Bank of Melbourne manager reclassified property to ensure loan approval, commission hears

A BANK of Melbourne manager reclassified a property from commercial to residential to ensure a loan was approved and increase his chance of meeting bonus targets, the banking royal commission has heard.

Westpac's Alastair Welsh leaves the banking and financial services royal commission in Melbourne. Picture: Aaron Francis/The Australian

A BANK of Melbourne manager reclassified a property from commercial to residential to ensure a loan was approved and increase his chance of meeting bonus targets, the banking royal commission has heard.

Westpac Banking Corporation executive Alastair Welsh this morning gave evidence about a loan to a Victorian man Brad Wallis to purchase an operating restaurant and a five-star bed and breakfast business near Port Macquarie.

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According to the evidence, a valuer acting for the bank had classified the property as commercial.

This meant the Bank of Melbourne could only offer a loan to a maximum of 65 per cent of the value, compared with a higher amount of up to 80 per cent if the loan was classified as residential.

The letter from the Bank of Melbourne’s valuer said: “This is a commercial property. The purchase price is not of a residential nature and includes value attributed to the business.”

However, the Bank of Melbourne manager continued to process the loan as residential.

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“Because he wanted to get the deal done and ensure the clients didn’t take the other deal with NAB, he pressed, despite the information from the valuer for this property to be characterised as residential property,” counsel assisting the commission Rowena Orr QC asked.

Mr Welsh replied: “Yes, that’s my view”.

The loan was subsequently approved as residential, however, the business underperformed.

The $516,000 loan was made based on it being a residential property, compared with about $419,000 if it was classified as a commercial property, an almost $100,000 difference.

Alastair Welsh spoke at the commission. Picture: Aaron Francis/The Australian

Ms Orr said the bank manager would gain from making the loan because it would count toward his bonus.

“It would have been a contributor,” Mr Welsh said. “His KPIs (key performance indicators) were weighted to his financial performance.”

However, shortly after the loan was finalised, Mr Wallis decided to sell a separate investment property to help fund the struggling bed and breakfast business.

Westpac subsidiary Bank of Melbourne refused to release the title for the investment property unless Mr Wallis agreed to the bank retaining $100,000.

The money was to be held as additional security against the bed and breakfast loan.

“The decision to create the term deposit to hold the $100,000 was taken to try to bring about a solution to the problem caused by the bank’s own conduct and not fault on the part of Mr Wallis,” Ms Orr asked.

“Yes, that is correct,” Mr Welsh said.

Today’s hearing continues.