NAB chief warns of ‘working poor’ as living costs surge
Bank data fails to capture true extent of financial stress in the economy, chief executive Andrew Irvine has told a parliamentary committee.
National Australia Bank chief executive Andrew Irvine says a new class of “working poor” is emerging as inflation hits finances and banking data fails to show the true extent of financial stress felt by customers.
Speaking at a parliamentary committee on Friday, Irvine said the working poor were “people just like you and I, who have jobs, live in apartments or dwellings, but just simply struggling to make ends meet”.
But the cohort was underrepresented in the bank’s “surprisingly” steady mortgage delinquency rates, he said, because changes to responsible lending rules made it more difficult for them to obtain loans.
“Banks are probably no longer the best barometer in terms of how society is handling this cost-of-living crisis,” he said.
“The arrears in our balance sheet are quite low and not that much higher than our 10-year average, and it just feels at odds with what we’re hearing and seeing from our customers all around the economy.
“I think it’s because where they may have debt instruments, they’re not with us.”
The bank’s data showed 1.6 per cent of customers had loan payments that were 30 days past due, compared to its 1.4 per cent long-term average.
NAB, the country's third-biggest lender by loans and top business lender, appeared before MPs last week along with big four rivals CBA, ANZ and Westpac as part of an annual parliamentary review implemented in wake of the Hayne royal commission.
Giving his economic assessment of the country, Irvine said it could broadly be divided into three cohorts: households who own their homes who are “doing well”; households who own their homes with a loan “getting by”; and a cohort of renters and “the working poor” who are “doing it the toughest”.
When asked by Liberal MP and deputy chair Garth Hamilton what the biggest single pressure on the demographic was, Irvine said: “It’s inflation, more than interest rates for the for the working poor.
“Energy costs have gone very significantly higher in the last two years, cost of goods have increased a lot. And so it’s the day-to-day living expenses.”
But a “silver lining” of the resilient labour market is that “people can work more”, he said.
“They can take a second shift, they can find a second job, they can drive an Uber and we’re seeing a lot of the working poor pushing really hard to ensure that they can make ends meet,” he said.
According to the OECD, Australia’s real wages that are 4.8 per cent lower than pre-pandemic levels is among the worst of the organisation’s 38 member nations.
Chief risk officer Shaun Dooley said trading conditions of businesses were also impacted by most Australians managing their budgets “very carefully”, cutting both discretionary and non-discretionary spending.
“We’re seeing that less discretionary expenditure is flowing through to some of our business customers,” Dooley said.
“So those businesses that rely on discretionary household expenditures – such as cafes and restaurants, hotels, fashion retailers and others.”
The hearing also revealed geographical disparities in financial stress, customers in the western suburbs of Melbourne and Sydney showing more signs of stress than those in Western Australia and the ACT.
NAB’s testimony comes after Commonwealth Bank and Westpac bosses on Thursday called for an overhaul of the tax system that they claimed was too reliant on income tax.
“The tax system, at the moment, is not as efficient and as fair as it could be … we are over relying on income [taxes],” CBA chief executive Matt Comyn said.
“I don’t think we are taxing wealth as heavily as we could.”
Comyn also defended the banking practices of the big four and pushed back against the Greens’ proposal to tax “excessive” corporate profits at 40 per cent.
“Over and over, businesses in Australia are being represented in this false dichotomy that for a company to earn any sort of income or profit, it is therefore inferred often or directly related as somehow being unjustly extractive from consumers,” Comyn said.
“This fact-free rhetoric is very damaging, eroding trust in institutions.”
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