NAB faces UK mortgage customer flight

National Australia Bank Ltd (NAB) faces an exodus of UK customers outraged by the
demands of its British units to make up the difference on mortgage payments that
they have incorrectly calculated.
NAB could not comment on media reports that Clydesdale Bank, and its sister
Yorkshire Bank, had offered compensation of up to STG500 ($A855) to customers
undercharged interest on the mortgages due to a computer glitch.
But refunds were in store for the 18,000 customers affected as the bank moved to
recoup its interest income, the bank said on Friday.
"I understand that affected Clydesdale Bank customers whose regular payments are to
increase will be eligible for a refund of the interest they've paid on the
inaccurate higher mortgage balance caused by the underpayments," NAB spokesman
George Wright told AAP.
Clydesdale and Yorkshire are seeking to raise monthly interest payments after an IT
upgrade in 2005 resulted in the miscalculation of interest charges for customers
with tracker and variable rate mortgages.
The banks face an uphill battle in extracting the lost interest, said Fat Prophets
analyst Colin Whitehead.
"Who wants to write out a cheque for a bank that's made a mistake?"
Customer flight to other lenders is more likely, depending on their mortgage terms
and break fees, he said.
"The upside for the (UK banks) may be that their loan book is reduced because there
is quite a lot of downside risk in that market," Mr Whitehead.
Mr Whitehead said the IT mistake highlighted NAB's incompetence in basic banking and
executing acquisitions.
"The fundamental business of banking is lending money and calculating interest and
they couldn't get it right," he said.
"This just underlines what a shocking job NAB were doing in the UK and how poor
their execution has been."
Credit Suisse analyst James Ellis said NAB's UK units were more interested in
acquiring mortgage customers that would be good candidates for cross-selling wealth
management products and business banking services.
He said the botch up adds to NAB's list of operational issues spanning recent years.
A Yorkshire Bank spokesman told ComputerWeekly.com the bank changed its mortgage
systems in 2005 to accommodate mortgage holidays and overpayment facilities.
"This calculation error ... resulted in some customers' regular payments falling
below the minimum required to complete the mortgage within the agreed term," he said
in a statement.
The error became more serious for the banks when UK interest rates were cut sharply
in 2008 from 5.0 per cent to 0.5 per cent.
However, Clydesdale and Yorkshire were unaware of the problem until a customer
alerted them 12 months ago, the Herald Scotland reported on Thursday.
The banks have now written to affected customers to "suggest" ways to return their
accounts to the correct position, including STG25 ($A42.70) increases to monthly
payments for half the affected customers, rising to STG300 ($A513) monthly increases
for others.
Some customers are seeking compensation because the undercharging of interest meant
their loan balance did not amortise correctly and is now higher than it should have
been.
Clydesdale and Yorkshire reported a 24.5 per cent jump in first half 2010 cash
earnings to STG61 million ($A104.3 million), largely from higher net interest income
driven by re-pricing on their loan books.
The proportion of variable rate and tracker loans in their combined mortgage book
jumped from 60 to 86 per cent in the 12 months to March 2010.