Big four bank chairs optimistic but challenges remain

The men and women leading the nation’s big four banks believe the future is bright for Australia despite global risks.

Chairs’ views

On balance are you optimistic or pessimistic about the prospects for the economy and the bank?

David Gonski, ANZ chair: While I remain optimistic about the economy, it is with some significant caution given a softening outlook for China, volatile markets and nervous consumers are starting to impact growth.

Despite the Australian economy being relatively strong on a global basis, we are seeing signs of softer consumer confidence, with many Australians worried about their jobs and family finances.

As for ANZ, I’m pleased with the progress we’ve made in reshaping our business to meet these challenges and I’m optimistic about our immediate and long-term future.

Catherine Livingstone, CBA chair: I am optimistic about the economy on the whole because there are a number of factors which have and can continue to drive growth. However, we are realistic in recognising that growth may not be uniform across the economy. There are challenges which do need to be addressed such as flexibility in the economy, Australia’s global competitiveness and achieving a sustainable budget setting.

Lindsay Maxsted, Westpac chair: The outlook for Australia remains positive. While I expect growth will be a little uneven across states, the domestic fundamentals are sound.

Westpac expects that the Australian economy will grow by around 3 per cent next year, helped by low interest rates and an exchange rate which is supportive of export-focused sectors.

I am also mindful of external risks to the outlook which hinge largely around China. Prospects for Australia’s commodity prices, our residential construction cycle, and our exports (both services and resources) are dependent on developments in China. Recent evidence suggests China’s economy will maintain solid momentum in 2017 in the lead-up to the 19th National Congress in November.

But structural imbalances in the Chinese economy always represent risks even to the near-term outlook. In addition, the risks of geopolitical disturbances around China and the US have lifted since the US election.

The bank’s performance will usually lift if the economy is doing well. However, in the post GFC era, banks face non-cyclical challenges. They are being subjected to relentlessly increasing regulation, some aspects of which are inappropriately designed to suit the struggling European banking system. The risk to the economy and banks is if these regulations impede the credit creation process, restricting banks’ flexibility to accommodate any lift in demand.

Ken Henry, NAB chair: While growth has been anaemic in recent years, I’m optimistic about the opportunities for businesses, including NAB, as the non-mining sector — particularly our service industries — continues to strengthen.

Certainly, there are challenges externally: geopolitical, economic, financial, social and environmental. And we have had years of sub-par economic and fiscal performance here. Yet, with effective political leadership these challenges can be met. We can’t allow the challenges to overwhelm us; instead, we have to find ways of dealing openly and optimistically with them.

Our political leaders must commit to a compelling narrative of economic reform. That has to include a bipartisan commitment to a medium-term fiscal strategy that repairs the budget. Without a credible budget position, everything else will lack credibility.

What makes you most optimistic about the outlook for the bank?

Gonksi: We have a diverse new leadership team in place that is prepared to make the hard decisions that will benefit our shareholders, our customers and our communities over the long-term. Decisions such as resetting the dividend to a more sustainable level, exiting non-core business like the Esanda dealer finance portfolio, and the work we’ve done to simplify our company will help us improve our business despite the headwinds we are facing.

We’ve done this while continuing to grow in our core retail markets of Australia and New Zealand and also improving customer service across the bank with a strong focus on digital. Our new digital banking division, led by Maile Carnegie, is already making good progress, particularly in the mobile space. There is more work to do, but I am encouraged by the solid start we have made.

Livingstone: The fact that as a country we have largely transitioned through the post-mining capital investment period. We are seeing other factors absorbing excess capacity like long-term investment in infrastructure, a growing niche manufacturing sector, tourism and property sectors, which makes us feel encouraged about the economy in the near term.

Maxsted: First, the view that the economy will lift at a faster pace in 2017 than we saw in 2016 including another solid year for the housing market. Second, Westpac is focused on the right things. As our recent profit announcement showed, we are achieving good growth in target areas, well-managed margins and controlled expenses. Westpac continues to be the most efficient bank in the sector. Asset quality is also expected to remain sound, although it is likely that additional stress will emerge in sectors and regions undergoing some structural change. In 2017, Westpac will celebrate its 200th birthday. We are Australia’s oldest company and are confident in the reasons customers continue to choose us. We are also proud that Westpac is rated the world’s most sustainable bank by the Dow Jones Sustainability Index. The underlying reasons for this rating place us in a sound position to meet community expectations and rebuild community trust in banks.

Henry: Australia’s growth prospects will increasingly be driven by the Asian region. There is extraordinary opportunity to export a diverse set of services in health, education, tourism and high quality agricultural produce and expertise, while continuing to build the centres of innovation that will drive the technologies of the future. NAB has a cultural mindset of open engagement with the Asian century. We accept the need to continue to invest in the skills development of our people. As Australia’s biggest business bank, NAB is keen to help Australian businesses expand and trade in Asia, including through our offices in Shanghai, Beijing, Hong Kong and Singapore.

What gives you most concern about the outlook for the bank?

Gonski: Of particular concern for all big businesses is the general lack of trust in major institutions. ANZ has not been immune from this. As I said to our shareholders at our AGM, large institutions have been slower than they should have been to improve transparency, speak more plainly, listen to the community and — above all — to consistently treat customers fairly and responsibly. ANZ has heard the message from the community loud and clear; we know we need to change and we are changing.

This was also a factor in our decision to appoint commonwealth Ombudsman Colin Neave as our new customer fairness adviser — he will help us be more consistent in our delivery of fair and responsible banking to our retail and small business customers.

Livingstone: There continues to be geopolitical volatility, and therefore market volatility, and these are of course factors outside the bank’s control. We are in a global environment where circumstances can change very quickly. For this reason the bank’s approach to remaining firm with its long-term strategies is important, but always making sure we are alert to the impact of volatility on those strategies and making timely adjustments if needed.

Maxsted: Low returns — and low interest rates — are challenging for banks, as it puts pressure on our deposit margins. At the same time for several years now businesses have had a limited appetite to invest. The environment of low interest rates globally has meant increased competition from offshore banks which see Australia as relatively attractive compared to very low or even negative returns in their home markets. With the ongoing introduction of new regulations, banks must be able to manage their funding and pricing requirements if they are to continue to accommodate the demand for credit from borrowers.

Henry: Our lending activities are a reflection of local economic conditions, and what we’re seeing at the moment is that business investment has not picked up since the global financial crisis. NAB has an important role to play in recognising opportunities and backing our customers to invest and grow their businesses.

Our customers tell us that it must be made simpler and easier to do business in Australia, particularly to run a small business. We need to reform our tax system and streamline regulation to create a better environment for business investment.

What policy initiative by the federal government would be most beneficial for the economy and the bank?

Gonski: I’d like Australia take a bigger-picture view on improving its ageing infrastructure and fund it in a way that limits the impact on our nation’s credit rating. Improving infrastructure is an often-stated goal of successive governments, but sadly there is still much to be done.

While it’s critical we address our ageing roads, railway networks and hospitals, we also need to be bold and plan for the digital infrastructure that will encourage the innovation necessary for Australia to compete in the 21st century. A properly planned and executed infrastructure program with bipartisan support will help drive short-term jobs and growth. Importantly, it will also help improve housing affordability for the next generation of homeowners, particularly in Sydney and Melbourne.

Livingstone: There are two key challenges for the federal government: growing the economy and achieving a resilient budget position. Growing the economy means the government must ensure Australia is globally competitive for business investment. A competitive business tax framework will be imperative to driving growth, attracting investment and creating jobs.

Achieving a resilient budget position is essential to ensure Australia is in a position to deal with a possible global shock. To do this, measures must be taken to contain the unsustainable growth in government expenditure.

All sides of the parliament must come together to look beyond a short-term political headline and instead work hard to deal with the challenges.

The threat now posed to our AAA credit rating is a serious one and ultimately it will be Australian families who would bear the impact of any downgrade.

Maxsted: The No 1 priority should be to support strength in the economy, principally by providing a consistent policy framework for business. That framework should address many of the areas (including taxation) which result in us being a high cost economy in global terms.

Further, the Australian economy needs a “circuit breaker” to boost confidence and growth expectations. The signs from the immediate aftermath of the US election are significant for Australia. Confidence and growth prospects have been boosted through a combination of rising expectations for reform; consideration of overly restrictive regulations in banking and elsewhere; and recognition that governments need to do more to boost investment in productivity-enhancing infrastructure.

We also need to take action to address the deficit — we should not be borrowing to fund current period spending — but it’s vital we do so from a position of economic strength.

Henry: Australia’s population is growing strongly, at somewhere between 300,000 and 400,000 people every year. That sort of population growth is putting pressure on our infrastructure and affecting the day-to-day lives of Australians through increasing congestion and longer commute times, worsening housing affordability and overstretched public transport systems.

If we’re going to make businesses more productive, communities more liveable and ensure that Australians are properly equipped for their future jobs, then there will have to be significant infrastructure investment over the coming decades. And that means that all of us are going to have to have the courage to support a rational, national, forward-looking approach to planning.