NAB chief Ross McEwan says banker pay must reflect COVID-19 customer, investor pain

NAB boss Ross McEwan believes executive pay should correlate directly to the pandemic pain felt by customers and shareholders.

NAB CEO Ross McEwan. (AAP Image/Joel Carrett)

National Australia Bank chief executive Ross McEwan has stressed executive pay should be directly correlated to the pain bank customers and shareholders are enduring through the COVID-19 crisis.

At a Trans-Tasman Business Circle online event on Friday, he also called for a further relaxation of border restrictions by Australian states and for two-way travel to be opened between the nation and New Zealand, given both had managed the pandemic well.

Tourism, skilled migration and population growth would help both economies recover from the sharp contraction in output caused by the pandemic, Mr McEwan said.

On banker pay, he stood by a NAB decision in April to cut pay for the board and cease short-term bonuses for executives during this year’s COVID-19 turmoil.

“I firmly believe that a CEO and the senior team should win when customers are winning and when we saw so many customers having difficulty, and also having to cut our dividend for our shareholders... why should we be receiving a bonus this year?”

Mr McEwan also referenced a 20 per cent pay cut taken by himself and the board in the second half of NAB’s financial year.

“There has to be a direct correlation between (that) we should only win when our customers and our shareholders are winning,” Mr McEwan said.

“We understand the pain that customers are feeling at the moment... the last thing they want to see is bankers winning off the back end of them.”

 

His comments come amid investor angst over CEOs in some sectors receiving bonuses despite their company receiving federal government support measures such as JobKeeper wage subsidies.

They also follow controversy around Commonwealth Bank CEO Matt Comyn’s pay, as shareholders are asked to support a $1.6m equity grant at this month’s annual general meeting. Two of three proxy service advisory firms are in favour of the grant, while ISS is against it.

NAB took drastic action in the March half-year, slashing the interim dividend from 83c a share to 30c.

The banking sector has $229bn in loans across mortgages and business credit that have had repayments paused during the pandemic. NAB has mortgages of about $32bn on repayment deferral arrangements and $18bn business loans on repayment pauses.

The topic of those arrangements rolling off has been front and centre for regulators. On Friday, the Council of Financial Regulators released a quarterly statement highlighting the importance of credit continuing to flow through the economy, and that those unable to start repaying loans engage with lenders or contact the National Debt Helpline.

The statement was the outcome of a CFR meeting. The group comprises the Reserve Bank, Treasury, the corporate regulator and Australian Prudential Regulation Authority.

Mr McEwan used Friday’s event to emphasise he wasn’t a supporter of negative interest rates in New Zealand or Australia, given the already low returns investors were facing.

He also noted NZ’s housing market was on a tear due to a lack of supply and “cheap money”.

He tipped Australian house prices would stabilise and “go forward” in 2022 or 2023 when the domestic economy is likely to be fully operational again.

NAB’s New Zealand boss Angie Mentis said infrastructure investment, more affordable housing and simplicity in regulation was important in stimulating economic growth across the Tasman.

Mr McEwan believes Australia and NZ need to focus on boosting population growth and skilled migration as a lever to recover from COVID-19, as well as boosting manufacturing, innovation and cutting taxes and removing red tape for business.

Opening borders within Australia was crucial, as was resuming two-way travel with NZ, he added.

On Friday, a partial travel bubble was announced with New Zealanders able to travel to NSW and the Northern Territory from October 16 without having to quarantine.

“We need to learn to live with this virus, and not close down every time we get some sort of upsurge,” Mr McEwan said. “We need to get people travelling again to get our tourism industry moving.... open up the borders safely and let’s get New Zealand and Australia moving together.”

He cited Australia’s population growth running at just 0.7 per cent per annum, and weighing on gross domestic product. Mr McEwan said that growth rate needed to accelerate to 1.5 per cent annually.

“When unemployment goes up everyone wants to pull the borders down and stop people coming in because we’ve got unemployment, well I think we should be courageous and open up our borders to the right skills that both Australia and new Zealand need for the economy,” he added.

Analysts at Morgan Stanley are treading cautiously on the pandemic’s impact on bank loan books, warning of a risk that NAB and ANZ would need to separately increase the amounts set aside for COVID-19 related loan losses by $200m.

Morgan Stanley analyst Richard Wiles estimates ANZ and NAB will raise their COVID-19 loan loss charge by $200m apiece, while Westpac could increase by $136m. CBA won‘t need to lift its provision, Mr Wiles said in a report on Friday.

His research pointed out that Westpac had provisioned $1.9bn and Commonwealth Bank $1.5bn for loan losses linked to the pandemic, while ANZ stood at $1bn and NAB at just $800m.

Mr McEwan said NAB would consider additional assistance measures and repayment deferrals beyond the March cut off for favourable APRA capital treatment, but only on a case by case basis

NAB’s shares fell 1.9 per cent to $17.49 on Friday.