Royal commission: Westpac, ANZ play fast and loose with business loans

SHODDY small business lending practices at Westpac and ANZ — including documents being falsified and wildly inaccurate business plans securing funding — have been forensically probed by the banking royal commission.

SHODDY small business lending practices at Westpac and ANZ — including documents being falsified and wildly inaccurate business plans securing funding — have been forensically probed by the banking royal commission.

A Westpac banker signed a document that said a legally blind pensioner had received legal advice about the implications of using her home as ­collateral for her daughter’s business loan, when no such ­advice had been provided, the commission heard on Tuesday.

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Westpac’s commercial banking general manager Alastair Welsh leaving the banking royal commission today. Picture: AAP Image/Julian Smith

In a separate case, ANZ cleared a loan for a gelato “store”, which was to have “an intimate romantic sophisticated atmosphere” that would appeal to couples and encourage people to “bring dates”. In fact, the business was a kiosk at a Westfield shopping centre.

The royal commission on Tuesday continued to probe the case of Carolyn Flanagan, who acted as guarantor for a $160,000 loan taken out at Westpac by her daughter and partner to buy a pool franchise in 2010.

When the business failed, Ms Flanagan — who is legally blind and has a long history of illness — was initially told by the bank she would lose her western ­Sydney home. The hearing highlighted errors and inconsistencies in the loan application.

This included the banker signing a guarantor form that said Ms Flanagan had received legal advice, two days before the pensioner saw a lawyer.

Westpac commercial banking general manager Alastair Welsh — who repeatedly stammered and stumbled over his ­answers — told the commission it was “not uncommon” for those kinds of forms “to be filled out in anticipation of something happening”.

Loan documents also listed Ms Flanagan as an employee in the new business. Mr Welsh ­admitted this was not the case even though the loan application was certified by Westpac as complete and correct.

Ms Flanagan emerged as a $1 shareholder in the business. She needed to derive a financial benefit from the business for Westpac to accept her as guarantor, the commission heard.

Mr Welsh admitted the ­processes to determine whether Ms Flanagan would obtain any financial benefit from the ­business “were more form than substance”. “The process is to make sure that you check that there’s going to be a commercial benefit — there’s not any substance behind that to make sure it’s going to happen,” he said.

Former ANZ small business general manager Kate Gibson, now head of home lending at the bank, defended providing $220,100 in finance to an expanding gelato business in 2014.

The loan was based on a business plan that incorrectly identified the kiosk as a store and a hypothetical profit that included $30,000 that should have been billed as a GST expense. The bank’s loan serviceability test was also based on the business selling 23 ice-creams, at $7 each, every hour of a 63-hour trading week, month in month out.

ANZ’s code of banking practice says the bank must only lend what a borrower can afford to pay back.

The Financial Ombudsman Service ruled ANZ should not have made the loan as the applicant could not service it. Ms Gibson said the bank disputed how the ombudsman had determined the business’s cash flow.

ANZ shares fell 1.6 per cent to $27.86 yesterday, while Westpac was down 0.8 per cent at $28.43.

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