We’re here to help – NAB CEO at The Australian Strategic Business Forum 2022

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TRANSCRIPT 
Joining a panel discussion on jobs, the economy and skills at The Australian’s Strategic Business Summit in Melbourne on 20 July 2022, NAB CEO Ross McEwan made the following comments.

Ticky Fullerton (TF): Ross, do you believe that the government’s enthusiasm for this sort of review in the role of monetary policy is really important? Is timely? And in particular, what would you think of throwing out one of the key priorities for the RBA to look at inflation target?

Ross McEwan (RM): The timing’s excellent. I mean, brand new government, people have got views, put them on the table. I think the approach that they’re taking is working, right across the board with business and the RBA and every other party right up front, I think is commendable.

With the review, I think that they’re opening up all aspects of it, including inflation. I’d be very surprised if we walked away from the inflationary band that we operated in. Now is 2 to 3% the right level? We’ll leave the experts to look that through, but it’s certainly changed from 20 years ago. The last six to 12 months have shown us that, we are in a difficult period of having high inflation coming in that we haven’t seen for decades. Many leaders in business have never operated in an inflationary environment. I remember my first mortgage of 18 to 24%, but inflation was running at 14%. There is no way we need to go or want to go back there. I think it’s really timely. I think the spirit with which it’s being done should be embraced as well. We heard that from Dr Lowe this morning and from the Treasurer. I think done in the right spirit, it’ll be a very good opportunity.

TF: Ross, obviously we’ve got the government, as the Treasurer says, coming out with some of its numbers next week. We have all these pressures with rates, inflation, wages. How do you see the earnings season just ahead? What’s your sense of how companies have managed the past year and whether we’ll see much guidance for next year?

RM: Well, it’s going to be a difficult time because we are going to be facing into a higher inflationary period – we’re already seeing that. I have a feeling that we are probably coming down on this economy too hard. We’re predicting next year GDP growth probably around 1.8%. But let’s even say it’s less than 1.8, it’s still positive with an environment globally that is having some difficulties. We’re in pretty good shape.

TF: When you say coming down too hard, what do you mean?

RM:  I think we’re talking the economy down and we’re seeing some parts of the economy really doing very well. We’ve got a mining industry doing very well. We’ve got countries overseas that are wanting the goods we have, be they iron ore or even coal dare I say, who would’ve thought that even six months ago, but the circumstances have dictated. We’ve got a food industry that’s going very well. We’ve got things like wheat, which is in high demand. We’ve got pretty much all our agricultural products. Our biggest problem, which I’ve been talking up for quite some time, is that every business I talk to cannot get labour. Now that’s a great thing too. Three and a half percent unemployment and businesses still looking for labour. That is a pretty good position to be in in Australia.

TF: Ross you’ve just been around the world I know. How do you see the Australian economy shaping up?

RM: Well first off it was great to get out of the country after two years of being locked down. I got around to our operations in Singapore, UK, our new office we just opened in Paris for Europe, and I went to the US on the way back. It was great to get out, but also very nice to be back, and I think we shouldn’t underestimate how good Australia is and how well we are doing.

There are other economies – the likes of the UK – that have got very high inflation, but most of it is from imports and they can do very little about it. They’re trying to push interest rates up to hold inflation, which is creating a problem with the economy. Well, we’ve got a growing economy and inflation at lower levels. There’s a lot to like about what’s going on here. But I think there are some countries that are having more difficulties than we are, and we are in a very lucky position that we should take advantage of right now.

TF: Ross, give us a feel for what you’re seeing out there, because I think NAB Economics has got its latest quarterly on SMEs, hasn’t it?

RM: Well, at least a third of our customers are saying that they desperately need more labour, and it is right across the board. I was up on the northern coast of New South Wales last week. Meat processing businesses, berry processing businesses, berry growers, right through to hotels, restaurants, bars, everybody calling out for labour. It’s not just for skilled labour, and this is the danger we keep running into – we keep saying, “Let’s get the skilled labour in”. Maybe because it’s easier to work out who those people are and we can put a salary bar, but the country needs these people that actually will do the job.

We’ve got restaurants running now at five days, not seven days – you might have noticed that if you’ve tried to get a restaurant recently. We’ve got cafes and bars that can’t find baristas. We’ve got all sorts of industries that are really struggling, so it’s both. Now, I commend the government on starting with the 60,000, but we need to move quite quickly into where there are these skills gaps. Some of them are just the great people that, every day, get out of bed and help at a hotel or a restaurant or a bar. And that’s the area we need to also work through pretty quickly.

TF: Ross, what do you think (about the Federal Government’s Jobs Summit)? I mean, it’s a tight guest list, of course. As one of the big bank leaders, are you going to get a golden ticket?

RM: Well, we’ll wait and see. It’d be nice to be invited. There’ll be smarter people than me there, I suspect.

TF: But what about things like enterprise bargaining. I mean, are we going to get anything like what was achieved during the Accord, because that’s what we need?

RM: I think it is exactly what we need now, and it’s timely, and this goes back to our original conversation. I think it’s timely to be having the conversations and to get action, remembering too that the timing of the Summit sits before a budget. I think there’s some things that could come out of that that and flow into a budget as well. We need to be training and developing people for the next skill set that’s coming across all of our organisations. We need to be working through these issues. We should have the conversation about what type of labour we bring into Australia, because it’s not just skilled labour we’re struggling with. It’s right across the board.

Q&A

Hannah Wootton (AFR): I’m Hannah Wootton from the Fin Review. I had a question for Mr McEwan. Yesterday, Deputy Governor of the RBA, Michele Bullock said that she thinks official interest rates still need to move drastically from where they are now, but she thinks households are positioned to absorb some of that cost. I wonder what your view on this one is.

RM: We’re not back to a normalised interest rate environment. What’s the normalised in this environment? We’ll leave that to the Reserve Bank to work its way through, but it’s more likely to be two and a half or something of that nature. Our view is we’ll probably be back there by the end of this year and the curve will slow down next year, depending upon where the economy is. But as I said right at the start, we’ve got a very strong economy here and that’s one of the issues. We’re getting inflation because of the strength of our economy, which we should be delighted about. We seem to be getting ourselves very down about it, but we should be delighted for that.

The customers we’re assessing are in pretty good shape, remembering that over the last two years, about 200 to 250 billion transferred from the government’s coffers into individual and small businesses’ coffers as part of the looking after customers through COVID. A lot of that is still sitting in bank accounts. There’s a resilience there that we haven’t probably seen for quite some time, both at the individual level and at the small business level.

I’ll give you an anecdote. We haven’t reduced customers’ payments even though interest rates have come down, unless they wanted us to. They’ve been overpaying for their principle, which is I think a pretty good thing for customers to get their debt levels down over time like we’ve had over the last few years with interest rates alone. So that buffer is still sitting there. I know averages are very, very dangerous, but that’s 30% of our customers are well and truly are advanced with their payments, which is a good position to go into an interest rate environment that’s going up.

The other piece that we’ve got is that we don’t assess the customer at the level of interest rate they’ve been paying for the last couple of years. There’s a buffer on top of that. We think there are still good levels that customers can pay and will be able to pay, even though inflation is hitting them in other areas.

The one thing I keep saying is when customers get into difficulty, just please pick up the phone. I’m saying this to the media. Get them to pick up the phone because if we can talk to them very early on, the solutions are usually there. What tends to happen, embarrassment sets in, and people don’t pick up the phone and it’s not until they’ve got the final letter that they’ll respond. That’s well down the track. All we can do is say “Please pick up the phone”, because there will be some pain and anguish for people. We’re going through an interest climb after 11 years of them coming down, and we’ve got high inflation that’s hitting the basket every time we go to the supermarket or the petrol station. There’s impact, but in a way, we have to deal with that and get interest rates back to a more normalised level. I think there’s a good resilience in this economy. At 3.5% unemployment, it’s the best it’s been in decades. There’s good resilience in the labour market as well.

Jackson Hewett (Host): But Ross, I do want to push you on that averages thing, because it is something like 20% of mortgage holders are not at all there in their payments and they’re really living payment to payment. So how is that good from your portfolio? For instance, these people are the margins, I suppose. They’re the ones who have the most affected by inflation, the ones who are most affected by rising interest costs. What are you doing? Looking at them, are you being proactive to go out to them? Are you worried about that 20% of your portfolio? If that’s how big it is?

RM: We don’t see it as 20% of the portfolio. Let’s get the facts right. We see there is a tail and there’s always a tail in any book. Doesn’t matter whether it’s a credit card business or an unsecured loan or a small business, there’ll be a tail and there’ll be some difficulties. I accept that is just a reality. What we’re saying is ‘let’s speak to these people early’ and we are putting strategies in place to have those conversations and be as helpful as we can.

I don’t accept that it’s 20%. We even saw this through the COVID crisis. It was a crisis – we lost 900,000 jobs in two months. When you think about what happened at the global financial crisis in Australia, I think it was a maximum 40,000 in a month. We helped customers out with deferrals –business and individuals – and we put out like $60 billion on deferral. It very quickly came back to $2 billion. Now that is not 20% of people having difficulty. That’s the point I’d like to make. Yes, there are, and we need to step in and help as much as we can and that’s what we’ll do. But we also need everybody to be working with us on that, including small businesses and individuals who are having some difficulty. The earlier you put your hand up, the earlier and better we can help.

Host: One last question.

Ash Rosane (Good Company CEO): Hi, my name’s Ash Rosane. I’m the CEO of Good company. We’ve got a locally made platform where we connect corporates to charities to volunteer, donate, and fundraise. My question to the Strategic Business Forum is how are companies thinking about buying Australian, supporting Australian products and platforms, and how does that fit into your thoughts going forward over the next again, 5, 10, 15, 20 years?

RM: We’re endeavouring to do more with supply chain through Indigenous partners. That’s certainly one of our big tasks going forward as well as developing Indigenous business. We’ve taken it as one of our four big ESG measures. I was in Lismore last week in remembering the catastrophe that happened there with the flood. I’m pretty sure that every supplier there is a local fixing that branch up for us. And it’s a very big spend. It’s well over one and half million going into that. It was great to see the locals doing the work. They were all trades from the local area.

I think those are things that we can do to be very, very helpful. We’re getting that branch up and running faster than anybody else because our view was that we needed to be back there to help the community get back. Then the criticism is “Did you put it in the right place, will it get flooded out again?”. We are leaning into it pretty hard, and we’ll take that as a risk, but that was very much a local community activity that we’d done with our property team.

Host: That’s a great note to end on.

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