An Australian banking analyst blames flawed organisational structure and poor customer focus for the A$409 million (NZ$450 million) software writedown in the National Australia Bank’s annual report.
Its local subsidiary, the Bank of New Zealand, has worn NZ$78 million of the writedown.
As the NAB prepares to lay off 300 technology staff to cut costs and put its technology house in order, East & Partners principal analyst Paul Dowling has a simple explanation for what went wrong.
"If you look at mainstream commercial banks [in Australia], not one of them can take a complete and comprehensive customer picture. NAB is symptomatic of the fever with which domestic banks are trying to get their house in order," Dowling says.
Dowling told Computerworld Australia that while banks may talk big about enterprise-wide customer relationship management (CRM) — indeed even try to create a single view of their customers — their organisational structure remains built on banking product lines rather than the actual needs of their customers.
Worse still, Dowling alleges, the banking industry is wasting around A$1 billion a year on CRM and ERP rollouts while failing to put new organisational structures in place.
Major retail banks "between them have spent A$4.5 billion to A$5 billion (on CRM projects) over the last four to five years ... laudatory objectives, but ordinary execution. A lot of it is about product driving IT rather than the customer.
"In the process sense, that means going back to the drawing board. The fundamental starting point needs to be the customer. They [retail banks] have all embarked on this [CRM] journey," Dowling says.
Dowling is equally scathing about the way the banking sector values its software assets, especially on the balance sheet. While banks such as NAB, ANZ and Westpac have commonly carried amounts from A$300 million to more than A$900 million as capital assets on their books over the last four years, Dowling says new governance rules such as Basel II are certain to see further software writedowns.
Basel II is particularly unpleasant for banks because compliance means banks will no longer be able to book-in software under required capital adequacy provisions. Capital adequacy is the required amount of capital banks are required to legally hold by the Reserve Bank in order to remain operating.
"Technology dates pretty damn quickly," Dowling says, adding that the banks wind up with an inflated asset on their books.
"The problem occurs when you have a large technology that fails — you have to write it off ... this issue has a long tail on it," he says.
NAB wrote down its combined software assets by A$409 million in its annual results published this month. This included a A$200 million writedown of its SAP-based Integrated System Implementation (ISI) intended to unify human resources and general ledger functions.
According to NAB's annual report, A$200 million worth of SAP-based ISI was written off as "fully impaired" and will never see the light of day.
Other vendors hit by NAB's A$409 million IT writedown included Siebel's CRM package, reduced to A$73 million as part of the remaining A$209 million software book value reduction. A specific figure for Siebel writedowns was unavailable.
A spokesperson for SAP in Australia says the firm was aware of the book value reduction and ISI cancellation but retained other projects within NAB. Other vendors and NAB declined to comment.