Banks inquiry: Commonwealth grilled in Parliamentary hearings

Ian Narev has backed the bank’s exorbitant credit card interest rates, insisting it’s high-risk debt.

• CBA must hand over documents
• ‘Sorry for pain caused’
• CommInsure allegations

Welcome to coverage of the first day of the House of Representatives Economics Committee. Commonwealth Bank chief executive Ian Narev was the first boss of the big four banks to be grilled. ANZ chief executive Shayne Elliott will face questions tomorrow, while the heads of National Australia Bank and Westpac will be heard separately on Thursday.

Narev explains credit card interest rates

Commonwealth Bank boss Ian Narev has defended the bank’s exorbitant credit card interest rates, insisting it’s high-risk debt, AAP writes.

Mr Narev was grilled today over credit card rates.

He was asked why the cash advance rate on the bank’s low rate card was more than 21 per cent, when the official cash rate is just 1.5 per cent. “To me, that’s gouging, that’s excessive,” coalition backbencher Scott Buchholz said.

“It is a highly profitable part of the business, how is that fair?”

Mr Narev said he understood the concerns but argued the bank did not encourage its customers to take on high amounts of high-risk debt.

The bank was balancing the needs of customers and shareholders when it made decisions on rates, he said.

He conceded there were some products “which could probably be a bit more cheap”.

“I don’t think there’s any product under which I could sit here in good conscience and tell you we’ve made the absolute perfect balancing decision,” he said.

“What we can’t do or shouldn’t do as a bank ... is cut rates significantly only then to have to jack them up very significantly when as is always the case in economic cycles, things go a different way,” he said.

Mr Buchholz asked Mr Narev whether he’d consider lowering credit card rates, given he told the committee he was willing to listen to suggestions. Two or three per cent would be a good start, he said.

“I said we came in here with a spirit of openness and listen to suggestions and we will,” Mr Narev replied.

We can do better, CBA boss admits

Ian Narev would be the first to admit his bank could improve in some areas, AAP writes.

But he told the parliamentary economics committee the CBA was doing better at listening to customers and was committed to efficient redress.

“I’m not saying 10 years ago, five years ago, even two years we were doing as well as we need to and I think today there’s still work to do.,” Mr Narev said.

It was the first of this week’s hearings of the big four banks - Prime Minister Malcolm Turnbull’s alternative to calls from Labor, the Greens and some crossbenchers demanding a royal commission into the banking industry. They come in the wake of a string of financial scandals in the past decade or so, fleecing mum and dad investors of millions of dollars.

Mr Narev said he had met customers with experiences of being let down by the bank.

“I’ve said before how sorry I am for the pain that we’ve caused them. I say so again today.”

Mr Narev was quizzed on a range of areas by the 10-strong, government-dominated committee:

* He defended the bank’s small business loan rates as being more appropriately priced for risk and why they are comparatively higher than during the GFC.

* He said staff were encouraged to engage with their customers about their financial needs for which they are rewarded.

* He was open to the proposal of a new banking tribunal, funded by the sector, to handle complaints by consumers.

Even so, Labor MP and deputy chair of the committee Matt Thistlethwaite said after his allotted 20 minutes of questioning he still had two days of questions to ask.

“Will you come back before the end of the year,” Mr Thistlethwaite asked Mr Narev, who responded by saying it would be up to the committee.

Having fought off the need for a royal commission for months, the prime minister’s decision to establish the parliamentary review finally came after the banks failed to pass on in full to borrowers the Reserve Bank’s August interest rate cut.

Instead, the big four banks offered higher term deposit rates as part of their response.

But committee chairman Liberal MP David Coleman pointed out CBA had subsequently cut its deposit rates since August.

Mr Narev said the bank never intended the repriced deposit rates would continue indefinitely when it made the announcement.

“A lot of customers have taken the opportunity to get higher rates which, as you will be aware, because of the nature of the product, they will continue to get for the period that they invested in the term deposit,” he said.

5.10pm:Narev questioning ends

Ian Narev has finished his spell in front of the parliamentary committee. ANZ chief executive Shayne Elliott will face the committee tomorrow morning, while the heads of National Australia Bank and Westpac will be heard separately on Thursday.

5pm:Loughnane not a CBA employee

Narev is asked if former Federal Director of the Liberal Party Brian Loughnane is employed by the CBA. Mr Narev replies that Mr Loughnane is not employed but it is on record that he, along with others, have provided advice to the CBA on various issues. He said Mr Loughnane, who stepped down from his Liberal Party role in January, “helped us generally in thinking through how we respond to a number of issues”.

4.40pm: Weak currency?

I thought bank inquiry could not get worse and then MP Scott Buchholz began. All up, one of weakest Parli performances in memory @australian

— John Lyons (@TheLyonsDen) October 4, 2016

4.30pm:Mortgage rate claims

Earlier, Labor MP Pat Conroy raised claims over a customer who was told his mortgage rate wouldn’t fall with everyone else’s because his property had been contaminated from a nearby defence base.

The customer, who lives near RAAF Williamtown near Newcastle, claimed his bank advised him he wouldn’t receive an interest rate reduction because his home, in an area affected by contaminated groundwater, was in a high risk area of declining property values.

Mr Narev said he would look into the claims but said that would be a very surprising outcome.

“I repeatedly get the most compliments when communities are in hardship about the ability of the Commonwealth Bank to mobilise its people and help.” - AAP

4.10pm:CBA defends small business loan rates

Narev defended the interest rates they charge for small business loans, despite them being comparatively higher than they were during the 2008-2009 global financial crisis.

When the global banking system went through the experience of the global financial crisis, what we all looked at was the fact that appropriately pricing for risk has ceased to occur,” narev said.

“Whilst conditions at the moment in terms of defaults are actually reasonably good ... we are safeguarding hundreds of billion Australia’s deposit money, we must price for the risk of default over a cycle.”

Liberal MP Craig Kelly said he couldn’t understand why the margin on business loans on average was 5.75 per cent above the RBA rate, and higher than during the GFC when economic circumstances are much improved now.

“There is a view generally because a business loan is secured by a mortgage over someone’s home that therefore interest rates should be the same as the home loan, that’s just not true,” CBA’s chief risk officer David Cohen said.

4pm: What have we learned?

Banking Inquiry: CBA boss Narev has been in total command under questioning from a stunningly-mediocre Parliamentary committee @australian

— John Lyons (@TheLyonsDen) October 4, 2016

Handy snapshot provided by AAP:

• Nearly 80 per cent of CBA is owned directly or indirectly by Australian families. Their collective investment in the bank is worth about $100 billion.

• In the 25 years since CBA listed it’s paid between 70 and 80 per cent of profits to those shareholders.

• When setting interest rates CBA balances the desire of two million home borrowers and tens of thousands of business borrowers to pay less for their finances, and the desire of 10 million deposit holders to access a higher interest rate.

• Australian bank profits are in line with Canada. CBA’s return on equity for the recent financial year was not in the top third of ASX100 listed companies.

• The House of Representatives economics committee will seek documents from CBA’s insurance arm CommInsure, including internal investigations, relevant board papers and actions taken by the bank to address policyholder concerns about rejected claims.

• CBA did not act with the “requisite speed” many years ago and even in more recent years on the financial advice matters.

3.50pm: The power between customers, banks

3.40pm:Boss defends commissions

Narev earlier defended commissions paid to his staff for selling products.

“What we encourage them to do is engage with their customers to have conversations about their financial needs, and we’re happy to reward them for doing that in a good way.”

3.30pm: Break

The inquiry will reconvene at 3.45pm. Labor MP Pat Conroy is not happy as his final question is cut off by David Coleman.

3.20pm:CBA shares dip

Commonwealth Bank shares have slipped 0.3 per cent since Chief Executive Ian Narev took his seat in front of the Parliamentary Inquiry today at 2pm AEST.

That’s an 18-cent decline in less than an hour and a half, slightly worse than the ASX 200 in that time, which has tiptoed 0.1 per cent lower to 5468 points.

3.15pm:Tough enough?

Truly pathetic. So far bank inquiry a Damp Squid. Thistlethwaite had 1 or 2 tough Qs but if this is best our reps can do let's get new ones.

— John Lyons (@TheLyonsDen) October 4, 2016

3.10pm:CBA denies turning back on whistleblower

There’s been a sharp difference of opinion on how CommInsure treated its former chief medical officer, Benjamin Koh, writes David Crowe. Labor MP Matt Thistlethwaite asks Narev and the bank’s chief risk officer, David Cohen, about why the bank did not act on Koh’s concerns about the treatment of insurance customers.

Thistlethwaite tells the committee hearing that Koh took his concerns to the head of CommInsure but got no result when he blew the whistle on systemic denial of claims, tampering of customer medical records and failures at CBA’s insurance arm. Koh later took his concerns to the media. But Cohen disagrees completely. He says the former chief medical officer had his concerns heard by the bank’s chief risk officer as well as an independent director.

There is more about Koh’s claims in this report from The Australian in April.

3pm:CommInsure payouts quizzed

Mr Narev told the parliamentary committee the bank had put in place a “very significant program” to investigate allegations against CommInsure, including that doctors were pressured to change medical opinions in order to deny claims.

The committee has asked the bank to produce documents relating to its internal investigations of the issue and other relevant papers.

His comments follow claims that CommInsure refused a payout for a woman who died of an accidental prescription drug overdose.

Media reports suggested the company ignored that findings of police and the coroner and decided that she had taken her own life.

Mr Narev said such a situation was “deserving of a high degree of concern”, but it was not the experience of the vast majority of clients.- AAP

2.50pm:Culture of bad behaviour?

Questioning of Narev cranks up a level with Labor’s Matt Thistlethwaite, writes John Lyons.

Thistlethwaite begins by asking whether there is a “culture of bad behaviour” in Australian banks regarding trying to sell financial and insurance products that customers don’t need.

Narev says every case of an unhappy customer is important, but that his 40,000 staff turn up to work to try to satisfy the needs of their customers.

Thistlethwaite beginning to get into individual case - alleges the bank has engaged in “sneaky and unethical” behaviour.

BANKING INQUIRY: CBA chief Ian Narev begins with prepared statement but individual Comminsure cases beginning to challenge him @australian

— John Lyons (@TheLyonsDen) October 4, 2016

2.45pm:Key question on wrong customer advice

Narev admits the bank did not act with the “requisite speed” to fix problems with the financial advice it had offered to thousands of customers, but he suggests the problem is smaller than it is made out to be, writes David Crowe.

He tells the committee he got the latest review on this last Friday and it showed that the bank had reviewed 6,000 customers out of 8,000 who wanted a check on the financial advice they had received from Commonwealth Bank advisers. Narev says that 90 per cent of the reviews - which he says are part of an independent process - showed the advice was right.

The committee chair, Liberal MP David Coleman, picks up a key question on this: doesn’t this show that 10 per cent got the wrong advice and isn’t this number far too high. Narev responds by arguing that the 10 per cent of the 8,000 reviews is a smaller piece of the overall pie -- the hundreds of thousands of customers getting advice.

The reviews will be finished by the end of this year, Narev says. And this isn’t a new experience for the bank. The last remediation program led to $52 million in compensation to more than 1100 advice customers.

2.40pm:Deposits query

Coleman wants to know why the CBA “loudly trumpeted” its boost for term deposits as a justification for failing to pass on rates, but has since cut those deposit rates.

Narev says customers were very aggressively taking up the higher rates, more so than initially expected.

“We never intended and we were very clear about this at the start, for those repriced deposits to continue indefinitely.”

Coleman suggests that position stokes public cynicism about the bank.

“We try to make sure we do as good a job as we can to explain this in a way where people are not cynical about it and we endeavour to do that,” he says.

Coleman moves on. Coleman questions why customers can’t get a loan with a “tracker” interest rate pegged against independent benchmarks such as the RBA cash rate or LIBOR. He says this is available to borrowers overseas, but not in Australia.

Narev says that if Australians want greater stability, they can get a fixed-rate loan.

“We would just need to make sure that it didn’t put customers in a more confusing place but no, there’s no reason in principle other than that why we can’t do it,” Narev says.

Coleman raises the prospect that parliament could force the banks to offer such a loan.

2.35pm:CBA must hand over documents

The Commonwealth Bank will be forced to hand over documents relating to its Comminsure operations

The parliamentary banking committee informed Narev early during his evidence that it will be seeking documents relating to the Comminsure controversies.

These include relevant board papers and details of actions taken by the bank to redress the problems.

Narev says an internal review has found that 90 per cent of those customers who asked for their Comminsure claims to be reviewed had been given correct advice.

The committee pointed out that this meant that 10 per cent were not.

2.30pm:CommInsure allegations

Liberal MP David Coleman, the committee chairman, asks about allegations CommInsure stiffed the sick and pressured doctors to review their opinions to freeze out claimants.

Narev acknowledges the CBA has “done wrong by some customers” and did not want to be seen to deny it “in any way, shape or form”.

Narev says individual failings are important for individuals, but “it is important to look at the overall business” given the company pays 22,000 claims a year. Other steps are being taken, such as revising the definition of heart attack to ensure meritorious claims are paid out, he says.

Narev is asked by Coleman about the financial advice scandals.

He acknowledges the bank failed to act with “requisite speed” to protect customers, although only about 10 per cent of the 8000 people whose files were reviewed were found to have been given faulty advice.

2.26pm:Market analysis

If you’re wondering why Ian Narev sounds so polished and on his game, perhaps his pay packet indicates he should be, writes Chris Kohler.

Ian Narev was paid $8.768 million for the 2016 financial year, more than any of the other big four bank CEOs.

Westpac’s Brian Hartzer was paid $5.74 million, NAB’s Andrew Thorburn received $5.5 million and ANZ’s Shayne Elliott has yet to be in the role a full year.

As for Mr Narev reinforcing the importance of shareholder returns - CBA’s share price has fallen 14.2 per cent in the year to date to late trade at $73.22, further than the other big four banks and much worse than the 3.3 per cent rise recorded by the ASX 200.

Westpac shares have dropped 10.3 per cent in that period, ANZ shares are flat and NAB stock is down 7.4 per cent.

2.22pm:‘Profits support all Australians’

Narev is making a key point about profitability, writes David Crowe. He uses his opening statement to point out that the bank has stronger returns than others around the world, but that some of those global counterparts have failed or are in troubled markets. And he emphasises that the profits support 42,000 employees and thousands of Australian shareholders. “They are not Australia’s elite. They are Australians from all walks of life,” Narev says of those shareholders.

Another key point is how much tax the bank has paid. Narev says CBA is the country’s biggest corporate shareholder. He doesn’t give any numbers, but the bank’s annual report shows it had a $3.6 billion corporate tax expense in fiscal 2016. That was up from $2.7 billion in 2012.

2.15pm:Analysis: big test for Narev

Narev begins by saying strength and fairness should be the pillars of the banking system, writes John Lyons.

Narev is an experienced and accomplished media performer, but this will be a big test.

The politics behind the hearing are that the Labor Party wants to prove that there are such serious systemic problems in the system that there must be a Royal Commission.

The Coalition, in contrast, has agreed to these parliamentary hearings to appease community concerns about the banking system.

Narev begins by saying that he believes bank profitability and the unequal power between the customers and their banks are the two big issues on peoples’ minds.

He explains that banks try to balance the demands of shareholders, customers, those who make deposits and borrowers.

“Our job is to achieve a balance,” Mr Narev said in his opening address.

Narev says that he is “sorry” for the pain caused to customers by bad experiences with their banks. But he says he believes that Australian customers are “on the whole” happier with their banks that any time before. He says he believes the Reserve Bank is one of “the highest order.”

2.12pm:‘Sorry for pain caused to customers’

Narev is expressing contrition over the bank having failed its customers.

“I have personally met with customers whom we have let down. I’ve done so in order to understand their experiences first hand. I’ve said before how sorry I am for the pain that we’ve caused them. I say so again today,” he says.

“No one company or individual is perfect. We will ensure that we put our mistakes right and learn from them.”

“I have personally met with customers whom we have let down. I’ve done so in order to understand their experiences first hand. I’ve said before how sorry I am for the pain that we’ve caused them. I say so again today,” he says.

“No one company or individual is perfect. We will ensure that we put our mistakes right and learn from them.”

2.10pm: Rate cuts front and centre

Narev is on the front foot over the bank’s refusal to pass on full rate cuts, saying the CBA was “striving to be fair while staying strong”.

“It is correct that our returns on equity are higher than many banks in other developed markets but in most of those markets, banks have failed, nearly failed or struggled severely,” he says.

“Understandably, each of these groups (borrowers and depositors) would’ve wanted more benefit, but our job is to achieve a balance.”

2.05pm: ‘Willing to listen, share’

Narev begins by thanking the committee for his invitation and says he’s willing to share his perspective.

“We come here today with a spirit of openness and a willingness to listen carefully to suggestions about areas in which we can improve,” he says. He also says the strength of the banks is paramount and insists the CBA is owned by a broad cross-section of society, not just the “elite”

Commonwealth boss Ian Narev. Credit: Supplied

1.55pm:Tough questions on agenda

Mr Narev and his counterparts at ANZ, National Australia Bank and Westpac will be separately grilled by the House of Representatives economics committee in Canberra this week. But what are the tough questions they are likely to face?

Writing in The Australian today, David Uren suggests the widely-held concerns they should be prepared to address.

“New Reserve Bank governor Philip Lowe has already explained to the committee that tougher regulation is the reason banks are not passing official rate cuts to their mortgage customers in full. That does not explain why mortgage and small business borrowers bear all the pain, while shareholder returns seem sacrosanct. Is it lack of competition?” - Full article HERE.

Scott Morrison announced plans to make it a criminal offence for banksor major investors to try to manipulate financial benchmarks such as the S&P/ASX 200, the consumer price index or the ­Reserve Bank’s cash rate. Picture: AAP

Shorten questions Morrison timing

Bill Shorten has accused Malcolm Turnbull’s government of only “acting tough” on the big banks ahead of a parliamentary grilling of Commonwealth Bank chief executive Ian Narev this afternoon.

Mr Narev will become the first bank boss to face the House of Representatives Economics Committee under a new transparency measure aimed at combating Labor’s populist calls for a royal commission into the finance sector.

His appearance comes as Treasurer Scott Morrison announced plans to make it a criminal offence for banks or major investors to try to manipulate financial benchmarks such as the S&P/ASX 200, the consumer price index or the ­Reserve Bank’s cash rate.

The Opposition Leader said he would consider backing Mr Morrison’s plan, but questioned the timing of the announcement.

“This announcement (is) coincidentally timed on the day of this weak committee set up by a weak prime minister to talk to the banks. You know, there is no accident that the government wants to look like it is acting tough,” Mr Shorten said.

“We will certainly look carefully at this and increasing penalties on bad behaviour by our banks is certainly what Labor believes in. But you have to ask yourself the question: why is it that the Turnbull government will do everything it can to avoid a royal commission into our banks and financial services industry?

“You’ve got bank CEOs coming down to talk to a weak committee which has no power to make the banks do anything. The fact of the matter is this banking parliamentary discussion, which Malcolm Turnbull has commissioned, is designed to learn as little as possible and do even less about changing anything.”

Mr Shorten said the royal commission – projected to cost $53 million over two years – would be cheaper than the government’s proposed $170 million plebiscite on same-sex marriage.

The Abbott government’s Royal Commission into Trade Union Governance and Corruption cost taxpayers $46m. The more complex Royal Commission into Institutional Responses to Child Sexual Abuse, given a $377 million budget under Julia Gillard, is now expected to cost more than $500m.

Mr Morrison said the parliamentary hearings would force bank bosses to explain their policies to the Australian people. He touted the new criminal amendment as well as moves towards a dedicated tribunal for aggrieved bank customers and additional resources for regulators.

“I understand why people feel they might want one but you have to look at what is practically going to help people and strengthen the system,” he told Sydney’s 2GB radio.

“All the work we are doing to strengthen the financial system which is what you need if a storm really does hit, that (royal commission) will just delay all that work.”