28 Feb 2018

NAB CEO Andrew Thorburn – Interview with 4BC’s Ben Davis

E & O E – PROOF ONLY

BEN DAVIS: Andrew, good afternoon. Welcome to Brisbane.

ANDREW THORBURN: Good afternoon Ben. Great to be here.

DAVIS: What were you doing in town today?

THORBURN: Well, Brisbane, and Queensland more broadly, is a very important market for us and so being on the ground and talking with staff and bankers and seeing clients is really important. And also, there are a couple of quite significant investors in NAB shares, as you were mentioning, in Brisbane, big funds. So I’ve covered the ground and it’s been really good to do that. I think electronic communication and social media and all those sort of things are important, but actually there is no substitute for face to face contact with your bankers and your clients. And I’ve only ever been a banker and that’s what I always loved and still love doing.

DAVIS: Alright. How are you at barbecues, then?

THORBURN: [Laughs]

DAVIS: Because straight away, when you say the word bank or banker, there’s a perception issue. Do you tell people what you do when you’re at barbecues?

THORBURN: I do. Look, I really love the profession that I’ve been in all my career. What I say is yes, I’m a banker and I’m a proud banker. There are some things, particularly in the last decade, that banks haven’t got right, but actually there’s a lot more we get right. And what we do is help people. We help people. I mean, if you think of someone buying a home, they need a bank to help advance them the money, because they could never save that in their own right. Someone starting a business, they get our advice. Yesterday, I saw a client of the bank who’s been a client for 20 years, grown their business – they’re in agri – to a very significant business. They’re exporting, they’re buying other businesses. We’re helping advise them and fund them to do that.

So, what I love about banks is that we do that sort of thing to help people achieve their goals that without us they couldn’t do.

DAVIS: Andrew, I asked you that, about if you say at barbecues what you do, and there’s that perception, and I know my colleague Ross Greenwood last week spoke to your counterpart from the ANZ, and he said, you know, you’ve offered to come in here and talk, I mean, we know there’s a banking Royal Commission going on at the moment – is there a PR or charm offensive, a chance to win back some of that- or change that public perception, that tide?

THORBURN: I think this is a really challenging one, but this is the challenge. We’ve got to explain what we do; we need to be more transparent and explain that simply for people, what banks do; when we make mistakes, we’ve got to own up to them, be accountable for them, and we’ve got to fix them; and then we’ve got to just keep talking about, essentially, what a bank does, which is, we enable people to transact, to save money safely, to buy a house, to start a business, to grow a business. So, when we come back to it, we’ve got to explain to people that what we do is so important to their lives, to prosperity, and to the country of Australia, and to our economy.

So I think there’s a couple of things we need to, though, and those are the first things, about when we make mistakes, fixing them and owning up to them, but talking about the positive things we do and doing that in a very normal, human, sensible way.

DAVIS: 131873 is the open line. We’ll get to it shortly; a few people have phoned in. Emails coming in as well – ben@4bc.com.au. Your questions for Andrew, he is happy to answer them all.

You said you’ve been speaking to clients up here. What are they telling you? What are they telling you as concerns they have or things that are going right and in the Queensland economy in general?

THORBURN: Well, I think overall the Queensland economy – Queensland’s such a large state and it’s got such a wide diversity of industries – resources, agri, tourism. You know, I think we’ve been looking at the housing market, the apartment market as well. So there’s a lot of activity here. But I think it’s actually improving. It’s a wee bit more positive, I think, today than, say, a year ago when we look at business conditions and confidence. Unemployment’s a wee bit higher. There’s obviously a drought in parts of the state further north, so some agri clients are struggling and some are doing well.

But overall, I think, Ben, in summary, I think it’s in a pretty good state and I think things like the Commonwealth Games and a new Government coming in, I think there’s a lot of positives to work on.

What clients tell us, our business clients – and we’re the largest business bank in Australia – is things like the cost of compliance and abiding by more and more regulations is making it very difficult for small businesses today. The infrastructure around cities like Brisbane, Melbourne, and Sydney; the ability to get across town, to get your workers to and from work; to get your exports to the port and away to places like China and India, that’s very difficult for our clients.

So compliance, regulation, infrastructure, I think are some of the common things our business clients talk to us about.

DAVIS: Alright. We’ve had an email come through from James – again, if you’d like to call, 131873 is the open line, we will get to that shortly. James makes a point, and he picked up on the- his words are: that eye-watering profit, yet 6,000 staff are being let go at the NAB.

THORBURN: Yeah. So … look, our industry and our bank is going through a dramatic change as the internet and technology makes things so much more possible and so much faster. And if you think of industries that have been disrupted that we’re all familiar with: music, entertainment and media, taxis, you know. Like, if you don’t provide fast, convenient, simple, affordable, quality banking products and services, we will be disrupted.

Now, they’ll come from so-called fintech – financial technology – companies or maybe the Googles, the Amazons, Facebooks of this world. So, I think the future means we must serve our clients better and be better at it. And we’ve got to deploy technology ourselves to stay alive. So, with the staffing situation, you know, it’s going to change a lot.

When I first started in banking, I was assigned to a branch that 33 people in it. Today that branch has six. Now, that’s just ATMs, over the counter transactions, ATMs, the mobile phone. What’s going to happen is that same thing’s happening, it’s just happening faster and faster, the change. So, our workforce has to change and as we make things simpler for customers we will need some staff in certain areas less of them, but we’re also employing people who know about artificial intelligence and robotics, so our workforce is changing quite dramatically. That’s what we have to get ready for.

Now, on the profit piece, I understand that the profit we make is a very large number. But to put it in perspective, we have almost 600,000 shareholders – they’re mums and dads through Australia. There are 82,000 shareholders in Queensland of the NAB. So what they’re getting is- most of our profits are paid out – 80 per cent of our profits are paid out to those shareholders, by way of a dividend, that in Australia, with imputation credits, is a very tax effective return for our shareholders. So, what we do is we invest some money from our profits, but we give that back, mainly, to our shareholders – mums and dads through Australia – and that’s a form of their income that we’re helping them with.

DAVIS: Very much so, and I had Warren phone in, and he said he couldn’t wait, but his question’s up here on the screen saying: why are the shareholders getting bigger dividends and we’re only getting one- sorry, two to three per cent back on our money?

And he says it’s our money.

THORBURN: Yes, yes. So Warren, on the deposit situation. I mean, interest rates are low in Australia. That’s because inflation’s low. Inflation is a couple of per cent. So, the real return on deposits is still positive, and of course, borrowers, mortgage customers- most of our mortgage customers are now paying between four and five per cent on their mortgages. It’s the lowest rate for the last 50 years. So, the reason why you are getting low deposit rates is because the official cash rate is set by the Reserve Bank and inflation is low. So that’s on that one.

And then in terms of shareholders, well, the return on the capital that shareholders have invested in our bank is about 14 per cent. Now that’s higher than 3 per cent with term deposits, but there’s more risk. You know, when you invest in a bank it’s a share, the price can go up and down, dividends can go up and down, they’re not guaranteed. So they’re a bit more at risk and hence the return needs to be higher. And when you look at our bank, at 14 per cent, there’s many more companies listed on the stock exchange that are producing much higher returns than the banks. So, it is risk capital that people are investing when they buy a stock.

DAVIS: Warren, I hope that answers your question. 131873 is the open line, and it is an open line to Andrew Thorburn, he is the CEO of the NAB. The big boss. It’s not often we get to speak to someone in this position in a company in this country as well…

 

You mentioned about branches and you said the numbers of those who staff those branches have dropped considerably in your time with the bank. How important is branch banking?

THORBURN: Well, I think it will form still a very important part of the future of banking, Ben, as far as I can see into the future. What people are wanting is convenience and simplicity and hence the use of ATMs and tap and go and the mobile phone. That’s …

DAVIS: [Interrupts] Because I can’t remember the last time I went into a branch.

THORBURN: No, [indistinct] …

DAVIS: That’s me, but I know there’s a lot of people listening that do that.

THORBURN: They do that. Now, some people go to a branch because they need some particular advice on a product. You know, they’ve inherited some money, they want to know how to invest it; or they’re thinking of taking out a large home loan and they want to see somebody face to face because that’s how humans work. So, I think for those sort of major transactions, a branch or a face to face place will be important. The other thing is that in rural and regional communities, which you have many in Queensland, the branch and the post office and going to the supermarket, they’re sort of local areas that people go to do things travelling in from the country.

And so, we still get rural and regional customers going into a branch and doing some of the more traditional forms of banking. So, I think they will always be important. I think there will be less of them because people are using them less, so it’s like a service station or a dairy, milk bar – I spent a long time in New Zealand – or any other form of business that if you’re not getting traffic, you have to look at relocating or rightsizing.

So, I think we’ll have less branches. But we don’t have a target. We really follow the flows of where people are using branches. We think we will be opening branches in places like Western Sydney, where the population is growing quite dramatically; any place where there’s new population growth, we’ll be looking to open branches and business centres.

DAVIS: Okay. Now, we’ve got Mitch on the line from Wellington Point. Mitch, good afternoon; you’ve got Andrew on the line.

CALLER MITCH: G’day, Andrew. My question is in regards to- obviously, like you spoke about earlier, inflation isn’t growing at a rapid pace and with that neither is wages. So, for a person trying to save for a first home, what would you recommend as some stock points to, I guess, note on how you can achieve that a bit quicker based on your experience and knowledge?

THORBURN: Well, that’s a great question, Mitch, and I applaud you for asking because a lot of people don’t do that. They spend and they don’t save, so you’re thinking about- you’ve got the right question in mind.

So, the first thing is, I think, getting a basic budget. You can download off the net quite standard templates and put in your income and expenses. Be realistic, but be disciplined, and then track it.

Second is, if you can find a friend, a buddy, or a mentor who’s good at managing money or can keep you accountable for helping with your budget, then I think you need some third party help, just to help you with that.

The third thing is, you just need to dig in and save and watch that build and be encouraged as it builds. Once you put it into the account, don’t take it out. Don’t dip in to it for a holiday, to upgrade your car or things like that, which might seem more than just consumer items like buying a new DVD player. So, try to keep saving and let it build up and look for the best interest rate possible with, you know, a reputable institution – and there are some online savings accounts which will give you the best rate possible – and keep building towards it.

And, I think one of the other things is- I obviously don’t know your circumstances, but people sometimes start off being a bit unrealistic with the property they can buy. And so I think targeting something that you could afford if you borrowed the money, because interest rates are low. So, don’t set your sights so far with buying a house that’s going to be really unrealistic for you to get to. Go to a different suburb where you can afford something and go for it and set yourself a goal over two or three years to save enough to be able to get the deposit.

DAVIS: Mitch, can I ask you something? Hopefully those tips are okay, but do you see home ownership as a realistic dream or is it just a- almost a mirage on the horizon?

CALLER MITCH: Oh look, it’s funny you asked that, Ben, because I guess I’ve been weighing up my options lately and to tell you the truth I have that conversation a lot with friends. It does take a lot of, to be honest, sacrifice, particularly being in the millennial bracket. We live in such a day and age where we’re a lot more materialistic and I guess that goal of owning a house because of that, you know, it takes a lot more sacrifice and hard work. So, to answer your question, 50/50 at the moment, really.

I mean, you know, do you sacrifice your social life and all of that to own the house – and yes, that’s part of it- or do you realise, okay, well this probably isn’t a realistic option. Do I do the travel, you know, live my life the way I want to and just rent. I mean, that’s the realism of it.

DAVIS: Yeah. And Mitch, the reason I asked you the question – and thank you for being so open and honest to that – Andrew, you’re going to have to face that as the customers coming through the next generation. I reckon that’s the mindset for a lot of them, and I’d even say my generation as well. So we’re, you know, I’m early 40s. There’s a lot of people in that same boat going, well, I’m living the life I want. Maybe not a mortgage; maybe not saving, but spending. How do you as a bank, as a company, for your next generation coming through, how do you approach that?

THORBURN: Well, I think millennials, it’s a growing proportion. We’ve got ourselves, I’ve got three young children, young adults, who are in that category who are renting. And so I think there is a different attitude, but I do think that that old fashioned habit of saving and discipline around saving and deferring gratification that we all- all good things you can’t have now. It takes time.

DAVIS: [Interrupts] But we want it now and it’s on offer to us to have it now. Interest free, everything, I want it now.

THORBURN: Yes, but I just think, be careful and realise that there are consequences from doing that. And in five to 10 years when someone who’s 25 is 35, they’ll probably think, gee, I wish I had done something different five or 10 years ago and saved a bit more.

DAVIS: Oh, yeah. The what if? I wish I’d listened to my parents, too, when I was in my early twenties.

Alistair, good afternoon.

CALLER ALISTAIR: Yeah, hi, it’s Alistair McAdam here. I’d like to ask your guest, and I’m not sure what the National Bank does, but many bankers are sending their call centres to the Philippines, where the people there seem to have limited command of English. They don’t seem to have the same cultural norms as us and they are almost impossible to deal with. I get so frustrated. Why don’t the banks think that by doing this, that they are self-harming their brand with ordinary Australians.

DAVIS: That’s a good question, Alistair, and I reckon you can take out banks put in telcos, put in any big business. Andrew?

THORBURN: Alistair, it’s Andrew here. So, I can’t speak for other companies, certainly other banks, but in the case of our bank, all our call centres are in Australia.

DAVIS: Every single one of them?

THORBURN: Yes.

DAVIS: So, I pick up the phone- and look, I’m not a NAB customer – I pick up the phone and I’m speaking to somebody in Australia.

THORBURN: Yes, you’ll be talking to somebody in Sydney or Melbourne.

DAVIS: Okay. Well, there we go. There we go. Okay. Well, that’s an eye opener.

[Audio skip]

CALLER MICHAEL: Yeah, g’day. Look, [indistinct] played out as people who invest their money, the return isn’t that high at the moment. At the same time, the return on the lending is at very low levels. Just wondering how the banks, not just the National Bank, justify charging such high rates on credit cards – you also touched on budgeting before and how people struggle to get money together for a home. Often the people with the highest debt or with significant debt on credit cards are those people who can’t really afford. And I would think that all banks have some form of community service obligation, while still being a business, to try and reduce the impact that it has on the general public by trying to pull those rates back a bit, yet it never seems to happen.

THORBURN: Michael, thank you for your question. So, firstly, I have been a banker all my career, and Ben started with, you know, do you tell people you’re a banker. But one of the duties of care a banker has to clients is to make sure that if they are borrowing money, that they can afford it, that they are able to pay it back, and that we are somewhat conservative in our assessments of their income expenses. We have no interest in setting up a client to be in difficulty. So I just want to start with that.

The second thing is- on credit cards, which was your specific question. Credit cards are designed as an immediate purchase vehicle, a deferred credit vehicle; they’re not for long term debt. And what’s happened with credit cards is, firstly, because they’re unsecured, so, unlike, say, a house where we have the security, we have a much higher write-off rate, arrears rate, default rate – whatever the word is you want to use – and we have to compensate for that.

Secondly, there has been various benefits added, whether it’s insurance or loyalty points, that get added over the years to credit card schemes and those credit card schemes are- or loyalty points are quite expensive for the bank to run. It means you can go on a trip, you can use points, you can go to David Jones and go to Myer, go to a service station. So, those point schemes are quite expensive and they have to be paid for by those credit card customers in totality.

Finally, we do have a low rate credit card and we are very happy to switch people very quickly if they’re on a higher rate card with the point schemes, where most people pay it off- 80 per cent of people are paying off their balances immediately when due, but if you want a low rate card, our low rate card is [13.99] per cent, and that’s a very competitive rate.

DAVIS: [Interrupts] No bells and whistles with that, no rewards.

THORBURN: No, that’s a basic product. So, that’s what I’d say to that, Michael.

DAVIS: Michael, thank you for your call. Andrew, a question from me: bank fees.

THORBURN: Yes?

DAVIS: How do you work them out and how are they justified? I mean, sometimes there’s … let me see, if you miss a direct debit payment or something, $15, some banks can charge $30. How do the fees- how are they calculated, how are they justified, how are they worked out? Because it seems the cost incurred by the bank doesn’t really match up with the $30 charge.

THORBURN: It’s a good question. The bank makes revenue from either interest or fees; it’s the combination of those two. Most of it comes from interest. There’s a relatively smallish amount, and falling, from fees. Now, I think fees- we have too many fees. They’re complicated, hard to understand, and most importantly, often people don’t see when they’re coming.

DAVIS: Yeah.

THORBURN: So you miss a payment of something and you get hit with a certain fee that you thought, wow, where did that come from. So, I think we need to simplify fees a lot more. We need to make them more transparent so that you can see that if you don’t pay, there will be a fee – do you want to pay now or do you not want to pay and extend the credit. So, I think we just need to explain it a lot more and give people the option to pay before or, perhaps, have some fee- there’s no …

DAVIS: [Interrupts] Andrew, people don’t- they don’t feel like- they don’t like being taken for a ride or being ripped off. And if you all of a sudden get a fee that you go, 15 bucks? For what? Hang on, surely that’s not a cost incurred by the bank. If it was something less, okay, fair enough and that’s a penalty to me for not paying on time or for whatever. But when you get to- you sort of scratch your head and you go, hang on, how’s that cost calculated?

THORBURN: Yeah. Well, I think the- on things like late payment fees, so what we do is we have to then contact the customer electronically or we phone them. We may have to phone multiple times. So, there is a charge to what we call collecting that. Now, that $15, or whatever the fee is, covers that. But I understand your point, that it does seem a bit high. But we have to make sure they’re competitive against competitors and I do think we need to simplify fees dramatically to make them much more understandable and justifiable.

DAVIS: All right. And I know you’ve got a plane to catch, too, so I am mindful of the time and we do have callers here. One more, I reckon we’ve got time for. Bill, good afternoon.

CALLER BILL: Yeah, hi Ben and your guest.

DAVIS: Andrew, it is.

CALLER BILL: Andrew. Andrew, if I pay my rates and I pay them on time, and it’s $500, $600 and I pay by credit card, I get charged 0.04 per cent. Now, if I went down to the ATM and pulled the money out and went up to city council and put the money across as cash, I don’t get charged a fee. Now, the council has to employ somebody to count that money, take it down to the bank in the car, whatever, and so forth. Now, where’s the sense in that?

DAVIS: So, sorry Bill, are you querying why there is a charge on the credit card fee, is that the question?

CALLER BILL: Yes.

DAVIS: Okay.

THORBURN: So, Bill, I actually don’t know the answer to that. That’s a very specific question.

DAVIS: That’s probably the merchant charging.

THORBURN: It probably is.

DAVIS: How much do you charge merchants to use a facility like that?

THORBURN: It varies by the merchant. So, it depends on the amount of business the merchant have, the sort of terminal they have, and the volume they put through. But I’d like to- Bill, could you just leave your details, an email or something, because I would like to get back to you on this, an answer to your specific question, or you or anyone can email me on Andrew.Thorburn@NAB.com.au. But I would like to answer your question if I could.

DAVIS: Well, there we go. The boss of the big bank’s just given out his email address: Andrew.Thorburn@NAB.com.au. Andrew, fantastic stuff.

One final one from me, because I know you do have to go. I spoke about this on Monday and I asked businesses – I wasn’t expecting someone of your stature to phone in – and I said tax cuts, company tax cuts, it’s all the rage in Canberra now and we know that the Turnbull Government’s trying to sell it. One of the issues they’re selling it on is the potential to increase salary, to increase wages. If, as a business, someone who runs a business, owns a business, if you have that extra money there – I know it’s only five per cent, but when you’re talking $6.6 billion in profit that could go a long way – what would you do with that money?

Would you do reinvest in staff, would it go into capital, bottom line – what would you do with it? Would you pocket it?

THORBURN: Well, I think what we’d do is we would do a range of things with it. I think we would reinvest back in staff by way of training, better technology, and in certain areas possibly higher wages. We would also improve our products and services for our clients – we’d upgrade our branches, our business centres at a much quicker rate. We improve our technology. And some of it may go to the shareholders by way of higher profit. So- because we don’t pocket anything, Ben, we keep it for the shareholders and then twice a year through a dividend we give it back to them. So, that’s how we do it.

But I think this tax cuts thing, we should have a discussion around that. But one of the things that I think is also relevant, not just the rate of tax – in Australia, small businesses deal with 120 forms of tax. One hundred and twenty.

DAVIS: It’s disgusting, isn’t it.

THORBURN: Ten of those generate 90 per cent of the revenue. So, there’s a lot of taxes that cause small businesses compliance burden, time at night up bookkeeping so that they can pay this tax. If we could simplify it, not just cut it, I think that’s a big part of the answer too.

DAVIS: Alright. Is that something you’re having discussions with at higher level?

THORBURN: Absolutely we are, yes.

DAVIS: Excellent. They’re listening, are they?

THORBURN: Well, you’ve got to keep in the in the fight, don’t you? Trying to represent your clients, because that’s what a lot of clients tell us, it’s just compliance heavy and what they want to do is get out and grow their business.

DAVIS: Yeah.

THORBURN: That’s the fun bit.

DAVIS: Exactly. Andrew, been such a pleasure for you to come in. On behalf of me and my listeners, thank you so much for dropping in. I know you don’t own the airport – you’ve got a lot of clout, but I don’t know if you can hold up a flight, so we’ll let you go. Thank you. We’ll get that email up and running as well.

The boss of the NAB, Andrew Thorburn. Thank you.

THORBURN: Thanks Ben.

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