Should banks jump on the innovation train or stick to their knitting? After a year in the job, ASB chief executive Barbara Chapman dishes on the big issues in banking.
I read you’d had a 31 percent increase in profit, so things must be tracking pretty well for you right now?
That was the half-year profit to the end of December and there were a few things that drove that. One of them was improvement in impairment expense – we’re not holding as much in bad debt, our customers are doing better. So we’re able to release some of that provision back into the bottom line.
Another driver of it was the move of customers from fixed rates into floating rates as the shape of the yield curve favours the shorter end, which means we can price our floating rate loans lower than our fixed rate loans. So our customers do the obvious thing – they move to where the best deal is. We actually get more margin at that lower end.
Then there’s been some of what I would call market-to-market accounting noise in there as well. But I think there’s been some quite good momentum in the business in a number of areas. It’s been good to see that some of this growth is starting to come through. It was a good result, that’s for sure.
And how about you personally – being back in New Zealand, how is it now you’re a year down the track?
It’s been good, yes. It’s a challenging environment, there’s a lot of competition in the market here, just like there was in Australia. Here it’s no less intense. I think the banks in New Zealand are all doing a pretty reasonable job in their efforts with customers. The challenge is to stay ahead of that and do things differently and deliver service differently to your customers. That makes it exciting and no two days are the same in a role like this, as you can imagine.
But it’s also been good to get back and get out amongst our network, I’ve been around every branch and regional centre and rural centre in the first year and I’m just starting on that tour again. It’s good to get back in touch with our frontline staff and see what they’re experiencing around New Zealand.
Do you find there’s much difference in banking depending on which side of the Tasman you’re on?
There’s more similarities than there are differences. Both are very competitive markets with quite a large number of even-sized or semi even-sized businesses, so that makes for a very competitive market. I think in Australia there’s a lot of bank bashing that goes on through government and in the media. We don’t experience as much of that here – there’s a bit but not as much, and I think that’s partly to do with decisions that banks have made here.
What sort of decisions?
There was a bad push in Australia in the 1980s of introducing fees and branch closures and things like that. That probably turned a few people off and made it difficult for the banks and people have still remembered that time. Whereas I think here, things have been handled a bit more sensitively and differently.
One thing that switches the other way is that New Zealanders do seem to not like the fact that their banks are largely owned by Australia. And yet I actually think that in these capital- constrained times that’s a strength. You want to be owned by a parent that’s operating in a great economy with good capital and good ability to source help, to help you source funding. So some of this ‘New Zealand banks are owned by Australian banks and it isn’t a good thing’, it actually is a good thing. I think New Zealanders’ fixation on that being a problem needs to be turned around to be thought of that it’s given us a lot of strength in that environment.
People often think of it the other way around, don’t they? In terms of ‘what if our banks fall over’?
I think that’s probably from a sentiment of not understanding how strong the Australian economy was during that period. You probably wouldn’t have wanted to be owned by a US bank or even a UK bank, you wouldn’t really want to be owned by a European bank, but the fact that we’re owned by Australian banks has been a very good thing. But the other similarities around regulation, there’s a regulatory thrust going on in both countries and that’s pretty similar. Having a strong, well-regulated industry is a good thing.
What are the big issues in the banking sector right now?
Competition. New Zealand isn’t growing all that quickly, we’re out of the recession and there’s growth in the economy but it’s not fast. All banks are looking for more than their own fair share of that growth, us included. That leads to an intensely competitive market, which I think is a good thing – it’s good for customers. You wouldn’t want your banks to not be competing.
There are trends going on in the way customers want to interact with banks – that’s a never-ending story of change. When we look at the stats around how customers have changed their banking habits over the years, there’s a typical curve where ATMs were slow to come in but they picked up, and then Eftpos was a bit quicker, internet was a bit quicker, and now mobile is almost a straight up and down line. The trends of people downloading mobile apps and wanting to interact with their banks on their mobile and smart devices is just extraordinary. That leads to differentiation in this market – how the different banks are presenting themselves through those types of technologies.
Should banks be pushing the envelope in terms of innovation or should they stick to their knitting?
I think the answer to both of those things is yes, and both can lead you in the same direction. If sticking to your knitting is about providing service and value to customers where and when they want it, then sticking to your knitting is also about innovating to be at that point where your customer wants you to be. Those are two sides of the same coin. The last thing you want is to stick to your knitting and have that be completely branch-centric. The number of transactions that go through branches now is very small – around 5 percent. So if you had been like that then you wouldn’t be surviving in today’s market.
Coming from a marketing background, do you still take an interest in that side?
I do, and often when I’m talked about in the media, my marketing background comes in behind it. I guess that’s natural, because that’s what I was known for here. But for us, we’ve changed agencies recently and that was [executive general manager, marketing and online] Roger Beaumont’s call, he did a bit of work behind that.
I think having a marketing background has been useful for me, I think it gives you good insights into consumer behaviour and preferences, and a good ability to understand trends and data. It’s been helpful to me as a CEO, and it helps me to have a different view of customers than what my competitors have.
What are your views on women and the glass ceiling?
Oh, how long have we got? I do have really strong views. If you look at the performance of New Zealand, I was away for five years and I’ve come back and it’s almost like the momentum stopped. We had that wonderful period of a female prime minister and leader of the opposition and governor general and so on, and you look around now and there’s not as many women in those really big prominent roles.
When I was coming through the stream we had people like Theresa Gattung heading up Telecom and so on, but there’s not as many of those names around now, so I think we have lost momentum. When I look at the construct of boards, it’s 65 percent of all New Zealand boards are male-only. That’s twice the number that they have in Australia and I think we’ve got to fundamentally question how that’s happened.
The thing that I keep in my mind and talk about quite often is the gender pay gap. It’s been 30 years since it was illegal to pay women different amounts than men and we still have a gender pay gap of around 10 percent, and on the current run rate, it’s going to take another 30 years before that gets closed. [Chapman is a member of the new 25 Percent Group, which is pushing for an increase in female representation on boards to 25 percent.]
Which means 60 years after the legislation was enacted, it will have taken effect. What other piece of legislation sits around for 60 years before it actually comes to life? We’ve got to question ourselves on why there are those differences, and even when you take away all the things like a broken career for family, you still get to that 10 percent figure. Those sorts of things are really irrelevant in that mix. I’ve done some work looking at graduates who have come into an organisation at the same level and by the end of year one, the male graduates are earning five percent more. By the end of year five, they’re earning 17 percent more, although their performance reviews are balanced.
What do you think is driving that?
I think there’s some unconscious bias going on and we’ve got to drill into that and understand what to do about it. To measure people on it and measure leadership on it and make sure they understand it’s not good enough. In 30 years we will have cured cancer and the common cold and women still won’t be being paid the same as men for work of equal value.
We’ve got to look at this as a long-term problem for New Zealand society, because if you think about how an income gap translates to retirement earnings gap, it’s significant. So women aren’t able to save and provide for their own retirement at an equal rate as men, and there’s a lot of women who go into retirement as single females and they haven’t been able to accumulate as much wealth as men have because of some of these things like the gender pay gap, and I fundamentally think it’s wrong, and it needs to be really stared into.