Appearing before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry for the second time on Wednesday (23 May), ANZ general manager of home lending Kate Gibson admitted that an ANZ loan assessor failed to demonstrate the “care and skill of a prudent and diligent banker”.
The commission heard that, in 2014, the major bank approved a finance application for a customer who sought to open a New Zealand gelato franchise in Australia. The customer subsequently failed to meet loan repayments.
ANZ lawyer Dr Matthew Collins asked Ms Gibson: “Having considered the whole of the application in this case, have you formed a view about whether ANZ breached the standard expected of a diligent and prudent banker?”
In response, Ms Gibson said: “I actually don’t think that we did in this case.”
She continued: “I am uncomfortable as I went through this file in its entirety. There are a number of errors. There are data-entry errors, some of those data-entry errors then caused other people to make decisions without regard to data that they should have had.
“I don’t think that level of error is acceptable.”
On Tuesday (22 May), the commission heard that, after failing to meet loan repayments, the small business customer filed a complaint with the Financial Ombudsman Service (FOS).
FOS determined that, when compared with performance benchmarks for the gelato and ice cream industry that are published by the Australian Taxation Office, the cash flow forecast relied on by ANZ in assessing the loan were “overly optimistic”.
Counsel assisting the commission Michael Hodge put it to Ms Gibson, who at the time served as general manager of small business banking, that ANZ did not adequately assess the cash flow projections contained in the business plan submitted in the loan application.
In response, Ms Gibson said: “That’s not the only assumption in the cash flow forecast; there are many assumptions in the cash flow forecast.”
She continued: “The ATO’s website references the 30 per cent cost of goods sold. It also makes the comment that that’s the best indicator of turnover, so [FOS has] included that in the sales figures, [but] they’re basing that entirely on the cost of goods sold percentage.”
At the time of the FOS review, ANZ contended to FOS that it was reasonable to rely on the information contained in the business plan.
“We disagreed that they were overly optimistic,” Ms Gibson added.
The ANZ representative noted that following a review of the applicant’s projections, and following a stress test completed by the loan assessor, the bank found that the borrower would be capable of serving his loan.
Further, Mr Hodge asked: “If it has been unreasonable to rely on the cash flow forecasts in the business plan, would ANZ accept that it was in breach of its obligations under the Code of Banking Practice?”
Ms Gibson responded: “I think if we believed that the serviceability had not been able to be demonstrated, then, yes, we would have not met the obligations under the Code of Banking Practice.”
In yesterday’s hearing, Dr Collins asked Ms Gibson to clarify her position regarding the validity of the loan application.
“In relation to whether overall the standards were breached, the conclusion you reached was contrary. You said to the commissioner that the conclusion you reached was to the contrary,” Dr Collins said.
Ms Gibson replied: “I said that I thought the consideration of the business plan was that it was acceptable. I then looked at the overall application and said, ‘Errors are going to be made, that’s just life. There are human beings involved and errors would be made’.
“When I stepped back and looked at the cumulative number of errors here, I was not comfortable.”
Following Ms Gibson’s concession, Mr Hodge asked: “Do you think that in this case, ANZ has demonstrated the care and skill of a prudent and diligent banker?”
In response, Ms Gibson said: “No.”
The third round of hearings began on Monday (21 May) and focuses on loans to small and medium-sized enterprises, with responsible lending and unfair contract terms coming under the spotlight.
The hearings will consider the conduct of several of the leading banks in respect of their dealings with small and medium enterprises, in particular in providing credit to businesses.