Two broker-originated loans have been brought under question by the financial services royal commission in the first week of its third round of public hearings.
Westpac’s general manager of commercial and business banking, Alastair Welsh, and Suncorp’s CEO of banking and wealth, David Carter, fronted the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry on Friday (25 May), acknowledging wrongdoing in the approval of broker-originated small business loans submitted to the respective lenders.
Counsel assisting the commission Rowena Orr QC commenced her questioning of Mr Welsh by seeking clarification regarding the accountability of the bank when assessing the viability of third-party–originated loans.
Ms Orr asked Mr Welsh whether third-party originators were accountable for the suitability of the loan after the initial loan application is submitted to the bank.
“After that package of documents is submitted, do they have any further involvement in the loan approval process?” Ms Orr asked.
Mr Welsh responded: “They have no involvement in the loan approval process because that’s the banker’s accountability to write the submission.
“They may have involvement in providing information and be the conduit between the bank and also the client.”
Ms Orr continued: “So, who has the discussions with the customer about their needs and objectives, and [who] verifies the information and does the customer serviceability assessments?”
Mr Welsh replied: “The banker is accountable for having the conversation with the customers, having accountability for writing the credit submission and doing the serviceability [and] verifying the information.”
The commission heard that in 2016, small business customer Bradley Wallis applied for a business loan from Westpac-owned Bank of Melbourne through his broker in order to purchase a commercial property.
It was revealed that a Westpac branch manager reclassified the status of the property as residential, despite valuers informing him that the property required a commercial valuation.
Ms Orr put it to Mr Welsh that the banker felt pressured to reclassify the loan after being notified by the broker that National Australia Bank had conditionally approved the Mr Wallis’ loan application.
In an email sent by the banker to his superior, the banker said:
Can we please get a move on this one? NAB has given them conditional approval of $492k on a commercial loan for the full purchase price, i.e. the property and the business combined contracts.
NAB has offered the client as attached and conditioned it, while we try to dot our I’s and cross our T’s before we even know if the deal will be approved. And in fact the client set-up is actually required. The clients need to know if we can approve and I cannot do that until a [valuation] is [done].
Wouldn’t it be wise to take our competitors out of the market so we can proceed with getting everything we need from the client prior to settlement rather than leave things open. Some brokers are shaking their heads stating why will their clients go through all that process without an approval.
What can we do quickly before we miss out on a good deal and can we action this to ensure smarter actions are taken to get our offers to the clients and brokers before our competitors get in front of us?
Ms Orr put it to Mr Welsh that the banker also stood to benefit financially if the loan was approved.
Mr Welsh acknowledged: “He may have, yes.”
Broker under investigation for Suncorp loan
The commission also heard the testimony from Rien Low, who revealed that, after the passing of his father, his family was left with unserviceable debt from five loans approved by Suncorp.
After raising questions regarding the validity of the loans to the Financial Ombudsman Service (FOS), it was found that one of the business loans approved by Suncorp was “irresponsible”.
Mr Carter, Suncorp’s CEO, acknowledged that the loan was “irresponsible”; however, the bank has not yet agreed to a permanent solution with the client.
The commission noted that the Credit and Investment Ombudsman (CIO) is currently investigating the conduct of the broker that originated the loan.
The hearing continues.
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
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