Transcript: Shayne Elliott with Gareth Parker – 6PR 9 March

Gareth Parker: We spent a bit of time yesterday talking about the housing market and I relayed the story that in my street this week, there was one house that sold before the home open with an A3 piece of paper taped on the “For Sale” sign by the agent saying, “sold sight unseen before inspection”. And then there was another house up the other end of the street where I reckon there were probably 100 parties through. And I’m told that they expect that that house will be under offer before tomorrow. And real estate agents, including Damian Collins from REIWA, is saying, well, look, houses are tending to go in a week or two. And we’ve seen stories, you’ve told me them, of sort of not just not just dozens and dozens of people at home opens, but hundreds of people at home opens. So all of a sudden now the real estate market, which has been so dreadful for so long, is roaring away. The economy, the prospects for the economy. People feel good about it. Consumer confidence hasn’t been higher in this state since March 2010, according to the CCI. I want to know what one of the bosses of the country’s biggest banks thinks about the housing market and the economy. He joins me on the line. He is the CEO of the ANZ Bank. Shayne Elliott, thank you very much for your time.

Shayne Elliott: Great to be with you.

Gareth Parker: How do you see the economic picture in our state?

Shayne Elliott: Well, things look a lot better than we thought they might, right? I mean, a year ago we were facing COVID and people were extremely worried about the future and about job losses and about a slowdown in the economy. And, low and behold, here we are a year later with governments, state and federal, having reacted in an unprecedented way. And that’s a word we overuse, but it really is unprecedented the amount of money and support they’ve given the economy. And, here we are and things look pretty rosy. So, the outlook is reasonably positive.

Gareth Parker: So do you reckon the economy’s good because the underlying fundamentals are strong, or is it because governments have thrown billions of borrowings at it?

Shayne Elliott: I think the reality is the Australian economy is just fundamentally sound. And it’s well balanced and all those other things. It’s well regulated. But what we’ve seen here is just a massive amount of government support in all shapes and sizes thrown into the economy. And when you throw a couple of hundred billion dollars – not just billions, hundreds of billions of dollars of support – and you have interest rates essentially at zero and all sorts of packages and, as I say, various states and federal things that have had an impact. And that is having an impact, that money has to go somewhere and so people have been saving at huge amounts, massive amounts of money just sitting in deposit waiting for the future and it’s piling into assets. People reassessing, saying ‘hey I can get a home loan maybe at two per cent, two and a half percent, essentially pretty free’. People wanting bigger homes and so we’ve seen this huge rise in demand that’s fed off all that liquidity that’s sloshing around in the economy.

Gareth Parker: So as one of the big four banks, are you happy to lend to people to buy houses that all of a sudden are at valuations that are sort of, appear to be rising sharply? Do you think you have confidence that those valuations would be supported by the fundamentals?

Shayne Elliott: Well we’re paid to be cautious. That’s our job. Banks are highly leveraged institutions. We have to be careful but, our first priority is to say, ‘can this person who’s taken on this debt, can they afford to service it, through good and bad?’ And do they have a reasonable prospect, obviously, of being able to repay principal and interest over a period of time. It sort of doesn’t really matter what the house price is worth per se, on the face of it, because we really look to say, ‘can Gareth make his monthly payments?’ And we assess somebody’s job and we, remember we also build in all sorts of buffers. So when we assess you, while the interest rate might be two per cent, we assess you closer at five. We say, ‘well let’s imagine rates go up tomorrow morning’. And we build all sorts of buffers to make sure. So no, right now we’re not overly concerned. We’re cautious, like we always have to be prudent. And when any market runs really hard, equities, housing, of course, you have to be a little bit cautious and start building in a few buffers to make sure just in case it doesn’t end well.

You know, Perth is a good example. We’ve just been through a pretty … you mentioned in your lead up there, we’ve had a pretty horrible time for a period. And so we’re seeing a bounce which is good. But we know that things can change. And so, you don’t want people getting ahead of themselves here.

Gareth Parker: Twenty past six, my guest on 6PR Breakfast, the CEO of the ANZ Bank, Shayne Elliott. Shayne, the billions of dollars, hundreds of billions as you point out, that’s been thrown at the economy by governments. The issue, of course, is that that’s beginning to wind down, isn’t it? So how much of a risk do you think that is to the trajectory of the economy over the next 12 to 24 months?

Shayne Elliott: Yeah, look, it is an issue. I mean that money has particular things … people are very focused on things like JobKeeper and that’s finishing at the end of the month. And so that’ll have to get withdrawn. The reality is of a lot of it already has been withdrawn. So a lot of people have already just naturally come off things like JobKeeper. I think the so-called ‘cliff’ that everybody was worried about, that all this money would get withdrawn all at the same time, it’s a much, much smaller cliff if it is a cliff at all. So it’s a much smaller issue than it was. And the government, to their credit, have handled it pretty well. And so they’ve been slowly adjusting. But there is going to be an impact. March 31st, JobKeeper, there is going to be an impact. I know I heard you talking about in your street, I know in our neighbourhood, little shops and restaurants and things have been surviving because of JobKeeper and maybe they won’t be able to afterwards. So there’s going to be some issues we’re going have to wait and see. And that starts to lead to, maybe people start losing their jobs, not quite as confident as they were. We’ll see. I don’t think it’s a calamity. I think it’s much smaller than it was looking like. But we can’t just ignore it and say nothing’s going to happen. There will be an impact.

Gareth Parker: Yeah. How have you seen people’s money habits changed during the pandemic, including how they do their banking?

Shayne Elliott: It’s amazing. It’s incredible. We’ve seen this incredible shift. It’s a credit to the Australian public. Basically en masse, people behave textbook like you would if you were the corporate treasurer at BHP or Woolworths or something. What did people do? They shored up their savings, so they tucked money away in case things got bad. So we’ve seen massive levels of savings activity, like literally tens and tens of billions of dollars being stuck into bank accounts just for a rainy day. So they did that. They cut back on their most expensive debt, credit card spending fell by 25 percent. So the balances outstanding on credit cards, that’s the most expensive debt, people paid that down. So they did all the sort of textbook things, which is good and that means people have got a buffer. And now that things look better and confidence is up, they’ve got the ability, if they want, to go out and buy that bigger house, invest in their businesses, spend a bit of money. So that’s a good thing. And then on the other side, practically what we’ve seen is COVID changed everybody’s habits. So you weren’t able to go to the bank branch so people have massively gone online. And we know that for their shopping habits, but also for their banking habits. So we saw in our app, our mobile app, we saw 30 per cent increase in transaction volumes over the year. So that’s massive. We’re now doing sort of three or four million transactions every single day on that app. So you’re seeing a huge shift into the sort of new digital world.

Gareth Parker: Hey Shayne great to talk again. I really appreciate your time this morning. Thank you.

Shayne Elliott: You’re welcome. Thank you.

Gareth Parker: Shayne Elliott, the CEO of the ANZ Bank.

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