Commonwealth Bank CEO Matt Comyn says the economy faces its biggest test next year when taxpayer-funded income support measures are removed as he called for ongoing stimulus measures and predicted a long and uneven recovery.
Appearing before a parliamentary committee on Friday, Mr Comyn and ANZ Bank chief executive Shayne Elliott both reiterated their banks’ expectations of house price falls of at least 10 per cent due to the economic hit from the coronavirus crisis.
Mr Comyn told the House of Representatives economics committee that the outlook remained “highly uncertain,” and one of the biggest priorities for politicians should be job creation, helped by government stimulus measures, as the JobKeeper wage subsidy program is phased out.
“The size of the economic contraction is less severe than we first anticipated, but we face a long and uneven recovery,” Mr Comyn said via videoconference.
“One of the biggest challenges for Australia in 2021 and beyond will be how effectively we can move from the substantial and I think very effective income support that’s been in place, to one of fiscal stimulus generating aggregate demand and new jobs” Mr Comyn said.
No ‘V-shaped’ recovery, but a ‘grind’
Mr Elliott said it was unlikely there would be a “V-shaped” bounce-back without a resumption of tourism or international student arrivals, predicting the recovery would be more of a “grind”. He said the worst of the crisis for banks was likely to occur around the middle of next year.
“When do the problems start emerging, people literally finding their businesses unable to operate? We think that’s probably more like the middle of next year… when the crisis will start to hit the banks, if you will,” Mr Elliott said.
Although the housing market has been more resilient than banks expected, both executives said house price falls were likely, with ANZ tipping 10 to 15 per cent declines, and CBA predicting 10 to 12 per cent falls.
Mr Elliott said ANZ was more concerned about the property investment market due to investors’ reliance on rental income, and he also had concerns about commercial property.
In a sign of the greater caution among households, Mr Comyn and Mr Elliott both pointed to a sharp contraction in credit card balances. CBA’s credit card balances had fallen by almost 20 per cent, or $2 billion in the June quarter, Mr Comyn said.
Both CEOs were also quizzed on Reserve Bank governor Philip Lowe’s comments last month that responsible lending rules had weighed on credit growth.
Mr Elliott said that despite an improvement in the guidance from the corporate watchdog, some of the rules were still “grey,” which made lenders cautious, and there was a case for greater clarity and coherence.
Mr Comyn, in contrast, said the CBA had confidence in the existing guidance on responsible lending. He said while there was an “abundant” supply of housing credit, customers faced a longer process in getting approval for a loan due to greater verification of their financial situation.
The two CEOs were also questioned by Labor’s Andrew Leigh about the gap between their pay packages and what tellers are paid at the two banks. Mr Comyn said he understood why executive pay was “a question on people’s minds,” while Mr Elliott also said he understood why people were concerned about the issue.
Clancy Yeates is a business reporter.