Incoming NAB CEO Andrew Irvine (L) with chair Philip Chronican
Institutional investors will probably remember Ross McEwan’s 52-month stint at the helm of the National Australia Bank as a turnaround story in which the financial performance of one of the country’s most accident-prone companies was stabilised and renewed.
However, some aspects of McEwan’s legacy are unlikely to be fully measurable for several years, particularly issues around customer relations and the claim that NAB is striving to be a “relationship-focused bank”.
Under McEwan NAB has poured heavy licks of capital and time into reworking its digital capability and slashing branches, which has eroded the quality of its relationship-banking capability.
At the same time, the strategy has generated significant cost savings and growth that have enhanced NAB’s outperformance – in financial terms – of most other peers in the sector.
When McEwan hands the executive reins to NAB’s current head of business banking and the private bank, Andrew Irvine, on 2 April, one of the big questions will be whether his strategic pathway to financial outperformance can be sustained.
From the moment he arrived at the bank in December 2019, McEwan showed himself to be an astute communicator, particularly with investment analysts and institutions.
McEwan is widely regarded in the investment community as a “likeable bloke” – a trait that has been shrewdly deployed to help lift NAB’s reputation out of the gutter of the local banking industry.
“Ross is a very sensible, clear-thinking and straight-talking banker,” said Jefferies senior bank analyst, Matt Wilson.
“He’s done a very good job stabilising what had been longstanding problems at the bank but there are some residual challenges for the new CEO.”
In 2019, NAB was mired in criminal investigations, regulatory audits, internal governance scandals and a swathe of expensive customer remediation programs.
NAB had also been singled out by Kenneth Hayne’s royal commission as the major bank least able to rehabilitate flawed systems and a toxic internal culture that had caused financial harm to thousands of its customers.
“I was not persuaded that NAB is willing to accept the necessary responsibility for deciding, for itself, what is the right thing to do, and then having its staff act accordingly,” Hayne observed in his final report published in February 2019.
“Overall, my fear – that there may be a wide gap between the public face NAB seeks to show and what it does in practice – remains.”
McEwan achieved two big things that none of his predecessors were able to do since Don Argus in the 1990s: to normalise the day-to day operations of the business and to re-establish the company’s financial performance near the top of the industry.
Under McEwan’s watch, there have been no costly asset write-downs flowing from eccentric offshore assets, errant trading room blow-ups or ill-conceived mortgage introducer programs.
There’s been none of that kind of noise. And shareholders have benefited. For most of his tenure, NAB has been the second most preferred major bank stock among fund managers – a reward for market-leading growth in the business banking division and consistent returns across most other operations.
Given NAB’s chaotic and value-sapping history in recent decades, McEwan’s achievements warrant recognition.
However, some recent disclosures by the bank raise questions about the sustainability of NAB’s business performance and the veracity of claims by McEwan that he has been focused on re-building the bank’s relationship banking capability.
In his maiden address to shareholders at the 2019 annual meeting, McEwan promised to maintain a human face in the bank’s interactions with customers.
“Many people want to talk to a banker and look them in the eye when they want advice or need help,” he told the meeting.
“We will evolve to the digital and mobile world faster, while not losing the human relationships that this bank was built on.”
In the bank’s 2023 Sustainability Data Pack published in November last year, NAB reported that it had received a record volume of complaints from Australian customers.
More than 455,000 customer complaints were recorded by the bank in the 12 months to the end of September last year, which is more than double the 216,000 received in 2019 before McEwan took charge.
The number of complaints that NAB was unable to resolve internally also ballooned during the same period.
NAB is one of the leading contributors to a bottleneck of cases at the Australian Financial Complaints Authority.
In 2023, NAB customers referred 9224 complaints to the authority for resolution, compared to 4233 in 2019.
While the blowout in customer disputes is partly attributable to the acquisition of the Citi retail banking business in 2022, the surge in complaints continued last year.
The bottom line is that customer dissatisfaction – as measured by complaint volumes – has risen markedly during McEwan’s tenure.
Despite this, the bank continues to wield thick rhetoric in communications with shareholders and customers that it is becoming Australia’s leading relationship bank.
That is a most debatable claim – especially in light of the rising incidence of disputes with customers and the acceleration of branch closures across rural and metropolitan regions.
On Wednesday, McEwan and the bank’s chairman Phil Chronican were once again plying worn-out rhetoric about the bank’s relationship banking credentials.
McEwan praised CEO-elect Andrew Irvine for bringing “the right lens to us wanting to be Australia’s best relationship-driven bank”, and Chronican thanked his outgoing chief executive for “exceeding customer expectations”.
The truth is that the “human face” of McEwan’s remodelled NAB has been fading since he took the helm.
This looks like another “gap” between the way the bank seeks to project itself and what it actually does.
In the last four years NAB has shuttered around 150 branches, including 38 earmarked to close over the next few months.
There is probably a link between soaring complaints and the culling of branches because the latter seems to have eroded a critical feedback loop between the bank and its customers.
Instead of disputes being resolved between people who know each other in a familiar setting, customers are now more prone to swiftly formalise complaints just to get a problem fixed.
That’s certainly a new form of “relationship banking” that stands a diminished prospect of exceeding customer expectations.