The major bank has been scrutinised by the financial services royal commission over its decision to approve a loan, which the Financial Ombudsman Service deemed “overly optimistic”.
Appearing before the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Tuesday (22 May), ANZ general manager, home lending, Kate Gibson defended the bank’s decision to approve a small business loan that contained discrepancies.
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.
After failing to meet loan repayments, the client filed a complaint with the Financial Ombudsman Service (FOS), accusing the broker who originated the loan and the franchisor of “taking advantage”.
The 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.
“One of the findings made by FOS in both the recommendation and the determination was that ANZ had relied on projected cash flow forecasts that were ‘overly optimistic’,” Mr Hodge said.
“In reaching that conclusion, FOS found that when compared with performance benchmarks for the gelato and ice cream industry, that are published by the ATO [Australian Taxation Office], the cash flow forecast relied on by ANZ in assessing the loan was overly optimistic.”
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.”
Moreover, Ms Gibson was asked if she believed the customer’s broker and the franchisor were “taking advantage of the client”, to which she said she found no evidence of foul play upon review of the documents submitted for the loan application.
The third round of hearings began on Monday (21 May) and focus on loans to small and medium-sized enterprises, with responsible lending and unfair contract terms coming into focus.
The hearings, which will run over the next 10 days, 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.
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