NAB chairman Michael Chaney.

Without economic reform Australia's economy will remain subdued, says NAB chairman Michael Chaney. Photo: David Mariuz

NAB chairman Michael Chaney has been urged to fight the Coalition’s $5.5-billion-a-year paid parental leave on behalf of shareholders.

During an investor Q&A at the bank’s annual meeting, Mr Chaney was told by one shareholder he ought to take a “harder line” on a policy that was merely a “thought bubble” of Prime Minister Tony Abbott.

Mr Chaney earlier said he had protested against the policy - which will be partly funded by a levy on big companies - but Mr Abbott had taken the policy to the election and was therefore entitled to introduce it.

The shareholder pointed to successful industry campaigns waged against the previous government on the mining tax and proposed cuts to the salary-sacrifice industry.

'Lady directors', underperformace

“Let’s see a media campaign,” the shareholder said. “I don’t cop the argument that we must bear the cost of this scheme.”

That sentiment, and calls for more “lady directors”, attracted applause from shareholders.

There was some consternation about the bank’s long-term underperformance compared with peers ANZ, Westpac and Commonwealth Bank, with the long-term chairman told he’d be sacked for presiding over similar results coaching a football team.

Mr Chaney agreed NAB had underperformed over the decade, but market capitalisation was not really a relative measure for shareholders.

He attributed the underperformance to troubles in the bank’s UK business - which the bank has sought to sell - plus the options trading scandal of 2003 and 2004, and the effects of the financial crisis, particularly the blow-up of CDOs (collateralised debt obligations).

But Mr Chaney said the bank has been trying to “turn the ship around” and the company was now in good shape.

Subdued conditions

Mr Chaney had earlier told the meeting that economic conditions were likely to remain subdued in 2014 and beyond, with unemployment forecast to rise.

While the bank detected ‘tentative’’ signs of improvement, Mr Chaney said the country faced a period of slower growth, and this underlined the need for economic reform.

‘‘It seems clear that Australia is faced with, at best, some years of modest economic growth and rising unemployment,’’ Mr Chaney said at the bank’s annual general meeting in Melbourne.

‘‘Business conditions are subdued and, unless economic reform and restructuring continue, are likely to remain so. That is the challenge facing governments and all participants in the economy,’’ he said.

His comments are consistent with the latest Treasury forecasts, which this week said unemployment would rise to 6.25 per cent, from 5.8 per cent today.

Mr Chaney said the ‘‘stubbornly high’’ Australian dollar has weighed on exporting businesses throughout 2013, while consumers continued to save a historically large share of their income.

Some bright spots

Despite its soft economic outlook, there were some bright spots for the bank, which posted a 9.3 per cent rise in cash earnings to $5.94 billion this year.

NAB, the country’s biggest lender to business, is betting that business credit growth will accelerate in 2014 from very soft rates today.

Chief executive Cameron Clyne noted that business confidence had recently hit its highest level in three years, which the company expects will translate into increased borrowing next year.

‘‘There are some tentative signs of an improving economic environment,’’ Mr Clyne said.

NAB’s British banking arm, which has been a weight on the company for several years, is also suffering from fewer soured loans as its ailing economy finally recovers from recession.

‘‘The improvements in the UK operating environment have been a key driver in the substantially lower loan losses for the Group,’’ Mr Chaney said.

In mid 2012 NAB overhauled its UK business, announcing a cut of 1400 job over three years. Mr Chaney said the restructuring was ‘‘beginning to bear fruit.’’

Government inquiry

As the industry prepares for the Abbott government’s financial system inquiry, Mr Chaney also joined the growing group of bank leaders to criticise the growing regulatory burden, saying there had been an “explosion” in regulation.

He welcomed the Abbott government’s promise to institute a three-year freeze on new regulation in the sector.

“Any new regulation has got to take into account the potential impact on Australian banks’ ability to be competitive in a global market and keep lending money,” he said.

Shares in NAB were trading up slightly at $33.89 on Thursday morning.