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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  National Australia Bank Limited    NAB   AU000000NAB4

NATIONAL AUSTRALIA BANK LIMITED

(NAB)
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National Australia Bank : NAB Capital Notes 5 Replacement Prospectus

11/23/2020 | 06:19pm EST

800 Bourke Street Docklands VIC 3008 AUSTRALIA

www.nab.com.au

Tuesday, 24 November 2020

ASX ANNOUNCEMENT

NAB Capital Notes 5 Offer - Replacement Prospectus

Further to the announcement made by National Australia Bank (NAB) on Friday, 20 November 2020 following completion of the Bookbuild,1attached is the replacement Prospectus in connection with the NAB Capital Notes 5 Offer.

The Offer opens today.

Further information in relation to NAB Capital Notes 5 and the Offer

Please call the NAB Information Line on 1300 367 647 Monday to Friday 8.00am - 7.30pm (Melbourne time) during the Offer Period, and for a week following.

Media

Mark Alexander

Jessica Forrest

M: +61 (0) 412 171 447

M: +61 (0) 457 536 958

Investor Relations

Sally Mihell

Natalie Coombe

M: +61 (0) 436 857 669

M: +61 (0) 477 327 540

Shareholder Services

Nicki Papadopoulos

M: +61 (0) 437 351 801

The release of this announcement was authorised by Gary Lennon, Group Chief Financial Officer.

1Capitalised terms which are used in this announcement have the meaning given to them in the Prospectus unless the context requires otherwise.

National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686

Prospectus

NAB CAPITAL

NOTES 5

Prospectus for the issue of NAB Capital Notes 5 to raise $2 billion with the ability to raise more or less.

This investment is riskier than a bank deposit. NAB Capital Notes 5 are complex and may not be suitable for all investors. They are not guaranteed or secured, are not Protected Accounts and are not deposit liabilities for the purposes of the Banking Act. You should carefully consider the risks and other information in this Prospectus in light of your investment objectives, financial situation and particular needs (including financial and taxation issues). If you do not fully understand how NAB Capital Notes 5 work or the risks associated with them, you should seek advice from your financial adviser or other professional adviser before deciding whether to invest in NAB Capital Notes 5.

Issuer

Arranger

Joint Lead Managers

Co-Managers

National Australia

National Australia

National Australia Bank Limited

Bell Potter Securities Limited

Bank Limited

Bank Limited

Commonwealth Bank of Australia

JBWere Limited

ABN 12 004 044 937

Crestone Wealth Management Limited

E&P Corporate Advisory Pty Limited

Morgans Financial Limited

Morgan Stanley Australia Securities

Limited

Shaw and Partners Limited

IMPORTANT NOTICES

About this Prospectus

This Prospectus relates to the offer by National Australia Bank Limited ABN

12 004 044 937 ("NAB") of NAB Capital Notes 5 to raise $2 billion, with the ability to raise more or less.

This Prospectus is dated

24 November 2020. A copy of this Prospectus was lodged with the Australian Securities and Investments Commission ("ASIC") on that date. This is a replacement Prospectus, which replaces the prospectus dated 16 November 2020 that was lodged with ASIC on that date ("Original Prospectus"). This Prospectus expires 13 months after the date of the Original Prospectus and no NAB Capital Notes 5 will be issued on the basis of this Prospectus after that date.

Neither ASIC nor the ASX Limited

("ASX") take any responsibility for the contents of this Prospectus or the Offer.

Offer

The Offer comprises the Reinvestment Offer, the Securityholder Offer, the Broker Firm Offer and the Institutional Offer. The Reinvestment Offer provides eligible holders of NAB Convertible Preference Shares II issued by NAB on 17 December 2013 ("CPS II") with the opportunity to reinvest their CPS II into NAB Capital Notes 5.

Exposure Period

Under the Corporations Act, NAB was prohibited from processing Applications in the seven days after lodgement of the Original Prospectus with ASIC on 16 November 2020 ("Exposure Period").

The purpose of the Exposure Period was to enable the Prospectus to be examined by market participants before the raising of funds.

Key risks

Investment products such as NAB Capital Notes 5 are subject to risks which could affect their performance, including:

  • theDistribution Rate may decrease over the life of NAB Capital Notes 5; and
  • the market price of NAB Capital Notes 5 may fluctuate.

These risks could result in the loss of all or some of your investment and any associated income. NAB does not warrant or guarantee the future performance of NAB or the investment performance of NAB Capital Notes 5 (including the market price).

NAB must immediately Convert all or, in some cases, some NAB Capital Notes 5 into Ordinary Shares if a Loss Absorption Event occurs. A Loss Absorption Event may occur where NAB encounters severe financial difficulty. Depending on the market price of Ordinary Shares at the relevant time, Holders are likely to receive Ordinary Shares that are worth significantly less than the money they invested in NAB Capital Notes 5. Following Conversion, there is no certainty as to the future value of the Ordinary Shares. If NAB Capital Notes 5 are not Converted

at that time they will be Written Off and you will lose all the money that you invested in NAB Capital Notes 5. A Conversion or Write Off following a Loss Absorption Event is not subject to any conditions and you will not be given any choice if a Loss Absorption Event occurs.

Information about the key risks of investing in NAB Capital Notes 5 is detailed in Section 1.3 and in Section 7.

ASX quotation

NAB has applied for NAB Capital Notes 5 to be quoted on ASX and NAB Capital Notes 5 are expected to be quoted under the code 'NABPH'.

Financial information and forward looking statements

Section 6 sets out financial information in relation to NAB and the basis of preparation of that information. All

financial amounts contained in this Prospectus are expressed in Australian dollars and rounded to the nearest million unless otherwise stated. Any discrepancies between totals and sums of components in tables contained in this Prospectus are due to rounding.

This Prospectus contains forward looking statements. These forward looking statements may be identified by the use of forward looking terminology, including the terms "may", "could", "believe", "estimate", "expect", "target", "intend", "plan", "project", "anticipate", "likely", "will" or "should", or, in each case, their negative or other variations or similar expressions. They may also be identified by discussions of strategy, plans, objectives, targets, goals, future events or intentions. Indications of, and guidance on, future earnings and financial position and performance are also forward looking statements. You are cautioned not

to place any undue reliance on any forward looking statements.

Any forward looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Group, which may cause actual results, circumstances or outcomes to differ materially from the results, circumstances or outcomes expressed, implied or anticipated in these forward looking statements. There can be

no assurance that actual outcomes will not differ materially from these forward looking statements. Forward looking statements should be read in conjunction with the risk factors set out in Section 7, and other information in this Prospectus.

No representations other than in this Prospectus

No person is authorised to provide any information or to make any representation in connection with the Offer that is not contained in this Prospectus. Any information or

NAB Capital Notes 5 | 2

IMPORTANT NOTICES

representation not contained in this Prospectus must not be relied upon as having been authorised by NAB.

None of the Joint Lead Managers, Co-Managers or the Registrar has made any statement that is included in this Prospectus or any statement on which a statement made in this Prospectus is based. Each of those parties expressly disclaims all liability in respect of, makes no representations regarding, and takes no responsibility for, any statements in, or omissions from, this Prospectus.

Unless otherwise indicated, all information in this Prospectus, while subject to change from time to time, is current as at the date of this Prospectus.

Defined words and expressions

Some words and expressions used in this Prospectus have defined meanings. These words and expressions are capitalised and are defined in Appendix B "Glossary", or if not there, in Appendix A "Terms of NAB Capital Notes 5".

If there is any inconsistency between the description of the terms of NAB Capital Notes 5 in this Prospectus and in the Terms, the Terms prevail.

A reference to $ or cents in this Prospectus is a reference to Australian currency. Unless otherwise specified, a reference to time in this Prospectus is a reference to Melbourne time.

Diagrams

The diagrams used in this Prospectus are illustrative only. They may not necessarily be shown to scale. The diagrams are based on information which is current as at the date shown.

Obtaining a Prospectus

This Prospectus can be obtained electronically from nab.com.au/nabcapitalnotes5. NAB will not be providing paper copies of this Prospectus.

Electronic access to this

Prospectus

The following conditions apply to your access to this Prospectus:

  • you must download this entire Prospectus;
  • your Application will only be considered where you have applied via an Application Form accompanying a copy of this Prospectus, including the online application form available atnab.com.au/nabcapitalnotes5; and
  • you may only access, download or print this Prospectus in Australia.

Restrictions on foreign jurisdictions

This Prospectus is not an offer in any place in which, or to any person to whom, it would not be lawful to make such an offer.

The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law and persons who come into possession of this Prospectus should seek advice on and observe any of these restrictions. Failure to comply with any of these restrictions may violate securities laws. Applicants who are resident in countries other than Australia should consult their professional advisers as to whether any governmental or other consents are required or whether any other formalities need to be considered and followed.

In particular, NAB Capital Notes 5 have not been and will not be registered under the U.S. Securities Act or the securities laws of any state or other jurisdiction of the United States and may not be offered, sold or resold, directly or indirectly, in the United States or to, or for the account or benefit of, any U.S. Person, except pursuant to an exemption from, or in a transaction not subject to, the U.S. Securities Act. Neither this Prospectus nor any Application Form or other materials relating to the Offer may be distributed in the United States or to any U.S. Persons.

Any offer, sale or resale of NAB Capital Notes 5 within the United States or to any U.S. Person may violate the registration requirements of the U.S. Securities Act if made within 40 days after the Closing Date.

Collecting your personal information

If you apply for NAB Capital Notes 5, NAB (or the Registrar as NAB's agent) will collect and hold your personal information. See Section 9.10 for information on how NAB (as well as its subsidiaries and third party suppliers) collect, use and disclose your personal information.

Arranger and Joint Lead Manager activities

The Arranger, the Joint Lead Managers and their respective affiliates are involved in a wide range of financial services and businesses including some or all of securities trading and brokerage activities and providing commercial and investment banking, investment management, corporate finance, credit and derivative, trading, and research products and services, out of which conflicting interests or duties may arise. In the ordinary course of these activities, the Arranger, the Joint Lead Managers and their respective affiliates may at any time hold long

or short positions, and may trade or otherwise effect transactions, for their own account or the accounts of customers, in debt, equity or hybrid securities or senior loans or financial products of any member of the Group or any third party involved in the Offer, and may finance the acquisition of those securities and/or financial products and take or enforce security over those securities and/or financial products. The Arranger, the Joint Lead Managers and their respective affiliates may receive fees for, or profits and other financial benefits from, those activities.

NAB Capital Notes 5 | 3

CONTENTS

Important Notices

2

Guidance for Retail Investors

5

Key Dates

6

Section One:Investment Overview

8

Section Two:About NAB Capital Notes 5

21

Section Three:About the Reinvestment Offer

54

Section Four:Applying for NAB Capital Notes 5

62

Section Five:Overview of NAB

67

Section Six:Financial Information

70

Section Seven:Key Risks of NAB Capital Notes 5

78

Section Eight:Australian Taxation Summary

103

Section Nine:Other Information

110

Appendix A:Terms of NAB Capital Notes 5

117

Appendix B: Glossary

144

Corporate Directory

152

NAB Capital Notes 5 | 4

GUIDANCE FOR RETAIL INVESTORS

1. Read this Prospectus in full

If you are considering applying for NAB Capital Notes 5 under the Offer, this Prospectus is important and should be read in its entirety.

You should have particular regard to the:

  • "Investment Overview" in Section 1 and "About NAB Capital Notes 5" in Section 2';
  • "About the Reinvestment Offer" in Section 3 (if you are an Eligible CPS II Holder);
  • "Key Risks of NAB Capital Notes 5" in Section 7; and
  • "Terms of NAB Capital Notes 5" in Appendix A.

In considering whether to apply for any NAB Capital Notes 5, it is important to consider all risks and other information regarding an investment in NAB Capital Notes 5 in light of your particular investment objectives and circumstances, as the information in this Prospectus does not take into account those objectives and circumstances.

NAB Capital Notes 5 are not deposit liabilities of NAB, are not Protected Accounts or any other accounts with NAB and are not insured or guaranteed by any government, government agency or compensation scheme of the Commonwealth of Australia or any other jurisdiction, by any member of the Group or by any other person. An investment in NAB Capital Notes 5 is riskier than a bank deposit.

NAB Capital Notes 5 are complex and may not be suitable for all investors. The overall complexity of NAB Capital Notes 5 may make them difficult to understand and the risks associated with them could result in the loss of all or some of your investment and associated income. If you do not fully understand how NAB Capital Notes 5 work or the risks associated with them, you should obtain professional advice.

NAB Capital Notes 5 are issued by NAB under the NAB Capital Notes 5 Deed Poll and Terms and Holders have no claim on NAB except as provided in those Terms.

2. Speak to your professional adviser

If you do not fully understand how NAB Capital Notes 5 work or the risks associated with them, you should seek professional advice from your stockbroker, solicitor, accountant or other independent and qualified professional adviser about the Offer.

ASIC has published guidance on how to choose a professional adviser on its MoneySmart website, moneysmart.gov.au

3. Consider the ASIC guidance for retail investors

ASIC has published guidance which may be relevant to your consideration of whether to invest in NAB Capital Notes 5 - namely, information for retail investors who are considering investing in bank hybrid securities. You can find this guidance by searching "hybrid securities" on ASIC's MoneySmart website at moneysmart.gov.auThe guidance includes a series of questions you should ask before you invest in bank hybrid securities to check your understanding of how hybrids work, their features and risks.

4. Learn more about investing in bank hybrid securities

NAB has also developed a web-based Hybrid Securities Education Guide ("Guide") to help investors understand some of the typical features and risks associated with an investment in bank hybrid securities. It is available at nab.com.au/hybrideducation

The Guide may be helpful when you are considering an investment in bank hybrid securities, such as NAB Capital Notes 5. However, the Guide is not specific to NAB Capital Notes 5, and reading the Guide is not a substitute for reading this Prospectus.

5. Obtain further information about NAB and NAB Capital Notes 5

NAB is a disclosing entity for the purposes of the Corporations Act and, as a result, is subject to regular reporting and disclosure obligations under the Corporations Act and the ASX Listing Rules. NAB must notify ASX immediately (subject to certain exceptions) if it becomes aware of information about NAB that a reasonable person would expect to have a material effect on the price or value of its securities, including NAB Capital Notes 5.

Copies of documents lodged with ASIC can be obtained from, or inspected at, an ASIC office and NAB's ASX announcements may be viewed on asx.com.au(ASX code 'NAB'). Further information about NAB, including NAB's half-yearly and annual financial reports, presentations and other investor information, can be obtained from nab.com.au/shareholder

6. Questions about the Offer

If you have any questions in relation to NAB Capital Notes 5 or the Offer, you should seek advice from your financial adviser or other professional adviser. You can also call the NAB Capital Notes 5 Information Line on 1300 367 647(within Australia) or +61 3 9415 4299(outside Australia) (Monday to Friday, 8.00am - 7.30pm) during the Offer Period and for a week following.

NAB Capital Notes 5 | 5

KEY DATES

Key dates for the Offer

Record date for determining Eligible Securityholders (7.00pm)

11 November 2020

Announcement of the Offer and lodgement of the Original Prospectus with ASIC

16 November 2020

Bookbuild

16 November 2020 - 20 November 2020

Announcement of Margin

20 November 2020

Opening Date and lodgement of this Prospectus with ASIC

24 November 2020

Closing Date (5.00pm)

11 December 2020

Issue Date of NAB Capital Notes 5

17 December 2020

Commencement of trading of NAB Capital Notes 5 on a normal settlement basis

18 December 2020

Despatch of NAB Capital Notes 5 Holding Statements

23 December 2020

Key dates for NAB Capital Notes 5

Record Date for first Distribution

9 March 2021

First Distribution Payment Date1

17 March 2021

Optional Conversion / Redemption / Resale Date2

17 December 2027

Mandatory Conversion Date3

17 December 2029

Key dates for the Reinvestment Offer

Record date for determining Eligible CPS II Holders (7.00pm)

11 November 2020

(CPS II must also be held on the Closing Date)

Opening Date

24 November 2020

Closing Date (5.00pm)

11 December 2020

Issue Date of NAB Capital Notes 5

17 December 2020

Payment date for the final CPS II dividend 4

17 December 2020

Commencement of trading of NAB Capital Notes 5 on a normal settlement basis

18 December 2020

Despatch of NAB Capital Notes 5 Holding Statements

23 December 2020

  1. Subject to the Directors resolving to pay the Distribution and no Payment Condition existing on 17 March 2021.
  2. With APRA's prior written approval, NAB may elect to Convert, Redeem or Resell NAB Capital Notes 5 on 17 December 2027. Holders should not expect that APRA's approval will be given for any optional Conversion, Redemption or Resale. This date assumes the Issue Date is 17 December 2020.
  3. NAB Capital Notes 5 will Convert into Ordinary Shares on 17 December 2029 (subject to the Mandatory Conversion Conditions being satisfied and only if, prior to that date, NAB Capital Notes 5 have not been Converted, Redeemed or Resold with APRA's prior written approval, or Written Off). This date assumes the Issue Date is 17 December 2020.

NAB Capital Notes 5 | 6

KEY DATES

Key dates for CPS II Holders not participating in the Reinvestment Offer

Redemption notice given in respect of CPS II

5 November 2020

Last day of trading in CPS II

30 November 2020

Ex-date for the final CPS II dividend

1 December 2020

Record date for the final CPS II dividend (7.00pm)

2 December 2020

Payment date for the final CPS II dividend4

17 December 2020

Payment date for CPS II Redemption Price

17 December 2020

These dates are indicative only and may change (other than the dates that have passed, and the key dates in connection with CPS II Redemption, which are fixed, unless CPS II are required to be converted or written off before 17 December 2020). NAB and the Joint Lead Managers may, in their absolute discretion, close the Offer early or extend the Offer Period without notice. NAB may also withdraw the Offer at any time before NAB Capital Notes 5 are issued. Accordingly, if you wish to apply for any NAB Capital Notes 5 you are encouraged to apply as soon as possible. Application Monies must be paid by BPAY®5. Payments by cash or cheque will not be accepted for this Offer.

Except as otherwise specified in the Terms, if any of these dates are not Business Days and an event under the Terms is stipulated to occur on that day, then the event will occur on the next Business Day.

  1. A final dividend is scheduled to be paid on CPS II on 17 December 2020, subject to the satisfaction of the dividend payment conditions in the CPS II Terms.
  2. Registered to BPAY Pty Limited ABN 69 079 137 518.

NAB Capital Notes 5 | 7

SECTION ONE:

INVESTMENT OVERVIEW

This section provides a summary of the key features and risks of NAB Capital Notes 5 and the Offer.

NAB Capital Notes 5 are complex and may not be suitable for all investors. They are not guaranteed or secured, are not Protected Accounts and are not deposit liabilities for the purposes of the Banking Act. The overall complexity of NAB Capital Notes 5 may make them difficult to understand and the risks associated with them could result in the loss of all or some of your investment and associated income. You should read this Prospectus in full before deciding whether to apply for NAB Capital Notes 5. If you do not fully understand how NAB Capital Notes 5 work or the risks associated with them, you should obtain professional advice.

A table comparing the key features of NAB Capital Notes 5 and other investments in NAB (including Ordinary Shares) is set out in Section 2.10.

NAB Capital Notes 5 | 8

SECTION ONE:

INVESTMENT OVERVIEW

1.1 Key features of the Offer and NAB Capital Notes 5

Topic

Summary

Further

information

Issuer

National Australia Bank Limited ("NAB")

Section 5

The Group is a financial services organisation with more than 34,000 colleagues,

operating through a network of more than 850 branches, with over 639,000

shareholders and serving approximately nine million customers.

The majority of the Group's financial services businesses operate in Australia and

New Zealand, with branches located in Asia, the United Kingdom ("UK") and the

United States ("US").

Offer Size

$2 billion, with the ability to raise more or less.

Use of proceeds

The net proceeds of the Offer will be used for general corporate purposes.

The Australian Prudential Regulation Authority ("APRA") has provided

confirmation that NAB Capital Notes 5, once issued, will qualify as Additional

Tier 1 Capital for the purposes of NAB's regulatory capital requirements.

Type of security

Convertible notes.

Face Value

$100 per NAB Capital Note 5.

Distributions

NAB Capital Notes 5 are scheduled to pay quarterly, floating rate Distributions

Section 2.1

in cash. The returns payable on NAB Capital Notes 5 are called "distributions"

(whereas for Ordinary Shares, these returns are called "dividends").

The Distribution Rate is calculated in accordance with the following formula:

Distribution Rate = (Bank Bill Rate + Margin) x (1 - Tax Rate)

where:

  • Margin is 3.50%, as determined under the Bookbuild. The Margin will not change for the term of NAB Capital Notes 5.
  • Tax Rate is the Australian corporate tax rate applicable to the franking account of NAB on the relevant Distribution Payment Date.
  • Bank Bill Rate is a benchmark interest rate for the Australian money market. It is based on an average of rates at which major Australian financial institutions lendshort-term cash to each other over a period of approximately 90 days as published by ASX (or its successor). It changes to reflect supply and demand in the cash and currency markets. The Bank Bill Rate for each Distribution Period is set on the first Business Day of the relevant Distribution Period. Fall-back procedures apply under the Terms if the Bank Bill Rate does not appear, if there is an obvious error in that rate or (subject to APRA's prior written approval) if that rate is otherwise subject to disruption.
    It is possible for the Bank Bill Rate to be negative. If this occurs, the negative amount will be taken into account in calculating the Distribution Rate. Even if the Distribution Rate is calculated to be negative there will be no obligation on Holders to pay NAB.

NAB Capital Notes 5 | 9

SECTION ONE:

INVESTMENT OVERVIEW

Topic

Summary

Further

information

Distributions

A Distribution will be paid only if:

Section 2.1

(continued)

• The Directors resolve to pay it; and

• A Payment Condition does not exist on the Distribution Payment Date. Broadly, a

Payment Condition exists where NAB is prevented from paying the Distribution by

prudential regulatory requirements, applicable law or insolvency (see Section 2.1).

This means a Distribution may not be paid.

The Distribution Payment Dates are scheduled to be 17 March, 17 June,

17 September and 17 December.

The first Distribution is expected to be paid on 17 March 2021. Distributions paid on

NAB Capital Notes 5 are expected to be franked at the same rate as dividends paid

on Ordinary Shares.

However, Holders should be aware that franking is not guaranteed and that their

ability to use franking credits will depend on their individual circumstances and

applicable Australian tax laws. Holders should refer to the Australian Taxation

Summary in Section 8 and seek professional advice in relation to their tax position.

The extent to which Distributions will be franked will depend on a number of

factors, including the Group's capital management plan and the level of profits

generated by the Group that will be subject to tax in Australia. The effect of

Distributions being franked is to reduce the Distribution Rate, and therefore, the

cash amount received by Holders on each Distribution Payment Date, by an amount

equal to the relevant level of franking. If any Distribution payment is not fully

franked, then the Distribution will be adjusted to reflect the applicable franking rate,

resulting in an increase in the cash amount received by Holders on that Distribution

Payment Date.

Distributions are non-cumulative, which means that unpaid Distributions do not add

up or accumulate. Holders will not have any right to compensation if NAB does not

pay Distributions. Failure to pay a Distribution when scheduled will not constitute

an event of default.

If a Distribution is not paid in full on a Distribution Payment Date, subject to certain

exceptions, NAB cannot declare, determine to pay, or pay dividends on its Ordinary

Shares, or buy-back or reduce capital on any of its Ordinary Shares, until the next

Distribution Payment Date. However, if the Distribution is paid in full within 3

Business Days of the Distribution Payment Date, this restriction will no longer apply.

NAB Capital Notes 5 | 10

SECTION ONE:

INVESTMENT OVERVIEW

Topic

Summary

Further

information

Term

Perpetual. However, there are certain events that could occur while NAB Capital

Sections

Notes 5 are on issue which may result in NAB Capital Notes 5 being Converted

2.2 - 2.7

into Ordinary Shares, Redeemed or Resold for cash, or Written Off. The following

diagram and table summarise these events.

NAB Capital Notes 5 do not have a fixed maturity date for repayment and Holders

do not have a right to request or require NAB to Convert, Redeem or Resell NAB

Capital Notes 5. It is possible that NAB Capital Notes 5 could remain on issue

indefinitely, in which case the Face Value will not be repaid.

1.2 Events that may occur while NAB Capital Notes 5 are on issue

The diagram below and the table on the next page summarise certain events that may occur while NAB Capital Notes 5 are on issue, and what Holders may receive if those events occur.

Figure 1: Timeline of certain events that may occur while NAB Capital Notes 5 are on issue

Optional

Issue Date

Conversion/

Mandatory

Redemption/

Conversion Date

Resale Date

Potentially perpetual

17 December 202017 December 202717 December 2029

7 Years

2 Years

If NAB chooses, and

If the Mandatory Conversion

certain conditions are met,

Conditions are met, NAB Capital

NAB Capital Notes 5 will be

Notes 5 will be Converted on

Converted, Redeemed or Resold

this date. If the Mandatory

on this date.

Conversion Conditions are

not met, NAB Capital Notes 5

will Convert on the next

Distribution Payment Date on

which those conditions are met.

If the Mandatory Conversion

Conditions are never satisfied,

there is a risk that NAB Capital

Notes 5 may never Convert

and NAB Capital Notes 5 could

remain on issue indefinitely.

There are certain other events that could occur at any time while NAB Capital Notes 5 are on issue which may result in NAB Capital Notes 5 being Converted, Redeemed, Resold or Written Off.

NAB Capital Notes 5 | 11

SECTION ONE:

INVESTMENT OVERVIEW

Table 1: Summary of certain events that may occur while NAB Capital Notes 5 are on issue

What can

When?

NAB

Is APRA

Do

What value will a

In what form

Further

happen?

Capital

approval

conditions

Holder receive for

will that value

information

Notes 5

required?1

apply?

each NAB Capital

be provided

impacted?

Note 5?

to Holders?

Mandatory

On 17 December

All

No

Yes

Approximately

Variable

Section 2.3

Conversion

2029 or the next

$1013, 4

number of

Distribution

Ordinary

Payment Date after

Shares

that date on which

the Mandatory

Conversion

Conditions are

satisfied2

Optional

On 17 December

All or

Yes

Yes

Approximately

Variable

Section 2.4

Conversion

20272

some

$1013, 4

number of

Ordinary

Shares

Optional

On 17 December

All or

Yes

Yes

$100 (Face Value)

Cash

Section 2.5

Redemption

20272

some

or Resale

Conversion

If a Tax Event,

All or

Yes

Yes

Approximately

Variable

Sections

in other

Regulatory Event

some

$1013, 4, 5

number of

2.4, 2.6

circumstances

or Potential

Ordinary

and 2.7

Acquisition Event

Shares

occurs

If an Acquisition

All

No

Yes

Approximately

Variable

Event occurs

$1013, 4, 5

number of

Ordinary

Shares

If a Loss

Potentially

No

No

A Loss Absorption

Variable

Absorption Event

all6

Event may occur

number of

occurs

where NAB

Ordinary

encounters severe

Shares

financial difficulty.

If, for any

Depending on the

reason,

market price of

NAB Capital

Ordinary Shares,

Notes 5 are

Holders are

not Converted

likely to receive

into Ordinary

significantly

Shares within

less than $101

the required

and may lose a

time, NAB

significant amount

of the money they

Capital Notes 5

will be Written

invested in NAB

Off7

Capital Notes 5 as

a consequence

NAB Capital Notes 5 | 12

SECTION ONE:

INVESTMENT OVERVIEW

What can

When?

NAB

Is APRA

Do

What value will a

In what form

Further

happen?

Capital

approval

conditions

Holder receive for

will that value

information

Notes 5

required?1

apply?

each NAB Capital

be provided

impacted?

Note 5?

to Holders?

Redemption/

If a Tax Event or

All or

Yes

Yes

$100 (Face Value)5

Cash

Section 2.5

Resale

Regulatory Event

some

in other

occurs

circumstances

Ranking

In a winding up of NAB, NAB Capital Notes 5 rank ahead of Ordinary Shares, equally amongst themselves,

equally with Equal Ranking Instruments and junior to Senior Creditors (including depositors and holders of

Tier 2 Capital Instruments), as shown in Table 2. However, the amount of any return in a winding up will be

adversely affected if a Loss Absorption Event has occurred

  1. Holders should not expect that APRA approval will be given.
  2. To be eligible as Additional Tier 1 Capital, NAB cannot have the right to Redeem or Resell NAB Capital Notes 5 earlier than the fifth anniversary of the Issue Date or later than two years before the first scheduled Mandatory Conversion Date (other than for certain tax or regulatory reasons).
  3. The Conversion conditions are designed to ensure that on a Conversion (other than following a Loss Absorption Event) Holders receive approximately $101 worth of Ordinary Shares for each NAB Capital Note 5 they hold, and that the Ordinary Shares they receive following Conversion are capable of being sold on the ASX. However, the Ordinary Shares received on Conversion may be worth more or less than $101. The number of Ordinary Shares that Holders will receive will not be greater than the Maximum Conversion Number.
  4. Based on a Face Value of $100 and a 1% discount.
  5. If a Conversion (other than on account of a Loss Absorption Event), Redemption or Resale occurs on a day that is not a scheduled Distribution Payment Date, Holders of NAB Capital Notes 5 which are being Converted, Redeemed or Resold will also receive a Distribution in respect of these NAB Capital Notes 5 for the period from (and including) the immediately preceding Distribution Payment Date to (but not including) the date on which the Conversion, Redemption or Resale occurs (provided the conditions to payment are met, including the Directors resolving to pay the Distribution).
  6. The number of NAB Capital Notes 5 Converted will depend on how much Common Equity Tier 1 Capital NAB needs. However, where a Loss Absorption Event occurs on account of a Non Viability Trigger Event and a public sector injection of funds is required, NAB must convert all NAB Capital Notes 5. See Section 2.7 for further information.
  7. If a NAB Capital Note 5 is Written Off, all rights (including to Distributions) in respect of that NAB Capital Note 5 will be terminated, and the Holder will not have their capital repaid.

NAB Capital Notes 5 | 13

SECTION ONE:

INVESTMENT OVERVIEW

Table 2: Illustration of ranking on winding up

Higher ranking

Examples

Examples of existing NAB obligations and securities8

Senior

Liabilities preferred by

Liabilities in Australia in relation to Protected Accounts

ranking

law and secured debt

(generally, savings accounts and term deposits) and

obligations

other liabilities mandatorily preferred by law including

employee entitlements, liabilities to secured creditors

and in respect of covered bonds

Unsubordinated

Bonds and notes, trade and general creditors

unsecured debt

Term subordinated unsecured debt issued before 1 January 2013

Subordinated unsecured debt obligations issued before 1 January 2013

Term subordinated

Relevant Tier 2 Capital Instruments

unsecured debt

issued after 1 January

2013 and perpetual

subordinated

unsecured debt

Equal

Preference shares and

NAB Capital Notes 5,9and any securities expressed to

ranking

other equally ranked

rank equally with NAB Capital Notes 5, which include:

obligations

instruments

• NAB Capital Notes 2

• NAB Capital Notes 3

• CPS II (which are scheduled to be redeemed on

17 December 2020)

• The preference shares comprised in the National

Income Securities

Lower

Ordinary shares

Ordinary Shares

ranking

Lower ranking

obligations

  1. This is a very simplified capital structure of NAB and does not include every type of security or other obligation issued by NAB. NAB has the right to issue further debt, deposits or other obligations (including the incurring or guaranteeing by it of any indebtedness) or securities of any kind at any time.
    NAB Capital Notes 5 do not limit the amount of senior debt, deposits or other obligations or securities that may be incurred or issued by NAB at any time.
  2. If a NAB Capital Note 5 is Converted, the Ordinary Shares a Holder receives on Conversion will rank equally with other Ordinary Shares in a winding up of NAB. If a Write Off of a NAB Capital Note 5 occurs following a Loss Absorption Event, the rights of Holders to distributions and returns of capital in respect of that NAB Capital Note 5 will be terminated, the NAB Capital Note 5 will not be Converted, Redeemed or Resold on any subsequent date and the Holder will not have their capital repaid. If NAB Capital Notes 5 are Written Off, Holders will likely be worse off than holders of National Income Securities (which are not able to be converted or written off), CPS II and Ordinary Shares. See Sections 2.8 and 7.1.15.

NAB Capital Notes 5 | 14

SECTION ONE:

INVESTMENT OVERVIEW

1.3 Key risks of NAB Capital Notes 5

You should read Section 7 in full before deciding whether to invest. The key risks outlined in that section include risks associated with an investment in NAB Capital Notes 5 and an investment in NAB. Some of these risks are summarised below.

1.3.1 Key risks associated with an investment in NAB Capital Notes 5

Topic

Summary

Further

information

NAB Capital

NAB Capital Notes 5 do not constitute Protected Accounts or deposit liabilities

Section 7.1.1

Notes 5 are

for the purposes of the Banking Act or any other accounts with NAB and are not

not deposit

guaranteed or insured by any person.

liabilities or

Protected

Accounts

Distributions

There is a risk that Distributions will not be paid, including where the Directors

Section 7.1.2

may not be paid

do not resolve to pay a Distribution or where a Payment Condition exists on the

Distribution Payment Date.

As Distributions are non-cumulative, if a Distribution is not paid then NAB has

no liability to pay that Distribution and Holders have no claim or entitlement in

respect of such non-payment. Failure to pay a Distribution when scheduled will

not constitute an event of default.

The Distribution

The Distribution Rate may go up or down. There is a risk that the return on

Section 7.1.3

Rate may go up

NAB Capital Notes 5 may become less attractive compared to returns on other

or down

investments.

Market price

The market price of NAB Capital Notes 5 may go up or down and there is no

Section 7.1.4

of NAB Capital

guarantee NAB Capital Notes 5 will trade at or above their Face Value. The price

Notes 5

at which NAB Capital Notes 5 trade may, for example, be affected by how the

Distribution Rate of NAB Capital Notes 5 compares to that of other comparable

instruments.

Liquidity of NAB

The liquidity of NAB Capital Notes 5 may be low, which means that, at certain

Capital Notes 5

times, you may be unable to sell your NAB Capital Notes 5 at an acceptable price,

if at all.

Liquidity

Where NAB Capital Notes 5 are Converted, the market for Ordinary Shares may be

and price of

less liquid than that for comparable securities issued by other entities at the time

Ordinary Shares

of Conversion, or there may be no liquid market at that time.

The market price of Ordinary Shares may go up or down due to various factors,

including investor perceptions, domestic and worldwide economic conditions,

NAB's financial performance and position and transactions affecting the share

capital of NAB. As a result, the value of any Ordinary Shares received by Holders

upon Conversion may be greater than or less than anticipated when they are

issued or thereafter.

The market price of Ordinary Shares is also relevant to determining whether

or not Conversion will occur (except for any Conversion on account of a Loss

Absorption Event) and the number of Ordinary Shares you will receive upon

Conversion.

See page 17 under the heading "Conversion or Write Off following Loss

Absorption Event" and Section 7.1.14 for further information on the Conversion or

Write Off of NAB Capital Notes 5 following a Loss Absorption Event.

Section 7.1.5

Sections 7.1.4, 7.1.5,

  1. and

NAB Capital Notes 5 | 15

SECTION ONE: INVESTMENT OVERVIEW

Topic

Use of franking credits

NAB Capital Notes 5 are perpetual and may not Convert

Holders have no right to request repayment

NAB has certain early Conversion, Redemption and Resale rights

Summary

Distributions paid on NAB Capital Notes 5 are expected to be franked at the same rate as dividends paid on Ordinary Shares. The effect of Distributions being franked is to reduce the cash amount received by Holders on each Distribution Payment Date by an amount equal to the relevant level of franking.

If any Distribution payment is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate (see clause 2.5 of the Terms).

Holders should be aware that franking is not guaranteed and that their ability to use franking credits will depend on their individual circumstances and applicable Australian tax laws. The extent to which Distributions will be franked will depend on a number of factors, including the Group's capital management plan and the level of profits generated by the Group that will be subject to tax in Australia.

Holders should refer to the Australian Taxation Summary in Section 8 and seek professional advice in relation to their tax position.

NAB Capital Notes 5 have no fixed maturity date but will Convert into Ordinary Shares on 17 December 2029 if they are still on issue on that date and if the Mandatory Conversion Conditions are satisfied. If these conditions are not met on 17 December 2029 and NAB Capital Notes 5 remain on issue, Conversion will occur on the next Distribution Payment Date on which they are satisfied.

If the Mandatory Conversion Conditions are never satisfied, there is a risk that NAB Capital Notes 5 may never Convert and may remain on issue indefinitely.

Holders have no right to request that their NAB Capital Notes 5 be repaid. Absent a Conversion, Redemption or Resale, in order to realise their investment, Holders would have to sell their NAB Capital Notes 5 on the ASX at the prevailing market price. That price may be less than the Face Value, and there may be no liquid market in NAB Capital Notes 5 (see Sections 7.1.4 and 7.1.5).

Subject to the prior written approval of APRA and certain conditions being met, NAB has the right to:

  • Convert, Redeem or Resell NAB Capital Notes 5 on 17 December 2027, or because of a Tax Event or a Regulatory Event; and
  • Convert NAB Capital Notes 5 because of a Potential Acquisition Event.

Holders should not expect that APRA's approval will be given for any Conversion, Redemption or Resale of NAB Capital Notes 5.

Further information

Sections 7.1.7 - 7.1.8

Section 7.1.9

Section 7.1.11

Sections

  1. -

NAB Capital Notes 5 | 16

SECTION ONE: INVESTMENT OVERVIEW

Topic

Conversion or Write Off following Loss Absorption Event

Ranking in a winding up of

NAB

NAB may issue further securities or incur other indebtedness

Summary

Further

information

If Conversion occurs following a Loss Absorption Event, depending on the market

Section

price of Ordinary Shares at that time Holders are likely to receive significantly

7.1.14

less than $101 worth of Ordinary Shares per NAB Capital Note 5 and may lose

a significant amount of the money they invested in NAB Capital Notes 5 as a

consequence. In cases where NAB Capital Notes 5 are not Converted for any

reason within 5 days after the Loss Absorption Event Conversion Date, NAB Capital

Notes 5 will be Written Off with effect on and from the Loss Absorption Event

Conversion Date.

If NAB Capital Notes 5 are Written Off following a Loss Absorption Event:

  • The rights of Holders in relation to those NAB Capital Notes 5 will be terminated;
  • Those NAB Capital Notes 5 will not be Converted, Redeemed or Resold on any subsequent date; and
  • Holders will not have their capital repaid or receive any further Distributions in relation to those NAB Capital Notes 5.

In a winding up of NAB, NAB Capital Notes 5 rank ahead of Ordinary Shares,

Sections

equally amongst themselves and with all Equal Ranking Instruments, but behind

7.1.14 and

the claims of all Senior Creditors (including depositors and holders of Tier 2

7.1.15

Capital Instruments).

On a winding up of NAB, there is a risk that Holders may lose some or all of the money they have invested in NAB Capital Notes 5. See also the above and Section

7.1.14 in relation to the consequences of a Write Off. If NAB Capital Notes 5 are Written Off, Holders will not have their capital repaid and will not be entitled to any return in a winding up.

There is no limit on the amount of senior debt, deposits or other obligations or

Section

securities (whether ranking equally with, or in priority or junior to NAB Capital

7.1.16

Notes 5) that may be incurred or issued by NAB at any time or the incurring or

guaranteeing by NAB of any indebtedness, which may affect Holders' ability to be

repaid on a winding up of NAB.

1.3.2 Key risks associated with an investment in NAB

See Section 7.2 for a description of the risks associated with an investment in NAB and the Group.

NAB Capital Notes 5 | 17

SECTION ONE:

INVESTMENT OVERVIEW

1.4 Information about the Offer

Topic

Summary

Further

information

Offer Structure

The Offer comprises:

Section 4

• The Reinvestment Offer;

• The Securityholder Offer;

• The Broker Firm Offer; and

• The Institutional Offer.

Information about the different offers and how to apply is provided below and in

Section 4.

If you are a current holder of CPS II applying under the Reinvestment Offer, you

must also read Section 3.

Reinvestment

On 5 November 2020, NAB issued a redemption notice in accordance with the

Section 3

Offer

CPS II Terms. That notice confirms that on 17 December 2020 NAB will redeem

all NAB Convertible Preference Shares II ("CPS II") for $100 per CPS II ("CPS II

Redemption Price").

The CPS II form part of NAB's share capital and the CPS II Redemption will be

conducted substantially by way of reduction of capital, with the balance by way of

redemption upon which all CPS II will be cancelled.6

The Reinvestment Offer provides Eligible CPS II Holders with the opportunity to

reinvest their CPS II into NAB Capital Notes 5 and maintain an ongoing investment

in securities issued by NAB.

You are an Eligible CPS II Holder if you:

• were registered as a holder of CPS II at 7.00pm on 11 November 2020;

• are shown on the CPS II register as having an address in Australia;

• are not an individual residing in a member state of the European Union; and

• are not in the United States, are not a U.S. Person, and are not acting (including

as a nominee) for the account or benefit of, a U.S. Person, and are not otherwise

prevented from receiving the Reinvestment Offer or NAB Capital Notes 5 under

the laws of any jurisdiction.

To participate in the Reinvestment Offer, an Eligible CPS II Holder must also

remain registered as a holder of CPS II on the Closing Date (expected to be

5.00pm on 11 December 2020).

The options available to Eligible CPS II Holders are detailed in Section 3.

Before submitting an Application under the Reinvestment Offer, Eligible CPS II

Holders should read Section 3.2 which describes the differences between CPS II

and NAB Capital Notes 5. In particular, Eligible CPS II Holders should note that

the margin applicable to CPS II is 3.25%, and the Margin for NAB Capital Notes 5

is 3.50%, as determined under the Bookbuild. NAB does not guarantee that

it will accept Applications under the Reinvestment Offer. If your Application

under the Reinvestment Offer is not accepted, your CPS II will be redeemed on

17 December 2020 and you will receive the aggregate CPS II Redemption Price

($100 per CPS II) for the CPS II you hold on that date.

6References to the redemption of the CPS II in this Prospectus are to this process.

NAB Capital Notes 5 | 18

SECTION ONE: INVESTMENT OVERVIEW

Topic

How to Apply under the Offer

Minimum

Application under the Offer

Key Dates for the Offer

Summary

Further

information

• To apply directly to NAB for NAB Capital Notes 5 under the Reinvestment Offer,

Sections

you must complete an online Application Form and follow the instructions in

3 and 4

Section 4.

  • To apply for NAB Capital Notes 5 under the Securityholder Offer, you must complete an online Application Form and follow the instructions in Section 4.
  • If you are applying under the Broker Firm Offer (including to reinvest your CPS II), you should contact the Syndicate Broker who has offered you an allocation in the Broker Firm Offer for information about how and when to submit your Application.
  • If you are applying under the Reinvestment Offer, you must also read Section 3.

Securityholder Offer, Broker Firm Offer (excluding Applications to reinvest

Sections

CPS II) and Institutional Offer

3 and 4

Applications must be made for a minimum of 50 NAB Capital Notes 5 ($5,000) and

thereafter in multiples of 10 NAB Capital Notes 5 ($1,000).

Reinvestment Offer

There is no minimum number of CPS II that you must hold to be able to

participate in the Reinvestment Offer.

If you are an Eligible CPS II Holder, own 50 CPS II or fewer and wish to participate

in the Reinvestment Offer, you can apply to participate in the Reinvestment Offer

but you must apply to reinvest ALL of your CPS II in NAB Capital Notes 5.

If you are an Eligible CPS II Holder, own more than 50 CPS II and wish to

participate in the Reinvestment Offer:

  • you must apply to reinvest at least 50 of your CPS II ($5,000) and thereafter in multiples of 10 CPS II ($1,000); or
  • you can apply to reinvest ALL of your CPS II.

NAB does not guarantee to accept all Applications under the Reinvestment Offer.

Offer Period:

Key Dates

  • The Offer opened on 24 November 2020; and
  • The Offer is expected to close at 5.00pm on 11 December 2020.

Issue Date:NAB Capital Notes 5 are expected to be issued on 17 December 2020.

Commencement of trading on ASX: Trading is expected to commence on 18 December 2020 on a normal settlement basis.

Despatch of Holding Statements:Holding Statements are expected to be despatched on 23 December 2020.

NAB Capital Notes 5 | 19

SECTION ONE: INVESTMENT OVERVIEW

Topic

Allocation policy

Tax consequences

Fees and expenses associated with the Offer

More information

Summary

Further

information

Reinvestment Offer and Securityholder Offer

Section 4

  • Allocations to CPS II Reinvestment Applicants and Securityholder Applicants will be determined by NAB.
  • Applications from CPS II Reinvestment Applicants and Securityholder Applicants may be scaled back if there is excess demand for the Offer. In the event of excess demand, NAB's current intention is to give preference to CPS II Reinvestment Applicants over Securityholder Applicants while still providing for a proportion of the available NAB Capital Notes 5 to be allocated to Securityholder Applicants. How NAB scales back Applications will depend on the number of Applications from CPS II Reinvestment Applicants and Securityholder Applicants.
  • In the event of excess demand, it is possible that the proportionate scale back applied to Securityholder Applicants will be greater than that applied to CPS II Reinvestment Applicants.

Broker Firm Offer and Institutional Offer

  • Allocations to Syndicate Brokers were determined by NAB in consultation with the Joint Lead Managers following completion of the Bookbuild.
  • Allocations to Institutional Investors were determined by NAB following completion of the Bookbuild.
  • Allocations to Syndicate Brokers and Institutional Investors reflected expected demand under the Reinvestment Offer.
  • Priority is intended to be given to Broker Firm Applicants applying to reinvest their CPS II over other Broker Firm Applicants. It is possible for Applications from Broker Firm Applicants to be scaled back by a Syndicate Broker. However, NAB takes no responsibility for any allocation, scale back or rejection that is decided by a Syndicate Broker.

Information about the Australian tax consequences of investing in NAB Capital

Section 8

Notes 5 is set out in Section 8.

NAB has incurred certain fees and expenses in connection with the Offer and the

Section 9

Prospectus which are described in Section 9. These include payments to the Joint

Lead Managers and Co-Managers.

If you do not fully understand how NAB Capital Notes 5 work or the risks

associated with them, you should seek advice from your financial adviser or other

professional adviser.

You can also call the NAB Information Line on 1300 367 647(within Australia)

or on +61 3 9415 4299(outside Australia) (Monday to Friday, 8.00am - 7.30pm)

during the Offer Period, and for a week following.

NAB Capital Notes 5 | 20

SECTION TWO:

ABOUT

NAB CAPITAL NOTES 5

The following is an overview of the key terms of NAB Capital Notes 5. It is important that you read this Prospectus and the Terms in full before deciding whether to invest in NAB Capital Notes 5. If you do not fully understand how NAB Capital Notes 5 work or the risks associated with them, you should seek advice from your financial adviser or other professional adviser.

The full Terms are contained in Appendix A. Rights and liabilities attaching to NAB Capital Notes 5 may also arise under the Corporations Act, ASX Listing Rules and other applicable laws.

A table comparing the key features of NAB Capital Notes 5 and other investments in NAB (including Ordinary Shares) is set out in Section 2.10.

NAB Capital Notes 5 | 21

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.1 Distributions

NAB Capital Notes 5 are expected to pay quarterly floating rate Distributions in cash, which are expected to be franked at the same rate as dividends paid on Ordinary Shares. The effect of Distributions being franked is to reduce the cash amount received by Holders on each Distribution Payment Date by an amount equal to the relevant level of franking. A Distribution will be paid provided the Directors decide to pay it, and provided a Payment Condition does not exist on the Distribution Payment Date. Broadly, a Payment Condition exists where NAB is prevented from paying the Distribution by prudential regulatory requirements, applicable law or insolvency.

The Distribution Rate is a floating rate (i.e. it may go up or down), and is equal to the sum of the Bank Bill Rate plus the Margin (as determined under the Bookbuild), adjusted for NAB's tax rate.

Distributions are non-cumulative.

Topic

Summary

Further

information

Distribution

The Distribution Rate for each Distribution will be calculated using the following

Clause 2.4 of

Rate

formula:

the Terms

Distribution Rate = (Bank Bill Rate + Margin) x (1 - Tax Rate)

where:

  • Bank Bill Rate is a benchmark interest rate for the Australian money market. It is based on an average of rates at which major Australian financial institutions lendshort-term cash to each other over a period of approximately 90 days as published by ASX (or its successor). It changes to reflect supply and demand in the cash and currency markets. The Bank Bill Rate for each Distribution Period is set on the first Business Day of the relevant Distribution Period. Fall-back procedures apply under the Terms if the Bank Bill Rate does not appear, if there is an obvious error in that rate or (subject to APRA's prior written approval) if that rate is otherwise subject to disruption;
  • It is possible for the Bank Bill Rate to be negative. If this occurs, the negative amount will be taken into account in calculating the Distribution Rate. Even if the Distribution Rate is calculated to be negative there will be no obligation on Holders to pay NAB;
  • Margin is 3.50%, as determined under the Bookbuild. The Margin will not change for the term of NAB Capital Notes 5; and
  • Tax Rate is the Australian corporate tax rate applicable to the franking account of NAB on the relevant Distribution Payment Date.

Below are two worked examples of the Distribution Rate calculated using:

  • a Bank Bill Rate of 0.0200% (i.e. if the Bank Bill Rate is positive); and
  • a Bank Bill Rate of-1.0000% (i.e. if the Bank Bill Rate is negative).

These examples are for illustrative purposes only and do not indicate, guarantee or forecast the actual Bank Bill Rate for the first or any subsequent Distribution Period.

NAB Capital Notes 5 | 22

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Distribution Rate (continued)

Summary

Further

information

Using a Bank Bill Rate of 0.0200% (i.e. a positive Bank Bill Rate)

For example, if the Bank Bill Rate was 0.0200% and the Australian corporate tax rate applicable to the franking account of NAB was 30%, assuming the Distribution is fully franked the Distribution Rate for that Distribution Period would be calculated as follows:

Bank Bill Rate

0.0200% per annum

plus Margin

3.5000% per annum

3.5200% per annum

Multiplied by (1 - Tax Rate)

x 0.70

Distribution Rate =

2.4640% per annum

Using a Bank Bill Rate of -1.0000% (i.e. a negative Bank Bill Rate)

For example, if the Bank Bill Rate was -1.0000% and the Australian corporate tax rate applicable to the franking account of NAB was 30%, assuming the Distribution is fully franked the Distribution Rate for that Distribution Period would be calculated as follows:

Bank Bill Rate

-1.0000% per annum

plus Margin

3.5000% per annum

2.5000% per annum

Multiplied by (1 - Tax Rate)

x 0.70

Distribution Rate =

1.7500% per annum

Even if the Distribution Rate is calculated to be negative there will be no obligation on Holders to pay NAB.

The graph on the following page illustrates the movement in the Bank Bill Rate. The rate on 12 November 2020 was 0.0200%. The Australian corporate tax rate may change from time to time and that will affect the Distribution Rate.

NAB Capital Notes 5 | 23

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Movement in the Bank Bill Rate

.

.

.

.

.

.

.

.

Year

Topic

Summary

Further

information

Calculation of

Distributions scheduled to be paid on a Distribution Payment Date will be

Clause 2.4 of

Distribution

calculated using the following formula:

the Terms

Distribution Rate x $100 x N

365

where:

Nis the number of days in the Distribution Period.

Using the above formula, if the Distribution Rate was 2.4640% per annum, then the Distribution on each NAB Capital Note 5 for the first Distribution Period (if the Distribution Period was 90 days) would be calculated as follows:

Indicative Distribution Rate

2.4640% per annum

Multiplied by the Face Value

X $100

Multiplied by the number of days

in the Distribution Period

X 90

Divided by 365

/ 365

Indicative cash Distribution payment for the first

Distribution Period for each NAB Capital Note 5

$0.6076

Distributions paid on NAB Capital Notes 5 are expected to be franked at the same rate as dividends paid on Ordinary Shares. However, Holders should be aware that franking is not guaranteed and that their ability to use franking credits will depend on their individual circumstances and applicable Australian tax laws.

The extent to which Distributions will be franked will depend on a number of factors, including the Group's capital management plan and the level of profits generated by the Group that will be subject to tax in Australia. The effect of Distributions being franked is to reduce the cash amount received by Holders on each Distribution Payment Date by an amount equal to the relevant level of franking. If any Distribution payment is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate. Holders should refer to the Australian Taxation Summary in Section 8 and seek professional advice in relation to their tax position.

NAB Capital Notes 5 | 24

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Calculation of Distribution (continued)

Distribution Payment Dates

Franking credits

Summary

The example on the previous page is for illustrative purposes only and does not indicate, guarantee or forecast the actual Distribution payment for the first or any subsequent Distribution Period. Actual Distribution payments may be higher or lower than this example. The Distribution Rate for the first Distribution Period will be set on the Issue Date and will include the Margin.

The Distribution Payment Dates are scheduled to be:

  • 17 March;
  • 17 June;
  • 17 September; and
  • 17 December,

commencing on 17 March 2021 until (but not including) the date that NAB Capital Notes 5 are Converted or Redeemed.

In addition, if Conversion, Redemption or Resale occurs on a day that is not a scheduled Distribution Payment Date, provided the conditions to payment are met, Holders of NAB Capital Notes 5 which are being Converted (other than in the case of a Loss Absorption Event), Redeemed or Resold will also receive a Distribution in respect of these NAB Capital Notes 5 for the period from the immediately preceding Distribution Payment Date to the date on which the Conversion, Redemption or Resale occurs.

If a Distribution Payment Date is a day which is not a Business Day, then the Distribution Payment Date is the next Business Day.

Distributions paid on NAB Capital Notes 5 are expected to be franked at the same rate as dividends paid on Ordinary Shares. The effect of Distributions being franked is to reduce the cash amount received by Holders on each Distribution Payment Date by an amount equal to the relevant level of franking.

If any Distribution payment is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate (see clause 2.5 of the Terms).

Holders should be aware that franking is not guaranteed and that their ability to use franking credits will depend on their individual circumstances and applicable Australian tax laws. The extent to which Distributions will be franked will depend on a number of factors, including the Group's capital management plan and the level of profits generated by the Group that will be subject to tax in Australia.

Holders should refer to the Australian Taxation Summary in Section 8 and seek professional advice in relation to their tax position.

Further information

Clause 2.4 of the Terms

Clause 2.2 of the Terms

Clause 2.5 of the Terms

NAB Capital Notes 5 | 25

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Restrictions on Distributions

Summary

Further

information

A Distribution on NAB Capital Notes 5 will only be paid if:

Clause 2.6 of

• The Directors resolve to pay it; and

the Terms

• A Payment Condition does not exist on the Distribution Payment Date.

A "Payment Condition" will exist where:

  • The payment of the Distribution will result in NAB or the Group not complying with APRA's then current Prudential Capital Requirements;
  • Unless APRA otherwise approves in writing, payment of the Distribution would result in NAB or the Group exceeding any limit on distributions of earnings applicable under (and calculated in accordance with) APRA's then current capital conservation requirements as they are applied to NAB or the Group (as the case may be) at the time;7
  • APRA otherwise objects to the payment of the Distribution;
  • Payment of the Distribution would result in NAB becoming, or being likely to become, insolvent for the purposes of the Corporations Act; or
  • NAB is not permitted to pay the Distribution under the Corporations Act.

Distributions are non-cumulative. Failure to pay a Distribution when scheduled

Clause 2.7 of

will not constitute an event of default. If a Distribution is not paid then NAB has

the Terms

no liability to pay that Distribution and Holders have no claim or entitlement in

respect of such non-payment.

Restrictions on Ordinary Shares if Distributions are not paid

If for any reason a Distribution has not been paid in full on a Distribution

Clauses 2.8

Payment Date, NAB must not, subject to certain exceptions, unless approved by

and 2.9 of

an Ordinary Resolution, until and including the next Distribution Payment Date:

the Terms

• Declare, determine to pay or pay a dividend on Ordinary Shares; or

• Buy-back or reduce capital on Ordinary Shares.

However, if the Distribution is paid in full within 3 Business Days of the

Distribution Payment Date, this restriction will no longer apply. This restriction on

dividend payments where Distributions on NAB Capital Notes 5 are not paid only

applies in respect of Ordinary Shares and not distributions in respect of any other

securities, including those ranking equally with, or senior to, NAB Capital Notes 5.

Further, the restriction only applies until the next Distribution Payment Date and

is subject to certain exceptions. The dates for dividends or other distributions

with respect to Ordinary Shares are determined by NAB in its discretion and do

not bear a fixed relationship to the Distribution Payment Dates for NAB Capital

Notes 5. Accordingly, as soon as the restriction ceases to apply (as will be the case

if the next scheduled Distribution on NAB Capital Notes 5 is paid in full) NAB will

not be restricted from paying a dividend or other distributions on its Ordinary

Shares.

7See Section 6.3.1 for a description of APRA's current rules requiring restrictions on payments in respect of Additional Tier 1 Capital instruments (such as NAB Capital Notes 5).

NAB Capital Notes 5 | 26

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.2 Term

Topic

Summary

Further

information

Term

NAB Capital Notes 5 do not have a fixed maturity date and if they are not

Sections

Converted, Written Off, Redeemed or Resold in accordance with the Terms, they

2.3 - 2.7

could remain on issue indefinitely. Accordingly they are perpetual securities.

There can be no certainty that NAB Capital Notes 5 will be Converted, Redeemed

Clause 12.2

or Resold under the Terms. Holders will have no right to request NAB to

of the Terms

Convert, Redeem or Resell NAB Capital Notes 5. Conditions apply to any optional

Conversion, Redemption, Resale or purchase of NAB Capital Notes 5, including a

requirement for the prior written approval of APRA. Holders should not expect

that APRA's approval for any optional Conversion, Redemption, Resale, or

purchase, will be given. Information on the circumstances in which NAB Capital

Notes 5 may be Converted, Redeemed, Resold or Written Off is set out in Sections

2.3 to 2.7.

2.3 Mandatory Conversion

NAB must convert all (but not some) outstanding NAB Capital Notes 5 into Ordinary Shares on 17 December 2029, provided that certain conditions are met. If any of these conditions are not satisfied on this date, the Mandatory Conversion Date will be deferred to the next Distribution Payment Date on which they are satisfied. These conditions may never be satisfied and accordingly NAB Capital Notes 5 may never Convert into Ordinary Shares. The number of Ordinary Shares that Holders will receive on a Mandatory Conversion will not be greater than the Maximum Conversion Number.

The conditions to Mandatory Conversion and the associated Conversion calculations are designed to ensure that Holders receive approximately $101 worth of Ordinary Shares for each NAB Capital Note 5 they hold, and that the Ordinary Shares they receive following the Conversion are capable of being sold on the ASX.

Topic

Summary

Further

information

Mandatory

Outstanding NAB Capital Notes 5 are scheduled to be mandatorily Converted on

Clauses 3.1

Conversion

17 December 2029, provided the Mandatory Conversion Conditions are satisfied

and 3.2 of

Date

on that date.

the Terms

If any of the Mandatory Conversion Conditions are not satisfied on this date, NAB

Capital Notes 5 will continue to be on issue and the Mandatory Conversion Date

will be deferred to the next Distribution Payment Date on which those conditions

are satisfied.

NAB Capital Notes 5 | 27

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Mandatory Conversion and consequences

Mandatory

Conversion

Conditions

Summary

If the Mandatory Conversion Conditions are satisfied on the Mandatory Conversion Date, outstanding NAB Capital Notes 5 will be Converted and Holders will receive Ordinary Shares.

Upon Conversion on a Mandatory Conversion Date, based on a Face Value of $100 and with a 1% discount, Holders will receive approximately $101 worth of Ordinary Shares per NAB Capital Note 5. The number of Ordinary Shares that Holders will receive will be based on the volume weighted average price of Ordinary Shares ("VWAP") during a period of 20 Business Days on which trading in Ordinary Shares took place before the Mandatory Conversion Date, but will not be greater than the Maximum Conversion Number.

As the VWAP is an average price, it may differ from the Ordinary Share price on or after the Mandatory Conversion Date. This means that the value of Ordinary Shares received in respect of each NAB Capital Note 5 may be more or less than $101 when they are issued or at any time after that.

Following a Conversion, Holders will become holders of Ordinary Shares, which will rank equally with existing Ordinary Shares from the date of issue and which may be sold on the ASX at the prevailing market price (provided that trading in Ordinary Shares on the ASX has not been suspended at the relevant time).

There are three Mandatory Conversion Conditions, each of which must be satisfied for Mandatory Conversion to occur.

The First Mandatory Conversion Condition and the Second Mandatory Conversion Condition are intended to provide protection to Holders against receiving less than approximately $101 worth of Ordinary Shares per NAB Capital Note 5 on Conversion (based on the VWAP during the 20 Business Days before the Mandatory Conversion Date).

The percentages used in the First Mandatory Conversion Condition and the Second Mandatory Conversion Condition (see below) are derived from market precedents and the cap on the number of ordinary shares that is permitted to be issued under applicable prudential rules and ratings agency guidance. Worked examples follow.

The Third Mandatory Conversion Condition is intended to provide protection for Holders by making Conversion conditional on Holders receiving Ordinary Shares which are capable of being sold on ASX.

The Mandatory Conversion Conditions are as follows:

  • First Mandatory Conversion Condition:the VWAP of Ordinary Shares on the 25th Business Day immediately preceding (but not including) a possible Mandatory Conversion Date must be greater than 56% of the Issue Date VWAP;
  • Second Mandatory Conversion Condition:the VWAP of Ordinary Shares during the period of 20 Business Days on which trading in Ordinary Shares took place immediately preceding (but not including) a possible Mandatory Conversion Date is greater than 50.51% of the Issue Date VWAP; and
  • Third Mandatory Conversion Condition:no Delisting Event applies to Ordinary Shares in respect of a possible Mandatory Conversion Date. Broadly, a Delisting Event occurs when NAB is delisted, its Ordinary Shares have been suspended from trading for a certain period, or an Inability Event subsists preventing NAB from Converting NAB Capital Notes 5 generally (i.e. where NAB is prevented from Converting NAB Capital Notes 5 by applicable law or order of any court or action of any government authority or any other reason).

Further information

Clause 3.1 of the Terms

Clause 7.1 of the Terms

Clause 3.3 of the Terms

NAB Capital Notes 5 | 28

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Mandatory

Satisfaction of Mandatory Conversion Conditions

Conversion

By way of example, if the Issue Date VWAP is $18.00, for the First Mandatory

Conditions

Conversion Condition to be satisfied the relevant VWAP would need to be greater

(continued)

than $10.08, and for the Second Mandatory Conversion Condition to be satisfied

the relevant VWAP would need to be greater than $9.09. The Third Mandatory

Conversion Condition will be satisfied where the Ordinary Shares are able to be

traded on the ASX at the relevant time and no Inability Event subsists.

The following diagram illustrates the timeframes that are relevant for the

Mandatory Conversion Conditions, using the date of 17 December 2029 as

a potential Mandatory Conversion Date. These dates are indicative only and

may change.

12 November 2029

19 November 2029 - 14 December 2029

17 December 2029

25thBusiness Day

Period from the 20thBusiness Day before

Potential Mandatory

before a potential

the potential Mandatory Conversion Date to

Conversion Date (subject to

Mandatory Conversion

the last Business Day immediately preceding

satisfaction of Mandatory

Date

(but not including) the potential Mandatory

Conversion Conditions)

Conversion Date

20 Business Day VWAP Period

First Mandatory

Second Mandatory

Third Mandatory

Conversion Condition

Conversion Condition

Conversion Condition

The VWAP of Ordinary Shares

The VWAP of Ordinary Shares during the

Ordinary Shares have not been

on the 25th Business Day

period of 20 Business Days on which trading

delisted or suspended from

immediately preceding (but

in Ordinary Shares took place immediately

trading on ASX and there must

not including) the potential

preceding (but not including) the potential

be no Inability Event subsisting

Mandatory Conversion Date

Mandatory Conversion Date must be greater

must be greater than 56% of

than 50.51% of the Issue Date VWAP

the Issue Date VWAP

NAB Capital Notes 5 | 29

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Conversion

On a Mandatory Conversion Date, a Holder will receive a number of Ordinary

Clauses

Number

Shares per NAB Capital Note 5 ("Conversion Number") which is the lesser of:

7.1 - 7.7 of

(a) the number (N) calculated in accordance with the following formula:

the Terms

N =

$100

99% x VWAP

where:

  • "VWAP" broadly is the volume weighted average price of Ordinary Shares during the VWAP Period. For a Mandatory Conversion, the VWAP Period is the 20 Business Days on which trading in Ordinary Shares took place immediately preceding (but not including) the Mandatory Conversion Date.

and:

  1. the Maximum Conversion Number ("MCN") calculated in accordance with the following formula:

MCN =

$100

Issue Date VWAP x Relevant Fraction

where:

  • "Issue Date VWAP" is the VWAP during the 20 Business Day period on which trading in Ordinary Shares took place immediately preceding (but not including) the date on which NAB Capital Notes 5 were issued; and
  • "Relevant Fraction", for Conversion on a Mandatory Conversion Date, is
    0.5. This fraction reflects the ratings agency requirement that the maximum number of Ordinary Shares issued on a Conversion of this kind does not exceed the number that would be issued if the Ordinary Share price fell from the price it was at the Issue Date to 50% of that price.

Adjustments to Issue Date VWAP and Maximum Conversion Number

The Issue Date VWAP, and consequently the Maximum Conversion Number, will be adjusted to reflect a consolidation, division or reclassification of Ordinary Shares and pro rata bonus issues as set out in the Terms (but not other transactions, including rights issues, which may affect the capital of NAB).

No adjustment shall be made to the Issue Date VWAP where such adjustment (rounded if applicable) would be less than one per cent of the Issue Date VWAP then in effect.

NAB Capital Notes 5 | 30

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Number of Ordinary Shares Holders will receive on Mandatory Conversion Date - worked example

Summary

Worked example: Scheduled Mandatory Conversion Date

Assume the VWAP from 19 November 2029 to 14 December 2029 (being the

20 Business Days on which trading in Ordinary Shares took place immediately preceding 17 December 2029) is $15.00 and the Issue Date VWAP is $18.00. Holders would be entitled to receive the Conversion Number of Ordinary Shares which is the lesser of:

$100

N =

= 6.7340 Ordinary Shares per NAB Capital Note 5;

99% x $15.00

and:

$100

the MCN =

= 11.1111 Ordinary Shares per

$18.00 x 0.5

NAB Capital Note 5.

Since N is less than the MCN (see above), the total number of Ordinary Shares to which a Holder of 100 NAB Capital Notes 5 would be entitled would be 673 (i.e. 100 x 6.7340, which number is rounded down to disregard the fraction of the Ordinary Share). Assuming a prevailing market price equal to the VWAP of $15.00, this would represent a market value of $10,095 (i.e. 673 x $15.00) which is slightly more than $10,000 (the Face Value of 100 NAB Capital Notes 5).

This example is for illustrative purposes only. The figures in it are not forward looking statements and do not indicate, guarantee or forecast the Issue Date VWAP or future VWAP or other price of Ordinary Shares.

Further information

Clause 7.1 of the Terms

NAB Capital Notes 5 | 31

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.4 Optional Conversion

On 17 December 2027, NAB may elect to Convert NAB Capital Notes 5 into Ordinary Shares with APRA's prior written approval. NAB may also elect to Convert NAB Capital Notes 5 into Ordinary Shares following the occurrence of certain events (related to tax, regulation and takeovers) subject to APRA's prior written approval.

As with a Mandatory Conversion, there are conditions to an optional Conversion which are designed to ensure that Holders receive approximately $101 worth of Ordinary Shares for each NAB Capital Note 5 they hold, and that Holders receive Ordinary Shares that are capable of being sold on ASX.

The number of Ordinary Shares that Holders will receive on a Conversion in these circumstances will not be greater than the Maximum Conversion Number.

The conditions to an optional Conversion may never be satisfied and accordingly, NAB Capital Notes 5 may never Convert into Ordinary Shares. Holders should not expect that APRA's approval will be given for any optional Conversion.

Topic

Summary

Further

information

Optional

NAB may, with APRA's prior written approval, elect to Convert:

Clause 6.1 of

Conversion

• All or some NAB Capital Notes 5 on 17 December 2027;

the Terms

• All or some NAB Capital Notes 5 following the occurrence of a Tax Event or a

Regulatory Event; or

• All or some NAB Capital Notes 5 following the occurrence of a Potential

Acquisition Event.

An optional Conversion is subject to further conditions as set out below.

Holders should not expect that APRA's approval will be given for a Conversion of

NAB Capital Notes 5 in these circumstances.

Holders do not have a right to request Conversion in any circumstances.

Tax Event

Broadly, a Tax Event will occur if, on or after the Issue Date, NAB receives legal or

Clause 24.1

tax advice that as a result of a change in law or regulation, judicial decision or

of the Terms

administrative position in Australia, or a challenge by the Australian Taxation Office in

relation to NAB Capital Notes 5, which NAB did not expect as at the Issue Date, there

is a more than insubstantial risk that a Distribution would not be frankable (or would

only be frankable subject to requirements which the Directors determine in their

absolute discretion to be unacceptable) or that NAB would be exposed to an increase

in taxes or other costs, which is not insignificant, in relation to NAB Capital Notes 5.

NAB Capital Notes 5 | 32

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Regulatory Event

A Regulatory Event will broadly occur if:

  • NAB receives legal advice that, as a result of a change of law or regulation, judicial decision, administrative position or statement of APRA on or after the Issue Date, additional requirements (which are not insignificant) would be imposed on NAB in relation to NAB Capital Notes 5 (which were not expected by NAB at the Issue Date) which the Directors determine in their absolute discretion to be unacceptable; or
  • The Directors determine that, as a result of a change of law or regulation, judicial decision, administrative position or statement of APRA on or after the Issue Date, NAB is not or will not be entitled to treat some or all NAB Capital Notes 5 as Additional Tier 1 Capital, except where the reason is or will be because of a limit or other restriction on the recognition of Additional Tier 1 Capital which is in effect on the Issue Date or which on the Issue Date is expected by NAB may come into effect.

Clause 24.1 of the Terms

Potential

Acquisition

Event

A Potential Acquisition Event will broadly occur if:

  • A takeover bid is made to acquire all or some Ordinary Shares, the offer is, or becomes, unconditional and the bidder has a relevant interest in more than 50% of the Ordinary Shares on issue or a majority of Directors recommend acceptance of the offer in the absence of a higher offer; or
  • A court orders the holding of meetings to approve a scheme of arrangement with respect to NAB which would result in a person having a relevant interest in more than 50% of the Ordinary Shares on issue after the scheme is implemented.

A Potential Acquisition Event will not occur where NAB is acquired by an Approved NOHC. An Approved NOHC is described in Section 2.9.

Clause 24.1 of the Terms

Optional

Conversion

Restrictions

Broadly, in addition to APRA approval, there are two categories of restrictions that

Clauses 6.4

may prevent an optional Conversion from occurring:

and 6.5 of

• Restrictions that may prevent NAB from sending a notice to Holders advising

the Terms

them that NAB wishes to Convert NAB Capital Notes 5; and

• Restrictions that may prevent NAB from actually Converting NAB Capital Notes 5.

Restrictions that may prevent NAB from sending a conversion notice

NAB may not elect to Convert NAB Capital Notes 5 if on the Non-Conversion Test

Date (broadly, the second Business Day before the date on which NAB is to send a

notice advising Holders that it wishes to Convert NAB Capital Notes 5):

  • The VWAP of Ordinary Shares on theNon-Conversion Test Date is less than or equal to 22.50% of the Issue Date VWAP; or
  • A Delisting Event applies.

NAB Capital Notes 5 | 33

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Optional Conversion Restrictions (continued)

Conversion Number

If Conversion does not occur on Optional Conversion Date

Summary

Further

information

Further restrictions that may prevent NAB from Converting NAB Capital Notes 5 on a Conversion Date

In addition, if, treating the date on which Conversion is to occur ("Optional Conversion Date") as a Mandatory Conversion Date, either:

  • The Second Mandatory Conversion Condition (applied as if it referred to 20.20% of the Issue Date VWAP) would not be satisfied; or
  • A Delisting Event applies,

then the proposed Conversion must be deferred until the next Distribution Payment Date on which the Mandatory Conversion Conditions would be satisfied if that Distribution Payment Date were a Mandatory Conversion Date (with those conditions applied as if the percentage of the Issue Date VWAP were 22.50% for the First Mandatory Conversion Condition and 20.20% for the Second Mandatory Conversion Condition).

The percentages used in the above restrictions are derived from market precedents and the cap on the number of Ordinary Shares that is permitted to be issued under applicable prudential standards.

If an optional Conversion proceeds, the Conversion Number of Ordinary Shares

Clause 7.1 of

will be calculated in the same manner as for a Mandatory Conversion - see

the Terms

Section 2.3. However, for the purposes of the optional Conversion calculations,

the Relevant Fraction is 0.2 rather than 0.5, as permitted by applicable prudential

standards for Additional Tier 1 Capital.

If NAB elects to Convert but cannot Convert NAB Capital Notes 5 on the Optional

Clause 6.5 of

Conversion Date because of an applicable Conversion restriction, NAB will notify

the Terms

Holders and the Conversion will be deferred until the next Distribution Payment

Date on which the Mandatory Conversion Conditions would be satisfied as if

that Distribution Payment Date were a possible Mandatory Conversion Date

(with those conditions applied as if the percentage of the Issue Date VWAP were

22.50% for the First Mandatory Conversion Condition and 20.20% for the Second

Mandatory Conversion Condition), unless NAB Capital Notes 5 are otherwise

Converted, Written Off, Redeemed or Resold in accordance with the Terms. For

the purposes of the Conversion calculations in these circumstances, the Relevant

Fraction is 0.2 rather than 0.5, as permitted by applicable prudential standards for

Additional Tier 1 Capital.

NAB Capital Notes 5 | 34

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.5 Optional Redemption, optional Resale or purchase

On 17 December 2027, NAB may elect to Redeem, Resell or purchase NAB Capital Notes 5 with APRA's prior written approval. NAB may also elect to Redeem or Resell NAB Capital Notes 5 following the occurrence of certain events (related to tax and regulation), subject to APRA's prior written approval.

If a Redemption or Resale occurs, a Holder will receive an amount equal to the Face Value ($100) in cash for each NAB Capital Note 5 that it holds.

There are restrictions on NAB's ability to Redeem NAB Capital Notes 5 for cash. Most importantly, NAB may only elect to Redeem NAB Capital Notes 5 if APRA is satisfied that NAB's regulatory capital position will remain adequate following the Redemption. This is intended to protect NAB's creditors (including depositors).

Holders should not expect that APRA's approval will be given for any Redemption, Resale or purchase.

Topic

Optional Redemption

Restrictions on Redemption

Optional Resale

Summary

NAB may, with APRA's prior written approval, elect to Redeem:

  • All or some NAB Capital Notes 5 on 17 December 2027; or
  • All or some NAB Capital Notes 5 following the occurrence of a Tax Event or a Regulatory Event.

Holders should not expect that APRA's approval will be given for any Redemption of NAB Capital Notes 5 under the Terms. Holders do not have a right to request Redemption in any circumstances.

NAB may only elect to Redeem NAB Capital Notes 5 if APRA is satisfied that either:

  • The NAB Capital Notes 5 proposed to be Redeemed are replaced concurrently or beforehand with a capital instrument of the same or better quality and the replacement of the instrument is done under conditions that are sustainable for NAB's income capacity; or
  • The capital position of the NAB Level 1 Group and NAB Level 2 Group will remain adequate after NAB elects to Redeem NAB Capital Notes 5.

NAB may also, with APRA's prior written approval, elect to Resell:

  • All or some NAB Capital Notes 5 on 17 December 2027; or
  • All or some NAB Capital Notes 5 following the occurrence of a Tax Event or a Regulatory Event.

Holders should not expect that APRA's approval will be given for any Resale of NAB Capital Notes 5 under the Terms. Holders do not have a right to request Resale in any circumstances.

In the event of a Resale, each Holder is bound under the Terms to sell NAB Capital Notes 5 to one or more third party purchasers at the Resale Price ($100 per NAB Capital Note 5).

Further information

Clause 8.1 of the Terms

Clause 8.4 of the Terms

Clauses 10.1 and 11.4 of the Terms

NAB Capital Notes 5 | 35

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Appointment

If NAB elects to Resell NAB Capital Notes 5, it must appoint one or more third

Clauses 11.2

of Nominated

party purchasers (each a "Nominated Purchaser") to purchase NAB Capital

and 11.3 of

Purchaser

Notes 5 offered for Resale (on such terms as may be agreed between NAB and the

the Terms

Nominated Purchaser). The terms of appointment may include terms:

• as to the conditions of any Resale, the procedures for settlement of such Resale

and the circumstances in which the notice given by NAB to the Registrar, ASX

and the Holders in connection with such Resale may be amended;

• as to the substitution of another entity as Nominated Purchaser (in accordance

with the Terms); and

• on which any NAB Capital Notes 5 acquired by a Nominated Purchaser may be

Redeemed, Converted or otherwise dealt with.

To the extent any of the terms on which a Nominated Purchaser is appointed

may cause NAB Capital Notes 5 to cease to be Additional Tier 1 Capital, then the

prior written approval of APRA is required before the Nominated Purchaser is

appointed on those terms.

If NAB appoints more than one Nominated Purchaser in respect of a Resale,

all or any NAB Capital Notes 5 held by a Holder which are being Resold may

be purchased by any one or any combination of the Nominated Purchasers, as

determined by NAB for the Resale Price.

The Nominated Purchaser must not be NAB or any Related Entity of NAB.

Failure by

If a Nominated Purchaser does not pay the Resale Price when the Resale Price

Clause 11.6

Nominated

is due, the Resale to that Nominated Purchaser will not occur and Holders will

of the Terms

Purchaser to

continue to hold NAB Capital Notes 5 in accordance with the Terms until NAB

pay Resale Price

Capital Notes 5 are otherwise Redeemed, Converted or Resold in accordance with

the Terms.

Purchases

NAB (or any Related Entity of NAB) may at any time purchase NAB Capital Notes 5

Clause 12.3

in the open market or otherwise, at any price (subject to the prior written

of the Terms

approval of APRA).

2.6 Conversion following an Acquisition Event

NAB must Convert all (but not some) NAB Capital Notes 5 into Ordinary Shares where NAB is taken over by way of takeover bid or scheme of arrangement which meets certain requirements (which are described below).

As with other types of Conversion, there are conditions to Conversion in these circumstances which are designed to ensure that Holders receive no less than approximately $101 worth of Ordinary Shares for each NAB Capital Note 5 they hold, and that Holders receive Ordinary Shares that are capable of being sold on the ASX.

There is a risk that these conditions may never be satisfied. Accordingly, NAB Capital Notes 5 may never Convert into Ordinary Shares.

NAB Capital Notes 5 | 36

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Acquisition Event

Conversion following an Acquisition Event

Summary

In summary, an Acquisition Event means either:

  • A takeover bid is made to acquire all or some Ordinary Shares and the offer is, or becomes, unconditional, all necessary regulatory approvals have been obtained and either:
    • The bidder has a relevant interest in more than 50% of the Ordinary Shares on issue; or
    • A majority of Directors recommend acceptance of such offer (in the absence of a higher offer); or
  • A court orders the holding of meetings to approve a scheme of arrangement under Part 5.1 of the Corporations Act, which when implemented would result in a person having a relevant interest in more than 50% of Ordinary Shares on issue, and:
    • All classes of members of NAB pass all resolutions required to approve the scheme by the majorities required under the Corporations Act; and
    • All conditions to the implementation of the scheme, including any necessary regulatory approval (other than the approval of the scheme by the court) have been satisfied or waived.

Not all actions involving a change of control of NAB will amount to an Acquisition Event, In particular, an Acquisition Event will not occur where NAB is acquired by an Approved NOHC (as described in Section 2.9) or if APRA intervenes as described in Section 7.1.10.

If an Acquisition Event occurs, NAB must (by giving an Acquisition Conversion Notice) Convert all (but not some) NAB Capital Notes 5 into a number of Ordinary Shares with a value of approximately $101 per NAB Capital Note 5 (based on the VWAP during a period, usually 20 Business Days, before the Acquisition Conversion Date but a lesser period if trading in Ordinary Shares in the period after the Acquisition Event and before the Acquisition Conversion Date is less than 20 Business Days) provided that certain conditions are met. The number of Ordinary Shares that Holders will receive on a Conversion will not be greater than the Maximum Conversion Number.

Broadly, there are two categories of restrictions that may prevent a Conversion following an Acquisition Event from occurring:

  • Restrictions that may prevent NAB from sending an Acquisition Conversion Notice to Holders; and
  • Restrictions that may prevent NAB from actually Converting NAB Capital Notes 5.

Restrictions that may prevent NAB from sending a conversion notice

NAB is not required to give an Acquisition Conversion Notice to Holders and will not be required to Convert NAB Capital Notes 5 if on the Non-Conversion Test Date (broadly, the second Business Day before the date on which NAB is to send a notice advising Holders that it wishes to Convert NAB Capital Notes 5 as a result of an Acquisition Event):

  • The VWAP of Ordinary Shares on theNon-Conversion Test Date is less than or equal to 22.50% of the Issue Date VWAP; or
  • A Delisting Event applies.

Further information

Clause 24.1 of the Terms

Clauses 5 and 7 of the Terms

NAB Capital Notes 5 | 37

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Conversion following an Acquisition Event (continued)

Conversion Number

If Conversion does not occur on Acquisition Conversion Date

Summary

Further

information

Further restrictions that may prevent NAB from Converting NAB Capital Notes 5 on a Conversion Date

In addition, NAB may not proceed to Convert NAB Capital Notes 5 if, treating the date on which Conversion is to occur ("Acquisition Conversion Date") as a Mandatory Conversion Date, either:

  • The Second Mandatory Conversion Condition (applied as if it referred to 20.20% of the Issue Date VWAP) would not be satisfied; or
  • A Delisting Event applies in respect of that date.

The percentages used in the above restrictions are derived from market precedents and the cap on the number of Ordinary Shares that is permitted to be issued under applicable prudential standards.

If Conversion proceeds, the Conversion Number of Ordinary Shares will be

Clause 7.1 of

calculated in the same manner as for a Mandatory Conversion - see Section 2.3.

the Terms

However, for the purposes of the Conversion calculations in these circumstances

the Relevant Fraction is 0.2 rather than 0.5, as permitted by applicable prudential

standards for Additional Tier 1 Capital.

If NAB is not required to give an Acquisition Conversion Notice or the further

Clauses 5.3

restrictions prevent Conversion on the Acquisition Conversion Date, NAB will give

and 5.4 of

a new Acquisition Conversion Notice on or before the 25th Business Day prior to

the Terms

the immediately succeeding scheduled quarterly Distribution Payment Date, unless

the restrictions to the giving of an Acquisition Conversion Notice also apply at

that time.

The new Acquisition Conversion Notice will give notice of a new Acquisition

Conversion Date. Conversion will not occur on the new Acquisition Conversion

Date if the further Conversion restrictions apply on that date.

This process will be repeated until Conversion occurs.

2.7 Conversion following a Loss Absorption Event

NAB Capital Notes 5 have certain loss absorption features, which may be triggered where NAB encounters severe financial difficulty. These features are required to be included in the Terms of NAB Capital Notes 5 for prudential regulation purposes.

The occurrence of a "Loss Absorption Event" requires the Conversion of NAB Capital Notes 5 into Ordinary Shares. A Loss Absorption Event may occur at any time and on any day, whether or not the day is a Business Day. The Mandatory Conversion Conditions do not apply to a Conversion following a Loss Absorption Event. The number of Ordinary Shares that Holders will receive on a Conversion in these circumstances will not be greater than the Maximum Conversion Number.

As a Conversion in these circumstances is likely to occur during a time of financial difficulty for NAB, depending on the market price of Ordinary Shares at the relevant time, Holders are likely to receive significantly less than $101 worth of Ordinary Shares per NAB Capital Note 5 and a Holder may lose a significant amount of the money they invested in NAB Capital Notes 5 as a consequence. The calculations set out in this Section 2.7 are illustrative only and designed to demonstrate the potential number and value of Ordinary Shares that a Holder would receive on a Conversion where there is a Loss Absorption Event.

Where NAB Capital Notes 5 are not Converted into Ordinary Shares for any reason, those NAB Capital Notes 5 will be Written Off. In the event of a Write Off, the rights of Holders to Distributions and returns of capital will be terminated and written off, and Holders will not have their capital repaid.

NAB Capital Notes 5 | 38

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Loss Absorption Events

Common Equity Trigger Event

Non-Viability Trigger Event

Conversion or Write Off of Relevant Tier 1 Capital Instruments (including NAB Capital Notes 5)

Summary

A Loss Absorption Event is each of:

  • A Common Equity Trigger Event; and
  • ANon-Viability Trigger Event.

A Common Equity Trigger Event occurs when the ratio of NAB's Common Equity Tier 1 Capital to RWA (the "Common Equity Tier 1 Ratio") as determined by NAB or APRA at any time is equal to or less than 5.125%, calculated on the basis of either or both of the NAB Level 1 Group and the NAB Level 2 Group.

NAB must immediately notify APRA in writing if it makes such a determination.

If a Common Equity Trigger Event occurs, NAB must immediately convert into Ordinary Shares or write off all Relevant Tier 1 Capital Instruments (which includes NAB Capital Notes 5) or a proportion of Relevant Tier 1 Capital Instruments with the result that each of the Common Equity Tier 1 Ratio in respect of the NAB Level 1 Group and the Common Equity Tier 1 Ratio in respect of the NAB Level 2 Group is at a percentage above 5.125% determined by NAB for that ratio.

A Non-Viability Trigger Event means APRA has provided a written determination to NAB that:

  • The conversion into Ordinary Shares or write off of Relevant Tier 1 Capital Instruments (which includes NAB Capital Notes 5) is necessary because without the conversion or write off, APRA considers that NAB would becomenon-viable; or
  • Without a public sector injection of capital into, or equivalent support with respect to, NAB, APRA considers that NAB would becomenon-viable.

If a Non-Viability Trigger Event occurs, NAB must immediately convert into Ordinary Shares or write off:

  • All Relevant Tier 1 Capital Instruments; or
  • A proportion of Relevant Tier 1 Capital Instruments where NAB satisfies APRA that conversion or write off of a proportion will be sufficient to ensure that NAB will not become non viable. However, NAB must convert or write off all Relevant Tier 1 Capital Instruments if a public sector injection of funds is required to ensure that NAB does not becomenon-viable.

If a Loss Absorption Event were to occur, depending on how much Common Equity Tier 1 Capital NAB needs, NAB may be:

  • Permitted by APRA to convert or write off only a proportion of NAB Capital Notes 5 and other Relevant Tier 1 Capital Instruments; or
  • Required to either convert or write off all Relevant Tier 1 Capital Instruments (including NAB Capital Notes 5). All Relevant Tier 1 Capital Instruments must

be converted or written off where the Loss Absorption Event is a Non-Viability Trigger Event involving a determination by APRA that a public sector injection of capital would be required.

Further information

Clause 4.1 of the Terms

Clause 4.2 of the Terms

Clause 4.3 of the Terms

Clauses 4.2,

4.3 and 4.4 of the Terms

NAB Capital Notes 5 | 39

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Conversion or Write Off of Relevant Tier 1 Capital Instruments (including NAB Capital Notes 5) (continued)

Conversion as a result of a Loss Absorption Event

Summary

Further

information

If NAB is permitted to convert or write off only a proportion of NAB Capital Notes 5 and other Relevant Tier 1 Capital Instruments:

  • NAB must endeavour to treat Holders on an approximately proportionate basis, but may make adjustments among Holders to take account of the effect on marketable parcels of NAB Capital Notes 5 and other logistical considerations; and
  • Where the Relevant Tier 1 Capital Instruments are not all in the same currency, NAB may treat them as if converted into a single currency of NAB's choice at such rate of exchange as NAB considers reasonable. NAB may make adjustments among Holders and holders of other Relevant Tier 1 Capital Instruments having regard to the need to effect conversion immediately.

If NAB is required to convert or write off Relevant Tier 1 Capital Instruments, Holders should be aware that all Relevant Tier 1 Capital Instruments (including NAB Capital Notes 5) will be converted or written off before any Relevant Tier 2 Capital Instruments are converted or written off. NAB has no obligation to maintain any Relevant Tier 1 Capital Instruments on issue and gives no assurance that it will do so.

• On the date on which a Loss Absorption Event occurs (the "Loss Absorption

Clause 4.4 of

Event Conversion Date"), NAB must immediately determine the number of

the Terms

NAB Capital Notes 5 that will Convert and the number of other Relevant Tier 1

Capital Instruments which will convert into Ordinary Shares or be written off.

  • On the Loss Absorption Event Conversion Date, the relevant number of NAB Capital Notes 5 will then Convert immediately and irrevocably. Holders will not receive prior notice of Conversion or have any rights to vote or right of approval in respect of any Conversion.
  • The Mandatory Conversion Conditions do not apply and Conversion may occur automatically without the need for any further act or step by NAB. From the Loss Absorption Event Conversion Date, NAB will treat a Holder in respect of its NAB Capital Notes 5 as having been issued the Conversion Number of Ordinary Shares.
  • NAB expects that any ASX trades in NAB Capital Notes 5 that have not settled on the date a Loss Absorption Event occurs will continue to settle in accordance with the normal ASX T+2 settlement, although NAB expects the seller will be treated as having delivered, and the buyer will be treated as having acquired, the Conversion Number of Ordinary Shares into which NAB Capital Notes 5 have been Converted as a result of the occurrence of the Loss Absorption Event.
  • NAB may make such decisions with respect to the identity of Holders whose NAB Capital Notes 5 will Convert on the Loss Absorption Event Conversion Date as may be necessary or desirable to ensure Conversion occurs in an orderly manner, including disregarding any transfers of NAB Capital Notes 5 that have not been settled or registered at that time.

NAB Capital Notes 5 | 40

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Number of Ordinary Shares Holders will receive on Loss Absorption Event Conversion Date

Summary

Further

information

Holders will receive the lesser of the Conversion Number and the Maximum

Clause 7.1 of

Conversion Number.

the Terms

The Conversion Number is calculated in accordance with the same formula as for

a Mandatory Conversion - see Section 2.3, except that:

  • TheVWAP Periodused to determine the VWAP in this case is the 5 Business Days on which trading in Ordinary Shares took place immediately preceding the Loss Absorption Event Conversion Date; and
  • TheRelevant Fractionis 0.2 rather than 0.5, as permitted by applicable prudential standards for Additional Tier 1 Capital.

The VWAP of Ordinary Shares at the time of a Loss Absorption Event may vary according to the severity of the Loss Absorption Event. This may impact the number and value of Ordinary Shares that will be received by a Holder under a Conversion following a Loss Absorption Event.

In addition, since the Mandatory Conversion Conditions do not apply to a Conversion following a Loss Absorption Event, the Ordinary Shares a Holder may receive on account of such a Conversion are likely to be worth significantly less than $101 per NAB Capital Note 5 and a Holder may lose a significant amount of the money they invested in NAB Capital Notes 5 as a consequence.

On a Conversion following a Loss Absorption Event, Holders will receive the lesser of:

  • The number (N) calculated according to the following formula:

N =

$100

99% x VWAP

and

  • The Maximum Conversion Number ("MCN"), calculated in accordance with the following formula:

MCN =

$100

Issue Date VWAP x Relevant Fraction

NAB Capital Notes 5 | 41

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Worked examples of Conversion following Loss Absorption Event

Summary

Further

information

Below are two worked examples of Conversion following a Loss Absorption Event using:

  • A VWAP of $1.00 (i.e. in extreme circumstances); and
  • A VWAP of $10.00 (i.e. in less severe circumstances).

Both examples assume an Issue Date VWAP of $18.00.

Using a VWAP of $1.00

Assume a Loss Absorption Event occurs, and that the VWAP in the VWAP Period is $1.00.

Holders would receive the lesser of: $100

N= 99% x $1.00 = 101.0101 Ordinary Shares per NAB Capital Note 5;

and

$100

the MCN= $18.00 x 0.2 = 27.7778 Ordinary Shares per NAB Capital Note 5.

Since the MCN is less than N, the total number of Ordinary Shares to which a holder of 100 NAB Capital Notes 5 would be entitled would be the MCN, that is 2,777 (i.e. 100 x 27.7778, rounded down to the nearest whole Ordinary Share).

The market value of the Ordinary Shares received based on the MCN and a prevailing market price equal to the VWAP of $1.00 is $2,777 (i.e. 2,777 x $1.00), which is considerably less than $10,000 (the Face Value of 100 NAB Capital Notes 5). Consequently, Holders would lose a significant amount of the money they invested in NAB Capital Notes 5.

Using a VWAP of $10.00

In this example, assume that the VWAP in the VWAP Period is $10.00.

"N" calculated according to the above formula would be 10.1010 and the MCN would again be 27.7778.

Since N is less than the MCN, the total number of Ordinary Shares to which a holder of 100 NAB Capital Notes 5 would be entitled would be N, that is 1,010 (i.e. 100 x 10.1010 rounded down to the nearest whole Ordinary Share).

The market value of the Ordinary Shares received in this case based on a prevailing market price equal to the VWAP of $10.00 would be $10,100 (i.e. 1,010 x $10.00), which is slightly more than $10,000 (the Face Value of 100 NAB Capital Notes 5).

The above examples are for illustrative purposes only. The figures in them are not forward looking statements and do not indicate, guarantee or forecast the Issue Date VWAP or future VWAP or other price of Ordinary Shares.

NAB Capital Notes 5 | 42

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Write Off of

NAB Capital Notes 5 where NAB Capital Notes 5 are not Converted on Loss Absorption Event Conversion Date

Summary

Further

information

If Conversion is required in respect of a NAB Capital Note 5 on account of a Loss

Clause 4.5 of

Absorption Event but has not been effected within 5 days of the Loss Absorption

the Terms

Event Conversion Date for any reason (including where NAB is prevented by

applicable law or court order or for any other reason from Converting NAB Capital

Notes 5 (broadly an "Inability Event")), those NAB Capital Notes 5 will not be

Converted but instead will be Written Off.

Broadly, Written Off means that the relevant Holders' rights (including to

payments of Distributions and Face Value) in relation to a NAB Capital Note 5 are

immediately and irrevocably terminated and written off with effect on and from

the Loss Absorption Event Conversion Date and the NAB Capital Note 5 will not be

Converted, Redeemed or Resold on any subsequent date.

The laws under which an Inability Event may arise include laws relating to the

ability of a person to acquire interests in an Australian corporation or financial

sector entity. The laws and other grounds on which an Inability Event may arise

may change and the change may be adverse to the interests of Holders.

The Banking Act gives statutory recognition to conversion and write off provisions in regulatory capital instruments such as NAB Capital Notes 5, subject to limited exceptions.

Notice of Loss

NAB must give Holders notice as soon as practicable following the occurrence of a

Clause 4.6 of

Absorption

Loss Absorption Event, stating the Loss Absorption Conversion Date, the number

the Terms

Event and

of NAB Capital Notes 5 Converted or Written Off and the relevant number of

resulting

Relevant Tier 1 Capital Instruments converted into Ordinary Shares or written off.

Conversion or

Write Off

NAB Capital Notes 5 | 43

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.8 Quotation, ranking and regulatory treatment

Topic

Summary

Further

information

Quotation

NAB has applied for NAB Capital Notes 5 to be quoted on ASX and NAB Capital

Clause 1.4 of

Notes 5 are expected to be quoted under code 'NABPH'.

the Terms

Ranking

NAB Capital Notes 5 are unsecured.

NAB Capital Notes 5 do not constitute Protected Accounts and are not deposit

liabilities for the purposes of the Banking Act or any other accounts with NAB

and are not guaranteed or insured by any government, government agency

or compensation scheme of the Commonwealth of Australia or any other

jurisdiction, by any member of the Group or by any other person.

Ranking in a winding up

In a winding up of NAB, NAB Capital Notes 5 rank in priority to Ordinary Shares,

equally amongst themselves and Equal Ranking Instruments, and junior to Senior

Creditors (which include depositors and holders of Tier 2 Capital Instruments).

This means that, on a winding up, there is a risk that Holders will lose all or some

of their investment. If NAB Capital Notes 5 have been Converted into Ordinary

Shares prior to a winding up of NAB, the Ordinary Shares received on Conversion

will rank equally with other Ordinary Shares and rank lower than they would have

had they still remained NAB Capital Notes 5. If NAB Capital Notes 5 are Written

Off, Holders will not have their capital repaid and will not be entitled to any return

in a winding up.

Ranking in relation to Distributions

In respect of payment of Distributions, NAB Capital Notes 5 rank in priority to

Ordinary Shares, equally amongst themselves and Equal Ranking Instruments, and

junior to Senior Creditors (which includes depositors and holders of Tier 2 Capital

Instruments). However, if NAB Capital Notes 5 have been Converted into Ordinary

Shares, Holders will cease to be entitled to any Distributions under the Terms and

any rights to any distributions will be as holders of Ordinary Shares. If NAB Capital

Notes 5 are Written Off, Holders will not be entitled to any Distributions under

the Terms or otherwise.

Holders should also understand that, as at the date of this Prospectus, NAB has

on issue National Income Securities (which include a preference share) and CPS II

(which take the form of convertible preference shares). National Income Securities

contain no provisions for conversion or write-off. Due to the requirements of the

law at the time the CPS II were issued, if CPS II are written off, the rights of holders

of CPS II are not terminated but are instead varied so as to give a holder rights

equivalent to the rights in respect of Ordinary Shares it would have received if

conversion had occurred. Accordingly, if NAB Capital Notes 5 are Written Off,

Holders will have lesser rights and will likely be worse off than holders of National

Income Securities and CPS II, even though the preference share component of

National Income Securities and CPS II rank equally with NAB Capital Notes 5.

Clause 16.5 of the Terms

Clause 1.6 of the Terms

Clause 16.2 of the Terms

Clause 16.1 of the Terms

NAB Capital Notes 5 | 44

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Regulatory capital of ADIs

Regulatory treatment of NAB Capital Notes 5

Summary

Further

information

  • APRA classifies the regulatory capital of AuthorisedDeposit-taking Institutions ("ADIs") into two tiers for its supervisory purposes - referred to as Tier 1 Capital and Tier 2 Capital. From the perspective of the ADI, Tier 1 Capital generally has better loss-absorbing qualities than Tier 2 Capital, due to features such as discretionary distributions, lower ranking in a winding up than Tier 2 Capital and being subject to conversion and write off in broader circumstances than Tier 2 Capital.
  • Under the Basel III Prudential Standards, Tier 1 Capital is comprised of:
    • Common Equity Tier 1 Capital; and
    • Additional Tier 1 Capital.
  • Common Equity Tier 1 Capital is recognised as the highest quality component of regulatory capital for ADIs. Common Equity Tier 1 Capital for ADIs (and theirnon-operating holding companies) comprises paid-up ordinary shares, retained earnings, other disclosed reserves permitted for inclusion by APRA and certain other items permitted by APRA, adjusted for regulatory adjustments applied in the calculation of Common Equity Tier 1 Capital.
  • Thenon-common equity components of Tier 1 Capital which do not satisfy all of the criteria for inclusion in Common Equity Tier 1 Capital are referred to as Additional Tier 1 Capital. These instruments must be able to absorb losses on a going-concern basis, and can include both instruments that are classified as equity and instruments that are classified as liabilities for accounting purposes.
  • APRA has provided confirmation that NAB Capital Notes 5, once issued, will qualify as Additional Tier 1 Capital for the purposes of NAB's regulatory capital requirements.
  • NAB Capital Notes 5 and NAB's other regulatory capital help to protect NAB's depositors and other creditors by providing a loss absorbing capital buffer which supports losses that may be incurred on NAB's assets.
  • The Banking Act gives statutory recognition to conversion and write off provisions in regulatory capital instruments such as NAB Capital Notes 5, subject to limited exceptions.

NAB Capital Notes 5 | 45

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

2.9 Other

Topic

NAB may issue further NAB Capital Notes 5 or other instruments

Voting rights

Amendment of Terms

Summary

NAB has the right to issue additional convertible notes on the same or different terms as NAB Capital Notes 5 offered under this Prospectus.

NAB also has the right to issue further debt, deposits or other obligations (including the incurring or guaranteeing by it of any indebtedness) or securities of any kind. These debt, deposits or other obligations or securities may have the same or different terms to NAB Capital Notes 5. For example, they may rank for payment of face value, interest or other amounts (including on an insolvency of NAB) equally with, ahead of or behind NAB Capital Notes 5. NAB Capital Notes 5 do not limit the amount of senior debt, deposits or other obligations or securities that may be incurred or issued by NAB at any time.

Holding NAB Capital Notes 5 does not confer any right to participate in further issues of securities by NAB.

A NAB Capital Note 5 does not entitle its Holder to vote at a general meeting of NAB.

Ordinary Shares issued on Conversion would have all the usual rights conferred by Ordinary Shares.

NAB may make certain amendments to the Terms and the NAB Capital Notes 5 Deed Poll without the approval of Holders if NAB is of the opinion that the amendment is:

  • of a formal, minor or technical nature;
  • made to cure any ambiguity or correct any manifest error;
  • to facilitate the listing, clearing or offering for sale of NAB Capital Notes 5;
  • necessary or expedient for the purposes of complying with applicable laws (including the provisions of any statute, requirements of any statutory authority or the listing or quotation requirements of securities exchanges);
  • necessary or appropriate to effect substitution of an Approved NOHC (as described below);
  • to dates or time periods stated, required or permitted in connection with any Conversion, Redemption or Resale;
  • to the Terms to align with the terms of any Relevant Tier 1 Capital Instruments issued after the Issue Date; or
  • not materially prejudicial to the interests of Holders as a whole.

NAB's right to make these changes is subject to NAB complying with all applicable laws, the amendment being, in NAB's opinion, not materially prejudicial to Holders as a whole, and APRA's prior written approval (where required).

NAB may also, with APRA's prior written approval (where required), amend the Terms or the NAB Capital Notes 5 Deed Poll if the amendment has been approved by a Special Resolution. An amendment that will be materially prejudicial to Holders requires approval by Special Resolution.

APRA's prior written approval to amend the Terms or the NAB Capital Notes 5 Deed Poll is required only where the amendment may affect the eligibility of NAB Capital Notes 5 as Additional Tier 1 Capital.

Further information

Clause 20 of the Terms

Clauses 7.9 and 17.3 of the Terms

Clause 18.1 of the Terms

Clause 18.2 of the Terms

Clause 18.4 of the Terms

NAB Capital Notes 5 | 46

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Notices

While NAB Capital Notes 5 are quoted on ASX, all notices by NAB to Holders may

Clause 21 of

be given by publication to ASX. The Terms also permit notices to be given by

the Terms

newspaper advertisement or by post. Notices to NAB and the Registrar may be

given by post.

Approved

An Approved NOHC is a non-operating holding company within the meaning of

Clauses 19

NOHC

the Banking Act ("NOHC"), which acquires NAB as a result of an event initiated

and 24.1 of

by the Directors, where the ordinary shares of the NOHC are listed on an

the Terms

internationally recognised stock exchange and the NOHC undertakes to:

• convert NAB Capital Notes 5 into ordinary shares in the Approved NOHC

whenever NAB would otherwise have been required to deliver Ordinary Shares

and upon the occurrence of an Acquisition Event with respect to the Approved

NOHC; and

• use all reasonable endeavours to procure quotation of all ordinary shares in its

capital issued on Conversion on the securities exchange on which its ordinary

shares are quoted at that time.

If a NOHC Event occurs, NAB may amend the Terms with APRA's prior written

approval (but without the consent of Holders) to enable the substitution of the

Approved NOHC as the issuer of ordinary shares on Conversion.

The occurrence of a NOHC Event does not allow NAB to elect to Convert, Redeem

or Resell NAB Capital Notes 5.

Holders do not have any right to vote on a NOHC Event. Where a NOHC Event is

accompanied by a transfer of assets from NAB to the Approved NOHC or another

subsidiary of the Approved NOHC, NAB may as a result have reduced assets to

meet the claims of its creditors (including Holders) and Shareholders.

Following the substitution of an Approved NOHC as issuer of the ordinary shares

on Conversion but prior to any Conversion, Holders continue to hold a note

issued by NAB which ranks for payment of distributions and in a winding up of

NAB as described in Section 2.8 and which is convertible into ordinary shares in

the Approved NOHC in the same circumstances in which it would have otherwise

been converted into Ordinary Shares in NAB.

There is no restriction on an Approved NOHC declaring or paying a dividend

on, or buying back or reducing capital on its ordinary shares if NAB does not

pay a Distribution on a NAB Capital Note 5. If NAB does not pay a Distribution,

NAB would remain subject to the restriction on it declaring or paying dividends

on Ordinary Shares or buying back or reducing capital on its Ordinary Shares as

described in Section 2.1.

NAB expects that the rights attaching to the Approved NOHC shares would be

substantially equivalent to the rights attaching to Ordinary Shares.

NAB Capital Notes 5 | 47

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Payments to

Subject to the Terms, payments will be made to the person shown as the Holder in

Clauses 14.1

bank accounts

the Register at the Relevant Time on the Record Date. In order to receive payment,

to 14.3 of the

a Holder will need to notify the Registrar by close of business on the Record Date

Terms

(or in any other manner NAB determines) of an Australian dollar bank account in

Australia to which payment should be made.

If the Holder does not so notify the Registrar, or the payment does not complete

for any reason, NAB will send a notice to the address most recently notified by the

Holder advising them of the uncompleted payment and the amount will be held

as a non-interest bearing deposit until such an account is nominated, claims may

no longer be made in respect of that amount or NAB is entitled or obliged to deal

with the amount in accordance with the laws relating to unclaimed monies.

Time limit on

Holders should be aware that a claim against NAB for a payment in respect of a

Clause 14.4

claims

NAB Capital Note 5 is void unless made within 5 years from the date on which the

of the Terms

payment first became due.

Determination

Except where there is fraud or a manifest error, any determination or calculation

Clause 14.5

and calculation

which NAB makes in accordance with the Terms (including with respect to the

of the Terms

final

calculation of payments under a NAB Capital Note 5) is final and binds NAB, the

Registrar and each Holder.

No set-off

A Holder does not have any right to set-off any amounts owing to it by NAB in

Clause 14.8

connection with NAB Capital Notes 5 against any amount owing by it to NAB in

of the Terms

connection with NAB Capital Notes 5 or otherwise.

NAB does not have any right to set-off any amounts owing to it by a Holder

against any amount owing by it to the Holder in connection with NAB Capital

Notes 5.

Power of

Each Holder agrees to appoint NAB, its Authorised Officers and any External

Clause 23(a)

attorney

Administrator of NAB (each an "Attorney") severally to be the attorney of the

of the Terms

Holder to sign all documents and transfers and do any other thing as may in the

Attorney's opinion be necessary or desirable to be done in order for the Holder

to observe or perform the Holder's obligations under the Terms including, but

not limited to, effecting any transfers of NAB Capital Notes 5, making any entry in

the Register or the register of any Ordinary Shares or exercising any voting power

in relation to any consent or approval required for Conversion, Redemption or

Resale.

NAB Capital Notes 5 | 48

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Issues to an Eligible Nominee

What is the NAB Capital Notes 5 Deed Poll?

Tax implications

Summary

Further

information

In certain circumstances NAB will issue the Ordinary Shares which a Holder is

Clause 7.12

obliged to accept on Conversion to an Eligible Nominee.

of the Terms

Ordinary Shares will be issued to an Eligible Nominee:

  • where the Holder does not wish to receive Ordinary Shares as a result of a Conversion and notifies NAB of this at any time on or after the Issue Date and no less than 15 Business Days prior to the Conversion Date;
  • where the Holder is a Foreign Holder, unless NAB is satisfied that the laws of the Foreign Holder's country of residence permit the issue of Ordinary Shares to the Foreign Holder, subject to certain conditions; or
  • to the extent that a FATCA Withholding is required to be made in respect of Ordinary Shares.

At the first reasonable opportunity to sell the Ordinary Shares, the Eligible Nominee will arrange for their sale and pay to the relevant Holder a cash amount equal to the proceeds of the sale (less brokerage and other costs). No guarantee is given in relation to the timing or price at which any sale will occur.

Neither NAB nor the Eligible Nominee has any duty to Holders in relation to the price at which Ordinary Shares are sold, nor any liability for any loss suffered by a Holder as a result of the sale of Ordinary Shares where required in the circumstances described above. NAB will treat you as a Foreign Holder if your address in the Register is a place outside of Australia or NAB otherwise believes you may not be a resident of Australia.

A trustee has not been appointed for NAB Capital Notes 5. Instead, NAB has made

NAB Capital

the NAB Capital Notes 5 Deed Poll in favour of each person who is from time

Notes 5

to time a Holder. The NAB Capital Notes 5 Deed Poll gives legal effect to NAB's

Deed Poll

obligations in the Terms.

Under the NAB Capital Notes 5 Deed Poll, NAB also undertakes to appoint the

Registrar and procure the Registrar to establish and maintain a principal Register.

The NAB Capital Notes 5 Deed Poll also includes provisions for meetings of

Holders.

Holders will be bound by the terms of the NAB Capital Notes 5 Deed Poll, the

Terms and this Prospectus when NAB Capital Notes 5 are issued or transferred to

them or they purchase NAB Capital Notes 5.

The Registrar will hold the original executed NAB Capital Notes 5 Deed Poll on

behalf of Holders. Each Holder can enforce NAB's obligations under the NAB

Capital Notes 5 Deed Poll, including the Terms and the provisions for meetings,

independently of the Registrar and each other.

A copy of the NAB Capital Notes 5 Deed Poll can be obtained from

nab.com.au/nabcapitalnotes5

Information about the Australian tax consequences of investing in NAB Capital

Section 8

Notes 5 is set out in Section 8.

The taxation implications of investing in NAB Capital Notes 5 will depend on an

investor's individual circumstances. Prospective investors should obtain their own

taxation advice.

NAB Capital Notes 5 | 49

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Topic

Summary

Further

information

Brokerage,

No brokerage or commission is, and no stamp duty should be, payable on

commission and

Applications for NAB Capital Notes 5. Holders may have to pay brokerage on any

stamp duty

subsequent transfer of NAB Capital Notes 5 on ASX after quotation.

2.10 Comparison of NAB Capital Notes 5 to other NAB instruments

Differences between term deposits, NAB Capital Notes 5 and other NAB instruments.

There are differences between NAB Capital Notes 5 and other investments in NAB, such as NAB's term deposits, NAB Subordinated Notes 2, National Income Securities, NAB Capital Notes 2, NAB Capital Notes 3 and Ordinary Shares. You should consider these differences in light of your investment objectives, financial situation and particular needs (including financial and taxation issues) before deciding whether to apply for NAB Capital Notes 5. The key differences are summarised in the table below. See Section 3.2 below for a comparison between NAB Capital Notes 5 and CPS II. This summary is not intended to be exhaustive.

Term deposit

NAB

National

NAB Capital Notes 2,

Ordinary

Subordinated

Income

NAB Capital Notes 3 and

Shares

Notes 2

Securities

NAB Capital Notes 5

Protection

Yes

No

No

No

No

under the

Financial

Claims Scheme 1

Term

Often between

11½ years 2

Perpetual 2

Perpetual 3

Perpetual

1 month and 5

(no maturity

years

date)

Margin

Varies from

2.20%

1.25%

NAB Capital Notes 2:

N/A

product to

4.95%

product

NAB Capital Notes 3:

4.00%

NAB Capital Notes 5:

3.50%

NAB Capital Notes 5 | 50

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Term deposit

NAB

National

NAB Capital Notes 2,

Ordinary

Subordinated

Income

NAB Capital Notes 3 and

Shares

Notes 2

Securities

NAB Capital Notes 5

Interest /

Fixed

Floating

Floating

Floating

Variable

distribution /

dividends as

dividend rate

determined

by Directors

Interest /

Often at the

Quarterly

Quarterly

Quarterly

Typically

distribution /

end of term or

twice yearly 4

dividend

per annum

payment dates

Rights if

N/A - interest

N/A - interest

N/A -

Distribution adjusted

None

interest /

payments are

payments are

distributions

to reflect applicable

distributions /

not franked

not franked

are not

franking rate

dividends not

currently

fully franked

franked 5

Conditions

None, subject

Subject to

Subject to

Subject to the discretion

to payment

to applicable

the "solvency

conditions

of the Directors, and also

of interest /

laws and

condition" 6

including the

only payable if a payment

distributions /

any specific

availability of

condition does not

dividends

conditions

distributable

exist on the distribution

profits

payment date

and other

Non-cumulative

prudential

regulatory

tests

Non-

cumulative

Dividend

No

No

Yes - applies

Yes - applies to Ordinary

restriction

to Ordinary

Shares only, until

if interest /

Shares and

the next distribution

dividend /

equally

payment date - see

distribution

ranking

Section 2.1 for

not paid

securities

NAB Capital Notes 5 7

until a year's

distribution

is paid

Subject to the discretion of the Directors and applicable laws and regulations

N/A

NAB Capital Notes 5 | 51

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

Term deposit

NAB

National

Subordinated

Income

Notes 2

Securities

Transferable

No

Yes - quoted

Yes - quoted

on ASX under

on ASX under

the code

the code

'NABPE'

'NABHA'

NAB Capital Notes 2,

NAB Capital Notes 3 and

NAB Capital Notes 5

Yes - NAB Capital Notes 2 are quoted on ASX under the code 'NABPD'

Yes - NAB Capital Notes 3 are quoted on ASX under the code 'NABPF'

Yes - NAB Capital Notes 5 are expected to be quoted on ASX under the code 'NABPH'

Ordinary

Shares

Yes - quoted on ASX under the code 'NAB'

Mandatory

No

No

No

Conversion into

Ordinary Shares

Yes 3

N/A

Issuer's early

No

No

No

Yes - with the prior

N/A

conversion

approval of APRA

option

- see Section 2.4 for

NAB Capital Notes 5

Issuer's early

No

Yes - with

Yes - with the

Yes - with the prior

No

redemption

the prior

prior written

written approval of APRA

option

written

approval of

- see Section 2.5 for NAB

approval of

APRA, at any

Capital Notes 5

APRA

time on 30

days' notice

Loss absorption

No

Yes

No

Yes - see Section 2.7 for

No

event 8

NAB Capital Notes 5

Capital

None

Tier 2

Additional

Additional Tier 1 Capital

Common

classification

Capital 9

Tier 1 Capital 9

Equity Tier 1

Capital

Voting rights

N/A

No right

No right

No right to vote at

Right to vote

to vote at

to vote at

general meetings of

at general

general

general

holders of Ordinary

meetings

meetings

meetings

Shares

of holders

of holders

of holders

of Ordinary

of Ordinary

of Ordinary

Shares

Shares

Shares, except

in certain

limited

circumstances

Ranking

See Table 2: Illustration of ranking on winding up on page 14

NAB Capital Notes 5 | 52

SECTION TWO:

ABOUT NAB CAPITAL NOTES 5

In a winding up of NAB, NAB Capital Notes 5 rank ahead of Ordinary Shares, equally amongst themselves and Equal Ranking Instruments (which include National Income Securities, CPS II, NAB Capital Notes 2 and NAB Capital Notes 3) and junior to Senior Creditors (which include depositors and holders of Tier 2 Capital Instruments). However, if a Loss Absorption Event occurs, NAB Capital Notes 5 are liable to be Converted into Ordinary Shares or, if Conversion does not occur for any reason within the required time, Written Off, with the effect that the rights of Holders to Distributions and returns of capital will be terminated. If NAB Capital Notes 5 are Written Off, Holders will likely be worse off than holders of National Income Securities, CPS II and Ordinary Shares, as further described in Sections 2.8 and 7.1.15.

  1. This is subject to a limit, currently fixed at $250,000 for the aggregate of the customer's accounts with an ADI that is declared under the Financial Claims Scheme.
  2. Subject to early redemption by NAB with the prior written approval of APRA.
  3. NAB Capital Notes 2, NAB Capital Notes 3 and NAB Capital Notes 5 are scheduled to convert into Ordinary Shares on 8 July 2024, 19 June 2028 and
    17 December 2029 respectively, and must also convert (subject to certain conditions) on the occurrence of certain acquisition events. NAB may also be required to convert NAB Capital Notes 2, NAB Capital Notes 3 and NAB Capital Notes 5 as a result of a loss absorption event. In addition, NAB Capital Notes 2, NAB Capital Notes 3 and NAB Capital Notes 5 may be converted, redeemed or resold with the prior written approval of APRA. NAB Capital Notes 2, NAB Capital Notes 3 and NAB Capital Notes 5 may also be written off in certain circumstances.
  4. There are no fixed dates for payment of ordinary dividends.
  5. The distributions on the National Income Securities are currently not able to be franked due to a provision in the tax law which applies specifically to instruments that qualify as Tier 1 capital for prudential purposes. When the National Income Securities no longer qualify as Tier 1 capital from
    31 December 2021, it is expected that any subsequent distributions will be franked to the same extent as dividends on Ordinary Shares are franked.
  6. The "solvency condition" is set out in clause 2.2 of the terms and conditions of the NAB Subordinated Notes 2 and provides that NAB's obligations to make payments in respect of the NAB Subordinated Notes 2 (including to pay interest and to repay the face value on maturity) are conditional on (1) NAB being able to pay its debts as they become due and payable, and (2) NAB's assets exceeding its liabilities. Any amount not paid under this condition remains a debt payable by NAB to the holder of a NAB Subordinated Note 2 and will be payable on the first date on which that condition is satisfied.
  7. No equivalent restriction applies if an Approved NOHC is substituted as issuer of ordinary shares on Conversion - see Section 2.9.
  8. If NAB is required to convert or write off Relevant Tier 1 Capital Instruments, Holders should be aware that all Relevant Tier 1 Capital Instruments such as NAB Capital Notes 5 will be converted or written off before any Tier 2 Capital Instruments are converted or written off - see Section 2.7.
  9. The NAB Subordinated Notes 2 have been classified as Tier 2 Capital under the Basel III Prudential Standards. The National Income Securities have been classified as Additional Tier 1 Capital under the Basel III Prudential Standards on a transitional basis until 31 December 2021.

NAB Capital Notes 5 | 53

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

NAB Capital Notes 5 | 54

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

3.1 Overview of the Reinvestment Offer

Topic

What are CPS II?

What is happening to

CPS II?

What is the Reinvestment Offer?

Am I eligible to participate in the Reinvestment Offer?

Summary

CPS II are fully paid convertible preference shares issued by NAB in 2013. CPS II trade on the ASX under the code 'NABPB'.

On 5 November 2020, NAB issued a redemption notice in accordance with the CPS II Terms. That notice confirms that on 17 December 2020 NAB will redeem all CPS II for the CPS II Redemption Price.

The CPS II form part of NAB's share capital and the CPS II Redemption will be conducted substantially by way of reduction of capital, with the balance by way of redemption upon which all CPS II will be cancelled. The redemption notice is irrevocable, except as provided by the CPS II Terms.

The CPS II Redemption may not occur for a number of reasons, including:

  • if a loss absorption event occurs under the CPS II Terms; or
  • if APRA revokes its approval of the CPS II Redemption.

If the CPS II Redemption does not occur, except where a loss absorption event occurs in respect of CPS II, CPS II Holders will continue to hold CPS II.

A final dividend is scheduled to be paid by NAB in respect of all CPS II on 17 December 2020, subject to the satisfaction of the dividend payment conditions in the CPS II Terms. If those conditions are satisfied, CPS II holders on the record date for the final dividend (7.00pm on 2 December 2020) (including Eligible CPS II Holders who participate in the Reinvestment Offer) will still receive a cash payment of $0.5829 per CPS II on 17 December 2020. If you have chosen to participate in the Reinvestment Offer, once your Application has been processed, a holding lock will be placed on the CPS II the subject of your Application and you will not be able to deal with those CPS II prior to redemption.

The Reinvestment Offer is an invitation to Eligible CPS II Holders to:

  • apply to NAB to have all or some of your CPS II reinvested in NAB Capital Notes 5; and
  • direct NAB to pay the aggregate CPS II Redemption Price for the CPS II the subject of their Application as the Application Monies for those NAB Capital Notes 5.

If you have chosen to participate in the Reinvestment Offer, once your Application has been processed, a holding lock will be placed on the CPS II the subject of your Application and you will not be able to deal with those CPS II prior to redemption.

Eligible CPS II Holders are not required to participate in the Reinvestment Offer and NAB does not guarantee to accept Applications under the Reinvestment Offer.

Eligible CPS II Holders who do not wish to participate in the Reinvestment Offer may still apply for NAB Capital Notes 5 as part of the Securityholder Offer if they wish.

There are important differences between CPS II and NAB Capital Notes 5 that Eligible CPS II Holders should consider before deciding whether to apply to participate in the Reinvestment Offer. See Section 3.2 for more information.

You are eligible to participate in the Reinvestment Offer if you:

  • were registered as a holder of CPS II at 7.00pm on 11 November 2020;
  • are shown on the CPS II register as having an address in Australia;
  • are not an individual residing in a member state of the European Union; and
  • are not in the United States, are not a U.S. Person, and are not acting (including as a nominee) for the account or benefit of, a U.S. Person, and are not otherwise prevented from receiving the Reinvestment Offer or NAB Capital Notes 5 under the laws of any jurisdiction.

NAB Capital Notes 5 | 55

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

Topic

Am I eligible to participate in the Reinvestment Offer? (continued)

What is the purpose of the Reinvestment Offer?

How do I apply to participate in the Reinvestment Offer?

Do I need to apply for a minimum number of NAB Capital Notes 5?

Can I sell my CPS II after I have completed and submitted my online Application Form?

Can I apply for additional NAB Capital Notes 5?

Can the Offer be scaled back?

Summary

To participate in the Reinvestment Offer, an Eligible CPS II Holder must also remain registered as a holder of CPS II on the Closing Date (expected to be 5.00pm on 11 December 2020).

The purpose of the Reinvestment Offer is to give Eligible CPS II Holders the opportunity to reinvest their CPS II in NAB Capital Notes 5 and maintain an ongoing investment in securities issued by NAB.

The funds raised through the Reinvestment Offer will be used for general corporate purposes.

See Section 3.3 and Section 4 for information on how to apply to participate in the Reinvestment Offer.

There is no minimum number of CPS II that you must hold to be able to participate in the Reinvestment Offer.

However, if you are an Eligible CPS II Holder, own 50 CPS II or fewer and wish to participate in the Reinvestment Offer, you can apply to participate in the Reinvestment Offer but you must apply to reinvest ALL of your CPS II in NAB Capital Notes 5.

If you are an Eligible CPS II Holder, own more than 50 CPS II and wish to participate in the Reinvestment Offer:

  • you must apply to reinvest at least 50 of your CPS II ($5,000) and thereafter in multiples of 10 CPS II ($1,000); or
  • you can apply to reinvest ALL of your CPS II.

NAB does not guarantee to accept all Applications under the Reinvestment Offer.

No - once your Application has been processed, a holding lock will be placed on the CPS II the subject of your Application and you will not be able to deal with those CPS II prior to redemption.

If on 17 December 2020 you hold fewer CPS II than the number you have elected to reinvest because you sold some of your CPS II, you will be taken to have applied for the number of NAB Capital Notes 5 equal to the number of CPS II you hold.

An Application to participate in the Reinvestment Offer is irrevocable once submitted but will only be effective so long as it is accepted and the Offer proceeds.

Eligible CPS II Holders may apply for more NAB Capital Notes 5 than the number of CPS II registered in their name at 7.00pm on 11 November 2020.

The minimum number of additional NAB Capital Notes 5 you can apply for is 50 NAB Capital Notes 5 ($5,000) and thereafter your Application must be in multiples of 10 NAB Capital Notes 5 ($1,000).

If there is excess demand for the Offer, Applications from CPS II Reinvestment Applicants and Securityholder Applicants may be scaled back. If this occurs, NAB's current intention is to give preference to CPS II Reinvestment Applicants over Securityholder Applicants, while still providing for a proportion of the available NAB Capital Notes 5 to be allocated to Securityholder Applicants.

See Section 4.4 for further information.

NAB Capital Notes 5 | 56

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

Topic

What are the tax implications of participating in the Reinvestment Offer and will any brokerage or stamp duty be payable?

Summary

A general outline of the taxation implications for certain Australian investors participating in the Offer (including through the Reinvestment Offer) can be found in the Australian Taxation Summary in Section 8.

No brokerage is, and no stamp duty should be, payable on the redemption of your CPS II, or your Application for NAB Capital Notes 5.

CPS II holders who choose to sell their CPS II on market through their broker may be required to pay applicable brokerage.

3.2 What are the key differences between NAB Capital Notes 5 and CPS II?

There are certain differences between NAB Capital Notes 5 and CPS II which you should be aware of before deciding whether to apply to participate in the Reinvestment Offer. The following table describes the key features of NAB Capital Notes 5 and CPS II and highlights the main differences between them. You should consider these differences in light of your investment objectives, financial situation and particular needs (including financial and taxation issues) before deciding whether to apply for NAB Capital Notes 5.

Topic

CPS II

Protected under

No

the Financial Claims

Scheme

Term

Perpetual 1

Form

Preference share

Margin

3.25%

Distribution rate

Floating2

Distribution payment

Quarterly

dates

Rights if distributions

Dividend adjusted to reflect applicable

not fully franked

franking rate

Conditions to payment

Subject to the discretion of the Directors,

of distribution

and also only payable if a payment

condition (as defined in the CPS II Terms)

does not exist on the dividend payment

date. Dividends are not cumulative

Dividend restriction if

Yes - applies to Ordinary Shares only, until

distribution not paid

the next dividend payment date

Transferable

Yes - quoted on ASX under the code

'NABPB'

NAB Capital Notes 5

No

Perpetual 1

Unsecured subordinated note

3.50%

Floating

Quarterly

Distribution adjusted to reflect applicable franking rate

Subject to the discretion of the Directors, and also only payable if a Payment Condition does not exist on the Distribution Payment Date. Distributions are not cumulative

Yes - applies to Ordinary Shares only, until the next Distribution Payment Date - see Section 2.13

Expected to be quoted on ASX under the code 'NABPH'

NAB Capital Notes 5 | 57

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

Topic

CPS II

NAB Capital Notes 5

Mandatory conversion

Yes 1

Yes 1

into ordinary shares

NAB's early conversion

Yes - with the prior approval of APRA

Yes - with the prior approval of APRA

option

- see section 2.4

NAB's early

Yes - with the prior approval of APRA

Yes - with the prior approval of APRA

redemption option

- see Section 2.5

Loss absorption event

Yes

Yes - see Section 2.74

Capital classification

Additional Tier 1 Capital

Additional Tier 1 Capital

Voting rights

No right to vote at general meetings of

No right to vote at general meetings of

holders of Ordinary Shares, except in

holders of Ordinary Shares

certain limited circumstances

  1. CPS II are scheduled to convert into Ordinary Shares on 19 December 2022 or in certain cases where NAB is acquired. NAB may also be required to convert CPS II as a result of a Loss Absorption Event (or write off CPS II if conversion does not occur). In addition CPS II may be converted, redeemed or resold with the prior written approval of APRA. NAB Capital Notes 5 are scheduled to Convert into Ordinary Shares on 17 December 2029, or on the occurrence of certain Acquisition Events. NAB may also be required to convert NAB Capital Notes 5 as a result of a Loss Absorption Event (or Write Off NAB Capital Notes 5 if Conversion does not occur). In addition, NAB Capital Notes 5 may be Converted, Redeemed or Resold with the prior written approval of APRA.
  2. Distributions on CPS II are dividends. A final dividend is scheduled to be paid on CPS II on 17 December 2020, subject to the satisfaction of the dividend payment conditions in the CPS II Terms.
  3. No equivalent restriction applies if an Approved NOHC is substituted as issuer of ordinary shares on Conversion - see Section 2.9.
  4. If NAB Capital Notes 5 are not Converted when required following a Loss Absorption Event, those NAB Capital Notes 5 are Written Off and all obligations are terminated. Due to the requirements of the law at the time CPS II were issued, if CPS II are written off, the rights of holders of CPS II are not terminated but are instead varied so as to give a holder rights equivalent to the rights in respect of Ordinary Shares it would have received if conversion had occurred. Accordingly, if NAB Capital Notes 5 are Written Off, Holders will have lesser rights and will likely be worse off than holders of CPS II.

NAB Capital Notes 5 | 58

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

3.3 What are the options available for Eligible CPS II Holders?

Option

Summary

Option 1 - Apply

• If you are an Eligible CPS II Holder, you may elect to apply to participate in the

online directly to NAB

Reinvestment Offer by completing the online Application Form and choosing Alternative A

or B below.

• The online Application Form must be received online by 5.00pm on the Closing Date

which is expected to be 11 December 2020. See Section 4 for further information on how

to make an Application.

• If you make an Application under the Reinvestment Offer, the aggregate CPS II

Redemption Price ($100 per CPS II) for the CPS II the subject of your Application will be

used as the Application Monies and you will not be required to pay any additional amount

in respect of your Application.

• If you participate in the Reinvestment Offer, you will still receive the final dividend of

$0.5829 per CPS II that is scheduled to be paid by NAB on 17 December 2020, subject to

the satisfaction of the dividend payment conditions in the CPS II Terms. That final dividend

cannot be reinvested in NAB Capital Notes 5.

Alternative A. Reinvest all of your CPS II in NAB Capital Notes 5

  • You may apply to reinvest ALL of the CPS II registered in your name at 7.00pm on 11 November 2020 in NAB Capital Notes 5.
  • To choose this alternative, you must indicate "Reinvest all my CPS II in NAB Capital Notes 5" on your online Application Form.
  • If you wish to participate in the Reinvestment Offer and own 50 CPS II or fewer, you must choose this alternative, and not Alternative B.

Alternative B. Reinvest some of your CPS II in NAB Capital Notes 5

  • You may apply to have only some of the CPS II registered in your name at 7.00pm on 11 November 2020 reinvested in NAB Capital Notes 5.
  • To choose this alternative, you must specify the number of CPS II you wish to be reinvested on your online Application Form.
  • You must apply to reinvest at least 50 CPS II ($5,000) and thereafter in multiples of 10 CPS II ($1,000).

Alternative C. Apply for NAB Capital Notes 5 under the Securityholder Offer

  • You may also apply for more NAB Capital Notes 5 than the number of CPS II registered in your name at 7.00pm on 11 November 2020. The application for additional NAB Capital Notes 5 will be made under the Securityholder Offer.
  • The minimum number of additional NAB Capital Notes 5 you can apply for is 50 NAB Capital Notes 5 ($5,000) and thereafter in multiples of 10 NAB Capital Notes 5 ($1,000).
  • To choose this alternative, you must specify the number of additional NAB Capital Notes 5 you wish to apply for under the Securityholder Offer on your online Application Form.
  • You are required to pay the Application Monies for any additional NAB Capital Notes 5 applied for under the Securityholder Offer. Application Monies must be paid by BPAY®8. Payments by cash or cheque will not be accepted for this Offer - see Section 4 for further details.
  • Eligible CPS II Holders who do not wish to participate in the Reinvestment Offer may still apply for NAB Capital Notes 5 as part of the Securityholder Offer.

8Registered to BPAY Pty Limited ABN 69 079 137 518.

NAB Capital Notes 5 | 59

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

Option

Option 2 - Apply through your Syndicate Broker

Option 3 - Sell your CPS II on market through your broker

Option 4 - Take no action - Your CPS II will be redeemed for $100 per CPS II on

17 December 2020

Summary

  • If you are an Eligible CPS II Holder and you are an Australian resident client of a Syndicate Broker, you may apply to participate in the Reinvestment Offer through your Syndicate Broker.
  • You may apply to reinvest all or some of the CPS II registered in your name at 7.00pm on
    11 November 2020 in NAB Capital Notes 5. If you do this, the aggregate CPS II Redemption Price ($100 per CPS II) for the CPS II the subject of your Application will be used as
    the Application Monies for your Application, and you will not be required to pay any additional amount in respect of your Application. You may also choose to apply for more NAB Capital Notes 5.
  • You should contact your Syndicate Broker for instructions on how to submit an Application Form and, if applicable, the Application Monies.
  • If you participate in the Reinvestment Offer, you will still receive the final dividend of $0.5829 per CPS II that is scheduled to be paid by NAB on 17 December 2020, subject to the satisfaction of the dividend payment conditions in the CPS II Terms. That final dividend cannot be reinvested in NAB Capital Notes 5.
  • Eligible CPS II Holders who do not wish to participate in the Reinvestment Offer may still apply for NAB Capital Notes 5 as part of the Securityholder Offer.
  • You may choose to sell your CPS II on market through your broker or otherwise at the prevailing market price in the usual course. The last day of trading in CPS II is expected to be 30 November 2020.
  • You will not receive the final dividend in respect of any CPS II that you sell before they cease trading.
  • The market price of CPS II is subject to change from time to time.Up-to-date information about the market price of CPS II can be obtained from asx.com.au(ASX code 'NABPB').
  • If you sell your CPS II on market, you may have to pay brokerage and may receive a price greater or less than the face value of $100 per CPS II.
  • Eligible CPS II Holdersare not requiredto participate in the Reinvestment Offer and as such are not required to take any action.
  • On 5 November 2020, NAB issued a redemption notice in accordance with the CPS II Terms. That notice confirms that NAB will redeem all CPS II on 17 December 2020 and you will receive the aggregate CPS II Redemption Price ($100 per CPS II) for the CPS II you hold on that date.
  • The CPS II form part of NAB's share capital and the CPS II Redemption will be conducted substantially by way of reduction of capital, with the balance by way of redemption upon which all CPS II will be cancelled.
  • You will also receive the final dividend of $0.5829 per CPS II that is scheduled to be paid on 17 December 2020, subject to the satisfaction of the dividend payment conditions in the CPS II Terms.

NAB Capital Notes 5 | 60

SECTION THREE:

ABOUT THE REINVESTMENT OFFER

3.4 What are the risks associated with participating in the Reinvestment Offer?

If you are an Eligible CPS II Holder and you apply under the Reinvestment Offer, you may receive an allocation of NAB Capital Notes 5. As such, you will be subject to the risks associated with an investment in NAB Capital Notes 5 and in NAB, many of which are outside the control of NAB and its Directors. These risks are outlined in Section 7 and should be considered before you apply under the Reinvestment Offer.

The Reinvestment Offer is not a simple rollover into a similar investment. NAB Capital Notes 5 and CPS II have different benefits and risks, which must be evaluated separately (see Section 3.2 for a comparison of the key features of NAB Capital Notes 5 and CPS II).

Additionally, instead of participating in the Reinvestment Offer, Eligible CPS II Holders may obtain a better financial outcome by selling their CPS II on market or receiving the aggregate CPS II Redemption Price for all of their CPS II in cash, and subsequently acquiring NAB Capital Notes 5 on market.

NAB Capital Notes 5 | 61

SECTION FOUR:

APPLYING FOR NAB CAPITAL NOTES 5

NAB Capital Notes 5 | 62

SECTION FOUR:

APPLYING FOR NAB CAPITAL NOTES 5

4.1 Who can apply for NAB Capital Notes 5?

Type of Offer

Who is eligible to

participate?

Reinvestment

You are eligible to apply

Offer

under the Reinvestment

Offer if you are an Eligible

CPS II Holder.

You are an Eligible CPS II

Holder if you:

• were registered as a

holder of CPS II at 7.00pm

on 11 November 2020;

• are shown on the CPS II

register as having an

address in Australia;

• are not an individual

residing in a member

state of the European

Union; and

• are not in the United

States, are not a U.S.

Person, and are not

acting (including as

a nominee) for the

account or benefit of, a

U.S. Person, and are not

otherwise prevented

from receiving the

Reinvestment Offer or

NAB Capital Notes 5

under the laws of any

jurisdiction.

To participate in the

Reinvestment Offer, an

Eligible CPS II Holder must

also remain registered

as a holder of CPS II

on the Closing Date

(expected to be 5.00pm on

11 December 2020).

NAB has sent a NAB Capital

Notes 5 brochure to each

Eligible CPS II Holder to

inform them of the Offer.

When to apply

Applications will only be accepted during the Offer Period, which opened on

24 November 2020.

Applications will not be accepted after the Closing Date, which is expected to be 5.00pm on 11 December 2020.

However, NAB and the JLMs may, in their absolute discretion, close the Offer early without notice, so if you wish to apply you are encouraged to do so as soon as possible.

How to apply

Eligible CPS II Holders applying directly to NAB must apply online by following the instructions at nab.com.au/nabcapitalnotes5.

To submit an online Application Form, you will need either:

  • your application number provided on the NAB Capital Notes 5 brochure that has been sent to you; or
  • your SRN or HIN.

Eligible CPS II Holders who are Australian resident clients of a Syndicate Broker should contact their Syndicate Broker for instructions on how to apply.

If you are only applying under the Reinvestment Offer, the aggregate CPS II Redemption Price for the CPS II the subject of your Application will be used as the Application Monies and you will not be required to pay any additional amount in respect of your Application.

Eligible CPS II Holders who do not wish to participate in the Reinvestment Offer may still apply for NAB Capital Notes 5 as part of the Securityholder Offer. If you apply for NAB Capital Notes 5 under the Securityholder Offer you will be required to pay Application Monies for those additional NAB Capital Notes 5. Application Monies must be paid by BPAY®.

Once you have submitted the online Application Form, follow the instructions in Section 4.2 to complete your BPAY® payment (if applicable).

Payments by cash or cheque will not be accepted for this Offer. If you do not make a BPAY® payment for those additional NAB Capital Notes 5, your Application will be incomplete and will not be accepted.

Your online Application Form and Application Monies (if you are applying under the Securityholder Offer) must be received by the Registry before the Closing Date, which is expected to be 5.00pm on 11 December 2020.

NAB Capital Notes 5 | 63

SECTION FOUR:

APPLYING FOR NAB CAPITAL NOTES 5

Type of Offer

Who is eligible to

participate?

Securityholder

You are eligible to apply

Offer

under the Securityholder

Offer if you are an Eligible

Securityholder.

You are an Eligible

Securityholder if you are

a registered holder of

Ordinary Shares,

National Income Securities,

NAB Subordinated Notes 2,

CPS II, NAB Capital

Notes 2 or NAB Capital

Notes 3 as at 7.00pm on

11 November 2020, with

a registered address in

Australia.

NAB has sent a NAB Capital

Notes 5 brochure to each

Eligible Securityholder to

inform them of the Offer.

When to apply

Applications will only be accepted during the Offer Period, which opened on

24 November 2020.

Applications will not be accepted after the Closing Date, which is expected to be 5.00pm on 11 December 2020.

However, NAB and the JLMs may, in their absolute discretion, close the Offer early without notice, so if you wish to apply you are encouraged to do so as soon as possible.

How to apply

Eligible Securityholders must apply online by following the instructions at nab.com.au/nabcapitalnotes5and completing a BPAY® payment. To access the online Application Form, you will need either:

  • your application number provided on the NAB Capital Notes 5 brochure that has been sent to you; or
  • your SRN or HIN.

Once you have submitted the online Application Form, follow the instructions in Section 4.2 to complete your BPAY® payment.

Payments by cash or cheque will not be accepted for this Offer. If you do not make a BPAY® payment, your Application will be incomplete and will not be accepted.

Your online Application Form and BPAY® payment must be received by the Registry before the Closing Date, which is expected to be 5.00pm on 11 December 2020.

Institutional

If you are an Institutional

Applications will only

Offer

Investor, you must apply to

be accepted during

participate by contacting

the Offer Period,

the Arranger. NAB

which opened on

reserves the right not to

24 November 2020.

accept Applications from

Applications will not

Institutional Investors

be accepted after the

where they have not been

Closing Date, which is

received through the

expected to be 5.00pm

Arranger.

on 11 December 2020.

NAB Capital Notes 5 | 64

SECTION FOUR:

APPLYING FOR NAB CAPITAL NOTES 5

Type of Offer

Who is eligible to participate?

When to apply

How to apply

Broker Firm

The Broker Firm Offer is

Applications will only be

If you are applying under the

Offer

available to clients of a

accepted during the Offer

Broker Firm Offer (including to

Syndicate Broker, including

Period, which opened on

reinvest your CPS II), you should

Eligible Securityholders and

24 November 2020.

contact the Syndicate Broker who

Eligible CPS II Holders, who

Applications will not

has offered you an allocation

are Australian resident retail

in the Broker Firm Offer for

be accepted after the

investors.

information about how and when

Closing Date, which is

to submit your Application.

expected to be 5.00pm on

11 December 2020.

Generally, your Application will

be submitted with the Syndicate

Broker.

4.2 How to pay

If you are an Applicant under the Securityholder Offer, you will be given a BPAY® biller code and unique customer reference number for your Application once you have completed your online Application Form.

Using these BPAY® details, you must:

  • access your participating BPAY® financial institution either through telephone or internet banking;
  • select to use BPAY® and follow the prompts;
  • enter the supplied biller code and unique customer reference number;
  • enter the total amount to be paid which corresponds to how many NAB Capital Notes 5 you wish to apply for under each Application;
  • select which account you would like your payment to come from;
  • schedule your payment to occur on the same day that you complete your online Application Form.
    Applications without payment will not be accepted; and
  • record and retain the receipt number and date paid.

Please note that your bank, credit union or building society may impose a limit on the amount which you can transact on BPAY® and payment cutoff times may vary between different financial institutions.

You must check with your financial institution about their BPAY® closing time, to ensure that your payment will be received prior to the Closing Date.

4.3 Application Monies and Refunds

All Application Monies received before NAB Capital Notes 5 are issued will be held by NAB on trust in an account established solely for the purposes of depositing Application Monies received. Any interest that accrues in that account will be retained by NAB. After NAB Capital Notes 5 are issued to successful Applicants, the Application Monies held on trust will be payable to NAB.

Where the number of NAB Capital Notes 5 allocated is less than the number applied for, or where no allocation is made, surplus Application Monies will be refunded (without interest) as soon as practicable following finalisation of the Offer.

If the Offer does not proceed for any reason, all Applicants will have their Application Monies refunded (without interest) as soon as practicable.

4.4 Allocation policy

4.4.1 Reinvestment Offer and Securityholder Offer

Allocations to CPS II Reinvestment Applicants and Securityholder Applicants will be determined by NAB.

Applications from CPS II Reinvestment Applicants and Securityholder Applicants may be scaled back if there is excess demand for the Offer. In the event of excess demand, NAB's current intention is to give preference to CPS II Reinvestment Applicants over the Securityholder Applicants while still providing for a proportion of the available NAB Capital Notes 5 to be allocated to Securityholder Applicants. How NAB scales back Applications will depend on the number of Applications from CPS II Reinvestment Applicants and Securityholder Applicants. In the event of excess demand, it is possible that the proportionate scale back applied to Securityholder Applicants will be greater than that applied to CPS II Reinvestment Applicants.

Any scale back and the basis of Allocation will be announced on 17 December 2020 on ASX.

NAB, at its discretion, reserves the right to:

  • allocate to any CPS II Reinvestment Applicant or Securityholder Applicant all NAB Capital Notes 5 for which they have applied;
  • reject any Application by a CPS II Reinvestment Applicant or a Securityholder Applicant; or
  • allocate to any CPS II Reinvestment Applicant or Securityholder Applicant a lesser number of NAB Capital Notes 5 than that applied for,

NAB Capital Notes 5 | 65

SECTION FOUR:

APPLYING FOR NAB CAPITAL NOTES 5

including less than the minimum Application of NAB Capital Notes 5 or none at all.

No assurance is given that any CPS II Reinvestment Applicant or Securityholder Applicant will receive an Allocation.

4.4.2 Broker Firm Offer and Institutional Offer

Allocations to Syndicate Brokers and Institutional Investors were determined by NAB following completion of the Bookbuild and reflected expected demand under the Reinvestment Offer.

Allocations to Broker Firm Applicants by a Syndicate Broker are at the discretion of that Syndicate Broker, and it is possible for Applications from Broker Firm Applicants to be scaled back by a Syndicate Broker. Priority is intended to be given to Broker Firm Applicants who apply to reinvest their CPS II over other Broker Firm Applicants. However, NAB takes no responsibility for any allocation, scale back or rejection that is decided by a Syndicate Broker.

4.5 ASX quotation and Holding Statements

NAB has applied for NAB Capital Notes 5 to be quoted on ASX. Quotation of NAB Capital Notes 5 is not guaranteed.

Trading of NAB Capital Notes 5 on a normal settlement basis is expected to commence on 18 December 2020.

NAB has applied for NAB Capital Notes 5 to participate in CHESS, and if accepted, no certificates will be issued. NAB expects that Holding Statements for issuer sponsored holders and confirmations for CHESS holders will be despatched to successful Applicants on 23 December 2020.

A Holder must determine their allocation before trading NAB Capital Notes 5 to avoid the risk of selling NAB Capital Notes 5 the Holder does not own.

4.6 Provision of bank account details for Distribution payments

Under the Terms, payments in respect of each NAB Capital Note 5 will be made on the due date for payment (or if that day is not a Business Day, then the following Business Day).

To receive payments, Holders must notify the Registrar of an Australian dollar bank account maintained in Australia. On the relevant payment date, NAB will directly credit the payment amount to the Australian financial institution account specified by the Holder.

If you have not notified an appropriate account by close of business on the Record Date, if any payments made to you are unsuccessful, then NAB will send a notice to the postal address or email address most recently notified by you advising of the unpaid amount. In that case, the unpaid amount will be held as a deposit in a non-interest bearing, special purpose account maintained by NAB or the Registry until the first to occur of the following:

  • you nominate a suitable Australian dollar account maintained in Australia;
  • claims may no longer be made in respect of that amount, in which case the monies shall be paid to and be the property of NAB; or
  • NAB is entitled or obliged to deal with the amount in accordance with the law relating to unclaimed monies.

No additional interest is payable in respect of any delay in payment.

NAB Capital Notes 5 | 66

SECTION FIVE:

OVERVIEW OF NAB

NAB Capital Notes 5 | 67

SECTION FIVE: OVERVIEW OF NAB

5.1 Overview

NAB is a public limited company, incorporated on 23 June 1893 in Australia, which is its main domicile. Its registered office address is Level 1, 800 Bourke Street, Docklands Victoria 3008, Australia.

The Group is a financial services organisation with more than 34,000 colleagues, operating through a network of more than 850 branches, with over 639,000 shareholders and serving approximately nine million customers.

The majority of the Group's financial services businesses operate in Australia and New Zealand, with branches located in Asia, the UK and the US.

In April 2020, the Group redesigned its operational structure to support the Group's refreshed strategy.

The structure reflects the Group's increased focus on digital and delivery by elevating UBank and Strategy & Innovation.

5.2 Our services

The Group operates the following divisions:

  • Business and Private Banking, which focuses on NAB's priority small and medium customer segments. This includes the leading NAB Business franchise, specialised Agriculture, Health, Government, Education and Community services, along with Private Banking and JBWere, as well as the micro and small business segments.
  • Personal Banking, which provides customers with products and services through proprietary networks in NAB, as well as third party and mortgage brokers. Customers are served through the Personal Banking network to secure home loans or manage personal finances through deposit, credit or personal loan facilities. The network also provides servicing support to individuals and business customers.
  • Corporate and Institutional Banking, which provides a range of products and services including client coverage, corporate finance, markets, asset servicing, transactional banking and enterprise payments. The division services its customers in Australia and globally, including through branches in the US, UK and Asia, with specialised industry relationships and product teams.
    It includes Bank of New Zealand's Markets Trading operations.
  • New Zealand Banking, which provides banking and financial services across customer segments in New Zealand. It consists of Partnership Banking, servicing consumer and SME segments; Corporate and Institutional Banking, servicing Corporate, Institutional, Agribusiness and Property customers, and includes Markets Sales operations in New Zealand. New Zealand Banking also includes the Wealth and Insurance franchises operating under the 'Bank of New Zealand' brand, but excludes Bank of New Zealand's Markets Trading operations.
  • Corporate Functions and Other business, which includes UBank and enabling units that support all businesses including Treasury, Technology and Enterprise Operations, Strategy and Innovation, Support Units and Eliminations.

5.3 Recent Developments

2020 Full Year Results

On 5 November 2020, NAB released its 2020 Full Year Results. A copy of that report and associated documents including the 2020 Full Year Results summary and investor presentation, as well as NAB's 2020 Annual Financial Report, can be obtained from asx.com.auand nab.com.au/shareholder

COVID-19 Pandemic

The COVID-19 pandemic continues to challenge the Group and its customers, with varied impacts across industries, communities and state borders. The COVID-19 pandemic contributed to the Group experiencing volatile markets, subdued credit demand, low interest rates, and signs of deteriorating asset quality. NAB continues to

work alongside state and federal governments, regulators and the broader industry to support customers and the community. Refer to the "Report of the Directors - Operating and Financial Review" in NAB's 2020 Annual Financial Report for more information in relation to the financial impacts of the COVID-19 pandemic on the Group.

For more information regarding the risks to the Group associated with the COVID-19 pandemic, see Section 7.2.

Accelerating NAB's Strategy

In September 2020, the Group completed the three year acceleration of its strategy announced

in November 2017, aimed at better positioning it for an environment of rapid and constant change. This involved an increase in investment spend, which was focused on improving customer experience with fewer, simpler products increasingly delivered via digital channels; enhancing efficiency with more streamlined and automated processes; developing a more responsive and resilient technology environment; and improving risk and compliance outcomes.

In April 2020, the Group announced a refresh of its long term strategy. The refresh builds on progress achieved over the past three years in reducing complexity, uplifting digital capability and establishing strong foundations in technology. It also recognises the need to go further to create a simpler, more streamlined business with clear accountability, which is more

NAB Capital Notes 5 | 68

SECTION FIVE: OVERVIEW OF NAB

productive, resilient and efficient. The Group exists to serve customers well and help its communities prosper. To achieve this, the Group has narrowed its focus on a smaller number of key priorities which it believes will make a real difference to its customers and colleagues, and support over time its aim to be known as:

  • Safe; protecting customers and colleagues through financial and operational resilience;
  • Easy; a simpler, more seamless and digitally enabled bank that gets things done faster;
  • Relationship-led;building on market- leading expertise, data and insights; and
  • Long term; delivering sustainable outcomes for stakeholders.

Wealth Management Update

On 31 August 2020, NAB entered into a Sale and Purchase Agreement to sell its advice, platforms, superannuation

  • investments and asset management businesses to IOOF Holdings Ltd ("IOOF") for a purchase price of $1,440 million (the "MLC Wealth Transaction"). Completion of the MLC Wealth Transaction is subject to a number of conditions, including regulatory approvals and availability of IOOF funding. For more information regarding the risks to the Group associated with the MLC Wealth Transaction, see Section 7.2.1.3.

NAB Capital Notes 5 | 69

SECTION SIX:

FINANCIAL INFORMATION

The summary financial information presented in this section has been extracted from the Group's 2020 Annual Financial Report.

The financial information presented in this section has been prepared in accordance with the measurement and recognition requirements of Australian Accounting Standards. It is presented in abbreviated form and does not contain all of the disclosures usually provided in an annual financial report prepared in accordance with the Corporations Act.

Copies of NAB's Annual Financial Reports, half-yearly reports, presentations and other documents lodged with ASX can be obtained from the Shareholder Centre at nab.com.au/shareholderand from asx.com.au

NAB Capital Notes 5 | 70

SECTION SIX:

FINANCIAL INFORMATION

6.1 Consolidated Income Statement

The following table sets out the Group's consolidated income statement for the years ended 30 September 2020 and 30 September 2019.

For the year ended 30 September(1)(2)

2020

2019

$m

$m

Interest income

Effective interest income

20,921

26,500

Fair value through profit or loss

2,190

2,694

Interest expense

(9,234)

(15,639)

Net interest income

13,877

13,555

Other income

3,384

3,980

Operating expenses

(9,346)

(8,263)

Credit impairment charge

(2,752)

(927)

Profit before income tax

5,163

8,345

Income tax expense

(1,665)

(2,440)

Net profit for the year from continuing operations

3,498

5,905

Net loss after tax for the year from discontinued operations

(935)

(1,104)

Net profit for the year

2,563

4,801

Profit attributable to non-controlling interests

4

3

Net profit attributable to owners of NAB

2,559

4,798

Earnings per share

cents

cents

Basic

82.1

168.6

Diluted

80.5

164.4

Basic from continuing operations

112.7

208.2

Diluted from continuing operations

108.6

201.0

  1. Information is presented on a continuing operations basis, unless otherwise stated. 2019 has been restated for the presentation of MLC Wealth as a discontinued operation.
  2. Current year amounts reflect the adoption of AASB 16 Leases on 1 October 2019. As permitted by AASB 16 comparative information has not been restated. For details on the adoption of AASB 16 refer to the 2020 Annual Financial Report.

6.2 Pro-forma Consolidated Balance Sheet

The following table sets out the Group's consolidated balance sheet as at 30 September 2020 (in the column headed 'Reported Group 30 September 2020'), and the pro-forma consolidated balance sheet assuming the Offer was completed at this date.

The column headed 'Group Pro-forma 30 September 2020' outlines the impact of:

  • $2 billion of NAB Capital Notes 5 being issued and external issue costs of $21 million being incurred; and
  • the capital reduction and redemption of $1,717 million CPS II by NAB under the CPS II Redemption.

The pro-forma consolidated balance sheet is unaudited and has been prepared in accordance with the basis of preparation outlined on page 70.

NAB Capital Notes 5 | 71

SECTION SIX:

FINANCIAL INFORMATION

As at 30 September

Reported Group

Pro-forma adjustment

Group Pro-forma

30 September 2020

related to the Offer

30 September 2020

$m (1)

$m

$m

Assets

Cash and liquid assets

64,388

262

64,650

Due from other banks

52,351

52,351

Trading instruments

95,851

95,851

Debt instruments

40,355

40,355

Other financial assets

3,860

3,860

Hedging derivatives

3,830

3,830

Loans and advances

582,485

582,485

Due from customers on acceptances

1,477

1,477

Deferred tax assets

3,647

3,647

Property, plant and equipment

2,374

2,374

Goodwill and other intangible assets

3,809

3,809

Other assets

10,659

10,659

Assets held for sale

1,479

1,479

Total assets

866,565

262

866,827

Liabilities

Due to other banks

50,556

50,556

Trading instruments

30,021

30,021

Other financial liabilities

29,971

29,971

Hedging derivatives

2,255

2,255

Deposits and other borrowings

546,176

546,176

Current tax liabilities

192

192

Provisions

3,820

3,820

Bonds, notes and subordinated debt

126,384

126,384

Other debt issues

6,191

262

6,453

Deferred tax liabilities

25

25

Other liabilities

9,460

9,460

Liabilities directly associated with assets held for sale

221

221

Total liabilities

805,272

262

805,534

Net assets

61,293

61,293

Equity

Contributed equity

45,476

45,476

Reserves

99

99

Retained profits

15,717

15,717

Total equity (parent entity interest)

61,292

61,292

Non-controlling interest in controlled entities

1

1

Total equity

61,293

61,293

(1)Amounts reflect the adoption of AASB 16 Leases on 1 October 2019. For details on the adoption of AASB 16 refer to the 2020 Annual Financial Report.

NAB Capital Notes 5 | 72

SECTION SIX:

FINANCIAL INFORMATION

6.3 Capital Management

6.3.1 Capital Adequacy Framework

APRA is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies, and most members of the superannuation industry.

The Prudential Standards aim to ensure that ADIs maintain adequate capital levels commensurate with the risks associated with their activities, with appropriate buffers to absorb unexpected losses.

To ensure that ADIs are adequately capitalised on both a standalone and group basis, APRA adopts a tiered approach to the measurement of an ADI's capital adequacy by assessing the ADI's financial strength at two levels:

  • Level 1 basis: the NAB Level 1 Group is NAB and a limited number of APRA approved subsidiaries; and
  • Level 2 basis: the NAB Level 2 Group is the consolidated banking group (i.e. the consolidated financial group less certain subsidiaries and associates excluded under APRA's Prudential Standards, principally the superannuation and funds management entities, insurance subsidiaries and certain securitisation special purpose vehicles).

APRA advises the Group of its prudential capital requirements which represent the minimum ratios of regulatory capital to total RWA.

"Common Equity Tier 1 Capital" comprises paid-up ordinary share capital, retained earnings plus certain other items recognised as capital. The ratio of such capital to RWA is called the "Common Equity Tier 1 Capital Ratio". "Additional Tier 1 Capital" comprises certain securities (such as NAB Capital Notes 5) with required loss absorbing characteristics. Together, Common Equity Tier 1 Capital and

Additional Tier 1 Capital make up "Tier 1 Capital" and the ratio of such capital to RWA is called the "Tier 1 Capital Ratio".

Common Equity Tier 1 Capital comprises the highest quality and most loss absorbent components of capital, followed by Additional Tier 1 Capital and then followed by Tier 2 Capital. Tier 2 Capital is of a lesser quality than Tier 1 Capital and mainly comprises subordinated instruments (such as NAB Subordinated Notes 2).

The sum of Tier 1 Capital and Tier 2 Capital is called "Total Capital". The ratio of Total Capital to RWA is called the "Total Capital Ratio".

APRA has provided confirmation that NAB Capital Notes 5, once issued, will qualify as Additional Tier 1 Capital for the purposes of the regulatory capital requirements that apply to NAB.

On 1 January 2013, APRA's Basel III Prudential Standards came into effect. The Basel III Prudential Standards give effect to the capital reform package released by the Basel Committee on Banking Supervision ("BCBS") aimed at raising the quality and quantity of capital in the global banking system.

Broadly, the key features of this framework include:

  • A minimum Common Equity Tier 1 Capital of at least 4.5% of RWA and Tier 1 Capital of at least 6.0% of RWA;
  • A capital conservation buffer ("CCB") of 2.5% of RWA required to be made up of Common Equity Tier 1 Capital that places restrictions on capital distributions if an ADI's capital level falls within the buffer range; and
  • A countercyclical capital buffer of between 0 and 2.5% of total RWA, which is calculated as the weighted average of the countercyclical capital buffers that are applied by the regulatory authorities in jurisdictions in which the ADI has private sector credit exposures. APRA determines the countercyclical capital buffer for the Australian jurisdiction at the appropriate level when excessive

credit growth and other indicators point to a system-widebuild-up of risk.

In December 2013, APRA released its framework in relation to domestic systemically important banks ("D-SIBs") in Australia. NAB has been identified as a D-SIB and as a result is subject

to a higher loss absorbency ("HLA") requirement of 1% of RWA.

As at the date of this Prospectus, APRA has set the countercyclical capital buffer for the Australian exposures of locally incorporated ADIs at 0%. However, APRA has flagged the likelihood of a non-zero countercyclical capital buffer in the future. The weighted average of the jurisdictional countercyclical capital buffers that are applied by the regulatory authorities in jurisdictions to which NAB has private sector credit exposures as at 30 September 2020 is 1 basis point, leading to an approximately 0% overall countercyclical capital buffer as at

30 September 2020.

The D-SIB HLA requirement and countercyclical capital buffer have been implemented through an extension of the capital conservation buffer, effective 1 January 2016. As at 30 September 2020, the capital conservation buffer inclusive of

the D-SIB HLA requirement and countercyclical capital buffer, was approximately 3.5% of RWA, resulting in a Common Equity Tier 1 Capital requirement inclusive of buffers of at least 8% of RWA.

Restrictions on the distribution of earnings, including payment of dividends, discretionary bonuses and Additional Tier 1 Capital distributions apply when capital ratios fall below at least 8% of RWA and into the capital conservation buffer as illustrated in the graph on the next page.

APRA may determine higher prudential capital requirements for an ADI and may change an ADI's prudential capital requirements at any time.

NAB Capital Notes 5 | 73

SECTION SIX:

FINANCIAL INFORMATION

Maximum

8.0%

distribution of

earnings

Quartile 4

< PCR

60%

+3.5%

Quartile 3

<PCR

40%

Distribution of

+2.625%

earnings are

3.5% Capital

increasingly restricted

Conservation Buffer

<PCR

further into the capital

Quartile 2

20%

conservation buffer

+1.75%

Quartile 1

<PCR

0%

+0.875%

Prudential Capital

Requirement (PCR)

4.5% minimum Common Equity Tier 1 Capital Ratio plus any additional amount required by APRA

6.3.2 Regulatory Capital Developments

'Unquestionably Strong' and Basel III Revisions

In December 2017, the BCBS finalised the Basel III capital framework. APRA subsequently commenced consultation on revisions to the domestic capital framework in February 2018 and reaffirmed its intention to strengthen capital requirements for major Australian banks by around 150 basis points, such that they are considered 'unquestionably strong'. APRA has temporarily suspended these requirements in response to the COVID-19 pandemic. In suspending these requirements, APRA has indicated that banks may need to utilise some of the current large capital buffers to facilitate ongoing lending to the economy.

APRA's consultation on revisions to the capital framework includes consideration of 'benchmarks for capital strength', 'risk sensitivity of the capital framework' and 'transparency, comparability and flexibility of the capital framework'. APRA has recently deferred the scheduled implementation of these prudential standards in Australia by one year to January 2023, consistent with the BCBS. The deferral supports ADIs in maintaining operations and supporting customers in response to the COVID-19 pandemic.

In October 2019, APRA proposed changes to the treatment of equity investments in subsidiaries (including Bank of

New Zealand) for the purpose of calculating Level 1 regulatory capital. Implementation has been delayed until January 2022.

RBNZ revisions to capital framework

In December 2019, the Reserve Bank of New Zealand ("RBNZ") announced its decision to require banks deemed systemically important in New Zealand (including BNZ) to hold Tier 1 Capital amounting to 16% of RWA. Due to significant uncertainties arising from the impacts of the COVID-19 pandemic, the RBNZ has delayed the start of the new capital requirements to

1 July 2022. It is expected that the changes will be phased in over a seven year period.

Increased Loss-absorbing Capacity for ADIs

In July 2019, APRA released its framework for the implementation of an Australian loss-absorbing capacity regime, requiring an increase in Total Capital of 3% of RWA for D-SIBs by 1 January 2024. APRA has maintained its overall target calibration of 4% to 5% of RWA, and will consult on methods for raising the additional loss-absorbing capacity equal to 1% to 2% of RWA over the next four years.

For more information regarding the risks associated with regulatory change, see Section 7.2.8.1.

NAB Capital Notes 5 | 74

SECTION SIX:

FINANCIAL INFORMATION

6.3.3 The Group's Capital Management Strategy

The Group's capital management strategy is focused on adequacy, efficiency and flexibility. The capital adequacy objective seeks to ensure sufficient capital is held in excess of internal risk-based capital assessments and regulatory requirements, and is within the Group's balance sheet risk appetite. This approach is consistent across the Group's subsidiaries.

6.3.4 NAB's Tier 1 Capital position

Figure 2 illustrates NAB's historical Tier 1 Capital position under APRA's Basel III Prudential Standards. The column labelled "Sep-20-pro-forma unaudited" illustrates the impact of the Offer and the CPS II Redemption, showing NAB's pro-forma Tier 1 Capital position as at 30 September 2020 assuming:

  • $2 billion of NAB Capital Notes 5 were issued and external issue costs of $21 million were incurred; and
  • the capital reduction and redemption of $1,717 million CPS II by NAB under the CPS II Redemption.

Figure 2: NAB Level 2 Group Tier 1 Capital Ratio

.% - .% - .% - .% - .% - .% - .% - .% - .% - .% - .% -

.%

.%

.%

.%

.%

.%

Sep-

Sep-

Sep-

Mar-

Sep-

Sep-pro-forma

unaudited

NAB Capital Notes 5 | 75

SECTION SIX:

FINANCIAL INFORMATION

6.3.5 NAB's Common Equity Tier 1 Ratio

The Terms contain a Common Equity Trigger Event as required under APRA's Basel III Prudential Standards for NAB Capital Notes 5 to be eligible for inclusion as Additional Tier 1 Capital.

A Common Equity Trigger Event occurs when the Common Equity Tier 1 Ratio of either or both of the NAB Level 1 Group or the NAB Level 2 Group is equal to or less than 5.125%. Upon the occurrence of a Common Equity Trigger Event, some or all NAB Capital Notes 5 will immediately Convert into a number of Ordinary Shares (or if they are not Converted within 5 days of the Common Equity Trigger Event, they will be Written Off).

The differences between NAB's Level 1 Group and Level 2 Group Common Equity Tier 1 Capital Ratios relates principally to the level of capital held by, and RWA of, BNZ and Wealth subsidiaries (excluding superannuation and funds management entities, insurance subsidiaries and certain securitisation special purpose vehicles).

NAB gives no assurance as to what its Common Equity Tier 1 Capital Ratio on a Level 1 Group or Level 2 Group basis will be at any time as it may be significantly impacted by unexpected events affecting its business, operations and financial condition.

The NAB Level 2 Group Common Equity Tier 1 Ratio was 11.47% as at 30 September 2020, and is approximately $27 billion9in excess of the Common Equity Tier 1 Ratio that would result in a Common Equity Trigger Event, being 5.125%.

Figure 3 illustrates NAB's historical Common Equity Tier 1 ratio based on APRA's Basel III Prudential Standards.

Figure 3: NAB Level 2 Group Common Equity Tier 1 Capital Ratio

.% -

.%

.%

.%

.%

.%

.% -

Surplus

common equity

.% -

above common

equity trigger

•• billion

.% -

Common

.% -

Equity Tier

trigger

(.%)

.% - .% -

Sep-•

Sep-

Sep--

Mar-

Sep-

9This dollar amount and the dollar amounts shown in Figure 3 are unaudited and indicative only as at 30 September 2020 and will vary with movements in NAB's earnings, NAB's RWA and other movements in NAB's capital. The restrictions in the prudential standards and in the Common Equity Trigger Event are expressed in terms of ratios and not fixed amounts of capital.

6.3.6 Potential impacts on NAB Capital Notes 5

If NAB's Level 2 Group Tier 1 Capital Ratio or Level 2 Group Common Equity Tier 1 Capital Ratio are too low, it may indicate that NAB may not be able to elect to Redeem NAB Capital Notes 5 or pay Distributions.

NAB Capital Notes 5 | 76

SECTION SIX:

FINANCIAL INFORMATION

6.4 Funding and liquidity

The Group maintains a strong capital, funding and liquidity position in line with its ongoing commitment to balance sheet strength.

6.4.1 Funding

The Group monitors the composition and stability of funding and liquidity through the Board approved risk appetite which includes compliance with regulatory requirements of APRA's Liquidity Coverage Ratio ("LCR") and Net Stable Funding Ratio ("NSFR").

LCR and NSFR are relevant measures in assessing balance sheet strength and if either of them is too low, it may indicate that NAB may not be able to elect to Redeem NAB Capital Notes 5 or pay Distributions. The Group continues to pursue opportunities to further enhance and diversify its liquid asset holdings and funding sources.

Compliance with the NSFR became effective on 1 January 2018 and establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of an ADI's assets and activities over a one-year horizon. At 30 September 2020 the Group's NSFR was 127%, above the regulatory minimum of 100%.

6.4.2 Liquidity

The Group maintains well diversified and high quality liquid asset portfolios to support regulatory and internal requirements in the various regions in which it operates. The market value of total on balance sheet marketable securities held at 30 September 2020 was $170 billion which excludes self- securitised assets. This represents

an increase of $40 billion from 30 September 2019.

Prudential Liquid assets averaged $199 billion over the September

2020 quarter (consisting of High Quality Liquid Assets ("HQLA") and Alternative Liquid Assets ("ALA") being Committed Liquidity Facility ("CLF")

assets, undrawn Term Funding Facility ("TFF") assets and RBNZ repo-eligible assets). The CLF is a facility provided by the Reserve Bank of Australia ("RBA") to commercial banks to assist them in meeting the Basel III liquidity requirements. The TFF is a collateralised facility introduced by the RBA in March 2020 to support ADIs in providing credit into the economy. The Group holds internal Residential Mortgage Backed Securities along with external central bank repo-eligible securities as sources of contingent liquidity and to support the CLF

and TFF.

The average Group LCR was 139% for the quarter ending 30 September 2020, above the regulatory minimum

of 100%.

6.5 Impact of the Offer

The proceeds of the Offer will be used by NAB for general corporate purposes. The Offer will not have a material impact on NAB's cash flow.

6.6 Further Information

NAB is a disclosing entity for the purposes of the Corporations Act and so is subject to periodic reporting obligations under the Corporations Act and the ASX Listing Rules, including an obligation to lodge half-yearly and annual financial reports with ASIC and ASX. The Corporations Act and the ASX Listing Rules also require NAB to disclose to the market matters which could be expected to have a material effect on the price or value of NAB's securities.

Copies of:

  • the 2020 Annual Financial Report; and
  • all documents lodged with the ASX since the date of the 2020 Annual Financial Report,

can be obtained from the Shareholder Centre at nab.com.au/shareholderand from asx.com.au

NAB Capital Notes 5 | 77

SECTION SEVEN:

KEY RISKS OF NAB CAPITAL NOTES 5

This section describes key potential risks that you should consider in deciding whether to invest in NAB Capital Notes 5, including risks that may affect NAB's business and financial performance.

The selection of risks has been based on an assessment of a combination of the probability of the risk occurring and the impact of the risk if it did occur. There is no guarantee or assurance that the importance of different risks will not change or that other risks will not emerge.

Before applying for NAB Capital Notes 5, you should consider whether NAB Capital Notes 5 are a suitable investment for you. There are risks associated with an investment in NAB Capital Notes 5 and in NAB, many of which are outside the control of NAB and its Directors. These risks include those referred to in this section and other matters referred to in this Prospectus.

NAB Capital Notes 5 | 78

SECTION SEVEN:

KEY RISKS OF NAB CAPITAL NOTES 5

7.1 Risks associated with investing in NAB Capital Notes 5

7.1.1 NAB Capital Notes 5 are not Protected Accounts under the Banking Act or any other accounts or deposit liabilities of NAB

NAB Capital Notes 5 are not deposit liabilities of NAB, are not Protected Accounts or any other accounts with NAB and are not insured or guaranteed by any government, government agency or compensation scheme of the Commonwealth of Australia or any other jurisdiction, by any member of the Group or by any other person.

7.1.2 Distributions may not be paid

There is a risk that Distributions will not be paid. The Terms do not oblige NAB to pay Distributions.

The payment of Distributions on NAB Capital Notes 5 is subject to the discretion of the Directors, which means they may not be paid. Failure to pay a Distribution when scheduled will not constitute an event of default.

Distributions are also only payable if a Payment Condition does not exist on the Distribution Payment Date.

The circumstances in which a Payment Condition will exist are described in Section 2.1. They include the cases where the payment of a Distribution will result in a breach of APRA's regulatory capital requirements as they apply to NAB, or will result in NAB becoming, or being likely to become, insolvent for the purposes of the Corporations Act, where APRA otherwise objects to the payment of a Distribution, or where NAB is not permitted to pay the Distribution under the Corporations Act.

The Terms contain no events of default and non-payment of a Distribution is not an event of default. A Holder:

  • has no right to apply for NAB to be wound up or placed in administration, or to cause a receiver

or a receiver and manager to be appointed in respect of NAB merely on the grounds that NAB does not or is or may become unable to pay a Distribution; and

  • has no right toset-off any amount owing to it by NAB in connection with NAB Capital Notes 5 against any amount owing by it to NAB or otherwise.

Distributions are non-cumulative, and therefore if a Distribution is not paid then NAB has no liability to pay that Distribution and Holders have no claim or entitlement in respect of such non- payment.

If a Distribution is not paid in full on a Distribution Payment Date, subject to certain exceptions, NAB cannot declare, determine to pay, or pay dividends on its Ordinary Shares or return capital (unless Holders approve the payment by Ordinary Resolution) until the next Distribution Payment Date. However, if the Distribution is paid in full within 3 Business Days of the Distribution Payment Date, this restriction will no longer apply.

Changes in regulations applicable to NAB may impose additional requirements which prevent NAB from paying Distributions in additional circumstances.

7.1.3 Changes in Distribution Rate

The Distribution Rate is calculated for each Distribution Period by reference to the Bank Bill Rate, which is influenced by a number of factors and varies over time. The Distribution Rate will go up or down over time as a result of movements in the Bank Bill Rate - see Section 2.1. As the Distribution Rate goes up or down, there is a risk that an investment in NAB Capital Notes 5 may become less attractive when compared to other investments issued by NAB or other entities. It is possible for the Bank Bill Rate to be negative. If this occurs, the negative amount will be taken into account in calculating the Distribution Rate. Even if the Distribution Rate is

calculated to be negative, there will be no obligation on Holders to pay NAB.

NAB does not guarantee any particular rate of return on NAB Capital Notes 5. Changes in the corporate tax rate will also affect the Distribution Rate. If the corporate tax rate were to change, the cash amount of Distributions and the amount of any franking credits will change.

7.1.4 Market price of NAB Capital Notes 5 and Ordinary Shares

The market price of NAB Capital Notes 5 may go up or down due to various factors, including investor perceptions, Australian and worldwide economic conditions, interest rates, movements in foreign exchange rates, impacts of regulatory change (including intervention by ASIC in the market for NAB Capital Notes 5 or similar securities), changes in the laws relating to the availability of franking, movements in the market price of Ordinary Shares or senior or subordinated debt, the availability

of better rates of return on other securities and factors that may affect NAB's financial performance and position. NAB Capital Notes 5 may trade at a market price below the Face Value.

In recent years, markets have become more volatile. The economic consequences of the COVID-19 pandemic have also given rise

to increased levels of volatility in financial markets. Volatility risk is the potential for fluctuations in the price of securities, sometimes markedly and over a short period. Investing in volatile conditions implies a greater level of volatility risk for investors than an investment in a more stable market.

You should carefully consider this additional volatility risk before deciding whether to make an investment in NAB Capital Notes 5.

The Ordinary Shares held as a result of any Conversion will, following Conversion, rank equally with existing Ordinary Shares. Accordingly, the

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ongoing value of any Ordinary Shares received upon Conversion will depend upon the market price of Ordinary Shares after the date on which

NAB Capital Notes 5 are Converted. The market price of Ordinary Shares is also subject to the factors outlined above and may also be volatile.

The market price of NAB Capital

Notes 5 (as well as the Ordinary Shares) may go up or down as a result of the information disclosed to the market by NAB in order to comply with its continuous disclosure requirements.

7.1.5 Liquidity

There may be no liquid market for NAB Capital Notes 5. Additionally, the market for NAB Capital Notes 5 may be less liquid than the market for Ordinary Shares or comparable securities issued by NAB or other entities.

The liquidity of the market for NAB Capital Notes 5 may be negatively impacted by a number of factors, including changes in law, including law relating to franking credits or other laws, or if pursuant to the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 ("DDO Legislation"), ASIC exercises its product intervention powers in relation to NAB Capital Notes 5 or comparable securities issued by NAB or other entities.

The DDO Legislation imposes design and distribution obligations on the issuers, providers and distributors of financial products and provides ASIC with a product intervention power (see Section 7.1.27 for further detail). The impact of these new obligations remains untested, however there is a risk that they may adversely impact the issue, distribution and reinvestment of financial products in the future, including instruments like NAB Capital Notes 5. These changes may also affect the liquidity of funding instruments (including hybrids such as NAB Capital Notes 5), if they lead to a material reduction in future issuance volumes or secondary trading activity by investors.

Holders who wish to sell their

NAB Capital Notes 5 may be unable to do so at an acceptable price, or at all, if insufficient liquidity exists in the market for NAB Capital Notes 5. NAB Capital Notes 5 are expected to Convert into Ordinary Shares on 17 December 2029 (subject to certain conditions being satisfied) unless NAB Capital Notes 5 are otherwise Converted, Written Off, Redeemed or Resold on or before that date. Where NAB Capital Notes 5 are Converted, there may be no liquid market for Ordinary Shares at the time of Conversion or the market for Ordinary Shares may be less liquid than that for comparable securities issued by other entities at the time of Conversion.

In addition, there is no guarantee that NAB Capital Notes 5 will remain continuously quoted on ASX. Trading of ASX listed securities may be suspended in certain circumstances.

7.1.6 The Ordinary Share price used to calculate the Conversion Number of Ordinary Shares may be different to the market price at the time of Conversion

Upon Conversion, Holders will receive approximately $101 worth of Ordinary Shares per NAB Capital Note 5 (based on the VWAP during a period, usually 20 Business Days, before the Mandatory Conversion Date or other date on which NAB Capital Notes 5 are Converted). The market price of Ordinary Shares may go up or down due to various factors.

For a Conversion following a Loss Absorption Event, depending on the market price of Ordinary Shares at the relevant time, Holders are likely to receive significantly less than $101 worth of Ordinary Shares per NAB Capital Note 5 and may lose a significant amount of the money they invested in NAB Capital Notes 5 as a consequence - see Sections 2.7 and 7.1.14.

The VWAP during the relevant period before the date of Conversion that is used to calculate the number

of Ordinary Shares that Holders receive may differ from the Ordinary Share price on or after the date of Conversion. As a result, the market value of Ordinary Shares received upon Conversion may be greater than or less than $101 per NAB Capital Note 5 when they are issued or at any time after that, and could be less than the Face Value. Holders receiving Ordinary Shares on Conversion may not be able to sell those Ordinary Shares at the price on which the Conversion calculation was based, or at all.

7.1.7 Franking of Distributions

NAB expects Distributions to be franked at the same rate as dividends paid on Ordinary Shares. The effect of Distributions being franked is to reduce the cash amount received by Holders on each Distribution Payment Date by an amount equal to the relevant level of franking.

If a Distribution payment is not fully franked, then the Distribution will be adjusted to reflect the applicable franking rate (see clause 2.5 of the Terms).

7.1.8 Use of franking credits by Holders

The value and availability of franking credits to a Holder will differ depending on the Holder's particular tax circumstances and applicable Australian tax laws. Holders should be aware that the potential value of any franking credits does not accrue at the same time as the receipt of any cash Distribution. Holders should also be aware that the ability to use the franking credits, either as an offset to a tax liability or by claiming a refund after the end of the income year, will depend on the individual tax position of each Holder and applicable Australian tax laws.

Holders should be aware that they will not receive any compensation or ''gross up'' if they are denied the benefit of franking credits on their Distributions for any reason, and should refer to the Australian Taxation Summary in

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Section 8 and the ATO class ruling (when published).

Investors should seek professional advice in relation to their tax position and monitor any changes on an ongoing basis.

7.1.9 NAB Capital Notes 5 are perpetual and Mandatory Conversion may not occur on the scheduled Mandatory Conversion Date or at all

NAB Capital Notes 5 are expected to Convert into Ordinary Shares on 17 December 2029 (subject to the NAB Capital Notes 5 being on issue at that date and certain conditions being satisfied).

However, there is a risk that Conversion will not occur because the Mandatory Conversion Conditions are not satisfied due to a large fall in the Ordinary Share price relative to the Issue Date VWAP, or where a Delisting Event applies. Depending on the market price of Ordinary Shares at the relevant time, Conversion may not occur. The Ordinary Share price may be affected by transactions affecting the share capital of NAB, such as rights issues, placements, returns of capital, certain buy-backs and other corporate actions. The Issue Date VWAP is adjusted

only for transactions by way of a reorganisation and pro rata bonus issues of Ordinary Shares as described in clauses 7.5 and 7.6 of the Terms and not for other transactions, including rights issues, placements, returns of capital, buy-backs or special dividends. The Terms do not limit the transactions which NAB may undertake with respect to its share capital and any such action may affect whether Conversion will occur and may adversely affect the position of Holders.

If Mandatory Conversion does not occur on the Scheduled Mandatory Conversion Date, Mandatory Conversion would then occur on the next Distribution Payment Date on which all of the Mandatory Conversion Conditions are satisfied (unless

NAB Capital Notes 5 are otherwise Converted, Written Off, Redeemed or Resold on or before that date). If Mandatory Conversion does not occur on a possible Mandatory Conversion Date and NAB Capital Notes 5 are not otherwise Converted, Written Off, Redeemed or Resold, Distributions may continue to be paid on NAB Capital Notes 5 (subject to the Directors resolving to pay a Distribution and no Payment Condition existing on the relevant Distribution Payment Date(s)).

NAB Capital Notes 5 are a perpetual instrument. If the Ordinary Share price deteriorates significantly and never recovers, it is possible that the Mandatory Conversion Conditions will never be satisfied. If this occurs, and unless NAB Capital Notes 5 are otherwise Converted, Redeemed or Resold (see further Sections 7.1.10 to

7.1.14 below), NAB Capital Notes 5 may remain on issue indefinitely.

7.1.10 Conversion on an Acquisition Event

NAB Capital Notes 5 are issued by NAB, which, as an ASX-listed company, may be affected by merger and acquisition activity, including the possibility

of being acquired by, or merged with, another company or group of companies, potentially resulting in a change of control.

Where this corporate activity constitutes an Acquisition Event, as defined in the Terms, subject to certain conditions, NAB must Convert all NAB Capital Notes 5 in accordance with clauses 5 and 7 of the Terms. Conversion may occur on dates not previously contemplated by Holders, which may be disadvantageous in light of market conditions or their individual circumstances and may not coincide with their individual preference in terms of timing. This also means that the period for which Holders will be entitled to the benefit of the rights attaching to NAB Capital Notes 5 (such as Distributions) is unknown.

Not all corporate activities that have the effect of a change of control of

NAB or its business operations will be an Acquisition Event. In particular, it would not be an Acquisition Event if APRA were to require the compulsory transfer of NAB's business or shareholding. Where the corporate activity is not an Acquisition Event, NAB is not obliged to Convert NAB Capital Notes 5. The outcomes for Holders arising from that action would be uncertain and Holders may suffer loss or face increased or different risks.

7.1.11 Conversion, Redemption or Resale at NAB's option

NAB may (subject to APRA's prior written approval) elect to Convert, Redeem or Resell some or all NAB Capital Notes 5 on 17 December 2027 or following the occurrence of a Tax Event or Regulatory Event. In addition, NAB may also Convert some or all NAB Capital Notes 5 on the occurrence of a Potential Acquisition Event.

Holders have no right to request or require a Conversion, Redemption or Resale of their NAB Capital Notes 5.

Any Conversion, Redemption or Resale at NAB's option may occur on dates not previously contemplated by Holders, which may be disadvantageous in light of market conditions or their individual circumstances and may not coincide with their individual preference in terms of timing. This also means that the period for which Holders will be entitled to the benefit of the rights attaching to NAB Capital Notes 5 (such as Distributions) is unknown.

The method of Conversion, Redemption or Resale chosen by NAB may be disadvantageous to Holders and may not coincide with their individual preference in terms of whether they receive Ordinary Shares or cash on the relevant date.

For example, if APRA approves an election by NAB to Redeem NAB Capital Notes 5, Holders will receive cash equal to $100 per NAB Capital Note 5 rather than Ordinary Shares. Accordingly, they will not benefit from any subsequent increases in the Ordinary Share price

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after the Redemption occurs. In addition, where Holders receive cash on Redemption, the rate of return at which they could reinvest their funds may be lower than the Distribution Rate at the time.

Upon any Resale, it will be a Nominated Purchaser's obligation to pay the Resale Price to the Holders. NAB does not guarantee the Nominated Purchaser will pay this amount and if it does not the Holders will continue to hold NAB Capital Notes 5.

Where Holders receive Ordinary Shares on Conversion, they will have the same rights as other holders of Ordinary Shares, which are different to the rights attaching to NAB Capital Notes 5.

7.1.12 Optional Conversion, Redemption and Resale subject to certain events occurring

If NAB elects to Convert (other than where it must Convert), Redeem or Resell NAB Capital Notes 5, APRA's prior written approval is required. Holders should not expect that APRA will give its approval to any Conversion, Redemption or Resale.

Optional Conversion

The optional Conversion of NAB Capital Notes 5 by NAB is also subject to the level of the Ordinary Share price on the second Business Day before the date on which NAB is to send a notice advising Holders that it wishes to Convert

NAB Capital Notes 5 (or if trading in Ordinary Shares did not occur on that date, the Business Day prior to that date on which trading in Ordinary Shares occurred). If the VWAP on that date

is less than or equal to 22.50% of the Issue Date VWAP (see Section 2.4), NAB is not permitted to elect to Convert NAB Capital Notes 5. Also, if a Delisting Event applies, NAB is not permitted to elect to Convert NAB Capital Notes 5.

In addition, Conversion on an Optional Conversion Date is subject to both the Second Mandatory Conversion Condition (applied as if it referred to 20.20% of the Issue Date VWAP) and no Delisting Event applying in respect

of the Optional Conversion Date as if the Optional Conversion Date were a possible Mandatory Conversion Date.

If the requirements for Conversion on the Optional Conversion Date are not satisfied, NAB will notify Holders and the Conversion will be deferred until the next Distribution Payment Date on which the Mandatory Conversion Conditions would be satisfied if that Distribution Payment Date were a possible Mandatory Conversion Date (with this condition applied as if the percentage of the Issue Date VWAP were 22.50% for the First Mandatory Conversion Condition and 20.20% for the Second Mandatory Conversion Condition).

Optional Redemption

The optional Redemption of

NAB Capital Notes 5 is subject to the condition that APRA is satisfied that either NAB Capital Notes 5 the subject of the Redemption are replaced concurrently or beforehand with a capital instrument of the same or better quality and the replacement of NAB Capital Notes 5 is done under conditions that are sustainable for NAB's income capacity, or that the capital position of the NAB Level 1 Group and the NAB Level 2 Group will remain adequate after NAB elects to Redeem NAB Capital Notes 5.

NAB is not permitted to elect to Redeem or Resell NAB Capital Notes 5 on account of an Acquisition Event or a Potential Acquisition Event.

7.1.13 Other events affecting Conversion

Other events and conditions may affect the ability of Holders to trade or dispose of the Ordinary Shares issued on Conversion (e.g. the willingness or ability of ASX to accept the Ordinary Shares issued on Conversion for quotation or any practical issues which affect that quotation, any disruption to the market for the Ordinary Shares or to capital markets generally, the availability of purchasers for Ordinary Shares and any costs or practicalities

associated with trading or disposing of Ordinary Shares at that time).

7.1.14 Conversion on account of a Loss Absorption Event

NAB must immediately Convert NAB Capital Notes 5 into Ordinary Shares if a Loss Absorption Event occurs. A Loss Absorption Event may occur at any time and on any day (whether or not the day is a Business Day). Accordingly, any such Conversion on account of a Loss Absorption Event may occur on dates not previously contemplated by Holders, which may be disadvantageous in light of market conditions or their individual circumstances and may not coincide with their individual preference in terms of timing.

A Loss Absorption Event is each of:

  • a Common Equity Trigger Event; and
  • aNon-Viability Trigger Event.

See Section 2.7 for a description of Common Equity Trigger Events and Non-Viability Trigger Events and Section 6.3 for a discussion of factors that influence NAB's Common Equity Tier 1 Ratio.

If a Loss Absorption Event occurs:

  • Conversion is not subject to the Mandatory Conversion Conditions being satisfied;
  • Conversion may occur automatically without the need for any further act or step by NAB. In that case, NAB will treat a Holder in respect of its NAB Capital Notes 5 as having been issued the Conversion Number of Ordinary Shares. NAB expects that any ASX trades in NAB Capital Notes 5 that have not settled on the date a Loss Absorption Event occurs will continue to settle in accordance with the normal ASX T+2 settlement, although NAB expects the seller will be treated as having delivered, and the buyer will be treated as having acquired, the Conversion Number of Ordinary Shares into which NAB Capital Notes 5 have been Converted as a

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result of the occurrence of the Loss Absorption Event;

  • NAB may also seek a trading halt to prevent further trading in NAB Capital Notes 5 on ASX, and if ASX permits, may refuse to register transfers of NAB Capital Notes 5 that have not settled - this may result in disruption or failures in trading or dealings in NAB Capital Notes 5 (which may cause a Holder to suffer loss);
  • Holders will not receive prior notice of Conversion or have any rights to vote or right of approval in respect of the Conversion; and
  • the Ordinary Shares issued on Conversion may not be quoted at the time of issue, or at all.

If a Loss Absorption Event were to occur, depending on how much Common Equity Tier 1 Capital NAB needs, NAB may be:

  • permitted by APRA to convert or write off only a proportion of NAB Capital Notes 5 and other Relevant Tier 1 Capital Instruments; or
  • required to either convert or write off all Relevant Tier 1 Capital Instruments (including NAB Capital Notes 5).

If NAB is required to convert or write off all Relevant Tier 1 Capital Instruments (such as NAB Capital Notes 5), Holders should be aware that all Relevant Tier 1 Capital Instruments will be converted or written off before any Relevant Tier 2 Capital Instruments are converted or written off. NAB has no obligation to maintain any Relevant Tier 1 Capital Instruments on issue and gives no assurance that it will do so.

All Relevant Tier 1 Capital Instruments must be converted or written off where the Loss Absorption Event is a Non-Viability Trigger Event involving a determination by APRA that a public sector injection of capital would be required.

APRA determinations in relation to Loss Absorption Events

Where NAB is permitted to convert or write off only a proportion of NAB Capital Notes 5 and other Relevant Tier 1 Capital Instruments following a Loss Absorption Event, NAB:

  • must endeavour to treat Holders on an approximately proportionate basis, but may discriminate to take account of the effect on marketable parcels of NAB Capital Notes 5 and other logistical considerations, provided that nothing in the making of the selection or the adjustments is to delay or impede the Conversion taking effect; and
  • where Relevant Tier 1 Capital Instruments are not all in the same currency, NAB may treat them as if converted into a single currency of NAB's choice at such rate of exchange as NAB considers reasonable (but may make adjustments among Holders and holders of other Relevant Tier 1 Capital Instruments having regard to the need to effect conversion immediately).

Accordingly, should a Loss Absorption Event occur, and NAB is permitted to Convert only some and not all NAB Capital Notes 5, not all Holders may have their NAB Capital Notes 5 Converted into Ordinary Shares.

In relation to Common Equity Trigger Events, see Section 6.3 for information on NAB's current level of Common Equity Tier 1 Capital. NAB's level of Common Equity Tier 1 Capital may be affected by risks associated with its business and its ability to raise and maintain levels of capital which are outside its control.

In relation to Non-Viability Trigger Events, APRA has not provided specific guidance as to how it would determine non-viability. However, APRA has indicated that non- viability is likely to arise prior to the insolvency of an ADI. Non-viability could be expected to include serious impairment of NAB's financial position and insolvency; however, it is possible that APRA's definition of non-viable

may not necessarily be confined to solvency or capital measures and APRA's position on these matters may change over time. Non-viability may be significantly impacted by a number of factors, including factors which affect the business, operation and financial condition of NAB. For instance, systemic and non-systemic macroeconomic, environmental and operational factors, domestically or globally, may affect the viability of NAB.

Conversion following a Loss

Absorption Event

The number of Ordinary Shares that a NAB Capital Note 5 Holder will receive on Conversion following a Loss Absorption Event is calculated in accordance with the Conversion Number formula which provides for a calculation based on a discounted

5 Business Day VWAP but cannot be more than the Maximum Conversion Number. Accordingly, this is likely to result in a Holder receiving significantly less than $101 worth of Ordinary Shares per NAB Capital Note 5 and losing a significant amount of the money they invested in NAB Capital Notes 5 as a result.

This is because:

  • the number of Ordinary Shares is limited to the Maximum Conversion Number and this number of Ordinary Shares is likely to have a value of significantly less than $101;
  • the number of shares is calculated by reference to the price of Ordinary Shares on the 5 Business Days before the Loss Absorption Event Conversion Date which may differ from the Ordinary Share price on or after that date. The Ordinary Shares may not be listed or may not be able to be sold at prices representing their value based on the VWAP.
    In particular, VWAP prices will be based wholly or partly on trading days which occurred before the Loss Absorption Event; and
  • as noted in Section 2.3, the Maximum Conversion Number may be adjusted to reflect a consolidation, division or

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reclassification of Ordinary Shares and pro rata bonus issues. However, no adjustment will be made to it on account of other transactions which may affect the price of Ordinary Shares, including for example rights issues, returns of capital, buy-backs or special dividends. The Terms do not limit the transactions that NAB may undertake with respect to its share capital and any such action may increase the risk that the Maximum Conversion Number is triggered if NAB Capital Notes 5 are Converted.

Failure to Convert

If Conversion is required in respect of a NAB Capital Note 5 on account of a Loss Absorption Event but has not been effected within 5 days of the Loss Absorption Event Conversion Date for any reason (including an Inability Event), NAB Capital Notes 5 which would otherwise be Converted, will not be Converted and will instead be Written Off.

If a Write Off occurs in respect of a NAB Capital Note 5, the rights of the Holder to Distributions and returns of capital will be terminated, the NAB Capital Note 5 that is Written Off will not be Converted, Redeemed or Resold on any subsequent date and the Holder will not have their capital repaid. Holders will suffer loss as a result.

The laws under which an Inability Event may arise include laws relating to the ability of a person to acquire interests in an Australian corporation or financial sector entity. The laws and other grounds on which an Inability Event may arise may change and the change may be adverse to the interests of Holders.

The Banking Act gives statutory recognition to conversion and write off provisions in regulatory capital instruments such as NAB Capital Notes 5, subject to limited exceptions.

7.1.15 Restrictions on rights and ranking in a winding up of NAB

NAB Capital Notes 5 are issued by NAB under the NAB Capital Notes 5

Deed Poll. A Holder has no claim on NAB in respect of NAB Capital Notes 5 except as provided in the Terms and the NAB Capital Notes 5 Deed Poll. NAB Capital Notes 5 are unsecured and subordinated. In the event of a winding up of NAB, and assuming NAB Capital Notes 5 have not been Converted, Redeemed or Resold and are not required to be Written Off due to a Loss Absorption Event, investors will be entitled to claim for the Face Value ($100 for each NAB Capital Note 5) after payment of all claims ranking senior to NAB Capital Notes 5.

Claims ranking senior to NAB Capital Notes 5 are claims of holders of senior ranking securities and instruments (including Tier 2 Capital Instruments) and all other creditors (including depositors and certain subordinated creditors whose claims do not rank equally with NAB Capital Notes 5). Accordingly, NAB's obligations under NAB Capital Notes 5 will not be satisfied unless it can satisfy in full all of its other obligations ranking senior to NAB Capital Notes 5. Further, where NAB Capital Notes 5 are Converted, and NAB is wound up, Holders will rank equally and have the claims

of holders of Ordinary Shares. The Maximum Conversion Number is likely to be different from the maximum conversion number of other Relevant Tier 1 Capital Instruments. Accordingly, the number of Ordinary Shares received on Conversion of NAB Capital Notes 5 may be more or less than the number received by holders of other Relevant Tier 1 Capital Instruments.

Where NAB Capital Notes 5 are required to be Converted on account of a Loss Absorption Event but Conversion has not been effected within 5

days of the Loss Absorption Event Conversion Date and, accordingly, NAB Capital Notes 5 have been Written Off (as described in Section

2.7 and clause 4.5 of the Terms), the relevant Holders' rights (including to Distributions and Face Value) in relation to such NAB Capital Notes 5 will be immediately terminated and Written Off (with effect from the Loss

Absorption Event Conversion Date). The Holder's investment will lose all of its value and the Holder will not receive any Ordinary Shares or other compensation.

If, on a winding up of NAB, there are insufficient funds to pay all amounts ranking senior to and equally with NAB Capital Notes 5, Holders will not receive all or some of the Face Value.

Although NAB Capital Notes 5 may pay a higher rate of distribution than comparable securities and instruments which are not subordinated, there is a significant risk that a Holder will lose all or some of their investment should NAB become insolvent.

Holders should also understand that, as at the date of this Prospectus, NAB has on issue National Income Securities (which include a preference share) and CPS II (which take the form of convertible preference shares). National Income Securities contain no provisions for conversion or write-off. Due to the requirements of the law at the time the CPS II were issued, if CPS II are written off, the rights of holders of CPS II

are not terminated but are instead varied so as to give a holder rights equivalent to the rights in respect of Ordinary Shares it would have received if conversion had occurred. Accordingly, if NAB Capital Notes 5 are written off, Holders will have lesser rights and will likely be worse off than holders of National Income Securities and CPS II even though the preference share component of National Income Securities and CPS II rank equally with NAB Capital Notes 5.

7.1.16 Future issues or redemptions of securities by NAB

NAB Capital Notes 5 do not in any way restrict NAB from issuing further securities or from incurring further indebtedness. NAB may in the future issue securities (including further Tier 1 Capital Securities) that:

  • Rank for distributions or payments of capital (including on the winding up of NAB) equal with, behind or ahead of NAB Capital Notes 5;

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  • Have the same or different dividend, interest or distribution rates as those for NAB Capital Notes 5;
  • Have payment tests and distribution restrictions or other covenants which affect NAB Capital Notes 5 (including by restricting circumstances in which Distributions can be paid or NAB Capital Notes 5 can be Redeemed or Resold); or
  • Have the same or different terms and conditions as NAB Capital Notes 5.

An investment in NAB Capital Notes 5 carries no right to participate in any future issue of securities (whether equity, Tier 1 Capital, subordinated or senior debt or otherwise) by NAB.

No prediction can be made as to the effect (if any) that the future issue of securities by NAB may have on the market price or liquidity of NAB Capital Notes 5 or as to the likelihood of NAB making payments on NAB Capital Notes 5. Similarly, NAB Capital Notes 5 do not restrict any member of the Group from redeeming, buying back or undertaking a reduction of capital or otherwise repaying its other securities (whether existing securities or which may be issued in the future). However, NAB may be restricted from declaring or paying a dividend, buying back or reducing capital on Ordinary Shares in certain circumstances (see clause 2.8 of the Terms).

An investment in NAB Capital Notes 5 carries no right to be redeemed or otherwise repaid at the same time as NAB redeems, or otherwise repays, holders of other securities (whether equity, Tier 1 Capital, subordinated or senior debt or otherwise).

7.1.17 Exposure to the Group's financial performance and position

If the Group's financial performance or position declines, or if market participants anticipate that it may decline, an investment in NAB Capital Notes 5 may decline in value. Accordingly, when you evaluate whether to invest in NAB Capital

Notes 5 you should carefully evaluate the investment risks associated with an investment in NAB - see Section 7.2.

7.1.18 The restriction on Ordinary Share dividend payments applies in limited circumstances

The restriction on dividend payments where Distributions on NAB Capital Notes 5 are not paid only applies in respect of Ordinary Shares and not distributions in respect of any other securities, including those ranking equally with or senior to NAB Capital Notes 5.

Accordingly, a failure to make a scheduled payment on NAB Capital Notes 5 may not restrict the making of payments in respect of instruments that may in the future rank equally with NAB Capital Notes 5.

Further, the restriction in NAB Capital Notes 5 only applies until the next Distribution Payment Date and is subject to certain exceptions. The dates for distribution with respect to Ordinary Shares are determined by NAB in its discretion and do not bear a fixed relationship to the Distribution Payment Dates for NAB Capital Notes 5. Accordingly, as soon as the restriction ceases to apply (as will be the case if the next scheduled Distribution on NAB Capital Notes 5 is paid) NAB will not be restricted from paying a dividend on its Ordinary Shares.

7.1.19 Changes to credit ratings

NAB's cost of funds, margins, access to capital markets and competitive position and other aspects of its performance may be affected by its credit ratings (including any long-term credit ratings or the ratings assigned to any class of its securities). Credit rating agencies may withdraw, revise or suspend credit ratings or change the methodology by which securities are rated. Such changes may adversely affect the market price, liquidity and performance of NAB Capital Notes 5 or Ordinary Shares received on Conversion.

7.1.20 Regulatory classification

APRA has provided confirmation that NAB Capital Notes 5 qualify as Additional Tier 1 Capital under the Basel III Prudential Standards. However, if NAB subsequently determines that, as a result of a Regulatory Change, some or all NAB Capital Notes 5 are not or will not qualify in that category of regulatory capital (and NAB did not expect this prior to the Issue Date), NAB may decide that a Regulatory Event has occurred. This will allow NAB to Convert, Redeem or Resell all or some NAB Capital Notes 5 (subject to certain conditions, including APRA's prior written approval) at NAB's discretion.

7.1.21 Australian tax

consequences

A general outline of the tax consequences of investing in NAB Capital Notes 5 for certain potential investors who are Australian residents for tax purposes is set out in the Australian Taxation Summary in Section

8. This discussion is in general terms and is not intended to provide specific advice addressing the circumstances of any particular potential investor.

Accordingly, potential investors should seek independent advice concerning their own individual tax position.

Broadly, NAB is entitled to Convert, Redeem or Resell all or some NAB Capital Notes 5 (subject to certain conditions, including APRA's prior written approval), if as a result of a change in law or administrative practice on or after the Issue Date in Australia (which NAB did not expect at the time of issue of NAB Capital Notes 5), there is a more than insubstantial risk that a Distribution would not be frankable (or would only be frankable subject to requirements which the Directors determine in their absolute discretion to be unacceptable) or that NAB would be exposed to an increase in taxes or other costs, which is not insignificant, in relation to NAB Capital Notes 5. See the description of a Tax Event in Section 2.4 for more information.

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In relation to laws affecting Holders' entitlement to franking benefits, please see Section 7.1.8 for more information.

7.1.22 Shareholding limits and Eligible Nominee sales

The Financial Sector (Shareholdings) Act 1998 (Cth) restricts ownership by people (together with their associates) of an Australian bank, such as NAB, to a 20% stake. A Shareholder may apply to the Australian Treasurer to extend their ownership beyond 20%, but approval will not be granted unless the Treasurer is satisfied that a holding by that person greater than 20% is in the national interest.

Mergers, acquisitions and divestments of Australian public companies listed on the ASX (such as NAB) are regulated by detailed and comprehensive legislation and the rules and regulations of

the ASX. These provisions include restrictions on the acquisition and sale of relevant interests in certain shares in an Australian listed company under the Corporations Act and a requirement that acquisitions of certain interests in Australian listed companies by foreign interests are subject to review and approval by the Treasurer. In addition, Australian law also regulates acquisitions which would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

Holders should take care to ensure that by acquiring any NAB Capital Notes 5 (taking into account any Ordinary Shares into which they may Convert), Holders do not breach any applicable restrictions on ownership.

Holders who do not wish to receive Ordinary Shares on Conversion may notify NAB of this no less than 15 Business Days prior to the Conversion Date. In addition, if you are a Foreign Holder, you will not receive Ordinary Shares on Conversion (unless NAB is satisfied that it may issue them to you). NAB will treat you as a Foreign Holder if your address

in the Register is a place outside of Australia or NAB otherwise believes

you may not be a resident of Australia. If you are not to receive Ordinary Shares, the relevant number of Ordinary Shares will be issued to an Eligible Nominee (which must not be NAB or a Related Entity to NAB), on terms that the Eligible Nominee will sell the Ordinary Shares at the first reasonable opportunity and pay the proceeds of any sale to you (less brokerage and other costs, including charges to the Eligible Nominee). No guarantee is given in relation to the timing or price at which any sale will occur. Neither NAB nor the Eligible Nominee has any duty to Holders in relation to the price at which Ordinary Shares are sold, nor any liability for any loss suffered by a Holder as a result of the sale of Ordinary Shares where required in the circumstances described above. Further, if a FATCA Withholding is required to be made in respect of Ordinary Shares to be issued on Conversion, NAB will only issue those Ordinary Shares to the Holder to the extent (if at all) that the issue of Ordinary Shares is net of FATCA Withholding. To the extent that a FATCA Withholding is required, NAB will issue the Ordinary Shares to an Eligible Nominee who will sell those Ordinary Shares on the basis outlined above and will deal with the proceeds of sale in accordance with FATCA.

See Section 7.1.26 for an explanation of circumstances in which a FATCA Withholding may be required.

7.1.23 NOHC Event

As described in Section 7.1.10, certain merger and acquisition activity in relation to NAB will constitute an Acquisition Event, as defined in the Terms. In this case, subject to certain conditions, NAB is required to Convert all NAB Capital Notes 5 in accordance with clauses 5 and 7 of the Terms.

However, certain events which would otherwise constitute Acquisition Events are categorised under the Terms as NOHC Events. Where a NOHC Event occurs and certain other conditions are satisfied, the NOHC Event will not trigger a Conversion of NAB Capital

Notes 5. Instead, NAB will be permitted to make certain amendments to

the Terms in order to substitute the Approved NOHC as the issuer of the ordinary shares issued on Conversion (subject to APRA's prior written approval).

Accordingly, potential investors should be aware that, if a NOHC Event occurs and a substitution of the issuer of the ordinary shares on Conversion is effected under the Terms, Holders will be obliged to accept the Approved NOHC ordinary shares and will not receive Ordinary Shares on Conversion. Potential investors should also be aware that Holders may not have

a right to vote on any proposal to approve, implement or give effect to a NOHC Event.

At this time, NAB has made no decision to implement a NOHC structure.

In the event that a NOHC Event were to occur, NAB would continue to be regulated by APRA. However, depending on the structure of the acquirer following a NOHC Event and the capital framework which APRA determines to apply to it, the composition of NAB's capital measurement levels may be affected, which in turn may affect NAB's ability to pay Distributions on NAB Capital Notes 5.

After a NOHC Event Holders will remain note holders in NAB with the same rights to distributions and to payment in a winding up of NAB as before

the NOHC Event, but on Conversion Holders will receive ordinary shares in the Approved NOHC and not Ordinary Shares in NAB. NAB Capital Notes 5 should remain quoted on ASX, but Ordinary Shares will cease to be quoted.

Where a NOHC Event is accompanied by a transfer of assets from NAB or a subsidiary to the Approved NOHC or another subsidiary of the Approved NOHC, NAB may as a result have reduced assets which may affect its credit rating and the likelihood Holders will receive their claims in full if NAB is wound up. Holders do not have any

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claim on the assets of the Approved NOHC or any other subsidiary of the Approved NOHC other than following Conversion as a holder of ordinary shares in the Approved NOHC.

Where an Approved NOHC is substituted as the issuer of ordinary shares on Conversion, there is no restriction on the Approved NOHC declaring or paying a dividend on or, buying back or reducing capital on its ordinary shares if NAB does not pay a Distribution on a NAB Capital Note 5 (see Section 7.1.23).

7.1.24 Relevant provisions of the Banking Act, powers of a statutory manager and APRA secrecy rules

In certain circumstances APRA may appoint a statutory manager (a Banking Act statutory manager) to take control of the business of an ADI, such as NAB. Those circumstances are set out in the Banking Act and include (but are not limited to):

  • where the ADI becomes unable to meet its obligations or suspends payment;
  • where the ADI informs APRA that it is likely to become unable to meet its obligations, or is about to suspend payment;
  • where APRA considers that, in the absence of external support:
    • the ADI may become unable to meet its obligations;
    • the ADI may suspend payment;
    • it is likely that the ADI will be unable to carry on banking business in Australia consistently with the interests of its depositors;
    • it is likely that the ADI will be unable to carry on banking business in Australia consistently with the stability of the financial system in Australia; or
  • where, in certain circumstances, the ADI is in default of compliance with a direction by APRA to comply with the Banking Act or regulations made under it and the Federal Court authorises APRA to assume

control of, and to carry on, the ADI's business.

The powers of a Banking Act statutory manager include the power to alter an ADI's constitution, to issue, cancel or sell shares (or rights to acquire shares) in the ADI and to vary or cancel rights or restrictions attached to shares in a class of shares in the ADI. A Banking Act statutory manager is authorised to do so despite the Corporations Act, the ADI's constitution, any contract or arrangement to which the ADI is party or the ASX Listing Rules. The Banking Act statutory manager may also dispose of the whole or part of an ADI's business. In the event that a Banking Act statutory manager is appointed to NAB in the future, these broad powers of a Banking Act statutory manager may be exercised in a way which adversely affects the rights attaching to NAB Capital Notes 5 and the position of Holders.

APRA may, in certain circumstances, require NAB to transfer all or part of its business, or NAB's shareholders to transfer their shareholdings, to another entity under the Financial Sector (Transfer and Restructure) Act 1999 (Cth) ("FSTR Act").

A transfer under the FSTR Act overrides anything in any contract or agreement to which NAB is party and thus may have an adverse effect on NAB's ability to comply with its obligations under NAB Capital Notes 5 and the position of Holders.

In addition, Holders should be aware that secrecy obligations may apply to action taken by APRA. This means that information about action taken by APRA (including in exercise of its powers under the Banking Act) may not be publicly disclosed.

7.1.25 Amendment of Terms

NAB may, with APRA's prior written approval where required, amend the Terms and the NAB Capital Notes 5 Deed Poll without the approval of Holders. The amendments include those necessary or expedient to dates

and time periods to facilitate any Conversion, Redemption or Resale or any change which NAB considers will not be materially prejudicial to the interests of Holders as a whole. See Section 2.9 and clause 18.1 of the Terms for a more detailed list of the types of amendments NAB may make to the Terms without the approval of Holders. NAB may also, with APRA's prior written approval where required, amend the Terms if the amendment has been approved by a Special Resolution of Holders. Amendments under these powers are binding on all Holders despite the fact that a Holder may not agree with the amendment. APRA's prior written approval to amend the Terms is required only where the amendment may affect the eligibility of NAB Capital Notes 5 as Additional Tier 1 Capital. The Holders may not by any resolution take any action which affects the eligibility of NAB Capital Notes 5 as Additional Tier 1 Capital without APRA's prior written approval.

7.1.26 Holders may be subject to FATCA withholding and information reporting

It is possible that, in order to comply with FATCA, NAB (or if NAB Capital Notes 5 are held through another financial institution, such other financial institution) may be required (pursuant to an agreement with the US Internal Revenue Service ("IRS") or under applicable law) to request certain information from Holders or beneficial owners of NAB Capital Notes 5, which information may be provided to the IRS, and to withhold US tax on some portion of payments made after the implementation date of the relevant U.S. regulations with respect to NAB Capital Notes 5 if such information is not provided or if payments are made to certain foreign financial institutions that have not entered into a similar agreement with the IRS (and are not otherwise required to comply with the FATCA regime under applicable laws or are otherwise exempt from complying with

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the requirement to enter into a FATCA agreement with the IRS). If NAB or any other person is required to withhold amounts under or in connection with FATCA from any payments made in respect of NAB Capital Notes 5, Holders and beneficial owners of NAB Capital Notes 5 will not be entitled to receive any gross up or additional amounts to compensate them for such withholding. This description

is based on guidance issued to date by the IRS, including recently issued regulations. Future guidance may affect the application of FATCA to NAB Capital Notes 5.

7.1.27 Design and distribution obligations

On 5 April 2019, the DDO Legislation was enacted. The DDO Legislation imposes additional obligations on NAB regarding the design and distribution of certain financial products offered to retail investors (including hybrid securities), and grants product intervention powers to ASIC if it believes significant consumer detriment may occur. The DDO Legislation is supplemented by the Corporations Amendment (Design and Distribution Obligations) Regulations 2019 ("DDO Regulations"), which were enacted

in December 2019.

The design and distribution obligations under the DDO Legislation are scheduled to come into force in October 2021 and therefore do not apply to the Offer. The design and distribution obligations in the DDO Legislation are also limited to issuances of securities requiring a regulated disclosure document, which means that even if the obligations become effective while NAB Capital Notes 5 are on issue, they will not apply to secondary market trading of NAB Capital Notes 5.

The DDO Legislation gives ASIC a significant, proactive power to issue a product intervention order if it believes that a financial product has resulted in or will, or is likely to, result in significant detriment to retail investors.

It is uncertain whether ASIC would perceive there to be any significant consumer detriment in relation to NAB Capital Notes 5 or similar securities. The DDO Legislation requires ASIC

to undertake a consultation process before it makes a product intervention order.

In December 2019, ASIC released draft regulatory guidance in respect of the design and distribution obligations and opened consultation on its proposed guidance. The consultation process closed in March 2020 and the final form of the regulatory guidance is expected to be released in the course of 2020.

As noted at section 7.1.5, the impact of these new obligations remains untested, however there is a risk that they may adversely impact the issue, distribution and reinvestment of financial products in the future, including instruments like NAB Capital Notes 5. These changes may also affect the liquidity of funding instruments (including hybrids such as NAB Capital Notes 5), if they lead to a material reduction in future issuance volumes or secondary trading activity by investors.

7.2 Risks specific to the Group

Set out below are the principal risks and uncertainties associated with NAB and the Group. It is not possible to determine the likelihood of these risks occurring with any certainty. However, the risk in each category that NAB considers most material is listed first, based on the information available at the date of this Prospectus and NAB's best assessment of the likelihood

of each risk occurring and the potential magnitude of the negative impact to the Group should such risk materialise. In the event that one or more of these risks materialise, the Group's reputation, strategy, business, operations, financial condition and future performance could be materially and adversely impacted.

The Group's Risk Management Framework and internal controls may not be adequate or effective in

accurately identifying, evaluating or addressing risks faced by the Group. There may be other risks that are currently unknown or are deemed immaterial, but which may subsequently become known or material. These may individually, or in aggregate, adversely impact the Group. Accordingly, no assurances or guarantees of future performance, profitability, distributions or returns of capital are given by the Group.

7.2.1 Strategic Risk

Strategic risk is the risk associated with the pursuit of the Group's strategic objectives, including the risk that

the Group fails to execute its chosen strategy effectively or in a timely manner.

7.2.1.1 Strategic initiatives may fail to be executed, may not deliver all anticipated benefits and may change the Group's risk profile.

The Group's corporate strategy sets its purpose, ambition and objectives.

The Group prioritises, and invests significant resources in, the execution of initiatives that are aligned to

its chosen strategy, including transformation and change programs. These programs focus on technology, digital and data assets, infrastructure, business improvement and cultural transformation. There is a risk that these programs may not realise some or all of their anticipated benefits. These programs may also increase operational, compliance and other risks, and new or existing risks may not be appropriately controlled. Any failure by the Group to deliver in accordance with its strategy or to deliver these strategic programs effectively, may result in material losses to the Group, or a failure to achieve anticipated benefits, and ultimately, may materially and adversely impact the Group's operations and financial performance and position.

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7.2.1.2 The Group faces intense competition.

There is substantial competition across the markets in which the Group operates. The Group faces competition from established financial services providers as well as new market entrants, including foreign banks and non-bank competitors with lower costs and new operating and business models. In addition, evolving industry trends, rapid technology changes and environmental factors (such as COVID-19) may impact customer needs and preferences and the Group may not predict these changes accurately or quickly enough, or have the resources and flexibility to adapt in sufficient time to meet customer expectations and keep pace with competitors. This risk is heightened in the current context where the Group must prioritise responses to new regulation, identified weaknesses and initiatives to support customers through the COVID-19 pandemic.

The Australian Federal Government (the "Australian Government") passed legislation in August 2019 to establish a 'Consumer Data Right' which seeks to improve consumers' ability to compare and switch between products and services. The Consumer Data Right is being introduced in the banking sector in phases. It began to apply to credit and debit cards, deposit accounts and transaction accounts on 1 July 2020.

It will expand to a wider range of products, including mortgages and personal loan data, from 1 November 2020. These reforms (referred to as 'Open Banking') are expected to reduce the barriers to new entrants into, and increase competition in, the banking industry in Australia. Progress is also being made towards Open Banking

in New Zealand, which, similarly, is expected to increase competition in the New Zealand banking industry.

Ongoing competition for customers can lead to compression in profit margins and loss of market share, which may ultimately impact the Group's financial performance and

position, profitability and returns to investors.

7.2.1.3 The Group's sale of its advice, platforms, superannuation & investments and asset management businesses is conditional and there are risks in executing the sale.

As announced on 31 August 2020, the Group has agreed to sell its advice, platforms, superannuation & investments and asset management businesses to IOOF. Completion of the MLC Wealth Transaction is subject to a number of conditions, including regulatory approvals and availability of IOOF funding. If these conditions are not met, the transaction may not complete and the business will remain with the Group. Timing of completion will depend on a number of factors, including receipt of regulatory approvals and execution of business separation activities.

The Group will incur costs associated with completing the MLC Wealth Transaction. If the MLC Wealth Transaction does not complete for any reason, including a failure to satisfy conditions, the Group will still incur costs that it is unable to recover and such failure may adversely affect the Group's reputation, operations and financial results.

NAB has provided IOOF with indemnities relating to certain pre- completion matters, including a remediation program relating to workplace superannuation, breaches of anti-money laundering laws and regulations, regulatory fines and penalties and certain litigation and regulatory investigations. NAB also provided covenants and warranties in favour of IOOF. A breach or triggering of these contractual protections may result in NAB being liable to IOOF.

NAB will retain the companies that operate the advice business, such that the Group will retain all liabilities associated with the conduct of that business pre-completion. The advice

business is proposed to be transferred by way of an asset sale, with aligned advisors being offered to transfer to IOOF from completion. There is a risk that not all advisors will transfer to IOOF, and NAB will be liable for the costs of exiting any non-transferring advisors.

From completion, NAB has agreed to provide IOOF with certain transitional services and continuing access to records, as well as support for data migration activities. There is a risk that costs associated with separation activities and the costs incurred by NAB in satisfying its obligations under these agreements may be higher than anticipated. NAB may also be liable to IOOF if it fails to perform its obligations under these agreements. If these costs are higher than expected, or if NAB fails to perform its obligations

in accordance with the relevant agreements, there may be an adverse impact on the Group's financial performance and position.

On completion, the MLC Wealth Transaction will result in the Group exiting a financial services market and accordingly will decrease the size of the Group's operations. This will have a consequential impact on the Group's revenues and potentially its profitability and returns to investors.

The agreed purchase price that IOOF has agreed to pay comprises A$1,240 million in cash proceeds and A$200 million in the form of a five-year structured subordinated note. Under the terms of the note, the Group's ability to collect the A$200 million due thereunder will be subject to credit risks associated with IOOF, the issuer of the note, and the related subordination terms of the note and there is no guarantee that the Group receives the consideration due thereunder.

In addition, the MLC Wealth Transaction, and the execution of its separation, may create risks and uncertainty for the Group and its customers, aligned advisers, employees, suppliers and other counterparties.

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7.2.1.4 Risks may arise from pursuing acquisitions and divestments.

The Group regularly considers a range of corporate opportunities, including acquisitions, divestments, joint ventures and investments.

Pursuit of corporate opportunities inherently involves transaction risks, including the risk that the Group over- values an acquisition or investment or under-values a divestment, as well as exposure to reputational damage. The Group may encounter difficulties in integrating or separating businesses, including failure to realise expected synergies, disruption to operations, diversion of management resources or higher than expected costs. These risks and difficulties may ultimately have an adverse impact on the Group's financial performance and position.

The Group may incur unexpected financial losses following an acquisition, joint venture or investment if the business it invests in does

not perform as planned or causes unanticipated changes to the Group's risk profile. Additionally, there can be no assurance that customers, employees, suppliers, counterparties and other relevant stakeholders will remain with an acquired business following the transaction and any failure to retain such stakeholders may have an adverse impact on the Group's overall financial performance and position.

The Group may also have ongoing exposures to divested businesses, including through a residual shareholding, the provision of continued services and infrastructure or an agreement to retain certain liabilities of the divested businesses through warranties and indemnities, which may have an adverse impact on the Group's business and financial performance and position.

In particular, specific risks exist in connection with the sale of 80% of MLC Limited, NAB's life insurance business (separate to the MLC Wealth

Transaction described in Section 5), to Nippon Life Insurance Company ("Nippon Life") in 2016. NAB gave certain covenants, warranties and indemnities in favour of Nippon Life and MLC Limited, a breach or triggering of which may result in NAB being liable to Nippon Life or MLC Limited.

The parties also entered into long- term agreements for the offer and promotion of life insurance products and the continued use of the MLC brand by MLC Limited. The duration and nature of these agreements give rise to certain risks, including that changes in the regulatory or commercial environment impact the commercial attractiveness of these agreements. These agreements also limit future opportunities for NAB through non-compete arrangements.

NAB agreed to take certain actions to establish MLC Limited as a standalone entity, including the provision of transitional services, as well as support for data migration activities and the development of technology systems. As this work is yet to be completed, there is a risk that implementation costs may ultimately prove higher than anticipated. NAB may also be liable to MLC Limited or Nippon Life if it fails to perform its obligations in accordance with the agreements relating to these matters. If implementation costs are higher than expected, or if NAB fails to perform its obligations in accordance with the relevant agreements, there may be an adverse impact on the Group's financial performance and position.

7.2.2 Credit Risk

Credit risk is the risk that a customer will fail to meet its obligations to the Group in accordance with agreed terms. Credit risk arises from both the Group's lending activities and markets and trading activities.

7.2.2.1 The economic impact of COVID-19 is extremely uncertain, but it has increased credit risk across the Group's portfolio.

COVID-19 has created economic and financial disruptions that have adversely affected, and will continue to adversely affect, the Group's business, financial condition, liquidity and results of operations. The extent of these continuing negative effects will depend on future developments, which are highly uncertain and cannot be predicted. Increased credit risk can result in both an increase in losses when customers default on their loan obligations and higher capital requirements through an increase in the probability of default.

The global economy is predicted to contract in 2020, due in large part to measures implemented to address COVID-19. Various regions in several countries have been forced to reintroduce measures to control fresh outbreaks, highlighting the high degree of uncertainty to the outlook. The functioning of financial markets in many countries has also been impaired by increased volatility and negative investor sentiment, adding to the risk of a larger and longer economic downturn. This may create credit risk for the Group, both in the short and long-term.

In Australia and globally, measures to control the spread of COVID-19, including restrictions on public gatherings, business closures and travel and trade restrictions have had, and may continue to have, a substantial negative impact on economic and business activity due to a range of factors including reduced trade flows and lower commodity prices. Certain sectors, including discretionary retail, hospitality, commercial property and air travel, have experienced, or are expected to experience, significant financial stress. This includes a heightened risk of corporate and business bankruptcies, a rise in unemployment and an increase in household financial stress. This combination of factors has introduced additional credit risk for the Group.

There is a continuing risk that the economic consequences of COVID-19,

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including supply disruptions caused by global and domestic containment efforts, may become more severe and far-reaching across the economy, leading to a more widespread downturn in business and economic activity. This would likely result in a significant loss of revenue for many businesses across a wide range of industry sectors, in turn potentially leading to further increased unemployment and customer defaults. The Group's commercial property, air travel, discretionary retail, tourism and hospitality portfolios would

be significantly impacted in such a scenario, as would the Group's exposure to households, given the potential for higher unemployment to coincide with lower house prices.

Some of the Group's assets and liabilities comprise financial instruments that are carried at fair value, with changes in fair value recognised in the Group's income statement. Recent market declines and increased volatility could negatively impact the value of such financial instruments and cause the Group to incur losses.

Globally, governments (including Australia and New Zealand) have introduced fiscal stimulus packages to counter the negative impacts of the current economic downturn. The unwinding of these stimulatory policies presents downside risk to economies in the near-term, with the potential to exacerbate existing negative effects on businesses and households. In the longer term, governments may take measures to address the additional debt burden generated by these policies. The extent to which these packages mitigate and/or defer the economic impact, including any credit losses the Group may incur, is uncertain.

In response to COVID-19, the Group has established a range of accommodations and measures designed to support

its personal and business customers. The decision by the Group to provide customers impacted by the COVID-19 pandemic the option of suspending

or deferring certain loan repayments may lead to an increase in the level of credit risk related losses. These accommodations and measures, while supporting the Group's customers, may result in the Group assuming a greater level of risk than it would have under ordinary circumstances. This in turn may have a negative impact on the Group's business, results of operations, financial condition and prospects and may negatively impact the Group's net interest margin. As these accommodations and measures are scaled back or potentially removed, there may be a further increase in the credit risks facing the Group, as well as a negative impact on customer sentiment towards the Group and the banking sector generally. In the longer term, asset values may start to deteriorate if a large proportion of retail and business customers liquidate their investments, either during, or immediately after, the crisis or due to a decrease in demand for these assets. In both scenarios loan-to-value ratios are expected to be impacted.

The duration and magnitude of the COVID-19 pandemic and its potential impacts on the economy remain unclear. Even after the pandemic subsides, the Australian economy, as well as most other major economies, may continue to experience a recession and unemployment may rise further.

A prolonged recession in Australia and other major regions has the potential to negatively impact debt servicing levels, increase customer defaults and materially adversely impact the Group's financial performance and position, and its profitability.

7.2.2.2 A decline in property market valuations may give rise to higher losses on defaulting loans.

Lending activities account for most of the Group's credit risk. The Group's lending portfolio is largely based in Australia and New Zealand. Residential housing loans and commercial real estate loans constitute a material component of the Group's total gross

loans and acceptances. The social and economic impacts of the spread of COVID-19 and the measures in place to control it, have the potential to drive a material decline in residential property prices due to, among other things, increased unemployment in Australia and New Zealand. The full negative impact of the COVID-19 pandemic may be delayed, in part, by governmental support measures and other actions that the Group and other financial institutions have taken, for example permitting loan payment deferrals in certain cases. In addition, there are a number of other potential factors in the medium term that may drive reductions in residential property prices. These factors include regulatory changes which may impact the availability of credit, reduced immigration and overseas investment, changes to taxation policy and rising unemployment. If these factors materialise, the declining value of the residential property used as collateral (including in business lending) may give rise to greater losses to the Group resulting from customer defaults, which, in turn, may impact the Group's financial performance and position, profitability and returns to investors. The most significant impact is likely to be experienced by residential mortgage customers in high loan-to-value-ratio brackets. This risk could be further compounded by a more severe downturn.

7.2.2.3 Adverse business conditions in Australia and New Zealand, particularly in the agriculture sector, may give rise to increasing customer defaults.

The Group has a large market share among lenders to the Australian and New Zealand agricultural sectors, particularly the dairy sector in

New Zealand. Volatility in commodity prices, milk prices, foreign exchange rate movements, disease and introduction of pathogens and pests, export and quarantine restrictions and supply chain constraints, extreme weather events, increasing weather

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volatility and longer-term changes in climatic conditions arising from climate change, may negatively impact these sectors. This may result in increased losses to the Group from customer defaults, and ultimately may have an adverse impact on the Group's financial performance and position.

7.2.2.4 Climate change and extreme climate patterns may lead to increasing customer defaults and may decrease the value of collateral.

Credit risk may arise as a result of climate change, including from:

  • Extreme weather, increasing weather volatility andlonger-term changes in climatic conditions affecting property and asset values or causing customer losses due to damage, existing land use ceasing to be viable, and/or interruptions to business operations and supply chains.
  • The effect of new laws, regulations and government policies designed to mitigate climate change.
  • The impact on certain customer segments as the economy transitions to renewable andlow-emissions technology.

This may lead to increased levels of customer default in affected business sectors. The impact of this on the Group may be exacerbated by a decline in the value and liquidity of assets held by the Group as collateral in these sectors, which may impact the Group's ability to recover its funds when loans default.

For example, parts of Australia are prone to, and have recently experienced, physical climate events such as severe drought conditions and bushfires, notably over summer 2019/2020. The impact of these can be widespread, extending beyond primary producers to customers who are suppliers to the agricultural sector, and to those who reside in, and operate businesses within, impacted communities. Extreme weather events and long-term changes in climate across Australia may have similar

impacts on other business sectors. Decreasing investor appetite and customer demand for carbon intensive products and services may give rise to transition risks and negatively impact revenue and access to capital for some businesses. These physical and transition risk impacts may increase current levels of customer defaults, thereby increasing the credit risk facing the Group and adversely impacting the Group's financial performance and position, profitability and returns to investors.

7.2.2.5 The Group's losses may differ materially from its provisions, which may impact its financial performance and position.

The Group provides for expected losses from loans, advances and other assets. 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 assumptions upon which these assessments are made prove to be inaccurate, the provisions for credit impairment may need to be revised. This may adversely impact the Group's financial performance and position.

7.2.2.6 The Group may be adversely impacted by macro- economic and geopolitical risks and financial market conditions which pose a credit risk.

The majority of the Group's businesses operate in Australia and New Zealand, with branches currently located in Asia, the UK and the US. Levels of borrowing are heavily dependent on customer confidence, employment trends, market interest rates, and other economic and financial market conditions and forecasts most relevant for the Group in Australia and New Zealand, but also in the global locations in which the Group operates.

Domestic and international economic conditions and forecasts are influenced

by a number of macro-economic factors, such as: economic growth rates; cost and availability of capital; central bank intervention; inflation and deflation rates; level of interest rates; yield curves; market volatility; and uncertainty. Deterioration in any of these factors may lead to the following negative impacts on the Group:

  • Increased cost of funding or lack of available funding.
  • Deterioration in the value and liquidity of assets (including collateral).
  • Inability to price certain assets.
  • An increase in customer or counterparty default and credit losses.
  • Higher provisions for credit impairment.
  • Mark-to-marketlosses in equity and trading positions, including NAB's high-quality liquid asset portfolios.
  • Lack of available or suitable derivative instruments for hedging purposes.
  • Lower growth in business revenues and earnings.
  • Increased cost of insurance, lack of available or suitable insurance, or failure of the insurance underwriter.

Economic conditions may also be negatively impacted by climate change and major shock events, such as natural disasters, epidemics and pandemics (such as the ongoing COVID-19 pandemic), war and terrorism, political and social unrest, and sovereign debt restructuring and defaults.

The following macro-economic and financial market conditions are currently of most relevance to the credit risk facing the Group, and may give rise to slower revenue growth and/or increasing customer defaults:

  • Central banks, including the RBA and the RBNZ, eased monetary policy and provided liquidity to markets in response toCOVID-19 related economic downturn, with advanced economies essentially exhausting their conventional policy measures (with the RBA cutting the cash rate to

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0.1% in November 2020). Any further policy easing may involve additional asset purchases (quantitative easing) or other unconventional policy tools that may adversely affect the Group's cost of funds, the value of the Group's lending and investments, and margins. Policy easing would be expected to reduce short-term downside risks to growth, but has the potential to build on existing imbalances in various asset classes and regions. Policy easing may also reduce the impetus for highly geared borrowers to deleverage thereby increasing the credit risk posed to the Group by these highly geared customers.

  • As a key trading partner, China's economic growth is important to Australia and New Zealand, with export income and business investment exposed to any sharp slowdown in the rapid pace of Chinese economic growth. Following the negative economic impact
    of COVID-19 countermeasures in the first quarter of 2020, China's economy is expected to record its weakest growth in 2020 since 1976. China's high and growing debt burden presents a risk to its medium- term growth prospects. Political tensions between the Australian and Chinese governments have increased in recent years. Due to its export mix, Australia's economy is exposed to any sudden downturn in China's domestic investment in business, infrastructure or housing, as well as changes to trade policy (as exhibited by trade restrictions on
    a range of commodities including coal, barley, beef and wine). This may have a negative impact on the Group's customers who are exposed to these sectors and may give rise to increasing levels of customer defaults.
  • Phase One of the 'Economic and Trade Agreement Between the United States of America and the People's Republic of China' (Phase

One Agreement) was signed in January 2020. Despite this, the bulk of the tariffs imposed by both countries remain in place and continuing trade and other tensions remain which present additional uncertainty and pose risks to global economic growth. Although China is the primary target of US trade measures, value chain linkages mean that other emerging markets, primarily in Asia, may also be impacted. A number

of East Asian economies are major trading partners of Australia and New Zealand, and accordingly a negative impact on their economies may increase the credit risk facing the Group.

  • Geopolitical risks continue to present uncertainty to the global economic outlook, with negative impacts on consumption and business investment. An increasing fragmentation of, and a rise in populism in, many major democratic economies have led to difficulties in policy implementation and
    an increase in anti-globalisation sentiment. Protests in Hong Kong during 2019 and 2020 highlight increased global political tensions with the Hong Kong Special Administrative Region and the People's Republic of China. As the UK and European Union have yet to agree on the terms of their relationship post the current transition period, the prospect of an economically damaging 'hard' Brexit remains a risk. In addition, there are a range of other geopolitical risks, particularly given the ongoing uncertainty around the Middle East, the Korean Peninsula and the South China Sea.
  • As commodity exporting economies, Australia and New Zealand
    are exposed to shifts in global commodity prices that can be sudden, sizeable and difficult to predict. Fluctuations in commodity markets can affect key economic variables like national income tax

receipts and exchange rates. Previous sharp declines in commodity prices in Australia and New Zealand were driven by sub-trend global growth constraining demand, combined with increases in commodity supply. Commodity price volatility remains substantial and given the Group's sizeable exposures to commodity producing and trading businesses, this volatility poses a significant source of credit risk to the Group.

7.2.3 Market Risk

The Group may suffer losses as a result of a change in the value of the Group's positions in financial instruments or their hedges due to adverse movements in market prices. Adverse price movements impacting the Group may occur in credit spreads, interest rates, foreign exchange rates, and commodity and equity prices, in particular during periods of heightened market volatility or reduced liquidity. Since March 2020, global financial markets have become more volatile due to the impact of COVID-19. The full economic impact of COVID-19 remains uncertain.

7.2.3.1 The Group is exposed to market risk.

Credit spread risk is the risk of the Group's trading book being exposed to movements in the value of securities and derivatives as a result of changes in the perceived credit quality of the underlying company or issuer. Credit spread risk accumulates in the Group's trading book when it provides risk transfer services to customers seeking to buy or sell fixed income securities (such as corporate bonds). The Group may also be exposed to credit spread risk when holding an inventory of fixed income securities in anticipation of customer demand or undertaking market-making activity (i.e. quoting buy and sell prices to customers) in fixed income securities. The Group's trading book is also exposed to credit spread risk through credit valuation

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adjustments. A widening of credit spreads could negatively impact the value of the Credit Valuation Adjustment.

Interest rate risk is the risk to the Group's financial performance and capital position caused by changes in interest rates. The Group's trading book is exposed to changes in the value of securities and derivatives as a result of changes in interest rates. The Group's trading book accumulates interest rate risk when the Group provides interest rate hedging solutions for customers, holds interest rate risk in anticipation of customer requirements or undertakes market-making activity in fixed income securities or interest rate derivatives.

The occurrence of any event giving rise to a material trading loss may have a negative impact on the Group's financial performance and financial position.

Balance sheet and off-balance sheet items can create an interest rate risk exposure within the Group. As interest rates and yield curves change over time, including negative interest rates in certain countries in which the Group operates, the Group may be exposed to a loss in earnings and economic value due to the interest rate profile of its balance sheet. Such exposure may arise from a mismatch between the maturity profile of the Group's lending portfolio compared to its deposit portfolio (and other funding sources), as well as the extent to which lending and deposit products can be repriced as interest rates approach zero or become negative, thereby impacting the Group's net interest margin.

Foreign exchange and translation risk arise from the impact of currency movements on the value of the Group's cash flows, profits and losses, and assets and liabilities due to participation in global financial markets and international operations.

The Group's ownership structure includes investment in overseas subsidiaries and associates which gives

rise to foreign currency exposures, including through the repatriation of capital and dividends. The Group's businesses may therefore be affected by a change in currency exchange rates, and movements in the mark-to- market valuation of derivatives and hedging contracts.

The Group's financial statements are prepared and presented in Australian dollars, and any adverse fluctuations in the Australian dollar against other currencies in which the Group invests or transacts and generates profits (or incurs losses) may adversely impact its financial performance and position.

7.2.4. Funding, Liquidity and Capital Risk

7.2.4.1 The Group is exposed to funding and liquidity risk.

Funding risk is the risk that the Group is unable to raise short and long-term funding to support its ongoing operations, strategic plans and objectives. The Group accesses domestic and global capital markets to help fund its business, in addition to using customer deposits. Dislocation in capital markets, reduced investor interest in the Group's securities and/ or reduced customer deposits, may adversely affect the Group's funding and liquidity position, increase the cost of obtaining funds or impose unfavourable terms on the Group's access to funds, constrain the volume of new lending, or adversely affect the Group's capital position.

Liquidity 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 on demand or at their contractual maturity, the repayment of wholesale borrowings and loan capital as they mature, the payment of interest on borrowings and the payment of operational expenses and taxes. The Group must also comply with prudential and regulatory liquidity obligations across the jurisdictions

in which it operates. Any significant deterioration in the Group's liquidity position may lead to an increase in the Group's funding costs, constrain the volume of new lending, result in the Group drawing upon its committed liquidity facility with the RBA or cause the Group to breach its prudential or regulatory liquidity obligations. This may adversely impact the Group's reputation and financial performance and position.

7.2.4.2 The Group's capital position may be constrained by prudential requirements.

Capital risk is the risk that the Group does not hold sufficient capital and reserves to cover exposures and to protect against unexpected losses. Capital is the cornerstone of the Group's financial strength. It supports an ADI's operations by providing a buffer to absorb unanticipated losses from its activities.

The Group must comply with prudential requirements in relation to capital across the jurisdictions in which it operates. Compliance with these requirements and any further changes to these requirements may:

  • Limit the Group's ability to manage capital across the entities within the Group.
  • Limit payment of dividends or distributions on shares and hybrid instruments.
  • Require the Group to raise more capital (in an absolute sense) or raise more capital of higher quality.
  • Restrict balance sheet growth.

In response to the impacts of COVID-19, APRA has outlined its expectations for ADIs in relation to the payment of dividends during this period of disruption. In its July 2020 guidance, APRA advised banks to maintain caution in planning capital distributions. Specifically, APRA expects that ADIs will retain at least half their earnings in 2020 and actively use other capital management initiatives.

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In addition, RBNZ has prohibited the payment of dividends on ordinary shares by New Zealand incorporated registered banks and has stated that those banks should not redeem non-Common Equity Tier 1 ("CET1") capital instruments (other than on a stated final maturity date), until the economic outlook has sufficiently recovered, which prevents NAB's New Zealand subsidiary, BNZ, from paying dividends, which has a negative impact on the Group's Level 1 CET1 capital ratio. These restrictions are expected to remain in place until at least 31 March 2021. Additionally, if the information or the assumptions upon which the Group's capital requirements are assessed prove to be inaccurate, this may adversely impact the Group's operations, financial performance and financial position.

7.2.4.3 A significant downgrade in the Group's credit ratings may adversely impact its cost of funds and capital market access.

Credit ratings are an assessment of a borrower's creditworthiness and may be used by market participants in evaluating the Group and its products, services and securities. Credit rating agencies conduct ongoing review activities, which can result in changes to credit rating settings and outlooks for the Group, or sovereign jurisdictions where the Group conducts business. Credit ratings may be affected by operational and market factors, or changes in the credit rating agency's rating methodologies.

A downgrade in the credit ratings or outlook of the Group, the Group's securities, or the sovereign rating of one or more of the countries in which the Group operates, may increase the Group's cost of funds or limit access to capital markets. This may also cause a deterioration of the Group's liquidity position and trigger additional collateral requirements in derivative contracts and other secured funding arrangements. A downgrade to the

Group's credit ratings relative to peers may also adversely impact the Group's competitive position and financial performance and position.

7.2.4.4 The Group may fail to, or be unable to, sell down its underwriting risk.

As financial intermediaries, members of the Group underwrite or guarantee different types of transactions, risks and outcomes, including the placement of listed and unlisted debt, equity- linked and equity securities. The underwriting obligation or guarantee may be over the pricing and placement of these securities, and the Group may therefore be exposed to potential losses, which may be significant, if it fails to sell down some or all of this risk to other market participants.

7.2.5. Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or external events. This includes legal risk but excludes strategic and reputation risk.

There are reputational implications inherent in the Group operations due to the range of customers, products and services the Group provides and the multiple markets and channels these products and services are delivered through.

The Group's workforce has been and may continue to be impacted by COVID-19. The Group takes all reasonable steps to protect its colleagues and customers. However, there is no certainty that all the precautions the Group has taken to protect its colleagues and customers will be adequate or appropriate. It is difficult to predict the extent to which each colleague's ability to provide customer support and service and maintain their own health will be affected over an extended period.

7.2.5.1 Disruption to technology may adversely impact the Group's reputation and operations.

Most of the Group's operations depend on technology, and therefore the reliability, resilience and security of the Group's (and its third-party vendors') information technology systems and infrastructure are essential to the effective operation of its business and consequently to its financial performance and position. The reliability and resilience of the Group's technology may be impacted by the complex technology environment, failure to keep technology systems up-to-date, an inability to restore or recover systems and data in acceptable timeframes, or a physical or cyber- attack.

The rapid evolution of technology in the financial services industry and the increased expectation of customers for internet and mobile services on demand expose the Group to changing operational scenarios.

Any disruption to the Group's technology (including disruption to the technology systems of the Group's external providers) may be wholly or partially beyond the Group's control and may result in operational disruption; regulatory enforcement actions; customer redress; litigation; financial losses; theft or loss of customer data; loss of market share; loss of property or information; or may adversely impact the Group's speed and agility in the delivery of change and innovation.

In addition, any such disruption may adversely affect the Group's reputation, including the view of regulators or ratings agencies, which may result

in loss of customers, a reduction in share price, ratings downgrades and regulatory censure or penalties. Social media commentary may further exacerbate such adverse outcomes for the Group and negatively impact the Group's reputation.

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7.2.5.2 Privacy, information security and data breaches may adversely impact the Group's reputation and operations.

The Group processes, stores and transmits large amounts of personal and confidential information through its technology systems and networks. Threats to information security are constantly evolving and techniques used to perpetrate cyber-attacks are increasingly sophisticated.

Although the Group invests in protecting the confidentiality and integrity of this information, the Group may not always be able to anticipate a security threat, or be able to implement effective information security policies, procedures and controls to prevent or minimise the resulting damage. The Group uses select external providers (in Australia and overseas) to process and store confidential data and to develop and provide its technology services, including the increasing use of cloud infrastructure.

A breach of security at any of these external providers or within the Group may result in operational disruption, theft or loss of customer data, a breach of privacy laws, regulatory enforcement actions, customer redress, litigation, financial losses, or loss of market share, property or information. This may be wholly or partially beyond the control of the Group and may adversely impact its financial performance and position.

In addition, any such event may give rise to increased regulatory scrutiny or adversely affect the view of ratings agencies. Social media and responses to the relevant event may exacerbate the impact on the Group's reputation.

7.2.5.3 Deficient policies,

processes, controls, infrastructure and models give rise to a significant risk to the Group's operations.

The Group's business involves the execution of many processes and transactions with varying degrees of

complexity. The Group is reliant on its policies, processes, controls and supporting infrastructure functioning as designed, along with third parties appropriately managing their own operational risk and delivering services to the Group as required. A failure

in the design or operation of these policies, processes, controls and infrastructure, failure of the Group to manage external service providers, or the disablement of a supporting system all pose a significant risk to the Group's operations and consequently its financial performance and reputation.

Models are used extensively in the conduct of the Group's business, for example, in calculating capital requirements or customer compensation payments and measuring and stressing exposures. If the models used prove to be inadequate or are based on incorrect or invalid assumptions, judgements or inputs, this may adversely affect the Group's customers and the Group's financial performance and position.

7.2.5.4 The Group is exposed to the risk of human error.

The Group's business, including the internal processes and systems that support in business decisions, relies on inputs from its employees, agents and third-party vendors. The Group is exposed to operational risk due to process or human errors including incorrect or incomplete data capture and records maintenance, incorrect or incomplete documentation to support activities, or inadequate design of processes or controls. The Group uses select external providers (in Australia and overseas) to provide services to the Group and is exposed to similar risks arising from such failures in the operating environment of its external providers. The materialisation of any of these risks could lead to direct financial loss, loss of customer, employee or commercially sensitive data, regulatory penalties and reputational damage.

7.2.5.5 The Group may not be able to attract and retain suitable personnel.

The Group is dependent on its ability to attract and retain key executives, colleagues and Board members with a deep understanding of banking and technology, who are qualified to execute the Group's strategy, as well as the technology transformation the Group is undertaking to meet the changing needs of its customers. Weaknesses in employment practices, including diversity, discrimination and workplace health and safety, are sources of operational risk that can impact the Group's ability to attract and retain qualified personnel with the requisite knowledge, skills and capability.

The Group's capacity to attract and retain key personnel is dependent on its ability to design and implement effective remuneration structures. This process may be constrained by regulatory requirements (particularly in the highly regulated financial services sector), as well as investor expectations, which may be somewhat disparate.

The unexpected loss of key resources or the inability to attract personnel with suitable experience may adversely impact the Group's ability to operate effectively and efficiently, or to meet the Group's strategic objectives.

7.2.5.6 External events may adversely impact the Group's operations.

Operational risk can arise from external events such as biological hazards, climate change, natural disasters or acts of terrorism.

External events include epidemics or pandemics, such as the outbreak of COVID-19, which has interrupted the usual operations of the Group, its customers and suppliers. This disruption has resulted in the activation of the Group's Crisis Management Team and implementation of the

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Group's continuity plan to protect the health, safety and well-being of its customers and colleagues. The steps taken include alternate work locations and arrangements being implemented for Group colleagues, a decreased reliance on property infrastructure, and an increased reliance on mobile technology and business process changes to support customers, colleagues and suppliers and ensure continuity of the Group's business operations. These operational changes could lead to direct financial loss or impact the Group's ability to operate effectively and efficiently. No assurance can be given that the steps being taken will be adequate nor can the Group predict the level of further disruption which may occur.

The Group is monitoring the situation closely as the domestic and global business environment changes and it is unclear how this will evolve or for how long the Group will continue to operate under its continuity plan. Other epidemics or pandemics may arise in future which may again activate a crisis response causing disruption to the Group's operations.

The Group has branches in regional areas in Australia that are prone to seasonal natural disasters, including fires and floods.

In addition, the Group has branches and office buildings in New Zealand, which have experienced significant earthquakes and aftershocks in recent years, and which may be exposed to the risk of future earthquakes.

Given the Group's physical presence in major cities in Australia, New Zealand and other countries where it has, or is intending to establish, offshore operations, it may also be exposed to the risk of a terrorist attack.

External events such as extreme weather, natural disasters, biological hazards and acts of terrorism may cause property damage and business disruption, which may adversely impact the Group's financial performance.

In addition, if the Group is unable to manage the impacts of such external events, it may lead to reputational

damage and compromise the Group's ability to provide a safe workplace for its personnel.

The environment the Group is operating in has become more complex and more uncertain and could create operational risks that are yet to be identified.

7.2.6. Compliance Risk

Compliance risk is the risk of failing to understand and comply with relevant laws, regulations, licence conditions, supervisory requirements, self- regulatory industry codes of conduct and voluntary initiatives.

7.2.6.1 The Group may be involved in a breach or alleged breach of laws governing bribery, corruption and financial crime.

Supervision, regulation and enforcement of anti-bribery and corruption, anti-money laundering, counter-terrorism financing,

and international sanctions laws (collectively referred to as "AML/CTF") has increased. In June 2018, Australia's financial intelligence agency, the Australian Transaction Reports and Analysis Centre ("AUSTRAC"), reached an agreement with another major Australian bank for a A$700 million penalty relating to serious breaches of AML/CTF laws. In September 2020, AUSTRAC and a different major Australian bank agreed to the Australian bank paying a civil penalty of A$1.3 billion in relation to proceedings alleging significant breaches of AML/ CTF laws.

The Group has reported a number of AML/CTF compliance breaches to relevant regulators and has responded to a number of requests from regulators requiring the production of documents and information. The Group is currently investigating and remediating a number of AML/CTF compliance issues and weaknesses and should further breaches be identified, the Group would expect to report those to regulators in accordance with its normal processes.

The potential outcome and total costs associated with the investigations and remediation processes for specific issues identified to date, and for any issues identified in future, remain uncertain. A negative outcome to any investigation or remediation process may adversely impact the Group's reputation, business operations, financial position and results. Further, given the large volume of transactions that the Group processes, the undetected failure of internal AML/CTF controls, or the ineffective implementation or remediation of compliance issues, could result in a significant number of breaches of AML/CTF obligations and significant monetary penalties for the Group.

Refer to 'Notes to the Financial Statements', Note 30 Contingent liabilities and credit commitments on page 170 in the 2020 Annual Financial Report under the heading 'Regulatory

activity, compliance investigations and associated proceedings - Anti- Money Laundering (AML) and Counter- Terrorist Financing (CTF) program uplift and compliance issues' for more information.

7.2.6.2 Ensuring compliance with laws and regulations that apply to the Group is complex and costly.

The Group is highly regulated and subject to various regulatory regimes which differ across the jurisdictions in which it operates, trades and raises funds.

Ensuring compliance with all applicable laws is complex. There is a risk the Group will be unable to implement the processes and controls required by relevant laws and regulations in

a timely manner, or that the Group's internal controls will prove to be inadequate or ineffective in ensuring compliance. There is also a potential risk of misinterpreting new or existing regulations. Any failure to comply with relevant laws and regulations may have a negative impact on the Group's reputation and financial performance and position, and may give rise to class

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actions, regulatory enforcement or litigation.

In addition, there is significant cost associated with the systems, processes, controls and personnel required to ensure compliance with applicable laws and regulations. Such costs may negatively impact the Group's financial performance and position.

7.2.6.3 Failure to comply with laws or regulatory requirements may expose the Group to class actions.

There have been a number of domestic and international firms facing high profile regulatory enforcement actions for alleged instances of non- compliance with laws or regulatory requirements. In some cases, class actions have been brought in respect of the matters that these enforcement actions relate to.

In particular, class actions have been commenced against the Group in respect of two matters that were referred to APRA by the Royal Commission, regarding the conduct of the Group's superannuation trustee, NULIS Nominees (Australia) Ltd ("NULIS"). In October 2019, litigation funder Omni Bridgeway (formerly IMF Bentham) and William Roberts Lawyers commenced a class action against NULIS alleging breaches of NULIS's trustee duties relating to

the maintenance of grandfathered commissions following a successor fund transfer in 2016. In January 2020, Maurice Blackburn commenced a class action against NULIS and MLC Nominees Limited alleging breaches of trustee obligations in connection with the speed of the transfer of members' accrued default amounts to the MySuper product. The potential outcome and total costs associated with these matters remain uncertain.

NAB is also involved in class action proceedings in the UK with respect to the sale of tailored business loans through its former UK subsidiary, and it has been involved in class action litigation in the US in respect of

alleged conduct relating to the Bank Bill Swap Reference Rate ("BBSW"), alongside other major Australian and international banks. In February 2020, all claims against NAB in relation to the BBSW matter were dismissed but this decision could potentially be appealed or reconsidered. Refer to 'Notes to the Financial Statements', Note 30 Contingent liabilities and credit commitmentson page 169 in the 2020 Annual Financial Report under the heading 'Legal proceedings' for more information.

It is possible that class actions may arise against members of the Group in relation to allegations of which the Group is currently aware or other matters of which it is not yet aware. Any class action may impact the Group's reputation, divert management time from operations and affect the Group's financial performance and position, profitability and returns to investors.

7.2.6.4 The Group may be exposed to losses if critical accounting judgements and estimates are subsequently found to be incorrect.

Preparation of the Group's financial statements requires management to make estimates and assumptions and to exercise judgement in applying relevant accounting policies, each of which may directly impact the reported amounts of assets, liabilities, income and expenses. A higher degree of judgement is required for the estimates used in the calculation of provisions (including for customer-related remediation and other regulatory matters), the determination of income tax, the valuation of financial assets and liabilities (including fair value and credit impairment of loans and advances), the valuation of goodwill and intangible assets, and the presentation of discontinued operations. Changes in the methodology or assumptions on which the assessment of goodwill and intangible balances is based, together with expected changes in future cash flows (including changes flowing

from current and potential regulatory reforms), could result in the potential write-off of a part or all of that goodwill or intangible balances.

If the judgements, estimates and assumptions used by the Group in preparing financial statements are subsequently found to be incorrect, there could be a significant loss to the Group beyond that anticipated or provided for, which may adversely impact the Group's reputation, and financial performance and position.

7.2.6.5 The Group may be exposed to litigation and contingent liabilities.

Entities within the Group may be involved from time to time in legal proceedings arising from the conduct of their business. The aggregate potential liability and costs in respect thereof cannot be estimated with any certainty.

Following an investigation into payments of both current and former Australian colleagues, a review has identified a range of potential payroll under and over payments issues.

A remediation program has been established and provisions have been taken but the final outcome and total costs associated with this matter remain uncertain.

There are also a number of ongoing regulatory investigations and court proceedings involving the Group.

These include matters relating to: the provision of financial advice; the inappropriate charging of fees for services; selling practices and advice in relation to consumer credit insurance products. Where appropriate, provisions are held for litigation matters, regulatory and internal investigations based on a number of assumptions derived from a combination of past experience, forecasts, industry comparison and the exercise of subjective judgement based on (where appropriate) external professional advice. As with other accounting judgements, risks and uncertainties remain in relation to

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these assumptions and the ultimate costs of redress to the Group. There is inherent uncertainty regarding the possible outcome of any court proceedings involving the Group. It is also possible that further class actions, regulatory investigations, civil or criminal proceedings or the imposition of new licence conditions could arise in relation to these matters or other matters of which the Group is not yet aware.

Certain of these regulatory investigations and proceedings relate to matters examined or commented on by the Royal Commission. In particular, ASIC commenced civil proceedings against members of the Group in relation to two issues that were examined by the Royal Commission. The first concerned NAB's 'Introducer Program', in respect of which ASIC alleged that NAB engaged in credit activities with unlicensed persons

in contravention of the National Consumer Credit Protection Act 2009 (Cth). On 19 October 2020, the Federal Court delivered its judgment in relation to this matter, imposing a civil penalty of A$15 million on NAB. The second relates to alleged breaches in respect of ongoing service arrangements and fee disclosure statements, with clients of NAB Financial Planning between 2013 and 2019. A Statement of Agreed Facts and Admissions was filed in October 2020, with NAB agreeing certain contraventions of the fee disclosure regime, some liability for misleading or deceptive conduct and false or misleading representations, as well

as breaches of financial services laws. The potential outcome and total costs associated with this matter remains uncertain.

A negative outcome to regulatory investigations or litigation involving the Group may divert management time from operations and adversely impact the Group's reputation, and financial performance and position. Refer to 'Notes to the Financial Statements', Note 30 Contingent liabilities and credit commitmentson pages 167-173 in the 2020 Annual Financial Report

for details in relation to certain legal proceedings and contingent liabilities which may impact the Group.

7.2.7. Conduct Risk

Conduct risk is the risk that any action of the Group, or those acting on behalf of the Group, will result in unfair outcomes for any of the Group's customers.

7.2.7.1 The Group is heavily reliant on its employees, contractors and external suppliers acting in an appropriate and ethical way.

Organisational culture can greatly influence individual and group behaviours which can expose an organisation and lead to unfair customer outcomes. The behaviours that could expose the Group to conduct risk include:

  • Selling, providing or unduly influencing customers to purchase or receive products or services that may not meet their existing needs or that place the customer at risk of future hardship.
  • Being a party to fraud.
  • Non-adherenceto applicable requirements or providing financial advice which is not appropriate or in the customers' interests.
  • Delays in appropriately escalating regulatory and compliance issues.
  • Failure to resolve issues and remediate customers in a timely manner.
  • Failure to deliver on product and service commitments.
  • Failure to remediate business processes and stop reoccurrence in a timely manner.

In addition, events such as COVID-19, can result in rapid changes to the internal and external business environment and subsequent changes to business processes to support customers. This may impact both the likelihood and the consequence of unfair outcomes to customers, including through decisions and

actions where the trade-offs or tail risks may not be immediately apparent or quantifiable. The Group is making significant efforts to support its customers in an appropriate way during the COVID-19 pandemic including through regular customer communication and redeployment of colleagues into customer-facing roles. However, no assurance can be given that the steps being taken will not have unintended consequences in the future or that they will meet the future expectations of the Group's regulators. The Group cannot predict the level of further disruption which may occur.

If the Group's conduct related controls were to fail significantly, be set inappropriately, or not meet legal, regulatory or community expectations, then the Group may be exposed to:

  • Increased costs of compliance, fines, additional capital requirements, public censure, loss of customer confidence, class actions and other litigation, settlements and restitution to customers or communities.
  • Increased supervision, oversight or enforcement by regulators or other stakeholders.
  • Unenforceability of contracts such as loans, guarantees and other security documents.
  • Enforced suspension of operations, amendments to licence conditions or loss of licence to operate all or part of the Group's businesses.
  • Other enforcement or administrative action or agreements, including legal proceedings.

A failure of the Group's conduct controls to accurately reflect relevant legal, regulatory or community expectations may adversely impact the Group's reputation, financial performance and position, profitability, operations and returns to investors.

7.2.8. Regulatory Risk

Regulatory risk is the risk of failing to identify or appropriately respond to changes to the regulatory environment or of damaging the Group's standing with its regulators as a result of

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Attachments

Disclaimer

NAB - National Australia Bank Ltd. published this content on 24 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 November 2020 23:18:03 UTC


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Sales 2021 17 012 M 13 103 M 13 103 M
Net income 2021 4 804 M 3 700 M 3 700 M
Net Debt 2021 - - -
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Chart NATIONAL AUSTRALIA BANK LIMITED
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National Australia Bank Limited Technical Analysis Chart | NAB | AU000000NAB4 | MarketScreener
Technical analysis trends NATIONAL AUSTRALIA BANK LIMITED
Short TermMid-TermLong Term
TrendsBullishBullishNeutral
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 14
Average target price 24,12 AUD
Last Close Price 24,14 AUD
Spread / Highest target 7,71%
Spread / Average Target -0,07%
Spread / Lowest Target -16,7%
EPS Revisions
Managers and Directors
NameTitle
Ross Maxwell McEwan Group CEO, Managing Director & Director
Philip Wayne Chronican Chairman
Patrick C. Wright Chief Technology & Operations Officer
Gary A. Lennon Group Chief Financial Officer
David Hugh Armstrong Independent Non-Executive Director