The Australian’s 2022 CEO Survey: Banks optimistic that Australia’s economy will handle headwinds

The nation’s top banking executives are cautiously optimistic that Australia’s economy will see a ‘soft landing’ as looming economic headwinds start to bite in 2023.

Chief executives at Australia’s major banks are optimistic about the country’s economy in 2023. Picture: NCA NewsWire / Nikki Short

The nation’s top banking chief executives have struck a cautiously optimistic tone on the outlook for 2023 despite the looming economic headwinds, with the prudence of borrowers and savers through the pandemic called out as a force of strength against the rising challenges posed by higher interest rates and inflation.

Commonwealth Bank CEO Matt Comyn said the impact of the RBA’s rates moves had yet to be fully felt, but he still tipped a soft landing for the economy.

“The economy will continue to slow in 2023, as the impact of already announced increases in the cash rate continue to flow through. By the second quarter, approximately 70 per cent of the impact on household cash flows will have been felt, with this rising to approximately 90 per cent by the end of 2023 as more fixed-rate mortgage terms expire,” Mr Comyn said in The Australian’s 2022 CEO Survey.

“The RBA is very aware of the risk of overtightening. Our base case is for a soft landing for the Australian economy, with GDP growth of 1-1.5 per cent next year, and unemployment increasing modestly to 4-4.5 per cent.”

CBA chief executive Matt Comyn says a soft landing was still likely for the economy. Source: CBA

The nation’s biggest bank is monitoring a range of indicators, including spending patterns, sentiment, savings buffers, employment, wages, and any signs of stress among its customers to give it a sense of how much of an impact rising rates and prices are having.

But Mr Comyn sees Australia faring better than its peers through the slowdown.

“We feel much more optimistic about the outlook for our domestic economy compared to many other parts of the world, such as the US, Europe and the UK,” he said.

NAB chief executive Ross McEwan still expects to see growth in home lending next year, even as the impact of rising rates filters through. The bank is on the front foot when it comes to borrower stress and is already contacting those who might be struggling with higher repayments.

“Customers who have small buffers in their home loans or have high loan-to-value ratios are likely to be most affected as they also experience higher cost of living pressures,” Mr McEwan said.

“We have been contacting a number of these customers proactively and at this stage their response has been ‘look, we’re okay at the moment, thank you for the call’. So, they’re quite resilient.”

ANZ’s Shayne Elliott cautioned that the changing economic environment was affecting businesses and homeowners differently. Photograph by Arsineh Houspian.

Mr McEwan also expressed confidence in the resilience of the lender’s business customers.

“Our business bank is performing well and gaining market share. Despite business confidence softening, business conditions are still pretty strong, and our business customers are benefiting from that.”

Westpac chief executive Peter King said the lender’s customers were generally in good shape but he cautioned that the full impact of the interest rate rises had not yet hit.

“The very low level of unemployment is helping. Delinquency levels are back to pre-Covid-19 levels (and) a lot of people were very smart in taking advantage of low fixed-rate mortgages. But we know circumstances change and we encourage customers to speak to Westpac Assist if they don’t feel they are well prepared for the increases,” he said.

“The bank is in really good shape heading into 2023, where we expect growth to slow. We’re in a good position to help customers get through some of the challenges that the current environment is producing,” Mr King added.

Rounding out the big four, ANZ’s Shayne Elliott cautioned that the changing economic environment was affecting businesses and homeowners differently.

“There is no doubt some will be feeling the impact, however, most customers have been prudent, especially during Covid-19.

“What we’ve seen is that Australians have never been more liquid, they’ve never been more employed. We are also seeing for many Australians they are receiving higher pay rises than previous years, enabling many to remain ahead, ” Mr Elliott commented.

“That said, there will be some who will be more exposed to stress, and while we expect that to reveal itself over time, we expect it to be a small minority of customers.”