NAB chief executive Ross McEwan still betting on Australia to avoid a recession – just

Ross McEwan believes there is good news on the horizon with the Reserve Bank very near the end of its punishing round of interest rate hikes.

Australia can avoid a recession, says NAB chief executive Ross McEwan. Picture: Aaron Francis

Ross McEwan is one of the few voices still backing Australia to get through the coming year without falling into a recession.

Although the top banking boss does concede this outcome remains “finely balanced” and becomes tougher with every official interest rate rise.

The National Australia Bank chief executive says latest monthly figures showing inflation starting to cool should be welcomed as an encouraging sign for the economy. At the same time internal numbers from his own bank are yet to show any early warning signs of widespread stress.

However, households may not have seen the end of the Reserve Bank’s punishing interest rate hiking cycle just yet.

“The (inflation) trend is in the right direction, but I still think there’s a little bit of work for the Reserve Bank to do and it’s probably one or two (rate hikes) to go before we get to the very top,” McEwan tells The Australian.

“Australia is still resilient enough to get through without going into a recession. But each time interest rates go up it becomes a little bit more difficult”.

McEwan was speaking to The Australian part way through a tour of NAB’s operations in regional Queensland. This has taken in mining and agricultural customers, businesses as well as meeting with Salvation Army to get a read on the economy outside the big cities.

The NAB boss says there’s underlying resilience in the economy, although households are adjusting their spending behaviour. Picture: AFP

Some sectors of Australia are still doing very well: resources in particular and parts of agriculture. And there is a much bigger cohort of banking customers that are feeling the pinch of higher prices and mortgage payments – although they are responding by changing spending habits. Retail and some parts of construction are starting to see slowing demand too, he says.

Even if inflation has peaked, economists say it is still too high and the RBA is likely to push through at least one more of its cash rate hikes in coming months.

“I would still call it that we stay out of recession – but it just shows the strength of Australia,” McEwan says.

“While it’s feeling much, much more difficult for people … we keep saying there are not too many countries I’d rather be and Australia and New Zealand are places that will come through this the best.”

However, McEwan warns there is also a group of Australians that are starting to get left behind. These are people right across the country that have been hit hardest by inflation and surging rents and they don’t usually show up in official banking numbers as they aren’t mortgage or even credit card customers. And these are the ones who are really struggling and we need to make sure we keep our eye on, he says.

Reaching out

For NAB’s part, the expected jump in lending losses and missed payments it – and other banks – had been bracing for as interest rates started moving higher over the past year has yet to materialise.

Even as billions of dollars in low fixed mortgages are rolling over to a higher market rate, borrowers are adapting to the changes, the chief executive says.

There has been a “slight increase” in late or missed payments on mortgages but they still remain below rates seen before the Covid pandemic took hold.

NAB has been in touch with more than 8600 vulnerable customers, there’s just a handful who have asked for help. Picture: AFP

McEwan says customers are making payments on credit cards, personal loans and home loans, which have increased in line with the RBA’s official rate hikes. Small businesses too are also adapting to higher interest rates. At the other end of the spectrum there has been a noticeable increase in demand for home loans as expectations rise that the top of the interest rate cycle is nearing.

NAB has now been in contact with more than 8600 mortgage customers it considered most at risk from fast-rising interest rates and only 14 have so far requested help. At the start of May, McEwan’s bank had reached out to as many as 7000 customers it expected were the most vulnerable to repayment problems with just a dozen signalling some form of help was needed.

More broadly, NAB has sought to help customers get on the front foot. It has emailed or contacted more than 500,000 mortgage, credit card and other loan customers to flag that NAB’s assist line is available.

“It just shows resilience but we shouldn’t underestimate that customers are finding it much more difficult. And customers are definitely readjusting their budgets and how they spend their money.”

AI push

Meanwhile McEwan has just returned from the US west coast where he took his senior team to Seattle to meet with top executives from Microsoft and Amazon. The trip was to get across the opportunities in technology and specifically what is coming over the horizon around artificial intelligence. NAB is expected to broaden its use of artificial intelligence across the bank in coming years.

“At a minimum there are many opportunities to improve service levels for our customers using artificial intelligence,” McEwan says. “And it’s not that we’re brand new on using artificial intelligence. We actually use it in our business now, behind the scenes and detecting fraud and scams and also some of the data areas of our bank that are rarely seen by our customers, but we think there’s some really good opportunities over time.”

This could extend to customers doing searches for financial information from the bank. There is also a likely boost for staff being able to use artificial intelligence on pulling information out of the bank’s own systems for customers and assisting customers to get them the best product and service in a period of time.

McEwan says the cutting-edge technology does come with risks and any use inside a big bank needs to be balanced with the right guard rails – specifically around keeping customer information private.

The NAB chief believes artificial technology and automation will actually lead to new jobs through the bank, particularly through high-end programming and auditing of the technology.

“The advantages that we are going to have if we keep this technology safe in an organisation such as ourselves is that we’re going to have human intelligence working with artificial intelligence and over time that’s going to get a much better outcome for our customers.”

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Originally published as NAB chief executive Ross McEwan still betting on Australia to avoid a recession – just