Banking royal commission live: Suncorp’s ‘acted irresponsibly’

Suncorp chief of banking and wealth David Carter agrees the bank acted irresponsibly in approving loans.

Rien Low's mother was threatened with eviction, the royal commission has heard

Welcome to day five of the banking royal commission’s third round of hearings.

4.03pm: ‘The impact has not been acceptable’: Suncorp

A bank letter to Mrs Low said the FOS determination said the loan contract was void “ab initio”, ie neither party should benefit from the loan.

Mr Carter said it was six months since the determination and the parties had been back and forth so “having regard to practice’ this was above what would be considered reasonable.

What about the conciliation conference?

Mr Carter agreed that the banker who had been taken away from day to day interaction with Mr Low was on the call which was the wrong decision.

Mr Carter: “I think it’s, the impact of on, our communication style is not good.”

Was there a contractual basis for Suncorp to insist on early repayment?

Mr Carter could not point to anything that permits that.

Suncorp determined it had misapplied its hardship requests policy in a number of instances, the commission heard, after a FOS investigation and the bank’s internal review.

The bank has made changes to deal with these problems, Mr Carter agreed.

Are there issues in Suncorp’s banking arm with their responses to and compliance with FOS determinations? Mr Carter said there were not.

What about how Suncorp engaged with the Lows after the FOS determination, was it reasonable and fair?

“The intention behind what we did was fair, I accept the impact has been less than desirable,” Mr Carter said.

Suncorp subscribes to the Code of Banking Practice and promises it will act fairly and reasonably to customers, Mr Carter agreed.

“I think there has been lapses there [with the Lows] and I see again with the impact — it wouldn’t matter if I thought we had, the impact on the customer has not been acceptable,” Mr Carter said.

Commissioner Kenneth Hayne AC QC recaps:

“Take a business loan, shouldn’t be made for any of a number of reasons. The business owner takes the funds advanced, pours the funds advanced into working capital for a business that the bank should have recognised was failing,” Mr Hayne said.

“The position you say that follows is that the borrower then must either pay the whole of the amount back or renegotiate a new commercial arrangement to pay the whole back, is that right?”

Mr Carter: “Yes I believe so.”

If there’s unfairness, regardless of the way the funds advanced have been applied, the bank is kept whole, it gets its money back, but the borrower still has to repay, Mr Hayne wondered.

Mr Carter said if the lender was negligent and the borrower had honest intent and the lender should have known, that was a more negligent outcome so there should be greater onus or penalty on the bank.

Or if the bank should have inquired further but was supported in its loss by misleading or deceptive conduct by the borrower, then there needed to be “some sort of sharing”, Mr Carter said.

3.37pm: $220,000 repayment in six months?

Attention turns to the letter to Mrs Low that expired in seven days saying the excess house sale proceeds would be returned to her and she would have six months to repay the final loan.

Ms Orr: “This was the bank not wanting an interest-free loan on its books for any extended period?”

Mr Carter: “I believe that it is reasonable in the context of acceptable practice.”

Was it a reasonable approach to Mrs Low, to expect her to pay $220,000 in six months?

Mr Carter: “I do. I do believe it … when I read it through the eyes of someone who is not familiar with banking I understand why that impact is there … at the end of November that loan will have had approximately nine months as interest free and repayment free and again our understanding of what is acceptable practice is six to 12 months would be acceptable practice.

Focus turns to the letter with Mr Carter’s name on it.

The sale of the family home reduced the balance of the final loan which reduced the balance. The computer system automatically triggered a letter when repayments necessary to clear the loan can change.

“We did not realise the impact that had,” or did not see someone would see it as being an offer to extend. “I can see why it had that impact but it was not something that we were awake to at that time,” Mr Carter said.

The bank heard it described as a letter of offer and didn’t realise it was a repayment change letter so looked where the letters of offer are stored. “These letters are sent out through a process … we don’t store copies of the letter per se.”

An internal email from a banker is displayed: “Yes I need to discuss with you please — WTF is this Son up to.”

Mr Carter said the language was inappropriate and he had spoken to the banker.

A further email chain uses language such as saying this was sounding “strange” and “keen to find out” what happened.

Were Suncorp employees sceptical about what Mr Low said to the bank?

Mr Carter: “Yes, because we couldn’t establish what it was.”

The bank was still looking for the letter.

One banker wrote: “This sounds like he was up to something”.

Mr Carter agreed Mr Low was not up to anything and had received the letter, and it was an error on the part of the bank to communicate with him in that way.

3.23pm: ‘Customer received a benefit’

The focus turned to the phone call between a bank employee and Mr Low.

The staffer was not disciplined over the call in question.

She was removed from “day to day” communication with Mr Low, Mr Carter said.

The bank wanted to defuse the situation and accepted Mr Low was unhappy dealing with the staffer, Mr Carter said.

An internal bank email has been displayed from the customer relations banker in question suggesting the bank system charges 0.01 per cent interest forever. The bank’s systems don’t permit an interest-free loan to be recorded, he said.

The next email says the banker has explained to Mr Low that generally the bank will decide which loans to pay off first.

Mr Carter said that was fair even when one loan was the subject of maladministration, which he thought was consistent with broader industry practice.

Why should a customer have to repay a loan that was irresponsibly made first?

Because the customer received a benefit for the loan, Mr Carter said.

He agreed that the bank could terminate the loan it wasn’t receiving interest on and keep profitable loans going.

He did not agree that this penalised a customer who had taken a time to get the finding.

Mr Carter noted that if the parties could not reach agreement the bank could accept other action.

Did he accept there was nothing in the FOS determination suggesting the loan would end if a reasonable repayment could not be reached?

Mr Carter: “I am not a lawyer.”

3.04pm: ‘We tried to find a middle ground’

Rien Low is in the room watching the hearing.

The request for financial assistance has been displayed to the commission — Mrs Low didn’t ask the bank to forgive the loans but only to postpone repayments as she was about $2800 short monthly, Mr Carter agreed.

A Suncorp staffer considered the application and said the customer had good repayment history, and 12 months was excessive, but four months was reasonable.

Mr Carter said the bank often finds four months is “about the right time” for people to understand their position after a death or illness in the family, after which the bank has a discussion about what to do next.

But there was no evidence that any bankers told Mrs Low the hardship period could be extended after four months, Mr Carter said.

What did Suncorp think Mrs Low could do in four months?

Mr Carter notes the commercial property at Healesville and investment property on the Gold Coast — so perhaps there could have been an income stream or sale of those.

The bank’s policy on hardship includes a reference to reputation risk.

“It’s a very challenging time for them … that can cascade into a range of outcomes and that includes the, people who are dissatisfied with that process or experiencing hardship taking their concerns and issues into the public domain, into the media … the media on that is typically quite negative,” Mr Carter said.

Did the bank support Mr Low and his mum in their financial distress?

“Yes … We have not once commenced action to recover,” Mr Carter said. “We continue to have an interest-free repayment-free residual debt … and tried to find a middle ground to support the Lows on the way through … I am happy to accept that some of the communication has had a negative impact on Mr Low and his mother.”

The most Suncorp had offered is five years interest free, Mr Carter said.

Why wouldn’t the bank let Mrs Low keep making the existing repayments?

Mr Carter: “That would amount to a 17-year interest free loan.”

Mr Carter said the loan had to be interest free until they establish a reasonable period of time but not beyond that.

He accepted that Suncorp could not charge interest while the loan was on foot.

Ms Orr: “You do have a loan contract that’s on foot with Mrs Low?”

Mr Carter: “That’s not my sense of it.”

Ms Orr: “Here in these paragraphs do you see anything from FOS that renders void or otherwise eliminates the contractual arrangement you have with Mrs Low?”

Mr Carter: “I don’t see that, no.”

Mr Carter said there is an “acceptance and practice that there will not be a continuation of interest-free lending forever”.

But he accepted that was not in the determination.

Does the loan contract continue?

“That is not the practice of what happens in these situations … my understanding is it’s a practice that’s developed across the industry.”

Was that an unacceptable practice?

Mr Carter: “I’m unable to opine on that.”

Was it reasonable to keep making the repayments?

Mr Carter said over a 17-year loan that was a 50 per cent to 100 per cent write-off of the principal over time.

But shouldn’t Suncorp have to accept that when it was Suncorp’s irresponsible lending that caused this situation?

Mr Carter: “Yes we made mistakes in assessing the lending but we were misled and deceived as to the purpose by the borrower.”

Ms Orr said this is not how he had characterised it in his statement. Ms Orr said his approach to the FOS direction could place the applicant in worse position.

Mr Carter said the bank could only extend the interest free period for a finite period.

He accepted applicants might not apply to FOS if success was finding out they had up to 12 months to repay the entirety of a loan that was irresponsibly lent.

2.46pm: Suncorp knew loan holder didn’t work

The FOS recommendation found the approval of the last loan was irresponsible as the assessment of affordability was dependent on development of the commercial property to repay the loan. FOS also found not enough inquiries were made about the purpose of the loan and that the loan was not controlled to ensure completion of the property.

There were three reasons given by FOS. Mr Carter agreed with the answer by FOS.

FOS said Suncorp was not a subscriber to the Code of Banking Practice but in fact Suncorp is a subscriber.

FOS said the applicant for the loan did not work and Suncorp needed to consider how they would repay the loans after the applicant’s late husband’s retirement.

Suncorp did not do anything to control the use of the funds.

Suncorp made further submissions and maintained its position that there had been no maladministration even though FOS recommended that there has been.

He did not think the extra material should have been submitted.

A series of Google maps photos showed the property at different stages of completion suggesting the premises had moved from being relatively incomplete to about 90 per cent complete, Mr Carter said.

Suncorp told FOS that based on Google Earth photos it appeared the father did spend the loan proceeds to complete the factories, with the photos showing the factories over 90 per cent complete.

FOS found the photos didn’t change the findings that whether further work was done on the factories had no bearing on whether the decision to approve the last loan was irresponsible.

2.23pm: Suncorp ‘acted irresponsibly’

David Carter, Suncorp chief executive officer for banking and wealth at Suncorp Group, has taken the stand to face questions from senior counsel assisting the commission Rowena Orr QC.

In 2013 Suncorp granted four loans to Peter and Jennifer Low, one of which was a $200,000 overdraft to build a factory, Mr Carter agreed.

Then it granted a further loan of $240,000 both to complete construction and for working capital.

FoS found Suncorp had acted irresponsibly when it approved that loan, and Mr Carter agreed.

Would a diligent and prudent banker have approved the loan without making more inquiries about the purpose?

“This is a vexed issue,” Mr Carter said. The customer’s payments were in order and the loan was well secured, and the bank did inquire as to purpose.

It would have been better to ask why funds were being requested, so the assessor erred in not requiring further information, Mr Carter said.

It would have been best practice for anyone assessing the 2014 loan to have read the 2013 file, Mr Carter said. He agreed that a diligent and prudent banker would not have approved the new loan without making more inquiries.

The Suncorp staff had failed to ask why the 2013 loan was insufficient, failed to compare the nature of the works that had been funded already and funds still to be done, failed to ask for receipts for work undertaken and failed to ask why Mr Low needed more working capital, Mr Carter agreed.

Suncorp did not know what happened to the 2013 loan of $200,000 until the FOS complaint appeared and it looked like the funds had not been used for the business, Mr Carter said.

Suncorp did not acknowledge in the first FOS proceeding it had acted irresponsibly, Mr Carter agreed.

Suncorp took the position in its dealing with FOS there had not been any maladministration in the loan, Mr Carter agreed, with the staff member not paying enough attention to the loan purpose.

1.11pm: Suncorp threatened to withdraw offer

Rien Low emailed Suncorp proposing repayments according to the existing pattern of $1001.88 per month, all towards principal, as there was now no interest payable.

The bank replied saying this was not possible as the request amounted to an interest-free loan over 17 years — but it would grant 12 months to refinance the loan.

Mr Low returned to FOS but they could not help as the case was closed.

Suncorp made another offer — the bank would release the surplus sale proceeds if his mother would repay the business loan by July 31 2018.

He offered to Suncorp to pay $1191 per month, slightly more.

“We just want this to finish,” Mr Low said.

His mother received a letter from Suncorp chief executive officer banking and wealth David Carter addressed to his mother and father saying the minimum repayment would now be $792.52.

“We were relieved that we thought Suncorp is listening to us,” Mr Low said, adding the bank had lowered the repayment amount.

He got a call from Wendy Callcott at Suncorp making an offer and he said he had received it in the mail.

She was unaware of the offer and then refused to discuss the offer she had mentioned.

“Frustrating would be an understatement,” Mr Low said, starting to become emotional. “This takes a lot out of someone. We were disappointed yes.”

Ms Calcott emailed asking for a copy of the offer letter adding she had confirmed with the CEO’s office they had not made any offer.

“The fact that this bank has no idea that they’ve sent me this letter which has been signed by the CEO I find very alarming. Who is running this bank? I was extremely concerned, I was worried and I’m very nervous,’ Mr Low said.

Suncorp sent another letter with a different offer to the CEO’s offer.

He asked FOS to consider if the CEO’s letter was misleading.

He was told if he progressed his FOS complaint then Suncorp would withdraw the offer.

“It’s kind of a threat,” he said.

He withdrew his FOS complaint.

“Because we were not sure what the banks were capable of doing and that offer that was on the table was I guess better than nothing and we were scared that if we did progress it and they were going to withdraw the offer as they had stated what were they going to do after that,” Mr Low said.

He received a deed from Suncorp requiring business loan repayment in five years with a confidentiality clause, worrying it would affect another investigation by the CIO into the granting of the loan in the first place.

“It’s extremely stressful. I mean the impact it has had on mum she’s not here today because the pressure and the expectation it just, everything the bank and obviously what has happened to my mother it’s just it’s taken its toll on her unfortunately. It’s taken its toll on all of us it’s just very, very stressful and a lot of pressure you know just and trying to live a normal life and work full-time it’s been very, very difficult.

He estimates he has dealt with 15 or 20 people and Suncorp and spent hundreds of hours trying to work out the debts on behalf of his mother.

“I don’t believe Suncorp has shown us any compassion at all as humans,” Mr Low said.

12.53pm: Suncorp ‘irresponsible’: Ombudsman

FOS again determined Suncorp was irresponsible in approving the final loan but not the first four.

FOS directed Suncorp to reduce the business loan balance by about $40,000 and cease charging interest.

FOS said the applicant should provide Suncorp with a proposal for repaying the debt.

Last year his mother entered into a contract to sell the family home for $815,000.

He emailed the bank to inquire about the ombudsman’s outcome and the bank replied that it was up to his mother to propose how to repay the debt, Mr Low agreed.

He proposed to repay the first four loans with the proceeds of sale of the family home.

He asked for the remaining proceeds of sale of $30,000 to be given back to his mother for rent and expenses.

On the business loan that was deemed to be irresponsibly lent, the proposal was for his mother to repay it at $10 a week but Suncorp was unhappy.

Mr Low described the banker’s communication as “very poor”.

A few different bank staff contacted him.

He was told the house proceeds could be used to pay off the first four loans and he felt “somewhat relieved” that something was going his way.

He understood the arrangement was conditional on him agreeing to repay the loan deemed irresponsible by November and asked for confirmation in writing.

It was “very frustrating” to have to explain his situation every time he spoke to someone at the bank.

The proposal to repay the final loan in six months was “ridiculous” considering it had been deemed “irresponsibly lent”, he said.

He emailed asking for the offer in writing.

His mother received a letter on June 23 dated June 12 that made an offer open until June 19.

As discussed, the family would have six months to repay the $221,000 owing on the final loan.

“We weren’t happy with it,” he said.

12.35pm: Suncorp threat to sell house, evict pensioner

Case study Rien Low has taken the stand. He is a TV producer.

After the death of his father, he found out his parents had five loans to Suncorp owing almost $1 million. His mother was unaware of the loans.

“I was surprised that they were able to obtain loans for that amount considering the amount of work that dad was doing and the earnings that he was making,” Mr Low said.

He called Suncorp and he was told to sell the house.

His mother requested financial assistance.

The application listed assets including the family home, the block of land referred to, furniture and a car — plus liabilities including the loans. Four required repayments monthly of $1000 or more and one of $360.

The mother was entitled to a government pension and received rental income on the Queensland property so she had a monthly shortfall of $2894.

How was your mother coping, senior counsel assisting Rowena Orr QC wondered?

Mr Low: “She wasn’t really coping.”

Suncorp wrote to the mother refusing to postpone the repayments, instead offering to adjust the arrears to show they were no longer past due and to defer the next four monthly payments.

“It just made her very worried,” Mr Low said. “It just made her very stressed.”

The mother accepted the offer.

“At that point we felt there was no other option,” Mr Low said.

He asked Suncorp if they could consolidate the loans as some had high interest rates to give him and his sister a chance to at least pay the interest.

Interest was accruing at approximately $1200 a week.

Suncorp declined to consolidate the loans, Mr Low said.

FOS said one of the five loans was irresponsible — a business loan for $240,000 — because the bank had earlier lent the father $200,000 for the same purpose of building the warehouse on the block of land.

FOS found Suncorp had not acted irresponsibly in approving the other four loans.

Mr Low did not accept the recommendation.

He and his mother decided to sell the family home because he knew if the bank decided to take the house and sell it then it might change hands quickly and for a lower price.

He spoke to a Suncorp staffer who expressed “dissatisfaction”, he said. “They reiterated to me on numerous occasions that they had the power to cancel the sale, to evict my mum from the house and to sell it subject to what they’re happy with,” he said.

“I was shocked … we felt we were doing the right thing by selling the home and providing the bank with more than 80pc of the money that was being owed. It would have stopped those interest rates.

12.20pm: Westpac deposit demand ‘too complex’

Westpac’s head of commercial banking, Alastair Welsh, has admitted he himself doesn’t understand legal documents the bank relied upon to “quarantine” a $100,000 term deposit it demanded from customers the bank mistreated over a small business loan.

The bank also failed to make “full and fair” disclosure of what it knew about the case when customer Bradley Wallis and his wife complained to the Financial Ombudsman Service, Mr Welsh told the financial services royal commission this morning.

Mr Welsh admitted Westpac subsidiary Bank of Melbourne did the wrong thing by putting a “hard hold” on the term deposit, which it demanded from Mr Wallis and his wife when they sought to discharge one of their two mortgages with the bank, secured against a residential property at Port Macquarie in NSW.
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12.05pm: ‘It was our mistake’

FOS asked why Bank of Melbourne reviewed the structure of the loan and why it was considered a commercial property.

The Bank of Melbourne wrote that Mr Wallis requested valuations on both properties and in 2017 the panel valuer deemed Byabarra was commercial.

Mr Welsh agreed this was not a full and fair answer by the bank but he did not know why the bank did not give a full and fair answer. He agreed there should have been reference to the earlier valuer’s view and could not explain why there wasn’t.

Commissioner Kenneth Hayne AC QC wondered — on the assumption that the bank could keep the $100,000, what was unfair to the client?

Mr Welsh: “It was our mistake … therefore we shouldn’t have imposed that on the client.”

Was an all-moneys instrument fair to small businesses, Mr Hayne wondered?

It was important for banks to give flexibility for the business, Mr Welsh said: “I think there’s a trade off there between flexibility and fairness.”

When small business owners start they are looking to the good times but they know if something goes wrong there are implications, Mr Welsh said.

Adding more detail here would add some complexity for small business owners, Mr Welsh said.

11.40am: Bank retailed $100k as bargaining chip

Ms Orr pressed on whether the documents provided any evidence that anyone in the Bank of Melbourne considered if the bank had a legal entitlement to act as it did and quarantine the $100,000?

She produced an internal bank document recording the decision to take the collateral.

Ms Orr: “Do we see any consideration whatsoever in this document of whether there is a legal entitlement to take this action by reference to any of the contractual documents?”

Mr Welsh did not.

Ms Orr suggested the bank decided to worry later about whether it had any legal entitlement but Mr Welsh did not know if that was the case.

She suggested the bank took advantage of Mr Wallis needing to discharge the mortgage on the Port Macquarie property as “time was of the essence and they took advantage of that” and also pressured Mr Wallis.

Mr Welsh accepted that Mr Wallis said he felt pressure.

Ms Orr said the documents provided to Mr Wallis had “very complicated clauses’.

Mr Welsh: “It’s too complex even for a client I do accept that”.

But he accepted the bank expected Mr Wallis to understand how the documents entitled the bank to act in this way and that it was “complex and difficult” for clients to read.

He accepted the bank did not retain the $100,000 to pay an amount owing on the Byabarra mortgage but as a bargaining chip.

He was told by the bank’s legal team that the bank was able to withhold the funds but he still thought the bank should not have withheld the funds.

Mr Welsh agreed the bank acted unfairly.

Was it an abuse of power by the bank?

Mr Welsh: “There weren’t many options for them.”

He did not know if the bank took disciplinary action.

11.30am: Bank withheld $100k ‘as ransom’

The bank then approved partial discharge settlement subject to the $100,000 being taken as additional collateral until a satisfactory commercial valuation was received with LVR of 65pc confirmed and/or cash to be used to reduce overall funding in line with a 65pc LVR.

A lending specialist emailed: “We’re not formally taking the term deposit for security it is just there for comfort pending the valuation of the property coming back so we know where we stand from a security perspective which should be in the next few days … really sorry to be escalating this one when all the delays were before it got to you but the issues weren’t the customer’s fault either and we just want to do what we can to make the best of a bad situation”.

Senior counsel assisting Rowena Orr at the banking royal commission

Mr Welsh agreed the bank’s withholding of the $100,000 was to try to solve a problem caused by the bank’s own conduct and not by any fault of Mr Wallis.

What part of the bank’s memorandum of provisions allowed the bank to hold the $100,000?

Mr Welsh: “I wouldn’t have expected Mr Brander to have gone and read through all the documents and make the call, I would have wanted independent judgment, if I assume that …”

Ms Orr asked why he assumed that? There was no evidence Mr Brander relied on any lawyers, was there?

Mr Welsh had not seen any documents or evidence to suggest this.

Ms Orr described this as “not a particularly safe assumption” but still wondered that even if Mr Brander got legal advice, what in these documents entitled the bank to act as it did?

Mr Welsh had relied on FOS.

Yesterday we heard how Mr Wallis felt “held for ransom” when Bank of Melbourne wanted to withhold $100,000 from the sale of his investment property until he restructured the loan for his B & B in regional NSW.

11.15am: ‘Banker made wrong call’

The Port Macquarie loan was secured by the Port Macquarie investment property.

Why was the Byabarra loan a residential loan?

Mr Welsh: “Under our policies you are allowed to have a consumer loan for business purpose with residential security.”

But the banker made the wrong call in the valuation for the security, Mr Welsh agreed.

In this transaction the residential security was the Byabarra property, a commercial property, Mr Welsh said.

“You would not have been able to have a consumer loan because you can’t have a consumer loan for business purposes with commercial property,” Mr Wels said.

It should have been a business loan secured by commercial property, Mr Welsh said.

A member of the bank’s credit team identified that the regional NSW property had been called residential when it should have been called commercial.

Internal bank documents described the property as having a “tenantable house and separate shop. Land is zoned residential”.

An internal email warned the valuation could not be completed because of the business on the site. Another email asked the valuation to be cancelled and requested quotes for a commercial valuation.

The loan to Mr Wallis was 80pc of the contract of sale value at $516,000 but if it had been assessed as a commercial security the bank could have lent only 65pc which would be $419,000 leaving a security shortfall on the loan of just under $100,000.

Internal bank notes showed questions in 2017 were being asked about why a home loan had been provided for a commercial secured property, with one note saying the LVR was “not within the bank’s underwriting standards”.

Later, an internal note showed the bank was discharging the Port Macquarie facility, but the bank needed to hold $97,000 for the “B2 facility” — the Byabarra commercial property — and that the product needed to change to a business loan facility in line with security.

An email from the business banker’s boss to Mr Wallis said the bank would approve the sale discharge request on condition that the bank would hold $100,000 of the proceeds and only release it when the new business loans were in place to correctly secure the bank’s post settlement position.

10.45am: Bank bonuses in spotlight

Focus turns again to bank bonuses.

Senior counsel assisting Rowena Orr QC outlines the bonus structures for the business banker in a document tendered earlier by Westpac HR executive Carol Separovich.

Sales and financial targets made up 70pc of the business banker’s KPIs including 40pc for revenue growth 20pc for asset growth, growth in asset balances over his total portfolio, and 10pc for deposit growth.

He needed to meet 90pc of his revenue growth target, 80pc of his asset growth and deposit growth targets.

Westpac exec Alastair Welsh appears at the banking royal commission

Mr Welsh: “His KPIs were weighted to his financial performance, yes.”

Mr Welsh agreed the business banker wanted to get the deal done to avoid the client taking a rival offer from NAB and pressed — despite the information from the valuer for this property to be characterised as residential.

The timeline shows the request for a valuation was cancelled and “not proceeding through this channel’. Mr Welsh agreed this was done to get around the valuer’s description of it as a commercial valuation and avoiding the lending limit.

The loan was assessed based on the price in the contract of sale even though the criteria for using this method was not met, Mr Welsh agreed.

Ms Orr wondered if this was risky.

Mr Welsh: “Westpac, sorry our banker here made the wrong call … this was a commercial property and this should have been valued as a commercial property.’

10.35am: ‘Take competitors out of the market’

Internal bank documents showed a security valuation is mandatory on a property loan.

The first valuation method is to use the purchase price in the contract of sale — but this can only be used in some circumstances, and not if the customer is new to the bank, Mr Welsh agreed.

More robust valuation methods include a panel valuer’s report, Mr Welsh agreed.

One of the bank’s panel valuers was asked to value the property but advised they could not because it required a commercial valuation and therefore they needed a fee.

The business banker had noted the property was “fundamentally” a home with a shop.

Ms Orr: “It was a commercial property wasn’t it?”

Mr Welsh: “In my view it was, yes.”

Another entry from the valuer’s representative notes the property is commercial with a B & B.

Next, an email from the broker to the business banker asks to “please get a move on this one” because NAB had given conditional approval of $492,000 on a commercial loan.

The business banker replied that he was having “difficulties” getting this deal approved “as the rural/residential zoned property is being considered as commercial as it also has a small shop on the far corner of the property”.

Ms Orr asked if this was a “somewhat misleading statement” because the valuer told Westpac it was a commercial property. Mr Welsh agreed.

The business banker raised the rival offer from NAB “while we try to dot our Is and cross our Ts”, adding “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 … what can we do quickly before we miss out on a good deal?”

Mr Welsh agreed the business banker was very keen to get the deal done and he and his boss stood to gain financially if the loan was approved through their bonus structure.

10.20am: Zero threshold for new customers

What had the business banker done to get to know Mr and Mrs Wallis and their business and its industry?

Mr Welsh did not know, beyond conversations and emails to get to know the couple.

Business bankers can approve loans themselves for some loans of less than $500,000 but usually they have a zero threshold for new customers, Mr Welsh said.

If business bankers are allowed to approve loans, in some cases they can auto-approve loans for customers in good standing — depending on whether they had any default notices and a transaction history without abnormalities.

Typically the auto-approval would be used for “top-ups”, where an existing customer might want a $50,000 overdraft on their $500,000 limit, Mr Welsh said.

The use of a separate credit officer was an important internal control, and consistent with exercising the care and skill of a diligent and prudent banker, Mr Welsh agreed.

But the business banker for Mr Wallis referred the credit submission to a credit officer and had some difficult getting approval, Ms Orr suggested. Mr Welsh doubted this was a credit officer and thought the conversation was with someone else.

Issues were raised with the valuation for the Byabarra property because it would be used as security.

Properties used as security have to be valued first, but the bank distinguishes between residential and commercial properties used as security, Mr Welsh agreed.

Commercial property prices can go up and down more and are also more specialised and have more limited potential for a buyer, Mr Welsh said.

10.00am: Banker flouted Westpac loan requirements

Westpac general manager of commercial banking Alastair Welsh has returned to the stand to answer questions from senior counsel assisting Rowena Orr QC over case study Bradley Wallis.

The case concerns Westpac’s Bank of Melbourne, which made a loan to Mr Wallis to buy a B & B in regional NSW. Mr Wallis said he felt “held for ransom” when the bank wanted to withhold funds from the sale of his investment property until he restructured the loan for his B & B in regional NSW.

New business customers are given a dedicated business banker (aka account manager) who discusses the customer’s needs, verifies information and does the serviceability assessment, he agreed.

Internal Westpac documents showed the business banker should understand the loan purpose, understand their business, and inspect the business premises.

The business banker must attest they have met the customer and visited their business premises, an internal Westpac document showed.

In the case of Mr Wallis, the broker submitted the loan application forms to the bank.

The loan application showed Mr Wallis sought a commercial loan for $560,000 to buy a property with a going concern restaurant and B & B, and provided a project profit and loss statement.

The bank gave Mr Wallis a dedicated business banker, but Mr Wallis gave evidence that his business banker never met with him.

Mr Welsh had not heard any evidence to the contrary and could not explain why there was no meeting.

The business was in NSW and the banker was in Victoria, which Mr Welsh accepted was an irregularity.

9.40am: Westpac’s Alastair Welsh first up

Royal commission crowd favourite and senior counsel assisting Rowena “Shock And” Orr QC is expected to return to the proceedings this morning, after yesterday taking Bradley Wallis through the story of the loan to his small business.

Mr Wallis borrowed from the Bank of Melbourne but felt “held for ransom” when the bank wanted to withhold funds from the sale of his investment property until he restructured the loan for his B & B in regional NSW.

Westpac’s Alastair Welsh will yet again return to the stand to answer questions about the Bank of Melbourne’s handling of the loan.

Other scheduled witnesses are Suncorp’s David Carter, Philip Field of the Financial Ombudsman Service, and Rien Low who is likely to be a case study.

Yesterday we heard how Bank of Queensland knew it had mishandled a loan to a primary school teacher to buy a Wendy’s franchise but did not admit this to the Financial Ombudsman Service when asked, the financial services royal commission has heard.

Senior CBA executive Clive van Horen also confessed to the royal commission that he put his “bruised” emotions ahead of giving almost 1500 customers a ­refund after they were ripped off by the bank charging them more than twice the interest it should have.

Appearing before the financial services royal commission yesterday, Mr van Horen agreed he asked colleagues for a 10-day delay in fixing the overcharging problem so it would not be brought up in a parliamentary hearing in the meantime.

CBA executive Clive Van Horen leaving the banking royal commission after giving evidence yesterday. (AAP Image/Joe Castro)

“I think it was a poor judgment on my part,” Mr van Horen told the commission.

The CBA executive general manager of retail products said his feelings had been hurt by media reports about a previous issue at the scandal-ridden bank that he claimed were “100 per cent wrong”.