Bank chiefs accept PM’s call for public grilling

The big four bank bosses have grudgingly submitted to regular public grillings by politicians.

Scott Morrison and Malcolm Turnbull announce the question sessions for bank bosses. Picture: John Feder

The big four bank bosses have grudgingly submitted to regular public grillings by politicians, escalating the fallout after holding back the Reserve Bank’s full rate cut from mortgage holders and inflaming the political fire engulfing the industry.

Amid ongoing calls from Labor and crossbenchers for greater ­action, Malcolm Turnbull yesterday told the bank chiefs they would be called to appear at least annually before the House of Representatives standing committee on economics.

As the banks reluctantly fell into line, Australian Bankers’ Association chief Steven Munchenberg labelled it “unprecedented” to haul companies before a committee to explain commercial pricing decisions and dismissed concerns that the industry had not explained how mortgage pricing works in recent years.

Along with moves in funding costs and interest rates, Commonwealth Bank’s Ian Narev, National Australia Bank’s Andrew Thorburn, Westpac’s Brian Hartzer and ANZ’s Shayne Elliott will be probed on the industry’s response to scandals.

With the committee holding regular hearings with the RBA and Australian Prudential Regulation Authority, Scott Morrison said it was the “appropriate body to hold the banks to account”.

The Treasurer will provide the terms of reference, with the committee to report to the parliament.

“It’s unfortunate but in a way it’s still better than a banking royal commission,” Bell Potter analyst TS Lim said.

“It is a distraction (for the banks) but ... I don’t think much will come from it. At the end of the day, it’s not a bad idea just to go in front of them because at least the banks can explain the reasons why they do certain things.

“Turnbull being a banker himself, he should understand why.”

Shares in Westpac and NAB ended slightly higher, while CBA fell 0.5 per cent to $75.66 and ANZ eased 0.12 per cent to $25.20.

Mr Elliott said he accepted the “necessary initiative in the current climate” and would represent ANZ and answer the “tough questions”. Mr Thorburn also vowed to attend to explain how NAB “balanced the needs” of borrowers, depositors and shareholders.

Westpac’s Mr Hartzer said “we will be more than happy to appear” if the purpose was to explain the cost of providing mortgages and strengthening the banking system.

Ahead of CBA’s expected $9.5 billion profit result next week, a spokeswoman failed to commit Mr Narev to appearing.

She said: “In recent years senior executives, including our CEO, have frequently appeared in front of parliamentary committees. We have always said we are willing to appear before the parliament if asked.”

The move builds on the government’s intervention this year in the wake of CBA’s CommInsure scandal and the sector’s alleged institutional interest-rate rigging, forcing the major lenders to inject $121 million into the corporate regulator.

The ABA has also agreed to a string of measures to improve trust, including an independent review of sales commissions.

“I certainly wouldn’t say we’re supportive,” Mr Munchenberg said of yesterday’s announcement, adding that the industry had not negotiated the move with the ­government.

“It’s unprecedented … that companies would be called before a parliamentary committee to justify their market activities and commercial pricing.”

As expected by analysts, the big banks this week seized on the RBA’s 25-basis-point cut to the cash rate to hold back 11-15 basis points from mortgage customers. But they also lifted one to three-year term deposit rates by up to 60 basis points.

Mr Munchenberg dismissed the suggestion that the industry had not explained that bank funding costs were the primary “driver” of mortgage rates, not the RBA’s cash rate.

“It keeps getting presented that we don’t explain what’s going on. We do explain, Maybe we need to do more, maybe the CEOs need to be a bit more higher-profile in doing that,” Mr Munchenberg said.

“The issue is not so much the lack of explanation, it’s that people just don’t like the answer.”

Mr Hartzer said there had been “structural changes” in recent years, including most of the banks’ funding coming from depositors relative to wholesale debt at the behest of regulators.

“It’s important that the public understand the real costs of providing a mortgage, and how that’s changing,” he said.

“We also think it’s important that the public understand the work that the government, regulators and banks have done to make our banking system more secure, and the costs of doing that.”

Mr Thorburn added: “People want a simple answer (on rate movements), but it’s not a simple issue. If you don’t get the balance right (between shareholders, customers etc), you don’t have a sustainable business, as the financial crisis demonstrated.”

Michael Cameron, chief executive of junior lender Suncorp and a former senior CBA banker, said improving the level of customers’ trust and industry integrity was critical.

“If we are not able to achieve it, if we could demonstrate that the regulators weren’t able to be properly resourced and properly funded to do their jobs properly, then it is inevitable that you would need something like a royal commission,’’ he said.

Suncorp this week also held back 15 basis points from home loan customers.

Merlon Capital Partners principal Neil Margolis said the recent heightened political scrutiny of the banks was not a major investment concern and he was more closely monitoring any uptick in conduct remediation costs.

Additional reporting: Richard Gluyas, Andrew White