David Ellis: Westpac and major bank peers have got relatively high retail customer satisfaction ratings as researched by the Roy Morgan Research house. So, those satisfaction ratings have increased over the last decade or so and they approximately ran 80% of retail customers are either satisfied or very satisfied with their bank.

So, how has Westpac improved their retail customer satisfactions ratings and where to from here?

Brian Hartzer: Well, the first thing to say is, we are not perfect and we still have plenty of work to do. But you are absolutely right. I remember, when I was working in banking in Australia back in the early 2000s, the customer satisfaction rates were typically in the high-60s or low-70s and there has been an enormous shift up. I'd attribute that to a few things. I think it's the recognition that many of our processes were falling over and were making too many errors, so a real focus on that.

For Westpac, it's been a real focus about putting power back into the community, the role of the bank manager being very important. We talk about that our objective at Westpac is to be one of the world's great service companies, not just a great bank. And we reinforce that in using training with our people that we've taken from Disney and Ritz-Carlton and some of the great service businesses in the world and we've tried to make changes in the way we pay our people, the way we train our people to make sure that we're constantly emphasizing service. We've also had a real focus on complaint reduction, understanding the root causes of complaints and getting in and fixing them. That's been tremendously successful as well.

There's no question we have more work to do. I should also say that I think the advent of technology and particularly, mobile banking technology, has been a real boon. So, for Westpac, for example, we had a real focus on that. And last year, we were recognized as having the world's best mobile banking app, which we're very proud of. Those sorts of things make a difference to our customers as well. But it's an ongoing challenge. We still make mistakes. We still have staff members who occasionally don't treat customers the way we like them to be treated. So, it's just an ongoing focus for us to make sure that build that genuine emotional connection into conversation that we have with customers and that our products, our processes, our technology live up to that standard as well.

Ellis: If we can turn to the housing market now and obviously, it's very topical issue in Australia and also in other big gateway cities around the world, similar sort of concerns. So, what's your view, what's the bank's view on the outlook for the Australian housing market and particularly, around affordability? And obviously, there's a lot of interested parties talking about how to solve the affordability issue. How do you see that can be achieved?

Hartzer: Well, at a general level, and I think it's important, first of all, to recognise that there are regional variations. Australia is a big place and we have certain parts of the country like Western Australia and parts of Queensland that have been affected by a slowdown in mining and they've got particular regional challenges. But the major markets, Sydney and Melbourne, in particular, the housing market is very strong. Prices have been very strong. And the main reason for that has been an excessive demand relative to supply. And what I mean by that is there has been a lot more household formation than there has been construction of homes and that's been going on for a long period of time. So, the run-up in prices that we've seen, the predominant driver of that has been not enough housing. And so, the affordability issue has been that people want to buy but the houses aren't there, interest rates have been low, so people have used debt to be able to buy the houses they want.

The good news about that is that it means there is underlying support for demand for housing. And as more supply comes online and there is a lot more construction that's been happening, that supply is coming online over the next couple of years, we're beginning to eat into that excess demand and that will mean that house prices will probably not rise from here anywhere near the way they have been. We think that will start to go sideways and that demand will get gradually soaked up.

In terms of the potential for a downside, which is obviously something that people are concerned about given the level of debt and there's no question that consumer debt is high in Australia, I think the real question there is about unemployment. And as long as people are employed, then they can continue to pay mortgages, continue to pay rent and you don't have the catalyst for a big decline in housing.

And in that a couple of points I would make, particularly for international viewers who are trying to think about the Australian housing market. One is that as the mining boom has come off and as the Australian dollar has come down, the offset to that has been a rise in service exports. So, here I'm taking about tourism, education, healthcare in particular. Those are all industries that employ lots of people. So, as the demand for those services in Australia has gone up, so too the demand for employment in those industries has gone up. And so, that's been a positive. Despite the mining boom coming off, actually the mining boom didn't employ that many people other than in construction and a lot of our service industries are doing very well now and that is increasing employment. So, that's quite important.

Another thing to remember, there are two very fundamental differences about how the Australian housing market works against, say, how the US housing market works. The first is that you can't walk away from your home loan in Australia the way you can in the US. So, in the US, when house priced started to fall, people had an incentive to sell fast. That brought more supply into the market and drove prices down. In Australia, it doesn't work like that. If you walk away from your home, you've still got the loan. So, people are incented to stay in their home and try and find ways to continue to make the payments on their home. So, that's quite important as well. And the second – so it's full recourse home lending, which is a really important distinction.

The other point is that Australian banks don't securitise their mortgages away. I mean, there's some securitisation that goes on, but overwhelmingly, the big Australian banks hold their loans on their balance sheets. What that means is, we are inherently conservative because we eat what we kill. And we don't have the prevalence of big credit-scoring bureaus like you do in the U.S. where people can use bunch of data to make a loan knowing that they are going to sell the loan onto somebody else. Doesn't work like that here. We thoroughly assess every customer. We are very conservative about our loan-to-value settings, conservative with big buffers on interest rates, in our underwriting and we know that we're going to hold that loan. So, we have a tremendous incentive to get it right, doesn't mean occasionally loans for that of course. But what you see for many, many years now in the low level of losses in the Australian banking sector is I believe and inherent conservatism in the way that we go about our lending.

Ellis: Talking about employment and unemployment and the economic outlook in Australia, how big of role do you see is the health of the Chinese economy. If China had experienced an economic downturn, how much of an impact would that have on Australia and in particular, the Australian major banks?

Hartzer: Well on the Australian economy, it would certainly have an impact. Australia's economy has absolutely benefitted from China, both initially from the demand for our mineral resources, but increasingly from a service point of view as well and there is no doubt that some of the demand in housing has been Chinese investors who – many of whom have children who are being educated in Australia or have an aspiration to retire here down the road. That has certainly driven some of the demand for housing. And from a tourism point of view, from an educational point of view, Asia in general and China in specific are certainly important. So, if China were to have a major downturn, yes, that would have an impact on Australia.

On the Australian banks, well obviously, we're leveraged to the overall economy, but the Australian economy is actually pretty diverse and from a direct exposure to investment property held by Chinese investors and the like, that's now really quite small.

Ellis: And looking at cybersecurity, obviously very topical at the moment with what's happened around the world recently. How does Westpac approach cybersecurity? Obviously, the financial records of Westpac customers are obviously paramount to the Group, so what's the Group's position on that?

Hartzer: Well cybersecurity is a major issue, and every individual and every company should be taking it very seriously and we've seen in recent days some of these threats. It's something that we talk about all the time. We have a large team of information security analysts and people here. We've invested tens and tens of millions of dollars in upgrading security on every aspect of our systems. We – I mentioned earlier that we travel a lot. Our information security people are very plugged in. We use a number of major providers around the world to give us technology and consulting on how to better protect our customers and our data. We're also – Australia being a relatively small country, we're very well plugged in with the government as well, and the Australian government, the Australian security, intelligence agencies are of course very well connected with their U.S. counterparts. We're very well connected with them and there is quite a lot of sharing of information that goes on as well. So, thankfully, we haven't had any significant issues around those lines and – but it's something that we – like banks all around the world are extremely live to and it's very important for all of us.

Ellis: Well, thank you, Brian. I really appreciate your time and sharing your thoughts and views with us. And hopefully we can have another interview at some later stage.

Hartzer: Thank you, David. I've enjoyed it.