Ross McEwan And Andrew Irvine Join RN Breakfast

National Australia Bank

Outgoing NAB CEO Ross McEwan and incoming NAB CEO Andrew Irvine joined ABC RN Breakfast's Patricia Karvelas this morning to discuss the CEO transition, housing, their shared economic optimism and how NAB is supporting customers.

The full transcript is below. You can also listen to the broadcast via the ABC website.

Patrica Karvelas (PK): Leadership transitions don't look much smoother than the changing of the guard that will take place next month at the NAB. CEO Ross McEwan, who helped to rebuild the bank's shattered reputation in the wake of the Hayne Royal Commission, will hand over to Andrew Irvine, the head of business banking. But it's not all good news. While NAB'S recently announced full year profit increased by a healthy 8.8%, results for the second half of 2023 weren't so positive. Both men are in the studio with me. This morning, welcome to both of you.

Ross McEwan (RM): Thank you, Patricia. Thank you for having us here.

Andrew Irvine (AI): Excited to be here.

PK: Ross, there's an art to knowing when the time is to step down from a major role. Why was this the right moment?

RM: Well, when I first took on the role, Patricia, I did agree with the chairman, Phil Chronican, that I'd do three to five years to get the organisation out of its dilemma that it really found itself in with the Royal Commission. Get it back on its feet, but also, importantly, make sure that we had candidates internally that were capable of taking over and absolutely delighted that Andrew is taking up the role. There's never the perfect time. There are always things to do in business, but my view was after four years heading into my fifth, now was the time to hand over and we had great talent inside the organisation.

PK: Andrew, you joined NAB during the Victorian pandemic lockdowns, doing several stints in hotel quarantine along the way, I won't make you revisit that experience. Did you ever think you were making a mistake?

AI: Often. I think I have PTSD from that period. But it was like three hotel quarantines, moving a family halfway across the world, and then not being able to experience this wonderful city and country of ours was tough. I think we were in lockdown, more or less, for the best part of a year or so. So really, really difficult for the family, but thankfully that's all behind us and we're really enjoying it now.

PK: Your key message to shareholders and investors has been around stability, so what will change under your leadership?

AI: Look, I think the bank today is a much better in a much better place than it was four years ago when I came and our job is just to look after our customers well, be a great bank for colleagues to want to build a career. And if we do that well, I think. We'll be OK.

PK: NAB reported an 8.8% jump in cash profits to $7.7 billion for the 2023 financial year, but profits were down in the second half of the year. If I can just go to you on this, Ross, what does that tell you about the economic conditions ahead?

RM: Well, one of the things that happened last year with interest rates rising so quickly, banks do get a sugar rush of wins and then it quickly disseminates as lost as competition comes back in and that we've certainly seen that. The set in our first quarter results, the margins have got thinner – that's what we borrow at versus what we lend at, it's got much thinner in banking and I think we're back to a much more normal situation than we were for the 12 months prior. But the the economy is tightening up and we're still seeing customers in good shape and Andrew could talk about the business side, he runs the business bank., but customers are finding it more difficult at the moment as interest rates have risen to slow an economy down.

PK: I want you to be really brutal, and factual for people listening. How bad has that got for your customers?

AI: Well, on the business side, I'd say the averages are still OK. The problem is averages don't tell the story.

PK: No. So what is the story?

AI: I'd say on the business side, you know, landlords are struggling a little bit with interest rates, particularly offices in CBD locations. I think hospitality is also feeling it a little bit as consumers now start to have to make more difficult choices in where they spend their monthly income. So you know the the one thing I would say is we're here for our customers and if there's anyone who's feeling it, reach out to us, reach out to your bank and we'll be here for you.

PK: You say CBD offices, that has become a really big problem in the post COVID environment too. Do you see a really big shift in how we'll see those offices be used?

AI: We, you know, we are starting to see workers going back to the office a little bit more than maybe was the case a year or two ago, but we're still nowhere near where we were pre-pandemic. And so obviously I think as businesses look to optimise their space. They're in some cases handing back office space, so there is pressure there. But we also know that there's a housing crisis and so we have this unutilised office spaces. I wonder if there's anything we can do to convert some of that into residential housing.

PK: Yeah, that has been floated and yet we don't see much advancement there. Ross, do you think that's the sort of stuff that should be explored?

RM: Yes, that should be explored, yes, but it's going to take time, and it's also a big transition. So something that was a commercial office building, it's very hard to convert into an apartment building with all the facilities in it. So there needs to be quite a transition to actually pull down some of those buildings and rebuild them from a residential perspective. But we do have a housing problem in Australia. We're not building enough houses and apartments.

PK: Is it a crisis?

RM: It is a crisis. There's 50,000 homes or apartments not being built that we need built every year for the next probably five years to catch up.

PK: How can we do it then?

RM: Well, there's a couple of things. One I've been calling for is state governments much faster on approvals. And the second thing is the number of big developers have come to me and said 'Ross, have a look at the tax on getting an apartment up'. For example, in Victoria, if you're going to put up an apartment that's worth $1 million, about 38% of that goes in state and other taxes. So you're not getting $1 million apartment, you're getting 1 million minus the tax. You're getting about a $600,000 apartment for the $1 million and that needs to be addressed as well if we want developers building the numbers. But we've got to get these houses going. There is a little bit of crowding out going on too, with all the infrastructure being built. There's only so many workers to do the jobs, there's only so much concrete.

PK: We've been slowing down migration. Are you concerned?

RM: Over time, we've got to get the right people into this country. We need the people who are going to build the infrastructure, that do the construction. Those skills are absolutely needed in Australia and we're still seeing a lot of employers struggling to get the right people into their businesses, even today, with unemployment ticking up a wee bit.

PK: Ross, just staying with you, you seem more worried than Matt Comyn at the CBA about the that people are struggling to make ends meet. Why is that?

RM: There's a different group, Patricia, that banks are not seeing, those who are really, really struggling. We bank the Salvation Army. We've got big involvement or a lot of other charitable groups that are looking after those who are really struggling and you can see that there are big swaths of the Australian marketplace who are struggling people. Every day, struggling to put food on the table, and a lot of this is now outside the banking structure, you know. So while they may have a transaction account with a main bank, their debt is with somebody else. And it's, you know, through 'buy now pay later', it's through 'payday lending'. And that. And you're seeing that industry growing, and it's totally unregulated. I think that needs to be changed as well.

PK: A major reason that all bank profits are down is because of heavy competition for home loans, which you articulated earlier. Andrew, you want to grow NAB's market share in home loans. How do you plan to do that?

AI: You know, I think all the time it's all about being there for your customers, being speedy, being responsive and providing a good product and a good service. You're right to say that today competition in Australian banking is fiercer than it's ever been. As a bank, we need to be thoughtful around where we deploy our capital. Capital is a constrained resource, and we've got to put it where it's going to provide a decent return for our shareholders. It's tough out there. It's certainly tough out there.

PK: The Treasurer gave a significant speech, but also spoke to me yesterday and suggested that the the issue around inflation, it's about to slip and we're going to have an issue around growth. Do you agree with that assessment?

AI: Well, I don't think inflation is dead yet. I think it's too early to make that call. Inflation is awful. You only have to talk to consumers who are struggling with the price of fuel, the price of groceries, and it's in everybody's interest to get inflation under control. But I am optimistic that we're moving in that direction. I think overnight in the US we had a really good inflation print. Hopefully we see some of that come in Australia, and I think that will give the RBA the ability to look at interest rates and start to bring them down when they're comfortable that inflation is under control.

PK: Do you see interest rates coming down earlier?

RM: Andrew's right on inflation. We've got to get inflation down first. This year, we think inflation will have a a three in front of it by the time we get to the end of this year and next year we'll be back into twos by the time we get to the end. We're still not predicting interest rates coming down until he final quarter of this calendar year. So you get tax cuts coming through in July, which will be helpful, and then interest rates starting to drop off in the latter part of this year and not before. Inflation has to be crushed. To get this economy going, which I think is what the Treasurer was talking about yesterday, and the flip from inflation fighting to getting the economy growing, inflation has to come down first and then the economy can start growing again.

PK: We will see the national accounts, of course, come out. But are you concerned that there's been a contraction?

RM: I'm not concerned for Australia because I think Australia is still in a good position and we've got an economy that is still growing. We still see this economy growing, but it's slowing down and it's feeling like it's really, you know, slowed down. I think we're still going to see growth. I've been very optimistic we won't see a recession, but we're going to see two quarters of very low growth before it starts moving again.

PK: And you're still confident?

RM: I'm still confident that we won't see a recession, but it's starting to feel, you know, 0.2% growth in a quarter, that's slow but it's not a recession.

PK: And in the sense of the work that you've been doing, obviously you're going to take over as CEO, but the current work you've been doing in charge of business, your business sector, are we seeing businesses hit the wall?

AI: Not really. Not yet.

PK: Not yet, but is it going to happen?

AI: Businesses came into this with the most cash on hand that we've ever seen in our bank. So they have the buffers, but it's getting tougher, as Ross said, and you know many of them are having to work really, really hard to get through and make payroll and do all those things. I speak to many customers and sometimes there are sleepless nights, days before they have to hit payroll.

PK: Look, I have to ask you. I haven't got it in front of me, unfortunately, but the gender pay gap came out. Banks not so good. How do you reflect on your results?

RM: Look there's work still to do, but we were actually the best of the banks at 16.6%. But still that's a gap.

PK: And you're both men, just to state the obvious.

RM: Well, actually, if you start with our Board, we've now got more females on our Board than we have males, Patricia. So it's heading in the right direction and we were the best of the pay gap in the banking sector. But it's actually not about the money we're paying people. It's about the number of females in the senior groupings.

AI: That's actually quite important, we have excellent pay equity. We pay men and women the same amount, for the same roles. The issue is representation. We need more female senior leaders.

PK: And is that a commitment of yours now that you're coming in?

AI: 100%.

PK: You're coming in. What are you going to do?

AI: We manage this fiercely at every executive level. I have to make some decisions about who is going to replace myself. And this is a big part of my thinking.

PK: OK, that's interesting. Just finally, Ross, just a final word to you – the recent five-year anniversary of the Hayne Royal Commission is an opportunity of course to reflect on how far the industry has come. What could Coles and Woolworths learn from you about rebuilding Community Trust?

RM: The word is trust. You've got to have the trust of of the people you deal with, both your colleagues and your customers, particularly in banking. It's all about trust. The products are pretty much the same, it's the people you deal with. And the Royal Commission was an absolute wake-up call for the industry and I think the industry has learned lots of lessons, but you can't forget the lessons, you've got to keep going back to a wee bit of history and it's something that Andrew's been very, very cognisant of both. You know, what happened to our organisation and the industry and will be taken through that history as well as he takes over that job because we can't forget it. We just got to keep concentrating on good things for the customers. And I've got to say, we're not going to get it all right, all the time. But it's how you fix it up if you get it wrong, and move forward and look after customers, and look after your colleagues as well. It's been a big mantra of mine.

PK: Is that a big lesson for you?

AI: 100%, you know, do the simple stuff well. Look after the customers, look after your staff and then good things will happen.

PK: Thanks to both of you, it's been an interesting conversation. CEO Ross McEwan, who helped to rebuild the banks reputation in the wake of the Hayne Royal Commission, he's going to be handing over to the other man you were listening to there, Andrew Irvine, who's currently the head of Business Banking, and will become the CEO.

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