You’ll need to update your browser so you can continue to log on to your online banking from 28th February. Update now.


On The Record

Ian Narev Speech and Q&A

Ian Narev Speech and Q&A

Morningstar Individual Investor Conference Sydney, 6 October 2017.

MODERATOR: Please welcome for our first session to get an insight into Australia and the Commonwealth Bank, Ian Narev.

Ian NAREV: Thank you very much, Anthony, good morning everybody. I would like to start by acknowledging the traditional custodians of the land we are meeting on today, the Gadigal people of the Eora Nation, to pay my respects to their elders, past and present. And to thank very much the team from Morningstar to give me this opportunity to speak to a group of people who, I was just saying to the team earlier, really we feel as our core constituency at the Commonwealth Bank in terms of your position both as shareholders of the Commonwealth Bank, as customers and, of course, as broadly as stakeholders in the community.

Fifty-three per cent of the Commonwealth Bank is owned directly by 800,000 Australian families – 53 per cent. So their collective holding in the Commonwealth Bank as at today is worth about $70 billion. If we add approximately another 26 per cent that’s owned by Australian families through Australian institutions, that takes Australians’ holding in the Commonwealth Bank close to 80 per cent of our market value, and that is getting up around $105 billion.

For those of you who checked, who are shareholders and had checked your bank accounts last Thursday, you will have seen the $2.30 hit, the second half dividend, $4.29 for the year. $3 out of every $4 of the Commonwealth Bank’s profit gets returned to shareholders. For Australians in the 2017 financial year, that is close to $6 billion was paid by us out of our profits to Australians who own the Commonwealth Bank. So having the opportunity to come and talk to you all today, share a few thoughts with you, hear a few of your questions, is something that, on behalf of the Commonwealth Bank, I am very excited to do.

Before I talk a little bit about the economy, I am also conscious that this is a period where the Commonwealth Bank has been in the news more than usual, and has been in the news for not good reasons. You will understand that, with the launching of proceedings by AUSTRAC, they are before the courts and there is a limit to what I can say. But I will say, one thing that I want to say very clearly, we did not reach the standards we should have, and I just want to be clear about that. We let down our stakeholders and, regardless of the ins and outs of the legal claim, I am sorry for that as the Chief Executive. I take accountability for it and can assure you that we are taking it extremely seriously.

There is no suggestion of bad intent, of deliberate endeavours here to sort of circumvent the legislation, but we did not hit the standards that we need to hit and we are very determined to put that right. So a great deal of work is going on at the Commonwealth Bank – has been going on for the last couple of years. Not only specifically in relation to this area of our business, but also recognising the fact that at the heart of the relationship between the Commonwealth Bank and all its stakeholders – whether it is customers or investors or our own people or the broader community – lies trust. We can never take that for granted, and we have a lot of work that we have to do, that we are going to do, and certainly this is my priority in my remaining time as Chief Executive, to really restore that trust. I just want to assure you of our position on all that.

The other thing you can be assured of is – as we really have our focus on putting these things right, on doing whatever we can to strengthen trust, on being transparent with all our stakeholders – we are going to continue to keep the business going as well. Again, for those of you who follow the news, a couple of weeks ago, the $3.8 billion sale of our life insurance businesses in New Zealand and Australia to AIA – an outstanding outcome for customers and for shareholders. One of the most significant transactions in Australia in recent times, should give you some comfort that as we as a Board, and the management team and 50,000 people, are focused on putting things right, we are also going to get on and keep running a good business for the benefit of all our stakeholders.

I will come back a little bit to the Commonwealth Bank at the end, but the starting point, I think, for all of us is we are thinking about individual investors, is how we are sort of feeling about the markets, how are we feeling about the Australian economy. I will have to give the usual disclaimer here: I am not going to give you investment advice. What I can give you is a few perspectives on how we, the Commonwealth Bank, are seeing the economy. Really from the starting point of linking it to the latest commentary that we got from the Reserve Bank earlier this week, which continues the theme from our perspective of seeing an Australian economy that is actually going OK.

We can see in the Reserve Bank commentary and generally in the high level of economic data, an OK level of growth – I think it was 0.8 per cent for the last quarter. Projections are getting towards the high twos or 3 per cent growth for the economy, which is not stellar by historic standards, but suggests that the underlying growth forces in the economy are OK.

We could see that, over the last six months, 250,000 jobs were created in the economy. So the unemployment rate has come down a little bit. The underemployment rate has improved, job vacancies have gone up. So if we generally look at the jobs picture, that looks OK. Then we go to the critical aspect of how are businesses feeling, how is business investment going? We can see that in the surveys on business conditions, on business confidence, things sort of look OK.

I can tell you that I had the pleasure last week of being in Adelaide for a day during which I spent time with a couple of our clients who are really iconic family-owned businesses in Australia, listening to their plans, seeing their view on their growth opportunities. And you multiply that across the hundreds of thousands of small- and medium-enterprise business customers we have and, as a general rule, business balance sheets are in pretty good shape. And businesses can see opportunities for themselves, which is always going to be the lifeblood of how an economy is going to grow, how an economy is going to thrive.

So we look at that from a bottom-up perspective, and it sort of looks reasonably solid in the outlook, particularly in the context also of the Reserve Bank’s view that inflationary pressures are reasonably well under control, and if we look through the commentary of the Reserve Bank, the Commonwealth Bank economists would certainly say that it feels likely that interest rates will remain at their current level for a little while yet into 2018.

Now we all know that can change, but that feels to be that the current trajectory at the moment that the Reserve Bank realises that the current rates are reasonably good for the economy, that it would only look to increase them if it feels the inflationary pressures are requiring it to increase them and that it feels the inflationary pressures are reasonably well under control. So that overall paints a picture of an economy, which from a bottom-up perspective feels reasonably solid and reasonably stable from an interest rates perspective.

We then need to overlay against that, however, the question of this sort of qualitative view of the economy, which feels like there are a lot of people doing it tough, feels like households are feeling a bit stretched. A lot of discussion about housing affordability, which I will come back to, a lot of discussion about whether people are feeling secure in their jobs, and so despite the fact that when we look at the economic data, things feel pretty solid, we overlay it with that sense that households are not feeling as confident. Actually, the household confidence surveys are running a little bit counter to the business confidence surveys.

Now, this does present us with a little bit of a challenge, because we can talk about facts and figures of economies until the cows come home, but in our view the underlying premise of a success economy is reasonably simple. You have got businesses that feel confident about the future, more certain about the future, want to invest to create jobs. You have then got people who feel more secure about their jobs and are encouraged to spend more. The people who spend more make businesses feel more confident again, and you get into that virtuous circle. Those are the underpinnings of a success economy, but they also highlight a bit of a chicken-and-egg challenge.

Do you start with more confident consumers who are spending more to make businesses more confident, or do you start with confident business creating jobs to make consumers more confident? For the last little while, we have been in this little bit of a conundrum where, although we have seen businesses feeling more confident, that has not translated into underlying confidence in the household sector.

Now, there are a few reasons for that going around the world. I mean, most of us still do not actually get thrilled when we listen to or read the raft of issues going on in the world about just general stability – whether it is geopolitical stability with our superpowers, whether it is now stability in Spain. It feels like every week we pick up a news story that makes people just feel a little bit more nervous just about where the world is going.

We overlay against that a general sense that, while technology is undoubtedly enriching customer experience, creating productivity opportunities, it is also creating a higher level of feeling of fragility among many parts of the workforce who worry that over the medium to long term it might translate into weaker job security. So that is the conundrum that we find ourselves in.

Before I talk about what are some of the ways we might think about that, I will come back to what I said before. The additional issue here is clearly all the debate about the housing market. And, clearly, with 1.8 million mortgage customers and a significant number of deposit customers, a lot of information, we do have a few perspectives on that and I will share a couple of them with you.

I am heading off to the United States next week to talk to some of our overseas investors and I will spend 50 minutes of each hour talking about the Australian economy and the housing market and then 10 minutes about the Commonwealth Bank. That is pretty par for the course of what happens. And at the starting point they will ask me is what is happening with the housing market and I will say there is no such thing as the Australian housing market.

Australia has about 2,000 housing markets. And the market within a five kilometre radius of where we are now or within a five kilometre radius of the CBD in Victoria, Melbourne has very different characteristics from what you might see in other parts of those states or indeed in other parts of the country. And if you could take a blank map of Australia and just draw where you would assume housing prices would be going up the most, you would get it right. Because we have got underlying characteristics of population growth, both organic and migration, urbanisation, slow supply side responses building up new places where people can live with good infrastructure for them to be able to commute to where they want to work and live, and increasing general foreign interest in participating in the Australian property and buying property in the Australian economy.

Now, if I put it to you that way and I say there is high demand, interest from foreign investors, interest in urbanisation, a relatively slow infrastructure, and I say to you which of those forces do you believe are short term and cyclical versus structural, most of us would believe those are probably structural forces.

So, undoubtedly, property markets as they always will, there are investment markets, you all know it will go up and down, but the reality is that what we are seeing is a high level of market-driven impact in exactly the areas where the basic micro-economic forces of supply and demand would expect to see that activity.

There is a really good argument about whether the level of activity is commensurate with the underlying market forces – is the property market 10 per cent undervalued, 15% overvalued? Et cetera – and it is very difficult to take a view on that. But what we can say is where the action is, is exactly where you would expect the action to be.

How do we then translate that into concerns about household indebtedness? Well, undoubtedly, as these forces of supply and demand are bringing household prices up, it has cost people more as a proportion of what they have to be able to afford many of the houses that they want to live in. And that is a very important topic of policy discussion that we all ought to have on housing affordability. And our view has been for some time, and remains, that we must have that discussion around the full range of supply and demand levers in the economy. Not just talking about a tax, but talking about both demand-side and supply-side infrastructure, et cetera, as a very important part of the housing affordability equation.

How do we feel about this in terms of household credit and, particularly, an environment where interest rates might go up? And again, this is somewhere we will need to be careful. We do know as the Commonwealth Bank – and indeed across the banking sector, because this is what the regulation requires of us – that when people apply for a loan we need to make sure they can service the loan even if interest rates go up, and the current buffer is around about 2.5 per cent in round numbers.

So what that says is, if interest rates go up without wage growth, and that is a big ‘if’ that I will come back to, assuming all your income remains constant and only the interest rates go up we know that people can still pay, the vast majority of them. However, and this is the reason why both the Reserve Bank and APRA have been concerned, and were right to be concerned, if people are not earning more but they are paying more in the interest rates they can still afford the mortgage but that must mean they are spending less somewhere else.

So when you have seen the concerns about household indebtedness, in our view they are not so much about if interest rates go up quarter of a percent or half a percent a whole lot of people will not be able to afford their mortgage, the concerns are that in meeting their mortgages they will have to consume less over the medium to long term, because of the relationship I talked about before between consumption and business investment, that can weaken the economy.

And that, is in our view, why you saw the macro-prudential regulation from the RBA and APRA, and that is something that we as bank management, as bank boards felt comfortable with, have been very committed to implementing it the right way. I mean, even if we were not, the regulators would have something to say about it, but we have been very committed to implementing it the right way and I think again, as you look at the Reserve Bank commentary, you can see it has had a little bit of a dampening effect overall on property markets.

So given that whole array of sort of bottom-up economic facts, top-down, et cetera, how should we generally be feeling about what we want to see in the economy? The real underlying driver as we see it, to bring back a couple of themes that I have talked about before – businesses creating confidence, consumers consuming to make businesses confident on the one hand and then household debt on the other hand – the absolute key, and in our view the number-one question we should be asking of all policymakers, demanding of all our policymakers, is that households need to feel better off. And the number-one metric we need to look at in the economy beyond unemployment is wage growth, which over recent times, and this has been a global phenomenon, has been relatively weak.

In Australia at the moment, it looks like it is roughly 2 per cent against inflation of roughly 2 per cent. So real wages [are] reasonably stagnant, have been for quite some period of time. If you go to the United States and you speak to chief executives of major corporations, they are also talking about wage growth, same in Europe, right through the developed world.

And what we really need to see in terms of the national policy debate ongoing is, number one, policy settings that give businesses a sense of stability predictability to invest, create jobs, create demand for labour, which in turn creates a vibrant labour market, which creates upward pressure on wage growth, which makes households feel better off.

Now, bear in mind if that is the environment that requires the Reserve Bank ultimately to lift interest rates, under that scenario you are lifting interest rates at the same time as households are having wage growth. So, although the outgoings are going up, the income is going up as well, and that creates a very different picture in terms of household credit.

So the very simple prescription for all policy debate on the economy from our perspective should be create a sense of stability predictability for businesses to create the jobs, let the normal market forces help that stimulate wage growth to have households feel more comfortable and those should be the repeated themes in the economic debate.

Finally, before we go to the Q&A, just a quick word about what that means for us as the Commonwealth Bank. Well, we love being an Australian bank. This is a great economy in which to have the vast majority of our sources of earnings. I could not agree more with the comment that we had at the start that investing is a long-term game. I was delighted to see the number of hands come up of people who have owned shares since 1991. I hope the only reason you still hold the shares is not the capital gains tax but just as investing is a long-term gain for all of you, or a long-term focus for all of you, it is a long-term focus for us at the Commonwealth Bank.

Having been around over a 100 years, cognisant of the role we play in the lives of customers, in the lives of all of our shareholders, as the employer of 50,000 people, as the largest taxpayer in Australia, as a partner to over 5,000 small businesses who sell to us, partner with us for goods and services, we must keep our focus on the long term. And when we think about Australia for the long term, we feel it is a good place to be.

Particularly now for the Commonwealth Bank, we will absolutely make sure that management and Board focus is on addressing the short-term challenges that we have got that I talked about before. And the medium- to long-term challenges of rebuilding trust. But we will also make sure that we are keeping the organisation competitive for the future – in particular, investing in the culture of the business through our people, and continuing what has now been a decade-long focus on upgrading the Commonwealth Bank’s technology to make life better for our customers so that we can remain competitive as the market becomes more competitive with technology-fuelled competitors increasingly playing a role in financial services.

What does that mean for those of you who are shareholders of the Commonwealth Bank? As we talked about earlier, share prices go up and down. And, at the moment, we are conscious over the last couple of months there has been heightened uncertainty about the Commonwealth Bank, and uncertainty always has impact in investments markets. There has been uncertainty about the fact that we have got ongoing matters now with regulators that will get resolved over a period of time. That creates uncertainty. We have got uncertainty with leadership succession, although I can give you a guarantee that the next Chief Executive of the Commonwealth Bank will be better than the current one. That does create uncertainty over a period of time. And, undoubtedly, when you have got layers of uncertainty on each other that weighs on the stock.

I am not going to give you any predictions as to what happens. What I can tell you is a couple of things. Number one, we are very focused on doing whatever we can to create long-term value for our investors. And number two is we know that a critical part of doing that is doing whatever we can to provide a predictable, reliable dividend.

And I will finish by saying what I have said before. Our number one priority is to build and maintain a strong bank for the long term. The strength of the bank will always be our priority, and that means that the dividend is not an annuity. There are times in the past, and there undoubtedly would be in the future sometimes, where the Board has to take action on the dividend. That is just the nature of dividends. But what I can tell you is this: We will do our utmost to make sure it is as predictable as it possibly can be for all of you, because we understand the importance of the dividend to all of you. We certainly understand that the importance of paying nearly $6 million in dividends back into the Australian economy over the last 12 months, the importance of that to shareholders and to Australia overall. Thank you very much.

MODERATOR: Thank you, Ian. A great hit out I think. And also all those people who submitted questions through the registration process, they were passed on to Ian, and hopefully you saw that reflected. Ian, I am just maybe going to go back to where you started, and you were talking about AUSTRAC. But just more broadly, how, when you have got all these potential regulatory machinations happening around you and the investigations, how do you keep the bank focused on delivering what you have got to deliver?

Ian NAREV: Well, look, the first mindset that we have got to have as an organisation has been ever since the whole world of banking went through its challenges in 2008 and beyond, even though Australian banks were strong and did well, the world of regulatory expectations went up. And that is now a structural reality in financial services inside Australia as well. So the first thing we need to make sure we have got as a mindset as an organisation, we have not always been strong on this and we need to be, is we need to respect the regulators, realise that the role they play is going to be heightened for really an indefinite amount of time, and build into the way we do business and the way we conduct business, an attitude of transparency and cooperation with regulators.

Being willing to debate points where we feel they are not well understood, we have got different views, but actually understanding the role of the regulators. And I can say that one of the great advantages of Australian banking over time is we have had some of the best regulators and some of the best regulatory systems in the world.

The other thing, though, we have got to do to where I finish is, while we are doing that, make sure we are also keeping our focus on the long term. And for us, I am absolutely sure that in 10, 15 years when people look back on the banking system in Australia, how well banks responded to regulators will be critical, how well they responded to challenges on reputation will be critical, but equally critical will be how well we succeeded in transforming organisations to reflect the opportunities of new technology, and the fact that new competitors are trying to make life much better for our customers every day, and unless we compete successfully with that we will not succeed.

MODERATOR: So I think so implicit in coming back to this question if you still think about your team, the management team at CBA and what it’s doing, so we see a lot of the headlines, I guess we all see the headlines, but really how do you keep the culture? I mean the bank is still going, isn’t it? I mean, beneath the headlines.

Ian NAREV: We are in the headlines a lot, and I am realistic about the fact that what most people know about the Commonwealth Bank they know from what is being read by external sources. I can tell you something from my own experience at the Commonwealth Bank and six years as Chief Executive, 10 years at the bank, and particularly the last couple of months I have been getting around. We have phenomenal people who are extremely proud to work at the Commonwealth Bank. Really engaged by what the brand means for our customers. Really hurt when we feel that we or part of the organisation has let our stakeholders down, but really committed to doing the right thing by them long term.

And what I can say is that, in times of difficulty when we are under scrutiny and the criticism is high, et cetera, when you look at the passion and commitment of our people inside the Commonwealth Bank, for me it is a real source of inspiration, because people are really committed to doing the right thing by customers, doing the right thing by all our investors, and by the community, and where we have not met the standards we need to, putting our hands up and saying, “It is not good enough” – starting with me as the Chief Executive. Saying: “It is not good enough. We have to do better.”

MODERATOR: So I’ve got a few more questions, but also those who want to come out, we are happy to take a few questions from the audience, so if you want to put your hand up, our people with the microphones will find you. But while we’re doing that, I just want to come back to this question of focus. So we saw the sale of the insurance business recently. Can you maybe just comment on that in the context of rationale more broadly about maybe insurance, but also about the bank and where it’s going.

Ian NAREV: So look, again, life insurance is a business both at CBA and in the broader industry, which has been under a lot of scrutiny. What I can say through all the work we have done in life insurance over the years, and particularly over the last year, we have got and have had a fabulous business. Our people in that life insurance business are good. They have run a great business. And so, as we have been thinking, and Annabel Spring the head of the Wealth Management division sort of kicked off this thinking a couple of years ago, the thinking was not “Oh, can we run this business?”. The thinking was “Are we the best people to run this business for the next 10 years in an increasingly competitive environment?”

And as we thought about that, exactly the sorts of things I am talking about before, the need to be at the cutting edge of technology, the need to be at the cutting edge of the customer experience. We have got a lot we have got to do at the Commonwealth Bank, and we cannot do everything. And what we found is that there were other specialists in the insurance industry who were very keen to chat with us about buying it. And who, when we spoke to them, (a) were creating competitive tension, which is good for shareholders because you get a good price, and (b) it was very clear that their commitment to the customer experience technology over the next 10 years was going to create a fabulous experience for customers. So we have got a 20-year distribution deal with AIA in Australia and New Zealand. They are an outstanding, proven company at the cutting edge of customer experience in insurance, and we felt they could do an even better job over the next 10 years than we could, and at the same time we could create value for our shareholders.

MODERATOR: So yes, so that capital, the capital that has come back, being put to work?

Ian NAREV: Well, we have said it frees up about 70 basis points of capital. We do not get that until the transaction is closed, which will be sometime next year, and when that happens and we get the capital back we will obviously look at how the balance sheet looks at that time and make our decisions.

MODERATOR: OK great. So I am going to go to the audience. We have got two questions. We are going to start here and then come down to the front. And please do keep it to two questions – that would be great.

QUESTION: Thanks Mr Narev for your talk. I just wonder, does the Commonwealth Bank have a lot of excess franking credits on its books, and is there some way they could be returned to the shareholders in an attractive fashion?

Ian NAREV: This is a topic of some interest, I know. Look, all I can say is that, given the nature of the business, the fact that we are the largest taxpayer in the country, we do generate a healthy amount of franking credits. We are always looking at ways that we can use those as effectively as we can for all our shareholders, and I can assure you this is always an active topic of conversation, so we would always look to do that if it made sense. But I do need to come back to what I said at the start – that the priority is always looking at the balance sheet and making sure we feel it is solid and capital requirements have been going up. So whilst we are cognisant of the benefit of the franking credits for our investors, we also just need to make sure that the number one priority remains being well capitalised. I can assure you, though, that the understanding is high and it is always a topic of active debate.

QUESTION: OK, thank you.

QUESTION: Paul Fanning, a long term CBA shareholder, Melbourne. Ian, question in regard to Colonial First State, which is on the cards for disposal through an IPO or through an acquisition or a combination of. As I understand, the original purchase price of Colonial First State was in the order of $9 billion. Fund managers are suggesting that probably the current value would be about $4.5 or $5 billion. How does that sit with the CBA Board and yourself, given the period of time? I realise wealth management has had a good run over past years, but now CBA is not manufacturing products, but distributing products in the future, where the fact that there is going to be an incremental reduction in the sale value compared to original purchase price.

MODERATOR: Thank you.

Ian NAREV: It is a good question, and it gives me the opportunity also to clarify. I mean, the acquisition of Colonial was a whole lot of different parts. One of them was the insurance business that we are now selling. One of them is the asset management business, which is the subject of the review that you are talking about. Other parts of it, for example, are the Colonial First State platform business superannuation, which we are absolutely committed to keeping. So the values being talked about for the asset management business, relative to Colonial as a whole, is only a part of it.

We are looking at the asset management business for the same reason as we were talking about with the insurance business is only the asset management side. We have got wonderful fund managers, I think 75 per cent of the funds are above their benchmarks, they have done a great job. We, I think, have been a pretty good owner of them, but the question is, “are we the best owner?” and that is the review that we are doing at the moment.

Without being too glib about it, I can confidently say to you, there is an option we do an IPO, there is an option there might be a sale and there is an option we will keep it, and the review is exactly at that point now where we are making the assessment among all those options.

MODERATOR: So that’s important is it, yeah, different businesses?

Ian NAREV: Different businesses, yes.

MODERATOR: And it is, there were a number of chunks, yes?

Ian NAREV: Correct.

MODERATOR: Thank you.

QUESTION: Mr Narev, I’d like you to comment on hybrids. The way I see hybrids, they’re pure equity, just ranking after senior equity. And why have the authorities allowed it to be represented virtually as a debt instrument rather than an equity instrument?

Ian NAREV: Yes, look, it is a topical question and it has been an ongoing topic of conversation both within the Board of the Commonwealth Bank and I am assuming other banks, and obviously active dialogue between us and the regulators. Now, I am not sure I would agree with the characterisation that they are actually equity, but they are a different form and there are obviously different rights attaching to them. One thing I feel pretty confident about is, in the discussions that we have had both at the Board and the regulator, what we are committing to doing is making sure the ins and outs of those instruments, the risks associated with them, are made very clear to the people who are buying them.

So our view as a Board is that they are an important source of funding historically for the Commonwealth Bank, they have been very good for investors, but they are a specific type of instrument that we need to be making sure we are very clearly communicating to potential buyers what that nature of the instruments are, that has been an ongoing topic of discussion with the regulators and I know an active topic in the public domain.

QUESTION: [Inaudible] because of all the competition relating to [inaudible].

Ian NAREV: No, I agree. They certainly under certain circumstances can be converted into equity and there are certain rights attached to them and to that extent they are exactly how they are described. They are not equity and they are not debt, they are a hybrid between them, so we agree on that point. I am saying I am not sure I would agree with the characterisation of them as equity per se. I think the key is that people understand what the dividend stream is or the annuity stream is of it, and the circumstances under which they could become the kind of instruments you are talking about. I think it is a very fair observation.

MODERATOR: We have a session at 1:45 pm. We have two people, fixed interest specialists and our hybrid specialist, so we can talk a bit more about that at that at that juncture too. At the back.

QUESTION: Good morning. I believe, correct me if I’m wrong, CommBank owns 20 per cent of Mortgage Choice. Could you just describe the ongoing role of mortgage brokers in your industry for us?

Ian NAREV: Well, we bought a third share in Aussie Home Loans in 2008 and, as people will know, we bought the remainder of it over time and finished, we now own 100 per cent as of August. The fundamental view we have got is two-fold on mortgage brokers. Number one is they play an important role in the mortgage market for customers. There is a group of customers currently, and always will be, for whom the proposition of brokers is very important. Which is: “I am making one of the biggest decisions of my life and I want to be able to go to somebody who is going to be able to give me help in working out which is the best home loan for me.”

Our view was that is going to be a critical part of the mortgage market into the future, and therefore we should be part of it while keeping Aussie entirely independent. I recall, from watching a TV ad with my wife where even after we invested in Aussie Home Loans, John Symond was bagging the banks on television. I could say that is proof of how independent Aussie Home Loans has remained.

Beyond that, we have said we want to make it as attractive to our own customers as we possibly can to do their mortgages directly. So we are putting lenders in the branches, we are upgrading our technology, we are making sure our pricing works because we actually want our customers to do business with us directly. So in a sense, strategically we are having a bet each way. We are acknowledging the importance of the broker segment to customers and participating in it, both through ownership and cooperation and we are trying to make the experience for our propriety customers as good as it possibly can be.

MODERATOR: Great. Question here, yes.

QUESTION: Why does the ASX allow shorting of shares?

Ian NAREV: I am not the right person to ask that question to. You might ask how we feel about shorting of shares. I know there are a lot of executives who sort of like to take aim at shorting and query whether or not it is creating economic value, et cetera. I have got to say from our perspective, our main focus is not so much to complain about the shorting, but do whatever we can to minimise the short thesis. Our view is the best way to respond to excessive short interest in the Commonwealth Bank or any stock, is rather than complain about it, to do our best for long. If we are doing our best for long, eventually short takes care of itself.

MODERATOR: That’s great. Ian, you mentioned that you spent some time in Adelaide and I was interested by that. With a lot of iconic Australian businesses, and there are a lot, but just on the lending side, and you talked about wage growth and innovation, are you also seeing where are the up and comers? Are they coming asking for money too?

Ian NAREV: Yeah, they are. I mean, I noticed in the Reserve Bank commentary on Tuesday, they talked about seeing a little bit more of widespread demand for business lending. We are seeing a little bit of that. I mean, I will not comment on our trading conditions beyond what was in our recent result for obvious reasons. But we said then we are starting to see a little bit more activity. Australia has great natural resources, great human resources, phenomenal small and medium enterprises.

My job before becoming Chief Executive was running the business banking division. I still often describe it as, including my current job, the best job I have ever had. The reason is because you spent time all day, every day, with these small and medium enterprises. You can really see their potential to contribute to the economy. And you can really see the symbiosis between big business and small business.

I was visiting the Lockyer Valley in Queensland about a month ago, with a cherry tomato farmer who was telling me not only about how important the credit we had provided to him had been to his family, but also how one of the two major supermarket chains had shown confidence in that business for years, in advance, given it some certainty, and as a result they were expanding the businesses. You see these pictures all over Australia, why people often love characterising the debate as small business or big business – the reality is, one cannot exist without the other.

We would far rather see the economic debate talk about the inevitable and critical symbiosis between big business and small business rather than having political rhetoric characterising somebody as the champion of one and the critic of the other. They must work together, and you can see that happening every day.

MODERATOR: Last question, sorry, from the audience. My apologies up there. Just here, thank you.

QUESTION: Thank you, Ian. Question on technology. There are at least two dimensions, and probably several more, but one really looking ahead – how do you anticipate, with the money that you have been spending and will spend, that the face and the operations and the style of the bank will change? And number two, how do you expect competition to impact, not only on your bank but banks, traditional banking in general, because there’s certainly a big push coming from that direction?

Ian NAREV: Well, look, the simple answer to number two is adapt or die. I do not say that glibly and I am not saying that over the next six months, but over five to 10 years in our industry, if you do not successfully adapt, you will not succeed. I say that without any sense of hyperbole at all. And we feel not at all complacent about where we are, because you have got to keep going, but we feel pretty good about our relative position today, as long as we keep the energy up, and it has got to be on two fronts. Number one is, we have to realise that an increasing number of our customers, many want to do business the old way, but an increasing number of them will compare their experience of the Commonwealth Bank relative to their experience with Facebook or Apple or Amazon, and we need to be able to be competitive and we will be.

Number two is that the opportunities to apply artificial intelligence, data analytics, robotics to fundamental productivity is critical because we need a better cost structure. While we are evolving to a better cost structure, we also need to be the responsible employer of 50,000 people and help our own workforce make the transition, which we are very committed to doing. So for us, this has been a topic of real focus for the last few years. It will remain a topic into the future. We are committed to adapt.

We also realise that, as that changes radically, two things won’t change about banking. Number one is, you must look after your customers and number two is it is all about trust. While we are adapting to the future we have also got to realise those things that have not changes and will not change about being a successful bank.

MODERATOR: OK, we’ll be watching the ‘adapt or die’. Just in closing, since privatisation, you are the fourth CEO for the Commonwealth Bank of Australia. When you look back at your term what do you take pride in? What are you going to take most pride in?

Ian NAREV: You know, I said right at the start I was asked what I wanted my legacy to be when I took the job six years ago. I said when you have the privilege to spend time running a 100-year-old institution, you do not think in terms of your legacy. I will be gone in a year’s time, a better person will be there and in two years’ time I will just be a footnote in the bank’s history, and I have believed that from day one. You just hope that, after the years you have done, you have made customers slightly more satisfied, you have made shareholders a bit more satisfied, you have made your people a bit more proud, and if people feel that and cannot remember why, that is absolutely fine.

MODERATOR: OK, ladies and gentlemen, please thank Ian Narev.

Ian NAREV: Thank you very much.

MODERATOR: Thanks very much, Ian. I think that was a great hit out and we’re looking at the Australian market and where CBA is at in the hands of Ian. So let’s, I’m sure you’ll all continue to, watch what the next 20-odd years have in store.