In an effort to stem declining profits, National Australia Bank (NAB) is rationalizing its institutional banking activities in Asia by creating a regional hub in Hong Kong. That means closing offices in Singapore, Korea, Malaysia and Tokyo, with the expected loss of 400 jobs in the region.

The announcement was made in Melbourne on Wednesday as the bank reported a first-half net profit of A$2.54 billion ($1.97 billion).

New CEO, John Stewart, laid out a series of strategies to rebuild and transform the bank and provide long-term sustainable growth. NAB has been losing market share and profits since a foreign exchange options scandal back in January last year saw errant traders lose A$360 million. It is the only Australian bank to report a decline in profit growth this reporting season.

Stewart told FinanceAsia that the decision to rationalize its activities in Asia was part of a broader strategy to make its institutional markets and services (IMS) business more profitable.

"For too long this business has been focused on lending which hasn't provided us with good returns. We want to use less of our balance sheet to generate revenues from IMS," he said, adding that, in Asia, capital currently invested in assets generating low returns would be released.

Stewart said NAB will re-focus its corporate lending activities in Asia, "on those clients which have, or potentially have, activities or investments in our core banking markets".

He expanded on this by saying NAB's core businesses in Asia include foreign exchange trading, particularly in Australian dollar and New Zealand dollar, and providing institutional services to Australian and New Zealand companies that have operations in the region.

"In markets such as Singapore we shouldn't be trying to slog it out against the local banks who provide services to local companies. This is not where our competitive advantage lies. We need to get back to our knitting," he said.

Stewart said the bank would be focusing on retaining a regional IMS hub in Hong Kong. He added that the bank remained committed to the Asia region and that its retail operations in Singapore, Hong Kong and Tokyo would remain in business.

He said staff affected by the office closures may be offered positions in other countries. "If these people can be used anywhere else within IMS then we would rather re-deploy them than make them redundant."

NAB's first-half net profit of A$2.54 billion was boosted by one-off items including A$1.1 billion made from the sale of two Irish banks last year. If these extraordinary items are stripped out, the underlying net profit of the bank fell to $1.87 billion, down about 12% on March half results last year.

To turn its affairs around, the bank is planning wide-sweeping redundancies. Over the next two years it plans to cut 4,200 jobs in Australia, the UK and Asia. Most of these are back office roles.

NAB is making a provision of A$403 million against its first half results to cover about 2,700 redundancies. The annualised saving from this provision will be around A$375 million when completed.