience in professionalservices, including as a partner at PricewaterhouseCoopers (PwC). MrArmstrong has significant knowledge and understanding of bankingand capital markets, real estate and infrastructure and is well versed inthe reporting, regulatory and risk challenges faced by the industry. Mr Armstrong's other directorships and interests include The GeorgeInstitute for Global Health, Opera Australia Capital Fund Limited,Australian Museum and Lizard Island Reef Research Philip W Chronican BCom (Hons), MBA (Dist), GAICD, SF FinAge: 61Term of office: Director since May 2016. Chairman of the Board'sRisk Committee and a Member of the Remuneration of BNZ (a subsidiary of NAB).Independent: Yes Skills & Experience: Over 35 years of experience in banking andfinance in Australia and New Zealand. In his most recent executiverole, Mr Chronican was responsible for Australia and New ZealandBanking Group Limited's (ANZ) Australia division, with specificresponsibility for ANZ's Retail and Commercial businesses. Prior tojoining ANZ, he had a long career at Westpac Banking Corporation(Westpac), where he established his reputation as one of Australia sleading banking executives, in executive roles including GroupExecutive Westpac Institutional Bank and Chief Financial Officer. Hehas broad experience in M&A activity and post-merger integration. Inaddition, he has taken an active and public role in advocating forgreater transparency and ethics in banking and promoting Chronican's other directorships include NSW Treasury Corporation(TCorp) (Chairman), JDRF Australia and Banking + Finance Peeyush K Gupta BA, MBA, AMP (Harvard), FAICDAge: 58Term of office: Director since November 2014. Member of the Board'sRisk, Remuneration and Nomination & Governance of certain NAB Wealth and BNZ : Yes Skills & Experience: Over 30 years of experience in wealthmanagement. Mr Gupta was a co-founder and the inaugural CEO ofIPAC Securities, a pre-eminent wealth management firm spanningfinancial advice and institutional portfolio management, which wasacquired by AXA. He has extensive corporate governance experience,having served as a director on many corporate, not-for-profit, trusteeand responsible entity boards since the 1990s. Directorships of listed entities:Link Administration Holdings Limited (Link Group) (since November2016)Charter Hall WALE Limited (since May 2016)Mr Gupta s other directorships include Insurance & Care NSW (iCare),Special Broadcasting Service Corporation and Charter Hall DirectProperty Management Limited (Chairman).Report of the DirectorsDirectors information192017 Annual Financial ReportMs Anne J Loveridge BA (Hons), FCA, GAICDAge: 56Term of office: Director since December 2015. Chairman of theBoard's Remuneration Committee and a Member of the Nomination &Governance : Yes Skills & Experience: Over 30 years of experience in the FinancialServices practice at PwC, with a range of clients in banking, property,private equity and wealth management sectors. Ms Loveridge hasextensive knowledge of financial and regulatory reporting, riskmanagement, controls and compliance frameworks. While at PwC, sheheld various senior leadership positions in the firm, including DeputyChairman of PwC Australia, managing financial results, risk and qualitymatters, people and partner development, remuneration and of listed entities:nib Holdings Limited (since February 2017)Platinum Asset Management Limited (since September 2016)Ms Loveridge's other directorships and interests include The BellShakespeare Company Limited (Chairman) and InternationalFederation of Accountants Nomination Geraldine C McBride BScAge: 56Term of office: Director since March 2014. Member of the Board'sAudit : Yes Skills & Experience: Over 27 years of experience in the technologyindustry and international business. Ms McBride is a former Presidentof global software company SAP for North America and also heldexecutive positions with SAP in Asia Pacific and Japan, as well asroles with Dell and McBride is the founder and chief executive officer of is an IT company that develops artificial intelligence basedtechnology platforms for of listed entities:Sky Network Television Limited (since August 2013)Fisher and Paykel Healthcare Corporation Limited (since July 2013)Mr Douglas A McKay ONZM, BA, AMP (Harvard), CMInstD (NZ)Age: 62Term of office: Director since February 2016. Member of the Board'sAudit and Nomination & Governance Committees. Chairman of BNZ (asubsidiary of NAB).Independent: YesSkills & Experience: Over 30 years of senior commercial andoperational experience, together with marketing and private equityexperience. Mr McKay has a deep understanding of New Zealand andAustralian markets having held CEO and Managing Director positionswithin major trans-Tasman companies and organisations includingAuckland Council, Lion Nathan, Carter Holt Harvey, Goodman Fielder,Seaford and Independent of listed entities:Genesis Energy Limited (since June 2014)Former director, Ryman Healthcare Limited (from September 2014 toJuly 2017)Mr McKay's other directorships and interests include Eden Park Trust(Chairman) and IAG New Zealand Limited and its parent Ann C Sherry AO, BA, Grad Dip IR, FAICD, FIPAA Age: 63 Term of office: Director since November 2017. Member of the Board'sRemuneration : Yes Skills & Experience: Over 20 years of experience in roles within thebanking, tourism and transport industries in Australia and NewZealand, together with significant experience in government and publicservice. Ms Sherry is currently Executive Chairman of CarnivalAustralia, the largest cruise ship operator in Australasia, which shejoined in 2007. Prior to joining Carnival Australia, she had 12 years experience with Westpac where she held executive roles includingCEO, Westpac New Zealand, CEO, Bank of Melbourne and GroupExecutive, People & Performance. Until recently, she was on thesupervisory board of ING Group (Amsterdam) and was a director onthe board of ING Direct (Australia). She was made an Officer of theOrder of Australia in 2004. Directorships of listed entities: Sydney Airport (since May 2014) Ms Sherry s other directorships and interests include Palladium Group,Cape York Partnership, Museum of Contemporary Art, InfrastructureVictoria, Australian Rugby Union, Trans-Tasman Business Council sANZ Leadership Forum (Australian Chairman) and Tourism &Transport Forum. Mr Anthony K T Yuen : 67Term of office: Director since March 2010. Member of the Board'sAudit and Risk : Yes Skills & Experience: Over 40 years of experience in internationalbanking and finance. Prior to taking on a strategic investmentmanagement role on behalf of The Royal Bank of Scotland plc withBank of China in 2006, Mr Yuen held senior executive roles, havingAsia wide regional responsibility with Bank of America Corporation,National Westminster Bank plc and The Royal Bank of Scotland plc. Mr Yuen's other interests include Committees of Hong Kong RedCross and ABF Hong Kong Bond Index of the DirectorsDirectors information (continued)20 NATIONAL AUSTRALIA BANKBoard ChangesMs Sherry was appointed to the Board in November Segal and Mr Gilbert retired from the Board in December Jillian S Segal AM, BA, LLB, LLM (Harvard), FAICDAge: 62Term of office: Director from September 2004 to December : Yes Skills & Experience: Over 20 years of experience as a lawyer andregulator. From 1997 to 2002, Ms Segal was a commissioner of ASICand Deputy Chairman of ASIC from 2000 to 2002. She was Chairmanof the Banking & Financial Services Ombudsman Board from 2002 to2004. Prior to that she was an environment and corporate partner andconsultant at Allen Allen & Hemsley and worked for Davis Polk &Wardwell in New York. Directorships of listed entities:Former director, ASX Limited (from July 2003 to September 2015)Mr Daniel T Gilbert AM, LLBAge: 65Term of office: Director from September 2004 to December : Yes Skills & Experience: Over 40 years of experience in commercial Gilbert is Managing Partner of corporate law firm Gilbert + Tobin,which he co-founded in SecretariesDetails of company secretaries of NAB in office at the date of thisreport (or holding office during the year) and each company secretary squalifications and experience are below:Mrs Louise Thomson BBus (Distinction), FGIA joined the Group in2000 and was appointed Group Company Secretary in May 2013. Shehas experience in a wide range of finance, risk, regulatory andgovernance matters. The Group Company Secretary advises andsupports the Board to enable the Board to fulfil its Elizabeth Melville-Jones BA, LLB, MBA joined the Group in 2015and was appointed as an assistant company secretary in September2015. She is the Secretary to the Board Audit Committee and supportsthe Group Company Secretary in the structure and operation of NAB scorporate governance framework and compliance obligations,including managing the Australian Penelope MacRae BA (Hons), LLB (Hons) joined the Group in2011 as a Senior Corporate Lawyer and was appointed as an assistantcompany secretary in December 2016. She is the Secretary of theBoard Risk Committee and manages the NAB Group s RiskManagement Committees. She has experience in a wide range ofcorporate, legal, governance, risk and regulatory ' and officers' indemnityNAB s constitutionArticle of NAB's constitution provides that, to the maximum extentpermitted by law, NAB may indemnify any current or former officer outof the property of NAB against: Any liability incurred by the person in the capacity as an officer(except a liability for legal costs); Legal costs incurred in defending or resisting (or otherwise inconnection with) proceedings, whether civil or criminal or of anadministrative or investigatory nature, in which the officer becomesinvolved because of that capacity; Legal costs incurred in connection with any investigation or inquiryof any nature (including, without limitation, a royal commission) inwhich the officer becomes involved (including, without limitation,appearing as a witness or producing documents) because of thatcapacity; and Legal costs incurred in good faith in obtaining legal advice onissues relevant to the performance of their functions and dischargeof their duties as an officer, if that expenditure has been approvedin accordance with the Board s charter,except to the extent that: NAB is forbidden by law to indemnify the person against the liabilityor legal costs; or An indemnity by NAB of the person against the liability or legalcosts, if given, would be made void by Article , NAB may pay or agree to pay, whether directly orthrough an interposed entity, a premium for a contract insuring aperson who is or has been an officer against liability incurred by theperson in that capacity, including a liability for legal costs, unless: NAB is forbidden by law to pay or agree to pay the premium; or The contract would, if NAB paid the premium, be made void by may enter into an agreement with a person referred to in and with respect to the subject matter of those Articles. Suchan agreement may include provisions relating to rights of access to thebooks of NAB. In the context of Article 20, officer means a director,secretary or senior manager of NAB or of a related body corporate has executed deeds of indemnity in favour of each director ofNAB and certain directors of related bodies corporate of NAB. Somecompanies within the Group have extended equivalent deeds ofindemnity in favour of directors of those ' and officers' insuranceDuring the year, NAB, pursuant to Article 20, paid a premium for acontract insuring all directors, secretaries, executive officers andofficers of NAB and of each related body corporate of NAB. Thecontract does not provide cover for the independent auditors of NAB orof a related body corporate of NAB. In accordance with usualcommercial practice, the insurance contract prohibits disclosure ofdetails of the nature of the liabilities of the DirectorsDirectors information (continued)212017 Annual Financial ReportDirectors attendances at meetingsThe table below shows the number of directors meetings held (including meetings of Board Committees noted below) and the number of meetingsattended by each of the directors of NAB during the meetingsof controlledEntities (1)Additionalmeetings (2)DirectorsABABABABABABAttendedKen Henry141433334*413133310David Armstrong141412*1214*14----339Philip Chronican14144414*14--13*13212116Peeyush Gupta14144414*144*413*1341415Geraldine McBride141411*1133----33-Doug McKay141412*12774*43333355Anne Loveridge14146**6334*410*10332Andrew Thorburn1414331212--88332Anthony Yuen141412*1214*14--22335Daniel Gilbert (3)662222--5*5221Jillian Segal (3)662244--5*5221* Indicates that the director is a member of the Committee.**Indicates the director was a member of the Committee during the period but, as at 30 September 2017, is no longer a member.(A) Number of meetings (including meetings of Board committees) attended during the period.(B) Number of directors meetings (including meetings of Board committees) held during the year. Some meetings were joint meeting of Committees or the Board and a Committee. In suchcases, the meetings have been included in both columns. Where a director is not a member of a committee but was in attendance at a meeting, due to a joint meeting or by choice, thiscolumn reflects the number of meetings attended.(1)Where a controlled entity holds board meetings in a country other than the country of residence of the director, or where there may be a potential conflict of interest, then the number of meetings held is thenumber of meetings the director was expected to attend, which may not be every board meeting held by the controlled entity during the year.(2)Reflects the number of additional formal meetings attended during the year by each director, including committee meetings (other than Audit Committee, Risk Committee, Remuneration Committee orNomination & Governance Committee) where any two directors are required to form a quorum.(3)Mr Gilbert and Ms Segal retired effective 16 December more information on Board Committee memberships, please refer to NAB's 2017 Corporate Governance Statement which is available online of the DirectorsDirectors information (continued)22 NATIONAL AUSTRALIA BANKDirectors' and executives' interestsThe tables below show the relevant interests of each director and senior executive in the issued ordinary shares and National Income Securities of NAB,and in registered schemes made available by the Group as at the date of this Report. No director or senior executive held an interest in Trust PreferredSecurities of IncomeSecuritiesPerformance rightsover NAB fully paidordinary shares(1)NAB fully paidordinary shares(2) Henry (Chairman)--10,360DH Armstrong--10,480PW Chronican982-31,000PK Gupta--7,480AJ Loveridge--10,000GC McBride--5,960DA McKay--10,000AC Sherry--7,831AG Thorburn-881,674165,124AKT Yuen--12,464Senior executivesMB Baird--2,000AJ Cahill-233,99232,957SJ Cook--2,000AD Gall-194,31793,269AP Hagger-413,91827,976AJ Healy-260,36344,642GA Lennon-127,31653,765A Mentis-235,11850,264LN Murphy-54,91734,072PF Wright--2,000(1)Further details of performance rights are set out in Note 39 Shares and performance rights in the Financial report and Section of the Remuneration report.(2)Information on shareholdings is disclosed in Section of the Remuneration report for the Group CEO and senior executives and in Section of the Remuneration report for non-executive directors from time-to-time invest in various debentures, registered schemes and securities offered by NAB and certain subsidiaries of NAB. Thelevel of interests held directly and indirectly by a director as at 30 September 2017 were: DirectorsNature of productRelevant interest (Units)DH ArmstrongConvertible Preference Shares II (NABPB)900AC SherryConvertible Preference Shares (NABPA)1,500PK GuptaMLC Private Equity Co-Investment Fund I600,000PK GuptaMLC Private Equity Co-Investment Fund II700,000PK GuptaMLC PIC-Wholesale Inflation Plus Assertive portfolio Fund578,438There are no contracts, other than those disclosed in the level of interests held table immediately above, to which directors are a party, or under whichthe directors are entitled to a benefit and that confer the right to call for, or deliver shares in, debentures of, or interests in, a registered scheme madeavailable by NAB or a related body corporate. All of the directors have disclosed interests in organisations not related to the Group and are to beregarded as interested in any contract or proposed contract that may be made between NAB and any such of the DirectorsDirectors information (continued)232017 Annual Financial ReportExecutive performance rightsPerformance rights are granted by NAB under the National Australia Bank Performance Rights Plan (performance rights plan). The performance rightsplan was approved by shareholders at the 2002 Annual General Meeting. Each performance right entitles the holder to one NAB fully paid ordinaryshare subject to the satisfaction of certain performance rights that have not expired are detailed number and terms of performance rights granted by NAB during 2017 under the performance rights plan, including the number of performancerights exercised during 2017, are shown in the following table:Exercise period (1)Number held at30 September 2017Number exercisedfrom 1 October 2016to 30 September 2017Number grantedsince 1 October 2016Performance rights (2)4 June 2015 - 4 December 2016---22 May 2016 - 22 November 2016-1,674-4 June 2016 - 4 December 2016---4 November 2016 - 4 May 2017-3,374-18 November 2016 - 18 February 2017-121,514-17 December 2016 - 15 March 2017-109,566-19 December 2016 - 19 June 20181,397,066--22 May 2017 - 22 November 2017-8,171-17 June 2017 - 15 September 2017-15,016-19 June 2017 - 19 December 2017---19 June 2017 - 19 December 2018---16 November 2017 - 16 February 2018131,743-134,31018 November 2017 - 18 February 2018124,905--20 December 2017 - 15 March 201824,579--20 December 2017 - 20 June 2019613,634--20 June 2018 - 20 December 201960,204--16 November 2018 - 16 February 2019112,606-112,60620 December 2018 - 15 March 201929,190-36,48821 December 2018 - 15 March 2020919,144--21 June 2019 - 15 September 202067,589--21 December 2019 - 15 March 2020858,902--20 December 2020 - 15 March 2021548,106-548,106(1)Performance rights will expire if not exercised by the last day of their exercise period.(2)Further details of performance rights are set out in Note 39 Shares and performance rights in the Financial report. All shares issued or transferred on exercise of performance rights are NAB fully paidordinary shares. No exercise price is payable for performance rights on issue and number exercisedThere are currently 4,881,151 performance rights which are exercisable, or may become exercisable in the future under the performance rights are currently 142 holders of performance has issued no fully paid ordinary shares since 30 September 2017 to the date of this report, as a result of performance rights granted beingexercised for no the period 1 October 2016 to the date of this report, 1,674 performance rights expired as they were not exercised before their expiry date and612,851 performance rights holding performance rights are entitled to participate in certain capital actions by NAB (such as rights issues and bonus issues) in accordancewith the terms of the ASX Listing Rules which govern participation in such actions by holders of options and rights granted by listed entities. The termsof the performance rights reflect the requirements of the ASX Listing Rules in this of the DirectorsDirectors information (continued)24 NATIONAL AUSTRALIA BANKLitigation and disputesEntities within the Group may be involved from time to time in legalproceedings arising from the conduct of their business. The aggregatepotential liability and costs in respect thereof cannot be accuratelyassessed. Any material legal proceedings may adversely impact theGroup's reputation and financial performance and to Note 32 Contingent liabilities and credit commitments on page106 in the Financial report for details in relation to the Group's materiallegal proceedings and contingent DevelopmentsIn the opinion of the directors, discussion or disclosure of any furtherfuture developments including the Group s business strategies and itsprospects for future financial years would be likely to result inunreasonable prejudice to the interests of the on behalf of NABThere are no proceedings brought or intervened in, or applications tobring or intervene in proceedings, on behalf of NAB by a member orother person entitled to do so under section 237 of the CorporationsAct 2001 (Cth).Events subsequent to reporting dateOn 27 October 2017, the Group announced it had agreed a settlementwith the Australian Securities and Investments Commission (ASIC) ofthe Bank Bill Swap Rate (BBSW) legal action. As part of the settlementthe Group has agreed to a $10 million penalty, and to pay ASIC s costsof $20 million. The Group will also make a donation of $20 million to afinancial consumer protection fund nominated by ASIC. The financialimpact of this settlement has been reflected in the Group s results forthe 2017 financial 2 November 2017, the Group announced an acceleration of itsstrategic agenda to enhance the customer experience and simplify thebank. A restructuring provision of between $500 million and $800million is expected to be raised in the Group s interim financial reportfor the first half of the 2018 Financial than the matters noted above, there are no other items,transactions or events of a material or unusual nature that have arisenin the interval between 30 September 2017 to the date of this reportthat, in the opinion of the directors, have significantly affected or maysignificantly affect the operations of the Group, the results of thoseoperations or the state of affairs of the Group in future of reportingThe directors of NAB have a responsibility with respect to the integrityof external reporting. This involves reviewing and monitoring, with theassistance of the Board Audit Committee and management, theprocesses, controls and procedures which are in place to maintain theintegrity of the Group s financial details on the role of the Board and its committees can befound in NAB's 2017 Corporate Governance Statement which isavailable online at and social regulation, risk andopportunitiesThe operations of the Group are not subject to any site specificenvironmental licences or permits which would be consideredparticular or significant environmental regulation under the laws of theAustralian Commonwealth Government or of an Australian state operations of the Group are subject to the National Greenhouseand Energy Reporting Act 2007 (Cth) (NGER Act) as part of thelegislative response to climate change in Australia. While thislegislation is not particular to the Group or significant in its impact, theGroup complied with its requirements. The NGER Act requires theGroup to report on the period from 1 July to 30 June (theenvironmental reporting year). The Group s Australian vehicle fleet andbuilding related net energy use reported under the NGER Act for the2017 environmental reporting year was 618,969 gigajoules (GJ) (2016:611,625 GJ), which is approximately 82% of the Group s measuredtotal energy use. The associated total greenhouse gas (GHG)emissions from fuel combustion (Scope 1) and from electricity use(Scope 2) were 114,048 tCO2-e (2016: 128,436 tCO2-e).During the 2017 environmental reporting year, the Group s total GHGemissions (Scope 1, 2 and 3 (1)), after accounting for use of certifiedrenewable energy in the UK and generated renewable energy inAustralia, were 185,344 tCO2-e (2016: 218,918 tCO2-e). The Groupcontinues to implement an energy efficiency program, including energyefficiency opportunity assessments and sustainable building helps to produce GHG emissions savings and contributes to theGroup s carbon neutral status and delivery of the Group's climatechange strategy. From 1 July 2006 to 30 June 2017, the Groupidentified 1230 energy efficiency and 15 renewable energyopportunities in Australia alone. Implemented initiatives are estimatedto provide more than 352,907 GJ (2016: 345,675 GJ) of ongoingannual energy savings. This equated to avoided costs of over $ in the 2017 environmental reporting year (2016: $ million inavoided costs). A further 16 energy efficiency and 3 renewable energyopportunities are in progress or approved to Group s main Melbourne-based data centre is subject to thereporting requirements of the National Environment ProtectionMeasure (National Pollutant Inventory) (NPI) in Australia. The NPIprovides a public database of emissions and transfers of specified NPIsubstances from various facilities. The Group is required to report onthese emissions because the volume of natural gas used to run the tri-generation plant at this facility triggers the NPI threshold. The Grouphas complied with this the United Kingdom, the Group is a participant in the CarbonReduction Commitment Energy Efficiency Scheme (CRC EE Scheme).The Group s UK-based GHG emissions reportable under the CRC EEScheme for the 2016/2017 compliance year (year ended 31 March2017) totalled 0 tCO2-e (2016: 0 tCO2-e), because the Group's UKoperations no longer have any reportable energy supplies (the Groupoccupies leased offices where the landlord pays the energy bills andincludes a recharge in the lease outgoings). The Group s regulatoryreturn was filed in July 2017 as required by the CRC EE SchemeOrder 2010. This year, the Group was not required to purchase andsurrender Carbon Reduction Commitment Allowances. In 2014, the Group s UK-based operations became subject to theEnergy Savings Opportunities Scheme (ESOS), which was introducedby the ESOS Regulations 2014 which came into force in July ESOS requires mandatory energy assessments (audits) oforganisations buildings and transport to be conducted every fouryears. In 2016, the Group met the requirements of the UK EnvironmentAgency to carry out ESOS assessments and notify the regulator by5 December 2015. The Group has no ESOS requirements to meet in2017.(1)Scope 3 relates to all other indirect emissions that occur outside the boundary of the organisation as a result of the activities of the organisation, excluding emissions fromelectricity use which is Scope of the DirectorsOther matters252017 Annual Financial ReportAs a lender, the Group may incur environmental liabilities incircumstances where it takes possession of a borrower s assets andthose assets have associated environmental risks. The Group hasdeveloped and implemented credit policies to ensure that this risk isminimised and managed ChangeThe Group recognises that climate change is a significant risk and amajor challenge for the global economy and society. The Groupsupports the transition to a low carbon economy consistent with theglobal agreement reached in Paris to limit global warming to less than2 degrees above pre-industrial levels (the Paris Agreement).In addition to responding to relevant regulatory requirements, as aglobal provider of financial products and services, the Group seeks toplay a key role in financing the low carbon transition and greengrowth (1), and in doing so, make a contribution to the environmentalsustainability of the communities in which it operates. Recognising theimpact of climate change on the Group, its customers and thecommunity, and building consideration of climate change into theGroup's strategy, is consistent with the Group's goal of long-term valuecreation. Therefore, the Group is actively helping its customers throughthis transition. The following provides a high level summary of theGroup s approach to climate change governance, strategy, riskmanagement, and metrics and targets consistent with therecommendations of the Taskforce on Climate-Related Board retains ultimate oversight for Environmental, Social andGovernance risks and issues (ESG Risks), including climate change,which is one of three designated focus areas in the Group sEnvironmental Agenda in addition to natural value and resourcescarcity. The Board receives regular reports on a range of climate-change related issues including progress against the Group s climatechange strategy, commitments and initiatives, environmentaloperational performance, carbon neutral status, and concerns fromstakeholders. The Board also receives updates on regulatory changeand greenhouse and energy reporting returns that require noting bythe Board before submission to ManagementESG Risks, including climate change, are identified, measured,monitored, reported and overseen in accordance with the Group s RiskManagement Framework (as described in the Group s RiskManagement Strategy). The Group Regulatory, Compliance andOperational Risk Committee (GRCORC) has oversight of these risksand the Group s environmental performance and EnvironmentalAgenda, including climate change. Matters are escalated to the GroupRisk Return Management Committee, Board Committees and Boardas required. In 2016, the Group formed a Climate Change WorkingGroup (CCWG), with management representatives from across theGroup, to review the key risks and opportunities facing the Group andits customers arising from the Paris Agreement. The findings of thisworking group are reported through to management, executives andthe the 2017 financial year, the CCWG made recommendations that arebeing integrated into risk appetite and activities and business strategyof the Group. The Group used the Bank of England s categories ofphysical, transition and liability risk in its internal climate change riskassessment process to review the risks faced by the Group and itscustomers as a result of climate change. Key risk actions arising fromthe CCWG s work were to: participate in a UN Environmental Program Finance Initiative(UNEP FI) pilot project with other UNEP FI member banks to testrecommendations made by the Financial Stability Board s Taskforceon Climate-related Financial Disclosures. This project aims todevelop scenarios and stress test participating bank loan books andwill help the Group meet the commitment it made in 2014 to expandand improve the Group's carbon-related disclosure; and undertake a phased review of the Group's risk appetite for carbonintensive, low carbon and climate sensitive and future business opportunities, including those related toclimate change (for example financing clean technology), are identifiedand prioritised through strategic planning processes, both at a Groupand business line level. During the 2017 financial year, the CCWGrefreshed the Group's climate change strategy and considered furtheropportunities to reduce the Group's own carbon footprint and assist itscustomers through the low carbon transition and help them to adaptand build resilience to its physical impacts. The Group anticipates theglobal low carbon transition will see structural changes in energymarkets with fossil fuel-based energy use materially declining overtime, and increased use of renewable energy. This in turn will bereflected in the make-up of the Group's loan book and addition to the five climate change commitments the Group madeprior to the 2015 Paris Climate Conference (COP21), the CCWG sassessment of growing climate change related opportunities has led tothe Group committing to: increase its current environmental financing commitment from $18billion by 2022 to $55 billion by 2025 (between 1 October 2015 30 September 2025) to assist the low carbon transition. Thisincludes: $20 billion to support green infrastructure, capital markets andasset finance (in the 2017 financial year this reached $ ); and $35 billion in new mortgage lending flow for 6 Star residentialhousing in Australia (in the 2017 financial year this reached$ billion); increase the Group s sourcing of Australian electricity fromrenewable energy from 10% by 2018, to 50% by 2025; and play an active role in addressing climate change through seeking toinnovate across the Group's key sectors and markets andsupporting low carbon opportunities for the Group's commitments have been integrated into the Group s businessstrategy. The Group will use its experience in clean energy financingand natural value to provide innovative, low-carbon solutions forcustomers across all of the Group s key sectors and markets. Furtherdetails on all of the Group s climate change commitments can be foundon the Group s website at and targetsIn addition to the Group s environmental financing commitment, theGroup is monitoring exposure to both carbon intensive and low carbonsectors. Some of this data is reported to investors in half year and fullyear results presentations, as well as in the Group's annualSustainability Report. With respect to the Group's own operations, theGroup continues to:(1)Green growth describes a path of economic growth that uses natural resources in a sustainable of the DirectorsOther matters (continued)26 NATIONAL AUSTRALIA BANK report on progress against its science-based emissions reductiontarget (the Group achieved a 7% reduction in emissions in the 2017environmental reporting year); install solar panels on its buildings (in the 2017 environmentalreporting year the Group reached a total of 677 kW of installedcapacity across 34 facilities); and maintain its carbon neutral information about the Group s Environmental Agenda, climatechange strategy and commitments, greenhouse reduction andresource efficiency targets and management approach is outlined inthe Group s 2017 Annual Review and 2017 Sustainability Reportavailable online at SlaveryIn October 2015, the UK Government s Modern Slavery Act 2015came into effect. The Group has prepared a Modern Slavery Actstatement which sets out actions taken by the Group during the 2017financial year to ensure that its business operations, and its supplychain, are free from slavery and human trafficking. It is available onlineat in accordance with of the DirectorsOther matters (continued)272017 Annual Financial ReportPast employment with external auditorErnst & Young has been NAB s external auditor since 31 January 2005. There is no person who has acted as an officer of the Group during the 2017financial year who has previously been a partner at Ernst & Young when that firm conducted NAB s servicesErnst & Young provided non-audit services to the Group during 2017. The fees paid or due and payable to Ernst & Young for these services during theyear to 30 September 2017 are as follows:Group2017$ 000Audit related servicesComfort letters567Regulatory4,942Non-regulatory660Total audit related services6,169All other servicesTax framework and policy reviews1,119Project assurance and due diligence577Cyber security and risk assessments191Other services191Total all other services2,078Total non-audit services8,247As set out in Note 38 Remuneration of external auditor, total fees paid or due and payable for audit and non-audit services provided by Ernst & Young tothe Group during 2017 amount to $ & Young also provides audit and non-audit services to non-consolidated trusts of which a Group entity is trustee, manager or responsible entityand non-consolidated Group superannuation funds. The fees paid or due and payable to Ernst & Young for these services during the year to30 September 2017 total $ accordance with advice received from the Board Audit Committee, the directors are satisfied that the provision of non-audit services during the year to30 September 2017 by Ernst & Young is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001(Cth). The directors are satisfied because the Board Audit Committee or its delegate has assessed each service, having regard to auditor independencerequirements of applicable laws, rules and regulations, and concluded in respect of each non-audit service or type of non-audit service that the provisionof that service or type of service would not impair the independence of Ernst & description of the Board Audit Committee s pre-approval policies and procedures is set out in the NAB 2017 Corporate Governance Statement whichis available online at Details of the services provided by Ernst & Young to the Group during 2017 andthe fees paid or due and payable for those services are set out in Note 38 Remuneration of external auditor of the Financial report. A copy of Ernst &Young s independence declaration is set out on the following of the DirectorsOther matters (continued)28 NATIONAL AUSTRALIA BANK292017 Annual Financial ReportLetter from the Remuneration Committee ChairmanDear Shareholder,On behalf of the Remuneration Committee (the Committee), I thank you for reading NAB s 2017 Remuneration report. We understand these reports area challenging read, and this year have tried to simplify how we explain our executive remuneration framework and the 2016 Annual General Meeting, our Board Chairman committed to a review of our executive remuneration framework and practices. The Board iscommitted to responsible remuneration practices that appropriately balance securing the right talent, rewarding in line with execution of our strategy andcreating incremental, sustainable shareholder value. The review found that there is good alignment between our framework and our goals althoughthere is opportunity to work on the simplicity and transparency of the framework. While some changes have been implemented, given theannouncement of the Banking Executive Accountability Regime (BEAR), the Committee decided not to make significant changes in 2018 without havingfinal clarity on BEAR. The Committee will build upon the extensive review work completed during 2017 to consider further fit for purpose changes to ourremuneration arrangements for 2019 made this year to improve transparency and simplicity as well as address some of the concerns regarding quantum of maximum potentialremuneration while remaining market competitive, include: Determining the number of deferred Short-Term Incentive (STI) and Long-Term Incentive (LTI) performance rights in early October to include in thisreport. Bringing forward the valuation date for these awards to the end of September means we can disclose the basis of the fair and face value ofthe equity awards for the Group Chief Executive Officer (CEO) and other senior executives in this Remuneration report. Shareholders can vote onthe Remuneration report and the Group CEO s equity awards with a clear understanding of the value of those awards; Changing the allocation methodology for LTI from fair to face value for the Group CEO resulting in a reduction of potential earnings and increasingsimplicity. The LTI allocation for the other senior executives remains based on fair value methodology until the BEAR legislation is enacted; and Capping the STI maximum potential for the Group CEO at 150% versus 175% of fixed remuneration for 2018, further reducing potential 2017, the Committee has also focused on:Executive PerformanceThe Committee actively monitors the performance of the executive leadership team throughout the year. These executives are responsible for settingthe culture for the organisation and are expected to live and demonstrate NAB s values. In a challenging, highly competitive and politicised environmentwith increasing regulatory requirements, the leadership team has advanced NAB s strategic agenda during 2017. As a result, senior executives performance outcomes ranged from achieved to highly achieved. The STI pool was funded at 90% based on the Board's consideration of achievementof financial goals, quality of earnings and a number of qualitative outcomes, including customer advocacy, risk management and regulatory , the 2012 LTI was tested in December 2016. The four year relative Total Shareholder Return performance hurdles for this award were notmet, providing no vesting of LTI for executives in also undertook global searches for the best talent to execute our strategy. We have provided market competitive remuneration to attract the rightindividuals for three significant senior executive leadership team appointments. Our annual review of executive leadership team remuneration found thatwe continue to provide market competitive remuneration for all executive leadership team ChangesNAB has refined its Group incentive plan principles aimed at improving NAB s culture, better protecting our customers and consistent with the AustralianBankers' Association Retail Banking Remuneration Review (the Review) recommendations. NAB continues to lead the industry reforms and hascommitted to fully implement the Review recommendations by 2020. The Committee is monitoring NAB s implementation of the Reviewrecommendations, which for 2018 include: Retail banking managers, assistant managers and direct consumer team leaders have moved to a more customer-outcome focused incentive planand will no longer receive at-risk remuneration based on a sales incentive plan. Instead they participate in the Group STI Plan, significantly reducingthe link between sales and remuneration. Scorecards for retail employees have been refined to ensure all balanced scorecard measures are customer-centric, product neutral and containboth quantitative and qualitative measures to drive improved quantity and quality of customer conversations, with no more than 33% weighted tofinancial ManagementThe Committee regularly monitors consequence management outcomes to ensure management is addressing poor conduct and risk managementissues and taking appropriate action. In 2017, there were 1,613 Code of Conduct outcomes, managed by the Workplace Relations team, 307 resulted inemployees exiting the business, and 1,306 cases resulted in coaching or other remedial actions, including loss of performance-based value of equity forfeitures, as a result of consequence management during 2017, was $ we strive to continually improve this report for our customers, our shareholders and our employees, I hope you find this report to be simpler, moreinformative and more transparent. We welcome your sincerely,Anne LoveridgeRemuneration Committee ChairmanReport of the DirectorsRemuneration report30 NATIONAL AUSTRALIA BANKTable of contentsSection 1 - Executive summary32Section 2 - Key Management Personnel35Section 3 - Executive remuneration strategy and framework36Section 4 - Performance and remuneration outcomes38Section 5 - Remuneration governance42Section 6 - Executive remuneration disclosures in detail43Section 7 - Non-executive director remuneration51Section 8 - Loans and other transactions53Report of the DirectorsRemuneration report (continued)312017 Annual Financial ReportSection 1 - Executive Linking business performance to remuneration outcomesOur purposeBack the bold who move Australia forwardOur visionTo be Australia and New Zealand's most respected bankHow do we do this? Through our strategy to:- Turn our cusomers into advocates- Create a high performing culture through a team of engaged people with aligned values- Generate attractive returns- Do the right thing by taking the right risk, with the right controls for the right returnHow did we perform?-14priority segments net promoter score (1)1 point increase from August 2016 to August 2017,ranked #2 amongst major Australian banks59%employee engagement score (2)compared to top quartile global benchmark of 67% shareholder return (TSR)ranked #1 amongst major Australian return on equity (cash ROE) (3) (4)30 basis points decreasefrom 2016$ earnings (3) (4) increase from return on total allocated equity (ROTAE)exceeded planRisk management Improved overall performance against the Board approved risk appetite through sustained progress on risk management priorities and remediationof risk and compliance issues Identified ongoing need to relentlessly raise standards across the Group to meet community and regulator expectationsWhat did this deliver to senior executives? Group STI pool formed at 90% based on the Board's consideration of achievement of financialgoals, quality of earnings and qualitative outcomes The Group CEO s annual incentive outcome was 49% of maximum STI opportunity (2016: 69%) For the senior executive team (excluding the Group CEO) the annual incentive outcome onaverage was 49% of maximum STI opportunity (2016: average 62%) The 2012 LTI tested in 2017, did not vest - delivering no value to senior executives The Group CEO s 2017 realised remuneration was $ (2016: $ ) For the other senior executives, average realised remuneration for 2017 was $ (2016:average $ )Other Outcomes No increases to fixed remuneration for the Group CEO and senior executives as a result of the 2017 annual review. After the review, aremuneration increase has been approved by the Board for the recently announced Chief Customer Officer - Business & Private Bankingappointment. Group CEO LTI allocation methodology changed from fair value to face value for 2017 grant. Reduction in the STI maximum opportunity for the Group CEO from 175% to 150% of fixed remuneration from 2018. No increases to non-executive director Board or Committee fees.(1)Net Promoter and NPS are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and Fred Reichheld. Priority segments NetPromoter Score (NPS) is a simple average of the NPS scores of four priority segments: NAB defined Home Owners and Investors, as well as Small Business ($ <$5m) and Medium Business ($5m-<$50m). The Priority segments NPS data is based on six month moving averages from Roy Morgan Research and DBM BFSM Research as at 31 August 2017. Group CEO and senior executive NPS 2017targets and performance were measured over the period August 2016 to August 2017.(2)2017 Employee Engagement Survey conducted by Aon Hewitt. The engagement score indicates the percentage of employees at NAB that are strong advocates (SAY), demonstrate a commitment to NAB(STAY) and exerts discretionary effort (STRIVE).(3)Information is presented on a continuing operations basis.(4)The Glossary of the Financial report contains a definition of cash earnings and Note 6 - Earnings per share in the Financial report details the calculation of basic earnings per share. Refer to the Financialreport for details of statutory net profit attributable to owners of NAB, and to Note 2 Segment information in the Financial report for a reconciliation between cash earnings and statutory net profit attributableto owners of of the DirectorsRemuneration report (continued)32 NATIONAL AUSTRALIA Overview of changes to the executive remuneration frameworkDuring 2017, the Board undertook a critical review of the Group s executive remuneration framework, assessing the structure against its objectives ofattracting and retaining high performers, aligning remuneration with delivery of NAB s strategy, and encouraging sustainable long-term performance. Aspart of this process, the Committee engaged with various stakeholders, including shareholders and proxy advisers. Following these consultations, theBoard identified several key areas for improvement in terms of transparency and simplicity and has approved a number of changes:Our changesOur approachWhenGroup CEO's maximumremuneration opportunityreducedThe Board has reviewed the Group CEO s remuneration during 2017 and determined:Fixed Remuneration (FR): No : Reduction of the STI maximum opportunity from 175% to 150% of FR from 2018. Continue allocation on a fair value : Face value allocation (using a 5 day weighted average share price) for LTI based on a maximum grant value of 130% of FR. A dividendequivalent payment (1) to be provided on any vested Group CEO s maximum potential opportunity will be reduced by an estimated total of $ million over the next two years, (excluding anydividend equivalent payment on vested LTI). The STI and LTI changes reduce the Group CEO's maximum opportunity while ensuring thatoverall remuneration remains fair and market potential opportunity (2)2017/2018Move to face value forallocating LTIperformance rights to theGroup CEOThe Group CEO s LTI grant for 2017 will use face value rather than fair value to determine the number of performance rights. Details of the LTIgrant and the number of performance rights are provided in the 2017 Notice of Meeting and this report (see Section ).The maximum face value of the Group CEO s LTI has been set at 130% of fixed remuneration ($ million). If any portion of the award vests,the Group CEO will also receive a dividend equivalent payment(1) on any vested portion of the award. Including a dividend equivalent paymentstrengthens alignment of the CEO s remuneration with shareholder experience over the term of the other senior executives a fair value allocation methodology will be used, subject to the same maximum limit applied in 2016 to the numberof LTI performance rights granted (see Section ).2017Improved transparency ofSTI and LTI valueThe number of STI and LTI performance rights for senior executives has been determined in early October 2017 and has been included in thisreport (see Section ).For the Group CEO the number of STI and LTI performance rights and information on how they have been calculated has been included in the2017 Notice of Meeting and this report (see Section ).2017Improved transparency onperformance outcomesMore detail has been included on senior executives 2017 performance outcomes in this report (see Section (b)).2017(1)A cash amount equivalent to the gross value of any dividends (including payment for the value of imputation credits which applied to the dividends) which would have been paid to the Group CEO if he hadheld a number of shares equivalent to any LTI performance rights that may vest, during the period 1 October 2017 to the end of the LTI restriction period (December 2021). The dividend equivalent paymentmay be adjusted for any bonus and rights issues, aggregations and reconstructions in relation to NAB shares during the period from 1 October 2017 to the end of the LTI restriction period.(2)All components of the Group CEO's maximum potential earnings is shown on a face value basis for comparison purposes. The amounts have been calculated as:a) Fixed remuneration is annualised salary and ) STI cash is 50% of the maximum STI opportunity of 175% (2018: 150%) of fixed ) The STI deferral amounts are 50% of the maximum STI opportunity of 175% (2018: 150%) of fixed remuneration converted to face value using the grant date WASP for 2016 and 2017 : The 2017 grant date WASP has been used for the 2018 STI deferral calculation. The fair value for allocation purposes was 2016 and 2017: $ , 2018: $ ) The 2016 LTI allocation fair value was $ The amount shown is the face value of the award at grant date, after application of the maximum WASP discount policy (see Section ).Report of the DirectorsRemuneration report (continued)332017 Annual Financial Realised remunerationThe following table is a voluntary non-statutory disclosure that shows the realised remuneration senior executives received (or were entitled to receive)during 2017 while they were senior executives. The amounts shown include fixed remuneration, cash STI to be paid under the 2017 STI, the previousyears deferred STI which vested, and other equity awards that vested during the year. The value of equity awards is calculated using the closing shareprice of NAB shares on the vesting date. Not all amounts have been prepared in accordance with accounting standards and this information differs tothe statutory remuneration table (Section ) which shows the expense for vested and unvested awards in accordance with accounting (1)Cash STI(2)Deferred STIvestedduring year(3)Equityrelatedamountsduring year(4)OtherRemunerationTotalremunerationrealisedduring yearName$$$$$$Executive directorAG Thorburn2,287,372977,500798,872798-4,064,542Other senior executivesMB Baird (for part year)558,239227,754---785,993AJ Cahill1,237,316510,000392,87136,398-2,176,585SJ Cook (for part year)394,40092,779---487,179AD Gall1,509,601331,500254,877--2,095,978AP Hagger1,218,999480,000489,209633,897-2,822,105AJ Healy1,001,052582,075337,925970-1,922,022GA Lennon1,022,299425,000251,89413,750-1,712,943A Mentis1,193,388660,000369,69136,398-2,259,477LN Murphy943,567340,000-357,293-1,640,860PF Wright (for part year) (5)876,777552,500--1,130,5332,559,810Former senior executivesCA Carver (for part year)373,796472,555-1,052,623-1,898,974MR Lawrance (for part year)335,985235,002230,52021,076-822,583(1)Fixed remuneration includes cash salary, cash value of non-monetary benefits and superannuation consistent with the statutory remuneration table in Section (2)The cash component of the STI received in respect of 2017 is scheduled to be paid on 15 November 2017 in Australia and 30 November 2017 in NZ. The amount reflects 50% of the STI to be provided toeligible current senior executives and the Group CEO. The amount reflects 75% of the STI to be provided to eligible former senior executives. The remaining portion of the STI for 2017 is deferred.(3)Deferred STI amounts from the 2014 Tranche 2 and 2015 Tranche 1 STI program fully vested in December 2016 and November 2016 respectively.(4)Equity related amounts provided to senior executives during 2017 while in a senior executive role. This includes equity-based programs from prior years (other than the deferred STI equity referred to in (3))that have vested during 2017. The amounts shown for Ms Murphy and Ms Carver include commencement shares, and for Mr Hagger includes retention shares that vested during the year. No LTI vestedduring 2017. Dividends received by senior executives during 2017 for any unvested share awards are also included. The amount is calculated for the 2016 final dividend of 99 cents (record date of9 November 2016) and the 2017 interim dividend of 99 cents (record date of 18 May 2017). Both dividends were fully franked.(5)To compensate for awards from his prior employer which were forfeited as a result of joining NAB, Mr Wright received a commencement award of US$605,950 (A$801,627) paid on commencement in May2017 and a second instalment of US$260,000 (A$328,906) paid in September 2017. Full details of Mr Wright s commencement award are provided in Section of the DirectorsRemuneration report (continued)34 NATIONAL AUSTRALIA BANKSection 2 - Key Management Personnel(a) Key Management Personnel in 2017Key Management Personnel (KMP) are the Directors of NAB and those employees of the Group who have authority and responsibility for planning,directing and controlling the activities of both NAB and the Group. KMP during 2017 were:Non-executive directorsChairmanKenneth R HenryDavid H ArmstrongPhilip W ChronicanPeeyush K GuptaAnne J LoveridgeGeraldine C McBrideDouglas A McKayAnthony KT YuenDaniel T Gilbert (retired 16 December 2016)Jillian S Segal (retired 16 December 2016)Senior executivesExecutive Director and Group Chief Executive Officer (Group CEO)Andrew G ThorburnChief Customer Officer - Corporate and Institutional BankingCathryn A Carver (acting to 20 April 2017)Michael B Baird (from 21 April 2017)Chief Operating OfficerAntony J CahillChief Legal and Commercial CounselSharon J Cook (from 18 April 2017)Chief Risk OfficerA David GallChief Customer Officer - Consumer Banking and WealthAndrew P HaggerChief Executive Officer Bank of New ZealandAnthony J HealyChief Financial OfficerGary A LennonChief Customer Officer - Business and Private BankingAngela MentisChief People OfficerLorraine N MurphyChief Technology and Operations OfficerMatthew R Lawrance (acting to 25 April 2017)Patrick F Wright (from 26 April 2017)(b) KMP changes after 30 September 2017Ms Ann Sherry was appointed as a non-executive director to the Board, effective 8 November 2017. Ms Sherry will be a member of the of the DirectorsRemuneration report (continued)352017 Annual Financial ReportSection 3 - Executive remuneration strategy and A remuneration policy that supports the Group s approach to risk management and strategyThe Group s remuneration policy is designed to support NAB s strategy through building a strong culture that encourages the right behaviours to deliversustainable customer, shareholder and business outcomes. This is reinforced through appropriate consequences being applied when there isinappropriate risk taking or poor behaviours purpose Back the bold who move Australia forwardOur visionTo be Australia and New Zealand's most respected bankOur remuneration policy is designed to support our vision:- Attracting, retaining and rewarding high performers to drive company performance without encouraging poor customer Aligning the interests of senior executives and shareholders through ownership of NAB Complying with jurisdictional remuneration regulations and Group diversity, inclusion and pay equity RemunerationSTILTIAttract, retain and reward a high performing team todeliver on NAB s strategy and the Group s performanceAlign delivery of NAB s strategy and shareholderoutcomes with annual incentivesEncourage sustainable long-term performance Cash and benefits (including superannuation) Set with consideration of role complexity andresponsibilities; capabilities; experience andknowledge; business and individualperformance; internal and external market rolerelativities Adjustments are only made to seniorexecutive remuneration when they are notmarket competitive and not for annual cost ofliving adjustments Market data includes a peer group of 18 ASX-listed companies, including NAB s majorcompetitorsMaximum opportunity 175% of FR for all senior executives in 2017 150% of FR for the Group CEO in 2018Allocation methodology Fair value for all senior executivesGroup performance Cash earnings (40%) / cash ROE (30%) /ROTAE (30%) Adjusted based on risk management,shareholder expectations and the quality offinancial resultsIndividual performance 4 equally weighted objectives: customer, risk,financial and strategy Conduct Gate: Amber reduces STI by 25%;Red reduces STI to zero and prior years unvested STI is forfeited Demonstrated values and behavioursSTI reward STI outcomes may range from 0% to themaximum opportunity above 50% provided as cash and 50% deferred andprovided as performance rights Deferred STI vests only if service andperformance conditions are met, subject toBoard discretionMaximum opportunity 130% of FR (Group CEO) 100% of FR (most senior executives) 70% of FR (Chief Risk Officer and Chief Legal& Commercial Counsel)Allocation methodology Group CEO based on face value (previouslyfair value) Fair value for other senior executives, subjectto a policy that limits the total number ofperformance rights allocated (refer toSection )LTI performance Four year performance period Measured against: relative Cash ROE growth(50%) and relative TSR (50%) Conduct Gate: Amber reduces LTI by 25%;Red reduces LTI to zero and prior years unvested LTI is forfeitedLTI reward LTI outcomes may range from 0% to 100% ofthe allocation value 100% provided as performance rights Group CEO: Dividend equivalent payment forthe period 1 October 2017 to the end of therestriction period (December 2021) on anyvested LTI LTI vests only if performance conditions aremet, subject to Board discretionMandatory shareholding requirementsSenior executives are required to accumulate and retain NAB equity over a five year period from commencement as KMP to an amount equal to: Two times Fixed Remuneration for the Group CEO. One times Fixed Remuneration for other senior of the DirectorsRemuneration report (continued)36 NATIONAL AUSTRALIA BANKSenior executive remuneration is structured to be paid over four years to link current year remuneration with longer-term outcomes of the Group. At-riskremuneration awarded to senior executives for 2017 may be provided at various times out to December 2021, subject to achievement of relevantperformance and services the Group CEO, 69% of variable remuneration (at maximum opportunity) is deferred and for the other senior executives 68% to 70% of variableremuneration (at maximum opportunity) is deferred, based on fair A remuneration mix to encourage performanceThe weighting of the at-risk remuneration components reflects the Board s commitment to performance-based reward. The graphs below illustrate themix of remuneration components as a proportion of total remuneration used when structuring the annual remuneration for senior executives. Section 4describes 2017 performance outcomes relative to the performance measures under the STI and LTI, and how this has impacted remuneration outcomesfor the 2017 financial Chief Risk Officer and Chief Legal & Commercial Counsel play an important role in the oversight of the financial and risk performance of the Groupand its employees. The reward mix set for these roles is structured to recognise these responsibilities and to support the independence required ofthese roles through providing a higher proportion of fixed remuneration than other senior executives and placing a greater emphasis on the LTI ratherthan the STI component of their variable Remuneration plan governance Conduct standards: All variable reward is subject to compliance with NAB's Code of Conduct (NAB's Code of Conduct is found online ). Cessation of employment: If an executive resigns, any unvested STI and LTI will generally lapse or be forfeited, unless the Board determinesotherwise. Any unvested STI and LTI awards that are retained will remain subject to the original performance criteria and timetable. Malus and Board discretion: The Board has absolute discretion, subject to compliance with the law, to adjust variable reward down, or to zero, whereappropriate. This includes varying vesting of deferred STI and LTI awards. The Board may consider the Group's financial performance, managementof business risks, shareholder expectations and the quality of the financial results. Malus and Board discretion may apply to any employee across theGroup, by Division, by role and / or individual, depending on circumstances. Insider trading and hedging policy: Directors and employees are prohibited from protecting the value of their equity awards by hedging. Furtherdetails are available in the Group Securities Trading Policy, found online at: Change of control: The Board generally has discretion to determine the treatment of unvested equity at the time a change of control event of the DirectorsRemuneration report (continued)372017 Annual Financial ReportSection 4 - Performance and remuneration Financial performanceThe following table shows the Group's annual performance over the last five years. The table shows the impact of Group performance on shareholdervalue, taking into account dividend payments, share price changes, and other capital adjustments during the performance measureLink to the remuneration framework20172016201520142013Basic earnings per share (cents) (1) earnings ($m) (1)Group STI pool; LTI ROE growth measure6,6426,4836,2225,0555,747Dividends paid per shareLTI relative TSR measure $ $ $ $ $ share price at start of yearLTI relative TSR measure$ $ $ $ $ share price at end of yearLTI relative TSR measure$ $ $ $ $ TSR for the yearLTI relative TSR ( )( ) (1)Information is presented on a continuing operations Turning customers into advocatesNAB is focused on improving customer advocacy, as measured through the Net Promoter System (1). Performance is measured against the other majorbanks using the Net Promoter Score (NPS) for NAB s priority customer segments. The Net Promoter System is used to develop a strong culture ofcustomer focus across the Group and is one of the measures used in assessing senior executives performance and determining STI (see (b)). The graph shows NAB s Priority Segments NPS performance since December 2012 to August STI outcomes(a) Forming the pool to fund the STIThe pool is funded based on the Group s achievement against three financial measures: cash earnings (40%), cash ROE (30%) and ROTAE (30%). TheGroup s policy on reward mix provides a variable remuneration component (including STI) for the majority of employees. The Committee, in consultationwith the Board Risk Committee, recommends the size of the Group STI pool to the Board, taking into account a qualitative overlay that reflects theGroup s management of business risks, shareholder expectations and the quality of the financial results. The Board has absolute discretion to ensurethat the Group STI pool is properly aligned with, and reflects, the Group s performance during the year. No STI pool is available in a year where Groupfinancial performance is not sufficient to form a pool and over the years, the pool has been set to align with Group performance. The level of funding ofthe pool for the last 5 years has been:In 2017, all funding measures were achieved. The Board exercised its discretion to set the size of the STI pool at 90% for 2017 based on the Board'sconsideration of the quality of the financial results, risk management, regulatory compliance, customer outcomes, shareholder returns, diversity andemployee engagement. The 2017 pool is of cash earnings and will be distributed to approximately 29,400 employees as well as the Group CEOand senior executives.(1)Net Promoter and NPS are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company, Satmetrix Systems and FredReichheld. Priority segments Net Promoter Score (NPS) is a simple average of the NPS of four priority segments: NAB defined Home Owners and Investors, as well asSmall Business ($ <$5m) and Medium Business ($5m-<$50m). The Priority segments NPS data is based on six month moving averages from Roy Morgan Researchand DBM BFSM Research as at 31 August of the DirectorsRemuneration report (continued)38 NATIONAL AUSTRALIA BANK(b) Individual outcomesIndividual performance is assessed holistically based on what has been achieved and how it has been achieved. This includes achievement ofobjectives that support delivery of NAB s strategy, conduct expectations of an individual's role, and demonstration of NAB s values and 's values are a key part of achieving NAB's vision and strategic objectives. They are:Overall performance is assessed using a five-point rating scale:Performance OutcomeDescriptor5 OutstandingMeeting the core role requirements of your job AND outstanding against goals, values and behaviours4 Highly AchievedMeeting the core role requirements of your job AND high performance against goals, values and behaviours3 AchievedMeeting the core role requirements of your job AND achieving all goals, values and behaviours2 Partially AchievedMeeting the core role requirements of your job AND partially meeting goals, values and behaviours1 Not AchievedNot meeting the core role requirements of your job OR not meeting the majority of goals, values and behavioursThe following provides a summary of the Board's assessment of senior executives' performance for and results2017 range of performanceoutcomes awarded tosenior executivesCustomer(25%) NAB held the #2 rank in Priority Segments NPS with a score of -14 (August 2016 to August 2017). Thebaseline score was -15 with a target of +3 improvement. NAB has partially achieved the stretch goal for2017. (NAB's Priority Segments NPS score improved to -13 and NAB's rank to #1 as at end September2017.) The Group is committed to using customer feedback to redesign customers' end-to-end of outcomes delivered during 2017 include: Upgraded digital capabilities in NAB Labs and formed innovative partnerships with parties such A new 10 minute digital onboarding for business customers with simple needs. A faster and easier application process for Everyday Accounts, reducing the application time to 7minutes. A simplified digital Superannuation portal that helps customers better understand their achievedRisk(25%) The Group continues to be subject to a number of regulatory investigations. There were also instancesof potential and actual breaches of compliance obligations during the year. While work progresses, theoutcome is not yet fully resolved or remediated to the target state. A simpler business and stronger control environment improved the risk profile and outlook foroperational risk, which will continue to be an area of focus. Key elements of the Group's risk management framework, particularly credit management, prudentialcompliance and conduct obligations, were strengthened. Performance against risk appetite in credit risk, market risk, balance sheet and liquidity riskmanagement was strong. Despite an uplift in many aspects of compliance risk management, expectations and complianceobligations increased and the risk and control environment will require further improvement achieved to AchievedFinancial(25%) Cash earnings were $6,642 million for 2017, up compared to 2016, largely driven by higher netinterest income from increased volumes and repricing, partially offset by higher operating expenseslargely from continued investment in the business, net of productivity savings. The charge for bad anddoubtful debts rose slightly due to increased collective provision overlays. Revenue increased for 2017 largely driven by higher net interest income from increased volumesand repricing. Expenses rose by driven by continued investment in technology and associated depreciation andamortisation charges, higher redundancy costs and the impact of annual salary increases. These itemswere partially offset by productivity benefits including workforce restructuring, digitisation, and reductionin third party spend. Cash ROE decreased by 30 basis points to compared to 2016. Continued to shift NAB's portfoliotowards business lines with higher returns where NAB has a strong capability to to Highly achievedReport of the DirectorsRemuneration report (continued)392017 Annual Financial ReportCategoryMeasures and results2017 range of performanceoutcomes awarded tosenior executives The Group remained well capitalised during 2017 and is operating above the Common Equity Tier 1(CET1) target ratio - with a CET1 ratio of as at 30 September &Leadership(25%) Achieved productivity savings of $301m during the year as a result of a strategic drive for productivityand efficiency, while focussing on simplifying and streamlining operations through automation andoperational excellence. TSR ranking of #1 against the other major banks was above the FY17 target of a rank of #3. Development, articulation and implementation of the Group's Purpose, reinforcing the Group'ssustainable customer-centric culture. Reshaping of incentives to support the right customer outcomes and align to Sedgwick reviewrecommendations. Achieved 4 of 5 of the 2017 gender diversity metrics. Employee engagement score of 59%, was below the Group's objective of top quartile performance 67% (1). The top quartile benchmark was exceeded in a number of areas, including how our peopleleaders individually coach, communicate and lead, careers and development, and commitment tocorporate responsibility. Continued enhancements to products and services through digitisation and innovation including: The expansion of the eligibility criteria of QuickBiz unsecured loans, enabling more small businesscustomers to access funding quickly. The launch of the Group's next generation HICAPS solution in partnership with Melbourne start-upMedipass Solutions. The launch of an Application Programming Interface Developer Portal which provides the opportunityfor approved third party developers to share data with NAB to deliver more integrated experiences to Highly achieved% of max. opportunity awardedOverall STI outcome: Group CEO: 49%Other senior executives: 33% to66%(1)2017 Employee Engagement Survey conducted by Aon Hewitt. The engagement score indicates the percentage of employees at NAB that are strong advocates (SAY), demonstrate a commitment to NAB(STAY) and exerts discretionary effort (STRIVE).All senior executives were assessed with a Green Conduct Gate and to have demonstrated NAB s values and the behaviours expected of their role. Theoverall individual performance outcomes ranged from achieved to highly achieved. The following table provides the 2017 STI outcomes for the seniorexecutives based on fair value. Section provides detail on both the fair and face value of the deferred STI awards at (1)Actual STIas % ofSTImaximum STI actual Cash STI(2)DeferredSTI(approx. 1year)(3)DeferredSTI(approx. 2year)(4)Name$%$$$$Executive directorAG Thorburn4,025,000491,955,000977,500488,750488,750Other senior executivesMB Baird (for part year)937,80849455,506227,754113,876113,876AJ Cahill2,100,000491,020,000510,000255,000255,000SJ Cook (for part year)382,02749185,55792,77946,38946,389AD Gall1,365,00049663,000331,500165,750165,750AP Hagger2,100,00046960,000480,000240,000240,000AJ Healy1,771,532661,164,149582,075291,037291,037GA Lennon1,750,00049850,000425,000212,500212,500A Mentis2,100,000631,320,000660,000330,000330,000LN Murphy1,400,00049680,000340,000170,000170,000PF Wright (for part year)2,275,000491,105,000552,500276,250276,250Former senior executivesCA Carver (for part year)1,489,26642630,074472,555157,519-MR Lawrance (for part year)958,43833313,336235,00278,334-(1)The highest possible STI that could be awarded if the Group STI pool was funded at the maximum level and the individual received the highest possible performance outcome.(2)The amount reflects 50% of the STI to be provided to eligible current senior executives and the Group CEO. The amount reflects 75% of the STI to be provided to eligible former senior executives. The cashcomponent of the STI received in respect of 2017 is scheduled to be paid on 15 November 2017 in Australia and 30 November 2017 in NZ.(3)The amount reflects 25% of the STI to be provided to eligible senior executives and the Group CEO. The amount is provided in performance rights or shares (to former senior executives) to be allocated inDecember 2017 and restricted until November 2018.(4)The amount reflects 25% of the STI to be provided to eligible current senior executives and the Group CEO. The amount is provided in performance rights to be allocated in December 2017 and restricteduntil November STI is provided as performance rights to current senior executives and the Group CEO, and as shares to former senior executives. Thedeferred STI is restricted and may be fully or partially lapsed if service and performance conditions are not met or at the Board s of the DirectorsRemuneration report (continued)40 NATIONAL AUSTRALIA LTI outcomesThe table below shows the performance of the Group against the LTI performance hurdles for the 2012 LTI award which was tested during 2017. Theaward has two TSR performance hurdles. Vesting for both hurdles is based on NAB s TSR result against two TSR peer groups. The vesting schedule is:50% vesting at the 50th percentile on a straight line scale up to 100% vesting at the 75th percentile. The performance hurdles were not achieved andtherefore none of the 2012 LTI vested. The performance rights are subject to a final test over a five year performance period (12 November 2012 to12 November 2017) in November of the LTI award granted in respect of 2012 can be found in NAB s 2012 and Remuneration report which is contained in NAB s 2012 AnnualFinancial Report available online at hurdlePerformance periodPercentileranking% of rightsvested% of rightslapsed% of rightsremainingTSR relative to S&P/ASX50 (50%) (1)12/11/2012 to 12/11/201642nd--100TSR relative to Top Financial Services (50%) (2)12/11/2012 to 12/11/201629th--100(1)The peer group for this performance hurdle is the Standard & Poors / ASX capitalisation index comprised of the 50 largest companies by market capitalisation in Australia.(2)The peer group for this performance hurdle is: AMP Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited, Bendigo & Adelaide Bank Limited, Commonwealth Bank ofAustralia, Suncorp Group Limited and Westpac Banking graphs below show NAB s relative TSR performance against the comparator peer groups for the 2012 LTI performance of the DirectorsRemuneration report (continued)412017 Annual Financial ReportSection 5 - Remuneration governanceThe Committee is responsible for reviewing, assessing and recommending to the Board, remuneration policies and practices that enhance long-termshareholder returns, nurture a strong culture and are in accordance with regional regulatory requirements and global regulatory trends. The Committeeconsiders the interests of other stakeholders, including customers and the communities in which the Group operates in fulfilling its remuneration governance framework is illustrated in the diagram Committee's remuneration decisions are based on an assessment of the Group's financial performance against the risk appetite framework. In2017, activities included: A review of the global remuneration policy to maintain alignment with business and regulatory requirements. Monitoring of risk management and consequence management on a regular basis, covering incidents of behaviour that are inconsistent with theGroup s risk management framework, desired culture, Code of Conduct or values, and the impact on incentive outcomes to ensure management isaddressing poor conduct. Commencement of a review of the Group's senior executive remuneration framework and changes to the Group CEO's remuneration. Reviewing a formal end of year report provided by the Group CEO, CRO and CFO to the Committee assessing the overall health of the Group sfinancial result against the risk management framework and Board approved risk appetite. This includes consideration of the Group's overallrisk profile, prudential compliance, breaches and incidents, timeliness of escalation and management of events and breaches. A joint meeting of theCommittee and the Board Risk Committee was held to review the findings. In light of outcomes, the Committee recommended overall 2017 incentiveoutcomes for the Group. Consideration of individual risk performance assessments and the impact on senior executive s incentive outcomes, and recommendations to theBoard on senior executives incentive and remuneration outcomes. Reviewing and making recommendations to the Board on the overall incentive and remuneration outcomes for risk, compliance, internal audit,financial control employees and other identified roles which perform activities that may affect the financial soundness of the Group. Monitoring the implementation and transition approach related to the ABA Retail Banking Remuneration Review of the DirectorsRemuneration report (continued)42 NATIONAL AUSTRALIA BANKSection 6 - Executive remuneration disclosures in detailThis section provides detailed information on all remuneration related items for the Group CEO and Senior Statutory remunerationThe following table has been prepared in accordance with Australian Accounting Standards and Section 300A of the Corporations Act 2001 (Cth), usingthe required table headings and definitions. The table shows details of the nature and amount of each element of remuneration paid or awarded forservices provided for the year while they were senior executives (including STI amounts in respect of performance during the year which are paidfollowing the end of the year). This table is different to the realised remuneration table on page 34, which is a voluntary non-statutory disclosure showingremuneration realised in addition to the remuneration benefits below, NAB paid an insurance premium for a contract insuring all senior executives as officers. It is not possibleto allocate the benefit of this premium between individuals. In accordance with usual commercial practice, the insurance contract prohibits disclosure ofdetails of the premium benefitsPost-employmentbenefitsEquity-basedbenefitsCashsalary(1)CashSTI(2)Non-monetary(3)Superannuation(4)Otherlong-termbenefits(5)Shares(6)Rights (7)Otherpayments(8)Total(9)Name$$$$$$$$$Executive directorAG Thorburn2017 2,216,311 977,5002,53430,64637,88142 3,366,164- 6,631,0782016 2,362,779 1,380,0003,02137,96737,832253 2,887,815- 6,709,667Other senior executivesMB Baird (for part year)2017 535,766 227,7546,93113,3582,184- 100,852- 886,845AJ Cahill2017 1,190,793 510,00011,54520,75614,222 258,508 1,099,387- 3,105,2112016 1,028,323600,00018,94721,24612,71026,205882,560- 2,589,991SJ Cook (for part year)2017 375,84392,7794,69112,3831,483-44,995- 532,174AD Gall2017 1,229,156 331,500231,72327,86220,860- 822,379- 2,663,4802016 1,204,456432,000243,02631,84917,558-669,414- 2,598,303AP Hagger2017 1,154,125 480,00024,86320,75619,255 217,661 1,540,183- 3,456,8432016 1,043,257660,00065,36721,07217,558818,731 1,456,083- 4,082,068AJ Healy2017 897,146 582,07520,47570,41113,020946 1,183,827- 2,767,9002016894,030486,77711,22467,6869,149935908,721- 2,378,522GA Lennon2017 981,472 425,0005,47920,75614,59273,809 711,212- 2,232,3202016502,412274,8093,04512,5087,24199,752254,128- 1,153,895A Mentis2017 1,100,800 660,00052,41920,75619,413 258,508 1,150,227- 3,262,1232016 1,108,671600,00040,35921,24619,30826,205868,285- 2,684,074LN Murphy2017 752,193 340,000165,53421,0004,840 313,090 441,885- 2,038,5422016419,916650,000179,71816,6031,934421,832114,466- 1,804,469PF Wright (for part year)2017 647,019 552,500227,465-2,293- 159,946 2,796,294 4,385,517Former senior executivesCA Carver (for part year)2017 358,361 472,555-13,5101,925 739,796-- 1,586,1472016118,959133,325-1,760581260,796--515,421CM Drummond (for part year)2016598,239-2,4957,7293,99071,776 (784,609)- (100,380)MJ Healey (for part year)2016674,401704,0085,66118,58211,397-845,034631,801 2,890,884MR Lawrance (for part year)2017 316,390 235,0025513,4936,047 304,43743,750- 919,174201645,50036,87071,40267237,6927,140-129,283RA Melrose (for part year)201632,79021,0694861,83944913,8215,274-75,728RM Roberts (for part year)2016796,646828,24411,40918,32127,726218551,6921,353,187 3,587,443GR Slater (for part year)2016897,729819,9625,63918,14715,292-1,165,9251,077,3954,000,089Total senior executives2017 11,755,375 5,886,665753,714285,687158,015 2,166,797 10,664,807 2,796,294 34,467,354Total senior executives201611,728,1087,627,064590,404297,957183,3971,778,2169,831,9283,062,38335,099,457(1)Includes cash salary, cash allowances and short-term compensated absences, such as annual leave entitlements accrued but not taken during the year.(2)The cash component of the STI received in respect of 2017 is scheduled to be paid on 15 November 2017 in Australia and 30 November 2017 in NZ. The amount reflects 50% of the STI to be provided toeligible current senior executives and the Group CEO. The amount reflects 75% of the STI to be provided to eligible former senior executives who were acting senior executives and remained on theremuneration arrangements associated with their previous role. The cash component of the STI received in respect of 2016 was paid in full during 2017 for all senior executives as previously disclosed, withno adjustment.(3)Includes any motor vehicle benefits, parking, relocation costs and other benefits. For international assignees this may include the provision of health fund benefits and personal tax advice. Any related fringebenefits tax is included.(4)Includes company contributions to superannuation and allocations by employees made by way of salary sacrifice of fixed remuneration. Superannuation contributions are not required to be paid to individualsbased in NZ but such payments may be made as part of fixed remuneration.(5)Includes long service leave entitlements accrued but not taken during the year. The long service leave entitlements are recognised as accruing on an annual basis subject to an actuarial calculation.(6)The amount included in remuneration each year for share awards is the grant date fair value, amortised on a straight line basis over the vesting period. Refer to the Glossary for an explanation of the fairvalue approach used to determine equity-based benefits. Amounts shown for 2017 include portions of shares allocated under employee programs as follows:a) General Employee shares granted in December 2013, December 2014, March 2016, December 2016 and to be granted in December 2017, to eligible senior executives at the relevant offer time. Theshares vest after a three-year restriction period. In NZ the shares are subject to forfeiture conditions, including on of the DirectorsRemuneration report (continued)432017 Annual Financial Reportb) Deferred STI shares granted in March 2016 in respect of performance in 2015 and restricted until November 2016, February 2017 in respect of performance in 2016 and restricted until November 2017,and to be granted in February 2018 in respect of performance in 2017 and restricted until November 2018, subject to performance and service ) Retention shares granted to Mr Hagger in May 2016. The shares were restricted for approximately 8 months and subject to achievement of key project deliverables and service conditions. The grant fullyvested in January ) Customer Advocacy Incentive shares granted to Mr Lawrance and Mr Lennon in March 2016 for performance in prior roles. The shares are restricted until December 2017 and are subject to achievementof 2017 NPS targets and service conditions which have been fully met. Customer Advocacy Incentive shares granted to Ms Carver and Mr Lawrance in February 2017. The shares are restricted untilDecember 2018 and are subject to achievement of 2018 NPS targets and service ) Commencement shares allocated to Ms Carver in March 2016 with 39% fully vested in January 2017 and 32% scheduled to vest in January 2018, subject to performance and service hurdles. Theremaining 29% vested in July 2016 and is excluded as it was fully expensed prior to Ms Carver becoming a senior ) Commencement shares allocated to Ms Murphy in May 2016 with 35% vested in September 2016, vested in September 2017 and scheduled to vest in September 2018, subject toperformance and service ) Retention shares granted in August 2016 to Mr Cahill and Ms Mentis are restricted for approximately 24 months. The shares are subject to performance and service ) Restricted share awards granted in August 2016 to Ms Carver and to Mr Lawrance in October 2016 were restricted for approximately 12 months. The shares fully vested in July 2017 for Ms Carver andAugust 2017 for Mr Lawrance. The shares were subject to performance and service conditions.(7)The amount included in remuneration each year for performance rights is the grant date fair value, amortised on a straight line basis over the expected vesting period. Refer to the Glossary for an explanationof fair value approach used to determine equity-based remuneration. Amounts shown for 2017 include portions of performance rights allocated under employee programs, as shown below:a) Deferred STI rights granted in February 2015 in respect of performance in 2014, March 2016 in respect of performance in 2015, February 2017 in respect of performance in 2016, and to be granted inDecember 2017 in respect of performance in 2017. The performance rights are granted with half of each grant restricted for approximately 14 months after the end of the performance year and the remaininghalf for approximately 26 months after the end of the performance ) LTI performance rights granted in December 2012, December 2013, December 2014 (and for the Group CEO in February 2015), December 2015 (and for the Group CEO in March 2016), December 2016(and for the Group CEO in February 2017) and in December 2017 under the Group s LTI program.(8)To compensate for awards from his prior employer which were forfeited as a result of joining NAB, Mr Wright received a commencement award of A$801,627 paid in cash on 3 May 2017 and A$328,906 paidin cash on 6 September 2017. The remaining amount is scheduled to be paid in cash: A$717,042 in March 2018, A$607,629 in March 2019 and A$341,091 in March 2020. In accordance with accountingstandards the full amount of Mr Wright s commencement award has been expensed in 2017. An exchange rate as at 30 September 2017 has been used to determine the value shown. The amounts shown in2016 for Ms Healey, Ms Roberts and Mr Slater are termination payments related to the cessation of their employment with NAB on 30 September 2016 (see the 2016 Remuneration report for further details).(9)The percentage of 2017 total remuneration related to performance-based remuneration was: Mr Thorburn 66%, Mr Baird 37%, Mr Cahill 60%, Ms Cook 26%, Mr Gall 43%, Mr Hagger 65%, Mr Healy 64%, MrLennon 54%, Ms Mentis 63%, Ms Murphy 54%, Mr Wright 16%, Ms Carver 76%, Mr Lawrance 63%.Report of the DirectorsRemuneration report (continued)44 NATIONAL AUSTRALIA LTI to be granted in respect of 2017Senior executives (including the Group CEO, subject to shareholder approval) will be granted LTI performance rights in December 2017. The keyfeatures of the LTI award are:Tranche 1 - cash ROE growthTranche 2 - relative TSRPerformancehurdles50% of the award is subject to cash ROE s cash ROE Growth is ranked against a peer group of:- Australia and New Zealand Banking Group Limited- Commonwealth Bank of Australia- Westpac Banking Corporation(ROE Peer Group)The cash ROE movement is calculated by comparing the financial reporting year2017 cash ROE (representing the opening period) and the average cash ROE ofthe performance periods over the Performance of the award is subject to Relative TSR performance relative to a financialservices peer group comprising:- Australia and New Zealand Banking Group Limited- Commonwealth Bank of Australia- Westpac Banking Corporation- AMP Limited- Bank of Queensland Limited- Bendigo & Adelaide Bank Limited- Suncorp Group Limited(TSR Peer Group).TSR is calculated by an independent external consultant based on the 30 dayvolume weighted average share price up to and including the performance periodstart and end financial reporting years 2018 to 2021. (ROE Measurement Period)14 November 2017 to 14 November 2021VestingscheduleVesting is based on NAB s cash ROE growth ranking against the ROE PeerGroup: Ranking: 4th = 0%, 3rd = 25%, 2nd = 50%, 1st = 100%Vesting based on NAB s TSR result against the TSR Peer Group: 50% vesting atthe 50th percentile (or median) on a straight line scale up to 100% vesting at the75th percentileInstrumentPerformance Group CEO will receive a dividend equivalent payment (1) for any performance rights that number ofperformancerights awardedThe number of performance rights allocated depends on each executives LTI maximum opportunity (see Section ).Group CEOThe LTI opportunity is divided by the weighted average share price (WASP) for the period 25 September to 29 September senior executives50% of the LTI maximum opportunity (see Section ) is divided by the Tranche 1 fair value and 50% of the LTI opportunity is divided by the Tranche 2 fair of the fair values and the actual number of performance rights that will be granted to the Group CEO (subject to shareholder approval at the 2017 AGM) and theother senior executives is shown in Section discountlimitsConsistent with 2016, a policy applies that limits the total number of performance rights allocated to senior executives under the fair value allocation methodology. Thepolicy limits the maximum discount applied in determining the number of LTI performance rights to be awarded to no more than: 25% of the WASP for Tranche 1 of the LTI award; and 50% of the WASP for Tranche 2 of the LTI price then used to determine the number of performance rights to be awarded for each tranche of the LTI award will be the greater of: the WASP calculation outlined above for the relevant tranche; and the fair value for the relevant maximum discount rate is different for each tranche as the fair value assumptions and inputs are different due to Tranche 1 being linked to an internal performancehurdle and Tranche 2 linked to a market performance hurdle.(1)A cash amount equivalent to the gross value of any dividends (including payment for the value of imputation credits which applied to the dividends) which would have been paid to the Group CEO if he hadheld a number of shares equivalent to any LTI performance rights that may vest, during the period 1 October 2017 to the end of the LTI restriction period (December 2021). The dividend equivalent paymentmay be adjusted for any bonus and rights issues, aggregations and reconstructions in relation to NAB shares during the period from 1 October 2017 to the end of the LTI restriction Committee is closely monitoring the measurement and assumptions involved in calculating cash ROE for NAB and the peer group to ensure thatthere are no unintended consequences resulting from the introduction of this performance hurdle in 2016. Reported cash ROE as disclosed in eachbank s results announcement is used as the starting point for assessing the performance hurdle. The following principles have been adopted by theCommittee when considering adjustments: Adjustments are restricted to items that are not reflective of underlying business performance and are specifically disclosed as one-off or specifieditems. Items must be easily identifiable in published results. Decisions made for longer-term shareholder benefit should have their short-term impact adjusted ( loss on sale of low returning business). Adjustments may be treated differently in the opening period full financial year 2017 (FY17) and the ROE Measurement Period. Adjustments tothe opening period may be required to ensure the opening period baseline is reported on a consistent basis. Materiality thresholds are applied to any potential qualitative assessment is applied to any potential adjustments that meet the criteria above. This involves consideration of factors such as consistencyof adjustments across the ROE Peer Group and whether the adjustments impact the vesting outcome. An external firm will review any proposedadjustments to headline cash ROE measures and provide the Committee with advice on whether they are in accordance with the principles outlinedabove and have been calculated of the DirectorsRemuneration report (continued)452017 Annual Financial LTI in respect of 2016For the LTI award allocated in December 2016 (and February 2017 for the Group CEO), the Committee has approved the following cash ROE openingperiod for NAB and each of the ROE Peer Group:BankDisclosedcash ROEAdjusted cashROE foropening period(FY16)Details of No 2016 cash earnings adjusted by $989m for 4 items disclosed by ANZ and considered to be one-off innature: Software amortisation ($389m) Impairment of carrying value of minority investment in Ambank ($260m), partially offset by gain on saleof stake in Bank of Tianjin ($29m) Credit Valuation Adjustment Methodology change ($168m) Restructuring expenses for simplification of Institutional and Wealth businesses, restructure of AsiaRetail & Pacific and digitisation in Australia, New Zealand and Group Centre ($201m) No No adjustmentsThe Board has absolute discretion to adjust the disclosed cash ROE to ensure a fair and reasonable comparison over Other awards granted during the yearDuring the year Patrick Wright, Chief Technology & Operations Officer commenced employment with NAB. Mr Wright has global experience as ChiefOperations & Technology Officer of Barclaycard, leading a significant workforce. He has extensive, proven experience in driving major transformations inlarge financial services companies and innovating in fast-paced, competitive and highly-regulated markets. As the Group reshapes the business, MrWright is key to the execution of the Group s strategy and will lead the simplification, digitisation and automation agenda to deliver greater efficiency andcreate a simpler and easier experience for customers and line with NAB s objective to be known for great leadership, talent and people and as the skills and experience required to fill this role were notavailable in Australia, NAB looked to international markets. In order to provide a competitive remuneration package, the Board approved a cashpayment of US$ as part of Mr Wright s commencement arrangements to buy-out existing entitlements with his former employer that wereforfeited on his resignation. Mr Wright s commencement award was agreed with regard to the quantum and timing of the entitlements Mr Wright forfeitedto join NAB. The first instalment of US$605,950 (A$801,627) was paid post commencement and a second instalment of US$260,000 (A$328,906) waspaid in September 2017. The remainder of the award is payable over the next three years: US$546,572 in March 2018, US$463,171 in March 2019 andUS$260,000 in March Value of shares and performance rightsThe following table shows the value of shares and performance rights that were granted, lapsed or vested for each senior executive during 2017. Thevalue shown is the full accounting value to be expensed over the vesting period, which is generally longer than the current year. Senior executives didnot pay any amounts for performance rights that vested and were exercised during 2017. The number of shares provided when the rights exercise is ona one to one basis. There are no amounts unpaid on any of the shares exercised. There have been no changes to the terms and conditions of theseawards, or any other awards since the awards were the awards allocated during 2017, the maximum number of shares or performance rights that may vest is shown for each senior executive. Themaximum value of the equity awards is the number of shares or performance rights subject to NAB s share price at the time of vesting. The minimumnumber of shares of performance rights and the value of the equity awards is zero if the equity is fully (1)Grant date Lapsed Vested (2)Granted Lapsed $$$Executive directorAG ThorburnGeneral employee shares2611/12/2013-26--884Deferred STI rights2,22318/02/2015-2,223--64,978Deferred STI rights25,7209/03/2016-25,720--659,975LTI rights170,79422/02/2017-- 2,989,988--Deferred STI rights58,86522/02/2017--1,379,980--Other senior executivesAJ CahillDeferred STI rights2,00218/02/2015-2,002--58,518Deferred STI rights11,6929/03/2016-11,692--300,017LTI rights57,12314/12/2016-- 1,000,016--Deferred STI rights25,59522/02/2017--600,027--AD GallDeferred STI rights2,95118/02/2015-2,951--86,258Deferred STI rights5,8469/03/2016-5,846--150,008LTI rights45,69914/12/2016--800,024--Deferred STI rights18,42922/02/2017--432,033--Report of the DirectorsRemuneration report (continued)46 NATIONAL AUSTRALIA BANKGranted(1)Grant date Lapsed Vested (2)Granted Lapsed $$$Other senior executivesAP HaggerDeferred STI rights4,10618/02/2015-4,106--120,018Deferred STI rights12,8619/03/2016-12,861--330,013Retention shares20,02211/05/2016-20,022--550,004LTI rights62,83614/12/2016-- 1,100,033--Deferred STI rights28,15422/02/2017--660,017--AJ HealyGeneral employee shares2611/12/2013-26--884Deferred STI rights2,85718/02/2015-2,857--83,510Deferred STI rights8,8629/03/2016-8,862--227,399General employee shares3414/12/2016--992--LTI rights57,42114/12/2016-- 1,005,238--Deferred STI rights21,11822/02/2017--495,072--GA LennonDeferred STI rights2,93618/02/2015-2,936--85,819Deferred STI shares5,7579/03/2016-5,757--143,004LTI rights57,12314/12/2016-- 1,000,016--Deferred STI rights21,33022/02/2017--500,042--A MentisDeferred STI rights3,08018/02/2015-3,080--90,028Deferred STI rights9,7439/03/2016-9,743--250,005LTI rights57,12314/12/2016-- 1,000,016--Deferred STI rights25,59522/02/2017--600,027--LN MurphyCommencement shares10,01111/05/2016-10,011--275,002LTI rights39,98714/12/2016--700,028--Deferred STI rights14,93022/02/2017--350,006--Former senior executivesCA CarverCommencement shares31,60315/03/2016-31,603--785,019Restricted shares9,19224/08/2016-9,192--250,022General employee shares3414/12/2016--992--Deferred STI shares7,34022/02/2017--192,602--Customer Advocacy Incentive shares4,77822/02/2017--150,029--MR LawranceDeferred STI rights1,80218/02/2015-1,802--52,672Deferred STI shares6,2009/03/2016-6,200--154,008Restricted shares9,01028/10/2016-9,010250,028-250,028General employee shares3414/12/2016--992--Deferred STI shares6,13622/02/2017--161,009--Customer Advocacy Incentive shares4,77822/02/2017--150,029--(1)The following securities have been granted during 2017:a) General employee shares granted to Mr Healy, Ms Carver and Mr Lawrance, in December shares vest after a three-year restriction period (In NZ the shares are subject to forfeiture conditions,including resignation).b) LTI rights granted to senior executives in December 2016 and February 2017 for Mr Thorburn under the Group s LTI program. The total fair value of the award is disclosed in the table above. The fair valuefor each LTI tranche is shown in Section The face value of the LTI award was $ based on the weighted average share price (WASP) at which NAB shares were traded on the ASX in the five tradingdays from 5 to 9 December 2016 inclusive. The value of performance rights awarded to senior executives was $ after applying the maximum WASP discount (fair value of $ ) for tranche 1 and$ (fair value of $ ) for tranche 2 in accordance with the Board s policy to limit the number of LTI rights allocated to senior ) Deferred STI rights and shares granted in February 2017 (in respect of 2016). The performance rights are granted with half restricted for approximately 14 months after the end of the performance yearand the remaining half for approximately 26 months after the end of the performance year. The deferred STI shares are granted to former senior executives with 25% restricted for approximately 14 monthsafter the end of the performance ) Restricted shares granted to Mr Lawrance in October 2016 are restricted for approximately 12 months. The shares are subject to performance and service ) Customer Advocacy Incentive shares granted to Ms Carver and Mr Lawrance in February 2017. The shares are restricted until December 2018 and are subject to achievement of 2018 NPS targets andservice conditions.(2)The following securities have vested during 2017:a) General Employee Shares granted to Mr Thorburn and Mr Healy in December 2013, fully vested in December ) 2014 Tranche 2 deferred STI rights granted in February 2015, fully vested in December ) 2015 Tranche 1 deferred STI rights and shares granted in March 2016, fully vested in November ) Retention shares granted to Mr Hagger in May 2016 fully vested in January shares were restricted for approximately 8 months and subject to achievement of key project deliverables and serviceconditions which were fully ) Tranche 2 Commencement shares granted to Ms Carver in March 2016, with 39% fully vested in January 2017 and 32% scheduled to vest in January 2018, subject to performance and service remaining 29% vested in July 2016 prior to Ms Carver becoming a senior ) Restricted shares allocated to Ms Carver in August 2016 and Mr Lawrance in October 2016 fully vested in July 2017 and August 2017 respectively. The shares were subject to performance and ) Tranche 2 Commencement award shares allocated to Ms Murphy in May 2016 fully vested in September of the DirectorsRemuneration report (continued)472017 Annual Financial Determining the value of equity remunerationThe fair value of shares and performance rights (at grant date) is set out below for grants provided to senior executives during 2017. The determinationof the fair value considers factors such as whether the grant has internal or market-based performance hurdles, the expected volatility of NAB's shareprice, the risk-free interest rate and the expected dividend yield on NAB shares for the life of the grant. This may result in different fair values for awardsgranted on the same grant date fair value of shares and performance rights is amortised on a straight line basis over the vesting period and included in each seniorexecutive s disclosed remuneration in accordance with statutory accounting requirements. No performance options have been granted during the and performance rights granted during 2017 have a zero exercise rightsGrant dateFairvalueRestriction periodendWASP(face value)(1) (2)ExerciseperiodExerciseperiodType of allocation$$$$FromTo(3)Restricted Shares (4)28 October 2016 August 2017General Employee Shares14 December 2016 December 2019Long-Term Incentive (5)14 December 20 December 202015 March 2021Long-Term Incentive (6)14 December 20 December 202015 March 2021Deferred Short-Term Incentive22 February November 2017 16 February 2018Deferred Short-Term Incentive22 February November 2018 16 February 2019Deferred Short-Term Incentive22 February 2017 November 2017Long-Term Incentive (5) (7)22 February 20 December 202015 March 2021Long-Term Incentive (6) (7)22 February 20 December 202015 March 2021Customer Advocacy Incentive (8)22 February December 2018(1)The face value is the 5 day weighted average share price (at the time of the award) used to determine the fair value.(2)The maximum WASP discount amount is the unit value used to determine the number of performance rights allocated to each senior executive. Further detail is available in Section (3)The end of the exercise period for each performance rights allocation is also the expiry date.(4)Restricted shares were provided to Mr Lawrance in respect of his appointment to an acting KMP role during 2016 and 2017. The shares are subject to performance and service conditions.(5)Relates to the 2016 LTI cash ROE growth performance hurdle.(6)Relates to the 2016 LTI relative TSR performance hurdle.(7)The Group CEO's LTI allocation was approved by shareholders at the December 2016 AGM.(8)Ms Carver and Mr Lawrance received shares under the Customer Advocacy Incentive award. The shares are subject to achievement of NPS targets and service Deferred STI and LTI grants to be awarded during 2018NAB intends to grant deferred STI and LTI performance rights to senior executives (including the Group CEO, subject to shareholder approval) inDecember 2017 after the 2017 AGM. The number of deferred STI rights and LTI performance rights allocated to each senior executive (excluding theGroup CEO s LTI performance rights) is calculated using a fair value based on the five day WASP from 25 to 29 September 2017. The number of LTIperformance rights to be allocated to the Group CEO is calculated using the five day WASP from 25 to 29 September 2017 (or face value). Details ofthe allocations are:Intended grantdateWASP(face value)(1)Fair valueMax. WASPdiscountamount(2)ExerciseperiodExerciseperiodType of allocation$$$FromTo(3)Group CEO: Long-Term Incentive (4)19 December n/a 20 December 202115 March 2022Long-Term Incentive - Tranche 1 (5)19 December 20 December 202115 March 2022Long-Term Incentive - Tranche 2 (6)19 December 20 December 202115 March 2022Deferred Short-Term Incentive - Tranche 1 (7)19 December 15 November 2018 15 February 2019Deferred Short-Term Incentive - Tranche 2 (7)19 December November 201915 February 2020(1)The face value is the 5 day weighted average share price for 25 September to 29 September 2017. It is used to determine the fair value.(2)The maximum WASP discount amount is the unit value used to determine the number of performance rights allocated to each senior executive. Further detail is available in Section (3)The end of the exercise period for each performance rights allocation is also the expiry date.(4)The number of LTI performance rights granted to the Group CEO (subject to approval by shareholders at the December 2017 AGM) is based on face value.(5)The number of LTI performance rights granted to the other senior executives for the cash ROE growth performance hurdle is based on the fair value.(6)The number of LTI performance rights granted to the other senior executives for the relative TSR performance hurdle is based on the maximum WASP discount amount.(7)The number of deferred STI rights granted to the other senior executives is based on the fair of the DirectorsRemuneration report (continued)48 NATIONAL AUSTRALIA BANKThe number of deferred STI and LTI performance rights to be allocated to each senior executive (including the Group CEO, subject to shareholderapproval) in December 2017 and their total fair value and face value based on the 5 day WASP from 25 September to 29 September 2017 is:Type of allocationRights(1)Total awardfair valueTotal awardface valueNameNo.$$Executive directorAG ThorburnDeferred STI34,807977,4691,092,592LTI95,252n/a2,989,960Other senior executivesMB BairdDeferred STI8,111227,778254,604LTI63,6951,092,2421,999,386AJ CahillDeferred STI18,161510,007570,074LTI63,6951,092,2421,999,386SJ CookDeferred STI3,30492,785103,713LTI29,725509,724933,068AD GallDeferred STI11,805331,515370,559LTI48,302828,2851,516,200AP HaggerDeferred STI17,093480,015536,549LTI63,6951,092,2421,999,386AJ HealyDeferred STI20,720581,870650,401LTI53,710921,0191,685,957GA LennonDeferred STI15,135425,029475,088LTI53,080910,2161,666,181A MentisDeferred STI23,503660,024737,759LTI63,6951,092,2421,999,386LN MurphyDeferred STI12,108340,023380,070LTI42,464728,1771,332,945PF WrightDeferred STI19,675552,524617,598LTI69,0031,183,2612,166,004(1)To be granted to senior executives and the Group CEO (subject to shareholder approval) in December actual value of the award for each senior executive will depend on the level of achievement against the performance hurdles, the correspondingproportion of the award that vests and NAB s share price at the time of vesting which is November 2018 and November 2019 for the deferred STI, andDecember 2021 for the LTI. The minimum amount of the deferred STI and LTI is $0 if the award does not vest, and the maximum is the total award facevalue shown in the table above, subject to NAB s share price at the time of Performance rights holdingsNo performance options or performance rights are granted to the Group CEO's or other senior executives' related parties. No performance options arecurrently held by the Group CEO or the other senior executives. No performance rights held by the Group CEO or other senior executives, were vestedbut not exercisable at 30 September atbeginningof year(1)Grantedduring year asremunerationExercisedduringyearLapsed orexpiredduring yearBalance atend of year(2)VestedduringyearVested andexercisable atend of directorAG Thorburn679,958229,659(27,943)-881,67427,943-Other senior executivesAJ Cahill164,96882,718(13,694)-233,99213,694-AD Gall138,98664,128(8,797)-194,3178,797-AP Hagger339,89590,990(16,967)-413,91816,967-AJ Healy193,54378,539(11,719)-260,36311,719-GA Lennon51,79978,453(2,936)-127,3162,936-A Mentis165,22382,718(12,823)-235,11812,823-LN Murphy-54,917--54,917--Former senior executivesMR Lawrance32,583-(1,802)-30,7811,802-(1)Balance may include performance rights granted prior to individuals becoming KMP. For senior executives who became KMP during 2017, the balance is as at the date they became KMP.(2)For former senior executives, the balance is as at the date they cease being of the DirectorsRemuneration report (continued)492017 Annual Financial Senior executives' share ownershipThe number of NAB shares held (directly and nominally) by each senior executive of NAB and the Group or their related parties (their close familymembers or any entity they, or their close family members, control, jointly control or significantly influence) are set out below:Balance atbeginning ofyear(1)Grantedduring year asremunerationReceivedduring year onexercise ofperformancerightsOther changesduring yearBalance atend of year(2) directorAG Thorburn117,990-27,9439,191155,124Other senior executivesAJ Cahill58,146-13,694(40,883)30,957AD Gall91,269-8,797(8,797)91,269AP Hagger139,009-16,967(130,000)25,976AJ Healy30,8893411,719-42,642GA Lennon48,829-2,936-51,765A Mentis35,441-12,823-48,264LN Murphy30,944--1,12832,072Former senior executivesCA Carver66,96312,152-(31,603)47,512MR Lawrance53,83319,9581,802-75,593(1)Balance may include shares held prior to individuals becoming KMP. For senior executives who became KMP during 2017, the balance is as at the date they became KMP.(2)For former senior executives, the balance is as at the date they cease being are no other holdings or transactions involving equity instruments, other than equity-based compensation, with senior executives of NAB and theGroup or their related Senior executive contract termsAll senior executives are employed on contracts with no fixed term. The following table shows the position and contract terms for individuals who weresenior executives as at 30 September arrangements (1)Notice period (weeks) Termination payment(2)NamePositionSenior executiveCompany$Executive directorAG ThorburnGroup Chief Executive Officer26261,045,455Other senior executivesMB BairdChief Customer Officer - Corporate and Institutional Banking126545,455AJ CahillChief Operating Officer426545,455SJ CookChief Legal and Commercial Counsel126363,636AD GallChief Risk Officer1226590,909AP HaggerChief Customer Officer - Consumer Banking and Wealth426545,455AJ HealyChief Executive Officer Bank of New Zealand1313253,076GA LennonChief Financial Officer426454,545A MentisChief Customer Officer - Business and Private Banking426545,455LN MurphyChief People Officer226363,636PF WrightChief Technology and Operations Officer126590,909(1)Employment may be terminated by either the senior executive or NAB giving the applicable notice. Recent employee notice periods reflect a commercial decision to not spend on excessive terminationpayments when NAB has strong succession plans in place.(2)Calculated as the company notice period multiplied by either the current annualised fixed remuneration or Total Remuneration Package (TRP) (fixed remuneration less employer superannuation). These arepaid, subject to compliance with the law, if NAB terminates the senior executive's employment agreement on notice and without cause, and makes payment in lieu of notice. Termination payments are notgenerally paid on resignation, summary termination or unsatisfactory performance, although the Board may determine exceptions to this. The retention or forfeiture of shares and performance rights oncessation of employment depends on applicable law and the terms and conditions of each grant including Board discretion. The amount shown is the termination payment payable, based on the seniorexecutive's current fixed remuneration or TRP if NAB were to give notice. The value does not include any value for equity holdings which may be retained, or other statutory payments that would be payableon of the DirectorsRemuneration report (continued)50 NATIONAL AUSTRALIA BANKSection 7 - Non-executive director Fee policy and poolNon-executive directors receive fees to recognise their contribution to the work of the Board. Additional fees are paid, where applicable, for serving onBoard Committees, on Boards of controlled entities and internal advisory boards. Fees include NAB s compulsory contributions to superannuation. Toensure independence, non-executive directors are not paid any performance or incentive related maximum aggregate fee pool for non-executive directors is $ million per annum which was approved at NAB's February 2008 Annual director fees are generally reviewed annually, including against fee levels paid to board members of other major Australian a result of the 2017 fee review, the Board decided not to increase non-executive director Board or Committee following table shows the annual fees paid to the Chairman and non-executive directors on the Board, and to non-executive directors whoparticipate on Board ($pa)Non-ExecutiveDirector($pa)Board790,000230,000Audit Committee65,00032,500Risk Committee60,00030,000Remuneration Committee55,00027,500Nomination & Governance Committee (1)-10,000(1)The Board established a fee for the Nomination & Governance Committee effective17 December 2016. The Board Chairman s fee is inclusive of Dr Henry s participation asChairman of the Nomination & Governance Statutory remunerationThe fees paid to the non-executive directors in relation to the 2017 financial year are set out below:Short-term benefitsPost-employment benefitsCash salary and fees(1)Superannuation(2)TotalName$$$Non-executive directorsKR Henry (Chairman)2017770,27619,724790,0002016670,21319,385689,598DH Armstrong2017304,74619,724324,4702016316,46735,077351,544PW Chronican (3)2017403,90419,724423,6282016110,7319,061119,792PK Gupta (4)2017629,84119,724649,5652016623,02519,269642,294AJ Loveridge2017275,27619,724295,0002016182,82139,904222,725GC McBride2017235,88219,724255,6062016223,11519,385242,500DA McKay (5)2017358,572146,166504,7382016296,32733,793330,120AKT Yuen2017286,3936,107292,5002016284,0415,959290,000Former non-executive directorsDT Gilbert (for part year)201755,5514,90460,4552016297,11519,385316,500JS Segal (for part year)201756,0814,90460,9852016278,74019,385298,125MA Chaney (for part year)2016159,7744,827164,601PJ Rizzo (for part year)201658,4639,13367,596Total20173,376,522280,425 3,656,947Total20163,500,832234,5633,735,395(1)The portion of fees in connection with their roles, duties and responsibilities as a non-executive director, and includes attendance at meetings of the Board, and of Board committees and boards of controlledentities, received as cash. No non-monetary benefits were provided to the non-executive directors during 2017.(2)Reflects compulsory company contributions to superannuation and, where applicable, includes additional superannuation contributions made by NAB, in lieu of payment of fees, at the election of the non-executive director.(3)Mr Chronican received director fees in his capacity as a director on the board of Bank of New Zealand, which were paid in NZD.(4)Mr Gupta received director fees in his capacity as a director on the board of a number of NAB Group subsidiaries.(5)Mr McKay received director fees in his capacity as Chairman of Bank of New Zealand, which were paid in of the DirectorsRemuneration report (continued)512017 Annual Financial Minimum shareholding policyNon-executive directors are required to hold, within five years of their appointment, NAB ordinary shares to the value of the annual base fee for non-executive directors. To meet the minimum requirement, non-executive directors must: hold at least 2,000 NAB ordinary shares within six months of their appointment; and acquire NAB ordinary shares to the value of at least 20% of the annual base fee for non-executive directors each year until the minimum holdingrequirement is Non-executive directors' share ownershipThe number of NAB shares held (directly and nominally) by each non-executive director of NAB and the Group or their related parties (their close familymembers or any entity they, or their close family members, control, jointly control or significantly influence) are set out below. No performance options orperformance rights are granted to non-executive directors or their related atbeginning ofyear(1)AcquiredOtherchangesduring yearBalance atend of year(2) directorsKR Henry6,8601,500-8,360DH Armstrong13,419346-13,765PW Chronican30,000--30,000PK Gupta6,480--6,480AJ Loveridge9,000--9,000GC McBride3,9601,000-4,960DA McKay2,0006,000-8,000AKT Yuen10,464--10,464Former non-executive directorsDT Gilbert20,726--20,726JS Segal17,184--17,184(1)Balance may include shares held prior to individuals becoming KMP. For non-executive directors who became KMP during 2017, the balance is as at the date they became KMP.(2)For former non-executive directors, the balance is as at the date they cease being Other equity instrument holdingsHoldings and transactions involving equity instruments, other than equity-based compensations, with non-executive directors or their related parties andNAB and the Group are set out below:Balance atbeginning of year(1)Changesduring yearBalance atend of year(2)National Income directorsPW Chronican982-982Former non-executive directorsDT Gilbert1,253-1,253JS Segal180-180(1)Balance at beginning of the financial year (1 October 2016) or the date of commencement as a KMP.(2)Balance at end of the financial year (30 September 2017) or the date of cessation as a of the DirectorsRemuneration report (continued)52 NATIONAL AUSTRALIA BANKSection 8 - Loans and other LoansLoans made to directors of NAB are made in the ordinary course of business on terms equivalent to those that prevail in arms length to other KMP of NAB and the Group may be made on similar terms and conditions generally available to other employees of the Group. Loans toKMP of NAB and the Group may be subject to restrictions under applicable laws and regulations including the Corporations Act 2001 (Cth).Aggregated loans to KMP and their related parties (1)NAB and the GroupBalance atbeginning ofyear(1)InterestchargedInterest notchargedWrite-offBalance atend of year(2)KMPNormal18,097,274447,281--16,551,449Employee2,746,45589,485--1,994,890Other related parties (3)Normal44,637,384557,161--42,924,465Employee-----(1)Balance at beginning of the financial year (1 October 2016) or the date of commencement as a KMP.(2)Balance at end of the financial year (30 September 2017) or the date of cessation as a KMP.(3)Includes the KMP's related parties, which includes their close family members or any entity they or their close family members control, jointly control or significantly loans to KMP and their related parties above $100,000 at any time during 2017 (1)Terms and conditionsBalance atbeginning ofyear(1)Interestcharged(2)Interest notcharged Write-offBalance atend of year(3)KMP highestindebtednessduring year(4)NAB and the Group$$$$$$Executive directorAG ThorburnEmployee1,84021--3,20331,956Normal-9,977---Other senior executivesMB BairdEmployee25,086644--1,702Normal4,565,00092,625--4,520,8063,847,872AJ CahillEmployee1,480,64247,432--980,000Normal1,937,80057,386--594,0923,457,034SJ CookNormal16,90216,393--1,215,2501,286,266AD GallNormal6,140,733208,847--5,966,9922,606,446AJ HealyNormal2,080,83492,010--1,963,22123,952GA LennonEmployee1,206,94741,389--988,7591,231,947Normal6,23320--5,367A MentisEmployee12,319---14,283Normal2,881,467120,224--2,050,8262,586,134LN MurphyEmployee19,621---2,375Normal2,696,53888,970--2,453,4792,736,538Non-executive directorGC McBrideNormal1,182,06027,944--1,151,6611,211,992Former senior executivesCA CarverNormal-18,246--2,393,343529,559MR LawranceNormal2,908,15950,147--2,880,0532,945,376Former non-executive directorDT Gilbert (5)Normal38,306,793221,479--34,252,740450,000(1)Balance at beginning of the financial year (1 October 2016) or the date of commencement as a KMP.(2)The interest charged may include the impact of interest offset facilities.(3)Balance at end of the financial year (30 September 2017) or the date of cessation as a KMP.(4)Represents aggregate highest indebtedness of the KMP during 2017. All other items in this table relate to the KMP and their related parties.(5)Includes business loans to persons and entities other than Mr Gilbert but over which Mr Gilbert has significant influence including the law firm Gilbert + Tobin. In addition to this, the Group has provided bankguarantees to Gilbert + Tobin with a total limit of $13 million. The loans and guarantees are provided on terms equivalent to those that prevail in an arm's length transaction.(1)Loans to KMP of NAB and the Group at year end may, in some instances, be an estimate of the 30 September statement balances. Where estimates have been used atthe end of 2016, the balances at the beginning of 2017 reflects the actual opening balances and therefore may differ from prior year closing balance. Some balances havebeen restated to include additional related party of the DirectorsRemuneration report (continued)532017 Annual Financial Other transactionsFrom time to time various KMP and their related parties will hold investments in funds that are either managed, related to or controlled by the Group. Allsuch transactions with KMP and their related parties are made on terms equivalent to those that prevail in arm's length other transactions that have occurred with KMP are made on terms equivalent to those that prevail in arm's length transactions. These transactionsgenerally involve the provision of financial and investment services including services to eligible international assignees ensuring they are neitherfinancially advantaged nor disadvantaged by their relocation. All such transactions that have occurred with KMP and their related parties have beentrivial or domestic in nature. In this context, transactions are trivial in nature when they are considered of little or no interest to the users of theRemuneration report in making and evaluating decisions about the allocation of scarce resources. Transactions are domestic in nature when they relateto personal household of the DirectorsRemuneration report (continued)54 NATIONAL AUSTRALIA BANKThis report of directors signed in accordance with a resolution of the directors:Dr Kenneth R HenryChairman14 November 2017Mr Andrew G ThorburnGroup Chief Executive Officer14 November 2017Report of the DirectorsDirectors signatures552017 Annual Financial ReportOur approachNAB is committed to the highest standards of corporate governance and has in place a governance framework that provides a foundation for effectivedecision making and accountability, supporting the creation of value for our details of corporate governance at NAB, and confirmation of NAB's compliance in 2017 with the 3rd edition of the ASX Corporate GovernancePrinciples and Recommendations, are contained in the 2017 Corporate Governance Statement and Appendix 4G which are published separately in thecorporate governance section of the website at responsibilities and performanceThe Board is responsible, and accountable to shareholders, for the overall governance of the Group. To support the Board in its role, it has four standingcommittees that focus on specific areas. From time to time it also establishes other committees to assist it in particular areas. More information on thefunctions and responsibilities of the Board and its Committees is contained in the 2017 Corporate Governance Statement. Details of the number ofmeetings held by the Board and its Committees in 2017, and attendance by directors, are contained in the Report of the Board delegates authority for the day-today operation of the business to the Group CEO and other executive leaders. Delegations are activelymonitored, and regularly reviewed and ' independence and capacity are regularly assessed. The Board is satisfied that each non-executive director who has served during 2017continued to be independent. After taking into consideration the existing workload of directors, the Board has concluded that each non-executive directorhas sufficient capacity to undertake the duties expected of a director of Board conducts an annual assessment of its performance and effectiveness, as well as of its Committees and individual directors, to supportcontinuous improvement. The annual assessment was conducted in composition and diversityThe Board, with the support of the Nomination & Governance Committee, actively reviews its composition to ensure it has an appropriate mix of skills,experience and diversity for continuing effectiveness. Two long standing directors retired following the 2016 AGM, and as at 30 September 2017, thereare eight non-executive directors. Subsequent to the end of the reporting period, a new female non-executive director was appointed to the Board inNovember Nomination & Governance Committee uses a matrix to assess the skills and experience of each director and the combined capability of the skills matrix, and information about the Board's tenure, age profile and gender diversity, are contained in the 2017 Corporate engagementNAB makes increasing use of technology to communicate with all stakeholders by webcasting significant market briefings and events and through theInvestor Relations mobile app. Shareholders will be invited to submit questions in advance of the 2017 Annual General Meeting to help the Boardunderstand and address areas of interest or governance56 NATIONAL AUSTRALIA BANK572017 Annual Financial ReportFinancial ReportFinancial Report5921 Other debt issues9460Other assets and liabilities6122 Goodwill and other intangible assets956223 Other assets966324 Provisions9725 Other liabilities9765Capital managementIncome statementsStatements of comprehensive income Balance sheetsCash flow statementsStatements of changes in equity Notes to the financial statements1 Principal accounting policies Financial performance26 Contributed equity982 Segment information7027 Reserves993 Net interest income7328 Retained profits1004 Other income7429 Dividends and distributions1015 Operating expenses75Cash flow information6 Earnings per share7730 Notes to the cash flow statements102TaxationGroup structure7 Income tax expense7831 Interest in subsidiaries and other entities1038 Current tax liabilities79Unrecognised items9 Deferred tax assets and liabilities7932 Contingent liabilities and credit commitments106Financial assets and liabilities33 Operating leases11010 Cash and cash equivalents80Risk disclosures11 Trading derivative assets and liabilities8134 Financial risk management11112 Trading securities8135 Fair value of financial instruments13113 Debt instruments at fair value through other comprehensive income8236 Financial asset transfers and securitisations13614 Other financial assets at fair value82Other information15 Hedge accounting, including hedging derivative assets and liabilities8237 Related party disclosures13716 Loans and advances8838 Remuneration of external auditor13817 Provision for doubtful debts8939 Shares and performance rights13918 Other financial liabilities at fair value9140 Capital adequacy14119 Deposits and other borrowings9241 Discontinued operations14220 Bonds, notes and subordinated debt9242 Events subsequent to reporting date142Table of Contents58 NATIONAL AUSTRALIA BANKGroupCompanyFor the year ended 30 September2017(1)2016(1)20172016Note$m$m$m$mInterest income327,40327,62926,10126,724Interest expense3(14,221)(14,699)(16,467)(17,211)Net interest income13,18212,9309,6349,513Other income44,8425,1925,0235,798Operating expenses5(8,539)(8,331)(7,207)(12,323)Charge to provide for bad and doubtful debts5(824)(813)(731)(702)Profit before income tax8,6618,9786,7192,286Income tax expense7(2,480)(2,553)(1,744)(1,767)Net profit for the year from continuing operations6,1816,4254,975519Net (loss) after tax for the year from discontinued operations41(893)(6,068)--Net profit for the year5,2883574,975519Profit attributable to non-controlling interests35--Net profit attributable to owners of NAB5,2853524,975519centscentsBasic earnings per earnings per earnings per share from continuing earnings per share from continuing (1)Information is presented on a continuing operations statements592017 Annual Financial ReportGroupCompanyFor the year ended 30 September2017(1)2016(1)20172016Note$m$m$m$mNet profit for the year from continuing operations6,1816,4254,975519Other comprehensive incomeItems that will not be reclassified to profit or lossFair value changes on financial liabilities designated at fair value attributable to the Group's own credit risk11(113)55(131)Revaluation of land and buildings1(1)--Currency adjustments on translation of other contributed equity4(183)--Equity instruments at fair value through other comprehensive income reserve:Revaluation losses(1)(51)(8)(52)Tax on items transferred directly to equity31232210Total items that will not be reclassified to profit or loss46(325)69(173)Items that will be reclassified subsequently to profit or lossCash flow hedges:(Losses) / gains on cash flow hedging instruments(115)38(70)76Losses / (gains) transferred to the income statement1(6)1(6)Foreign currency translation reserve:Currency adjustments on translation of foreign operations, net of hedging(273)249(32)(49)Transfer to the income statement on disposal of foreign operations(10)---Debt instruments at fair value through other comprehensive income reserve:Revaluation gains25142514Gains from sale transferred to the income statement(3)(16)(3)(16)Change in loss allowance on debt instruments at fair value through other comprehensive income(1)4(1)4Tax on items transferred directly to equity1722541Total items that will be reclassified subsequently to profit or loss(359)305(75)64Other comprehensive income for the year, net of income tax(313)(20)(6)(109)Total comprehensive income for the year from continuing operations5,8686,4054,969410Net loss for the year from discontinued operations41(893)(6,068)--Other comprehensive income for the year from discontinued operations, net of income tax-979--Total comprehensive income for the year4,9751,3164,969410Attributable to owners of NAB4,9721,3114,969410Attributable to non-controlling interests35--(1)Information is presented on a continuing operations of comprehensive income60 NATIONAL AUSTRALIA BANKGroupCompanyAs at 30 September2017201620172016Note$m$m$m$mAssetsCash and liquid assets1043,82630,63042,15228,717Due from other banks1037,06645,23635,03043,359Trading derivatives (1)1129,13743,14630,38342,467Trading securities1250,95445,97145,63741,513Debt instruments at fair value through other comprehensive income1342,13140,68942,02940,580Other financial assets at fair value1416,05821,49611,82514,831Hedging derivatives (1)153,8926,7413,8166,319Loans and advances16540,125510,045468,277441,321Due from customers on acceptances6,78612,2056,78612,205Property, plant and equipment1,3151,423476520Due from controlled entities--109,163119,414Investments in controlled entities31--8,6739,493Goodwill and other intangible assets225,6015,3022,3612,093Deferred tax assets91,9881,9251,2421,172Other assets (1) (2)239,44611,9016,6669,395Total assets788,325776,710814,516813,399LiabilitiesDue to other banks1036,68343,90335,20142,649Trading derivatives (1)1127,18741,55927,06538,901Other financial liabilities at fair value1829,63133,2245,9305,408Hedging derivatives (1)151,6743,4023,8596,701Deposits and other borrowings19500,604459,714450,010416,241Current tax liabilities823029771248Provisions241,9611,4321,7341,157Due to controlled entities--107,601117,399Bonds, notes and subordinated debt20124,871127,942121,315123,226Other debt issues216,1876,2486,1876,248Other liabilities (1)257,9807,6746,9426,669Total liabilities737,008725,395765,915764,847Net assets51,31751,31548,60148,552EquityContributed equity2634,62734,28532,86632,524Reserves27237629190309Retained profits2816,44216,37815,54515,719Total equity (parent entity interest)51,30651,29248,60148,552Non-controlling interest in controlled entities1123--Total equity51,31751,31548,60148,552(1)The 2016 comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivativeassets and derivative liabilities (previously included in other assets and other liabilities).(2)The 2016 comparative information has been restated following a reclassification of investments relating to life insurance business into other sheets612017 Annual Financial ReportGroupCompanyFor the year ended 30 September (1)2017 2016 2017 2016Note$m$m$m$mCash flows from operating activitiesInterest received27,17628,33825,76126,795Interest paid(14,315)(15,592)(16,459)(17,413)Dividends received36212,0352,264Life insurance:Premiums and other revenue received769,426--Investment revenue received51,797--Policy payments and commission expense(42)(9,490)--Net trading income (paid) / received(3,198)(3,351)(2,471)(1,583)Other operating income received4,3883,9562,0292,318Operating expenses paid(7,868)(10,543)(5,858)(6,490)Income tax paid(2,544)(3,148)(1,825)(2,812)Cash flows from operating activities before changes in operating assets and liabilities3,7141,4143,2123,079Changes in operating assets and liabilities arising from cash flow movementsNet (increase) / decrease in:Deposits with central banks and other regulatory authorities281681281696Trading securities(6,488)(4,197)(5,677)(3,554)Other financial assets designated at fair value4,7626,8392,6785,186Loans and advances(33,401)(45,882)(27,714)(30,861)Due from customers on acceptances5,4387,2495,4367,243Other assets1,0419571,695265Net increase / (decrease) in:Deposits and other borrowings43,43037,92034,79628,199Other financial liabilities designated at fair value (2)(6,575)300(46)(958)Other liabilities(1,721)3,548(1,850)1,219Net movements in life insurance assets and liabilities(1)(480)--Net funds advanced to and receipts from other banks(902)2,521(881)2,747Net movements in derivative assets and liabilities3,6393,5902,632759Changes in operating assets and liabilities arising from cash flow movements9,50313,04611,35010,941Net cash provided by operating activities30(a)13,21714,46014,56214,020Cash flows from investing activitiesMovement in debt instruments at fair value through other comprehensive incomePurchases(23,392)(20,077)(23,337)(19,959)Proceeds from disposal and maturity21,63321,08821,57320,855Movement in other debt and equity instrumentsPurchases(4)(2,007)(7)(1,876)Proceeds from disposal and maturity1723,631-3,626Net movement in amounts due from controlled entities--3112,841Net movement in shares in controlled entities--688(695)Purchase of controlled entities and business combinations, net of cash acquired-(2)--Proceeds from sale of controlled entities, net of cash disposed2,255(11,780)2,206642Proceeds on sale of associates and joint ventures, net of cash disposed37---Purchase of property, plant, equipment and software(1,028)(875)(739)(594)Proceeds from sale of property, plant, equipment and software, net of costs1452(1)8Net cash (used in) / provided by investing activities(313)(9,970)6944,848Cash flows from financing activitiesRepayments of bonds notes and subordinated debt (2)(32,426)(29,543)(29,868)(26,427)Proceeds from issue of bonds notes and subordinated debt net of costs (2)37,31843,52132,43836,884Repayments of other contributed equity, net of costs(400)-(400)-Proceeds from other debt issues, net of costs-111-667Repayments of other debt issues(73)-(73)-Dividends and distributions paid (excluding dividend reinvestment plan)(4,750)(4,593)(4,707)(4,633)Net cash (used in) / provided by financing activities(331)9,496(2,610)6,491Net increase in cash and cash equivalents12,57313,98612,64625,359Cash and cash equivalents at beginning of period27,96020,52824,8501,970Effects of exchange rate changes on balance of cash held in foreign currencies(733)(6,554)(665)(2,479)Cash and cash equivalents at end of year30(b)39,80027,96036,83124,850(1)The cash flow statements include cash flows of discontinued operations for the period up to the date on which the Group lost control of those operations, and cash flows after the loss of control that aredirectly related to the disposal. Details of these cash flows are included in Note 41 Discontinued operations.(2)Cash flows relating to bonds, notes and subordinated debt at fair value that occurred in the year ended 30 September 2016 have been reclassified from other financial liabilities designated at fair value, torepayments of and proceeds from bonds, notes and subordinated flow statements62 NATIONAL AUSTRALIA BANKContributedequity(1)Reserves(2)Retainedprofits(3)TotalNon-controllinginterest incontrolledentitiesTotalequityGroup$m$m$m$m$m$mYear to 30 September 2016Balance at 1 October 201534,651(362)21,20555,4941955,513Net profit for the year from continuing operations--6,4206,42056,425Net loss for the year from discontinued operations--(6,068)(6,068)-(6,068)Other comprehensive income for the year from continuing operations-96(116)(20)-(20)Other comprehensive income for the year from discontinued operations-95524979-979Total comprehensive income for the year-1,0512601,31151,316Transactions with owners, recorded directly in equity:Contributions by and distributions to ownersIssue of ordinary shares596--596-596Treasury shares adjustment relating to life insurance business (4)1,517--1,517-1,517Transfer from / (to) retained profits-(91)91---Transfer from equity-based compensation reserve166(166)----Equity-based compensation-203-203-203Dividends paid--(5,060)(5,060)(5)(5,065)Distributions on other equity instruments--(124)(124)-(124)Capital distribution on CYBG demerger(2,645)--(2,645)-(2,645)Released on divestment of discontinued operations-(6)6---Changes in ownership interests (5)Movement of non-controlling interest in controlled entities----44Balance at 30 September 201634,28562916,37851,2922351,315Year to 30 September 2017Net profit for the year from continuing operations--6,1786,17836,181Net loss for the year from discontinued operations--(893)(893)-(893)Other comprehensive income for the year from continuing operations-(356)43(313)-(313)Total comprehensive income for the year-(356)5,3284,97234,975Transactions with owners, recorded directly in equity:Contributions by and distributions to ownersIssue of ordinary shares569--569-569Redemption of National Capital Instruments (6)(397)-(3)(400)-(400)Transfer from / (to) retained profits-(53)53---Transfer from equity-based compensation reserve170(170)--Equity-based compensation-187-187-187Dividends paid--(5,216)(5,216)(5)(5,221)Distributions on other equity instruments--(98)(98)-(98)Changes in ownership interests (5)Movement of non-controlling interest in controlled entities----(10)(10)Balance at 30 September 201734,62723716,44251,3061151,317(1)Refer to Note 26 Contributed equity for further details.(2)Refer to Note 27 Reserves for further details.(3)Refer to Note 28 Retained profits for further details.(4)Relates to shares in NAB previously held by Wealth s life insurance business which are no longer held by a controlled entity of the Group.(5)Changes in ownership interests in controlled entities that does not result in a loss of control.(6)National capital instruments were fully redeemed on 4 October of changes in equity632017 Annual Financial ReportContributedequity(1)Reserves(2)Retainedprofits(3)TotalequityCompany$m$m$m$mYear to 30 September 2016Balance at 1 October 201534,40734020,47055,217Net profit for the year from continuing operations--519519Other comprehensive income for the year-22(131)(109)Total comprehensive income for the year-22388410Transactions with owners, recorded directly in equity:Contributions by and distributions to ownersIssue of ordinary shares596--596Transfer from / (to) retained profits-(90)90-Transfer from equity-based compensation reserve166(166)--Capital distribution on CYBG demerger(2,645)--(2,645)Equity-based compensation-203-203Dividends paid--(5,161)(5,161)Distributions on other equity instruments--(68)(68)Balance at 30 September 201632,52430915,71948,552Year to 30 September 2017Net profit for the year from continuing operations--4,9754,975Other comprehensive income for the year from continuing operations-(83)77(6)Total comprehensive income for the year-(83)5,0524,969Transactions with owners, recorded directly in equity:Contributions by and distributions to ownersIssue of ordinary shares569--569Redemption of National Capital Instruments (4)(397)-(3)(400)Transfer from / (to) retained profits-(53)53-Transfer from equity-based compensation reserve170(170)-Equity-based compensation-187-187Dividends paid--(5,216)(5,216)Distributions on other equity instruments--(60)(60)Balance at 30 September 201732,86619015,54548,601(1)Refer to Note 26 Contributed equity for further details.(2)Refer to Note 27 Reserves for further details.(3)Refer to Note 28 Retained profits for further details.(4)National capital instruments were fully redeemed on 4 October of changes in equity (continued)64 NATIONAL AUSTRALIA BANKThe financial report of National Australia Bank Limited (Company)together with its controlled entities (Group) for the year ended30 September 2017 was authorised for issue on 14 November 2017 inaccordance with a resolution of the directors. The directors of theGroup have the power to amend and reissue the financial Australia Bank Limited is a for-profit company limited byshares, incorporated and domiciled in Australia, whose shares arepublicly traded on the Australian Securities Exchange.(a) Basis of preparationThis general purpose financial report has been prepared in accordancewith the requirements of the Corporations Act 2001 (Cth) andaccounting standards and interpretations issued by the AustralianAccounting Standards Board (AASB). The financial report has beenprepared under the historical cost convention, as modified by theapplication of fair value measurements required or allowed by relevantaccounting standards. Accounting policies have been consistentlyapplied to all periods presented, unless otherwise stated, throughoutthe preparation of financial statements requires the use of certaincritical accounting estimates and assumptions that affect the reportedamounts of assets, liabilities, revenues and expenses and thedisclosed amount of contingent liabilities. Areas involving a higherdegree of judgement or complexity, or areas where assumptions aresignificant to the Group are discussed below in Note 1 (h)Critical accounting assumptions and information has been restated to accord with changes inpresentations made in the current year, except where otherwise results of discontinued operations are presented separately in theincome statements and statements of comprehensive income withcomparative information restated accordingly. Balance sheets have notbeen restated. Refer to Note 41 Discontinued operations for furtherdetail. Certain key terms used in this report are defined in the accounting policies for specific financial report items are disclosedin the respective notes. Other significant accounting policies anddetails of critical accounting assumptions and estimates are set outbelow.(b) Statement of complianceThe financial report of the Company and the Group complies withAustralian Accounting Standards as issued by the AASB andInternational Financial Reporting Standards (IFRS) as issued by theInternational Accounting Standards Board (IASB).To comply with its obligations as an Australian Financial ServicesLicence holder the Group includes the separate financial statements ofthe Company in this financial report, which is permitted by AustralianSecurities and Investments Commission Class Order 10/654 dated26 July 2010.(c) New accounting standards issued but not yet effectiveThe following issued, but not yet effective, new Australian AccountingStandards have not been applied in preparing this financial report:AASB 15 "Revenue from Contracts with Customers" introduces asingle principles-based five step model for recognising revenue, andintroduces the concept of recognising revenue when an obligation to acustomer is satisfied. The potential impact of this standard is still beingassessed, and is not applicable until 1 October 16 "Leases" significantly changes accounting for lesseesrequiring recognition of all leases (subject to certain exceptions) on-balance sheet in a manner comparable to finance leases currentlyaccounted under AASB 117 "Leases". Lessor accounting remainsunchanged compared to AASB 117. The potential impact of thisstandard is still being assessed, and is not applicable until 1 amendments to existing standards that are not yet effective arenot expected to result in a material impact to the Group s financialreport.(d) Rounding of amountsIn accordance with ASIC Corporations Instrument 2016/191, allamounts have been rounded to the nearest million dollars, exceptwhere indicated.(e) Currency of presentationAll amounts are expressed in Australian dollars unless otherwisestated.(f) Foreign currency translation(i) Functional and presentation currencyItems included in the financial statements of each of the Group sentities are measured using the currency of the primary economicenvironment in which the entity operates (functional currency). Theconsolidated financial report is presented in Australian dollars, which isthe Company s functional and presentation to Note 27 Reserves for details around the Group s policy fortranslation of its foreign operations.(ii) Transactions and balancesForeign currency transactions are translated into the functionalcurrency using the exchange rates prevailing at the dates of thetransactions. Foreign exchange gains and losses resulting from thesettlement of such transactions and from the translation at year endexchange rates of monetary assets and liabilities denominated inforeign currencies are normally recognised in the income items are translated using the exchange rate at the dateof the initial recognition of the asset or liability.(g) Financial instrumentsIn 2014 the Group early adopted AASB 9 "Financial Instruments"(2014). The Group elected an accounting policy choice under AASB 9to continue to apply the hedge accounting requirements under AASB139 "Financial Instruments: Recognition and measurement".(i) Classification of financial instrumentsThe Group classifies its financial assets into the followingmeasurement categories: those to be measured at fair value (either through othercomprehensive income, or through profit or loss); and those to be measured at amortised classification depends on the Group s business model formanaging financial assets and the contractual terms of the financialassets' cash Group classifies its financial liabilities at amortised cost (ReferNote 19 Deposits and other borrowings, Note 20 Bonds, notes andsubordinated debt, Note 21 Other debt issues and Note 25 Otherliabilities) unless it has designated liabilities at fair value through profitor loss or is required to measure liabilities at fair value through profit orloss such as derivative to the financial statements1 Principal accounting policies652017 Annual Financial Report(ii) Financial assets measured at amortised costDebt instrumentsInvestments in debt instruments are measured at amortised costwhere they have: contractual terms that give rise to cash flows on specified dates,that represent solely payments of principal and interest on theprincipal amount outstanding; and are held within a business model whose objective is achieved byholding to collect contractual cash debt instruments are initially recognised at fair value plusdirectly attributable transaction costs and subsequently measured atamortised cost. The measurement of credit impairment is based on thethree-stage expected credit loss model described below in Note 1 (vi)Impairment of financial assets. Financial assets measured atamortised cost are included in Note 10 Cash and cash equivalents,Note 16 Loans and advances and Note 23 Other assets.(iii) Financial assets measured at fair value through othercomprehensive incomeDebt instrumentsInvestments in debt instruments are measured at fair value throughother comprehensive income where they have: contractual terms that give rise to cash flows on specified dates,that represent solely payments of principal and interest on theprincipal amount outstanding; and are held within a business model whose objective is achieved byboth collecting contractual cash flows and selling financial debt instruments are initially recognised at fair value plusdirectly attributable transaction costs and subsequently measured atfair value. Gains and losses arising from changes in fair value areincluded in other comprehensive income within a separate componentof equity. Impairment losses or reversals, interest revenue and foreignexchange gains and losses are recognised in profit and loss. Upondisposal, the cumulative gain or loss previously recognised in othercomprehensive income is reclassified from equity to the incomestatement. Refer Note 13 Debt instruments at fair value through othercomprehensive measurement of credit impairment is based on the three-stageexpected credit loss model as applied to financial assets atamortised cost. The expected credit loss model is described below inNote 1 (vi) Impairment of financial instrumentsInvestment in equity instruments that are neither held for trading norcontingent consideration recognised by the Group in a businesscombination to which AASB 3 "Business Combination" applies, aremeasured at fair value through other comprehensive income, where anirrevocable election has been made by presented in other comprehensive income are notsubsequently transferred to profit or loss. Dividends on suchinvestments are recognised in profit or loss unless the dividend clearlyrepresents a recovery of part of the cost of the investment. Refer Note23 Other assets.(iv) Items at fair value through profit or lossItems at fair value through profit or loss comprise: items held for trading; items specifically designated as fair value through profit or loss oninitial recognition; and debt instruments with contractual terms that do not represent solelypayments of principal and instruments held at fair value through profit or loss areinitially recognised at fair value, with transaction costs recognised inthe income statement as incurred. Subsequently, they are measured atfair value and any gains or losses are recognised in the incomestatement as they a financial asset is measured at fair value, a credit valuationadjustment is included to reflect the credit worthiness of thecounterparty, representing the movement in fair value attributable tochanges in credit instruments held for tradingA financial instrument is classified as held for trading if it is acquired orincurred principally for the purpose of selling or repurchasing in thenear term, or forms part of a portfolio of financial instruments that aremanaged together and for which there is evidence of short-term profittaking, or it is a derivative not in a qualifying hedge derivatives and trading securities are classified as held fortrading and recognised at fair value. Refer to Note 11 Tradingderivative assets and liabilities and Note 12 Trading instruments designated as measured at fair value throughprofit or lossUpon initial recognition, financial instruments may be designated asmeasured at fair value through profit or loss. A financial asset may onlybe designated at fair value through profit or loss if doing so eliminatesor significantly reduces measurement or recognition inconsistencies( eliminates an accounting mismatch) that would otherwise arisefrom measuring financial assets or liabilities on a different basis. Referto Note 14 Other financial assets at fair financial liability may be designated at fair value through profit orloss if it eliminates or significantly reduces an accounting mismatch or: if a host contract contains one or more embedded derivatives; or if financial assets and liabilities are both managed and theirperformance evaluated on a fair value basis in accordance with adocumented risk management or investment a financial liability is designated at fair value through profit orloss, the movement in fair value attributable to changes in the Group sown credit quality is calculated by determining the changes in creditspreads above observable market interest rates and is presentedseparately in other comprehensive income. Refer to Note 18 Otherfinancial liabilities at fair value.(v) Derivative financial instruments and hedge accountingDerivative financial instruments are contracts whose value is derivedfrom one or more underlying price, index or other variable, andtypically comprise of instruments such as swaps, forward rateagreements, futures and derivatives are recognised in the balance sheet at fair value and areclassified as trading except where they are designated as a part of aneffective hedge relationship and classified as hedging derivatives. Thecarrying value of a derivative is remeasured at fair value throughoutthe life of the contract. Derivatives are carried as assets when the fairvalue is positive and as liabilities when the fair value is method of recognising the resulting fair value gain or loss on aderivative depends on whether the derivative is designated as ahedging instrument, and if so, the nature of the item being to Note 11 Trading derivative assets and liabilities and Note 15Hedge accounting, including hedging derivative assets and to the financial statements1 Principal accounting policies (continued)66 NATIONAL AUSTRALIA BANK(vi) Impairment of financial assetsThe Group applies a three-stage approach to measuring expectedcredit losses (ECLs) for the following categories of financial assets thatare not measured at fair value through profit or loss: debt instruments measured at amortised cost and fair value throughother comprehensive income; loan commitments; and financial guarantee ECL is recognised on equity assets migrate through the following three stages based onthe change in credit risk since initial recognition:Stage 1: 12-months ECLThe Group collectively assesses ECLs on exposures where there hasnot been a significant increase in credit risk since initial recognition andthat were not credit impaired upon origination. For these exposures,the Group recognises as a collective provision the portion of thelifetime ECL associated with the probability of default events occurringwithin the next 12 months. The Group does not conduct an individualassessment of exposures in Stage 1 as there is no evidence of one ormore events occurring that would have a detrimental impact onestimated future cash 2: Lifetime ECL not credit impairedThe Group collectively assesses ECLs on exposures where there hasbeen a significant increase in credit risk since initial recognition but arenot credit impaired. For these exposures, the Group recognises as acollective provision a lifetime ECL ( reflecting the remaining lifetimeof the financial asset). Similar to Stage 1, the Group does not conductan individual assessment on Stage 2 exposures as the increase incredit risk is not, of itself, an event that could have a detrimental impacton future cash 3: Lifetime ECL credit impairedThe Group identifies, both collectively and individually, ECLs on thoseexposures that are assessed as credit impaired based on whether oneor more events that have a detrimental impact on the estimated futurecash flows of that asset have occurred. For exposures that havebecome credit impaired, a lifetime ECL is recognised as a collective orspecific provision, and interest revenue is calculated by applying theeffective interest rate to the amortised cost (net of provision) ratherthan the gross carrying the stage for impairmentAt each reporting date, the Group assesses whether there has been asignificant increase in credit risk for exposures since initial recognitionby comparing the risk of default occurring over the remaining expectedlife from the reporting date and the date of initial recognition. TheGroup considers reasonable and supportable information that isrelevant and available without undue cost or effort for this includes quantitative and qualitative information and also,forward-looking analysis. Refer to Note 34 Financial risk exposure will migrate through the ECL stages as asset qualitydeteriorates. If, in a subsequent period, asset quality improves andalso reverses any previously assessed significant increase in creditrisk since origination, then the provision for doubtful debts reverts fromlifetime ECL to 12-months ECL. Exposures that have not deterioratedsignificantly since origination are considered to have a low credit provision for doubtful debts for these financial assets is based ona 12-months ECL. When an asset is uncollectible, it is written offagainst the related provision. Such assets are written off after all thenecessary procedures have been completed and the amount of theloss has been determined. Subsequent recoveries of amountspreviously written off reduce the amount of the expense in the Group assesses whether the credit risk on an exposure hasincreased significantly on an individual or collective basis. For thepurposes of a collective evaluation of impairment, financial instrumentsare grouped on the basis of shared credit risk characteristics, takinginto account instrument type, credit risk ratings, date of initialrecognition, remaining term to maturity, industry, geographical locationof the borrower and other relevant of ECLsECLs are derived from unbiased and probability-weighted estimates ofexpected loss, and are measured as follows: Financial assets that are not credit-impaired at the reporting date:as the present value of all cash shortfalls over the expected life ofthe financial asset discounted by the effective interest rate. Thecash shortfall is the difference between the cash flows due to theGroup in accordance with the contract and the cash flows that theGroup expects to receive. Financial assets that are credit-impaired at the reporting date:as the difference between the gross carrying amount and thepresent value of estimated future cash flows discounted by theeffective interest rate. Undrawn loan commitments: as the present value of the differencebetween the contractual cash flows that are due to the Group if thecommitment is drawn down and the cash flows that the Groupexpects to receive. Financial guarantee contracts: as the expected payments toreimburse the holder less any amounts that the Group expects further details on how the Group calculates ECLs including the useof forward looking information, refer to the Credit quality of financialassets section in Note 34 Financial risk management. For details onthe effect of modifications of loans on the measurement of ECL refer toNote 17 Provision for doubtful are recognised using a provision for doubtful debts account inprofit and loss. In the case of debt instruments measured at fair valuethrough other comprehensive income, the measurement of ECLs isbased on the three-stage approach as applied to financial assets atamortised cost. The Group recognises the provision charge in profitand loss, with the corresponding amount recognised in othercomprehensive income, with no reduction in the carrying amount of theasset in the balance sheet.(vii) Recognition and derecognition of financial instrumentsA financial asset or financial liability is recognised in the balance sheetwhen the Group becomes a party to the contractual provisions of theinstrument, which is generally on trade date. Loans and receivablesare recognised when cash is advanced (or settled) to the assets at fair value through profit or loss are recognisedinitially at fair value. All other financial assets are recognised initially atfair value plus directly attributable transaction Group derecognises a financial asset when the contractual cashflows from the asset expire or it transfers its rights to receivecontractual cash flows from the financial asset in a transaction in whichsubstantially all the risks and rewards of ownership are interest in transferred financial assets that is created or retainedby the Group is recognised as a separate asset or to the financial statements1 Principal accounting policies (continued)672017 Annual Financial ReportA financial liability is derecognised from the balance sheet when theGroup has discharged its obligation or the contract is cancelled orexpires.(viii) OffsettingFinancial assets and liabilities are offset and the net amount ispresented in the balance sheet when the Group has a legal right tooffset the amounts and intends to settle on a net basis or to realise theasset and settle the liability simultaneously. Refer to Note 34 Financialrisk management - Offsetting of financial assets and liabilities.(h) Critical accounting assumptions and estimatesThe application of the Group s accounting policies requires the use ofjudgements, estimates and assumptions. If different assumptions orestimates were applied, the resulting values would change, impactingthe net assets and income of the made at each reporting date are based on best estimatesat that date. Although the Group has internal control systems in placeto ensure that estimates are reliably measured, actual amounts maydiffer from those estimates. Estimates and underlying assumptions arereviewed on an on-going basis. Revisions to accounting estimates arerecognised in the period in which the estimates are revised and in anyfuture periods accounting policies which are most sensitive to the use ofjudgement, estimates and assumptions are specified below.(i) Fair value measurementA significant portion of financial instruments are carried on the balancesheet at fair value is the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participantsat the measurement the classification of a financial asset or liability results in it beingmeasured at fair value, wherever possible, the fair value is determinedby reference to the quoted bid or offer price in the most advantageousactive market to which the Group has immediate access. Anadjustment for credit risk is also incorporated into the fair value value for a net open position that is a financial liability quoted in anactive market is the current offer price, and for a financial asset the bidprice, multiplied by the number of units of the instrument held no active market exists for a particular asset or liability, theGroup uses a valuation technique to arrive at the fair value, includingthe use of transaction prices obtained in recent arm s lengthtransactions, discounted cash flow analysis, option pricing models andother valuation techniques, based on market conditions and risksexisting at reporting date. In doing so, fair value is estimated using avaluation technique that makes maximum use of observable marketinputs and places minimal reliance upon entity-specific best evidence of the fair value of a financial instrument at initialrecognition is the transaction price ( the fair value of theconsideration given or received) unless the fair value of that instrumentis evidenced by comparison with other observable current markettransactions in the same instrument ( without modification orrepackaging) or based on a valuation technique whose variablesinclude only data from observable markets. When such evidenceexists, the Group recognises the difference between the transactionprice and the fair value in profit or loss on initial recognition ( on dayone).(ii) Impairment charges on loans and advancesJudgement is required by management in the estimation of the amountand timing of future cash flows when determining an impairment lossfor loans and advances. In estimating these cash flows, the Groupmakes judgements about the borrower s financial situation and the netrealisable value of collateral. These estimates are based onassumptions about a number of factors including forward lookinginformation, and actual results may differ, resulting in future changes tothe impairment collective assessment of impairment takes into account data fromthe loan portfolio (such as credit quality, levels of arrears, creditutilisation, loan to collateral ratios etc.), and concentrations of risk andeconomic data (including levels of unemployment, real estate priceindices, country risk and the performance of different individualgroups). The impairment loss on loans and advances is disclosed inmore detail in Note 17 Provision for doubtful debts.(iii) GoodwillThe determination of the fair value of assets and liabilities of acquiredbusinesses requires the exercise of management judgement. Goodwillis allocated to disposed operations on the basis of the relative valuesof the disposed and retained operations and this also requiresmanagement judgement. Different fair values would result in changesto the goodwill balance and to the post-acquisition performance of theacquisition, or in the case of a disposal, the loss on is assessed for impairment annually, or more frequently ifthere is indication that goodwill may be impaired. Determination ofappropriate cash flows and discount rates for the calculation of value inuse is subjective. The assumptions applied to determine if anyimpairment exists are outlined in Note 22 Goodwill and other intangibleassets.(iv) Provisions other than loan impairmentProvisions are held in respect of a range of future obligations such asemployee entitlements, restructuring costs and litigation of the provisions involve significant judgement about the likelyoutcome of various events and estimated future cash flows. Themeasurement of these provisions involves the exercise ofmanagement judgements about the ultimate outcomes of thetransactions. Payments that are expected to be incurred after morethan one year are discounted at a rate which reflects both currentinterest rates and the risks specific to that within the Group are defendants from time to time in legalproceedings arising from the conduct of their business. There arecontingent liabilities in respect of claims, potential claims and courtproceedings against entities in the Group. Where appropriate,provisions have been made. The aggregate of potential liabilities inrespect thereof cannot be accurately assessed. Refer to Note 32Contingent liabilities and credit commitments for further information.(v) Provisions for obligations to CYBGAs part of the arrangements relating to the CYBG demerger, NAB andCYBG entered into a Conduct Indemnity Deed under which NABagreed, subject to certain limitations, to provide an indemnity inrespect of certain historic conduct liabilities (Capped Indemnity) up to acap of billion (Capped Indemnity Amount). The CappedIndemnity provides CYBG with economic protection against certaincosts and liabilities (including financial penalties imposed by aregulator).Notes to the financial statements1 Principal accounting policies (continued)68 NATIONAL AUSTRALIA BANKThe provisions recognised by the Group are based on a number ofassumptions derived from a combination of past experience, estimatedfuture experience, industry comparison and the exercise of remain risks and uncertainties in relation to these assumptionsand consequently in relation to ultimate costs of redress and relatedcosts. Refer to Note 32 Contingent liabilities and credit commitmentsfor further information.(i) Discontinued operationsA discontinued operation is a component of the Group that has beendisposed of or is classified as held for sale and represents a separatemajor line of business or geographical area of operations, and is partof a single coordinated plan to dispose of such a line of business orarea of operations. The results of discontinued operations arepresented separately in the income statements and statements ofcomprehensive income. Refer to Note 41 Discontinued operations forfurther to the financial statements1 Principal accounting policies (continued)692017 Annual Financial Report2 Segment informationThe Group s reportable segments are business units engaged in providing either different products or services, or similar products and services indifferent geographical areas. The businesses are managed separately as each requires a strategy focussed on the specific services provided for theeconomic, competitive and regulatory environment in which it the implementation of the organisational restructure effective from 1 August 2016, the Group s business now consists of the followingreportable segments: Consumer Banking and Wealth, Business and Private Banking, Corporate and Institutional Banking and NZ Banking. In addition,information on Corporate Functions and Other is included in this note to reconcile to Group information. The Group evaluates reportable segments performance on the basis of cash earnings (refer to Information about Cash Earnings on page 72).Major customersRevenues from no one single customer amount to greater than 10% of the Group s segment informationFor the year endedConsumerBanking andWealthBusinessand PrivateBankingCorporate andInstitutionalBankingNZBankingCorporateFunctionsand Other (1) (2)EliminationsGroup CashEarnings30 September 2017 (3)$m$m$m$m$m$m$mNet interest income3,8845,2571,9721,586467-13,166Other income1,5971,0621,368530198(26)4,729Net operating income5,4816,3193,3402,116665(26)17,895Operating expenses(2,910)(2,084)(1,236)(827)(604)26(7,635)Underlying profit2,5714,2352,1041,28961-10,260Charge to provide for doubtful debts(267)(180)(37)(67)(259)-(810)Cash earnings / (deficit) before tax anddistributions2,3044,0552,0671,222(198)-9,450Income tax expense(671)(1,214)(532)(340)47-(2,710)Cash earnings / (deficit) before distributions1,6332,8411,535882(151)-6,740Distributions----(98)-(98)Cash earnings / (deficit)1,6332,8411,535882(249)-6,642(1)Corporate Functions & Other includes Treasury, NAB UK CRE, Technology and Operations and Other Support units.(2)Balance reflects Nautilus Insurance premiums booked and eliminated all within Corporate Functions and Other.(3)Information is presented on a continuing operations the year endedConsumerBanking andWealthBusinessand PrivateBankingCorporate andInstitutionalBankingNZBankingCorporateFunctionsand Other(1)Eliminations(2)Group CashEarnings30 September 2016 (3)$m$m$m$m$m$m$mNet interest income3,7094,9551,9191,496851-12,930Other income1,6591,0481,427533(113)(51)4,503Net operating income5,3686,0033,3462,029738(51)17,433Operating expenses(2,870)(2,045)(1,298)(806)(470)51(7,438)Underlying profit2,4983,9582,0481,223268-9,995Charge to provide for doubtful debts(282)(140)(217)(116)(45)-(800)Cash earnings before tax and distributions2,2163,8181,8311,107223-9,195Income tax expense(651)(1,145)(464)(303)(25)-(2,588)Cash earnings before distributions1,5652,6731,367804198-6,607Distributions----(124)-(124)Cash earnings1,5652,6731,36780474-6,483(1)Corporate Functions & Other includes Treasury, NAB UK CRE, Technology and Operations and Other Support units.(2)Balance includes Nautilus Insurance premiums which are booked to the Customer Segments and eliminated at the Group Level.(3)Information is presented on a continuing operations andWealth(1)Businessand PrivateBankingCorporate andInstitutionalBankingNZBankingCorporateFunctionsand Other (2) (3)EliminationsGroup TotalAssetsReportable segment assets$m$m$m$m$m$m$m30 September 2017217,567192,848259,29776,05597,981(55,423)788,32530 September 2016206,016187,200257,30373,916103,265(50,990)776,710(1)Total assets of the Consumer Banking and Wealth segment include the investment in MLC Limited of $549 million (2016: $550 million), an associate accounted for using the equity method. Refer to Note 31Interest in subsidiaries and other entities for further information on the investment in MLC Limited.(2)Corporate Functions & Other includes Treasury, NAB UK CRE, Technology and Operations and Other Support units.(3)Total assets for Corporate Functions and Other has been restated to reflect a change in presentation of interest accrual on certain to the financial statementsFinancial performance70 NATIONAL AUSTRALIA BANKReconciliations between reportable segment information and statutory resultsThe tables below reconcile the information in the segment tables presented above, which have been prepared on a cash earnings basis, to the relevantstatutory information presented in the financial report. In addition to the sum of the reportable segments, the cash earnings basis includes the segmentsthat do not meet the threshold to be reportable segments and intra group eliminations. The Wealth net adjustment represents a reallocation of theincome statement of the NAB Wealth business prepared on a cash earnings basis into the appropriate statutory income statement (1)2016 (1)$m$mNet interest incomeNet interest income on a cash earnings basis13,16612,930Fair value and hedge ineffectiveness(21)-Wealth net adjustment37-Net interest income on a statutory basis13,18212,930Other incomeOther income on a cash earnings basis (2)4,7294,503Wealth net adjustment817801Treasury shares-68Fair value and hedge ineffectiveness(692)(141)Life insurance 20% share of profit (3)-(39)Amortisation of acquired intangible assets(12)-Other income on a statutory basis4,8425,192Operating expensesOperating expenses on a cash earnings basis (2)7,6357,438Wealth net adjustment849801Amortisation of acquired intangible assets5592Operating expenses on a statutory basis8,5398,331Charge to provide for doubtful debtsCharge to provide for doubtful debts on a cash earnings basis810800Fair value adjustment on loans and advances at fair value1413Charge to provide for doubtful debts on a statutory basis824813Income tax expenseIncome tax expense on a cash earnings basis2,7102,588Income tax benefit / (expense) on non-cash earnings items:Wealth net adjustment2(5)Treasury shares-7Fair value and hedge ineffectiveness(227)(28)Amortisation of acquired intangible assets(5)(9)Income tax expense on a statutory basis2,4802,553Cash earningsGroup cash earnings (2)6,6426,483Non-cash earnings items (after tax):Distributions98124Treasury shares-61Fair value and hedge ineffectiveness(500)(126)Life insurance 20% share of profit (3)-(39)Amortisation of acquired intangible assets(62)(83)Net loss attributable to discontinued operations(893)(6,068)Net profit attributable to owners of NAB5,285352(1)Information is presented on a continuing operations basis.(2)Includes eliminations and distributions.(3)Included in statutory profit from 1 October 2016 to the financial statementsFinancial performance (continued)712017 Annual Financial ReportGeographical informationThe Group has operations in Australia (the Company s country of domicile), Europe, New Zealand, the United States and Asia. The allocation of incomeand non-current assets is based on the geographical location in which transactions are (1)Non-current assets (2)2017201620172016$m$m$m$mAustralia14,96615,21810,28310,642New Zealand2,1762,105677625Other International9398454559Total before inter-geographic eliminations18,08118,16811,00511,326Elimination of inter-geographic items(57)(46)--Total18,02418,12211,00511,326(1)Information is presented on a continuing operations basis.(2)Non-current assets refer to assets that include amounts expected to be recovered more than 12 months after the reporting date. They do not include financial instruments, deferred tax assets or post-employment benefits about Cash EarningsCash earnings is a non-IFRS key financial performance measure usedby NAB, the investment community and NAB s Australian peers withsimilar business portfolios. NAB also uses cash earnings for its internalmanagement reporting as it better reflects what NAB considers to bethe underlying performance of the Group. Cash earnings is calculatedby excluding discontinued operations and other items which areincluded within the statutory net profit attributable to owners of earnings does not purport to represent the cash flows, funding orliquidity position of the Group, nor any amount represented on a cashflow statement. It is not a statutory financial measure, is not presentedin accordance with Australian Accounting Standards and is not auditedor reviewed in accordance with Australian Auditing earnings is defined as net profit attributable to owners of NABfrom continuing operations, adjusted for the items NAB considersappropriate to better reflect the underlying performance of the earnings for the year ended 30 September 2017 has beenadjusted for the following: Distributions. Fair value and hedge ineffectiveness. Amortisation of acquired intangible Earnings ItemsDistributionsDistributions relating to hybrid equity instruments are treated as anexpense for cash earnings purposes and as a reduction in equity(dividend) for statutory reporting purposes. The distributions on otherequity instruments are set out in Note 29 Dividends and effect of this in the September 2017 financial year is to reducecash earnings by $98 Value and Hedge IneffectivenessFair value and hedge ineffectiveness causes volatility in statutoryprofit, which is excluded from cash earnings as it is income neutralover the full term of transactions. This arises from fair valuemovements relating to trading derivatives for risk managementpurposes; fair value movements relating to assets, liabilities andderivatives designated in hedge relationships; and fair valuemovements relating to assets and liabilities designated at fair the September 2017 financial year there was a reduction in statutoryprofit of $727 million ($500 million after tax) from fair value and hedgeineffectiveness. This was largely due to the mark-to-market lossesfrom derivatives used to hedge the Group s long-term fundingissuances, driven by unfavourable movements in interest rates, foreignexchange rates and cross currency spreads, and mark-to-marketmovements of assets and liabilities designated at fair value reflectingcurrent market of Acquired Intangible AssetsThe amortisation of acquired intangibles represents the amortisation ofintangible assets arising from the acquisition of controlled entities andassociates such as management agreements and contracts in force. Inthe September 2017 financial year, there was a decrease in statutoryprofit of $67 million ($62 million after tax) due to the amortisation ofacquired intangible to the financial statementsFinancial performance (continued)72 NATIONAL AUSTRALIA BANK3 Net interest incomeGroupCompany2017(1)2016(1)20172016$m$m$m$mInterest incomeDue from other banks590585544525Marketable debt securities2,2262,0972,0961,952Loans and advances (2)23,33023,48618,86419,138Due from customers on acceptances419770419770Due from controlled entities--3,4353,700Other interest income838691743639Total interest income27,40327,62926,10126,724Interest expenseDue to other banks559646543621Deposits and other borrowings (3)8,2298,7337,0317,499Bonds, notes and subordinated debt (4) (5)4,4644,5163,7343,813Due to controlled entities--4,2144,434Bank levy94-94-Other debt issues (5)233265233260Other interest expense642539618584Total interest expense14,22114,69916,46717,211Net interest income13,18212,9309,6349,513(1)Information is presented on a continuing operations basis.(2)Includes $1,193 million (2016: $1,383 million) of interest income on loans and advances accounted for at fair value for the Group, and $934 million (2016: $1,028 million) for the Company.(3)Includes $164 million (2016: $224 million) of interest expense on deposits and other borrowings accounted for at fair value for the Group, and nil (2016: nil) for the Company.(4)Includes $734 million (2016: $530 million) of interest expense on bonds, notes and subordinated debt accounted for at fair value for the Group, and $128 million (2016: $155 million) for the Company.(5)For the year ended 30 September 2016, certain amounts previously classified as bonds, notes and subordinated debt were reclassified to other debt income and expenseInterest income and expense are recognised in the income statement using the effective interest method. The effective interest method is a method ofcalculating amortised cost using the effective interest rate of a financial asset or financial liability. The effective interest rate is the rate that discounts theestimated stream of future cash payments or receipts over the expected life of the financial instrument or, when appropriate a shorter period, to the netcarrying amount of the financial asset or financial and costs which form an integral part of the effective interest rate of a financial instrument are recognised using the effective interest method andrecorded in interest income or expense depending on whether the underlying instrument is a financial asset or liability (for example, loan originationfees).Interest expense includes the cost of the Bank levy. The levy is imposed under the Major Bank Levy Act 2017 on authorised deposit-taking institutionswith total liabilities of more than $100 billion, and became effective from 1 July income and expense on trading securities are recognised within net interest income. In certain circumstances, interest income and expenseattributable to trading derivatives which are considered economic hedges are recognised within net interest income and not part of the fair valuemovement of the trading income and expense on both hedging instruments and financial assets and liabilities designated at fair value through profit or loss arerecognised in net interest to the financial statementsFinancial performance (continued)732017 Annual Financial Report4 Other incomeGroupCompany2017(1)2016(1)20172016$m$m$m$mNet investment and insurance incomeChange in policy liabilities-(2,861)--Movement in external unitholders' liability-(1,015)--Investment revenue (2)-4,037--Fee income (3)-433--Total net investment and insurance income-594--Gains less losses on financial instruments at fair valueTrading securities(821)1,275(818)1,263Trading derivatives2,135(275)2,65080Assets, liabilities and derivatives designated in hedge relationships (4)(680)(82)(646)358Assets and liabilities designated at fair value(225)(187)(164)(147)Other1439615072Total gains less losses on financial instruments at fair value5528271,1721,626Other operating incomeDividend revenueControlled entities--2,0052,199Other entities27213065Gains / (losses) from sale of investments, loans, property, plant and equipment and other assets3652(6)52Banking fees943871784727Money transfer fees584596444466Fees and commissions2,1621,696372446Investment management fees280255--Other income (2)258280222217Total other operating income4,2903,7713,8514,172Total other income4,8425,1925,0235,798(1)Information is presented on a continuing operations basis.(2)For the Group, this includes the impact of movements in Life investment contracts to 1 July 2016, being the date on which the Successor Fund Merger occurred and the related investment assets andinvestment contract liabilities were deconsolidated.(3)Subsequent to the Successor Fund Merger, fee income on the related investment assets and investment contract liabilities is recognised within fees and commissions in Other operating income.(4)Represents hedge ineffectiveness of designated hedging relationships, plus economic hedges where hedge accounting has not been less losses on financial instruments at fair valueGains less losses on financial instruments at fair value comprises of fair value movements on: Trading derivatives Trading securities Assets, liabilities and derivatives designated in hedging relationships Other financial assets and liabilities designated at fair value through profit or lossIn general, gains less losses on trading derivatives recognise the full change in fair value of the derivatives inclusive of interest income and expense,with the exception of certain trading derivatives which are considered economic hedges (see Note 3 Net interest income).Gains less losses on trading securities recognise the change in the fair value of these instruments excluding interest income or interest expense whichis recognised separately in net interest less losses on assets, liabilities and derivatives designated in hedge relationships recognises fair value movements (excluding interest) onboth the hedged item and hedging derivative in a fair value hedge relationship, and hedge ineffectiveness from both fair value and cash flow less losses on other financial assets and liabilities designated at fair value through profit or loss recognises fair value movements (excludinginterest) on those items designated as fair value through profit or loss. Changes in the fair value of financial liabilities designated at fair value throughprofit or loss attributable to the Group s own credit quality are presented separately in other comprehensive incomeDividend income is recorded in the income statement on an accruals basis when the Group s right to receive the dividend is and commissionsUnless included in the effective interest calculation, fees and commissions are recognised on an accruals basis when the service has been provided oron completion of the underlying transaction. Fees charged for providing ongoing services (for example, maintaining and administering existing facilities)are recognised as income over the period the service is to the financial statementsFinancial performance (continued)74 NATIONAL AUSTRALIA BANKAny commitment fees related to undrawn lending facilities are recognised as income over the commitment the Group acts in the capacity of an agent, revenue is recognised as the net amount of fees and commissions made by the management fees related to investment funds are recognised over the period the service is provided. The same principle is applied to therecognition of income from wealth management, financial planning and custody services that are continuously provided over an extended period of Operating expensesGroupCompany2017 (1)2016 (1)20172016$m$m$m$mPersonnel expensesSalaries and related on-costs (2)3,2523,3442,4882,515Superannuation costs - defined contribution plans (2)258267230230Performance-based compensation (3)Cash (2)395445274283Equity-based compensation187197160177Total performance-based compensation582642434460Other expenses (2)326278247242Total personnel expenses4,4184,5313,3993,447Occupancy-related expensesOperating lease rental expense442404464446Other expenses85896870Total occupancy-related expenses527493532516General expensesFees and commission expense (2)6115013146Depreciation and amortisation of property, plant and equipment305274151126Amortisation of intangible assets429347325243Advertising and marketing187196163151Charge to provide for operational risk event losses (4)18248973793Communications, postage and stationery204272169198Computer equipment and software651621614586Data communication and processing charges80894551Professional fees503500373367Loss on disposal of property, plant and equipment and other assets9811Impairment losses recognised (5)2061291,137Loss on disposal of controlled entities (6)---4,433Other expenses413445302228Total general expenses3,5943,3073,2768,360Total operating expenses8,5398,3317,20712,323Charge to provide for doubtful debts (7)Loans and advances824813731702Total charge to provide for doubtful debts824813731702(1)Information is presented on a continuing operations basis.(2)Comparative information has been restated to accord with the changes in presentations made in 2017, reflecting a reallocation of expenses between 'salaries and related on-costs', 'superannuation costs -defined contribution plans', 'performance based compensation - cash', other personnel expenses and 'fees and commission expense'.(3)Performance-based compensation includes deferred compensation that is expensed over the vesting period. Performance-based compensation expense in each year also includes prior period over / underaccruals and does not include the impact of decisions made by the Board Remuneration Committee subsequent to balance date. The impact of any over / under accrual will be reflected in the following year.(4)The Company charge to provide for operational risk event losses includes provisions in relation to the Conduct Indemnity Deed which are included in discontinued operations at a Group level. Refer to Note41 Discontinued operations for further information.(5)The Company charge in 2016 includes the impairment of National Wealth Management Holdings which is eliminated at a Group level.(6)The Company charge in 2016 includes the CYBG Group loss on sale and other related costs.(7)Refer to Note 17 Provision for doubtful debts for further details of the Group s policy for recognition of charges to provide for doubtful expenses are recognised as the underlying service is rendered or over the period in which an asset is consumed or once a liability is leave, long service leave and other employee benefitsWages and salaries, annual leave and other employee entitlements expected to be paid or settled within 12 months of employees rendering service aremeasured at their nominal amounts using remuneration rates that the Group expects to pay when the liabilities are settled. Employee entitlements tolong service leave are accrued using an actuarial calculation, including assumptions regarding staff departures, leave utilisation and future liability is recognised for the amount expected to be paid under short-term cash bonuses when the Group has a present legal or constructiveobligation to pay this amount as a result of past service provided by the employee and the obligation can be reliably estimated. All other employeeNotes to the financial statementsFinancial performance (continued)752017 Annual Financial Reportentitlements that are not expected to be paid or settled within 12 months of the reporting date are measured at the present value of net future cashflows. Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to aformal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made toencourage voluntary redundancy. Termination benefits for voluntary redundancy are recognised as an expense if the Group has made an offer ofvoluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated defined contribution plans receive fixed contributions and the obligation for contributions to these plans are recognised as an expense in the incomestatement as incurred. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is to Note 24 Provisions for details of employee benefit related related expensesOperating lease rentals are charged to the income statement on a straight-line basis over the term of the lease. When an operating lease is terminatedbefore the end of the lease period, any payment made to the lessor by way of penalty is recognised as an expense in the income statement in theperiod of termination. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the to Note 33 Operating leases for details of the Group s future minimum operating leases risk event lossesOperational risk event losses relate to non-lending losses which include losses arising from specific legal actions not directly related to amounts ofprincipal outstanding for loans and advances, and losses arising from forgeries, frauds and the correction of operational issues. Refer to Note 24Provisions for details of the Group s operational risk event losses and amortisationWith the exception of freehold land, all items of property, plant and equipment are depreciated using the straight-line method at rates appropriate to theirestimated useful life to the Group. For major classes of property, plant and equipment, the annual rates of depreciation are: Buildings - Furniture, fixtures and fittings and other equipment - from 10% to 20% Motor vehicles - 20% Personal computers - Other data processing equipment - from 20% to Leasehold improvements are depreciated on a straight-line basis over the shorter of their useful lives and the remaining expected term of the software costs and other intangible assets are amortised on a systematic basis, using the straight-line method over their expected usefullives. Refer to Note 22 Goodwill and other intangible assets for details around the useful lives of specific intangible asset to the financial statementsFinancial performance (continued)76 NATIONAL AUSTRALIA BANK6 Earnings per shareGroup20172016BasicDilutedBasicDilutedEarnings ($m)Net profit attributable to owners of NAB5,2855,285352352Distributions on other equity instruments(98)(98)(124)(124)Potential dilutive adjustments (after tax)Interest expense on convertible notes-126-75Interest expense on convertible preference shares-119-130Adjusted earnings5,1875,432228433Net (loss) attributable to owners of NAB from discontinued operations (1)(893)(893)(6,068)(6,068)Adjusted earnings from continuing operations (2)6,0806,3256,2966,501Weighted average ordinary shares (No. 000)Weighted average ordinary shares (net of treasury shares)2,664,5112,664,5112,596,9572,596,957Potential dilutive weighted average ordinary sharesPerformance options and performance rights-4,687-4,735Partly paid ordinary shares-29-32Employee share plans-5,375-8,587Convertible notes-92,866-63,689Convertible preference shares-105,605-119,686Total weighted average ordinary shares2,664,5112,873,0732,596,9572,793,686Earnings per share (cents) attributable to owners of per share from continuing operations (cents) per share from discontinued operations (cents)( )( )( )( )(1)Refer to Note 41 Discontinued operations for further details.(2)Information is presented on a continuing operations has been no material conversion to, calls of, or subscriptions for ordinary shares, or issue of potential ordinary shares since 30 September 2017,and before the completion of this financial to the financial statementsFinancial performance (continued)772017 Annual Financial Report7 Income tax expenseIncome tax expense (or benefit) is the tax payable (or receivable) on the current year's taxable income based on the applicable tax rate in eachjurisdiction adjusted by changes in deferred tax assets and liabilities. Income tax expense is recognised in the income statement except to the extentthat it relates to items recognised directly in other comprehensive income, in which case it is recognised in the statement of comprehensive income. Thetax associated with these transactions will be recognised in the income statement at the same time as the underlying income tax benefit related to research and development expenditure is recognised as a reduction in the related asset or operating expense,depending on the nature of the (1)2016 (1)2017 2016$m$m$m$mIncome tax expenseCurrent tax2,5732,7661,8181,856Deferred tax(93)(213)(74)(89)Total income tax expense2,4802,5531,7441,767(1)Information is presented on a continuing operations of income tax expense shown in the income statement with prima facie tax payable on the pre-tax accountingprofitGroupCompany2017 (1)2016 (1)2017 2016$m$m$m$mProfit before income tax expense8,6618,9786,7192,286Prima facie income tax at 30%2,5982,6932,016686Add / (deduct): Tax effect of amounts not deductible / (assessable):Assessable foreign income7444Foreign tax rate differences(43)(36)(16)(20)Losses not tax effected11421142Foreign branch income not assessable(78)(65)(78)(65)(Over) / under provision in prior years(17)(26)(13)(18)Offshore banking unit income(62)(56)(53)(46)Restatement of deferred tax balances for tax rate changes1414Treasury shares adjustment-(14)--Non-deductible hybrid distributions70587058Dividend income adjustments--(352)(433)Other (2)(7)(51)1541,555Total income tax expense2,4802,5531,7441,767(1)Information is presented on a continuing operations basis.(2)The Company reconciliation items disclosed as "Other" includes primarily the CYBG loss on sale for 30 September 2016, plus other permanent adjustments which are non-deductible / non-assessable for consolidationThe Group and its wholly owned Australian resident entities formed a tax-consolidated group with effect from 1 October 2002 and are taxed as a singleentity from that date. The head entity within the tax-consolidated group is National Australia Bank tax expense (or benefit) and deferred tax assets and liabilities arising from temporary differences of the members of the tax-consolidated groupare recognised in the separate financial statements of the members of the tax-consolidated group using the Group allocation current tax liabilities (or assets) and deferred tax assets arising from unused tax losses of the subsidiaries are assumed by the head entity in thetax-consolidated group and are recognised as amounts payable to (or receivable from) other entities in the tax-consolidated group under the tax fundingarrangement. Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised by theCompany as an equity contribution to or distribution from its members of the tax-consolidated group have entered into a tax funding agreement that sets out the funding obligations of members of the tax-consolidated group in respect of tax amounts. Contributions to fund the current tax liabilities are payable in accordance with the tax funding and services taxRevenues, expenses and assets are recognised net of the amount of goods and services tax or other value-added tax, except where the tax incurred isnot recoverable from the relevant taxation authority. In these circumstances, the tax is recognised as part of the expense or the cost of acquisition of and payables are stated at an amount with tax included. The net amount of tax recoverable from, or payable to, the relevant taxationauthority is included in other assets or other liabilities. Cash flows are included in the cash flow statement on a gross basis. The tax component of cashflows arising from investing and financing activities which is recoverable from, or payable to, the relevant taxation authority is classified as operatingcash to the financial statementsTaxation78 NATIONAL AUSTRALIA BANK8 Current tax liabilitiesGroupCompany2017201620172016$m$m$m$mCurrent tax liabilities23029771248Total income tax liabilities23029771248Current tax liability is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reportingdate, and any adjustment to tax payable in respect of previous Deferred tax assets and liabilitiesGroupCompany2017201620172016$m$m$m$mDeferred tax assetsSpecific provision for doubtful debts223248166173Collective provision for doubtful debts742713625606Employee entitlements250263225238Tax losses76766874Unrealised revaluations on Funding vehicles531528--Other470426374324Total deferred tax assets2,2922,2541,4581,415Set-off of deferred tax liabilities pursuant to set-off provisions(304)(329)(216)(243)Net deferred tax assets1,9881,9251,2421,172Deferred tax liabilitiesIntangible assets88--Depreciation14819680148Defined benefit superannuation plan assets101066Other13811513089Total deferred tax liabilities304329216243Deferred tax liabilities set-off against deferred tax assets pursuant to set-off provisions(304)(329)(216)(243)Net deferred tax liability----Deferred tax assets and liabilities are recognised for temporary differences arising between the tax bases of assets and liabilities and their carryingamounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the reporting date and areexpected to apply when the related deferred income tax asset is realised or the deferred income tax liability is tax assets are only recognised for temporary differences, unused tax losses and unused tax credits if it is probable that future taxable amountswill arise to utilise those temporary differences and losses. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that itis no longer probable that the related tax benefit will be tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and they relate to incometaxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets ona net basis or their tax assets and liabilities are realised tax assets not brought to accountDeferred tax assets have not been brought to account for the following items as realisation of the benefits is not regarded as probable:GroupCompany2017 2016 2017 2016$m$m$m$mCapital gains tax losses1,1311,1431,1311,143Income tax losses478444478444Notes to the financial statementsTaxation (continued)792017 Annual Financial Report10 Cash and cash equivalentsCash and cash equivalents comprise the net amount of short-term, highly liquid investments that are readily convertible to known amounts of cash andare subject to an insignificant risk of change in value. They are held for the purposes of meeting short-term cash commitments (rather than forinvestment or other purposes). For the purposes of the cash flow statement, cash and cash equivalents includes cash and liquid assets and amountsdue from other banks (including reverse repurchase agreements and short-term government securities) net of amounts due to other banks, that arereadily convertible to known amounts of cash within three to Note 30 Notes to the cash flow statements for a detailed reconciliation of cash and cash repurchase and securities borrowing agreementsReverse repurchase agreements ( securities purchased under agreements to resell) are accounted for as collateralised loans. The differencebetween the sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Suchamounts are normally classified as due from other banks or cash and liquid assets. Securities borrowed are not recognised in the financial statementsunless they are sold to third parties, in which case the purchase and sale are recorded with the gain or loss included in trading income. The obligation toreturn securities borrowed is recorded at fair part of the reverse repurchase and securities borrowing agreements included within Cash and liquid assets and Due from other banks , the Grouphas received securities that it is allowed to sell or re-pledge. Securities accepted under agreements to resell generally comprise of high qualitygovernment, financial institution or corporate debt securities. Accordingly, the fair value of these securities accepted is based primarily on Level 1 quotedmarket prices as at reporting date (Level 1 of the fair value hierarchy as defined in Note 35 Fair value of financial instruments) or Level 2 marketobservable inputs in the case of various financial institution or corporate securities. The fair value of the securities accepted under these terms as at30 September 2017 amounted to $48,785 million (2016: $37,534 million) for the Group and $47,926 million (2016: $36,771 million) for the Company, ofwhich $32,489 million (2016: $25,426 million) for the Group and $32,305 million (2016: $25,343 million) for the Company have been sold or re-pledgedto third parties in connection with financing activities or to comply with commitments under short-sale the securities pledged have been sold, the Group is obliged to return equivalent securities. The obligation to return securities for short-saletransactions is included in Other financial liabilities at fair value (Note 18 Other financial liabilities at fair value). These transactions are conducted underterms that are usual and customary to standard lending and securities borrowing agreementsWhere the Group transacts in repurchase agreements ( securities sold subject to repurchase agreements), the securities are retained in theirrespective balance sheet categories. The counterparty liability is included in amounts due to other banks and deposits and other borrowings, asappropriate, based on the counterparty to the transaction. Securities lent to counterparties are also retained in their respective balance sheet from and due to other banksDue from other banks includes loans, deposits with central banks and other regulatory authorities and settlement account balances due from otherbanks. Amounts due from other banks are initially recognised at fair value plus directly attributable transaction costs and subsequently measured atamortised to other banks includes deposits, repurchase agreements and settlement account balances due to other banks. Amounts due to other banks areinitially recognised at fair value less directly attributable transaction costs and subsequently measured at amortised and liquid assetsGroupCompany2017201620172016$m$m$m$mCoins, notes and cash at bank1,1621,0241,035895Securities purchased under agreements to resell40,76628,21940,62727,762Other (including bills receivable and remittances in transit)1,8981,38749060Total cash and liquid assets43,82630,63042,15228,717Due from other banksGroupCompany2017201620172016$m$m$m$mCentral banks and other regulatory authorities (1)22,21926,32020,91624,955Other banks (1)14,84718,91614,11418,404Total due from other banks37,06645,23635,03043,359(1)Securities purchased under agreements to resell as at 30 September 2016 have been reclassified from Central banks and other regulatory authorities to Other to the financial statementsFinancial assets and liabilities80 NATIONAL AUSTRALIA BANKDue to other banksGroupCompany2017201620172016$m$m$m$mCentral banks and other regulatory authorities (1)15,10317,81215,10317,812Other banks (1)21,58026,09120,09824,837Total due to other banks36,68343,90335,20142,649(1)Securities sold under repurchase agreements as at 30 September 2016 have been reclassified from Central banks and other regulatory authorities to Other Trading derivative assets and liabilitiesThe Group maintains trading positions in a variety of derivative financial instruments and acts primarily in the market by satisfying the needs of itscustomers through foreign exchange, interest rate-related and credit-related contracts. In addition, the Group takes positions on its own account, andcarries an inventory of capital market instruments. Derivatives, except for those that are specifically designated as effective hedging instruments, areclassified as trading. The held for trading classification therefore includes those derivatives used for risk management purposes which for variousreasons do not meet the qualifying criteria for hedge accounting. The carrying value of a derivative classified as trading is remeasured at fair valuethroughout the life of the contract. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is table below sets out the fair value of trading derivatives:Trading derivative financial instrumentsGroupCompanyAssets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities20172017 2016(1)2016(1)20172017 2016(1)2016(1)$m$m$m$m$m$m$m$mForeign exchange rate-related contractsSpot and forward contracts4,3884,1284,6564,7204,1063,7904,3054,336Cross currency swaps9,3849,78913,11213,3839,6969,94114,09613,760Options / swaptions purchased50-132514943127141Options / swaptions written196352213192052125Total foreign exchange rate-related contracts13,84113,98017,95218,36713,87013,79418,58018,362Interest rate-related contractsForward rate agreements12101112911Swaps14,38612,26223,07521,13715,59912,32221,76418,481Futures (2)--682766--682766Options / swaptions purchased267204344123267204343123Options / swaptions written333383484623333383484623Total interest rate-related contracts14,98712,85124,59522,66016,20012,91123,28220,004Credit derivatives7712614214482131145147Commodity derivatives169168177164170167177164Other derivatives63622802246162283224Total trading derivative financial instruments29,13727,18743,14641,55930,38327,06542,46738,901(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)As of 30 September 2017, the Group has recognised variation margin as settlement of exchange traded derivatives. Comparative information has not been Trading securitiesGroupCompany2017201620172016$m$m$m$mGovernment bonds, notes and securities27,81621,24724,80218,225Semi-government bonds, notes and securities5,0794,5234,3034,037Corporate / financial institution bonds, notes and securities17,99619,09616,46818,188Other bonds, notes and securities631,105641,063Total trading securities50,95445,97145,63741,513Notes to the financial statementsFinancial assets and liabilities (continued)812017 Annual Financial Report13 Debt instruments at fair value through other comprehensive incomeGroupCompany2017201620172016$m$m$m$mGovernment bonds, notes and securities2,9272,5622,9272,562Semi-government bonds, notes and securities20,91521,18620,91521,186Corporate / financial institution bonds, notes and securities7,9518,7937,8768,700Other bonds, notes and securities10,3388,14810,3118,132Total debt instruments at fair value through other comprehensive income42,13140,68942,02940,58014 Other financial assets at fair valueGroupCompany2017201620172016$m$m$m$mLoans at fair value14,59619,86410,92614,560Other financial assets at fair value1,4621,632899271Total other financial assets at fair value16,05821,49611,82514,831LoansThe maximum credit exposure of loans (excluding any undrawn facility limits) included in other financial assets at fair value through profit or loss(designated on initial recognition) is $14,596 million (2016: $19,864 million) for the Group and $10,926 million (2016: $14,560 million) for the cumulative change in fair value of the loans attributable to changes in credit risk amounted to a $116 million loss (2016: $148 million loss) for theGroup and a $90 million loss (2016: $103 million loss) for the Company and the change for the current year is a $32 million gain (2016: $174 milliongain) for the Group and a $13 million gain (2016: $96 million gain) for the Hedge accounting, including hedging derivative assets and liabilitiesEntities in the Group designate certain derivatives entered into for risk management purposes as: Hedges of highly probable future cash flows attributable to a recognised asset or liability, or a highly probable forecast transaction (cash flowhedges). Hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedges). Hedges of net investments in foreign used for risk management purposes which for various reasons do not meet the qualifying criteria for hedge accounting, are included intrading table below sets out hedging derivative assets and liabilities by the type of hedge relationship in which they are (1)20172016 (1)Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities$m$m$m$m$m$m$m$mHedging derivatives in cash flow hedges160115461306152115299271Hedging derivatives in fair value hedges3,7321,5426,2783,0923,6643,7276,0206,426Hedging derivatives of net investments in foreign operations-1724-17-4Total hedging derivatives3,8921,6746,7413,4023,8163,8596,3196,701(1)Comparative information has been restated to reflect a change in presentation of interest accrual, which is now presented within hedging derivative assets and hedging derivative liabilities (previouslyincluded in other assets and other liabilities).The Group elected an accounting policy choice under AASB 9 "Financial Instruments" to apply the hedge accounting requirements under AASB 139"Financial Instruments: Recognition and Measurement". As part of the requirements to apply hedge accounting, the Group documents, at the inceptionof the hedge relationship, the relationship between hedging instruments and hedged items, the risk being hedged, the Group's risk managementobjective and strategy for undertaking hedge transactions, and how effectiveness will be measured throughout the life of the hedge relationship. Inaddition, the Group documents its assessment, both at inception and on an ongoing basis, of whether the hedging instruments that are used in hedgingtransactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Group measures hedge effectiveness on aprospective basis at inception, as well as retrospectively and prospectively over the term of the hedge to the financial statementsFinancial assets and liabilities (continued)82 NATIONAL AUSTRALIA BANK(a) Cash flow hedgesThe operations of the Group are subject to the risk of interest rate fluctuations to the extent of the repricing profile of the Group's balance are held for the purpose of managing existing or anticipated interest rate risk. Whilst some derivatives are entered into on a one-to-one basisto manage a specific exposure, other derivatives are entered into after consideration of the interest rate risk from a portfolio of exposures, such as aportfolio of assets, or the net exposure from a portfolio of assets and liabilities. Where the derivatives used are eligible for hedge accounting, they aredesignated in a cash flow hedge relationship where possible to manage the profit and loss volatility associated with the derivatives which wouldotherwise be measured at fair value through profit or loss. This requires identification of eligible assets or liabilities, and designation of derivatives toobtain hedge accounting. Cash flow hedge accounting involves designating derivatives as hedges of the variability in highly probable forecast futurecash flows attributable to interest rate risk from the benchmark interest rate on variable rate assets and effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in the cash flow hedgereserve within equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated inequity are transferred to the income statement in the period(s) in which the hedged item ( the forecast hedged variable cash flows) affects theincome a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existingin equity at that time remains in equity and is recognised in the income statement when the forecast transaction is ultimately recognised in the incomestatement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss existing in equity at that time is immediatelytransferred to the income used to test hedge effectiveness and establish the hedge ratio include regression analysis, and for some portfolio hedge relationships, acomparison to ensure the expected interest cash flows from the portfolio exceed those of the hedging instruments. The main potential source of hedgeineffectiveness from cash flow hedges is mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing ofwhen interest rates are carrying amount of derivatives designated in cash flow hedge relationships is as (1)20172016 (1)Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities$m$m$m$m$m$m$m$mInterest rate swaps160115461306152115299271(1)Comparative information has been restated to reflect a change in presentation of interest accrual, which is now presented within hedging derivative assets and hedging derivative liabilities (previouslyincluded in other assets and other liabilities).The following tables show the notional amount of derivatives designated in cash flow hedge relationships in time bands based on the maturity of to 3month(s)3 to 12months1 to 5year(s)Over 5years Total0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsTotalGroup$m$m$m$m$m$m$m$m$m$mInterest rate swapsPay fixed11,79719,48644,9211,45077,65410,3306,42621,3881,58339,727Receive fixed12,89533,99929,59981777,31048,39017,70724,28937290,758Other interest rate derivatives (1)Pay fixed6,2918,0003,198-17,4895,3797,4481,970-14,797Receive fixed5,5477,3002,331-15,1783,9045,3252,295-11,524201720160 to 3month(s)3 to 12months1 to 5year(s)Over 5years Total0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsTotalCompany$m$m$m$m$m$m$m$m$m$mInterest rate swapsPay fixed11,58418,97841,2381,35273,15210,1876,32619,3241,45437,291Receive fixed12,67633,14526,01476672,60147,83916,82120,58833585,583Other interest rate derivatives (1)Pay fixed2,9275,9853,060-11,9723,2414,4651,970-9,676Receive fixed2,0003,9502,193-8,1432,6683,3302,200-8,198(1)Other interest rate derivatives include interest rate futures and forward rate agreements. The carrying amount of other interest rate derivatives is less than $1 loss of $1 million (2016: $6 million gain) for the Group and the Company was recognised in other income in the income statement related to hedgeineffectiveness from cash flow hedge is no balance in the cash flow hedge reserve from any hedge relationship for which hedge accounting is no longer to the financial statementsFinancial assets and liabilities (continued)832017 Annual Financial Report(b) Fair value hedgesDerivatives are held for the purpose of managing existing and anticipated interest rate risk, in particular to swap the exposure from fixed rate assets andliabilities to a floating interest rate. In addition, where fixed rate assets and liabilities are denominated in a foreign currency, derivatives are used tomanage the associated foreign currency risk. The Group may designate a cross currency swap that swaps from the fixed foreign currency to floating USdollars or floating Australian dollars in a single hedge relationship of both interest rate risk and currency risk, or may use a combination of derivatives(such as an interest rate swap and cross currency swap), and apply hedge accounting to the interest rate swap, and include the cross currency swap intrading derivatives. As both interest rate risk and currency risk are hedged in a single hedge relationship in some cases, these disclosures do notdistinguish between interest rate risk, and the combination of interest rate risk and currency risk as two separate risk categories. The Group generallyhedges its exposure to changes in the fair value of fixed rate assets and liabilities in respect of the benchmark interest are entered into on a one-to-one basis to manage specific exposures, namely: Interest rate risk in respect of fixed rate semi-government bonds, notes and securities classified as fair value through other comprehensive income. Interest rate risk in respect of fixed rate amounts due from other term lending. Interest rate risk or both interest rate and currency risk in respect of fixed rate bonds, notes and subordinated debt. Associated with these hedges arefair value hedges at the Company level of amounts due from controlled entities for amounts raised from the issuance of covered bonds that havebeen on lent to controlled addition, derivatives are entered into to manage interest rate risk from a portfolio of exposures, namely amounts due from fixed rate housing loansoriginated in New Zealand. A dynamic process is used for these portfolio fair value hedges as the make-up of the portfolio of fixed rate housing loanschanges with early repayments, new originations and maturities. The hedge relationship is frequently discontinued and redesignated, generally on aweekly basis. This note includes these portfolio hedge relationships because the volume of fixed rate housing loans hedged is relatively stable, and it isthe change in the make-up of the portfolio and desire to maximise the hedge effectiveness result that drive the dynamic hedging to initial designation, changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the incomestatement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The movement in fair valueof the hedged item attributable to the hedged risk is made as an adjustment to the carrying amount of the hedged asset or a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, the adjustment to the carryingamount of a hedged item is amortised to the income statement on an effective yield basis. Where the hedged item is derecognised from the balancesheet, the adjustment to the carrying amount of the asset or liability is immediately transferred to the income analysis and cumulative dollar offset are used to test hedge effectiveness and establish the hedge ratio. The main potential sources ofhedge ineffectiveness from fair value hedges are: Currency basis inherent in the valuation of cross currency swaps, but not in hedged items denominated in a foreign currency. Currency basis is aliquidity premium that is charged for borrowing in one currency over another, and changes over time impacting the fair value of cross currencyswaps. Changes in margin where the full interest rate (rather than the benchmark interest rate component) of hedged items has been included in a hedgerelationship. Mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing of when interest rates are reset. Early repayment of hedged housing carrying amount of derivatives designated in fair value hedge relationships is as follows:GroupCompany20172016 (1)20172016 (1)Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities$m$m$m$m$m$m$m$mInterest rate swaps2567569252,1602277828252,045Cross currency swaps3,4767865,3539323,4372,9455,1954,381Total hedging derivatives in fair value hedges3,7321,5426,2783,0923,6643,7276,0206,426(1)Comparative information has been restated to reflect a change in presentation of interest accrual, which is now presented within hedging derivative assets and hedging derivative liabilities (previouslyincluded in other assets and other liabilities).Notes to the financial statementsFinancial assets and liabilities (continued)84 NATIONAL AUSTRALIA BANKThe following tables show the notional amount of derivatives designated in fair value hedge relationships in time bands based on the maturity of to 3month(s)3 to 12months1 to 5year(s)Over 5years Total0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsTotalGroup$m$m$m$m$m$m$m$m$m$mInterest rate swapsPay fixed1,6204,14315,1939,98130,9371,7159,10112,8448,80032,460Receive fixed1,9827,45746,34813,81069,5976649,86837,13013,48761,149Cross currency swaps hedgingexposures denominated in (1)USD-2,2323,284-5,516-3,4235,727-9,150EUR--4,1315,2139,344--1,0998,0029,101GBP1,0265991,7104283,763--2,2911,4383,729Other1692351,5139952,912-971,2811,5892,967201720160 to 3month(s)3 to 12months1 to 5year(s)Over 5years Total0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsTotalCompany$m$m$m$m$m$m$m$m$m$mInterest rate swapsPay fixed3518014,2659,94924,429-4,10312,33710,30026,740Receive fixed1,9133,01343,43613,81062,172608,42035,20612,38456,070Cross currency swaps hedgingexposures denominated in (1)USD-4,4636,472-10,935-6,70611,290-17,996EUR--5,2577,40812,665--2,19910,15512,354GBP1,0265991,7108554,190--2,2911,8604,151Other1692351,8541,5803,838-971,2812,5423,920(1)The notional amount of cross currency swaps is determined based on the currency of the hedged item translated at the spot exchange rate at 30 average rate for major currencies of the final exchange of cross currency swaps designated in fair value hedge relationships is as follows:GroupCompany2017201620172016USD: : : : : to the financial statementsFinancial assets and liabilities (continued)852017 Annual Financial ReportThe carrying amount of hedged items in fair value hedge relationships, and the accumulated amount of fair value hedge adjustments included in thesecarrying amounts are as follows:GroupCompanyCarryingamountFair valuehedgeadjustmentsCarryingamountFair valuehedgeadjustmentsCarryingamountFair valuehedgeadjustmentsCarryingamountFair valuehedgeadjustments20172017201620162017201720162016$m$m$m$m$m$m$m$mDebt instruments at fair value through othercomprehensive incomeSemi-government bonds, notes andsecurities (1)17,796-17,986-17,796-17,986-Loans and advancesHousing loans (2)12,8753814,072139----Other term lending (3)1,577(12)1,111371,577(12)1,1113714,4522615,1831761,577(12)1,11137Due from controlled entities (4)----13,02259316,8321,028Bonds, notes and subordinated debt (5) (6)Medium-term notes46,10929340,3841,52646,10929340,3841,526Covered bonds21,30356721,3511,17812,99659316,8021,028Subordinated medium-term notes2,0811551,8542962,0811551,85429669,4931,01563,5893,00061,1861,04159,0402,850(1)The carrying amount of debt instruments at fair value through other comprehensive income does not include a fair value hedge adjustment as the hedged asset is measured at fair value. The accounting forthe hedge relationship results in a transfer from other comprehensive income to the income statement.(2)The carrying amount of housing loans in a portfolio fair value hedge relationship is approximate, and represents the principal of the loans and the fair value hedge adjustment.(3)The carrying amount of other term lending for the Group and the Company is presented in the balance sheet as $1,572 million (2016: $1,108 million) of loans and advances and $5 million (2016: $3 million)of accrued interest receivable in other assets.(4)The carrying amount of due from controlled entities is presented in the balance sheet as $12,939 million (2016: $16,731 million) of amounts due from controlled entities and $83 million (2016: $101 million) ofaccrued interest receivable in other assets.(5)The carrying amount of bonds, notes and subordinated debt is presented in the balance sheet as $68,984 million (2016: $63,126 million) for the Group and $60,715 million (2016: $58,595 million) for theCompany of bonds, notes and subordinated debt and $509 million (2016: $463 million) for the Group and $471 million (2016: $445 million) for the Company of accrued interest payable in other liabilities.(6)The accumulated amount of fair value hedge adjustments included in the carrying amount of bonds, notes and subordinated debt includes $309 million (2016: $492 million) for the Group and $287 million(2016: $492 million) for the Company related to hedged items that have ceased to be adjusted for hedging gains and value hedge relationships resulted in the following changes in value used as the basis for recognising hedge ineffectiveness during the period:GroupCompany2017(1)2016(1)20172016$m$m$m$mLosses on hedging instruments(2,566)(2,304)(2,008)(1,552)Gains on hedged items attributable to the hedged risk1,8872,2171,3631,434Hedge ineffectiveness recognised in the income statement (2) (3)(679)(87)(645)(118)(1)Information is presented on a continuing operations basis.(2)Hedge ineffectiveness was recognised in other income in the income statement.(3)Represents hedge ineffectiveness of designated hedge relationships, plus economic hedges where hedge accounting has not been to the financial statementsFinancial assets and liabilities (continued)86 NATIONAL AUSTRALIA BANK(c) Hedges of net investments in foreign operationsA foreign currency exposure arises from a net investment in branches and subsidiaries that have a different functional currency from that of theCompany. The risk arises from the fluctuation in spot exchange rates between the functional currencies of the foreign operations and the Company. It isthe Group's policy not to hedge the exposure to foreign currency where the investment in a foreign operation is considered perpetual in nature. Incertain circumstances the Group does undertake hedging activities such as where the investment in a foreign operation is non-core or flagged of net investments in foreign operations are accounted for in a similar way to cash flow hedges. Any gain or loss on the hedging instrumentrelating to the effective portion of the hedge is recognised in the foreign currency translation reserve within equity. The gain or loss relating to theineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are transferred to the income statementwhen the foreign operation is designated as hedging instruments in hedges of net investments in foreign operations are liabilities denominated in the functional currency of theforeign operation and forward foreign exchange contracts. Effectiveness is assessed by comparing changes in the carrying amount of the liability or thefair value of the derivative attributable to movements in the spot rate with changes in the investment in the foreign operation due to movement in thespot rate. As foreign operations are only hedged to the extent of the liability or notional amount of the derivative, no ineffectiveness is expected to of items designated as hedging instruments in hedges of net investments in foreign operations are outlined in the following amountCarrying amountNominal amount Assets Liabilities Nominal amount Assets LiabilitiesGroup(millions of GBP)$m$m(millions of GBP)$m$mHedging derivatives539-1771424Liabilities (1)1,021-1,7461,018-1,7311,560-1,7631,73221,73520172016Carrying amountCarrying amountNominal amount Assets Liabilities Nominal amount Assets LiabilitiesCompany(millions of GBP)$m$m(millions of GBP)$m$mHedging derivatives513-17689-4(1)Liabilities denominated in the functional currency of the foreign operation that have been designated as hedging net investments in foreign operations are presented in the balance sheet as due to otherbanks, and deposits and other to the financial statementsFinancial assets and liabilities (continued)872017 Annual Financial Report16 Loans and advancesLoans and advances are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at amortised cost, usingthe effective interest method, net of any provision for doubtful $m$m$m$mHousing loans329,534314,557293,212278,659Other term lending182,935168,604150,920139,632Asset and lease financing11,67410,94911,21410,478Overdrafts5,6736,3043,7154,223Credit card outstandings7,4097,5186,3656,439Other lending6,5395,7596,0255,215Total gross loans and advances543,764513,691471,451444,646Deduct:Unearned income and deferred net fee income(415)(532)(479)(700)Provision for doubtful debts(3,224)(3,114)(2,695)(2,625)Total net loans and advances540,125510,045468,277441,321Description of collateral held as security and other credit enhancementsThe Group evaluates each customer s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Groupupon extension of credit, is based on management s credit evaluation of the counterparty. Collateral held varies, but may include: A floating charge over all assets and undertakings of an entity, including uncalled capital and called but unpaid capital. Specific or inter-locking guarantees. Specific charges over defined assets of the and advances by credit qualityGroupCompany2017201620172016$m$m$m$mGross loans and advancesNeither past due nor impaired530,654500,556459,577433,319Past due but not impaired11,44010,64610,6299,747Impaired1,6702,4891,2451,580Total gross loans and advances543,764513,691471,451444,646Loans and advances past due but not impairedGroupCompany2017201620172016$m$m$m$m1 to 7 day(s) past due5,0564,6754,7354,3498 to 29 days past due2,1492,0281,9681,80930 to 59 days past due1,2821,2881,1721,17760 to 89 days past due71168067063090 or more days past due2,2421,9752,0841,782Total loans and advances past due but not impaired11,44010,64610,6299,747Loans and advances that are past due but not impaired are classified as such where net current market value of supporting security is sufficient to coverall principal, interest and other amounts (including legal, enforcement, realisation costs etc.) due on the to the financial statementsFinancial assets and liabilities (continued)88 NATIONAL AUSTRALIA BANK17 Provision for doubtful debtsGroupCompany2017201620172016$m$m$m$mNew and increased provisions (net of releases)1,1771,1581,014904Write-backs of specific provisions (242)(156)(195)(104)Recoveries of specific provisions(111)(119)(88)(98)Total charge to the income statement824883731702Attributable to:Charge to income statement from continuing operations824813731702Charge to income statement from discontinuing operations-70--Stage 1 Stage 2Stage 312-mthECLLifetimeECL notcreditimpairedLifetimeECL creditimpairedLifetimeECLcreditimpairedCollectiveprovisionCollectiveprovisionCollectiveprovisionSpecificprovisionTotalGroup$m$m$m$m$mBalance at 1 October 20154551,9884406373,520Changes due to financial assets recognised in the opening balance that have:Transferred to 12-months ECL - collective provision543(520)(23)--Transferred to Lifetime ECL not credit impaired - collective provision(45)98(53)--Transfer to Lifetime ECL credit impaired - collective provision(3)(76)79--Transfer to Lifetime ECL credit impaired - specific provision(2)(120)(114)236-New and increased provisions (net of releases)(518)5261919591,158Write-backs of specific provisions---(156)(156)Bad debts written-off---(778)(778)Derecognised in respect of the group disposal (1)(85)(222)(94)(174)(575)Foreign currency translation and other adjustments(16)(17)(4)(18)(55)Balance at 30 September 20163291,6574227063,114Changes due to financial assets recognised in the opening balance that have:Transferred to 12-months ECL - collective provision329(316)(13)--Transferred to Lifetime ECL not credit impaired - collective provision(44)123(79)--Transfer to Lifetime ECL credit impaired - collective provision(3)(42)45--Transfer to Lifetime ECL credit impaired - specific provision(2)(135)(100)237-New and increased provisions (net of releases)(295)5381248101,177Write-backs of specific provisions---(242)(242)Bad debts written-off---(849)(849)Foreign currency translation and other adjustments(1)(6)42724Balance at 30 September 20173131,8194036893,224(1)The September 2016 full year reflects the CYBG - Impact of movements in gross carrying amount on provision for doubtful debtsProvision for doubtful debts reflects expected credit losses (ECL) measured using the three-stage approach, as described in Note 1 Principal accountingpolicies. The following explains how significant changes in the gross carrying amount of loans and advances during the 2017 financial year havecontributed to the changes in the provision for doubtful debts for the Group under the expected credit loss , the total provision for doubtful debts increased by $110 million compared to the balance at 30 September provisions decreased by $17 million compared to the balance at 30 September 2016, primarily due to a lower rate of new impairmentscombined with successful work-out strategies across the Australian business lending provisions increased by $127 million compared to the balance at 30 September 2016, comprised of: Collective provision 12-months ECL (Stage 1) decrease of $16 million as a result of: $124 billion of loans and advances that were repaid, experienced movement in underlying account balances during the period or migrated fromStage 1 to Stage 2 or Stage 3 due to deterioration in credit quality. Partially offset by $148 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or Stage 3 due to creditimprovement. Collective provision Lifetime ECL not credit-impaired (Stage 2) increase of $162 million as a result of: $24 billion in loans and advances migrating into Stage 2 as a result of transfer of loans and advances from Stage 1 or Stage 3. Targeted overlays established for certain sectors on a forward looking basis. Partially offset by $33 billion of loans and advances exiting Stage 2 due to repayment or as a result of improved credit quality. Collective provision Lifetime ECL credit-impaired (Stage 3) decrease of $19 million as a result of: $3 billion of loans and advances that were repaid or migrated to individually credit assessed with specific provisions to the financial statementsFinancial assets and liabilities (continued)892017 Annual Financial ReportStage 1 Stage 2Stage 312-mthECLLifetimeECL notcreditimpairedLifetimeECL creditimpairedLifetimeECLcreditimpairedCollectiveprovisionCollectiveprovisionCollectiveprovisionSpecificprovision TotalCompany$m$m$m$m$mBalance at 1 October 20153121,5693143322,527Changes due to financial assets recognised in the opening balance that have:Transferred to 12-months ECL - collective provision430(412)(18)--Transferred to Lifetime ECL not credit impaired - collective provision(36)80(44)--Transferred to Lifetime ECL credit impaired - collective provision(2)(47)49--Transferred to Lifetime ECL credit impaired - specific provision(2)(109)(93)204-New and increased provisions (net of releases)(419)360115848904Write-backs of specific provisions---(104)(104)Bad debts written-off---(668)(668)Foreign currency translation and other adjustments(14)(10)(1)(9)(34)Balance at 30 September 20162691,4313226032,625Changes due to financial assets recognised in the opening balance that have:Transferred to 12-months ECL - collective provision274(263)(11)--Transferred to Lifetime ECL not credit impaired - collective provision(36)86(50)--Transferred to Lifetime ECL credit impaired - collective provision(2)(36)38--Transferred to Lifetime ECL credit impaired - specific provision(2)(131)(91)224-New and increased provisions (net of releases)(258)4441197091,014Write-backs of specific provisions---(195)(195)Bad debts written-off---(789)(789)Foreign currency translation and other adjustments1273040Balance at 30 September 20172461,5333345822,695Company - Impact of movements in gross carrying amount on provision for doubtful debtsProvision for doubtful debts reflects expected credit losses (ECL) measured using the three-stage approach, as described in Note 1 Principal accountingpolicies. The following explains how significant changes in the gross carrying amount of loans and advances during the 2017 financial year havecontributed to the changes in the provision for doubtful debts for the Company under the expected credit loss , the total provision for doubtful debts increased by $70 million compared to the balance at 30 September provisions decreased by $21 million compared to the balance at 30 September 2016, primarily due to lower rate of impairments combined withsuccessful work-out strategies across the Australian business lending provisions increased by $91 million compared to the balance at 30 September 2016, comprised of: Collective provision 12-months ECL (Stage 1) decreased by $23 million due to: $106 billion of loans and advances that were repaid, experienced movement in underlying account balances during the period or migrated fromStage 1 to Stage 2 or Stage 3 due to deterioration in credit quality. Partially offset by $126 billion of loans and advances that were newly originated or migrated into Stage 1 from Stage 2 or Stage 3 due to creditimprovement. Collective provision Lifetime ECL not credit-impaired (Stage 2) increased by $102 million due to: $20 billion of loans and advances migrating into Stage 2 as a result of transfer of loans and advances from Stage 1 or Stage 3. Targeted overlays established for certain sectors on a forward looking basis. Partially offset by $26 billion of loans exiting Stage 2 due to repayment or as a result of improved credit quality. Collective provision Lifetime ECL credit-impaired (Stage 3) increased by $12 million due to: $2 billion of loans and advances that migrated into Stage 3 from Stage 1 and Stage 2 due to deterioration in credit quality. Partially offset by $1 billion of loans that were still under enforcement activityThe contractual amount outstanding on loans and advances that were written off during the 2017 financial year, and are still subject to enforcementactivity was $84 million (2016: $182 million) for the Group and $76 million (2016: $169 million) for the about the nature and effect of modifications on the measurement of provision for doubtful debtsA loan is renegotiated if the existing agreement is cancelled and a new agreement made on substantially different terms or if the terms of an existingagreement are modified such that the renegotiated loan is a substantially different instrument. Where such renegotiated loans are derecognised, therenegotiated contract is a new loan and impairment is assessed in accordance with the Group s accounting renegotiated loans are not derecognised, impairment continues to be assessed for significant increases in credit risk compared to the initialorigination credit risk to the financial statementsFinancial assets and liabilities (continued)90 NATIONAL AUSTRALIA BANKThe following table discloses information on loans and advances that were modified but not derecognised during the 2017 financial year, for which theprovision for doubtful debts was measured at a lifetime ECL at 30 September 2016, and at the end of the 2017 financial year had changed to a 12-months ECL:GroupCompany2017201620172016$m$m$m$mAmortised cost before the modification423483341374Gross carrying amount at end of reporting period412462334354Information about total impaired assetsThe following table provides details on impaired assets. Gross amounts are shown before taking into account any collateral held or other creditenhancements. Refer Note 34 Financial risk management for analysis of the credit quality of the Group s loans and $m$m$m$mGross impaired assets (1)1,7242,6421,2631,604Specific provision for doubtful debts (2)(691)(712)(582)(607)Net impaired assets (3)1,0331,930681997(1)Gross impaired assets include $34 million (2016: $135 million) for the Group and nil (2016: $7 million) for the Company of gross impaired other financial assets at fair value, $20 million (2016: $18 million) ofimpaired off-balance sheet credit exposures for the Group and $18 million (2016: $17 million) for the Company, and $205 million (2016: $785 million) for the Group and nil (2016: nil) for the Company ofimpaired exposures currently assessed as no loss based on collective provision and security held.(2)Specific provision for doubtful debts includes $2 million (2016: $6 million) for the Group and nil (2016: $4 million) for the Company of fair value credit adjustments on other financial assets at fair value.(3)The fair value of security in respect of impaired assets is $1,089 million (2016: $1,810 million) for the Group and $747 million (2016: $883 million) for the Company. Fair value amounts of security held inexcess of the outstanding balance of individual impaired assets are not included in these Other financial liabilities at fair valueIn certain circumstances the Group applies the fair value measurement option to financial liabilities. This option is applied where an accountingmismatch is significantly reduced or eliminated that would otherwise occur if the liability was measured on another basis. Where liabilities aredesignated at fair value through profit or loss, they are initially recognised at fair value, with transaction costs recognised in the income statement asincurred. Subsequently, they are measured at fair value and any gains or losses (except for changes in own credit risk) are recognised in the incomestatement as they $m$m$m$mBonds, notes and subordinated debt22,86919,6974,3203,751Deposits and other borrowingsOn-demand and short-term deposits204300--Certificates of deposit1,2432,247--Term deposits1,0275,604--Commercial paper & other borrowings2,2363,502--Securities sold short1,8031,6281,5751,628Other financial liabilities2492463529Total other financial liabilities at fair value29,63133,2245,9305,408The change in fair value of bonds, notes and subordinated debt attributable to changes in the Group s credit risk amounts to a gain for the 2017 financialyear of $11 million (2016: $113 million loss) for the Group and a gain of $55 million (2016: $131 million loss) for the Company. The cumulative change infair value of bonds, notes and subordinated debt attributable to changes in the Group s credit risk amounts to a loss of $198 million (2016: $209 millionloss) for the Group and a loss of $93 million (2016: $148 million loss) for the Company. The contractual amount to be paid at the maturity of the bonds,notes and subordinated debt is $22,365 million (2016: $18,773 million) for the Group and $4,075 million (2016: $3,303 million) for the to the financial statementsFinancial assets and liabilities (continued)912017 Annual Financial Report19 Deposits and other borrowingsDeposits and other borrowings include non-interest-bearing deposits redeemable at call, on-demand and short-term deposits lodged for periods of lessthan 30 days, certificates of deposit, interest-bearing deposits, debentures and other borrowings. Deposits and other borrowings are initially recognisedat fair value less directly attributable transaction costs and subsequently measured at amortised $m$m$m$mDepositsTerm deposits159,861153,181131,279132,344On-demand and short-term deposits199,245189,718182,103171,783Certificates of deposit51,00943,76351,00943,764Deposits not bearing interest47,24741,69842,56637,296Commercial paper & other borrowings19,74915,29019,56014,990Securities sold under agreements to repurchase23,49316,06423,49316,064Total deposits and other borrowings500,604459,714450,010416,24120 Bonds, notes and subordinated debtBonds, notes, subordinated debt and other debt issues are generally initially recognised at fair value less directly attributable transaction costs andsubsequently measured at amortised cost using the effective interest method. Premiums, discounts and associated issue expenses are recognisedusing the effective interest method through the income statement from the date of issue to accrete the carrying value of securities to redemption valuesby maturity date. Embedded derivatives within debt instruments are separately accounted for where not closely related to the terms of the host , notes and subordinated debtGroupCompany2017201620172016$m$m$m$mMedium-term notes (1)89,81590,10689,83390,106Securitisation notes (2)3,0994,050--Covered bonds (2)22,39824,23922,42424,089Subordinated medium-term notes (1)9,0589,0319,0589,031Other subordinated notes501516--Total bonds, notes and subordinated debt (3)124,871127,942121,315123,226(1)Prior period comparatives have been restated to reflect a $26 million reclassification of hedge adjustments between Medium-term notes to Subordinated medium-term notes.(2)Both Covered bonds and Securitisation notes were previously aggregated as a single line item (Other senior notes) in the 2016 AFR. Prior year comparatives have been restated.(3)The balances includes net discounts/premium adjustments. Prior year comparatives have been bonds, notes and subordinated debt by currencyGroupCompany2017201620172016$m$m$m$mAUD35,88735,86332,80631,815USD40,22039,66340,25939,648EUR29,85128,38029,82828,244GBP7,61111,0047,62111,004Other11,30213,03210,80112,515Total bonds, notes and subordinated debt (1)124,871127,942121,315123,226(1)The balances includes net discounts / premium to the financial statementsFinancial assets and liabilities (continued)92 NATIONAL AUSTRALIA BANKSubordinated medium term notesGroupCompanyCurrencyNotional amount(1)Maturity / First optional call date20172016(2)20172016(2)m$m$m$m$mAUD1,172mFloating due 2017-1,171-1,171AUD950mFloating due 2017950950950950GBP350mFixed due 2018625647625647EUR500mFixed due 2018777813777813EUR750mFixed due 20191,1241,1001,1241,100EUR1,000mFixed due 20201,5861,5711,5861,571AUD1,100mFloating due 20201,1001,1001,1001,100HKD1,137mFixed due 2021184195184195JPY10,000mFixed due 2021113130113130AUD150mFixed due 2021146151146151AUD650mFloating due 2021650650650650JPY10,000mFixed due 2021113-113-SGD450mFixed due 2023428493428493AUD943mFloating due 2023935-935-AUD275mFixed due 2027272-272-AUD20mFixed due 202728302830AUD20mFixed due 202827302730TOTAL9,0589,0319,0589,031(1)Subordinated medium term notes qualify as Tier 2 capital, in some cases subject to transitional Basel III treatment.(2)Prior period comparatives have been restated to include any net discounts / premium adjustments, as well as the above mentioned $26 million reclassification of hedge adjustments from Medium-term subordinated notesOn 17 December 2015, BNZ issued NZD550 million of subordinated unsecured notes in New Zealand (BNZ Subordinated Notes), treated as Tier 2capital under NAB's regulatory capital requirements. The BNZ Subordinated Notes will mature in December 2025, but in certain circumstances (subjectto APRA and RBNZ approval) BNZ may, at its option, repay some or all of the BNZ Subordinated Notes on 17 December 2020 or on any scheduledinterest payment date thereafter. The BNZ Subordinated Notes pay a fixed rate of interest, reset on the optional redemption Group holds derivative financial instruments to manage interest rate and foreign exchange risk on bonds, notes and subordinated debt. Refer toNote 11 Trading derivative assets and liabilities and Note 15 Hedge accounting, including hedging derivative assets and liabilities for further informationon the Group s trading and hedging derivative assets and to Note 34 Financial risk management for a description of the Group s risk management practices in relation to market risks such as interest rate,foreign currency and liquidity to the financial statementsFinancial assets and liabilities (continued)932017 Annual Financial Report21 Other debt issuesGroupCompany2017201620172016$m$m$m$mPerpetual floating rate notes147220147220Convertible preference shares and convertible notes6,0406,0286,0406,028Total other debt issues6,1876,2486,1876,248Perpetual Floating Rate NotesOn 9 October 1986, the Group issued USD250 million undated subordinated floating rate notes. Interest is payable semi-annually in arrears in April andOctober at a rate of per annum above the arithmetic average of the rates offered by the reference banks for six month US dollar deposits inLondon. The floating rate notes are unsecured and have no final maturity. All or some of the floating rate notes may be redeemed at the option of theGroup with the prior consent of APRA. In July 2009, the Group repurchased million floating rate notes, which were subsequently cancelled bythe Group. In 2017, the Group executed a number of repurchases and cancellations of the undated subordinated floating rate notes million. The Group currently has million of undated subordinated floating rate notes outstanding which qualify as Tier 2 capitalsubject to transitional Basel III Preference SharesOn 20 March 2013, the Group issued $ billion of convertible preference shares (NAB CPS) and on 17 December 2013, the Group issued $ of convertible preference shares (NAB CPS II). The convertible preference shares will mandatorily convert into ordinary shares on the mandatoryconversion dates, 22 March 2021 (NAB CPS) and 19 December 2022 (NAB CPS II), subject to certain conversion conditions being satisfied. With priorwritten approval from APRA, the Company has the option to convert, redeem or resell NAB CPS on 20 March 2019 and NAB CPS II on 17 December2020 or on the occurrence of particular events, provided certain conditions are met. NAB CPS and NAB CPS II may also convert in certaincircumstances if required by prudential regulatory requirements. Interest on both issuances is payable quarterly in arrears at a rate of per annumabove the 3 month BBSW for NAB CPS and per annum above the 3 month BBSW for NAB CPS II. Both issuances have supported the Group'sTier 1 capital position as an eligible Additional Tier 1 capital NotesOn 23 March 2015, the Group issued $ billion of convertible notes (NAB Capital Notes) and on 7 July 2016, the Group issued $ billion ofconvertible notes (NAB Capital Notes 2). The convertible notes will mandatorily convert into ordinary shares on the mandatory conversion dates,23 March 2022 (NAB Capital Notes) and 8 July 2024 (NAB Capital Notes 2), subject to certain conversion conditions being satisfied. With prior writtenapproval from APRA, the Company has the option to convert, redeem or resell the NAB Capital Notes on 23 March 2020 and the NAB Capital Notes 2on 7 July 2022, or earlier following the occurrence of certain events. NAB Capital Notes and NAB Capital Notes 2 may also convert in certaincircumstances if required by prudential regulatory requirements. Interest on both issuances is payable quarterly in arrears at a rate of per annumabove the 3 month BBSW for NAB Capital Notes and per annum above the 3 month BBSW for NAB Capital Notes 2. Both issuances havesupported the Group's Tier 1 capital position as an eligible Additional Tier 1 capital to the financial statementsFinancial assets and liabilities (continued)94 NATIONAL AUSTRALIA BANK22 Goodwill and other intangible assetsGoodwillGoodwill arises on the acquisition of an entity and represents the excess of the aggregate of the fair value of the purchase consideration and the amountof any non-controlling interest in the entity over the fair value of the identifiable net assets at the date of the acquisition. If the fair value of the identifiablenet assets of the acquired entity is greater than the aggregate of the fair value of the purchase consideration and amount of any non-controlling interest,the excess is recognised in the income statement on acquisition date and no goodwill is CostsThe identifiable and directly associated external and internal costs of acquiring and developing software are capitalised and recognised as an intangibleasset where the software is controlled by the Group, and where it is probable that future economic benefits will flow from its use over more than oneyear. Costs associated with maintaining software are recognised as an expense as software and other intangible assets are stated at cost less amortisation and impairment losses, if software costs and other intangible assets are amortised on a systematic basis once deployed, using the straight-line method over theirexpected useful lives which are between three and ten years. Software assets are generally deployed when the asset is ready for its intended software assets are deployed on a progressive basis to match the benefits profile from the asset s 2017 2016$m$m$m$mGoodwill2,8622,913--Internally generated software2,6082,2072,2741,971Acquired software9813787122Other acquired intangible assets (1)3345--Goodwill and other intangibles5,6015,3022,3612,093At cost8,3977,8094,3513,775Deduct: Accumulated amortisation / Impairment losses(2,796)(2,507)(1,990)(1,682)Goodwill and other intangibles5,6015,3022,3612,093(1)Other acquired intangible assets include brand names and the value of business and contracts in of movements in goodwill and other intangible assetsGroupCompany20172016 2017 2016$m$m$m$mGoodwillBalance at beginning of year2,9134,631--Disposals from sale of controlled entities(50)(1,713)--Foreign currency translation adjustments(1)(5)--Balance at end of year2,8622,913--Internally generated softwareBalance at beginning of year2,2072,4571,9711,702Additions from internal development750655586471Disposals, impairments and write-offs (1)(20)(674)(19)(10)Amortisation(324)(273)(264)(192)Foreign currency translation adjustments(5)42--Balance at end of year2,6082,2072,2741,971(1)Includes discontinued operations of CYBG in the year ended 30 September 2016. Refer to Note 41 Discontinued operations for further and cash generating unitsAssets with an indefinite useful life, including goodwill, are not subject to amortisation and are tested on an annual basis for impairment, and additionallywhenever an indication of impairment exists. Assets that are subject to amortisation are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amountof an asset exceeds its recoverable recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use. For assets that do not generate largelyindependent cash inflows, the recoverable amount is determined for the cash generating unit to which that asset belongs. For the purpose ofundertaking impairment testing, cash generating units (CGUs) are identified and determined according to the smallest group of assets that generatecash inflows that are largely independent of the cash inflows from other assets or groups of assets. Goodwill impairment is assessed at the group ofCGUs that represents the lowest level within the Group at which goodwill is maintained for internal management purposes, which is at the to the financial statementsOther assets and liabilities952017 Annual Financial ReportAs noted in Note 2 Segment information the Group has reorganised its reporting structure and this has changed the composition of the CGUs to whichgoodwill has been allocated. For comparability, the 2016 goodwill has been restated on the basis of this new testing compares the carrying value of a CGU with its recoverable amount as determined using a value in use calculation. An impairmentloss is recognised in the income statement if the carrying amount of the CGU or group of units is greater than its recoverable amount. Impairment lossesrecognised for goodwill are not subsequently for determining the recoverable amount of each CGU are based on past experience and expectations for the future. Cash flow projectionsare based on five year management approved forecasts which are then extrapolated using a constant growth rate for up to a further five years. In thefinal year a terminal growth rate is applied in perpetuity. These forecasts use management estimates to determine income, expenses, capitalexpenditure and cash flows for each discount rate reflects the market determined, risk-adjusted, post-tax discount rate and is adjusted for specific risks relating to the CGUs and thecountries in which they operate. Terminal value growth rate represents the growth rate applied to extrapolate cash flows beyond the forecast growth rates are based on forecast assumptions of the CGUs long-term performance in their respective key assumptions used in determining the recoverable amount of CGUs, to which goodwill has been allocated, are as follows:GoodwillDiscount rateTerminal valuegrowth rateper annumper annum2017201620172017Reportable segments$m$m%%Consumer Banking and Wealth2,5362, and Private goodwill2,8622,913n/an/a23 Other assetsGroupCompany2017201620172016$m$m$m$mCash collateral placed with third parties3,2093,1762,7653,176Accrued interest receivable (1)981879832716Prepayments196189161155Receivables642596314243Other debt instruments at amortised cost58477811Equity instruments at fair value through other comprehensive income271273239240Investment in associates - MLC Limited (2)549550--Receivable - MLC Limited (3)-2,206-2,206Other (4)3,0143,2542,3542,658Total other assets9,44611,9016,6669,395(1)The 2016 comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivativeassets and derivative liabilities (previously included in other assets and other liabilities).(2)NAB has retained a 20% interest in MLC Limited following the sale of 80% of that company to Nippon Life. Refer to Note 41 Discontinued operations for further information.(3)The balance represents the outstanding cash consideration at 30 September 2016 for the transaction outlined in footnote 2 above. This amount was settled on 3 October 2016. Refer to Note 41 Discontinuedoperations for further information.(4)Other includes securities sold not delivered, settlements clearing and investments relating to life insurance to the financial statementsOther assets and liabilities (continued)96 NATIONAL AUSTRALIA BANK24 ProvisionsProvisions are recognised when a legal or constructive obligation exists as a result of a past event, it is probable that an outflow of economic benefitswill be necessary to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are not discounted to the present valueof their expected net future cash flows except where the time value of money is liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transferof economic benefits is not probable or cannot be reliably measured. Contingent liabilities are not recognised in the balance sheet but are disclosedunless the likelihood of payment is remote. Refer to Note 32 Contingent liabilities and credit $m$m$m$mEmployee entitlements9521,024772821Operational risk event losses785127555Restructuring-25-23Other224371207308Total provisions1,9611,4321,7341,157Employee entitlementsRefer to Note 5 Operating expenses for a description of the Group s policies for recognition of employee risk event lossesProvisions for operational risk event losses are raised for non-lending losses which include losses arising from specific legal actions not directly relatedto amounts of principal outstanding for loans and advances, and losses arising from forgeries, frauds and the correction of operational amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at 30 September 2017, takinginto account the risks and uncertainties that surround the events and circumstances that affect the of movements in provisionGroupCompany2017201620172016$m$m$m$mOperational risk event losses (1)Balance at beginning of year122,177521Provisions made1,022840994833Payments out of provisions(271)(819)(268)(819)Provisions no longer required and net foreign currency movements (2)22(2,186)24(30)Balance at end of year785127555(1)Operational risk event losses includes claims pursuant to the Conduct Indemnity Deed. Refer to Note 32 Contingent liabilities and credit commitments for further details.(2)The Group 2016 reconciliation items disclosed as "Provisions no longer required and net foreign currency movements includes primarily provisions deconsolidated as part of the CYBG costsProvisions for restructuring costs include provisions for costs incurred but not yet paid and future costs that will arise as a direct consequence ofdecisions already made. A provision for restructuring costs is only made where the Group has made a commitment and entered into an obligation suchthat the Group has no realistic alternative but to carry out the restructure and make future payments to settle the obligation. A provision for restructuringcosts is only recognised when a detailed plan has been approved and the restructuring has either commenced or has been publicly announced. Thisincludes the cost of staff termination benefits and surplus lease space. Costs related to ongoing activities and future operating losses are not Other liabilitiesGroupCompany2017201620172016$m$m$m$mAccrued interest payable (1)2,2832,3071,9441,857Payables and accrued expenses3,1192,1922,7211,751Cash collateral received from third parties1,0451,3111,0441,309Other (2)1,5331,8641,2331,752Total other liabilities7,9807,6746,9426,669(1)The 2016 comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivativeassets and derivative liabilities (previously included in other assets and other liabilities).(2)Other includes payables relating to settlements clearing and unpresented bank to the financial statementsOther assets and liabilities (continued)972017 Annual Financial Report26 Contributed equityIn accordance with the Corporations Act 2001 (Cth), the Company does not have authorised capital and all ordinary shares have no par value. Ordinaryshares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are included within equity. Holders ofordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote on a show of hands or, on a poll, one vote foreach fully paid ordinary share held at shareholders meetings. In the event of a winding-up of the Company, ordinary shareholders rank after all othershareholders and creditors and are fully entitled to any residual proceeds of $m$m$m$mIssued and paid-up ordinary share capitalOrdinary shares, fully paid31,70730,96830,92130,182Other contributed equityNational Income Securities1,9451,9451,9451,945Trust Preferred Securities975975--National Capital Instruments-397-397Total contributed equity34,62734,28532,86632,524Ordinary SharesReconciliation of movement in ordinary sharesGroupCompany2017201620172016$m$m$m$mBalance at beginning of year30,96831,33430,18232,065Shares issued:Dividend reinvestment plan (DRP)569596569596Transfer from equity-based compensation reserve170166170166Capital distribution on CYBG demerger-(2,645)-(2,645)Treasury shares sold relating to life insurance business (1)-1,517--Balance at end of year31,70730,96830,92130,182(1)Relates to shares in NAB previously held by Wealth's life insurance business which are no longer held by a controlled entity of the number of ordinary shares on issue for the last two years at 30 September was as follows:Company20172016No. 000No. 000Ordinary shares, fully paidBalance at beginning of year2,656,9762,625,764Shares issued:Dividend reinvestment plan (DRP)19,79421,325Bonus share plan2,2032,052Employee share plans6,2497,461Performance rights241359Paying up of partly paid shares615Total ordinary shares, fully paid2,685,4692,656,976Ordinary shares, partly paid to 25 centsBalance at beginning of year4964Paying up of partly paid shares(6)(15)Total ordinary shares, partly paid to 25 cents4349Total number of ordinary shares on issue at end of year (including treasury shares)2,685,5122,657,025Deduct: Treasury shares(9,643)(9,504)Total number of ordinary shares on issue at end of year (excluding treasury shares)2,675,8692,647,521National Income SecuritiesOn 29 June 1999, the Company issued 20,000,000 National Income Securities (NIS) at $100 each. These securities are stapled securities, comprisingone fully paid note of $100 issued by the Company through its New York branch and one unpaid preference share issued by the Company (NISpreference share). The amount unpaid on a NIS preference share will become due in certain limited circumstances, such as if an event of defaultoccurs. Each holder of NIS is entitled to non-cumulative distributions based on a rate equal to the Australian 3 month bank bill rate plus perannum, payable quarterly in the prior written consent of APRA, the Company may redeem each note for $100 (plus any accrued distributions) and buy back or cancel the NISpreference share stapled to the note for no consideration. NIS have no maturity date and are quoted on the Australian Securities Exchange (ASX). NISqualify as Additional Tier 1 capital, subject to transitional Basel III to the financial statementsCapital management98 NATIONAL AUSTRALIA BANKTrust Preferred SecuritiesOn 29 September 2003, the Group raised GBP400 million through the issue by National Capital Trust I, of 400,000 Trust Preferred Securities atGBP1,000 each, to be used by the Company s London branch. Each Trust Preferred Security earns a non-cumulative distribution, payable semi-annually in arrears until 17 December 2018, equal to per annum and, in respect of each five year period after that date, a non-cumulativedistribution payable semi-annually in arrears at a rate equal to the sum of the yield to maturity of the five year benchmark UK Government bond at thestart of that period plus the prior written consent of APRA, the Trust Preferred Securities may be redeemed on 17 December 2018 and on every subsequent fifthanniversary. In this case, the redemption price is GBP1,000 per Trust Preferred Security plus the unpaid distributions for the last six month distributionperiod. The Trust Preferred Securities may also be redeemed earlier in certain circumstances, in which case the redemption price will, in some cases,be subject to a make-whole adjustment for the costs of reinvestment as a result of the early redemption. Trust Preferred Securities qualify as AdditionalTier 1 capital, subject to transitional Basel III Capital InstrumentsOn 18 September 2006, the Group raised $400 million (prior to issuance costs) through the issue by National Capital Trust III of 8,000 National CapitalInstruments (Australian NCIs) at $50,000 each. Each Australian NCI earned a non-cumulative distribution, payable quarterly in arrears at a rate equal tothe bank bill rate plus a margin of per annum until the first optional redemption date. On 4 October 2016, with the prior consent of APRA, theGroup at its option, fully redeemed the Australian NCIs. Prior to their redemption, Australian NCIs qualified as Additional Tier 1 capital subject totransitional Basel III ReservesGroupCompany2017201620172016$m$m$m$mForeign currency translation reserve(338)(71)(241)(209)Asset revaluation reserve8383--Cash flow hedge reserve46143557Equity-based compensation reserve273234273234General reserve for credit losses-75-75Debt instruments at fair value through other comprehensive income reserve89808980Equity instruments at fair value through other comprehensive income reserve84856472Total reserves237629190309Foreign currency translation reserveGroupCompany2017201620172016$m$m$m$mBalance at beginning of year(71)(1,091)(209)(160)Currency adjustments on translation of foreign operations, net of hedging(269)(329)(32)(49)Transfer to the income statement on disposal of foreign operations (1)(10)1,368--Tax on foreign currency translation reserve12(19)--Balance at end of year(338)(71)(241)(209)(1)The 2016 balance represents foreign currency translation reserve released on divestment of discontinued foreign currency translation reserve records foreign currency differences arising from the translation of foreign operations, the translation oftransactions that hedge the NAB s net investment in a foreign operation or the translation of foreign currency monetary items forming part of the netinvestment in a foreign results and financial position of all Group entities that have a functional currency different from the Australian dollar are translated into Australiandollars as follows: Assets and liabilities are translated at the closing rate at the date of the balance sheet. Income and expenses are translated at average exchange rates for the period, unless the average is not a reasonable approximation. All resulting exchange differences are recognised in the foreign currency translation a foreign operation is disposed of, any such exchange differences are recognised in the income statement as part of the gain or loss on revaluation reserveThe asset revaluation reserve records revaluation increments and decrements arising from the revaluation of land and flow hedge reserveThe cash flow hedge reserve records the effective portion of changes in the fair valuation of derivatives designated as cash flow hedging to the financial statementsCapital management (continued)992017 Annual Financial ReportEquity-based compensation reserveThe equity-based compensation reserve records the value of equity benefits provided to employees as part of their capital tainting rules contained in Australian tax legislation apply prospectively from 26 May 2006 to discourage companies from distributingprofits to shareholders as preferentially taxed capital rather than dividends. The focus of the tax legislation is on the transfer of amounts to a sharecapital account from another account. The tainting rules are inconsistent with AASB 2 "Share-based Payment" which allows transfers between equityaccounts upon the vesting of employee equity-based payments ( when all conditions have been met by the employee).During 2009, the Group received a private binding ruling from the Australian Taxation Office on this matter. The ruling allows, under certaincircumstances, vested employee shares to be reversed from the equity-based compensation reserve and ultimately recorded in paid-up capital withoutgiving rise to a tainting of the NAB s share capital account for tax purposes. The share capital tainting rules and private binding ruling have no impact onthe regulatory capital of the reserve for credit lossesAPRA Prudential Standard APS 220 Credit Quality requires a reserve to be held to cover credit losses estimated but not certain to arise in the futureover the full life of all individual facilities. The general reserve for credit losses (GRCL) is calculated using a prudential expected loss methodology thatdiffers to that used for AASB 9 Financial Instruments expected credit loss provisions. The GRCL represents an appropriation of retained profits to non-distributable reserves when the regulatory reserve is greater than the accounting provision. The purpose of the GRCL is to provide the Group with freelyavailable capital which can be used to meet credit losses that may subsequently instruments at fair value through other comprehensive income reserveDebt instruments at fair value through other comprehensive income reserve includes all changes in the fair value of investments in debt instrumentsexcept for impairment based on the three-stage expected credit loss model, foreign exchange gains and losses and interest income. The changesrecognised in reserve are transferred to profit or loss when the asset is derecognised or instruments at fair value through other comprehensive income reserveInvestments in equity instruments that are neither held for trading nor contingent consideration recognised by the Group in a business combination towhich AASB 3 "Business Combinations" applies are measured at fair value through other comprehensive income, where an irrevocable election hasbeen made by management. Amounts in the reserve are subsequently transferred to retained earnings, and not profit or loss, when the asset isderecognised. Dividends on such investments are recognised in profit or loss unless the dividend clearly represents a recovery of part of the cost of Retained profitsGroupCompany2017201620172016$m$m$m$mBalance at beginning of year16,37821,20515,71920,470Net profit attributable to owners of NAB from continuing operations6,1786,4204,975519Net loss attributable to owners of NAB from discontinued operations(893)(6,068)--Dividends paid (5,216)(5,060)(5,216)(5,161)Distributions on other equity instruments(98)(124)(60)(68)Fair value changes on financial liabilities designated at fair value attributable to the Group's own credit risk11(113)55(131)Reclassification of National Capital Instruments transaction costs(3)-(3)-Actuarial gains on defined benefit superannuation plans -31--Gains on disposal of interest in subsidiary (1)-6--Transfer from asset revaluation reserve-1--Transfer (to) / from equity-based compensation reserve (2)(22)7(22)7Transfer from / (to) general reserve for credit losses75(11)75(11)Transfer from equity instruments at fair value through other comprehensive income reserve-94-94Tax on items taken directly to / (from) equity 32(10)22-Balance at end of year16,44216,37815,54515,719(1)Represents gains from discontinued operations recognised directly in retained profits.(2)Transfer (to) / from equity-based compensation reserve relates to lapsed options and rights. In addition, the 2017 balance for the Group and the Company includes an adjustment related to prior periodequity-based to the financial statementsCapital management (continued)100 NATIONAL AUSTRALIA BANK29 Dividends and distributionsDividends on ordinary shares recognised by the Group and Company for the year ended 30 September:Amount pershareTotalamount2017cents$mFinal dividend declared in respect of the year ended 30 September 2016992,630Interim dividend declared in respect of the year ended 30 September 2017992,649Deduct: Bonus shares in lieu of dividendn/a(63)Dividends paid by the Company during the year ended 30 September 20175,216Add: Dividends paid to non-controlling interests in controlled entities5Dividends paid by the Group (Before dividend reinvestment plan)5,2212016Final dividend declared in respect of the year ended 30 September 2015992,600Interim dividend declared in respect of the year ended 30 September 2016992,618Deduct: Bonus shares in lieu of dividendn/a(57)Dividends paid by the Company during the year ended 30 September 20165,161Deduct: Dividends on treasury shares (1)(101)Add: Dividends paid to non-controlling interests in controlled entities5Dividends paid by the Group (Before dividend reinvestment plan)5,065(1)Excludes any treasury shares held in trust by a controlled entity of the Group in respect of employee incentive dividends declared or paid during 2017 were fully franked at a tax rate of 30% (2016: 30%).In 2016, the CYBG demerger resulted in the distribution of CYBG shares valued at $2,645 million to NAB dividendOn 2 November 2017, the directors declared the following dividend:Amount pershareTotalamountFrankedamount persharecents$m%Final dividend declared in respect of the year ended 30 September 2017992,659100The final 2017 ordinary dividend is payable on 13 December 2017. The Group will offer a discount on the Dividend Reinvestment Plan, with noparticipation limit. The financial effect of this dividend has not been brought to account in the financial statements for the year ended 30 September 2017and will be recognised in subsequent financial franking creditsThe franking credits available to the Group at 30 September 2017, after allowing for Australian tax payable in respect of the current reporting period sprofit and the receipt of dividends recognised as a receivable at reporting date, are estimated to be $1,115 million (2016: $1,476 million). Frankingcredits to be utilised as a result of the payment of the proposed final dividend are $1,139 million (2016: $1,127 million). Due to the timing of the dividendpayment, and the monthly tax instalments that will fall due before the dividend is paid, the franking credits available to the Group immediately after thepayment of the dividend will be $230 million. The extent to which future dividends will be franked will depend on a number of factors including the levelof the profits that will be subject to Australian income Zealand imputation creditsThe Company is able to attach available New Zealand imputation credits to dividends paid. As a result, New Zealand imputation credits of NZ$ pershare will be attached to the final 2017 ordinary dividend payable by the Company. New Zealand imputation credits are only relevant for shareholderswho are required to file New Zealand income tax on other equity instrumentsGroupCompany2017201620172016$m$m$m$mNational Income Securities60686068Trust Preferred Securities (1)3843--National Capital Instruments (2)-13--Total distributions on other equity instruments981246068(1)$A Equivalent.(2)National Capital Instruments were fully redeemed on 4 October to the financial statementsCapital management (continued)1012017 Annual Financial Report30 Notes to the cash flow statements(a) Reconciliation of net profit attributable to owners of NAB to net cash provided by operating activitiesGroupCompany2017201620172016$m$m$m$mNet profit attributable to owners of NAB5,2853524,975519Add / (deduct) non-cash items in the income statement:(Increase) / decrease in interest receivable(107)146(117)249(Decrease) / increase in interest payable(94)(607)8(202)Decrease in unearned income and deferred net fee income(139)(209)(240)(178)Fair value movements on assets, liabilities and derivatives held at fair value(3,777)(4,233)(3,670)(3,159)Decrease in personnel provisions(89)(96)(76)(1)Increase / (decrease) in other operating provisions632(547)653345Equity-based compensation recognised in equity or reserves187203187203Superannuation costs - defined benefit plans-23--Impairment losses on non-financial assets205129359Charge to provide for bad and doubtful debts824883731702Depreciation and amortisation expense734679476369Movement in life insurance policyholder liabilities(3)1,868--Unrealised loss / (gain) on investments relating to life insurance business2(1,446)--Decrease in other assets308111250425Increase / (decrease) in other liabilities40(645)(14)(645)Increase / (decrease) in income tax payable18(480)(8)(745)(Increase) / decrease in deferred tax assets(67)113(30)(155)(Increase) / decrease in deferred tax liabilities(25)(269)(43)69Operating cash flow items not included in profit (1)9,50313,04611,35010,941Investing or financing cash flows included in profit(Gain) / Loss on sale of controlled entities, before income tax(44)5,555-4,923Loss on sale of property, plant, equipment and other assets9811Net cash provided by operating activities13,21714,46014,56214,020(1)Cash flows relating to bonds, notes and subordinated debt at fair value that occurred in the year ended 30 September 2016 have been reclassified from net receipts from / (payments for) other financialliabilities at fair value, to repayments of and proceeds from bonds, notes and subordinated debt.(b) Reconciliation of cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents includes cash and liquid assets and amounts due from other banks (includingreverse repurchase agreements and short-term government securities) net of amounts due to other banks that are readily convertible to known amountsof cash within three and cash equivalents as shown in the cash flow statement is reconciled to the related items on the balance sheet as follows:GroupCompany2017201620172016Cash and cash equivalents$m$m$m$mAssetsCash and liquid assets (excluding money at short call)43,82630,63042,15228,717Treasury and other eligible bills762574--Due from other banks (excluding mandatory deposits with supervisory central banks)31,70337,34929,68835,472Total cash and cash equivalent assets76,29168,55371,84064,189LiabilitiesDue to other banks(36,491)(40,593)(35,009)(39,339)Total cash and cash equivalents39,80027,96036,83124,850Included within due from other banks is the cash deposit of $877 million (GBP513 million) held with The Bank of England in connection with the CYBGdemerger, that is required to collateralise NAB's obligations under the Capped Indemnity as agreed with the United Kingdom Prudential RegulationAuthority (PRA).(c) Non-cash financing and investing activitiesGroupCompany2017201620172016$m$m$m$mNew share issuesDividend reinvestment plan569596569596New debt issuesSubordinated medium-term notes reinvestment offer539-539-Notes to the financial statementsCash flow information102 NATIONAL AUSTRALIA BANK31 Interest in subsidiaries and other entitiesa) Investment in controlled entitiesThe consolidated financial report comprises the financial report of the Company and its controlled entities. Controlled entities are all those entities(including structured entities) over which the Company is exposed, or has rights, to variable returns from its involvement with the entity and has theability to affect those returns through its power over the entity. An assessment of control is performed on an ongoing basis. Entities are consolidatedfrom the date on which control is transferred to the Group. Entities are deconsolidated from the date that control ceases. The effects of transactionsbetween entities within the Group are eliminated in full upon consolidation. External interest in the equity and results of the entities that are controlled bythe Group are shown as non-controlling interests in controlled entities in the equity section of the consolidated balance in controlled entities are recorded at cost less any provision for impairment in the financial statements of the $m$mGross carrying amount10,05710,771Deduct: Provision for diminution in value(1,384)(1,278)Total investments in controlled entities8,6739,493The following table presents the material controlled entities of the Group as at 30 September 2017 and 30 September 2016. Investment vehicles holdinglife policyholder assets are excluded from the list nameOwnership%Incorporated/ formed inNational Australia Bank LimitedAustraliaNational Equities Limited (1) (2)100AustraliaNational Australia Group (NZ) Limited100New ZealandBank of New Zealand100New ZealandBNZ International Funding Limited100New ZealandNational Wealth Management Holdings Limited100AustraliaMLC Investments Ltd100AustraliaNULIS Nominees (Australia) Limited100AustraliaNBA Properties Limited (1)100Australia(1)For the year ended 30 September 2016, these controlled entities and certain other subsidiaries within the Group were parties to a deed of cross guarantee with the Company and National Australia TrusteesLimited as trustees, and pursuant to ASIC Class Order 98/1418 dated 13 August 1998 were granted relief from the Corporations Act 2001 (Cth) requirements for preparation, audit and publication of anannual financial report. The deed of cross guarantee was revoked effective 29 September 2017 - Refer to Note 32 (d) Contingent liabilities and credit commitment for further details.(2)On 8 February 2016, the Group lost control of CYBG - Refer to Note 41 Discontinued operations for further restrictionsSubsidiary companies that are subject to prudential regulation are required to maintain minimum capital and other regulatory requirements that mayrestrict the ability of these entities to make distributions of cash or other assets to the parent company. These restrictions are managed in accordancewith the Group s normal risk management policies set out in Note 34 Financial risk management and capital adequacy requirements in Note 40 ) Investment in associatesAn associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operatingpolicy decisions of the investee but does not have control or joint control over these policies. The Group's investments in associates are accounted forusing the equity Group's investments in associates include a 20% interest in MLC Limited, a provider of life insurance products in Australia. MLC Limited was awholly owned subsidiary of the Group until 30 September 2016 when the Group lost control following the sale of 80% of MLC Limited to Nippon Life. Setout below is the summarised financial information of MLC Limited based on its financial information (and not the Group s 20% share of those amounts)and includes income statement information for the year ended 30 September 2017, and balance sheet information as at 30 September 2017 and30 September $mSummarised income statement of MLC LimitedRevenue1,685Net profit for the period77Total comprehensive income for the period77Notes to the financial statementsGroup structure1032017 Annual Financial Report2017$mReconciliation to the Group's share of profitMLC Limited's net profit for the period77Prima facie share of profit at 20%15Deduct amortisation of intangible assets recognised at acquisition, net of tax(7)Group's share of profit for the period8The Group received dividends from MLC Limited of $ million during the $m$mSummarised balance sheet of MLC LimitedTotal assets5,8346,130Total liabilities3,8294,157Net assets2,0051,97320172016$m$mReconciliation to the Group's investment in MLC LimitedMLC Limited's net assets2,0051,973Prima facie share of net assets at 20%401395Add intangible assets recognised at acquisition, net of deferred tax148155Group's carrying amount of the investment in MLC Limited549550Significant restrictionsAssets in a statutory fund of MLC Limited can only be used to meet the liabilities and expenses of that fund, to acquire investments to further thebusiness of that fund, or to make profit distributions when solvency and capital adequacy requirements of the Life Insurance Act 1995 (Cth) are may impact MLC Limited's ability to transfer funds to the Group in the form of dividends. In addition, in certain circumstances the payment ofdividends may require approval by part of a long term partnership with Nippon Life, the Group distributes MLC Limited life insurance products to retail and group customers throughNAB's owned and aligned distribution network under a long-term distribution a financial services agreement and certain linked arrangements, the Group provides MLC Limited with certain financial services, including: On an exclusive basis: custody, transactional banking facilities, unit pricing, fixed income, commodity and currency services. On a non-exclusive basis: investment portfolio a transitional services agreement, the Group provides certain support services until such time as MLC Limited establishes its own standaloneenvironment and capability. These services include payroll, financial and investment reporting, infrastructure services, major systems and services are provided on an arm's length ) Structured entitiesA structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entities generally have restricted activities and a narrow and well defined objective which is created through contractual on the Group s power over the relevant activities of the structured entity and its exposure to and ability to influence its own returns, it may ormay not consolidate the ) Consolidated structured entitiesThe Group has interests in the following types of consolidated structured entities:SecuritisationThe Group engages in securitisation activities for funding and liquidity purposes. The Group principally packages and sells residential mortgage loans assecurities to investors through a series of securitisation vehicles. The Group is entitled to any residual income after all payments to investors and costsrelated to the program have been met. The note holders only have recourse to the pool of assets. The Group is considered to hold the majority of theresidual risks and benefits of the vehicles. All relevant financial assets continue to be held on the Group balance sheet, and a liability is recognised forthe proceeds of the funding Group provides liquidity facilities to the securitisation vehicles. The facilities can only be drawn to manage the timing mismatch of cash inflows fromsecuritised loans and cash outflows due to investors. The liquidity facility limit as at 30 September 2017 is $1,488 to ASIC instrument 15-0330 dated 29 May 2015, the Company is relieved from this requirement in respect of certain securitisation structuredentities to which the Group provides funding to and which are consolidated by the Company. With respect to each securitisation structured entity, relief isNotes to the financial statementsGroup structure (continued)104 NATIONAL AUSTRALIA BANKgranted until 30 September 2018. Each securitisation structured entity prepares an audited financial report following its year end and in accordance withits transaction bondsThe Group issues covered bonds for funding purposes. Housing loans are assigned to a bankruptcy remote structured entity to provide security for theobligations payable on the covered bonds issued by the Group. Similar to securitisation programs, the Group is entitled to any residual income after allpayments due to covered bonds investors and costs related to the program have been met. The covered bond holders have dual recourse to the Groupand the cover pool ) Unconsolidated structured entitiesUnconsolidated structured entities refer to all structured entities that are not controlled by the Group. The Group enters into transactions withunconsolidated structured entities in the normal course of business to facilitate customer transactions or for specific investment in unconsolidated structured entities include, but are not limited to, debt and equity investments, guarantees, liquidity arrangements,commitments, fees from investment structures, and derivative instruments that expose the Group to the risks of the unconsolidated structured do not include plain vanilla derivatives ( interest rate swaps and cross currency swaps) and positions where the Group: Creates rather than absorbs variability of the unconsolidated structured entity. Provides administrative, trustee or other services as agent to third party managed structured is considered on a case by case basis, taking into account the nature of the structured entity s activity. This excludes involvements thatexist only because of typical customer-supplier Group engages with third party (client) securitisation vehicles by providing warehouse facilities, liquidity support and derivatives. The Group investsin residential mortgage and asset-backed financingThe Group provides tailored lending to limited recourse single purpose vehicles which are established to facilitate asset financing for clients. The assetsare pledged as collateral to the Group. The Group engages in raising finance for leasing assets such as aircraft, trains, shipping vessels and otherinfrastructure assets. The Group may act as a lender, arranger or derivative counterparty to these financing transactions are generally senior, secured self-liquidating facilities in compliance with Group credit lending policies. Regular credit andfinancial reviews of the borrowers are conducted to ensure collateral is sufficient to support the Group s maximum fundsThe Group has direct interests in unconsolidated investment funds. The Group s interests include holding units and receiving fees for services. TheGroup s interest in unconsolidated investment funds is table below shows the carrying value and maximum exposure to loss of the Group s interests in unconsolidated structured Other financing Total Securitisations Other financing Total$m$m$m$m$m$mTrading securities37-37610-610Other financial assets at fair value46-46271-271Loans and advances7,2344,407 11,6418,5133,707 12,220Debt instruments through fair value through other comprehensive income10,332-10,3328,218-8,218Total carrying value of assets in unconsolidated structured entities17,6494,40722,05617,6123,70721,319Commitment / Contingencies4,2541,0305,2843,3961,2234,619Total maximum exposure to loss in unconsolidated structured entities21,9035,43727,34021,0084,93025,938The total assets of unconsolidated structured entities are not considered meaningful for the purpose of understanding the Group s financial risksassociated with these entities and so have not been presented. Unless specified otherwise, the Group s maximum exposure to loss is the total of its on-balance sheet positions and its off-balance sheet arrangements, being loan commitments, financial guarantees, and liquidity support. Exposure to lossis managed as part of the enterprise Group-wide risk management framework. Refer to Note 34 Financial risk management for further details. Incomeearned from interests in unconsolidated structured entities primarily result from interest income, mark-to-market movements and fees and majority of the Group s exposures are senior investment grade, but in some limited cases, the Group may be required to absorb losses fromunconsolidated structured entities before other parties because the Group s interests are subordinated to others in the ownership structure. The tablebelow shows the credit quality of the Group s exposures in unconsolidated structured entities:20172016Securitisations Other financing Total Securitisations Other financing Total$m$m$m$m$m$mSenior investment grade17,4951,021 18,51617,1581,212 18,370Investment grade1332,978 3,1114282,044 2,472Sub-investment grade2140842926451477Total (1)17,6494,40722,05617,6123,70721,319(1)Of the total, $22,013 million (2016: $21,293 million) represents the Group's interest in senior notes and $43 million in subordinated notes (2016: $26 million).Notes to the financial statementsGroup structure (continued)1052017 Annual Financial Report32 Contingent liabilities and credit commitments(a) Financial assets pledgedFinancial assets are pledged as collateral predominantly under repurchase agreements with other banks. The financial assets pledged by the Group arestrictly for the purpose of providing collateral for the counterparty. These transactions are conducted under terms that are usual and customary tostandard lending and securities borrowing and lending activities, as well as requirements determined by exchanges where the Group acts as anintermediary. Repurchase agreements that do not qualify for derecognition are reported in Note 36 Financial asset transfers and securitisations.(b) Contingent liabilities(i) Bank guarantees and letters of creditThe Group s exposure to potential loss in the event of non-performance by a counterparty in respect of commitments to extend credit, letters of creditand financial guarantees written is represented by the contractual notional principal amount of those instruments less any amounts that may berecovered under recourse provisions. The Group uses the same credit policies and assessment criteria in making commitments and conditionalobligations for off-balance sheet risks as it does for on-balance sheet loan Group provides guarantees in its normal course of business on behalf of its customers. Guarantees written are conditional commitments issued bythe Group to guarantee the performance of a customer to a third party. Guarantees are primarily issued to support direct financial obligations such ascommercial bills or other debt instruments issued by a counterparty. It is the credit rating of the Group as a guarantee provider that enhances themarketability of the paper issued by the counterparty in these circumstances. Guarantees are also provided on behalf of counterparties as performancebonds and ongoing obligations to government entities. The Group has four principal types of guarantees: Bank guarantees a financial guarantee that is an agreement by which the Group agrees to pay an amount of money on demand on behalf of acustomer to a third party during the life of the guarantee. Standby letters of credit an obligation of the Group on behalf of a customer to make payment to a third party in the event that the customer fails tomeet an outstanding financial obligation. Documentary letters of credit a guarantee that is established to indemnify exporters and importers in their trade transactions where the Groupagrees to make certain trade payments on behalf of a specified customer under specific conditions. Performance-related contingencies a guarantee given by the Group that undertakes to pay a sum of money to a third party where the customerfails to carry out certain terms and conditions of a credit risk involved in issuing guarantees is essentially the same as that involved in extending loan facilities to customers. Apart from the normaldocumentation for a facility of this type, the customer must also provide the Group with a written indemnity, undertaking that, in the event the Group iscalled upon to pay, the Group will be fully reimbursed by the financial guarantee contract is initially recorded at fair value which is equal to the premium received or receivable, unless there is evidence to thecontrary. Subsequently, financial guarantee contracts are measured at the higher of: The liability for the estimated amount of the loss payable where it is likely that a loss will be incurred as a result of issuing the contract; or The amount initially recognised less, when appropriate, amortisation of the fee over the life of the following table shows details of the Group s contingent liabilities in relation to bank guarantees and letters of credit for the last two financial years asat 30 September:GroupCompany2017201620172016$m$m$m$mBank guarantees and letters of creditBank guarantees4,6834,8024,6454,776Standby letters of credit5,4565,9535,4565,953Documentary letters of credit750715408318Performance-related contingencies8,6837,4358,0986,990Total bank guarantees and letters of credit19,57218,90518,60718,037(ii) Clearing and settlement obligationsThe Group is subject to a commitment in accordance with the rules governing clearing and settlement arrangements contained in the AustralianPayments Clearing Association Limited Regulations for the Australian Paper Clearing System, the Bulk Electronic Clearing System, the ConsumerElectronic Clearing System and the High Value Clearing System which could result in a credit risk exposure and loss in the event of a failure to settle bya member institution. The Group also has a commitment in accordance with the Austraclear System Regulations and the Continuous Linked SettlementBank Rules to participate in loss-sharing arrangements in the event that another financial institution fails to Group is a member of various central clearing houses, most notably the London Clearing House (LCH) SwapClear and RepoClear platforms andthe ASX OTC CCP, which enables the Group to centrally clear derivative and repurchase agreement instruments respectively. As a member of thesecentral clearing houses, the Group is required to make a default fund contribution. The exposure to risk associated with this commitment is reflected forCapital Adequacy purposes in the Group s Pillar 3 reporting. In the event of a default of another clearing member, the Group could be required tocommit additional funds to the default fund to the financial statementsUnrecognised items106 NATIONAL AUSTRALIA BANK(iii) Legal proceedings - generalEntities within the Group are defendants from time to time in legal proceedings arising from the conduct of their are contingent liabilities in respect of claims, potential claims and court proceedings against entities of the Group. Where appropriate, provisionshave been made. The aggregate of potential liability in respect thereof cannot be accurately assessed.(iv) Legal proceedings - specificBank Bill Swap Reference RateFollowing an industry-wide review by ASIC into participants in the Bank Bill Swap Reference Rate (BBSW) market, ASIC commenced Federal Courtproceedings against NAB on 7 June 2016. ASIC has also commenced similar proceedings against two other major Australian banks. ASIC's allegationsagainst NAB include claims of market manipulation and unconscionable conduct in relation to trading in the BBSW market during the period from June2010 to December 2012. NAB has agreed a settlement with ASIC (refer to Note 42 Events subsequent to reporting date). The financial impact of thissettlement has been reflected in the Group's 2017 full year class actionIn August 2016, a class action complaint was filed in the United States District Court for the Southern District of New York regarding alleged conductconcerning BBSW. The complaint named a number of defendants, including NAB, ANZ, CBA and Westpac, and references the proceedings brought byASIC against NAB, ANZ and Westpac in relation to BBSW. The potential outcome of these proceedings cannot be determined with any certainty at fee class actionOn 20 August 2014, a representative action was filed against Bank of New Zealand (BNZ) in relation to certain fees. On 8 May 2017, Fair Play on Feesagreed not to continue that representative action. BNZ agreed to make a contribution towards costs incurred in commencing the action. BNZ has notadmitted any liability.(v) Regulatory compliance investigations - generalEntities within the Group are subject from time to time to regulatory investigations arising from the conduct of their business. This includes regulatoryinvestigations in relation to actual or potential breaches of law or regulations. In addition to situations where the relevant regulatory authority is carryingout the investigation, this includes situations where the Group is carrying out the investigation itself or a third party has been engaged to carry out are contingent liabilities in respect of regulatory investigations involving entities of the Group. Where appropriate, provisions have been outcome of such regulatory investigations, including whether enforcement action will be taken or other legal proceedings initiated, is typicallyuncertain and the aggregate of potential liability in respect thereof cannot be accurately assessed.(vi) Regulatory compliance investigations - specificAdviser service feesASIC is conducting an industry-wide investigation into financial advice fees paid by customers pursuant to ongoing service arrangements with financialadvice firms, including members of the NAB Group. Under the service arrangements, customers generally pay an adviser service fee in considerationfor a range of services provided to the customer. NAB is investigating whether customers who have paid to receive ongoing services have beenprovided with the agreed services in accordance with the relevant service agreement with a member of the NAB Group. NAB continues to engage withASIC on the design of the methodology for investigating and assessing this matter; however, agreement with ASIC has not yet been reached due todifferent views about aspects of NAB's proposed approach. The outcomes of the investigation are uncertain at this Service FeesFurther to ASIC s May 2017 report about its industry-wide investigation into financial advice fees, NAB has finalised refunds to customers who did nothave a plan adviser attached to their superannuation account and were incorrectly charged Plan Service Fees. ASIC has requested NAB considercertain circumstances regarding continuity of service where a Plan Service Fee continues to be charged and paid to a plan adviser after asuperannuation fund member leaves an employer and a change to the member's superannuation plan occurs as a result. NAB continues to engage withASIC on this matter. The outcomes of the investigation are uncertain at this advice reviewIn October 2015, NAB began contacting certain groups of customers where there was a concern that they may have received non-compliant advicesince 2009 to: (a) assess the appropriateness of that advice; and (b) identify whether customers had suffered loss as a result of non-compliant advicethat would warrant compensation. These cases are progressing through the Customer Response Initiative review program with compensation in somecases offered and outcomes and total costs associated with this work are uncertain. Plaintiff law firms continue to encourage NAB customers who have sufferedlosses as a result of financial advice received from NAB advisers to contact them for legal advice. No class actions have been taken against the Groupin this to the financial statementsUnrecognised items (continued)1072017 Annual Financial ReportNZ Ministry of Business, Innovation and Employment compliance auditThe Labour Inspectorate of the New Zealand Ministry of Business, Innovation and Employment is currently undertaking a program of compliance auditsof a number of New Zealand organisations in respect of the New Zealand Holidays Act 2003 (the "Holidays Act"). BNZ requested early participation inthis program in May 2016 and received the Labour Inspectorate's final report, which set out its findings regarding BNZ's compliance with the HolidaysAct, on 18 January 2017. The findings indicated that BNZ has not complied with certain requirements of the Holidays Act, including in respect of annualand public holiday payments to certain employees. BNZ is reviewing the findings and is working with the Labour Inspectorate to reach an appropriateresolution. At this stage, the final outcome of the audit, including possible remediation, cannot be determined with any Laundering and Counter-Terrorist Financing Program Uplift WorkSince July 2016, NAB has been progressing a program of work to uplift and strengthen the Group Anti-Money Laundering (AML) and Counter-TerroristFinancing (CTF) Program and its implementation. The work involves significant investment in systems, ensuring an effective and efficient controlenvironment and uplifting compliance capability. In addition to a general uplift in capability, the program of work aims to remediate specific complianceissues and weaknesses if they are significant AML/CTF compliance issues are identified, they are notified to AUSTRAC or equivalent foreign regulators, and those regulators aretypically consulted and updated about progress in investigating and remediating the relevant issues. The Group is currently investigating andremediating a number of identified issues, including certain weaknesses with the implementation of Know Your Customer requirements and systemsand process issues that impacted transaction monitoring and reporting for some specific is possible that, as the work progresses, further issues may be identified and additional strengthening may be required. The outcomes of theinvestigation and remediation process for specific issues identified to date, and for any issues identified in the future, are uncertain.(vii) Contractual commitmentsInsurance claimsNAB is in the process of making insurance claims in relation to certain conduct-related losses suffered by the Group. The insurance claims areaccounted for by NAB as a contingent asset. The outcome of such claims cannot be determined with any certainty at this - generalEntities within the Group enter into contractual agreements from time to time, which sometimes involve giving contingent commitments such aswarranties, indemnities or are contingent liabilities in respect of such commitments. Where appropriate, provisions have been made. The aggregate potential liability inrespect thereof cannot be accurately conduct issues and the Conduct Indemnity DeedAs part of the arrangements relating to the CYBG demerger, NAB and CYBG entered into a Conduct Indemnity Deed under which NAB agreed, subjectto certain limitations, to provide an indemnity in respect of certain historic conduct liabilities (Capped Indemnity) up to a cap of billion (CappedIndemnity Amount). The Capped Indemnity provides CYBG with economic protection against certain costs and liabilities (including financial penaltiesimposed by a regulator) resulting from conduct issues relating to: payment protection insurance (PPI), certain interest rate hedging products (IRHP) and certain fixed rate tailored business loans (FRTBLs); and other conduct matters, measured by reference to the following thresholds: (a) claims relating to an industry wide compensation customer redressprogram entered into as part of a settlement with a regulator exceeding million, in aggregate; and (b) all other claims that exceed 5 million, in aggregate, and affect more than 50 customers,which, in each case, relate to conduct in the period prior to 8 February 2016 (the Demerger Date) whether or not known at the Demerger Date. Suchconduct issues include acts, omissions and agreements by or on behalf of CYBG Group with respect to customers which either constitute a breach of orfailure to comply with applicable law or regulations, or are determined by CYBG in good faith to be reasonably likely on a balance of probabilities toconstitute a breach of or failure to comply with applicable law or regulations. Certain other conduct matters, including matters arising from a review ofinvestment advice sales, have now satisfied the thresholds for inclusion as conduct issues covered by the Capped is not expected that payments to CYBG under the Capped Indemnity will be taxable in the hands of CYBG Group, but if tax were to be payable thenthe Conduct Indemnity Deed contains provisions pursuant to which NAB has agreed to compensate CYBG for any actual tax incurred that would nothave been incurred but for the receipt of amounts under the Capped may be made by CYBG under the Capped Indemnity when it or any member of CYBG Group raises a new provision or increases an existingprovision in respect of any such conduct issues. Under a loss sharing arrangement, CYBG will be responsible for of the liabilities under anyprovision for such conduct issues with NAB responsible for the remainder under the Capped Indemnity up to the Capped Indemnity Amount. TheCapped Indemnity is perpetual in nature, although NAB has rights in certain circumstances to negotiate arrangements to terminate the CappedIndemnity subject to the approval of the the year ended 30 September 2017, CYBG has made claims under the Capped Indemnity for 171 million, leaving 511 million outstanding asavailable support under the Capped Indemnity (Unutilised Indemnity Amount). In addition, NAB has increased the amount of provisions held forexpected future claims under the Conduct Indemnity Deed by 343 million (representing the portion of any increased CYBG provision for which NABwould be responsible under the loss sharing arrangement). If CYBG makes claims under the Conduct Indemnity Deed for this amount, it would reducethe Unutilised Indemnity Amount to 168 to the financial statementsUnrecognised items (continued)108 NATIONAL AUSTRALIA BANKThe Unutilised Indemnity Amount at any point in time is accounted for by NAB as a contingent liability, with any potential future losses incurred under theindemnity expensed within discontinued operations. The frequency and timing of any potential future losses is presently unknown. The amount of theCapped Indemnity that will be utilised by any potential future losses cannot be determined with any certainty at this collateralised its obligations under the Capped Indemnity by placing a cash deposit of billion with The Bank of England from the DemergerDate. The cash deposit with The Bank of England has been reduced commensurate with the amounts claimed under the Capped Indemnity such thatthe cash deposit amount is equal to the Unutilised Indemnity Amount (plus accrued interest). The Unutilised Indemnity Amount is treated as a CommonEquity Tier 1 (CET1) deduction for for the Capped Indemnity and the tax provisions set out in the Conduct Indemnity Deed, CYBG has agreed to release NAB from liability for anyother conduct-related claims by any member of CYBG Group against NAB.(c) Credit-related commitmentsBinding commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Since many of thecommitments are expected to expire without being drawn down, the total commitment amounts do not necessarily represent future cash to Note 16 Loans and advances for a description of collateral held as security and other credit following tables show details of the notional amount of credit-related commitments as at 30 September 2017 and 30 September 2016:GroupCompany2017201620172016$m$m$m$mCredit-related commitmentsUnderwriting facilities2222Binding credit commitments151,375146,801134,267129,487Total credit-related commitments151,377146,803134,269129,489GroupCompany2017201620172016$m$m$m$mAustralia123,599120,534122,930119,871New Zealand16,43916,651--Other International11,3399,61811,3399,618Total151,377146,803134,269129,489(d) Parent entity guarantee and undertakingsThe Company has provided the following guarantees and undertakings relating to entities in the Group. These guarantees and undertakings arenot included in previous tables in the note. The Company will guarantee up to $25,505 million (2016: $26,224 million) of commercial paper issuances by National Australia Funding (Delaware)Inc. Commercial paper of $189 million (2016: $301 million) has been issued. The Company is responsible to its customers for any direct loss suffered as a result of National Nominees Limited failing to perform its obligations tothe Company. The Company and National Wealth Management Services Limited (NWMSL) have been granted licences by the Safety, Rehabilitation andCompensation Commission (the Commission) to operate as self-insurers under the Commonwealth Government Comcare Scheme. Under thesearrangements, the Company has agreed that, in the event it is proposed that NWMSL no longer continues as a wholly owned controlled entity of theCompany, the Company will provide the Commission with a guarantee of the then current workers compensation liabilities of NWMSL. The Company has issued letters of support in respect of certain subsidiaries in the normal course of business. The letters recognise that theCompany has a responsibility to ensure that those subsidiaries continue to meet their Company is no longer party to nor has any outstanding liabilities under a deed of cross guarantee with certain controlled entities. Previously,pursuant to Australian Securities and Investment Commission Class Order 98/1418 dated 13 August 1998 (Class Order), relief was granted to certaincontrolled entities from the Corporations Act 2001 (Cth) requirements for preparation, audit and publication of annual financial reports. It was a conditionof the Class Order that the Company and each of the controlled entities enter into a deed of cross guarantee. On 28 September 2016, ASIC issued anew relief instrument replacing the Class Order, under which APRA regulated entities can no longer be a party to a deed of cross guarantee. As a resultthe deed of guarantee between the Company and certain controlled entities was revoked, with the deed of revocation taking effect on 29 to the financial statementsUnrecognised items (continued)1092017 Annual Financial Report33 Operating leasesAt the inception of an arrangement, the Group determines whether the arrangement is, or contains, a lease. A specific asset is the subject of a lease iffulfilment of the arrangement is dependent on the use of that specified asset and the arrangement conveys a right to use the asset. At inception or uponreassessment of an arrangement, the Group separates payment and other consideration required by such an arrangement into those for the lease andthose for other elements on the basis of their relative fair where the Group assumes substantially all risks and rewards of ownership are classified as finance leases. All other leases are classified asoperating the Group is the lessee, the future minimum lease payments under non-cancellable operating leases are:GroupCompany2017201620172016$m$m$m$mDue within one year393371336322Due after one year but no later than five years976963849833Due after five years558613524575Total non-cancellable operating lease commitments1,9271,9471,7091,730The Group leases various offices, stores and other premises under non-cancellable operating lease arrangements. The leases have various terms,escalation and renewal rights. There are no contingent rents payable. The Group also leases data processing and other equipment under non-cancellable lease to the financial statementsUnrecognised items (continued)110 NATIONAL AUSTRALIA BANK34 Financial risk managementThe Group is a major participant in the banking and financial services industry in Australia and New Zealand. The financial risks associated with theseactivities are a significant component of the Group s overall risk exposure. The key financial risks faced by the Group are: Credit risk. Market risk - trading. Market risk - non-trading / banking positions. Liquidity details regarding the nature and extent of each key financial risk faced by the Group and how these risks are managed are outlined as part ofthis note. Financial risks together with other material risks faced by the Group, including operational, compliance and regulatory risks, are managed andoverseen as part of the Group s broader corporate governance structure and risk management framework as follows:Board GovernanceA transparent and robust corporate governance structure is in place for the Group with supporting processes aimed to meet the needs and expectationsof shareholders and stakeholders. The Board s key role is to create and deliver value to shareholders by effectively governing the Group, while havingregard to the interests of all stakeholders. The Board has established a number of committees to assist it in carrying out its responsibilities and theseoperate under specific delegated authority granted by the Board and provide specialised focus on particular areas as articulated in their Board Risk Committee (BRC) supports the framework for risk management across the Group by: Overseeing the risk profile and risk management of the Group within the context of the Board determined risk appetite. Making recommendations to the Board concerning the Group s risk appetite, risk management strategy and particular risks or risk managementpractices. Reviewing management s plans for mitigation of material risks faced by the Group. Overseeing the implementation and review of the risk management framework and internal compliance and control systems throughout the Group. Promoting awareness of a risk-based culture and the achievement of a balance between risk and return for risks GovernanceThe Board delegates responsibility to the Group CEO to manage the day to day operations of the Group. At an executive level, risk management is ledby the Group CEO and the Group Risk Return Management Committee (GRRMC) which is accountable for matters relating to culture, risk strategy andperformance and integrated governance processes. A number of sub-committees support the GRRMC in governing specific material risks, as follows: Group Asset & Liability Committee (GALCO): balance sheet structure. Group Credit and Market Risk Committee (GCMRC): credit and traded market risk portfolio. Group Models Risk Committee (GMRC): models risk. Group Regulatory, Compliance and Operational Risk Committee (GRCORC): operational, regulatory and compliance Line risk committees provide governance in support of the management of risk matters, including material risks across the value chain. SecondLine risk specialists are members of these committees to provide oversight, review and managementEffective risk management, including a sound risk culture, is essential to achieving the Group's vision to be Australia and New Zealand s most respectedbank. Maintaining focus on risk and compliance is a non-negotiable , with risk being one of the three foundations of the One NAB Group undertakes annual strategic planning to establish the strategic objectives and ensure that risk appetite and strategy are approach to risk management is based on a Three Lines of Defence model. Risk Management Accountabilities are allocated for risk ownership (firstline) and functionally independent oversight (second line) and assurance (third line).Further details of risk accountabilities across the Group are disclosed in the Corporate Governance section of the Group s website at key financial risks faced by the Group are set out in detail in this riskCredit is any transaction that creates an actual or potential obligation for a counterparty or customer to pay the Group. Credit risk is the potential that acounterparty or customer will fail to meet its obligations to the Group in accordance with agreed terms. Bank lending activities account for most of theGroup s credit risk, however other sources of credit risk also exist throughout the activities of the Group. These activities include the banking book, thetrading book, and other financial instruments and loans (including, but not limited to, acceptances, placements, inter-bank transactions, trade financing,foreign exchange transactions, swaps, bonds and options), as well as in the extension of commitments and guarantees and the settlement Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to existing or potentialcounterparties or customers, groups of related counterparties or groups of related customers, and to geographical and industry segments. Such risksare monitored on an ongoing basis and are subject to an annual or more frequent to the financial statementsRisk disclosures1112017 Annual Financial ReportIn general, the Group does not take possession of collateral it holds as security or call on other credit enhancements that would result in recognition ofan asset on the balance to credit risk is managed through regular analysis of the ability of existing or potential counterparties, customers, groups of relatedcounterparties or groups of related customers to meet interest and capital repayment obligations and by changing lending limits where to credit risk is also managed in part by obtaining collateral and corporate and personal Group further restricts its exposure to credit losses by entering into master netting arrangements with counterparties with which it undertakes asignificant volume of transactions. Master netting arrangements do not generally result in an offset of balance sheet assets and liabilities, astransactions are usually settled on a gross basis. However, the credit risk associated with favourable contracts is reduced by a master nettingarrangement to the extent that if any counterparty failed to meet its obligations in accordance with agreed terms, all amounts with the counterparty areterminated and settled on a net quantitative details around the effect of such netting arrangements are outlined in the Offsetting of financial assets and liabilities disclosures onpage exposure to credit riskThe table below shows the maximum exposure to credit risk for recognised and unrecognised financial instruments. The maximum exposure is showngross before both the effect of mitigation through use of master netting and collateral arrangements. The extent to which collateral and other creditenhancements mitigate the maximum exposure to credit risk is described in the footnotes to the financial assets recognised on the balance sheet, the maximum exposure to credit risk equals their carrying financial guarantees granted, the maximum exposure to credit risk is the maximum amount that the Group would have to pay if the guarantees arecalled upon. For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximumexposure to credit risk is the full amount of the committed $m$m$m$mFinancial assetsCash and liquid assets(a)42,66429,60641,11727,822Due from other banks(b)37,06645,23635,03043,359Trading derivatives(c)29,13743,14630,38342,467Trading securities(d)50,95445,97145,63741,513Debt instruments at fair value through other comprehensive income(d)42,13140,68942,02940,580Other financial assets at fair value(e)16,05821,49611,82514,831Hedging derivatives(c)3,8926,7413,8166,319Loans and advances(e)543,764513,691471,451444,646Due from customers on acceptances(e)6,78612,2056,78612,205Due from controlled entities(f)--109,163119,414Other assets(f)7,6499,4615,9207,725Total780,101768,242803,157800,881Contingent liabilities(g)19,57218,90518,60718,037Credit-related commitments(g)151,377146,803134,269129,489Total170,949165,708152,876147,526Total credit risk exposure951,050933,950956,033948,407a) The balance of Cash and liquid assets which is exposed to credit risk is comprised primarily of reverse repurchase agreements and securitiesborrowing agreements. These are collateralised with highly liquid securities and the collateral is in excess of the borrowed or loaned amount. The fairvalue of the securities pledged as collateral by the counterparty under these agreements is disclosed in Note 10 Cash and cash ) The balance of Due from other banks which is exposed to credit risk is comprised primarily of securities borrowing agreements and reverserepurchase agreements, as well as balances held with central supervisory banks and other interest earning assets. Securities borrowing agreementsand reverse repurchase agreements are collateralised with highly liquid securities and the collateral is in excess of the borrowed or loaned amount. Thefair value of the securities pledged as collateral by the counterparty under these agreements is disclosed in Note 10 Cash and cash held with central supervisory banks and other interest earning assets that are due from other banks are managed based on the counterparty'screditworthiness. The Group will utilise master netting arrangements where possible to reduce its exposure to credit risk. Details on the credit grading ofDue from other banks balances held by the Group is disclosed in the credit quality table included within the Financial assets neither past due norimpaired disclosure beginning on page ) At any one time, the maximum exposure to credit risk from Trading and hedging derivatives is limited to the current fair value of instruments thatare favourable to the Group less collateral obtained. This credit risk is managed as part of the overall lending limits with customers, together withpotential exposures from market Group uses documentation including International Swaps and Derivatives Association (ISDA) Master Agreements to document derivative the ISDA Master Agreements, if a default of a counterparty occurs, all contracts with the counterparty are terminated. They are then settled on anet basis at market levels current at the time of default. The Group also executes Credit Support Annexes in conjunction with ISDA Master to the financial statementsRisk disclosures (continued)112 NATIONAL AUSTRALIA BANKCredit risk from over-the-counter trading and hedging derivatives is mitigated where possible through netting arrangements whereby derivative assetsand liabilities with the same counterparty can be offset in certain circumstances. Derivatives that are cleared through a central clearing counterparty oran exchange have less credit risk than over the counter derivatives and are subject to relevant netting and collateral is obtained against derivative assets, depending on the creditworthiness of the counterparty and / or the nature of the ) Trading securities and Debt instruments at fair value through other comprehensive income are generally comprised of similar financialinstruments being Government, Semi-government, Corporate and Financial institution bonds, notes and securities. The amount of collateral held againstsuch instruments will depend on the counterparty and the nature of the specific financial Group may utilise Credit Default Swaps (CDS), guarantees provided by central banks, other forms of credit enhancements or collateral in order tominimise the Group s exposure to credit risk. The credit grading of Debt instruments at fair value through other comprehensive income are disclosed inthe credit quality table included within the Financial assets neither past due nor impaired disclosure beginning on page ) Other financial assets at fair value, Loans and advances and Due from customers on acceptances, mainly comprise general lending and lineof credit products. The distinction in classification reflects the type of lending product or is due to an accounting designation. These lending products willgenerally have a significant level of collateralisation depending on the nature of the lending to non-retail customers may be provided on an unsecured basis or secured (partially or fully) by acceptable collateral defined in specificGroup credit policy and business unit procedures. Collateral is generally comprised of business assets, inventories and in some cases personal assetsof the borrower. The Group manages its exposure to these products by completing a credit evaluation to assess the customer s character, industry,business model and capacity to meet their commitments without distress. Collateral provides a secondary source of repayment for funds advanced inthe event that a customer cannot meet their contractual repayment obligations. For amounts due from customers on acceptance the Group generallyhas recourse to guarantees, underlying inventories or other assets in the event of default which significantly mitigates the credit risk associated withaccepting the customer s credit facility with a third loans are secured against residential property as collateral, and where applicable, Lenders Mortgage Insurance (LMI) is obtained by the Group(mostly in Australia) in order to cover any shortfall in outstanding loan principal and accrued interest. LMI is generally obtained for residential mortgageswith a Loan to Valuation Ratio (LVR) in excess of 80%. The financial effect of these measures is that remaining credit risk on residential mortgage loansis minimal. Other retail lending products are mostly unsecured ( credit card outstandings and other personal lending).f) The balance of Other assets which is exposed to credit risk is primarily comprised of investments relating to life insurance business, interestreceivable accruals and other receivables. Interest receivable accruals are subject to the same collateral as the underlying borrowings. Otherreceivables will mostly be unsecured. There are typically no collateral or other credit enhancements obtained in respect of amounts Due fromcontrolled ) Contingent liabilities and credit-related commitments are comprised mainly of guarantees to customers, standby or documentary letters of credit,performance related contingencies and binding credit commitments. The Group will typically have recourse to specific assets pledged as collateral in theevent of a default by a party for which the Group has guaranteed its obligations to a third party and therefore tend to carry the same credit risk as respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss of an amount equal to the total unusedcommitments. However, the likely amount of loss is generally less than the total unused commitments, as most commitments to extend credit arecontingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because, in general,longer term commitments have a greater degree of credit risk than shorter term of the guarantees, letters of credit, performance-related contingencies and credit-related commitments are described in Note 32 Contingentliabilities and credit to the financial statementsRisk disclosures (continued)1132017 Annual Financial ReportOffsetting of financial assets and liabilitiesThe table below illustrates the amounts of financial instruments that have been offset on the balance sheet and also those amounts that are subject toenforceable master netting arrangements or similar agreements ( offsetting agreements and any related financial collateral). The table excludesfinancial instruments not subject to offset and that are only subject to collateral arrangements ( loans and advances).The Net Amounts presented in the table are not intended to represent the Group s actual exposure to credit risk, as the Group will utilise a wide rangeof strategies to mitigate credit risk in addition to netting and collateral arrangements. The offsetting and collateral arrangements and other credit riskmitigation strategies are further explained beginning on page amounts recognised on the balance sheet comprise of the sum of the Net amounts reported on balance sheet and Amounts not subject toenforceable netting arrangements included in the table subject to enforceable netting arrangementsAmounts notsubject toenforceablenettingarrangements(1)Effect of offsetting on balance sheetRelated amounts not offsetGrossamountsAmountoffset(2)Net amountsreported onbalance sheetFinancialInstruments(3)Non CashCollateral(4)CashCollateral(4)Net AmountGroup$m$m$m$m$m$m$m$mDerivative financial assets (5)46,96721,16025,80717,1491816,1282,3497,222Reverse repurchaseagreements (6)72,28123,97248,309-48,309---Total assets119,24845,13274,11617,14948,4906,1282,3497,222Derivative financial liabilities (7)46,77021,16025,61017,1494065,2472,8083,251Repurchase agreements (8)67,41723,97243,445-43,445---Total liabilities114,18745,13269,05517,14943,8515,2472,8083,251(1)Amounts not subject to enforceable netting arrangements relate to items which do not have an enforceable netting arrangement in place or there is uncertainty as to the legal enforceability of a close outnetting arrangement in a default or liquidation under the laws of a specific jurisdiction.(2)Amount offset comprises of certain centrally cleared derivatives and their associated collateral amounts which are deemed to satisfy the AASB 132 "Financial Instruments: Presentation" offsetting collateral amounts in the Group of $1,729 million and $358 million were netted against Other assets and Other liabilities, respectively, and in the Company $1,391 million and $358 million,respectively.(3)Financial instruments include recognised financial instruments amounts on the balance sheet.(4)Collateral amounts (cash and non-cash financial collateral) included are reflected at their fair value; however this amount is limited to the net balance sheet exposure in order to not include any over-collateralisation.(5)Derivative financial assets comprise of both trading and hedging derivatives assets reported on the Group balance sheet as $29,137 million and $3,892 million, respectively (2016: $43,146 million and $6,741million), and on the Company balance sheet as $30,383 million and $3,816 million, respectively (2016: $42,467 million and $6,319 million).(6)Reverse repurchase agreements of $48,309 million (2016: $37,283 million) are reported on the Group balance sheet within Cash and liquid assets of $40,766 million (2016: $28,219 million) and Due fromother banks of $7,543 million (2016: $9,064 million). Reverse repurchase agreements of $48,006 million (2016: $36,662 million) are reported on the Company balance sheet within Cash and liquid assets of$40,627 million (2016: $27,762 million) and Due from other banks of $7,379 million (2016: $8,900 million).(7)Derivative financial liabilities comprise of both trading and hedging derivatives liabilities reported on the Group balance sheet as $27,187 million and $1,674 million, respectively (2016: $41,559 million and$3,402 million) and on the Company balance sheet as $27,065 million and $3,859 million, respectively (2016: $38,901 million and $6,701 million).(8)Repurchase agreements of $43,445 million (2016: $34,422 million) are reported on the Group balance sheet within Due to other banks of $19,952 million (2016: $18,358 million) and Deposits and otherborrowings of $23,493 million (2016: $16,064 million). Repurchase agreements of $43,822 million (2016: $34,249 million) are reported on the Company balance sheet within Due to other banks of $20,329million (2016: $18,185 million) and Deposits and other borrowings of $23,493 million (2016: $16,064 million).Notes to the financial statementsRisk disclosures (continued)114 NATIONAL AUSTRALIA BANK2016 (1)Amount subject to enforceable netting arrangementsAmounts notsubject toenforceablenettingarrangementsEffect of offsetting on balance sheetRelated amounts not offsetGrossamountsAmountoffsetNet amountsreported onbalance sheetFinancialInstrumentsNon CashCollateralCashCollateral Net AmountGroup (2)$m$m$m$m$m$m$m$mDerivative financial assets72,78930,99841,79130,3562907,7863,3598,096Reverse repurchase agreements58,81221,52937,283-37,283---Total assets131,60152,52779,07430,35637,5737,7863,3598,096Derivative financial liabilities71,04030,99840,04230,3562308,6238334,919Repurchase agreements55,95121,52934,422-34,422---Total liabilities126,99152,52774,46430,35634,6528,6238334,9192017Amount subject to enforceable netting arrangementsAmounts notsubject toenforceablenettingarrangementsEffect of offsetting on balance sheetRelated amounts not offsetGrossamountsAmountoffsetNet amountsreported onbalance sheetFinancialInstrumentsNon CashCollateralCashCollateral Net AmountCompany (2)$m$m$m$m$m$m$m$mDerivative financial assets46,37519,18227,19317,2741815,8333,9057,006Reverse repurchaseagreements71,97823,97248,006-48,006---Total assets118,35343,15475,19917,27448,1875,8333,9057,006Derivative financial liabilities46,97719,18227,79517,2744065,0625,0533,129Repurchase agreements67,79423,97243,822-43,822---Total liabilities114,77143,15471,61717,27444,2285,0625,0533,1292016 (1)Amount subject to enforceable netting arrangementsAmounts notsubject toenforceablenettingarrangementsEffect of offsetting on balance sheetRelated amounts not offsetGrossamountsAmountoffsetNet amountsreported onbalance sheetFinancialInstrumentsNon CashCollateralCashCollateral Net AmountCompany (2)$m$m$m$m$m$m$m$mDerivative financial assets72,66830,99841,67028,5572907,5165,3077,116Reverse repurchase agreements58,19121,52936,662-36,662---Total assets130,85952,52778,33228,55736,9527,5165,3077,116Derivative financial liabilities72,23730,99841,23928,5572307,4075,0454,363Repurchase agreements55,77821,52934,249-34,249---Total liabilities128,01552,52775,48828,55734,4797,4075,0454,363(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)Refer to the footnotes on the 2017 Group table (on the previous page) for further financial assets and liabilitiesDerivative financial instrument contracts are typically subject to International Swaps and Derivatives Association (ISDA) Master Agreements, and alsorelevant Credit Support Annexes (CSA) pertaining to collateral arrangements attached to those ISDA agreements, or derivative exchange or clearingcounterparty agreements if contracts are settled via an exchange or clearing amounts will only be offset on the balance sheet where the Group has a legally enforceable right of offset in all circumstances and there is anintention to settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously. During 2017, the Group has appliedoffsetting of certain centrally cleared derivatives and their associated collateral amounts which were deemed to satisfy the AASB 132 "FinancialInstruments: Presentation" amounts included in the Financial Instruments column refers to amounts that are subject to relevant close out netting arrangements under arelevant ISDA agreement. The Cash Collateral and Non Cash Collateral columns include amounts of cash and non-cash collateral, respectively, whichare either obtained or pledged, to cover the net exposure to the counterparty in the event of default or to the financial statementsRisk disclosures (continued)1152017 Annual Financial ReportReverse repurchase and Repurchase agreementsReverse repurchase and Repurchase agreements will typically be subject to Global Master Repurchase Agreements (GMRAs) or similar agreementswhereby all outstanding transactions with the same counterparty can only be offset and closed out upon a default or insolvency event. In someinstances the agreement provides the Group with a legally enforceable right of offset in all circumstances. In such a case and where there is an intentionto settle the asset and liability on a net basis, or to realise the asset and settle the liability simultaneously, the amounts with that counterparty will beoffset on the balance the Group has a right of offset on default or insolvency only, the related non cash collateral amounts comprise highly liquid securities, eitherobtained or pledged, which can be realised in the event of a default or insolvency by one of the counterparties. The value of such securities obtained orpledged must at least equate to the value of the exposure to the counterparty, therefore the net exposure is considered to be quality of financial assetsThe Group has an internally developed credit rating master-scale derived from historical default data drawn from a number of sources to assess thepotential default risk in lending or through providing other financial services products to counterparties or customers. The Group has pre-definedcounterparty probabilities of default across almost all retail and non-retail loans and advances. For non-retail, these can be broadly mapped to externalrating agencies and comprises performing (pre-default) and non-performing (post-default) , assumptions and techniques used for estimating impairmentIn assessing the impairment of financial assets under the expected credit loss model, the Group defines default in accordance with its Credit Policy andProcedures, which includes defaulted assets and impaired assets as described below. Default occurs when a loan obligation is 90 days or more pastdue, or when it is considered unlikely that the credit obligation to the Group will be paid in full without recourse to actions, such as realisation of exposures under the expected credit loss model consist of: Retail loans (excluding unsecured portfolio managed facilities) which are contractually 90 days or more past due with insufficient security to coverprincipal and arrears of interest revenue. Non-retail loans that are contractually 90 days or more past due and / or sufficient doubt exists about the ability to collect principal and interest in atimely manner. Off-balance sheet credit exposures where current circumstances indicate that losses may be incurred. Unsecured portfolio managed facilities which are 180 days past due (if not written off).Assessment of significant increase in credit riskWhen determining whether the risk of default has increased significantly since initial recognition, the Group considers both quantitative and qualitativeinformation and analysis based on the Group s historical experience and expert credit risk assessment, including forward-looking information. Retailfacilities use the number of days past due (DPD) to determine significant increase in credit risk. For non-retail facilities, internally derived credit ratingsas described above have been identified as representing the best available determinant of credit risk. The Group assigns each facility a credit rating atinitial recognition based on available information about the borrower. Credit risk is deemed to have increased significantly if the credit rating hassignificantly deteriorated at the reporting date relative to the credit rating at the date of initial recognition. In addition, as a backstop, the Group considersthat significant increase in credit risk occurs when an asset is more than 30 of expected credit lossesExpected credit losses (ECLs) are calculated using three main components, a probability of default (PD), a loss given default (LGD) and anexposure at default (EAD). These parameters are generally derived from internally developed statistical models combined with historical, current andforward-looking customer and macro-economic data. For accounting purposes, the 12-months and lifetime PD represent the expected point-in-timeprobability of a default over the next 12 months and remaining lifetime of the financial instrument, respectively, based on conditions existing at thebalance sheet date and future economic conditions that affect credit risk. The LGD represents expected loss conditional on default, taking into accountthe mitigating effect of collateral, its expected value when realised and the time value of money. The EAD represents the expected exposure at default,taking into account the repayment of principal and interest from the balance sheet date to the default event together with any expected drawdown of afacility. The 12-months ECL is equal to the discounted sum over the next 12-months of monthly PD multiplied by LGD and EAD. Lifetime ECL iscalculated using the discounted sum of monthly PD over the full remaining life multiplied by LGD and of forward-looking informationThe Group has established an expert panel who considers a range of relevant forward-looking macro-economic assumptions for the determination ofunbiased general industry adjustments and any related specific industry adjustments, that support the calculation of ECLs. The expert panel consists ofsenior executives from risk, finance and economics functions. Relevant regional and industry specific adjustments are applied to capture variations fromgeneral industry scenarios. These reflect reasonable and supportable forecasts of future macro-economic conditions that are not captured within thebase ECL calculations. Macro-economic factors taken into consideration include, but are not limited to, unemployment, interest rates, gross domesticproduct, inflation and commercial property prices, and require an evaluation of both the current and forecast direction of the macro-economic forward-looking information increases the degree of judgement required as to how changes in these macro-economic factors will affectECLs. The methodologies and assumptions including any forecasts of future economic conditions are reviewed to the financial statementsRisk disclosures (continued)116 NATIONAL AUSTRALIA BANKFinancial assets neither past due nor impairedThe credit quality of the portfolio of financial assets that are neither past due nor impaired can be assessed by reference to the Group s standard creditrating. The credit rating system is supported by a variety of financial analytics, non-financial information, combined with processed market information toprovide the main inputs for the measurement of counterparty / customer risk. All internal risk ratings are tailored to the various categories and arederived in accordance with the Group s rating policy. Refer to Note 1 (g) Financial instruments (vi) - Impairment of financial assets for details on theassessment of credit tables below represent an analysis of the credit quality of relevant financial assets that are neither past due nor impaired, based on the followinggrades: Senior investment grade: broadly corresponds with Standard & Poor s ratings of AAA to A- (internal rating 1 to 5). Investment grade: broadly corresponds with Standard & Poor s ratings of BBB+ to BBB- (internal rating 6 to 11). Sub-investment grade: broadly corresponds with Standard & Poor s ratings of BB+ up to but not including defaulted or impaired (internal rating 12 to23).GroupCompanyGroupCompanyLoans and advances (1)Loans and advances (1)AcceptancesAcceptances20172016201720162017201620172016$m$m$m$m$m$m$m$mSenior investment grade88,898120,98870,213104,68046494649Investment grade244,231199,305222,115178,4731,6492,8711,6492,871Sub-investment grade197,525180,263167,249150,1665,0919,2855,0919,285Total530,654500,556459,577433,3196,78612,2056,78612,205(1)For the year ended 30 September 2017, mortgages previously classified as Senior investment grade, have been reclassified as Investment grade and Sub-investment grade reflecting the impact of a modelchange for the Australian mortgage portfolio implemented during the September 2017 full year. Prior year comparatives have not been restated to reflect these from other banksDue from other banksDebt instruments atFVOCIDebt instruments atFVOCI20172016201720162017201620172016$m$m$m$m$m$m$m$mSenior investment grade34,93442,59332,89840,71641,84240,35341,75440,262Investment grade2,0642,5992,0642,599289336275318Sub-investment grade68446844----Total37,06645,23635,03043,35942,13140,68942,02940,580Credit risk exposures by risk gradeThe tables below show significant exposures to credit risk to which the expected credit loss model is applied, for recognised and unrecognised financialassets, based on the following risk grades: Senior investment grade: broadly corresponds with Standard & Poor s ratings of AAA to A- (internal rating 1 to 5). Investment grade: broadly corresponds with Standard & Poor s ratings of BBB+ to BBB- (internal rating 6 to 11). Sub-investment grade: broadly corresponds with Standard & Poor s ratings of BB+ (internal rating 12 to 23). Default: broadly corresponds with Standard & Poor s rating of D (internal rating 98 and 99).Loans and advances and loan commitments for which the loss allowance is measured at: (1)Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Group$m$m$m$m$m$m$m$mSenior investment grade148,251180,034----148,251180,034Investment grade308,478261,1224,1422,486--312,620263,608Sub-investment grade163,655152,43582,12374,316--245,778226,751Default--1,9711,6185,6586,1527,6297,770Total620,384593,59188,23678,4205,6586,152714,278678,163(1)For the year ended 30 September 2017, mortgages previously classified as Senior investment grade, have been reclassified as Investment grade and Sub-investment grade reflecting the impact of a modelchange for the Australian mortgage portfolio implemented during the September 2017 full year. Prior year comparatives have not been restated to reflect these to the financial statementsRisk disclosures (continued)1172017 Annual Financial ReportAcceptances for which the loss allowance is measured at:Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Group$m$m$m$m$m$m$m$mSenior investment grade4852----4852Investment grade1,6612,91689264--1,7503,180Sub-investment grade2,4135,1542,9805,022--5,39310,176Default----30333033Total4,1228,1223,0695,28630337,22113,441Debt instruments at fair value through other comprehensive income for which the loss allowance ismeasured at:Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Group$m$m$m$m$m$m$m$mSenior investment grade41,84240,353----41,84240,353Investment grade289336----289336Sub-investment grade--------Default--------Total42,13140,689----42,13140,689Loans and advances and loan commitments for which the loss allowance is measured at: (1)Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Company$m$m$m$m$m$m$m$mSenior investment grade124,148157,981----124,148157,981Investment grade281,401234,4022,9721,975--284,373236,377Sub-investment grade142,730130,37765,83659,754--208,566190,131Default--1,9711,6144,8344,8326,8056,446Total548,279522,76070,77963,3434,8344,832623,892590,935(1)For the year ended 30 September 2017, mortgages previously classified as Senior investment grade, have been reclassified as Investment grade and Sub-investment grade reflecting the impact of a modelchange for the Australian mortgage portfolio implemented during the September 2017 full year. Prior year comparatives have not been restated to reflect these for which the loss allowance is measured at:Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Company$m$m$m$m$m$m$m$mSenior investment grade4852----4852Investment grade1,6612,91689264--1,7503,180Sub-investment grade2,4135,1542,9805,022--5,39310,176Default----30333033Total4,1228,1223,0695,28630337,22113,441Notes to the financial statementsRisk disclosures (continued)118 NATIONAL AUSTRALIA BANKDebt instruments at fair value through other comprehensive income for which the loss allowance ismeasured at:Stage 1Stage 2Stage 312-months expectedcredit lossLifetime expected creditlossesLifetime expected creditlossesTotalNot credit impairedNot credit impairedCredit impaired20172016201720162017201620172016Company$m$m$m$m$m$m$m$mSenior investment grade41,75440,262----41,75440,262Investment grade275318----275318Sub-investment grade--------Default--------Total42,02940,580----42,02940,580Risk concentrationsConcentration of risk is managed by client / counterparty, by industry sector and by geographical concentrationConcentration of risk to a counterparty or groups of related counterparties is monitored in accordance with APS 221 Large Exposures , including theestablishment of policies governing large exposures, implementation of appropriate limits and regular monitoring and reporting against those of exposureConcentration of credit risk exists when a number of counterparties are engaged in similar activities, or operate in the same geographical areas orindustry sections and have similar economic characteristics so that their ability to meet contractual obligations is similarly affected by changes ineconomic, political or other diversification and size of the Group are such that its lending is widely spread both geographically and in terms of the types of industries it concentration of financial assetsThe following tables show the level of industry concentrations of financial assets as at 30 September:Loans at fair valueLoans at amortisedcostProvisions fordoubtful debtsContingentliabilities andcredit-relatedcommitments201720162017201620172016 2017 2016Group$m$m$m$m$m$m$m$mGovernment and public authorities2363741,9421,881111,2571,567Agriculture, forestry, fishing and mining3,9645,83531,47129,53058672611,10711,381Financial, investment and insurance47259922,64821,80911511224,43122,040Real estate - construction1432072,6042,59543422,1502,061Manufacturing8271,0079,7209,3812142427,3618,183Instalment loans to individuals and other personal lending(including credit cards)132610,86511,06231930915,52215,683Real estate - mortgage--329,534314,55742225353,48452,367Asset and lease financing--11,67410,94911196119168Commercial property services5,3596,65058,01851,58348136314,73013,549Other commercial and industrial3,5825,16665,28860,34493297040,78838,709Total14,59619,864543,764513,6913,2243,114170,949165,708Due from other banksDebt instruments at fairvalue through othercomprehensive incomeAcceptances201720162017201620172016Group$m$m$m$m$m$mGovernment and public authorities--23,12423,488--Agriculture, forestry, fishing and mining----7631,064Financial, investment and insurance37,06645,2369,47610,14849113Real estate - construction----310Manufacturing----130278Instalment loans to individuals and other personal lending(including credit cards)-----1Real estate - mortgage--9,4806,986--Commercial property services----4,3658,258Other commercial and industrial--51671,4762,481Total37,06645,23642,13140,6896,78612,205Notes to the financial statementsRisk disclosures (continued)1192017 Annual Financial ReportLoans at fair valueLoans at amortisedcostProvisions fordoubtful debtsContingentliabilities andcredit-relatedcommitments201720162017201620172016 2017 2016Company$m$m$m$m$m$m$m$mGovernment and public authorities2083301,7651,745--638734Agriculture, forestry, fishing and mining2,0862,92219,08518,2584405559,7899,898Financial, investment and insurance37851820,68820,221818223,88321,557Real estate - construction1301851,6691,77739401,9451,894Manufacturing5146747,1706,7881712055,9326,544Instalment loans to individuals and other personal lending(including credit cards)349,4899,70029629312,88912,926Real estate - mortgage--293,212278,65935422949,68848,368Asset and lease financing--11,21410,47810692119168Commercial property services4,5205,55050,25744,18642030412,86111,738Other commercial and industrial3,0874,37756,90252,83478882535,13233,699Total10,92614,560471,451444,6462,6952,625152,876147,526Due from other banksDebt instruments at fairvalue through othercomprehensive incomeAcceptances201720162017201620172016Company$m$m$m$m$m$mGovernment and public authorities--23,12423,488--Agriculture, forestry, fishing and mining----7631,064Financial, investment and insurance35,03043,3599,40210,05549113Real estate - construction----310Manufacturing----130278Instalment loans to individuals and other personal lending(including credit cards)-----1Real estate - mortgage--9,4536,970--Commercial property services----4,3658,258Other commercial and industrial--50671,4762,481Total35,03043,35942,02940,5806,78612,205Geographical concentrations of financial assetsThe following tables show the geographical concentrations of financial assets as at 30 September:AustraliaNew ZealandOther International20172016(1)20172016(1)20172016(1)Group$m$m$m$m$m$mCash and liquid assets8,6826,58314654133,83622,482Due from other banks9,79812,2972,1811,97525,08730,964Trading derivatives (2)13,69815,7402,3035,13113,13622,275Trading securities45,45240,8275,3174,416185728Debt instruments at fair value through other comprehensive income31,43629,075--10,69511,614Other financial assets at fair value11,12514,5384,8876,65046308Hedging derivatives (2)3,8406,48381904468Loans and advances (3)456,147431,05569,42765,61914,55113,371Due from customers on acceptances6,78612,205----Other assets (2)2,3691,3901,5031,1565,3447,203Total589,333570,19385,77285,678102,924109,013(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)The Group has applied offsetting of financial assets and liabilities in respect of certain centrally cleared derivatives and their associated collateral amounts which were deemed to satisfy the AASB 132"Financial instruments: Presentation" requirements for the Company. For the purposes of this disclosure, all netting is reflected in aggregate at the Company level and the full netting impact is thereforeallocated to the Australia region. Refer to the Offsetting of financial assets and liabilities disclosure for further details.(3)Loans and advances are disclosed on a total net to the financial statementsRisk disclosures (continued)120 NATIONAL AUSTRALIA BANKAustraliaOther International20172016(1)20172016(1)Company$m$m$m$mCash and liquid assets7,3425,42333,77522,399Due from other banks9,94812,39825,08230,961Trading derivatives (2)17,03319,45613,35023,011Trading securities45,45240,785185728Debt instruments at fair value through other comprehensive income31,43629,07610,59311,504Other financial assets at fair value10,92614,523899308Hedging derivatives (2)3,7726,2504469Loans and advances (3)454,173428,40614,10412,915Due from customers on acceptances6,78612,205--Other assets (2)1,5321,0535,0616,928Total588,400569,575103,093108,823(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)The Group has applied offsetting of financial assets and liabilities in respect of certain centrally cleared derivatives and their associated collateral amounts which were deemed to satisfy the AASB 132"Financial instruments: Presentation" requirements for the Company. For the purposes of this disclosure, all netting is reflected in aggregate at the Company level and the full netting impact is thereforeallocated to the Australia region. Refer to the Offsetting of financial assets and liabilities disclosure for further details.(3)Loans and advances are disclosed on a total net to the financial statementsRisk disclosures (continued)1212017 Annual Financial ReportMarket risk - tradingTraded Market Risk is the potential for gains or losses to arise from trading activities undertaken by the Group as a result of movements in marketprices. The trading activities of the Group are principally carried out by Corporate and Institutional Banking and Fixed Income, Currencies &Commodities (FICC).Trading activity represents dealings that encompass both active management of market risk and supporting client sales businesses. The types ofmarket risk arising from these activities include interest rate, foreign exchange, commodity, equity price, credit spread and volatility Market Risk is primarily managed and controlled using Value at Risk (VaR) which is a standard measure used in the industry, and is subject tothe disciplines prescribed in the Group Traded Market Risk and limitations of the Value at Risk methodologyVaR is a statistical estimate of the potential loss that could arise from shifts in interest rates, currency exchange rates, option volatility, equity prices,credit spreads, commodity prices and inflation. The estimate is calculated on an entire trading portfolio basis, including both physical and derivativepositions. VaR is measured at a 99% confidence interval. This means that there is a 99% chance that the loss will not exceed the VaR estimate on anygiven is predominantly calculated using historical simulation. This method involves multiple revaluations of the trading books using 550 days(approximately two years) of historical pricing shifts. The pricing data is rolled daily so as to have the most recent 550 day history of prices. The resultsare ranked and the loss at the 99th percentile confidence interval identified. The calculation and rate shifts used assume a one day holding period for Group employs other risk measures to supplement VaR, with appropriate limits to manage and control risks, and communicate the specific nature ofmarket exposures to executive management, the Risk Committee of the Board and ultimately the Board. These supplementary measures include stresstesting, stop loss, position and sensitivity use of a VaR methodology has limitations, which include: The historical data used to calculate VaR is not always an appropriate proxy for current market conditions. If market volatility or correlation conditionschange significantly, losses may occur more frequently and to a greater magnitude than the VaR measure suggests. VaR methodology assumes that positions are held for one day and may underestimate losses on positions that cannot be hedged or reversed insidethat timeframe. VaR is calculated on positions at the close of each trading day, and does not measure risk on intra-day positions. VaR does not describe the directional bias or size of the positions generating the estimates are checked via backtesting for reasonableness and continued relevance of the model is measured individually for foreign exchange risk, interest rate risk, volatility risk, commodities risk, credit risk and inflation risk. Risk limits areapplied in these categories separately, and against the total risk at Risk for physical and derivative positionsThe following table shows the Group and Company VaR for the trading portfolio, including both physical and derivative positions:As at 30 SeptemberAverage valueduring reportingperiodMinimum valueduring reportingperiod(1)Maximum valueduring reportingperiod(1)20172016201720162017201620172016Group$m$m$m$m$m$m$m$mValue at Risk at a 99% confidence levelForeign exchange rate benefit( )( )( )( )n/an/an/an/aTotal Diversified VaR at 99% confidence market risks (2) VaR for physical and derivative positions (3) (1)The maximum / minimum by risk types are likely to occur during different days in the period. As such, the sum of these figures will not equal the total maximum / minimum VaR, which is the maximum /minimum aggregate VaR position during the period.(2)Other market risks includes exposures to various basis risks measured individually at a portfolio level.(3)VaR is measured individually for foreign exchange risk, interest rate risk, volatility risk, commodities risk, credit risk, and inflation risk. Risk limits are applied in these categories separately, and against thetotal risk to the financial statementsRisk disclosures (continued)122 NATIONAL AUSTRALIA BANKAs at 30 SeptemberAverage valueduring reportingperiodMinimum valueduring reportingperiod(1)Maximum valueduring reportingperiod(1)20172016201720162017201620172016Company$m$m$m$m$m$m$m$mValue at Risk at a 99% confidence levelForeign exchange rate benefit( )( )( )( )n/an/an/an/aTotal Diversified VaR at 99% confidence market risks (2) VaR for physical and derivative positions (3) (1)The maximum / minimum by risk types are likely to occur during different days in the period. As such, the sum of these figures will not equal the total maximum / minimum VaR, which is the maximum /minimum aggregate VaR position during the period.(2)Other market risks includes exposures to various basis risks measured individually at a portfolio level.(3)VaR is measured individually for foreign exchange risk, interest rate risk, volatility risk, commodities risk, credit risk, and inflation risk. Risk limits are applied in these categories separately, and against thetotal risk risk - non-trading / banking positionsThe Group has exposure to non-traded market risk, primarily Interest Rate Risk in the Banking Book (IRRBB).Interest Rate Risk in the Banking BookIRRBB is the risk that the Group's earnings or economic value will be affected or reduced due to changes in interest rates. The sources of IRRBB are asfollows: Repricing risk, arising from changes to the overall level of interest rates and inherent mismatches in the repricing term of banking book items. Yield curve risk, arising from a change in the relative level of interest rates for different tenors and changes in the slope or shape of the yield curve. Basis risk, arising from differences between the actual and expected interest margins on banking book items over the implied cost of funds of thoseitems. Optionality risk, arising from the existence of stand-alone or embedded options in banking book items, to the extent that the potential for those lossesis not included in the above risk is measured, monitored, and managed from both an internal management and regulatory perspective. The risk management frameworkincorporates both market valuation and earnings based approaches in accordance with the IRRBB Policy and Guidance Notes. Risk measurementtechniques include VaR, Earnings at Risk (EaR), interest rate risk stress testing, repricing analysis, cash flow analysis and scenario analysis. TheIRRBB regulatory capital calculation incorporates repricing, yield curve, basis, and optionality risk, embedded gains / losses and any inter-risk and / orinter-currency diversification. The IRRBB risk and control framework achieved APRA accreditation for the internal model approach under Basel II, and isused to calculate the IRRBB regulatory capital features of the internal interest rate risk management model include: Historical simulation approach utilising instantaneous interest rate shocks. Static balance sheet ( any new business is assumed to be matched, hedged or subject to immediate repricing). VaR and EaR are measured on a consistent basis. 99% confidence level. Three month holding period. EaR utilises a 12 month forecast period. At least six years of business day historical data (updated daily). Investment term for capital is modelled with an established benchmark term of between one and five years. Investment term for core Non-Bearing Interest (non-interest bearing assets and liabilities) is modelled on a behavioural basis with a term that isconsistent with sound statistical model parameters and assumptions are reviewed and updated on at least an annual basis by Group Treasury in consultation with Group changes require the approval of the Group Asset and Liability Committee (GALCO) and are advised to the local regulatory to the financial statementsRisk disclosures (continued)1232017 Annual Financial ReportValue at Risk and Earnings at Risk for the IRRBBThe following tables show the Group and Company aggregate VaR and EaR for the IRRBB:2017As at30 September Average value Minimum value Maximum valueGroup$m$m$m$mValue at riskAustralia (1) at risk (2) International----(1)The Group implemented clarifications to APS 117 concerning the treatment of risk associated with government and near government debt securities in the estimation of VaR during the 2017 financial resulted in an increase in reported VaR in comparison to the 2016 financial year.(2)EaR amounts calculated under the IRRBB model include Australian Banking and other overseas banking subsidiary books, however excludes offshore branches. The Australia Region amount shows acentralised Australian Banking EaR reported within at30 September Average value Minimum value Maximum valueGroup$m$m$m$mValue at at risk (1) (1)EaR amounts calculated under the IRRBB model include Australian Banking and other overseas banking subsidiary books, however excludes offshore branches. The Australia Region amount shows acentralised Australian Banking EaR reported within at30 September Average value Minimum value Maximum valueCompany$m$m$m$mValue at RiskAustralia (1) at risk (2) (1)The Group implemented clarifications to APS 117 concerning the treatment of risk associated with government and near government debt securities in the estimation of VaR during the 2017 financial resulted in an increase in reported VaR in comparison to the 2016 financial year.(2)EaR amounts calculated under the IRRBB model for the Australia Region show a centralised Australian Banking EaR reported within NAB, excluding offshore at30 September Average value Minimum value Maximum valueCompany$m$m$m$mValue at at risk (1) (1)EaR amounts calculated under the IRRBB model for the Australia Region show a centralised Australian Banking EaR reported within NAB, excluding offshore to the financial statementsRisk disclosures (continued)124 NATIONAL AUSTRALIA BANKLiquidity RiskLiquidity risk is the risk that the Group is unable to meet its financial obligations as they fall due. These obligations include the repayment of deposits ondemand or at their contractual maturity, the repayment of wholesale borrowings and loan capital as they mature and the payment of interest onborrowings. The liquidity associated with financial markets can be reduced substantially as a result of external economic or market events, market sizeor the actions of individual risks are governed by the Group s funding and liquidity risk appetite which is set by the Board. This is managed by Group Treasury andmeasured and monitored by Group Balance Sheet and Liquidity Risk with oversight by the Group Asset and Liability Committee (GALCO). The Boardhas the ultimate responsibility to monitor and review the adequacy of the Group s funding and liquidity risk management framework and the Group scompliance with risk principles adopted in the Group s approach to managing liquidity risk include: Monitoring the Group s liquidity position on a daily basis, using a combination of contractual and behavioural modelling of balance sheet and cashflow information. Maintaining a high quality liquid asset portfolio which supports intra-day operations and may be sold in times of market stress. Operating a prudent funding strategy which ensures appropriate diversification and limits maturity concentrations. The Group undertakes aconservative approach by imposing internal limits that are in addition to regulatory requirements. Maintaining a contingent funding plan designed to respond to the event of an accelerated outflow of funds from the Group. Requiring the Group to have the ability to meet a range of survival horizon scenarios, including name-specific and general liquidity stress liquid asset portfolio held as part of these principles is well diversified by currency, tenor, counterparty and product type. The composition of theportfolio includes cash, Government, State Government and highly rated investment grade paper. The total liquid assets held at 30 September 2017was $123,733 million (2016: $118,268 million). In addition to these liquid assets, the Group holds Internal Securitisations in the form of ResidentialMortgage Backed Securities (RMBS) as a source of contingent liquidity to further support its liquidity requirements. RMBS must meet central bankrequirements to be eligible for repurchase agreements with a central bank. As at 30 September 2017 the amount of eligible Internal RMBS held was$43,546 million (2016:$46,737 million).Funding mixThe Group s funding liabilities are comprised of a mix of deposits, term wholesale funding and short-term wholesale funding. The Group managesfunding mix and liquidity profile within risk appetite settings to ensure suitable funding of its asset base and to enable it to respond to changing marketconditions and regulatory Group maintains a strong focus on stable deposits both from a growth and quality perspective and continues to source deposits as a key fundingsource for funded assets. The Group increased the proportion of stable customer deposits as a source of funding in the 2017 financial year to 51%(2016: 49%) while reliance on other customer deposits remained stable at 7% (2016: 7%).The Group supplements deposits raising via its term funding programmes, raising $36,818 million of term wholesale funding in the 2017 financial year(2016: $36,403 million) at a weighted average maturity of approximately years to first call (2016: years). The Group's issuance was in excess ofterm wholesale funding maturities in the 2017 financial year; this strategy supports the transition to NSFR compliance. In addition throughout 2017, theGroup continued to access international and domestic short-term wholesale to the financial statementsRisk disclosures (continued)1252017 Annual Financial ReportThe following table shows the Group s funding position as at 30 September:20172016Core assets$m$mGross loans and advances543,764513,691Loans at fair value14,59619,864Other financial assets at fair value46271Due from customers on acceptances6,78612,205Other debt instruments at amortised cost584778Total core assets565,776546,809Funding and equityCustomer deposits407,585390,500Term wholesale funding156,846157,204Certificates of deposit52,25546,018Securities sold under repurchase agreements23,49316,064Due to other banks (1)36,68343,903Other short term liabilities24,03520,663Total equity excluding preference shares and other contributed equity48,39847,998Total funding liabilities and equity749,295722,350Other liabilitiesTrading derivatives27,18741,559Hedging derivatives1,6743,402Other liabilities10,1699,399Total liabilities and equity788,325776,710(1)Includes repurchase agreements due to other Balance Sheet20172016Funding sources (1)$m$mStable customer deposits (2)360,234341,883Term funding greater than 12 months133,857120,044Equity48,39847,998Total stable funding542,489509,925Short term wholesale funding97,04196,217Term funding less than 12 months22,98937,160Other deposits (3)47,35148,617Total funding709,870691,919Funded assetsLiquid assets (4)107,904107,162Other short term assets (5)31,06028,926Total short term assets138,964136,088Business and other lending (6)231,203227,219Housing lending329,534314,557Other assets (7)10,16914,055Total long term assets570,906555,831Total funded assets709,870691,919(1)Excludes repurchase agreements, trading and hedging derivatives, insurance assets and liabilities and any accruals, receivables and payables that do not provide net funding.(2)Includes operational deposits, non-financial corporate deposits and retail / SME deposits.(3)Includes non-operational financial institution deposits and certain offshore deposits.(4)Regulatory liquid assets including high quality liquid assets and CLF eligible assets.(5)Includes non-repo eligible liquid assets and trade finance loans.(6)Excludes trade finance loans.(7)Includes net derivatives, goodwill, property, plant and equipment and net of accruals, receivables and to the financial statementsRisk disclosures (continued)126 NATIONAL AUSTRALIA BANKContractual maturity of financial liabilities on an undiscounted basisThe following tables show cash flows associated with non-derivative financial liabilities and hedging derivatives, within relevant maturity groupingsbased on the earliest date on which the Group and Company may be required to balances in the tables below will not necessarily correspond to amounts presented on the balance sheet as the balances in the tables belowincorporate cash flows on an undiscounted basis and therefore include both principal and associated future interest call0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsNo specificmaturityTotalGroup$m$m$m$m$m$m$mDue to other banks9,11327,4211913--36,728Other financial liabilities at fair value2214,4895,95415,8584,51210831,142Deposits233,382130,70687,4189,9723-461,481Other borrowings1,32427,46814,544---43,336Bonds, notes and subordinated debt-2,96914,50188,11824,962-130,550Other debt issues-----6,1876,187Other financial liabilities4122,573--33-3,018Hedging derivatives- contractual amounts payable-5902,0737,8955,630-16,188- contractual amounts receivable-(338)(1,344)(5,484)(4,720)-(11,886)Total cash flow payable244,452195,878123,337116,36230,4206,295716,744Contingent liabilities19,572-----19,572Credit-related commitments151,377-----151,377Total (1)170,949-----170,949(1)The full notional amount of contingent liabilities and credit-related commitments have been disclosed as at-call as they could be payable on demand. The Group expects that not all of the contingentliabilities or commitments will be drawn before their contractual call0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsNo specificmaturityTotalGroup$m$m$m$m$m$m$mDue to other banks11,91528,7163,322---43,953Other financial liabilities at fair value6096,7218,20015,5593,4982234,609Deposits223,968121,66180,3347,011--432,974Other borrowings4023,3428,010---31,392Bonds, notes and subordinated debt-4,00128,21776,12726,444-134,789Other debt issues-----6,2486,248Other financial liabilities4466,242--52-6,740Hedging derivatives- contractual amounts payable-3099627,1965,652-14,119- contractual amounts receivable-(89)(290)(4,234)(4,543)-(9,156)Total cash flow payable236,978190,903128,755101,65931,1036,270695,668Contingent liabilities18,905-----18,905Credit-related commitments and investment commitments146,803-----146,803Total (1)165,708-----165,708(1)The full notional amount of contingent liabilities, credit-related commitments and investment commitments have been disclosed as at-call as they could be payable on demand. The Group expects that not allof the contingent liabilities or commitments will be drawn before their contractual to the financial statementsRisk disclosures (continued)1272017 Annual Financial Report2017At call0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsNo specificmaturityTotalCompany$m$m$m$m$m$m$mDue to other banks8,15026,9021913--35,246Other financial liabilities at fair value-611,0073,6281,7381086,542Deposits211,778118,60072,7667,2643-410,411Other borrowings1,32427,27914,544---43,147Bonds, notes and subordinated debt-2,50714,49987,75922,083-126,848Other debt issues-----6,1876,187Other financial liabilities4082,315--33-2,756Hedging derivatives- contractual amounts payable-5934,51812,9208,951-26,982- contractual amounts receivable-(402)(3,233)(10,224)(7,608)-(21,467)Total cash flow payable221,660177,855104,292101,35025,2006,295636,652Contingent liabilities18,607-----18,607Credit-related commitments134,269-----134,269Total (1)152,876-----152,876(1)The full notional amount of contingent liabilities and credit-related commitments have been disclosed as at-call as they could be payable on demand. The Group expects that not all of the contingentliabilities or commitments will be drawn before their contractual call0 to 3month(s)3 to 12months1 to 5year(s)Over 5yearsNo specificmaturityTotalCompany$m$m$m$m$m$m$mDue to other banks11,10628,2713,322---42,699Other financial liabilities at fair value2842051,3191,6652,605226,100Deposits201,702113,58169,4544,599--389,336Other borrowings4123,0737,977---31,091Bonds, notes and subordinated debt-3,98928,20375,32022,661-130,173Other debt issues-----6,2486,248Other financial liabilities4395,661--53-6,153Hedging derivatives- contractual amounts payable-3744,86715,07511,365-31,681- contractual amounts receivable-(185)(3,237)(10,856)(9,680)-(23,958)Total cash flow payable213,572174,969111,90585,80327,0046,270619,523Contingent liabilities18,037-----18,037Credit-related commitments and investment commitments129,489-----129,489Total (1)147,526-----147,526(1)The full notional amount of contingent liabilities, credit-related commitments and investment commitments have been disclosed as at-call as they could be payable on demand. The Group expects that not allof the contingent liabilities or commitments will be drawn before their contractual maturity of assets and liabilitiesThe following tables show an analysis of contractual maturities of assets and liabilities at the reporting date. The Group expects that certain assets andliabilities will be recovered or settled at maturities which are different to their contractual maturities, including deposits where the Group expects as partof normal banking operations that a large proportion of these balances will roll to the financial statementsRisk disclosures (continued)128 NATIONAL AUSTRALIA BANK2017Less than 12monthsGreater than12 monthsNo specificmaturityTotalGroup$m$m$m$mAssetsCash and liquid assets43,826--43,826Due from other banks37,01848-37,066Trading derivatives (1)--29,13729,137Trading securities11,39639,5322650,954Debt instruments at fair value through other comprehensive income6,89235,239-42,131Other financial assets at fair value6,1039,75520016,058Loans and advances98,588434,1287,409540,125Due from customers on acceptances6,786--6,786All other assets8,8243,14610,27222,242Total assets219,433521,84847,044788,325LiabilitiesDue to other banks36,683--36,683Trading derivatives (1)--27,18727,187Other financial liabilities at fair value9,93419,58910829,631Deposits449,3198,044-457,363Other borrowings43,241--43,241Bonds, notes and subordinated debt15,979108,892-124,871Other debt issues--6,1876,187All other liabilities7,7441,6482,45311,845Total liabilities562,900138,17335,935737,008Net (liabilities) / assets(343,467)383,67511,10951,317(1)Trading derivatives have not been shown by contractual maturity because they are typically held for varying periods of (1)Less than 12monthsGreater than12 monthsNo specificmaturityTotalGroup$m$m$m$mAssetsCash and liquid assets30,630--30,630Due from other banks42,9262,310-45,236Trading derivatives (2)--43,14643,146Trading securities11,86733,61249245,971Debt instruments at fair value through other comprehensive income6,97133,718-40,689Other financial assets at fair value6,72414,7571521,496Loans and advances93,188409,3397,518510,045Due from customers on acceptances12,205--12,205All other assets10,6676,62210,00327,292Total assets215,178500,35861,174776,710LiabilitiesDue to other banks43,903--43,903Trading derivatives (2)--41,55941,559Other financial liabilities at fair value14,71418,4882233,224Deposits421,9826,378-428,360Other borrowings31,354--31,354Bonds, notes and subordinated debt29,70398,239-127,942Other debt issues--6,2486,248All other liabilities8,0353,1511,61912,805Total liabilities549,691126,25649,448725,395Net (liabilities) / assets(334,513)374,10211,72651,315(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)Trading derivatives have not been shown by contractual maturity because they are typically held for varying periods of to the financial statementsRisk disclosures (continued)1292017 Annual Financial Report2017Less than 12monthsGreater than12 monthsNo specificmaturityTotalCompany$m$m$m$mAssetsCash and liquid assets42,152--42,152Due from other banks34,98248-35,030Trading derivatives (1)--30,38330,383Trading securities7,40538,2062645,637Debt instruments at fair value through other comprehensive income6,89135,138-42,029Other financial assets at fair value3,8208,005-11,825Loans and advances80,579381,3336,365468,277Due from customers on acceptances6,786--6,786All other assets7,2702,796122,331132,397Total assets189,885465,526159,105814,516LiabilitiesDue to other banks35,201--35,201Trading derivatives (1)--27,06527,065Other financial liabilities at fair value7345,0881085,930Deposits401,4635,495-406,958Other borrowings43,052--43,052Bonds, notes and subordinated debt15,530105,785-121,315Other debt issues--6,1876,187All other liabilities6,9393,270109,998120,207Total liabilities502,919119,638143,358765,915Net (liabilities) / assets(313,034)345,88815,74748,601(1)Trading derivatives have not been shown by contractual maturity because they are typically held for varying periods of (1)Less than 12monthsGreater than12 monthsNo specificmaturityTotalCompany$m$m$m$mAssetsCash and liquid assets28,717--28,717Due from other banks41,0492,310-43,359Trading derivatives (2)--42,46742,467Trading securities9,68031,38345041,513Debt instruments at fair value through other comprehensive income6,97033,610-40,580Other financial assets at fair value4,31510,516-14,831Loans and advances76,074358,8086,439441,321Due from customers on acceptances12,205--12,205All other assets9,6925,467133,247148,406Total assets188,702442,094182,603813,399LiabilitiesDue to other banks42,649--42,649Trading derivatives (2)--38,90138,901Other financial liabilities at fair value1,4803,906225,408Deposits381,0744,113-385,187Other borrowings31,054--31,054Bonds, notes and subordinated debt29,70393,523-123,226Other debt issues--6,2486,248All other liabilities7,7315,759118,684132,174Total liabilities493,691107,301163,855764,847Net (liabilities) / assets(304,989)334,79318,74848,552(1)Comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivative assets andderivative liabilities (previously included in other assets and other liabilities).(2)Trading derivatives have not been shown by contractual maturity because they are typically held for varying periods of to the financial statementsRisk disclosures (continued)130 NATIONAL AUSTRALIA BANK35 Fair value of financial instruments(a) Fair value of financial instruments, carried at amortised costThe table below shows a comparison of the carrying amounts, as reported on the balance sheet, and fair values of those financial assets and liabilitiesmeasured at amortised cost where the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the balance sheetare not approximately equal to their fair carrying amounts of cash and liquid assets, due from and to other banks, due from customers on acceptances, other assets, other liabilities andamounts due from and to controlled entities, approximate their fair value as they are short-term in nature or are receivable or payable on , letters of credit, performance related contingencies and credit related commitments are generally not sold or traded and estimated fairvalues are not readily ascertainable. The fair value of these items was not calculated, as very few of the commitments extending beyond six monthswould commit the Company or the Group to a predetermined rate of interest, and the fees attaching to these commitments are the same as thosecurrently charged for similar of the fair value disclosures uses a hierarchy that reflects the significance of inputs used in measuring the fair value. The level in the fair valuehierarchy within which a fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair valuemeasurement in its entirety. The fair value hierarchy is as follows: Level 1 - Financial instruments that have been valued by reference to unadjusted quoted prices for identical financial assets or financial liabilities inactive markets. Financial instruments included in this category are Commonwealth of Australia and New Zealand government bonds, and spot andexchange traded derivatives. Level 2 - Financial instruments that have been valued through valuation techniques incorporating inputs other than quoted prices within Level 1 thatare observable for the financial asset or financial liability, either directly (as prices) or indirectly (derived from prices). Financial instruments includedin this category are over-the-counter trading and hedging derivatives, semi-government bonds, financial institution and corporate bonds, mortgage-backed securities, loans measured at fair value, and issued bonds, notes and subordinated debt measured at fair value. Level 3 - Financial instruments that have been valued through valuation techniques incorporating inputs that are not based on observable marketdata. Unobservable inputs are those not readily available in an active market due to market illiquidity or complexity of the product. Financialinstruments included in this category are bespoke trading derivatives, trading derivatives where the credit valuation adjustment is consideredunobservable and significant to the valuation, and certain asset-backed securities valued using unobservable value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at themeasurement date. The estimated fair values are based on relevant information available at the reporting date and involves fair value estimates are based on the following methodologies and assumptions: The fair value of loans and advances that are priced based on a variable rate with no contractual repricing tenor are assumed to equate to thecarrying value. The fair value of all other loans and advances are generally calculated using discounted cash flow models based on the maturity ofthe loans and advances. The discount rates applied are based on interest rates at reporting date for similar types of loans and advances, if the loansand advances were performing at reporting date. The difference between estimated fair values of loans and advances and carrying value reflectschanges in interest rates since loan or advance origination and credit worthiness of the borrower. The fair value of deposits and other borrowings that are non-interest-bearing, at call or at a fixed rate that reprice within six months of reportingdate is assumed to equate to the carrying value. The fair value of other deposits and other borrowings is calculated using discounted cash flowmodels based on the deposit type and maturity. The fair values of bonds, notes and subordinated debt and other debt issues are calculated based on a discounted cash flow model using a yieldcurve appropriate to the remaining maturity of the instruments and appropriate credit spreads; or in some instances are calculated based on marketquoted prices when there is sufficient liquidity in the September 201730 September 2016CarryingvalueFair ValueFair ValueCarryingvalueFair ValueFair ValueLevel 1 Level 2 Level 3Level 1 Level 2 Level 3Group$m$m$m$m$m$m$m$m$m$mFinancial assetsLoans and advances540,125-5,896 534,843540,739510,045-6,559504,456511,015Financial liabilitiesDeposits and other borrowings500,604- 500,910-500,910459,714-460,027-460,027Bonds, notes andsubordinated debt (1)124,8719,341117,788-127,129127,9429,116120,137-129,253Other debt issues6,1876,214147-6,3616,2486,015220-6,235(1)Fair value hedge accounting is applied to certain bonds, notes and subordinated debt, and as a result the carrying amount includes fair value hedge to the financial statementsRisk disclosures (continued)1312017 Annual Financial Report30 September 201730 September 2016CarryingvalueFair ValueFair ValueCarryingvalueFair ValueFair ValueLevel 1 Level 2 Level 3Level 1 Level 2 Level 3Company$m$m$m$m$m$m$m$m$m$mFinancial assetsLoans and advances468,277-3,690 465,155468,845441,321-4,283438,418442,701Financial liabilitiesDeposits and other borrowings450,010- 450,127-450,127416,241-416,435-416,435Bonds, notes andsubordinated debt (1)121,3158,829114,690-123,519123,2268,578116,149-124,727Other debt issues6,1876,214147-6,3616,2486,015220-6,235(1)Fair value hedge accounting is applied to certain bonds, notes and subordinated debt, and as a result the carrying amount includes fair value hedge adjustments.(b) Fair value measurements recognised on the balance sheetThe following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value, using a fair valuehierarchy described in (a) fair values recognised on the balance sheet are based on quoted market prices to the extent possible. Where a quoted market price is notavailable, a valuation technique will be applied to determine the fair value of the instrument. Inputs into such techniques include market interest rates,liquidity and other factors. The counterparty credit risk associated with an instrument is incorporated into the fair value of the instrument using a creditvaluation adjustment (CVA). Funding value adjustments (FVA) are applied to uncollateralised over the counter derivatives to reflect funding costs andbenefits to the Group. The fair values of specific classes of instruments are determined as follows: The fair values of trading and hedging derivative assets and liabilities are obtained from quoted closing market prices at reporting date, discountedcash flow models or option pricing models as appropriate. The fair values of trading securities and debt instruments at fair value through other comprehensive income are based on quoted closingmarket prices at reporting date. Where securities are unlisted and quoted market prices are not available, the Group obtains the fair value by meansof discounted cash flows and other valuation techniques that are commonly used by market participants. These techniques address factors such asinterest rates, credit risk and liquidity. The fair values of other financial assets and liabilities at fair value are based on quoted closing market prices and data or valuation techniques,appropriate to the nature and type of the underlying instrument. The fair value of equity instruments at fair value through other comprehensive income is estimated on the basis of the actual and forecastedfinancial position and results of the underlying assets or net assets taking into consideration their risk value measurement as at30 September 2017Fair value measurement as at30 September 2016 (1)Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3 TotalGroup$m$m$m$m$m$m$m$mFinancial assetsTrading derivatives-29,0439429,13768942,15730043,146Trading securities27,81123,143-50,95421,66124,310-45,971Debt instruments at fair value through other comprehensive income3,40738,29742742,1312,85237,56327440,689Other financial assets at fair value-16,058-16,0584321,4163721,496Hedging derivatives-3,892-3,892-6,741-6,741Investments relating to life insurance business (2)-86-86-86-86Equity instruments at fair value through other comprehensive income (3)14209482719-264273Total financial assets measured at fair value31,232110,728569142,52925,254132,273875158,402Financial liabilitiesTrading derivatives427,1077627,18777140,53325541,559Other financial liabilities at fair value27929,352-29,63131032,913133,224Hedging derivatives-1,674-1,674-3,402-3,402Total financial liabilities measured at fair value28358,1337658,4921,08176,84825678,185(1)The 2016 comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivativeassets and derivative liabilities (previously included in other assets and other liabilities).(2)Investments relating to life insurance business are included in other assets on the balance sheet.(3)Equity instruments at fair value through other comprehensive income are included in other assets on the balance to the financial statementsRisk disclosures (continued)132 NATIONAL AUSTRALIA BANKFair value measurement as at30 September 2017Fair value measurement as at30 September 2016 (1)Level 1 Level 2 Level 3Total Level 1 Level 2 Level 3 TotalCompany$m$m$m$m$m$m$m$mFinancial assetsTrading derivatives-30,2899430,38368741,48030042,467Trading securities24,80520,832-45,63718,64022,873-41,513Debt instruments at fair value through other comprehensive income3,40738,19542742,0292,85237,45427440,580Other financial assets at fair value-11,825-11,825-14,7943714,831Hedging derivatives-3,816-3,816-6,319-6,319Equity instruments at fair value through other comprehensive income (2)9209212399-231240Total financial assets measured at fair value28,221105,166542133,92922,188122,920842145,950Financial liabilitiesTrading derivatives426,9857627,06577137,87525538,901Other financial liabilities at fair value2795,651-5,9303105,09715,408Hedging derivatives-3,859-3,859-6,701-6,701Total financial liabilities measured at fair value28336,4957636,8541,08149,67325651,010(1)The 2016 comparative information has been restated to reflect a change in presentation of interest accrual on certain derivative assets and derivative liabilities, which is now presented within derivativeassets and derivative liabilities (previously included in other assets and other liabilities).(2)Equity instruments at fair value through other comprehensive income are included in other assets on the balance were no material transfers between Level 1 and Level 2 during the year for the Group and the of assets and liabilities measured at fair value based on valuation techniques for which any significant input is not based on observablemarket data (Level 3):2017AssetsLiabilitiesTradingderivativesDebt instrumentsat fair valuethrough othercomprehensiveincomeOtherfinancialassets atfair valueEquity instrumentsat fair value throughothercomprehensiveincome(1)TradingderivativesOtherfinancialliabilities atfair valueGroup$m$m$m$m$m$mBalance at the beginning of year300274372642551Gains / (losses) on assets and (gains) / losses onliabilities recognised:In profit or loss (2)(191)-2-(180)-In other comprehensive income-(51)----Purchases and issues5312-17--Sales and settlements(3)-(24)(24)4-Transfers into Level 3 (3)-16----Transfers out of Level 3 (3)(13)(124)(15)(209)-(1)Foreign currency translation adjustments(4)---(3)-Balance at the end of year94427-4876-Gains / (losses) on assets and (gains) / losses onliabilities for the reporting period related to financialinstruments held at the end of the reporting periodrecognised:In profit or loss(191)-2-(180)-In other comprehensive income-(51)----(1)Equity instruments at fair value through other comprehensive income are included in other assets on the balance sheet.(2)Net gains or losses were recorded in other operating income.(3)Transfers into Level 3 were due to the lack of observable inputs for valuation of certain financial instruments. Transfers out of Level 3 were due to the valuation inputs becoming observable during the between levels are deemed to have occurred at the beginning of the reporting period in which the instruments were to the financial statementsRisk disclosures (continued)1332017 Annual Financial Report2016AssetsLiabilitiesTradingderivativesDebt instrumentsat fair valuethrough othercomprehensiveincomeOtherfinancialassets atfair valueEquity instrumentsat fair value throughothercomprehensiveincome(1)TradingderivativesOtherfinancialliabilities atfair valueGroup$m$m$m$m$m$mBalance at the beginning of year5652,833405-142Gains / (losses) on assets and (gains) / losses onliabilities recognised:In profit or loss (2)105-(26)-125(1)In other comprehensive income-(6)-(130)--Purchases and issues192124-4164-Sales and settlements--(593)--(17)Transfers into Level 3 (3)24156---1Transfers out of Level 3 (3)(38)-----Foreign currency translation adjustments(38)(1)(203)(3)(34)(8)Derecognised in respect of the disposal group(1)(4)(1,974)(12)-(116)Balance at the end of year300274372642551Gains / (losses) on assets and (gains) / losses onliabilities for the reporting period related to financialinstruments held at the end of the reporting periodrecognised:In profit or loss105-(12)-125-In other comprehensive income-(6)-(130)--(1)Equity instruments at fair value through other comprehensive income are included in other assets on the balance sheet.(2)Net gains or losses were recorded in other operating income, interest expense or impairment losses as appropriate.(3)Transfers into Level 3 were due to the lack of observable inputs for valuation of certain financial instruments. Transfers out of Level 3 were due to the valuation inputs becoming observable during the between levels are deemed to have occurred at the beginning of the reporting period in which the instruments were instrumentsat fair valuethrough othercomprehensiveincomeOtherfinancialassets atfair valueEquity instrumentsat fair value throughothercomprehensiveincome(1)TradingderivativesOtherfinancialliabilities atfair valueCompany$m$m$m$m$m$mBalance at the beginning of year300274372312551Gains / (losses) on assets and (gains) / losses onliabilities recognised:In profit or loss (2)(191)-2-(180)-In other comprehensive income-(51)-(6)--Purchases and issues5312-7--Sales and settlements(3)-(24)-4-Transfers into Level 3 (3)-16----Transfers out of Level 3 (3)(13)(124)(15)(209)-(1)Foreign currency translation adjustments(4)--(2)(3)-Balance at the end of year94427-2176-Gains / (losses) on assets and (gains) / losses onliabilities for the reporting period related to financialinstruments held at the end of the reporting periodrecognised:In profit or loss(191)-2-(180)-In other comprehensive income-(51)-(6)--(1)Equity instruments at fair value through other comprehensive income are included in other assets on the balance sheet.(2)Net gains or losses were recorded in other operating income.(3)Transfers into Level 3 were due to the lack of observable inputs for valuation of certain financial instruments. Transfers out of Level 3 were due to the valuation inputs becoming observable during the between levels are deemed to have occurred at the beginning of the reporting period in which the instruments were to the financial statementsRisk disclosures (continued)134 NATIONAL AUSTRALIA BANK2016AssetsLiabilitiesTradingderivativesDebt instrumentsat fair valuethrough othercomprehensiveincomeOtherfinancialassets atfair valueEquity instrumentsat fair value throughothercomprehensiveincome(1)TradingderivativesOtherfinancialliabilities atfair valueCompany$m$m$m$m$m$mBalance at the beginning of year56-471350--Gains / (losses) on assets and (gains) / losses onliabilities recognised:In profit or loss (2)105-(12)-125-In other comprehensive income-(6)-(126)--Purchases and issues192124-7164-Sales and settlements--(366)---Transfers into Level 3 (3)24156---1Transfers out of Level 3 (3)(38)-----Foreign currency translation adjustments(39)-(56)-(34)-Balance at the end of year300274372312551Gains / (losses) on assets and (gains) / losses onliabilities for the reporting period related to financialinstruments held at the end of the reporting periodrecognised:In profit or loss105-(12)-125-In other comprehensive income-(6)-(126)--(1)Equity instruments at fair value through other comprehensive income are included in other assets on the balance sheet.(2)Net gains or losses were recorded in other operating income, interest expense or impairment losses as appropriate.(3)Transfers into Level 3 were due to the lack of observable inputs for valuation of certain financial instruments. Transfers out of Level 3 were due to the valuation inputs becoming observable during the between levels are deemed to have occurred at the beginning of the reporting period in which the instruments were Group's exposure to fair value measurements based in full or in part on unobservable inputs is restricted to a small number of financial instruments,which comprise an insignificant component of the portfolios in which they belong. As such, a change in the assumptions used to value the instrumentsas at 30 September 2017 to reasonably possible alternatives would not have a material to the financial statementsRisk disclosures (continued)1352017 Annual Financial Report36 Financial asset transfers and securitisationsThe Group and the Company enter into transactions by which they transfer financial assets to counterparties or to special purpose entities (SPEs).Financial assets that do not qualify for derecognition are typically associated with repurchase agreements, covered bonds and securitisation programagreements. The following table sets out the carrying amount of financial assets that did not qualify for derecognition and their associated relevant, the table also sets out the net position of the fair value of financial assets where the counterparty to the associated liabilities hasrecourse only to the transferred SecuritisationRepurchaseagreementsCoveredbonds SecuritisationGroup$m$m$m$m$m$mCarrying amount of transferred assets10,83836,3572,6008,58237,4663,536Carrying amount of associated liabilities10,83826,5762,6038,58226,9833,553For those liabilities that have recourse only to the transferred assetsFair value of transferred assets2,6033,543Fair value of associated liabilities2,6503,589Net position(47)(46)20172016RepurchaseagreementsCoveredbonds SecuritisationRepurchaseagreementsCoveredbonds SecuritisationCompany$m$m$m$m$m$mCarrying amount of transferred assets10,63430,79467,4748,35432,74072,946Carrying amount of associated liabilities10,63421,88267,5228,35423,10572,946For those liabilities that have recourse only to the transferred assetsFair value of transferred assets67,55673,174Fair value of associated liabilities68,74973,835Net position(1,193)(661)Repurchase agreementsSecurities sold subject to repurchase agreements are retained in their respective balance sheet categories when substantially all the risks and rewardsof ownership remain with the Company or the Group. The counterparty liability is included in amounts due to other banks and deposits and otherborrowings, as appropriate, based upon the counterparty to the bondsThe Group engages in covered bond program for funding and liquidity purposes. Housing loans have been assigned to bankruptcy remote SPEsassociated with covered bond programs to provide security for the obligations payable on the covered bonds issued by the Group. The Group is entitledto any residual income after all payments due to covered bond investors have been met. The Group retains all of the risks and rewards associated withthe housing loans and where derivatives have not been externalised, interest rate and foreign currency risk are held in the Group. The covered bondSPEs are consolidated by the Group, the housing loans are included in loans and advances and the covered bonds issued are included within Bonds,notes and subordinated debt on the Group and Company s balance sheet. The covered bond holders have dual recourse to the issuer or the cover its loan securitisation programs, the Group packages and sells loans and advances (principally housing loans) as securities to investorsthrough a series of securitisation vehicles. This includes loans that are held for potential repurchase with central banks. The Group is entitled to anyresidual income of the vehicles after all payments to investors and costs of the program have been met. The Group is considered to hold the majority ofthe residual risks and benefits of the vehicles. The Company and the Group continue to be exposed primarily to liquidity risk, interest rate risk and creditrisk of the loans. The securitisation vehicles are consolidated by the Group and the loans are retained on the Group and the Company s balance note holders have recourse only to the loan pool of to the financial statementsRisk disclosures (continued)136 NATIONAL AUSTRALIA BANK37 Related party disclosuresDuring the year, there have been dealings between NAB and its controlled entities and other related parties. NAB provides a range of services to relatedparties including the provision of banking facilities and standby financing arrangements. Other dealings include granting loans and accepting deposits,and the provision of finance. These transactions are normally entered into on terms equivalent to those that prevail on an arm s length basis in theordinary course of transactions with controlled entities may involve leases of properties, plant and equipment, provision of data processing services or access tointellectual or other intangible property rights. Charges for these transactions are normally on an arm s length basis and are otherwise on the basis ofequitable rates agreed between the parties. NAB also provides various administrative services to the Group, which may include accounting, secretarialand legal. Fees may be charged for these currently issues employee share compensation to Group employees on behalf of Group subsidiaries. The equity-based payments expense relatingto this compensation is recharged from NAB to the employing subsidiaries in the Group. For further details, refer to Note 39 Shares and aggregate of material amounts receivable from or payable to controlled entities and NAB, at reporting date, is disclosed in the balance sheet ofNAB. Refer to Note 31 Interest in subsidiaries and other entities for details of NAB's investment in controlled entities. NAB has certain guarantees andundertakings with entities in the Group. For further details, refer to Note 32 Contingent liabilities and credit made to subsidiaries are generally entered into on terms equivalent to those that prevail on an arm s length basis, except that there are often nofixed repayment terms for the settlement of loans between parties. Outstanding balances are unsecured and are repayable in aggregate amounts receivable / (payable) from subsidiaries for the last two years to 30 September were:Company20172016$m$mBalance at beginning of year2,0153,538Net cash flows in amounts due (to) / from controlled entities(311)(2,841)Net foreign currency translation movements and other amounts receivables(142)1,318Balance at end of year1,5622,015Material transactions with subsidiaries for the last two years to 30 September included:Company20172016$m$mNet interest (expense)(779)(748)Net operating lease (expense)(76)(67)Net management fees (income)4241Dividend revenue2,0052,199During the 2017 financial year, there were transactions between NAB and MLC Limited, an entity over which the Group has significant influence. Forrelated party disclosures about this associate, refer to Note 31 Interest in subsidiaries and other plansThe following payments were made to superannuation plans sponsored by the Group:GroupCompany2017201620172016Payment to:$m$m$m$mNational Australia Bank Group Superannuation Fund A234240234240National Wealth Management Superannuation Plan22--Bank of New Zealand Officers Provident Association (Division 2)1111--National Australia Bank Pension and Workplace Savings Scheme610610Transactions between the Group and superannuation plans sponsored by the Group during the last two years were made on commercial terms Management Personnel (KMP)KMP are those employees of the Group who have authority and responsibility for planning, directing and controlling the activities of both NAB and theGroup. More detailed remuneration disclosures for KMP s are provided in the Remuneration report section of the Report of the to the financial statementsOther information1372017 Annual Financial ReportRemuneration of KMPTotal remuneration of KMP of NAB and the Group for the last two years to 30 September were:Short-term benefitsPost-employmentbenefitsOther longtermbenefitsEquity-based benefitsOtherPaymentsTotalCashsalaryfixedCash STIat riskNon-monetaryfixedSuper-annuationfixedShares atriskRights atriskNAB and the Group$$$$$$$$$201715,131,8975,886,665753,714566,112158,0152,166,797 10,664,8072,796,294 38,124,301201615,228,9407,627,064590,404532,520183,3971,778,2169,831,9283,062,38338,834,852Performance rights and shareholdings of KMP are set out in the Remuneration report section of the Report of the to KMP and their related partiesDuring the reporting period, loans made to KMP s and other related parties of NAB and the Group were $14 million (2016: $15 million). Such loans aremade in the ordinary course of business on terms equivalent to those that prevail in arm s length transactions. Loans may be secured or unsecureddepending on the nature of the lending product advanced. As at 30 September 2017, the total loan balances outstanding were $61 million (2016: $67million).No amounts were written off in respect of any loans made to directors or other KMP of NAB and the Group during the current or prior reporting details regarding loans advanced to KMPs of NAB and the Group are included in the Remuneration Remuneration of external auditorGroupCompany2017201620172016$'000$'000$'000$'000Audit ServicesAmounts paid or due and payable to Ernst & Young Australia10,43711,5577,2847,332Amounts paid or due and payable to Ernst & Young Overseas4,0204,7871,9862,270Total remuneration for audit services14,45716,3449,2709,602Non-audit ServicesAudit related ServicesAmounts paid or due and payable to Ernst & Young Australia5,4955,7833,6613,593Amounts paid or due and payable to Ernst & Young Overseas6741,065294156Total remuneration for audit related services6,1696,8483,9553,749All other ServicesAmounts paid or due and payable to Ernst & Young Australia1,8431,3351,771722Amounts paid or due and payable to Ernst & Young Overseas235466-20Total remuneration for all other services2,0781,8011,771742Total remuneration for non-audit services8,2478,6495,7264,491Total remuneration for audit and non-audit services (1) (2)22,70424,99314,99614,093(1)Amounts exclude goods and services tax, value added tax or equivalent taxes.(2)Including any network services consist of the audit or review of the consolidated financial statements of the Group and Company, including controlled entities that arerequired to prepare financial services that are not audit services performed during the reporting period are non-audit services. These include audit related services and all related services consist of assurance and related services that are traditionally performed by the external auditor, including (i) provision of comfortletters to underwriters in connection with securities offerings; (ii) regulatory services required by statute, regulation or regulatory compliance obligations;and (iii) non-regulatory services including non-statutory audits, accounting consultations and audits in connection with acquisitions, internal controlreviews, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting other services are those that are not audit or audit related a description of the Board Audit Committee s pre-approval policies and procedures, refer to the NAB 2017 Corporate Governance Statement whichis available online at Further details of the non-audit services provided by Ernst & Young to the Groupduring 2017 and the fees paid or due and payable for those services are set out in the Report of the to the financial statementsOther information (continued)138 NATIONAL AUSTRALIA BANK39 Shares and performance rightsThe Group s employee equity plans provide NAB shares and performance rights to employees of the Group. Each plan allows employees to be invitedto participate in the offers under the relevant plan. Employee equity plans may be specific to employees in a particular region ( New Zealand (NZ)staff share allocation plan, United Kingdom (UK) share incentive plan).The Board determines the maximum number of shares or performance rights offered under each plan having regard to the rules of the relevant planand, where required, the formula used in calculating the fair value per instrument. Under ASX Listing Rules, shares and performance rights may not beissued to NAB directors under an employee equity plan without specific shareholder programs for employeesEquity-based programs offered to employees form part of the Group s remuneration policy which is designed to: Attract, retain and reward employees. Align the interests of employees and shareholders through ownership of NAB securities. Comply with jurisdictional remuneration regulations and Group diversity, inclusion and pay equity the terms of most offers, there is a period during which shares are held on trust and cannot be dealt with, or performance rights cannot beexercised, by the employee to whom they are allocated. There may be forfeiture or lapse conditions particular to shares or performance rights allocatedto an employee (as described below) if the employee leaves during those periods or conduct standards are not met. Shares allocated to employees areeligible for any cash dividends paid from the time they are allocated to the trustee on an employee s behalf. Performance rights granted to employeesare not eligible for any cash dividends until the service and performance conditions have been met and the performance rights are value of the awards provided is measured by reference to the grant date fair value of the shares and performance rights provided to expense for each tranche of shares or performance rights granted is recognised in the income statement on a straight-line basis, adjusted forforfeitures, over the period that the awards provided are received (the vesting period), with a corresponding increase in the equity-based grant date fair value of each share is determined by the market value of NAB shares, and is generally a five day weighted average share share plans and performance rights are linked to internal performance, market performance and/or service fair value of the shares and performance rights with market performance hurdles is determined using a simulated version of the Black-Scholesmodel. The key assumptions and inputs used in the valuation model vary depending on the award. They include the NAB share price at the time of thegrant, exercise price of the performance rights (which is nil), the expected volatility of NAB s share price, the risk-free interest rate and the expecteddividend yield on NAB shares for the life of the performance rights. When estimating expected volatility, historic daily share prices are analysed to arriveat annual and cumulative historic volatility estimates (which may be adjusted for any abnormal periods or non-recurring significant events). Trends in thedata are analysed to estimate volatility movements in the future for use in the numeric pricing model. The simulation takes into account both theprobability of achieving market performance conditions and the potential for early exercise of vested performance market performance conditions are incorporated into the grant date fair values, non-market conditions are not taken into account whendetermining the fair value and expected time to vesting of shares and performance rights. Instead, non-market conditions are taken into account byadjusting the number of shares and performance rights included in the measurement of the expense so that the amount recognised in the incomestatement reflects the number of shares or performance rights that actually key equity-based programs offered to employees are:Short-term incentives (STI) for certain employees may be deferred into shares or performance rights. Employees become eligible to receive thoseshares or performance rights based on their individual performance, business performance or both, and service and other STI deferral model for employees based in Australia, Asia, NZ, the UK and the United States (US) provides for a proportion of an employee s STIreward to be deferred. The deferred amount is commensurate with the level of risk and responsibility within a role and the length of deferral, rangingfrom 6 to 42 months for awards made in respect of the 2016 performance year or prior years, aligns with both the level of risk and impact of the role onbusiness performance and results. From the 2017 performance year, the length of deferral may range from 6 months to 90 months. A threshold is inplace whereby deferral only applies to STI deferred amounts of $1,000 or more for awards made in respect of the 2016 performance year or prior the 2017 performance year, the threshold will be $2,000 or , deferred STI shares (or performance rights which are granted to senior executives or for jurisdictional reasons) are forfeited (or lapsed)during the deferral period if the employee resigns or breaches the NAB Code of Conduct during the following financial year(s) or, subject to certainexclusions, if the employee is terminated from the Group. In determining the release of an employee s deferred STI shares from restrictions during thedeferral period, the Board may in its absolute discretion, subject to compliance with the law, forfeit some or all of the deferred STI shares. For furtherdetails on STI awards granted to senior executives of NAB, refer to the Remuneration report in the Report of the shares (or performance rights granted for jurisdictional reasons) enable the buy-out of equity or other incentives from previousemployment, but are only provided with the recommendation of the Remuneration Committee or delegate and the approval of the Board or amount, timing and performance hurdles relevant to any such awards are based on satisfactory evidence of foregone awards from previousemployment. The shares may also be subject to restrictions and certain forfeiture conditions, including forfeiture (or lapsing) on resignation or if conductstandards are not to the financial statementsOther information (continued)1392017 Annual Financial ReportRecognition / Retention shares (or performance rights granted for jurisdictional reasons) may be offered to key individuals in roles where retention iscritical over a medium term time frame (generally two to three years). The shares or performance rights may also be subject to restrictions and certainforfeiture conditions, including forfeiture (or lapsing) on sacrifice shares were allocated on a monthly basis to UK employees when they nominated to contribute a portion of their gross salary toreceive NAB shares. Salary sacrifice shares ceased to be offered in December employee shares up to a target value of $1,000 are offered to eligible employees. These shares are held on trust, are subject to restrictions ondealing for three years and, in Australia and Asia, are not subject to forfeiture. In NZ, the UK and the US, the shares are effectively forfeited if theemployee resigns or is dismissed from the Group before the end of the three year restriction incentives (LTI) taking the form of performance rights, help to align management decisions with the long-term performance of the Groupthrough the use of challenging performance hurdles. The Executive LTI program is awarded to senior executives across the Group. An LTI maximumopportunity is set with reference to external and internal relativities for each executive who must also meet minimum performance and conductthresholds. Performance hurdles (both internal and external) are measured at the end of a four to five year performance period. During the performanceperiod all of an executive s performance rights will lapse on resignation and a pro rata portion will lapse on cessation of employment in othercircumstances having regard to the time elapsed in the performance period (unless the Board so determines). Performance rights will also lapse ifconduct requirements or performance hurdles are not met. The Board has absolute discretion to determine vesting or lapsing outcomes for theperformance Shareholder Return (TSR) compared against peer companies and Group Cash ROE growth compared against peer companies are theperformance measures used depending on the year the LTI was of an LTI award generally occurs to the extent that the relevant performance hurdle is satisfied (as determined by the Board RemunerationCommittee). For historical awards, the performance rights generally have an expiry date between five and six years from the effective date, if theyremain unexercised. For LTI awards from 2015, if the applicable conditions are met, the performance rights will vest and each performance right will beautomatically exercised in return for one NAB fully paid ordinary performance right is exchanged for one NAB fully paid ordinary share upon exercise, subject to standard adjustments for capital actions. Noexercise price is payable by the holder on exercise of performance of shares and performance rights are set out in the following tables:Employee share plans20172016Fully paidordinaryshares grantedduring the yearWeightedaverage grantdate fair valueFully paidordinary sharesgranted duringthe yearWeightedaverage grantdate fair valueEmployee share plansNo.$No.$Salary sacrifice shares (1)--16, incentive shares4,861, ,256, and recognition shares553, ,148, employee shares1,092, ,260, (1)Salary sacrifice shares ceased to be offered in December closing market price of NAB s shares at 30 September 2017 was $ (2016: $ ). The volume weighted average share price during the yearended 30 September 2017 was $ (2016: $ ).Performance rights movementsPerformancerights(1) instruments outstanding as at 30 September 20154,378,960Granted1,558,552Forfeited(483,269)Exercised(387,127)Expired(143,635)Equity instruments outstanding as at 30 September 20164,923,481Granted831,510Forfeited(606,334)Exercised(259,315)Expired(1,674)Equity instruments outstanding as at 30 September 20174,887,668Equity instruments exercisable as at 30 September 2017-Equity instruments exercisable as at 30 September 20163,348(1)No exercise price is payable for performance to the financial statementsOther information (continued)140 NATIONAL AUSTRALIA BANKPerformance rights outstanding20172016Outstanding at30 SepWeightedaverageremaining lifeOutstanding at30 SepWeightedaverageremaining lifeTerms and hurdle (1)4,464,645244,442,27734Internal hurdle (2)53,7691289,60016Individual hurdle (3)369,2549391,60410(1)Performance hurdles based on NAB s relative TSR compared with peer companies.(2)Performance hurdles based on achievement of internal financial measures such as cash earnings, ROE compared to business plan, cash ROE growth compared with peer companies and Net PromoterScore targets.(3)Vesting is determined by individual performance or time-based on fair value calculationThe table below shows the significant assumptions used as inputs into the grant date fair value calculation of performance rights granted during the lasttwo years. In the following table, values have been presented as weighted averages, but the specific values for each grant are used for the fair valuecalculation. The following table shows a no hurdle value where the grant includes performance rights which have non-market based performancehurdles average valuesContractual life (years) interest rate (per annum) volatility of share price20%18%Closing share price on grant date$ $ yield (per annum) value of performance rights$ $ No hurdle value of performance rights$ $ time to vesting (years) Capital adequacyAs an ADI, NAB is subject to regulation by the Australian Prudential Regulation Authority (APRA) under the authority of the Banking Act 1959 (Cth).APRA has set minimum regulatory capital requirements for banks that are consistent with the Basel capital adequacy Group s capital structure comprises various forms of capital. Common Equity Tier 1 (CET1) capital comprises paid-up ordinary share capital,retained earnings plus certain other items recognised as capital. The ratio of such capital to risk-weighted assets is called the CET1 ratio. Additional Tier1 capital comprises certain securities with required loss absorbing characteristics. Together these components of capital make up Tier 1 capital and theratio of such capital to risk-weighted assets is called the Tier 1 capital 2 capital mainly comprises of subordinated debt instruments, and contributes to the overall capital capital contains the highest quality and most effective loss absorbent component of capital, followed by Additional Tier 1 capital and then followedby Tier 2 capital. The sum of Tier 1 capital and Tier 2 capital is called Total Capital. The ratio of Total Capital to risk-weighted assets is called the TotalCapital ratio. The minimum CET1 ratio, Tier 1 capital ratio and Total Capital ratio under APRA s Basel capital adequacy Prudential Standards are , and addition to the minimum capital ratios described above, APRA sets Prudential Capital Ratios for each tier of capital for each ADI, at a levelproportional to the ADI s overall risk profile. A breach of the required ratios under APRA's Prudential Standards may trigger legally enforceabledirections by APRA, which can include a direction to raise additional capital or to cease 1 January 2016, APRA implemented a capital conservation buffer of of an ADI s total risk-weighted assets. In addition, for ADI s consideredsystemically important such as the Company, a further Domestic Systemically Important Bank (D-SIB) requirement of 1% has been added to therequired capital conservation APRA s Prudential Standards, entities involved in certain business activities (such as superannuation and funds management) are de-consolidated for the purposes of calculating capital adequacy and excluded from the risk based capital adequacy framework. The investment in theseentities is deducted 100% from CET1 capital. Additionally, any profits from these activities included in the Group s results are excluded from thedetermination of CET1 capital to the extent they have not been remitted to the ratios are monitored against internal capital targets that are set over and above minimum capital requirements set by the Board. The Groupremains well capitalised with a CET1 ratio of as at September 2017. In July 2017, APRA announced a Common Equity Tier 1 (CET1) ratiotarget of at least by 1 January 2020 for major banks to be viewed as unquestionably strong . The Group expects that it can meet the new'unquestionably strong' capital requirements in an orderly to the financial statementsOther information (continued)1412017 Annual Financial Report41 Discontinued operationsIn the 2016 financial year, the Group executed two major divestments, the demerger and Initial Public Offering (IPO) of CYBG Group and the sale of80% of Wealth's life insurance business to Nippon Life. Each of the transactions qualified as a discontinued insurance business discontinued operationNAB has retained a 20% interest in MLC Limited following the sale of 80% of that company to Nippon Life. The retained interest gives NAB significantinfluence over the business and is accounted for using the equity method in accordance with AASB 128 "Investments in Associates and Joint Ventures".The investment is disclosed within other assets on the Group balance sheet. The full prior period results of the life insurance business are presentedwithin the life insurance business discontinued operation. The Group s share of current period profit associated with the retained investment in the lifeinsurance business is presented within continuing operations. Refer to Note 31 Interest in subsidiaries and other entities for further to retaining a direct investment in the life insurance business, the Group has entered into a long term strategic partnership with Nippon Lifewhich includes a 20 year distribution agreement to provide life insurance products through NAB s owned and aligned distribution networks. Thedistribution agreement is a source of income for the Group in addition to the share of profits associated with the retained discontinued operationThe separation of CYBG Group was achieved by a demerger of 75% of CYBG shares to NAB shareholders, with the remaining 25% divested throughan IPO to institutional investors (with both transactions referred to as the CYBG demerger). As part of the CYBG demerger, NAB and CYBG entered intothe Conduct Indemnity Deed under which NAB agreed, subject to certain limitations, to provide CYBG with a Capped Indemnity in respect of certainhistoric conduct liabilities (Refer to Note 32 Contingent liabilities and credit commitments for further information on the Capped Indemnity). All conductprovisions recognised by NAB under the Conduct Indemnity Deed are presented within the CYBG discontinued operation and of loss for the year from discontinued operationsThe results set out below represent the discontinued operations of Wealth's life insurance business and UK Banking operations as related to the CYBGdemerger. Adjustments to amounts previously presented in discontinued operations that are directly related to the disposal of a discontinued operationin a prior period are classified separately in discontinued operations in the current period. During the financial year to 30 September 2017, a net loss of$904 million before tax ($893 million after tax) was recognised in discontinued operations. This balance includes a loss of $853 million relating to theConduct Indemnity Deed entered into with CYBG. Refer to Note 32 Contingent liabilities and credit commitments for further information on the ConductIndemnity toSep 17Sep 16Total discontinued operations$m$mNet loss from life insurance business discontinued operation-(1,123)Net loss from CYBG discontinued operation(893)(4,945)Net loss from discontinued operations(893)(6,068)42 Events subsequent to reporting dateOn 27 October 2017, the Group announced it had agreed a settlement with the Australian Securities and Investments Commission (ASIC) of the BankBill Swap Rate (BBSW) legal action. As part of the settlement the Group has agreed to a $10 million penalty, and to pay ASIC s costs of $20 million. TheGroup will also make a donation of $20 million to a financial consumer protection fund nominated by ASIC. The financial impact of this settlement hasbeen reflected in the Group s results for the 2017 financial 2 November 2017, the Group announced an acceleration of its strategic agenda to enhance the customer experience and simplify the bank. Arestructuring provision of between $500 million and $800 million is expected to be raised in the Group s interim financial report for the first half of the2018 financial than the matters noted above, there are no other items, transactions or events of a material or unusual nature that have arisen in the intervalbetween 30 September 2017 to the date of this report that, in the opinion of the directors, have significantly affected or may significantly affect theoperations of the Group, the results of those operations or the state of affairs of the Group in future to the financial statementsOther information (continued)142 NATIONAL AUSTRALIA BANKThe directors of National Australia Bank Limited declare that:(a) in the opinion of the directors, the financial statements and the notes thereto as set out on pages 57 to 142 and the additional disclosures included inthe audited pages of the Remuneration report, comply with Australian Accounting Standards (including the Australian Accounting Interpretations),International Financial Reporting Standards as stated in Note 1(b) Statement of compliance to the financial statements, and the Corporations Act 2001(Cth);(b) in the opinion of the directors, the financial statements and notes thereto give a true and fair view of the financial position of NAB and the Group as at30 September 2017, and of the performance of NAB and the Group for the year ended 30 September 2017;(c) in the opinion of the directors, at the date of this declaration, there are reasonable grounds to believe that NAB will be able to pay its debts as andwhen they become due and payable; and(d) the directors have been given the declarations required by section 295A of the Corporations Act 2001 (Cth).Dated this 14th day of November 2017 and signed in accordance with a resolution of the Kenneth R HenryChairmanMr Andrew G ThorburnGroup Chief Executive OfficerDirectors' declaration1432017 Annual Financial Report144 NATIONAL AUSTRALIA BANK1452017 Annual Financial Report146 NATIONAL AUSTRALIA BANK1472017 Annual Financial Report148 NATIONAL AUSTRALIA BANK1492017 Annual Financial ReportTwenty largest registered fully paid ordinary shareholders of the company as at 31 October 2017Number ofshares%HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED638,988, P MORGAN NOMINEES AUSTRALIA LIMITED319,495, NOMINEES PTY LIMITED155,591, NOMINEES LIMITED116,541, PARIBAS NOMINEES PTY LTD <AGENCY LENDING DRP A/C>60,215, PARIBAS NOMS PTY LTD <DRP>34,302, NOMINEES PTY LIMITED <COLONIAL FIRST STATE INV A/C>29,490, CUSTODY NOMINEES (AUSTRALIA) LIMITED <NT-COMNWLTH SUPER CORP A/C>15,715, SHARE PLANS PTY LTD11,002, GROUP10,063, FOUNDATION INVESTMENT COMPANY LIMITED9,342, INVESTMENTS LIMITED6,055, AUSTRALIA LTD <MLC INVESTMENT SETT A/C>5,266, CORPORATION LIMITED4,821, NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>4,337, INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>4,301, INVESTMENTS LIMITED <WRAP SERVICES A/C>3,148, NOMINEES PTY LTD2,936, INVESTMENT COMPANY LIMITED2,709, STREET CUSTODIANS LIMITED <MACQ HIGH CONV FUND A/C>2,464, ,436,789, shareholdersAs at 31 October 2017, BlackRock Group and its associated entities were substantial holders in the Company, holding 147,042,056 fully paid of fully paid ordinary shareholdingsNumber ofshareholders% of holdersNumber ofshares% of sharesRange (number)1 1,000329, ,198, ,001 5,000192, ,500, ,001 10,00030, ,097, ,001 100,00017, ,766, ,001 and ,560,908, ,0421002,685,470,150100Less than marketable parcel of $50014,13092,397Voting rightsEach ordinary shareholder present at a general meeting (whether in person or by proxy or representative) is entitled to one vote on a show of hands or,on a poll, one vote for each fully paid ordinary share held. Holders of partly paid shares voting on a poll are entitled to a number of votes based upon theproportion that the amount of capital call and paid up on the shares bears to the total issue price of the information150 NATIONAL AUSTRALIA BANKTwenty largest registered National Income Securities (NIS) holders as at 31 October 2017Number ofsecurities%HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED1,685, P MORGAN NOMINEES AUSTRALIA LIMITED962, CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2521, NOMINEES LIMITED451, NOMINEES PTY LIMITED404, PARIBAS NOMS PTY LTD <DRP>248, CORPORATION PTY LTD <LAVA UNIT A/C>197, TRUST PTY LTD192, NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>178, AUSTRALIA LTD <MLC INVESTMENT SETT A/C>176, INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>145, NOMINEES PTY LTD111, INVESTMENTS LIMITED <WRAP SERVICES A/C>104, NO 11 PTY LTD <BRENCORP NO 11 UNIT A/C>102, EXECUTOR TRUSTEES LTD <DDH PREFERRED INCOME FUND>100, EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>85, FINANCIAL INVESTMENTS PTY LTD <NO 2 A/C>82, HARBOUR PTY LTD <PENINSULA HARBOUR UNIT A/C>69, PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP67, INVESTMENTS LIMITED <SUPER SERVICES A/C>66, ,955, of NIS holdingsNumber ofholders% of holdersNumber ofsecurities% ofsecuritiesRange (number)1 1,00027, ,765, ,001 5,0002, ,332, ,001 10, ,166, ,001 100, ,151, ,001 and ,584, ,04710020,000,000100Less than marketable parcel of $50064222Voting rightsHolders of NIS preference shares are entitled to vote together with the holders of ordinary shares in the Company (to the extent that these shareholdersare entitled to vote) on the basis of one vote per NIS preference share on a limited number of matters including any proposal to wind up the Company orany proposal to affect the rights attaching to the NIS preference information1512017 Annual Financial ReportTwenty largest registered NAB Convertible Preference Shares (NAB CPS) holders as at 31 October 2017Number ofsecurities%HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED596, AUSTRALIA LTD <MLC INVESTMENT SETT A/C>244, NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>233, NOMINEES LIMITED211, P MORGAN NOMINEES AUSTRALIA LIMITED199, EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>183, PARIBAS NOMS PTY LTD <DRP>129, CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2129, INVESTMENTS LIMITED <WRAP SERVICES A/C>117, PTY LTD100, NOMINEES PTY LIMITED87, INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>86, PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP64, & KING PTY LTD <SNEATH & KING S/F A/C>52, C & G DEVELOPMENTS PTY LTD50, WALTER AND ELIZA HALL INSTITUTE OF MEDICAL RESEARCH45, AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>43, INVESTMENTS LIMITED <2477966 DNR A/C>41, INVESTMENT COMPANY LIMITED39, MANAGEMENT SERVICES PTY LTD38, ,696, of NAB CPS holdingsNumber ofholders% of holdersNumber ofsecurities% ofsecuritiesRange (number)1 1,00019, ,728, ,001 5,0001, ,956, ,001 10, , ,001 100, ,517, ,001 and ,046, ,96310015,143,274100Less than marketable parcel of $5001321Voting rightsHolders of Convertible Preference Shares (CPS) are entitled to vote together with the holders of ordinary shares in the Company (to the extent thatthese shareholders are entitled to vote) on the basis of one vote per CPS on a limited number of matters including any proposal to wind up theCompany or any proposal to affect the rights attaching to the information152 NATIONAL AUSTRALIA BANKTwenty largest registered NAB Convertible Preference Shares II (NAB CPS II) holders as at 31 October 2017Number ofsecurities%HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED1,088, NOMINEES PTY LIMITED553, AUSTRALIA LTD <MLC INVESTMENT SETT A/C>254, INVESTMENTS LIMITED <WRAP SERVICES A/C>222, NOMINEES (AUSTRALIA) LIMITED <NAVIGATOR MAST PLAN SETT A/C>215, MANAGEMENT SERVICES PTY LTD210, NOMINEES LIMITED169, CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2150, PARIBAS NOMS PTY LTD <DRP>145, INVESTMENTS LIMITED <SUPER SERVICES A/C>127, P MORGAN NOMINEES AUSTRALIA LIMITED121, PARIBAS NOMINEES PTY LTD HUB24 CUSTODIAL SERV LTD DRP105, INVESTMENT MANAGEMENT LIMITED <IPS SUPER A/C>94, AUSTRALIA LTD <JB WERE LIST FIX INT SMA A/C>89, PTY LTD50, PTY LTD <VAN LIESHOUT FAMILY A/C>50, FOUNDATION LTD <THE MCCUSKER CHARITABLE FNDN>50, EXECUTOR TRUSTEES LIMITED <NO 1 ACCOUNT>44, NOMINEES PTY LIMITED <DPSL>44, INVESTMENTS PTY LTD40, ,827, of NAB CPS II holdingsNumber ofholders% ofholdersNumber ofsecurities% ofsecuritiesRange (number)1 1,00020, ,006, ,001 5,0002, ,236, ,001 10, , ,001 100, ,595, ,001 and ,364, ,83510017,171,930100Less than marketable parcel of $500712Voting rightsHolders of Convertible Preference Shares II (CPS II) are entitled to vote together with the holders of ordinary shares in the Company (to the extent thatthese shareholders are entitled to vote) on the basis of one vote per CPS II on a limited number of matters including any proposal to wind up theCompany or any proposal to affect the rights attaching to the CPS information1532017 Annual Financial ReportOfficial quotationFully paid ordinary shares of the Company are quoted on the Group has also issued: National Income Securities, NAB Convertible Preference Shares and NAB Convertible Preference Shares II, NAB Capital Notes, NAB Capital Notes2, NAB Subordinated Notes 2, covered bonds and residential mortgage backed securities which are quoted on the ASX. Trust Preferred Securities, medium-term notes, subordinated notes and covered bonds which are quoted on the Luxembourg Stock Exchange. Medium-term notes and subordinated notes which are quoted on the Euro MTF market. Subordinated debentures which are quoted on The International Stock Exchange. Undated subordinated floating rate notes which are quoted on the London Stock Exchange. Medium-term notes and subordinated notes which are quoted on the NZX Debt Market. Medium-term notes and covered bonds which are quoted on the SIX Swiss Exchange. Medium-term notes which are quoted on the Taipei securitiesNAB has the following unquoted securities on issue as at 31 October 2017: 42,248 partly paid ordinary shares, of which there are 47 holders; and 4,881,151 performance rights, of which there are 142 holders (see page 24 of this report for further details).Shareholder information154 NATIONAL AUSTRALIA BANKChairmanDr Kenneth R Henry ACBComm (Hons), PhD, DB , FASSA, FAIIAGroup Chief Executive Officer and Managing DirectorMr Andrew G ThorburnBCom, MBAGroup Chief Financial OfficerMr Gary A LennonBEc (Hons), FCARegistered officeLevel 1800 Bourke StreetDOCKLANDS VIC 3008AustraliaTel: 1300 889 398Tel: +61 3 8872 2461AuditorErnst & Young8 Exhibition StreetMELBOURNE VIC 3000AustraliaTel: +61 3 9288 8000Company SecretaryMrs Louise R ThomsonBBus (Distinction), FGIAGroup Investor RelationsLevel 28255 George StreetSYDNEY NSW 2000AustraliaEmail: ResponsibilityPostal address:Corporate ResponsibilityNational Australia Bank Limited700 Bourke StreetDOCKLANDS VIC 3008AustraliaEmail: Centre websiteThe Group s website at has a dedicatedseparate section where shareholders can gain access to a wide rangeof information, including copies of recent announcements, annualfinancial reports as well as extensive historical Centre information lineThere is a convenient 24 hours a day, 7 days a week automatedservice. To obtain the current balance of your securities and relevantpayment details, telephone 1300 367 647 (Australia) or+61 3 9415 4299 (outside Australia).These services are secured to protect your interests. In allcommunications with the Share Registry, please ensure you quoteyour Securityholder Reference Number (SRN), or in case of brokersponsored shareholders, your Holder Identification Number (HIN).Principal Share RegisterComputershare Investor Services Pty LimitedYarra Falls452 Johnston StreetABBOTSFORD VIC 3067AustraliaPostal address:GPO Box 2333MELBOURNE VIC 3001AustraliaLocal call: 1300 367 647Fax: +61 3 9473 2500Telephone and fax (outside Australia):Tel: +61 3 9415 4299; Fax: +61 3 9473 2500Email: Kingdom Share RegisterComputershare Investor Services plcThe PavilionsBridgwater RoadBRISTOL BS99 6ZZUnited KingdomTel: +44 370 703 0197Fax: +44 370 703 6101Email: States ADR Depositary, Transfer Agent and Registrarcontact details for NAB ADR holders:Deutsche Bank Shareholder ServicesAmerican Stock Transfer & Trust CompanyPeck Slip Box 2050NEW YORK NY 10272-2050United States of AmericaToll-free number: +1 866 706 0509Direct Dial: +1 718 921 8137Email: details for NAB ADR brokers & institutional investors:US Tel: +1 212 250 9100UK Tel: +44 207 547 6500Email: information1552017 Annual Financial ReportTerm UsedDescription12-months expected credit losses(ECL)The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that arepossible within the 12 months after the reporting + Days past due and grossimpaired assets to GLAsLoans and advances 90+ days past due but not impaired and impaired assets expressed as a percentage of Gross loans and acceptances. Calculated as the sum of Loans and advances past due but not impaired (Past due over 90 days) (Refer to Note 16 Loans and advances on page 88)and Gross impaired assets (Refer to Note 17 Provision for doubtful debts on page 89) divided by Gross loans and Accounting Standards Competition and Consumer depositary General MeetingAPRAAustralian Prudential Regulation Standards issued by APRA applicable to Authorised Deposit-taking Securities and Investments Securities Exchange under management (AUM)Represents the market value of funds for which the Group acts as Funds Adviser or Investment equity (adjusted)Average shareholders equity, excluding non-controlling interests and other equity instruments (Refer to Note 26 Contributed Equity on page 98), whencalculated on a statutory basis. When calculated on a cash earnings basis, Average equity (adjusted) is further adjusted for Treasury shares. Refer to Average balances on page 5 for further information in relation to the calculation of average balances, including Average equity (adjusted).Average interest earning assetsThe average balance of assets held by the Group over the period that generate interest income. Refer to Average balances on page 5 for furtherinformation in relation to the calculation of average balances, including Average interest earning operations include the Group s:- Retail and Non-Retail deposits, lending and other banking services within Consumer Banking and Wealth, Business and Private Banking, Corporateand Institutional Banking, and NZ Banking- Wholesale operations comprising Global Capital Markets, Specialised Finance and Financial Institutions Business within Corporate and InstitutionalBanking and NZ Banking, and- Treasury operations within Corporate Functions and levyA levy imposed under the Major Bank Levy Act 2017 on authorised deposit-taking institutions with total liabilities of more than $100 IIIBasel III is a global regulatory framework designed to increase the resilience of banks and banking systems and is effective for Australian Banks from1 January bill swap of New and Private BankingBusiness and Private Banking focusses on serving priority small and medium (SME) customers via the NAB Business franchise and specialist servicesin key segments including Agriculture, Health, Government, Education, Community and Franchise. The division also serves NAB's micro and smallbusiness customers and includes Private Banking and lendingLending to non-retail customers including overdrafts, asset and lease financing, term lending, bill acceptances, foreign currency loans, internationaland trade finance, securitisation and specialised earningsCash earnings is defined as net profit attributable to owners of NAB from continuing operations, adjusted for the items NAB considers appropriate tobetter reflect the underlying performance of the Group. Cash earnings for the September 2017 financial year has been adjusted for the following:- Fair value and hedge Amortisation of acquired intangible return on equity (cash ROE)Cash earnings after tax expressed as a percentage of Average equity (adjusted), calculated on a cash earnings basis. Refer to Information aboutcash earnings on page 4 for further information in relation to cash generating Equity Tier 1 (CET1)CapitalCommon Equity Tier 1 (CET1) Capital is recognised as the highest quality component of capital. It is subordinated to all other elements of funding,absorbs losses as and when they occur, has full flexibility of dividend payments and has no maturity date. It is predominately comprised of commonshares; retained earnings; undistributed current year earnings; as well as other elements as defined under APS111 "Capital Adequacy: Measurementof Capital".Common Equity Tier 1 RatioCommon Equity Tier 1 as defined by APRA divided by risk-weighted Australia Bank Limited (NAB) ABN 12 004 044 Banking and WealthConsumer Banking and Wealth comprises the NAB and UBank consumer banking divisions, and the Wealth divisions of Advice, Asset Managementand Superannuation. The division provides customers with access to independent advisers, including mortgage brokers and the financial planningnetwork of self-employed, aligned and salaried advisers in OperationsContinuing operations are the components of the Group which are not discontinued assetsRepresents gross loans and advances including acceptances, financial assets at fair value, and other debt instruments at amortised cost (classified incomparative periods as investments held to maturity).Corporate and InstitutionalBankingCorporate and Institutional Banking provides a range of lending and transactional products and services related to financial and debt capital markets,specialised capital, custody and alternative investments. The division serves its customers in Australia and globally through branches in the US, UKand Asia with specialised industry relationships and product Functions and OtherThe Group s Corporate Functions business includes functions that support all businesses including Treasury and Other Corporate Functionsactivities. Treasury acts as the central vehicle for movements of capital and structural funding to support the Group's operations, together with capital,balance sheet management and the liquid asset portfolio. Other Corporate Functions activities include Technology and Operations and Support depositsThe sum of interest bearing, non-interest bearing and term deposits (including retail and corporate deposits). Calculated as the sum of Term deposits (Refer to Note 18 Other financial liabilities at fair value on page 91 and Note 19 Deposits and other borrowings on page 92), On-demand and short-term deposits (Refer to Note 18 Other financial liabilities at fair value on page 91 and Note 19 Deposits and other borrowings on page 92) and Deposits not bearing interest (Refer to Note 19 Deposits and other borrowings on page 92).Customer Funding Index (CFI)Customer deposits (excluding certain short dated institutional deposits used to fund liquid assets) divided by core GroupCYBG PLC and its controlled STI rightsDeferred STI rights are restricted for at least one year and may be fully or partially lapsed if individual or business performance warrants. They areprovided in respect of prior year(s) performance and are subject to service and performance conditions. The terms and conditions, including lapsing,will vary for each particular grant. Shares are issued or transferred under the National Australia Bank Staff Share Ownership Share Plan. The design ofthe share plan (and the expected outcome for senior executives) seeks to comply with ASX Corporate Governance Principles and Recommendations,and those set out in the Investment and Financial Services Association s (IFSA) Executive Equity Plan Guidelines , Guidance Note NATIONAL AUSTRALIA BANKTerm UsedDescriptionDeferred STI sharesDeferred STI shares are NAB ordinary shares, allocated at no charge to the employee, in respect of prior year performance, which provide dividendincome to the employee from allocation. The shares are held on trust for a restriction period of at least one year, during which the shares are restrictedfrom trading and may be fully or partially forfeited if individual or business performance warrants. The shares will be forfeited if the participant fails tomeet the Conduct Gate, or if they resign or are dismissed before the end of the shares' relevant restriction period. Generally, the shares may beretained on cessation of employment in other demerger of CYBG Group from OperationsDiscontinued operations are a component of the Group that either has been disposed of, or is classified as held for sale, and represents a separatemajor line of business or geographical area of operations, which is part of a single co-ordinated plan for to holders of other equity instrument issues such as National Income Securities, Trust Preferred Securities and National Capital at per share (EPS)Basic and diluted earnings per share calculated in accordance with the requirements of AASB 133 "Earnings per Share".Face valueThe face value of each performance right is determined by the market value of a NAB share. NAB generally uses a five day weighted average shareprice to determine the face value at grant and on valueThe price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at value and hedgeineffectivenessRepresents volatility from the Group s assets and liabilities designated at fair value, hedge accounting ineffectiveness from designated accountinghedge relationships, or from economic hedges where hedge accounting has not been value (for thepurposes of equity awards set outin the Remuneration Report)The value of the awards provided are measured by reference to the grant date fair value of the shares and performance rights provided to expense for each tranche of shares or performance rights granted is recognised in the income statement on a straight-line basis, adjusted forforfeitures, over the period that the awards provided are received (the vesting period), with a corresponding increase in the equity-based grant date fair value of each share is determined by the market value of NAB shares, and is generally a five day weighted average share share plans and performance rights are linked to internal performance, market performance and/or service fair value of the shares and performance rights with market performance hurdles is determined using a simulated version of the Black-Scholesmodel. The key assumptions and inputs used in the valuation model include the NAB share price at the time of grant, exercise price of theperformance rights (which is nil), the expected volatility of NAB s share price, the risk-free interest rate and the expected dividend yield on NAB sharesfor the life of the performance rights. When estimating expected volatility, historic daily share prices are analysed to arrive at annual and cumulativehistoric volatility estimates (which may be adjusted for any abnormal periods or non-recurring significant events). Trends in the data are analysed toestimate volatility movements in the future for use in the numeric pricing model. The simulation takes into account both the probability of achievingmarket performance conditions and the potential for early exercise of vested performance market performance conditions are incorporated into the grant date fair values, non-market conditions are not taken into account whendetermining the fair value and expected time to vesting of shares and performance rights. Instead, non-market conditions are taken into account byadjusting the number of shares and performance rights included in the measurement of the expense so that the amount recognised in the incomestatement reflects the number of shares or performance rights that actually Conduct Authority (formerly the UK Financial Service Authority).FSIFinancial System equivalent employees(FTEs)Includes all full-time staff, part-time, temporary, fixed term and casual staff equivalents, as well as agency temporary staff and external contractorseither self-employed or employed by a third party agency. Note: This does not include consultants, IT professional services, outsourced serviceproviders and non-executive Value through Other Comprehensive Domestic Product (GDP) is the market value of the finished goods and services produced within a country in a given period of Loans and Acceptances(GLAs)The total loans, advances and acceptances, including unearned and deferred fee income, excluding associated provisions for bad and doubtful debts. Calculated as the sum of 'Acceptances' (Refer to Balance sheets on page 61), 'Loans at fair value' (Refer to Note 14 Other financial assets at fairvalue' on page 82), and Total gross loans and advances (Refer to Note 16 Loans and advances on page 88).GroupNAB and its controlled Goods and Services Tax (GST) is a value added tax of 10% on most goods and services Quality Liquid Assets(HQLA)Eligible assets that include cash, balances held with Central Banks along with securities issued by highly rated Governments and lendingMortgages secured by residential properties as Financial Reporting assetsConsist of:- Retail loans (excluding unsecured portfolio managed facilities) which are contractually past due 90 days with security insufficient to cover principaland arrears of interest revenue- Non-retail loans which are contractually past due and there is sufficient doubt about the ultimate collectability of principal and interest, and- Impaired off-balance sheet credit exposures where current circumstances indicate that losses may be portfolio managed facilities are also classified as impaired assets when they become 180 days past due (if not written off).Key management personnel(KMP)Key executives of the Group and NAB who have the authority and responsibility for planning, directing and controlling the activities of the Group,directly or indirectly, including any director (whether executive or otherwise). This is the definition used in AASB 124 "Related Party Disclosures" andthe Corporations Act 2001 (Cth).Leverage RatioThe Leverage Ratio is a simple, transparent, non-risk based supplementary measure that use exposures to supplement the risk-weighted assetsbased capital requirements and is prepared in accordance with APRA's Prudential Standard APS111 "Capital Adequacy: Measurement of Capital".Lifetime expected credit losses(ECL)The expected credit losses that result from all possible default events over the expected life of a financial Coverage Ratio (LCR)LCR measures the amount of high quality liquid assets held that can be converted to cash easily and immediately in private markets, to total net cashflows required to meet the Group's liquidity needs for a 30 calendar day liquidity stress Incentive (LTI)An at risk opportunity for individuals linked to the long-term performance of the Group. LTI is allocated under the Group s LTI program in the form ofperformance performance rights (or LTIrights)An LTI performance right is a performance right granted under an LTI plan which is subject to long-term performance debt securitiesComprises trading securities, debt instruments at fair value through other comprehensive income and other debt instruments at amortised cost(classified in comparative periods as investments - available for sale and investments - held to maturity respectively).NABNational Australia Bank Limited ABN 12 004 044 UK Commercial Real Estate(NAB UK CRE)NAB UK CRE was created on 5 October 2012 following the transfer of certain commercial real estate loan assets from Clydesdale Bank to loan assets are managed by the NAB London Annual Financial ReportTerm UsedDescriptionNAB WealthNAB Wealth provides superannuation, investment and insurance solutions to retail, corporate and institutional clients. NAB Wealth operates one of thelargest networks of financial advisers in interest margin (NIM)Net interest income derived on a cash earnings basis expressed as a percentage of Average interest earning assets. For more information in relationto the calculation of Net interest margin, refer to Information about Net interest margin on page profit attributable to non-controlling interestReflects the allocation of profit to non-controlling interests in the profit attributable to owners ofNABRepresents the Group s statutory profit / (loss) after tax and reflects the amount of net profit / (loss) that is attributable to Promoter Score (NPS)Net Promoter Score measures the net likelihood of recommendation to others of the customer s main financial institution for retail or business Promoter and NPS are registered trademarks and Net Promoter Score and Net Promoter System are trademarks of Bain & Company,Satmetrix Systems and Fred Stable Funding Ratio (NSFR)The amount of available stable funding (ASF) relative to the amount of required stable funding (RSF).NZ BankingNZ Banking comprises the Retail, Business, Agribusiness, Corporate and Insurance franchises and Market Sales operations in New Zealand,operating under the BNZ brand. It excludes BNZ s Markets Trading rightsA performance right, such as an LTI performance right, is a right to acquire one NAB ordinary share, once the performance right has vested based onachievement of the related performance hurdle or at the Board s discretion. Each performance right entitles the holder to be provided with one NABordinary share subject to adjustment for capital actions. A performance right is issued at no charge to the employee and there is no exercise price tobe paid to exercise the performance right. Performance rights may be used instead of shares due to jurisdictional reasons including awards such asdeferred STI and commencement and other retention programs. The terms and conditions, including lapsing, will vary for each particular rights are issued by NAB under the National Australia Bank Performance Rights Plan. The design of the performance rights plan (and theexpected outcome for senior executives) seeks to comply with ASX Corporate Governance Principles and Recommendations, and those set out in theInvestment and Financial Services Association s (IFSA) Executive Equity Plan Guidelines , Guidance Note 12. The main departure from the IFSAguidelines is that performance rights issued by NAB have no exercise price. Shares will be issued on exercise of performance rights. No dividendincome is provided to the employee until the end of the restriction period and the performance conditions have been met and the performance rightsare Kingdom Prudential Regulation Bank of AustraliaRBNZReserve Bank of New on Total Allocated Equity(ROTAE)ROTAE is a function of cash earnings, combined divisional Risk Weighted Assets (and by capital adequacy for Wealth Management) and targetregulatory capital assets (RWA)A quantitative measure of the Group s risk, required by the APRA risk-based capital adequacy framework, covering credit risk for on- and off-balancesheet exposures, market risk, operational risk and interest rate risk in the banking finance technique which involves pooling and packaging cash-flow converting financial assets into securities that can be sold to executivesKey executives of NAB who are (or were) identified as KMP, including executive incentive (STI)An at risk opportunity for individuals to receive an annual performance-based reward. The actual STI reward that an individual will receive in anyparticular year will reflect both business and individual Purpose Entity (SPE)An entity created to accomplish a narrow well-defined objective ( securitisation of financial assets). An SPE may take the form of a corporation,trust, partnership or unincorporated entity. SPEs are often created with legal arrangements that impose strict limits on the activities of the Funding Index (SFI)Term Funding Index (TFI) plus Customer Funding Index (CFI).Statutory return on equity (ROE)Statutory earnings after tax expressed as a percentage of Average equity (adjusted), calculated on a statutory Fund MergerThe transfer of five Group super funds into one new super fund called the MLC Super Fund, which was completed on 1 July Funding Index (TFI)Term wholesale funding (with a remaining maturity to first call date greater than 12 months) divided by core 1 capitalTier 1 capital comprises Common Equity Tier 1 (CET1) capital and instruments issued by the Group that meet the criteria for inclusion as AdditionalTier 1 capital set out in APS111 "Capital Adequacy: Measurement of Capital".Tier 2 capitalTier 2 capital includes other components of capital that, to varying degrees, fall short of the quality of Tier 1 capital but nonetheless contribute to theoverall strength of an ADI and its capacity to absorb losses; as set out in APS111 "Capital Adequacy: Measurement of Capital".Tier 1 capital ratioTier 1 capital as defined by APRA divided by risk-weighted average assetsThe average balance of assets held by the Group over the period, adjusted for disposed operations. Disposed operations include any operations thatwill not form part of the continuing Group. These include operations sold and those which have been announced to the market that have yet to reachcompletion. Refer to Average balances on page 5 for further information in relation to the calculation of average balances, including Total capital ratioTotal capital ratio is the sum of Tier 1 capital and Tier 2 capital, as defined by APRA, divided by risk-weighted Shareholder Return (TSR)Total Shareholder Return (TSR) is a concept used to compare the performance of different companies securities over time. It combines share priceappreciation and dividends paid to show the total return to the shareholder. The absolute size of the TSR will vary with stock markets, but the relativeposition reflects the market perception of overall performance relative to a reference sharesShares in NAB held in the Group's consolidated investments businesses (up to the Successor Fund Merger on 1 July 2016) and in trust by a controlledentity of the Group to meet the requirements of employee incentive schemes. The unrealised mark-to-market movements arising from changes in theshare price, dividend income and realised profit and losses arising from the sale of shares held by the Group s consolidated investment business areeliminated for statutory reporting at average number ofordinary sharesCalculated in accordance with the requirements of AASB 133 "Earnings per Share".Glossary158 NATIONAL AUSTRALIA BANKNational Australia Bank Limited800 Bourke StreetDocklands VIC 3008 AustraliaIf calling within Australia 1300 889 398If calling internationally +61 3 8872 York Branch28th Floor, 245 Park AvenueNew York NY 10167United States of AmericaTel: +1 212 916 9500Fax: +1 212 986 5252National Wealth Management Holdings LimitedGround Floor, MLC Building105 153 Miller StreetNorth Sydney NSW 2060AustraliaTel: 13 26 52 Hong Kong BranchLevel 27 One Pacific Place88 QueenswayHong KongTel: + 852 2826 8111 (HK Branch General line)(HK Branch)Fax: + 852 2845 9251 (HK Branch General line)(HK Branch) Branch88 Wood StreetLondon EC2V 7QQEnglandUnited KingdomTel: +44 (0)20 7710 2100Singapore Branch 12 Marina View#20-02 Asia Square Tower 2Singapore 018961Tel: + 65 6419 7000Fax: + 65 6336 Australia Financial Management LimitedGround Floor, MLC Building105 153 Miller StreetNorth Sydney NSW 2060AustraliaTel: 13 26 52 Tokyo BranchMuromachi Higashi Mitsui Building 18F2-2-1 Nihonbashi MuromachiChuo-kuTokyo 103-0022JapanTel: + 81 3 3241 8781Fax: + 81 3 3241 Asset Servicing12/500 Bourke StreetMelbourne VIC 3000Correspondence to:GPO Box 1406Melbourne VIC 3001AustraliaTel: +61 3 8641 0297 Fax: +61 1300 556 414SWIFT: BranchUnit 01, 29 - 32, Level 23China World Office 1No. 1 Jian Guo Men Wai AvenueBeijing 100004ChinaTel: +86 10 6535 9800Fax: +86 10 6505 BranchSuite 4201 4204 42nd Floor, One Lujiazui68 Middle Yincheng RoadPudongShanghai 200120ChinaTel : + 86 21 2089 0288Fax : + 86 21 6100 of New ZealandLevel 4 80 Queen StreetAuckland 1010 New ZealandTel: +64 9 375 Representative Office106E, 6th FloorSentral Senayan IJI. Asia Afrika No. 8Gelora Bung Karno, Senayan Jakarta Pusat 10270IndonesiaTel : + 62 21 572 4111Fax : + 62 21 572 Branch901, 9th FloorNariman Bhavan, 227 Backbay ReclamationNariman PointMumbai 400 021IndiaTel: +91 22 6198 8200Fax: +91 22 6198 Representative Office14th Floor, CornerStone Building16 Phan Chu Trinh StreetHoan Kiem District HanoiVietnamTel: +84 4 3937 8889Fax: +84 4 3936 ESTABLISHMENTS 2017 National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686 A138943 cover of this publication is printed on Revive Laser paper stock. Revive Laser is 100% Recycled, manufactured from Forest Stewardship Council (FSC ) Recycled certified fibre and manufactured carbon neutral. It is produced by an ISO14001 (environmental management system) certified mill. No chlorine bleaching occurs in the recycling process. The text of this publication is printed on Sumo Laser paper stock. Sumo Laser is produced using Elemental Chlorine Free (ECF), FSC certified Mixed Source pulp from Responsible Sources and manufactured under the strict ISO14001 Environmental Management System. The printer s operation is accredited to ISO 14001 and ISO 9001 (quality management system) standards and holds FSC (chain of Custody) certification. This publication is fully recyclable, please dispose of wisely. Emissions generated from the production of this Annual Financial Report have been offset. Offsets corresponding to 15,027kg of CO2-e have been retired.
2017 Annual Financial Report - Capital and Funding
National Australia Bank Limited ABN 12 004 044 937 This 2017 Annual Financial Report (Report) is lodged with the Australian Securities and …
Link to this page:
Please notify us if you found a problem with this document: