CBA boss Ian Narev supportive of ASB's push into rural and business lending but only if it's done 'very prudently'

By Gareth Vaughan

Commonwealth Bank of Australia (CBA) boss Ian Narev says he's supportive of the push by CBA's subsidiary ASB into business and rural lending so long as it's done against "very prudent" lending standards.

In its interim results last month ASB reported 12.7% and 9.4% growth, respectively, in rural and business lending. Such growth levels were well ahead of overall market growth, with Reserve Bank sector credit showing agriculture lending up 2.4% through the first-half of ASB's financial year, and business lending rising only about 0.7%. Figures released in CBA's interim results show ASB grew its share of business lending to 9.8% at December 31 last year from 9% at June 30.

Narev, CBA's managing director and CEO, told interest.co.nz he was happy to see ASB, whose traditional strength is in the residential mortgage market, grow its share of rural and business lending, but only on the right terms.

"I ran the (CBA) business bank in Australia for three years," Narev said. "The quickest way to get a small business bank is to try and grow one quickly. You've always got to be really careful. And you've got to make sure that where you are wanting to grow a business bank you don't do it by taking stupid risk, because the risk is always going to be (that) there's going to be adverse selection when you're a smaller proportion (of the market) trying to grow."

He noted that like CBA, ASB's "legacy" strength was in home lending.

"So common to Australia and New Zealand we have seen business banking as an opportunity to grow. We as the parent support that, as the shareholder, as long as it's done against very prudent lending standards and we would always want (ASB CEO) Barbara (Chapman) and her team to grow it steadily over time through good banking practice, (rather) than try and get them to grow it quickly," said Narev.

"So they are not getting any targets or anything like that from us in those areas. They are just being told 'if that's where you think you've got the opportunity, then we support it, do it the right way'."

Chapman told interest.co.nz last month that the growth in business and rural lending was coming through improved focus from ASB in these areas.

Wants ASB No. 1 in big bank customer satisfaction 

Meanwhile, Narev said the key things CBA was focused on as ASB's shareholder were protecting the businesses reputation "at all costs," improving customer satisfaction, and ensuring rates of return were good over the long-term.

In terms of customer satisfaction he noted CBA had recently achieved a goal of seven years standing by making it to number one in customer satisfaction among Australia's major banks. He wants ASB to reach the same position. The latest customer satisfaction survey results from Roy Morgan Research had ASB third of the major banks at 79%, behind Kiwibank at 81% and BNZ at 82%.

"Our view as the group, whether you're in Australia or New Zealand or Indonesia or China or Vietnam, is we ought to be bound by this aspiration; wherever we are that we are the number one in our market in customer satisfaction.," Narev said.

In terms of returns, he noted CBA's strong sharemarket performance had been helped by it having an industry leading return on equity (RoE). ASB delivered an 18.2% RoE in the six months to December 31, slightly better than the CBA group's 18.1%. Narev said there was no specific target for ASB's RoE from a CBA perspective, but its current rate was within expectations.

"You always want a bit more, but it's right on expectations. If we were to assume an ongoing environment like the one we're in, we'd be happy with that level of return," Narev said. "But we need to be prepared to manage that flexibly and we do. Right now we're happy with the return profile it's generating."

 Asked whether ASB's RoE was more important to CBA than its dividend payments, which totaled NZ$500 million in its last financial year, Narev said long-term RoE would drive the likes of dividends.

 "We don't actually run the business to generate dividends back to the parent. The question about the dividend from ASB to CBA is always going to be done the same way as we make the decision about our (CBA) dividends to shareholders, which is balancing the different interests," said Narev.

"How much of the retained earnings do we need to invest in the business versus contribute to the shareholders? Obviously it's an important factor but the number one question we always ask ourselves is 'what's the long-term value creation for ASB and the extent to which that requires more capital?' Because if there's better opportunity here we're prepared to deploy our capital."

Narev spoke to interest.co.nz after giving a speech to a Trans-Tasman Business Circle lunch at SkyCity in Auckland on Thursday. Narev, a New Zealander who played Davie in the 1979 television series Children of Fire Mountain, gave an engaging speech of about 30 minutes duration without notes.

Wheeler 'understands the issues'

Afterwards he said he'd had one "very general meeting" with new Reserve Bank Governor Graeme Wheeler.

"He (Wheeler) clearly understands, as you would hope and expect, the issues extremely well. He's obviously extremely well qualified so I've got a lot of confidence there," Narev said.

"I'm interested in following concerns he raised as recently as this morning, and the Finance Minister (Bill English) has raised, about increases in property values in New Zealand and to what extent that might require conversations about bank lending."

"I've got a pretty strong view about making sure we don't lend irresponsibly anyway. But to the extent some aspects of that are being floated, I think that's an important subject of dialogue between us and the Reserve Bank," said Narev.

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