National Australia bank chief executive Ross McEwan says the sector has gone from famine to feast, with successive interest rate hikes temporarily boosting profits before the combination of a slowing economy and intense competition changed the game completely.“You’ll never see another year like that ever again,” McEwan says. “I’m not sure the banking industry has ever seen 11 or 12 interest rate rises in such a short period of time.
What McEwan calls “some of the thinnest mortgage margins I’ve seen in my time in banking” are the result of intense competition for both a shrinking pool of new loans and the large pool of fixed-rate loans that need to be refinanced to higher variable rates. The good news for McEwan is that NAB has other levers to pull. Every dollar of discretionary capital and liquidity will go onto the group’s business and private banking division, which accounted for 43 per cent of group earnings, a far higher proportion than any of its competitors.The business and private bank the division in 2023, with full-year cash earnings up 10.1 per cent and loan growth up 8.7 per cent.
McEwan says that reflects in part the fact the business bank does sell plenty of mortgages to its SME and private wealth customers, so broader mortgage market margin pains have been felt in NAB’s business bank, too. But he says business customers are proving surprisingly resilient, and while their demand for loan is likely to decrease in the last 12 months, many customers are still battling labour shortages and there are pockets of real strength – anything connected to overseas students, for example, and mining.McEwan takes another clue about the outlook for the Australian economy from his business customers, who tend to move into term deposits when they think interest rates are at or close to their peak.