Australia's ANZ lent to customers without due diligence, inquiry hears

By Jonathan Barrett and Paulina Duran

SYDNEY (Reuters) - Australia and New Zealand Banking Group did not assess whether customers referred through brokers could service their home loans before approval, an inquiry into Australia's financial sector heard on Monday.

Home loans are big drivers of growth at Australia's highly profitable "Big Four" banks, which dominate the country's tightly held A$1.7 trillion ($1.3 trillion) mortgage market. About half of all mortgages are written by brokers, according to the inquiry.

Commissioner Kenneth Hayne, who is overseeing the inquiry, said at the start of the second week of hearings on Monday that it was in the interest of mortgage brokers to accept applications where expenses were understated.

"There is nothing in it for the broker to interrogate what the customer is telling them," Hayne said.

Barrister assisting the inquiry, Rowena Orr, said there was no system at ANZ of "verifying customers' expenses" as stated to mortgage brokers, other than their existing liabilities to the bank.

ANZ's general manager of home loans and retail lending, William Ranken, agreed with Orr but said brokers risked losing their accreditation to recommend ANZ loans if they failed to properly assess applications.

"If the broker at the moment is writing a lot of loans that go into default within a short period of time that would come up on our dashboards and would warrant a detailed file review," said Ranken, the first ANZ executive to appear at the Royal Commission inquiry.

He said the result could be "disaccreditation with ANZ".

The inquiry last week heard testimony from ANZ customer Robert Regan, who defaulted on his loan. Documents presented to the inquiry showed his broker did not review his finances and grossly underestimated his expenses.

Bank and broker relationships have emerged as a major theme at the inquiry.

The year-long Royal Commission has extensive powers to subpoena documents and can recommend criminal or civil prosecutions and legislative changes, potentially forcing changes to broker incentives.

UNACCEPTABLE

ANZ is the third bank to give evidence at the inquiry, after National Australia Bank Ltd and Commonwealth Bank of Australia.

CBA, the country's biggest lender, acknowledged in an email to staff that it had treated customers unfairly.

Incoming CBA chief executive Matt Comyn said in the email the second week of hearings would feature instances "where customers have been treated unfairly".

"In many cases, our actions have had a significant impact on the financial and emotional well-being of our customers," Comyn said in the email late on Friday, which was seen by Reuters.

"This is unacceptable," he added.

Comyn, who before being named as new CEO headed the bank's retail unit, is taking over the chief executive role next month, replacing Ian Narev who has led the bank since December 2011.

The bank would "make things right for our customers, and not repeat the same mistakes," Comyn added in the email.

Last week, a barrister assisting the commission scolded CBA for providing "meaningless" spreadsheets instead of specific documentation of misconduct, as requested.

Comyn said the bank would resubmit its documentation as soon as possible.

NAB also conceded last week that its system of bonuses and incentives encouraged bankers to engage in fraudulent lending practices.

($1 = 1.2989 Australian dollars)

(Reporting by Jonathan Barrett and Paulina Duran in SYDNEY; Editing by Stephen Coates)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)