Further allegations of bank misconduct revealed

Further to allegations of ANZ misconduct, in her closing statement to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Friday (6 July), counsel assisting Rowena Orr QC alleged that Bankwest, NAB, Rabobank and Rural Bank (owned by Bendigo and Adelaide Bank) engaged in misconduct and conduct falling below community standards and expectations in their dealings with agribusiness customers.

Rabobank

Ms Orr noted that it was open to Commissioner Ken Hayne to find that Dutch lender Rabobank engaged in misconduct and conduct falling below community standards and expectations in its dealings with Queensland cattle farming family, the Brauers.

The QC alleged that Rabobank breached clause 21 of the Code of Banking Practice (CBP) by failing to “exercise the care and skill of a diligent and prudent banker in selecting and applying its credit assessments”, and breached clause 2.2 of the CBP by failing to act in an “ethical manner”.

“It is also open to the commissioner to find that the misconduct and conduct that fell below community standards and expectations was the result of inadequate internal systems at Rabobank,” Ms Orr said.

“It remains unclear as to why the loan to the Brauers was approved. The initial concerns of Rabobank’s credit department were not dealt with in a comprehensive fashion in any document provided to the commission.”

Bankwest

Ms Orr also noted that it was open to the commissioner to find that Bankwest engaged in five potential instances of misconduct and six instances of conduct falling below community standards and expectations in its dealings with Queensland cattle farmer Melville Ruddy.

The counsel assisting noted that, in March 2012, Bankwest began to uncover significant issues with the conduct of a former bank manager, including that he had “overstated valuations, engaged in inappropriate and improper mis-selling, and manipulated internal Bankwest systems to avoid behavioural triggers”.

The bank revised the valuations of Mr Ruddy’s farming properties following the departure of its former employee.

Following its revised valuation, Bankwest deemed that Mr Ruddy was in breach of the bank’s loan terms, requiring Mr Ruddy to sell his properties.

Ms Orr alleged that the former Bankwest employee was motivated by the bank’s remuneration policies, and took aim at Bankwest’s governance practices and internal systems.

“On the evidence, it’s open to the commissioner to find that there were a number of causes of the misconduct which are attributable to Bankwest’s culture and governance practices, as well as to its remuneration practices and to inadequate internal systems,” Ms Orr noted.

Rural Bank

Additionally, Ms Orr noted that it was open to Commissioner Hayne to find that Rural Bank, a wholly owned subsidiary of Bendigo and Adelaide Bank, engaged in misconduct and conduct that fell below community standards and expectations on a number of occasions in connection with loans issued to Queensland cattle farmers over the past 10 years.

Pointing to a review of Rural Bank’s practices undertaken by KPMG, Ms Orr alleged that Rural Bank may have engaged in misconduct by:

• Breaching its obligation to exercise the care and skill of a diligent and prudent banker in selecting and applying credit assessment methods and in forming opinions about customers’ ability to repay.
• Failing to act fairly and reasonably towards a number of its customers whose loans were not adequately managed.
• Advancing credit to individuals and entities without undertaking a proper serviceability assessment.
• Failing to communicate with customers affected by banker misconduct.

Ms Orr also attributed Rural Bank’s alleged misconduct to its culture, governance and remuneration practices and to inadequate internal systems.

NAB

Moreover, Ms Orr alleged that NAB may have engaged in conduct that fell below community standards and expectations in relation to its charging of default interest to Queensland-based cattle farming family, the Smiths, whose properties was affected by natural disasters.

The commission had heard that NAB charged default interest to the Smiths for more than five years on one facility and in excess of six years on another in circumstances where the Smiths’ business was affected by more than one natural disaster.

Ms Orr also claimed that the major bank engaged in conduct that fell below community standards and expectations by failing to adequately inform the Smiths of the bank’s hardship policy.

Ms Orr alleged: “It is open to the commissioner to conclude that NAB’s conduct in charging default interest to the Smiths over such a long period was the product of a culture by which default interest was used as a strategic tool to place pressure on borrowers in default.”

Commonwealth Bank

In a separate document tendered by Ms Orr, she noted that it was open to the commission to find that Commonwealth Bank (CBA) breached its statutory obligations under section 912A of the Corporations Act and under 3.2 of the CBP in relation to its failure to apply fee waivers and ongoing package benefits to eligible AgriAdvantage Plus Package customers.

CBA claimed that its failure to apply such fee waivers and benefits were as a result of “a breakdown in the package control environment over a number of years”.

The counsel assisting noted: “It is also open to the commissioner to find that any such misconduct can be attributed, at least in part, to the inadequacy of CBA’s ‘control environment’.

“The errors were not prevented or detected by the bank’s risk management systems. In addition, CBA’s internal IT systems were inadequate to deal with the complexity of the product.”

The fourth round of hearings of the financial services royal commission focused on issues affecting Australians living in remote and regional communities, which relate to farming finance, natural disaster insurance and Aboriginal and Torres Strait Islander Australians' interactions with financial services entities.

The hearings were held in Brisbane from Monday, 25 June, to Friday, 29 June, and in Darwin from 2 July to 6 July.

[Related: New findings of alleged ANZ misconduct]