Shayne Elliot, the CEO of the ANZ Bank, talks about the housing market and their half-year interim profit
Ross Greenwood: Shayne Elliot, Many thanks for your time. This result really does show there is significant growth in the islands in right now. Obviously, the first half last year the worst made payments brought forth inside, but I’ve got 23% of the cash profit. Are you happy as the chief executive with the results you’re reporting to shareholders, though?
Shayne Elliot: Yes, I’m really happy that we’re making progress and we’re getting the benefits from the decisions we took over last 18 months. It’s great to see the early signs of those things. We’ve got a lot more to do though, we’re not done.
Ross Greenwood: When you say you’re not done what more needs to be done?
Shayne: Well, we’re rebalancing our business, and we’re rebalancing it– essentially, we want to be a bank that’s focused on a few things and doing them incredibly well. And so we’ve got exit non-core businesses, we got to get a call spice right, and we got to get a focus on our customer’s again, and that’s what we’re going through.
Ross Greenwood: What are the things you want to focus on? What are the things that ANZ wants to be very, very good at?
The Best Bank for Small Business and the World
Shayne: We announced that all of– there is like two really. One is, we want to be the best bank for the people who want to buy or own a home or start and run a small business. We want to be the best bank for them and secondly, we want to be the best bank in the world for people who’re in the business of moving goods and money around Asian-pacific. Those are the two things we want to do, and we want to be the best.
Ross Greenwood: Okay, so in regards to try and achieve those goals because quite clearly you are not the pre-eminent bank in terms of market share for the small business or the hard lines in Australia right now. What more do you need to do to get the predominant market share in this country?
Shayne: Right, what we want to do is being the base, and what is that, is about having the base customer experience. We’re not going to win because we had better mortgages than the rest of the banking group or better business lines, it’s the way our customers experience the bank. What does that mean? Well, they experience us in two ways, our people, and our technology. And that’s why we’ve made this big investment in digital. That’s why we’ve hired a different set of people. People that have never worked in a bank before, people that have come from data industry to really teach us how to be great at that. That’s what we’re going to do and that’s why we’re launching this agile way of working, to make as much more responsive. That’s how we’re going to win.
Ross Greenwood: Because I do notice even now, that the headcount numbers, even in Australia, have come down over the past 12 months, is that likely to continue as you create this new agile way of lines of working?
Shayne: Yes, look at something objectively, we don’t sit here and say how do we reduce headcount, but it’s an outcome, and it’s an outcome of a couple of things. The reality is today, technology in particular, whether it’s robotics or big data whatever, are allowing us to do a lot more of the work in an automatic way. This means we need less people to serve these the customers.
Our customers are choosing to interact with us digitally. In 2009, when I joined ANZ there was no mobile banking in Australia, actually. Today, it’s the preeminent way that people choose to trade with the bank and they’re fine. All of that is coming straight through and has very little human intervention. This are very real changes that are happening in our industry, we’ve got to respond.
Ross Greenwood: If you want to be the pre-eminent mortgage bank in Australia, the fact is, in many areas, there seems to be a discouragement, particularly, for investors to come into banks to get a mortgage to go get an investment property right now. How does that wire up with your objectives?
Best Home Loans
Shayne: I want to make sure that we’re the biggest mortgage bank. What I said is that we want to be the best bank for the people who want to buy and own a home. That doesn’t mean they have a mortgage. There’s a lot of financial services that people who don’t have a mortgage want to buy from a bank. We want to be the best all-around service for people who want to buy and own a home. It may well be, that we’ve got to be, we’ll be big in home loans. I don’t think will be number one in market share in home loans in Australia, but we’re going to be the best and that’s going to be, in terms of the service we offer people.
Ross Greenwood: In regards to regulators just trying to cool down the mortgage industry right now, do you think this is a reasonable response from the regulators and is it primarily directed at bigger organizations, big for banks, as distinct from the Mavericks who would take market share right now?
Shayne: I think what they’re trying to do is very reasonable. We’ve been used to in Australia of a system where credit growth, the amount of borrowing was growing at about 6% or 7% a year, and wage growth was 4-5%, and that was quite a sustainable max. But it’s changed, suddenly, our wage growth now is 2%. But credit growth still at six or seven, that’s an unacceptable gap. So the regulator wants to just close it, and the only way they can really do it is to try to slow down credit growth, and so they’re asking the banks to do that.
Ross Greenwood: Part of the reason why the credit growth is growing is because house process, Sydney’s property market to a certain extent has taken off, so affordability becomes much tougher. In terms of running a bank such as this one, how do you address those affordability issues because quite clearly you make money by selling more land?
Shayne: Sure, let’s not talk about affordability because it’s not one-size-fits-all. Actually, affordability in people’s ability to service their mortgage, that actually hasn’t really changed over 20 years. The real issue is, people’s ability to generate enough savings to have a deposit for a house. That’s really where the issue is and that’s where I think the political divide in the community considers around. Had a young people, in particular, save up enough to get a deposit on a house? That’s the concern rather than people’s ability to service their mortgages once they’re bought.
Ross Greenwood: Does that require government intervention or is it simply a case that the market eventually will even everything out?
Shayne: The market will even things out, but it does require government action. And I think the government’s is taking a lot of approach. There is not one silver bullet to this. There are a lot of complex issues here about. The demographics and now society infrastructure, interest right, all sort of things have a play in this. The government has to have a role. Hopefully, it’s in conjunction with industry and the regulator so that we can all have a positive impact together, but yes the government has an important role.
Ross Greenwood: The last thing to ask you, and I know the answer to this, how old are your kids?
Shayne: I’ve got one she’s almost 12, my little girl.
Ross Greenwood: 12, if your was daughter was say – right now, in these conditions would you be telling her to buy for the first time?
Shayne: That’s a good question, I’ve got long way to wait for that I think it depends, it depends on people’s situation and what they want in life. If you’re asking indirectly am I worried about the house prices in Australia, yes and no. No, I think there are very strong fundamental reasons why prices are where they’re. I don’t think that there is a bubble per say and I don’t imagine that they’ll be a significant price correction. But that doesn’t mean that I believe that house prices will continue to rise at these rights for long period of time.
Ross Greenwood: Are you happy with the amount of debt, that in particular, first-time buyers are putting themselves into, to afford that first time right now?
Shayne: I think we got to be really cautious. They can be really dangerous, some people have to be cautious and conservative. And it’s our role, to ensure that people will borrow responsibly. And we do have a role in that, it might be that people really can afford this, that thought through the risks because there are risks. I think that sometimes people do clearly overextend themselves. It’s not always with the mortgages, by the way, it’s with the cars, and the holiday home and the just general lifestyle, but we have a role in talking about responsible borrowing to our customers.
Ross Greenwood: One of the issues of banks previously, is the issues of miss-selling using mortgage brokers and maybe other financial products as well. This is something quite clearly, you don’t want basically scenes of today to be somehow repeated in five or ten years time.
Shayne: No, I think community standards and expectations have changed enormously. In my lifetime, when I was younger, it was a much more higher local buyer beware. And people would go whatever that might be including banking, if you could afford it you could borrow. People’s expectation have changed. Now, actually, the bank has a responsibility here about being responsible, and making sure that you’ve thought through the risk, can you really afford it.
Sometimes, even if you can afford it, it’s our job saying no. That’s a big shift in terms of community standards, and we’ve probably been a leg out on this in this terms of our industry. But we’re catching up, we’re committed to make real change.
Ross Greenwood: Just one thing, in regards to the regulatory changes that have taken place, people are saying here that this is a very, very healthy profit from the ANZ, and that you’ve been raising interest rates in some area. Is that partly you trying to say to some people, “No, we don’t think this is the right time for you to borrow”?
Shayne: Well, partly. The recent rates rises that we’ve seen in the industry, really relate to some of the regular reaction, where the regulators have said, “We would prefer, that your growth in say investment loans or interest-only will slow up” and so that puts some speed caps on.
Ross Greenwood: Is that fair?
Shayne: I think it’s fair. As I said, they’re trying to slow down credit growth from that six-ish percent and want to spring it down. They’re focused on what are perceived to be high-risk areas since they would like those areas to slow as opposed to owner or occupiers who pay principal and interest. One of the ways that we can slow– is really hard for us to slow. We can’t just shut the bank and when we’ve filled out. So we use price, and so we’ve increased the price in some of those areas to make it a little bit more expensive and slow down demand.
Ross Greenwood: Is there price likely continue to rise if this demand does continue?
Shayne: What we’re saying is this, we got used to a period of time in Australia, and it wasn’t always so, but in the last decade where prices– which are kind of the same was an owner occupied and based on interest only or whatever. That’s actually is not normal way of thinking about it, there are different products, they do have different risk profile. Now we’re going back to the future actually, there’s going to be differential. People that are older than I talk about the past year will tell you that it was kind of a rule of thumb, the difference in pricing would be at least 1% between those products. We’re not there yet, so it could well be, that those price differentials will increase.
Ross Greenwood: Just a final one for you, bad and doubtful debt are down over the past six months compared with the same time last year, that’s an encouraging sign, people are actually keeping up. Eventually, you wired as right stopped to rise perhaps naturally or perhaps for regulatory change, those bend down start to rise some people will be vulnerable.
Ninety days past due
Shayne: What we’re seeing across Australia today so first of Australia is not the only market, and if we’re talking about, moms and dads as opposed to businesses, what you’re saying is quite very, very different trends. If we talk about the point of day that we use in banks, 90 days due. So people who haven’t paid what they should have paid in the last three months. If we look at the mortgages, in West Australia who is doing it really tough at the moment, that’s about 1.6% of all mortgages. That’s quite high. If you look at Sydney, it’s about 0.2% of all mortgages and the other states in between and the other cities in between.
Things are getting worse in Sydney areas, they’re getting worse in WA and they’re getting worse in Queensland in particular. And suprising with the slow-down in mining, but they’re certainly not bad. If we compare that internationally, to the United States or parts of Europe, these are still incredibly low levels of stress.
Banks are well capitalized. We’ve got really good regulation. We generally have been lending in a really responsible way. And people in Australia to do the right thing. If they’ve got a job and they can afford to repay, they do. The reality is, we’re not really concerned about a significant deterioration, but we’ve always got to be cautious.
Ross Greenwood: Shayne Elliot, we appreciate your time.
Shayne: Thank you.