NAB Chief: Economic divisions in Australia complicate RBA's task

The chief executive of National Australia Bank Ltd. stated that increasing divisions within the country's economy are complicating the task of setting appropriate monetary policies.

"There are two Australias," Andrew Irvine, the head of Australia's largest business bank, said during the House of Representatives Economics Committee's annual review into lenders on Friday. He pointed out that while profits are soaring for resource companies and related sectors, the housing shortage has become the country's "single biggest social issue."

His remarks highlight the difficulties policymakers face as the central bank strives to balance high asset prices with tight interest rates, while the Australian government works to mitigate the effects of rising energy and food prices on consumers.

"The averages tell a story of a country growing at 1.5 per cent, which is the lowest Australia has grown in 30 years. The problem is the averages don't tell the full story and we live in a very diverse country," said Irvine, who succeeded Ross McEwan as CEO of the nation's second-largest bank in April.

"In southeast Australia, Victoria in particular, people are doing it tougher," Irvine said. "These economies are more correlated to domestic demand, more correlated to interest rate settings than the resource correlated economies. That's where we're seeing the hardship emerging," Irvine said.

Irvine's observations recall Australia's experience during the peak of the mining investment boom 15 years ago, when the economy was divided between booming resources and stagnating industries in regions like western Sydney. The Reserve Bank frequently emphasises that interest rates are a blunt tool that must be set based on overall demand, meaning their impact will disproportionately affect certain parts of the economy.

Many of the bank's customers are having to make difficult choices about where to allocate their spending, Irvine said. NAB is the third of Australia's four largest banks to appear before the parliamentary review.

ANZ Group Holdings Ltd. CEO Shayne Elliott is expected to face extensive questioning from Australian lawmakers later, marking his first time doing so since a series of scandals involving the bank's bond trading business and broader corporate culture.

On Thursday, Commonwealth Bank of Australia CEO Matt Comyn remarked that regulators have an "undue level of concern" regarding the major banks' decision to scrap bonus caps, while Westpac Banking Corp.'s Peter King criticised social media tech giants for being "absent" in addressing scams.