Rural Bank didn’t submit report about systemic lending failures in cattle market

Bendigo Bank’s wholly owned subsidiary Rural Bank failed to give the royal commission minutes of a board meeting.

Rural Bank CEO Alexandra Gartmann after giving evidence at the royal commission. Picture: AAP

The chief witness for Bendigo Bank’s wholly-owned subsidiary Rural Bank failed to attach in her royal commission statement, minutes of a board meeting that discussed an explosive report by the chief risk officer detailing significant and “systemic” lending failures in the Queensland cattle market.

Among the cases of questionable lending heard at the royal commission yesterday, a Rural Bank staff member suppressed the fact that a Queensland cattle farmer had already taken out a $1 million loan from Macquarie Bank in order to provide him with a bigger loan. The conduct, which Rural Bank admitted would have breached the banking code of ethics — had it been a signatory to the code — came during a period of aggressive expansion into the Queensland farming market, which was on the cusp of a severe downturn that ended up pushing 156 farmers into debt mediation with the bank.

At hearings for the banking royal commission in Darwin yesterday, Alexandra Gartmann, chief executive of Rural Bank, said she did not know why the 2011 board meeting minutes were not included in her witness statement, but dismissed the findings in the review of lending standards, saying the risk officer would “always view things as a glass half full as opposed to the full executive team”.

This prompted royal commissioner Kenneth Hayne to interject and ask Ms Gartmann if she thought the bank’s chief risk officer was doing his job correctly. It was the second time Ms Gartmann had criticised evidence submitted to the royal commission by Rural Bank, after she said former Bendigo Bank chief executive Mike Hirst had been “quite harsh” in his assessment of misconduct at the bank that he had submitted to the year-long banking inquiry.

The royal commission heard the board of Rural Bank in 2011 called for a review of its lending practices after the prudential regulator APRA noted it was seriously concerned about the findings from an independent KPMG report. KPMG found that all five of the bank managers it closely audited had suppressed information “pertinent” to the borrower’s credit quality, they “misrepresented” data in the bank’s system and two had failed to verify information provided by a customer.

The bank’s chief risk officer, Taso Corolis, told the chairman in his report that the causal factor leading to defaults was not “in the main” a downturn in the Queensland property market but a series of failures by bankers to lend prudently.

But Ms Gartmann criticised the findings from Mr Corolis, which prompted counsel assisting Rowena Orr to ask why she didn’t believe her former chief risk officer was “taking an objective view”.

Rural Bank was established in 1998 as a joint venture between Elders and Bendigo Bank, but in 2010 became a wholly owned subsidiary of the regional lender.

In his report, Mr Corolis said the bank had not assessed the ability of borrowers to repay loans, particularly in a significant sample of distressed lenders. “Based on my view, a number of these issues were clearly systemic and not isolated and have been a significantly material contributor to the credit issues currently faced by the bank,” Mr Corolis said.

Ms Gartmann said “broad systemic issues” would have sparked more defaults than the bank ­handled.

At that board meeting, the bank’s chairman said the “current credit situation was not satisfactory and there appeared to be cultural issues” at the lender. The chairman noted a presentation was made to the bank five years earlier — just before the global financial crisis — that the value of Queensland cattle properties were heading into a “pure asset bubble” and that evidently, the warning appeared to be ignored.

Ms Gartmann defended Rural Bank’s “aggressive” move into the Queensland farming market, noting that the industry as a whole was growing in the state’s farming finance sector.

Ms Gartmann said had Rural Bank been a signatory to the banking code of ethics, it would have breached conduct rules.