Economy still strong despite pressures from higher interest rates: NAB’s Andrew Irvine

The executive who leads NAB’s business bank highlighted renewed optimism among business customers he met with in recent weeks, even though they were bracing for further interest rate hikes.

NAB is keeping close tabs on how its business and mortgage customers are faring as rates continue their march higher and investors expect loan losses to increase. Picture: NCA NewsWire / Kelly Barnes

National Australia Bank executive Andrew Irvine says business borrowers and households are bracing for a tougher period, but strong levels of employment and demand give him confidence the “wheels have not fallen off” the economy.

Mr Irvine, who leads NAB’s business bank – the nation’s largest – noted renewed optimism among business customers he had met over the past two weeks, even though borrowers were preparing for further interest rate hikes.

“A lot of the business owners were feeling like the worst hasn’t happened and I think the economy is performing stronger than they expected, and their businesses are doing better than they expected,” he said.

“Consumers are continuing to make their repayments and employment is still incredibly strong … the most important stat that I look at in terms of economic health indicators are the employment numbers. Because as long as people have jobs they have income coming in and as long as they have income coming in bills get paid.

“When I talk to business owners they still would say there is more demand than they can supply and the thing that’s impacting their business most is still labour and supply shortages.”

The Reserve Bank on Tuesday will deliberate over raising official rates for a ninth time since May 2022, as it seeks to cool rampant inflationary pressures within the economy.

Market expectations are for a 25 basis point increase on Tuesday which would take the cash rate to 3.35 per cent. NAB expects rates will peak at 3.6 per cent this year.

Mr Irvine’s comments came as an S&P Global Ratings report on Monday said while ratings on Asia Pacific-based banks would likely remain “broadly stable” in 2023, there were downside risks alongside higher inflation and lower economic growth.

NAB’s Andrew Irvine noted renewed optimism among business customers he had met over the past two weeks, even though borrowers were preparing for further interest rate hikes.

NAB is, however, keeping close tabs on how its business and mortgage customers are faring as rates continue their march higher and investors expect loan losses to increase.

“We’re paying very strong attention to the performance of our business and residential loan books … in both of those they are continuing to perform very soundly,” Mr Irvine said.

“It’s quite possible that in many areas of business, demand can soften a bit and it won’t be that impactful. We’re in about as good a position as we possibly could be to enter those tougher times.”

Mr Irvine was referring to bumper levels of business and consumer deposits that could help to cushion the impact of an economic slowdown.

A NAB consumer survey on Monday showed that rather than aggressive belt tightening, consumers were being more discerning about where they spent their money.

On Treasurer Jim Chalmers’ mooted shift to a “values-based” form of capitalism, Mr Irvine said the bank was supportive of the themes behind the idea.

“All businesses recognise that you need a strong social licence to operate and the best businesses want to make a difference in the world. So businesses large and small feel that way,” he added.

“We recognise that in our bank very strongly … My view is strong social responsibility and operating a good business is the only effective path forward. The devil can be in the detail, but in terms of the perspectives and underlying thematic that the treasurer is talking about, I don’t think any business person would disagree.”

The May federal budget is also looming large for businesses across the economy, as the government seeks to exercise fiscal restraint. June 30 marks the end of the instant asset write-off scheme for business, which was aimed at encouraging investment, and many companies will be watching to see if there’s a further extension to the timeline.

Mr Irvine labelled the scheme a “huge success” in underpinning business investment and stressed any changes needed to be managed in a thoughtful manner.

“Business owners want to operate where they know the rules of the game, so when they’re making investments or hiring staff they really want consistency,” he said.

“It’s encouraged investment in manufacturing and those types of things that we need and many business owners that I’ve spoken to have bought plant and machinery as a result … even if that specific piece of policy were to end, policy measures like that that encourage investment, that encourage the hiring of staff are the things that we would want to see (in the budget).”

NAB and its rivals are navigating a deceleration in mortgage and business lending as rates rise and competition for a smaller pool of customers becomes more intense. That is happening as regulators assess further consolation in the banking sector.

NAB is understood to be making a submission to the competition regulator on ANZ’s $4.9bn takeover of Suncorp Bank, including assessing its potential impact on competition in the agribusiness banking market.

Mr Irvine declined to comment on the submission but said NAB was performing “very well” in agribusiness, where it is the largest domestic player lending $1 in every $3 across that sector.

“Our focus there is to keep supporting the market. Agriculture is having boom times right now in Australia and the world needs what we have,” he added.

NAB’s 2022 accounts showed business loans to agribusiness customers climbed 16.4 per cent in the year ended September 30, versus the prior corresponding period. In business banking more broadly, NAB is fending off a bigger push by CBA into the space.