Illustration: John Shakespeare.It’s rare to hear an Australian business leader so upbeat about everything, from the economy to politics and governments, the environment, the regulators and even gender equality.
But the Commonwealth Bank boss Ian Narev broke with tradition on Wednesday, launching his own rendition of Reasons to be Cheerful in an almost Pollyanna-like address on Australia’s future.
There’s nothing wrong with talking up the economy – arguably there should be more of it.
But the timing is curious given the myriad of obstacles the economy is facing.
The sharemarket is dangerously close to a correction, there has been a massive fall in commodity prices since the start of the year, yet another set of poor inflation numbers came out of China this week and we are faced with an increasingly sluggish European economy.
To top it all off, Tuesday brought an extraordinarily strong warning from the assistant governor of the Reserve Bank, Guy Debelle, that there was a dangerous complacency in financial markets and we could be facing a rout on bond markets that could be relatively violent.
To the extent that Narev dished up any real criticism, it was confined to the doomsday prophets from a few years back, whose predictions of the post-global financial crisis malaise turned out to be wildly overstated.
In Narev’s defense, there is nothing to be gained by his jumping on the negativity bandwagon.
He is running a retail-based banking business that is highly sensitive to consumer confidence, which is fragile and highly influenced by negative press.
Instead, he needs to maintain and push the message to his customers and shareholders that the Australian banking system is strong and able to withstand internal and external headwinds.
He, like all heads of Australian banks, has to work his public relations message at a time when the financial services inquiry is deliberating on whether to recommend the local banks beef up their levels of capital.
(On that point, Narev stressed he believed – like his peers in banking – that his institution was perfectly well capitalised. In the past week the bank’s board was presented with management’s onerous stress-testing measures and was given a healthy report card.)
But unlike some in the industry – such as the rather more direct-speaking ANZ boss Mike Smith – Narev is trying his hardest to make his point without picking a fight with members of the financial services inquiry, and in particular its head David Murray.
Indeed, he was quick and effusive in his praise of the inquiry.
“The financial services inquiry has been an excellent process of consultation … We don’t know what the final recommendations are going to be and we can’t tell you whether we are going to agree with them but … we felt well listened to [and] we got our opportunity to present our views to a very thoughtful panel of people, and it felt like we were heard.”
The banking majors also need to navigate the potential hazard of regulators instituting macro-prudential measures that would place boundaries on lending for investment into the rampaging property market.
But there was nothing but praise for the Australian regulators, and in particular the Reserve Bank, including Debelle and governor Glenn Stevens, whose job it is to warn people of the risks.
“Guy Debelle absolutely did his job, which is make sure the economy doesn’t get exuberant and doesn’t get complacent and understands its risks … [It’s] one of the key things a good Reserve Bank can do,” Narev said.
But he doesn’t necessarily agree that the outcome is likely to be as serious as Debelle suggested.
“There is a general period of unease and there has been for a while about low levels of volatility, and the reasons we’ve had low levels of volatility is because we’ve had low levels of interest rates around the world and therefore [these] have had an effect on asset prices. There is a very wide range of views on how that will play out in markets in the near and medium term. No one knows what the answer is.”
But Narev is not sipping from that half-empty glass.
“There are ongoing risks in Europe, geopolitical risks, there are climate risks, there are risks in what the US Federal Reserve are going to do. And yes, there is a possibility any one of – or a combination of – those factors in coming months or coming years might make life quite difficult here for a period.
“We hear a lot about those but we don’t hear as much about the countervailing circumstances.”
Narev’s list of positives include living in an economy with 22 years of consecutive growth (even though that can foster complacency), the fact Australia still has GDP growth, household savings rates having strengthened, business balance sheets looking good, business credit quality looking good and a government that understands the risks of excessive borrowing.
We also have state and federal governments committed to spending on infrastructure and a central bank that manages monetary policy “exceptionally well”, he says.
And as far as Narev is concerned, the business leaders who moan about the political impotence resulting from a hostile Senate should stop complaining, start adapting and get on with the job.