ANZ executives, led by CEO Shayne Elliott, have appeared before a federal government committee designed to “put the spotlight” on Australia’s four major banks.
Speaking to the House Standing Committee of Economics in Canberra today, Elliott backed the APRA-imposed 3% serviceability buffer on residential loans. The other major banks – NAB, Westpac and CBA – have all announced that they are willing to adjust the serviceability buffers on their home loans for selected customers.
“Of course we should build in buffers,” Elliott told the committee. “I think 3% feels about right. We don’t know what the future holds.”
Elliott and the CEOs of the big four banks are appearing before the committee in Canberra this week on July 12 and 13, their first appearance before the committee under this government.
Committee chair Dr Daniel Mulino MP (pictured above left) said the public hearing were a “timely opportunity” to draw attention to the big four’s performance over recent years.
“Australian households and small businesses depend on these banks for general banking, mortgages, and business loans,” Mulino said. “It is crucial that our banks are resilient, but also competitive, given that the big four banks control some 80% of the market.”
“Furthermore, in a year that has been characterised by rising interest rates, bank closures, and increasingly sophisticated scams, the committee will examine the measures the banks have taken to protect their institutions and their customers.”
In the first appearance of the committee, ANZ’s customers’ financial well-being was a major topic of discussion, particularly in light of the recent increases in the official cash rate.
“Our latest figures were published in May and these showed that, while some customers are struggling, most are managing their way through the current financial pressures,” Elliott (pictured above right) said. “For example, only $6 of every $1,000 in our Australian home loans portfolio was overdue by more than 90 days. This is better than before the pandemic.”
Three factors for consumer resilience
Elliott said there were “at least three factors to consider” in asking why the bank was seeing that level of resilience in customers.
Firstly, the “strong labour market” had benefited households entering a period of rate increases, leading to “higher real incomes” at the start of the interest rate cycle.
“Good incomes mean that people can better absorb increased expenses, even if they don’t remove the pain altogether,” Elliott said.
Secondly, households have been saving at a “record level” over the past three years, partly due to the pandemic. Deposit levels continued to grow through the last year, providing a financial cushion for households to rely on as costs rise.
Thirdly, Elliott said that credit standards had improved compared to previous times of stress.
“We have improved prudential regulation following the global financial crisis, robust responsible lending obligations to follow, and more sophisticated processes and data,” Elliott said. “This means that fewer people are getting into trouble.”
However, Elliott stressed that these observations were in the aggregate. The bank had observed a “modest increase” in customers reaching out for help.
“What was reinforced to us during the pandemic is that, in challenging times we must, and can, be there for our customers,” he said.
“For those customers who we can help, we have measures such as partial payments and interest only terms. We will continue to watch how our customers are going and support them when we can.”
The impact of monetary policy on the general economy was also discussed at the committee hearing, highlighting slight moderation in inflation figures with the bank forecasting only 1% GDP growth in 2023, rising slightly to 1.3% next year.
“In particular, the weakness in per capita GDP means that the economy may feel more challenging than the headline numbers suggest,” Elliott said.
“Unemployment is expected to rise to 4.2% this year and 5% next year, and we are conscious that this will be difficult for many Australians. Consumer spending is also weaker in all major categories compared to 2022, despite inflation and population growth over the year.”
The regulatory payments framework
ANZ also emphasised the importance of a “stable and trusted payments system” and their significant role in facilitating the movement of money.
The bank said it secured and facilitated the movement of $164 trillion each yar, with payments made to and received from 149 countries in support of eight million customers.
“Making this happen around the clock requires constant work and investment,” Elliott said.
“We are continually innovating to provide new technology and deal with issues in payments like the insidious impact of scams on our customers.”
Elliott concluded his initial statement by welcoming the recent release of the government’s payments roadmap and its focus on tackling scams.
Promoting economic dynamism, competition and business formation
The committee said the hearing came after its recent engagement with customer-owned banks, and medium-sized and regional banks, about the “challenges they face, their philosophy of customer service, and how they perceive their responsibilities to the community”.
The two days of public hearings will cover matters relevant to both the committee’s review of Australia’s four major banks and its inquiry into promoting economic dynamism, competition and business formation.
“Given that the hearings also cover the inquiry into competition, the committee will investigate all relevant issues, including market concentration and barriers to entry,” Mulino said.
What do you think of ANZ’s statement and the committee’s approach? Comment below.