National Australia Bank’s troubled UK operations have taken another bite out of its earnings, delivering a $1 billion-plus hit to its books.

NAB on Thursday said a string of writedowns and provisions would drag down its full year earnings between 12 and 14 per cent to between $5.1 billion and $5.2 billion.

But it said it would lift its fully-franked final dividend two cents to 99 cents when it unveiled its full year results on October 30.

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NAB’s shares were 33 cents higher to $32.50 at 1100 AEDT, though its gains lagged behind those recorded by other major banks.

Chief executive Andrew Thorburn, who was appointed to the role in August, said the latest writedown was disappointing and the bank needed to do better.

“The feedback that I’ve had from investors over the last few months is that we do need to improve our performance and that’s what I want as well,” he said.

Mr Thorburn said the bank’s senior executive team would have their bonuses cut as a result of the slide in earnings.

“It’s clear this result is well down on expectations and on our plan and as our bonus pool is based on cash earnings and return on equity then we can also expect and know that bonus pool will also be reduced,” he said.

But he remained confident about the long term outlook for the bank, which has consistently underperformed its “big four” rivals: the Commonwealth, Westpac and ANZ.

“I think we have a core franchise which is really strong and has a lot of potential,” he said.

Mr Thorburn said the writedowns and provisions would result in an after tax hit of $1.34 billion to NAB.
Most of the charges are linked to misconduct by its UK operations, where the industry is reeling over scandals surrounding the selling of payment protection insurance and interest rate hedging products.

The bank announced pre-tax provisions of STG420 million ($A766.63 million) and STG250 million ($A456.33 million) relating to the PPI and interest rate hedging products, respectively.

Along with other UK banks, the Clydesdale Bank has faced ongoing scrutiny over the selling of its payment protection insurance and interest rate hedging products.

Mr Thorburn said the total cost of the past misconduct to the bank was still unknown but the latest provisions were enough to cover the known costs.

“We are confident that we have taken an appropriate level of provision for what we know now.”

NAB also announced a $297 million impairment linked to capitalised software, mostly within its Australian business.

The bank said the benefits linked to the software had been substantially below what had been expected.

It will also take a $US120 million ($A132 million) hit relating to deferred tax assets in the US, while a reduction in tax offsets linked to research and development will reduce full year cash earnings by a net $28 million, after tax.