**Check against delivery**
I’d like to begin by acknowledging the Traditional Custodians of the land on which we meet today, and pay my respects to their Elders both past and present.
Thank you for joining me here today.
- I’d like to thank the TMA Co-chairs: Rick Drury (La Trobe Financial) and Maria O’Brien (Baker McKenzie) for their welcome and for Matthew’s introduction
- I’m delighted to kick off proceedings with a banking perspective, and how we at NAB are navigating risk in today’s dynamic and often, challenging environment
- I’ve enjoyed a long career at NAB, from working as a front-line banker to most recently as Group Treasurer. This month marks a year since my appointment as Chief Risk Officer, so it’s a timely reflection for me.
I was asked today to discuss the ‘tipping point’ for banks. The economic cycle is an inevitability – and instead of attempting to anticipate ‘tipping points’ I’d like to explore the theme of resilience:
- Firstly, understanding our operating environment and future trends
- Secondly, by supporting our customers
- Lastly, by strengthening our own business, for the long-term.
The Australian economy has held up. There are emerging challenges but some bright spots:
- Globally, the China-US trade war impacting sentiment and global growth forecasts getting cut, and there’s lingering uncertainty around Brexit:
- Global growth in 2019 is expected to be well below its average (post-1980) growth rate. Growth is expected to stabilise, and then show some recovery, over 2020 and 2021, in part due to policy stimulus – including an easing in monetary policy by a range of central banks
- However, the possibility of further escalation of trade disputes – in particular, the US-China trade and technology dispute – represents a downside risk to the outlook.
- Closer to home, the cash rate is at a new record low:
- Driven by a stubborn jobless rate, persistently weak inflation, soft wages growth, modest business investment and lacklustre retail sales and GDP growth at its lowest since the GFC
- NAB’s Monthly Business Survey for August, which was published only yesterday (Tuesday 10 September), shows continued downward momentum. Trading conditions, forward orders and profitability are all lower while business conditions also dropped slightly again and that measure remains below its long-run average
- Similarly, we have seen an uptick in credit impairment charges over the past 12 months, but these too remain well below historical norms
- We remain confident in our loan book, with asset quality sound overall.
- Looking ahead, there are reasons to feel confident:
- GDP growth is expected to increase by only around 1.6% in calendar 2019 but some improvement is expected in 2020 and 2021 with growth projected to be around 2.25%
- The key dynamics continue to be a weak household sector, with consumption growth modest and dwelling investment declining but with support expected to come from public spending, business investment and, in the near term, commodity exports
- With growth below trend, the unemployment rate is expected to increase slightly, and policy stimulus – either monetary easing by the RBA or fiscal stimulus from the government – will be required to support activity.
The strength of the economy over the last thirty years is reflected in the long-term financial performance of the banking sector.
- The Australian banking system is well-capitalised and stable – and it is important to acknowledge the part regulation plays in this
- NAB has been serving Australians for 160 years. Our financial results over the past five years show:
- Enduring revenue growth, led by strength in our flagship Business Bank
- Arrears rates hovering near historic lows
- A clear path to unquestionably strong targets
- Whilst we’ve been in good financial health, this is not the only benchmark we should have set for ourselves – and it’s not how we see our future
- Where it really counts – serving our customers well – we have fallen well short of expectations
- The Banking Royal Commission has been a watershed moment, and has been confronting and challenging for our industry, our business and our people
- It shone a light on the treatment of customers – a necessary and important process to make our sector stronger – which we have welcomed
- We recognise trust in the financial services industry, and with our own bank, has been eroded – and we are determined to be better.
SUPPORTING OUR CUSTOMERS
The role of a bank is to serve customers:
- We offer depositors a secure investment option – which facilitates lending, drives investment and creates economic growth
- NAB is Australia’s biggest business bank. We want to see Australian businesses, our customers, succeed
- Strong businesses mean a strong economy. The private sector directly employs close to 10 million Australians – and business growth leads to job growth and wages growth.
It is our priority to ensure business is resilient and adaptive:
- The concept of risk in banking has traditionally been about protecting the bank. Today we must rethink these (risk) parameters and commit to greater support for customers – and shared success
- We celebrate the business transition stories shared at today’s conference
- We recognise the role of our partners and other specialist organisations in this room who provide advice and support.
We work hard to anticipate emerging risks – both financial and non-financial – to our customers:
- We have a responsibility to understand the impact of changing regulatory requirements and emerging industry issues before extending credit to customers
- Non-financial risks – environmental, social and governance – are a core part of our risk assessment and due diligence processes
- The challenge is to be ahead of the curve.
We are determined to help customers deal with the ups-and downs of business:
- We partner for the long-term, through the economic cycle and events such as ill-health or natural disasters
- We have a dedicated, specialist team (Strategic Business Services) to support customers in financial difficulty
- Critical to our success is early engagement. Our SBS team engages much earlier and we have feedback from customers who valued that experience
- They offer short term assistance to help customers get back on track, including additional lending, restructuring of loans and assistance where they’re unable to meet repayments
- Close to 80% of customers managed by our SBS bankers avoid external administration or mortgagee sale, and
- Of small business, 92% are up to date within 30 days of missing a payment.
We have extended the protections and support available to businesses:
- Extended protections of the Banking Code of Practice to small businesses with less than $5 million in total borrowings, up from an agreed level of $3 million
- We have reduced default interest paid by business customers who fall into arrears by 3.5%. Effective August 1st 2019, the default margin was reduced to 1.00%
- Last year, we abolished it completely for agribusiness customers in drought-affected areas
- Businesses with overdrafts, business and corporate market loans, and trade and working capital loans will benefit if the need arises
- Ultimately, we are determined to support customers for the long-term – through the economic cycle and other events such as ill-health or natural disaster
- Indeed, 92% of business customers who access NAB’s small business hardship support are up to date within 30 days of missing a payment
- To ensure the fair and respectful treatment of customers we have also introduced of a new code of conduct for insolvency and debt restructuring advisers, and
- We have also started offering free-of-charge access to third-party, confidential counselling support services (via Benestar).
STRENGTHENING OUR OWN BUSINESS
We recognise trust has been eroded and that building a more customer-centric bank is critical to our future success.
- The Royal Commission resulted in a deep reflection and action in closing the gap in what we say versus what we do
- We have taken a number of steps since the release of the final RC report which has resulted in positive changes for our people and our customers
- We are taking action by:
- Compensating customers when we get it wrong
- How we pay our people – we are changing our rem framework
- How we hold ourselves accountable for running the bank, and
- How we build a culture that puts customers first every time.
- NAB supports 72 of the RC recommendations and we are now looking to accelerate implementation in the context of the government released roadmap released last month
- We look forward to welcoming incoming CEO Ross McEwan to NAB, as we seek to transform our operations and culture firmly around leading customer service, experience and products
- Significant changes have already been implemented this year:
- We abolished 50 fees (and more to come) – including removing $10 NAB Connect (monthly) fee for the benefit of ~65,000 business customers
- Committed to keep all branches open in regional Australia until 2021 and announced a new $2.4 million banking hub for Tamworth, NSW
- And we are ending referral payments to home loan ‘introducers’.
- We also know that sustainable change takes time.
We are moving with rigour and discipline to deliver sustained internal reform:
- Last year we undertook, at the request of APRA, a detailed assessment of our governance, accountability and culture
- This important process of introspection found that too often, the voice of the customer had been missing from our decision-making. And too often we had been prepared to accept good intentions rather than hold ourselves to account for operating with urgency, consistency and discipline
- A program of work has been stood up with the requisite resources and capability required to deliver far-reaching change:
- A Board Customer Committee is now in place – and has approved a new customer outcomes framework to define the principles and standards in the design, pricing and structure of all NAB products
- Significant uplift in NAB’s customer remediation practices, reporting and governance – with $170 million repaid to customers in the past twelve months (June 2018 to June 2019)
- Improved experience for Business Banking Customers, with reduction of aged small business complaints by 50 per cent this financial year (beginning October 2018).
- Within the risk function, we have invested in resource uplift in areas of non-financial risk – across compliance, conduct risk, technology and operations. Specifically, in our RMS and Risk appetite we are:
- Being explicit about protecting our customers – ensuring we look at everything through the lens of our customers, and putting them first
- Protecting our people through the provision of a safe and inclusive workplace, fair remuneration, capable leaders and career development and training
- Clarifying accountability in our Risk Management Framework and reflecting revised executive risk committee structures to facilitate clearer accountability and decision making up to Board
- Updating the classification of risks across the Enterprise – so we have a consistent end to end view of risk types and how it is managed
- And overall, looking at our how we can align with community expectations as they evolve across all our services.
- And we have begun simplifying our risk management practices to reduce complexity
- For example, by reviewing key enterprise policies, removing unnecessary processes, and making them clearer and sharper.
- We will be reporting publicly on our progress over the coming months because transparency and accountability are crucial to delivering meaningful change.
Across the bank, we are tackling complexity and investing in our systems and processes:
- We’re in the middle of a three-year, $4.5 billion transformation aimed at creating a simpler and faster bank – to deliver better experiences for our customers and set the bank up for the future
- This transformation is on track and we are seeing benefits coming through in terms of less products, less layers, better IT systems, and growth in market share in some key segments
- The way our customers interact with us is constantly evolving and customers no longer simply compare our services to other banks, they compare us with experiences they have every day – for example ordering food, ride-share services. For banks, they expect new accounts open in 10 minutes or the ability to apply for loans online
- To respond we are putting our customers at the centre of all our processes, hearing from them on the ideal experience, whether that’s buying a house or opening an account. We need to consider and understand the whole experience customers have, from the moment they contact NAB
- Importantly, we need to find a balance in using technology but not losing the sense of personal connection or trust.
In closing, I want to point to the dynamic pace of change:
- Banking has evolved to being a sophisticated, complex, high volume, technology driven-industry
- But in a paradoxical sense, the new operating environment (spurred on by the RC) has given us cause to bring banking back to where it started:
- ensure we put our customers first
- to keep safe the money we borrow from depositors
- generate a return to pay them
- and take calculated risks with that money by backing customers through lending.
- This is the lens through which we look to rebuild trust in NAB and drive the growth of our business, in a sustainable way.
Thank you for listening and to the TMA for facilitating these important discussions.