NAB warns of loan failures, but no recession coming

NAB boss Ross McEwan warns the bank is seeing a small number of borrowers falling behind on their loans, but doesn’t expect Australia to slip into a recession.

NAB CEO Ross McEwan also thinks $3m is a lot of money in regards to recently announced superannuation balance tax changes. Picture: NCA NewsWire / David Crosling

National Australia Bank boss Ross McEwan has warned more mortgage holders will get behind on their debts in the coming months, but says he doesn’t expect Australia to slip into a recession.

Speaking on ABC Radio National on Friday, Mr McEwan said the bank was already seeing an increase in the numbers of borrowers unable to meet repayments, as the flurry of rate rises washed into the lending market.

Mr McEwan noted although the figure was a “very, very small number” he expected it to grow over the next 6-12 months.

“We will see growth, but most of our customers are well advanced of their payments on their mortgage,” he said.

“We haven’t seen credit card debt grow, which is also a good sign, but with interest rates going up it’s inevitable that more people will have some difficulty.”

Mr McEwan said the size of the housing hit depended on future rate rises.

The Reserve Bank of Australia has already lifted the cash rate nine times, since its low of 0.1 per cent in April 2022 to 3.35 per cent.

Futures markets are pricing the cash rate to rise to as high as 4.3 per cent in the coming months.

“At this stage we don’t see a major problem because our customers are in good shape,” Mr McEwan said.

“There is a lot of weight on the RBA, and the RBA has sort of one tool that is around… It’s a pretty blunt tool.”

Mr McEwan said he was confident Australia would avoid a recession, despite the rate rises, “but it’s going to feel as if things have got tighter”.

“It’s starting to feel like it’s got harder, and it has because interest rates have gone up,

prices have gone up,” he said.

Mr McEwan defended NAB’s profits on the back of the rate rises, noting its advantage would be “very short term because it is going to be competed out with competition”.

NAB revealed a $2.05bn first quarter statutory profit when it reported in mid-February, in an 18.7 per cent lift in cash earnings compared to the same time last year.

Mr McEwan said most of these profits would end up with shareholders or super funds.

He said the proposed 30 per cent tax threshold on super balances in excess of $3m was appropriate.

“I think $3m is a lot of money,” he said.

“I’m pretty sure after tax somebody could live on $120,000.”

However, Mr McEwan said the government should index the cap around inflation.

Originally published as NAB warns of loan failures, but no recession coming