06 Jul

' Royal commission adds to funding costs: NAB' The Australian

The unremitting stream of bad news from the financial services royal commission had contributed to the recent spike in bank funding costs, National Australia Bank chief executive Andrew Thorburn said yesterday.

While debt markets remain open and the nation’s highly rated banks have no problem with ­access, Mr Thorburn said the royal commission was one of a number of factors responsible for a new risk premium.

“There’s a bit more price pressure; (debt) costs a bit more,” the NAB chief told The Australian after a business lunch in Melbourne. “But I think that’s to do with a lot of factors about Australia — where’s the growth coming from, the budget deficit, where’s the interest rate cycle going, the impact on mortgage customers.

“And yes, I think the royal commission and what might come out of it in terms of additional costs and the regulatory burden is a factor, but it’s not one thing making the difference.”

Speculation that the major banks will raise mortgage interest rates has been intensifying, with lower-tier lenders passing on the impact of higher short-term wholesale funding costs in recent weeks.

Bank of Queensland, Suncorp, AMP Bank, IMB and ME Bank have all lifted their standard variable mortgage rates in an attempt to rebuild margins.

However, there is intense pressure on the major banks to keep politically sensitive mortgage rates on hold — from Canberra, and from the flow of bad news generated by the royal commission.

With the cash rate at a record low of 1.5 per cent, Mr Thorburn told a moderated question-and- answer session hosted by the Australian British Chamber of Commerce it was “inevitable” interest rates would increase over time.

NAB, he said, had to price debt at a level that was competitive, bearing in mind, as well, that only a third of Australians had a ­mortgage.

Depositors also needed consideration, as they were the main source of funding for the bank.

Appearing with Mike Baird, NAB’s chief customer officer, corporate and institutional, Mr Thorburn said staff incentives were necessary but overrated in terms of their ability to motivate ­employees.

Last month, the bank said it would overhaul the bonus system for more than 4000 staff in its branches and call centres, with more emphasis on service levels and less importance placed on ­financial targets.

“As a market economy we need incentives,” Mr Thorburn said. “But I think they can be ­seriously overrated in terms of their motivational capability.”

As to the continuing reputational hits on the sector, the NAB chief said he had been “so disappointed and saddened” by the ­behaviour of some elements in the industry.

However, there was still hope.

“Absolutely there’s hope — what we read about in stories is not representative of our people and how they treat customers,” Mr Thorburn said. “We acknowledge there are some things that we have to fix and we have to be a lot more ­authentic and forthright about saying sorry, and fixing things a lot quicker.

“I don’t think we’ve got a great track record in doing that. We have to lift our game there.

“Our leaders and bankers have to talk about the pride we have in what we do. So acknowledge, own, fix. Make sure (the mistakes) don’t happen again.”

 

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