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National Australia Bank stands by A$1bn systems overhaul

National Australia Bank stands by A$1bn systems overhaul

Project remains a priority despite fears of technology spending cuts in the financial services sector, says chief executive Cameron Clyne.

Incoming National Australia Bank chief executive Cameron Clyne says the bank remains committed to a A$1 billion overhaul of the computer systems that drive its operations, despite fears of technology spending cuts in the financial services sector. The bank has reported a surge of nearly $100 million in deferred software spending in the past year, increasing capitalised IT costs to the highest level since 2004, when it took a $200 million write-down on a botched enterprise resource planning project.

Mr Clyne told analysts yesterday that the $1 billion core systems replacement initiative, which NAB refers to as its Next Generation Platform program, remained one of the organisation's top priorities.

The program is expected to run for five years as the bank replaces the technology that processes credit and debit transactions entered into internet banking, lending and teller systems, among others.

"This is a once-in-a-generation issue where you take your core banking platform and replace it," Mr Clyne said.

"It is a significant investment and therefore I need to actively sponsor that.

"It provides great opportunity to converge a range of processes and technology and, irrespective of whatever strategic directions I come back with next year, that replatforming of the business is absolutely one of the top two to three things I need to focus on."

NAB awarded US software developer Oracle a contract to provide its i-flex core banking software for the $30 million first phase of the project in August.

All of the Big Four banks are expected to replace their core banking systems in the next five years at a combined cost of more than $3.5 billion and Australia's IT industry is keen for the project to go ahead as fears of a slowdown in IT spending mount.

During the year to September 30, NAB showed no signs of reining in its computer and communications expenses despite moves to send support for some of its older applications to low-cost outsourcing centres overseas.

Overall, its computer equipment and software expenses leapt 36 per cent to $304 million, while data communication and processing charges rose from $94 million a year ago to $117 million. Spending on communications, postage and stationery eased 5 per cent to $323 million at September 30.

NAB also continued to aggressively add to its deferred software costs, which rose from $867 million in 2007 to $963 million at the end of the bank's most recent financial year.

The rise leaves NAB on the brink of surpassing its previous peak capitalised software balance of $981 million in early 2004.

The 2004 high, coupled with a $200 million write-down of the botched Integrated Systems Implementation, led NAB to hold the line on deferred software expenses for a number of years amid investor concerns over the practice.

However, NAB and its fellow Big Four banks have re-embraced the capitalisation of software costs since 2006.

KEY POINTS

* Cameron Clyne says the $1bn core systems replacement initiative remains a priority.

* Each of the big four banks is expected to replace its core system in the next five years.

Australian Financial Review

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