Banks inquiry: NAB, Westpac face Parliamentary hearings

Westpac boss faced questions over gender discrimination, credit card fees and complaints process on final day.

• Relationship with rates
• Financial planning allegations
• The housing bubble
• Changing the banking culture

BANKING INQUIRY LIVE COVERAGE: The parliamentary hearings into the four big banks has now concluded. NAB chief executive Andrew Thorburn and his chief operating officer Antony Cahill were up this morning, followed by Westpac boss Brian Hartzer.

How the day unfolded

4.45pm:Close of play

Coleman formally brings the grilling of Hartzer to a close, marking the end of three intriguing - if at times predictable - days of bank chief interrogations.

The royal commission debate will undoubtedly roll on, but that’s all for now.

Thanks for joining us.

4.40pm:Funding costs

Chairman David Coleman takes over for the last time.

The Liberal MP is back onto funding costs, forcing Hartzer to risk getting “too technical”. We don’t need that late on a Thursday afternoon.

Coleman wants reasons for the widening gap between small business loan rates relative to mortgage rates.

“It would be fair to say in the past we underestimated the loss rate (for small business loans),” Hartzer says, indicating banks are catching up on the risk differential.

“Small business loans go bad about five times more often than a home loan. And the loss rate is around 10 times. The combination of all those things have fed into that difference.”

The Westpac chief says the gap is around 1 per cent between small business loans and mortgage rates.

“It’s not a massive difference.”

Hartzer then admits small business loans had previously been “uneconomically priced and unsustainable”.

4.35pm:

Labor MP Matt Thistlethwaite retakes control of the questioning amid the promise the interrogation is near an end.

ASIC’s allegations of rate-rigging float to the surface, with Hartzer asked if the bank undertook a thorough review into the claims.

“We’ve done a very extensive review,” he said.

“The conclusion of our investigation is our people have not done anything wrong.

“We respect ASIC’s right to ask. We have a good relationship with ASIC but on this matter we disagree.”

He adds the bank is happy to work through this in court, with an out-of-court settlement not discussed at board level.

4.30pm:

Hartzer is asked what the difference is between UK and Australia that may make the UK’s ‘open data’ plans more difficult to implement - these are designed to allow easier account switching.

Westpac boss says he will have to take question on notice.

“What’s happening in the UK is very interesting, they are going very aggressive at this,” he adds. “But we need to be very careful at making sure privacy controls are in place.”

He warns that as Australians become more informed about the accessibility of data involved, they may become concerned.

4.25pm:Mortgage brokers

Nationals MP Kevin Hogan is now running the show and focus is on mortgage brokers.

Does the now Westpac-owned RAMS Home Loans direct customers to Westpac more than other banks, Hartzer is asked.

Kelly is informed RAMS is no longer a broker so Hartzer can comfortably deflect.

“RAMS is an originator of our product, it’s not a broker per se. They sell RAMS home loans. We don’t own a broker,” Hartzer says.

“There are other big banks that own large brokerage businesses, we don’t.”

Hogan wraps up by asking Hartzer why he think he is here.

He says there have been a couple of things that have contributed to poor perceptions of the big four banks.

“Some of it is the aftermath of the GFC,” he says.

“Some of it is what the (local) banks themselves have done - customers have at times been poorly treated and sometimes banks haven’t responded well.”

4.20pm:Late payment fees

Liberal MP Craig Kelly takes his turn in control of proceedings as we near the end of a gruelling few days.

He immediately puts the heat on late payment fees charged by the banks. He hasn’t explicitly said it, but is hinting they are excessive.

Is there scope for banks to raise late payment fees, Kelly wonders, given a High Court ruling that a $35 amount was not an unlawful penalty?

“Those fees have been unchanged for many years now,” Hartzer says, adding Westpac has no intention to raise them at this stage.

“We understand fees are an emotive issue for people. We try to balance it so they are fair but reclaim our costs.”

4.15pm:Income data

Bandt turns to a case of a Queensland couple - Kaye and Michael Downer - who allegedly had their incomes inflated to enable them to buy a house that might have been beyond their reach.

Hartzer says he can’t go into too much detail given confidentiality agreements, but insists there’s no systemic issue at the bank.

“We absolutely want to get the income data right. We have no incentive in lending people money to buy a home they can’t afford,” he stresses.

“We reviewed the case and don’t accept the allegation there.”

4.05pm:

Bandt suggests the big four received an advantage against their smaller peers by an implicit guarantee from the government through the GFC.

Queries whether banks should pay for it, something Hartzer isn’t sure about as this may mean shifting to an explicit guarantee.

“The government would want to be very careful in making it an explicit guarantee,” he said.

“We didn’t ask for government support,” he adds in referring to the GFC activity.

“It’s important to remember the Australian banks did not require support. We stayed open for business.”

3.55pm:Credit card fees

Buchholz goes hard on rewarding loyal customers, says it is unfair new customers can be drawn in with promises of rates much lower than the average for loyal customers.

“The broader point about loyalty is a valuable one. How do we demonstrate we can reward customers?” Hartzer asks himself.

“There’s more we can do to reward and recognise loyal customers.”

The MP queries whether a 2-3 per cent reduction in credit card rates for loyal clients would be well-received.

“I suspect they’d be happy,” Hartzer says to no one’s surprise, Buchholz included, who says this could be an idea to pursue.

3.50pm:

Liberal National Party MP Scott Buchholz takes the floor and he has credit cards in his sights.

Hartzer says he can’t answer a question on specific profits from the credit card business given it isn’t separated out, but notes it is a healthy money spinner.

“Credit cards are certainly an attractive product and over time it is certainly a contributor to our profit,” he says.

Buchholz follows-up by asking if Westpac could decrease credit card rates and still be profitable.

“We could, yes,” Hartzer admits.

3.45pm:ATM fees in spotlight

ATM fees now in the spotlight, specifically those charged to customers outside the network.

Hartzer says ATM networks “are really expensive to run” and admits customers outside its network are helping subsidise cost of setting up the network.

“People who don’t bank with us (are charged) for taking advantage of millions of dollars in infrastructure.”

However, the charges do not “cover the cost of our ATM network”.

3.35pm:

With financial planning scandals a dime a dozen over the past few years it’s little surprise we are on the topic again.

Hartzer warns, however, there can be “unintended consequences” of excessive regulation.

“If you try to run everything on the bases of rules and punishment you risk slowing innovation,” he said.

“The answer to everything is not the threat of criminal prosecution.”

Keogh stresses he is not saying don’t take risks or innovate, allowing Hartzer to elaborate on his initial answer.

“The nature of investing is ... you are taking risk,” the Westpac boss says.

“What I am saying is our experience is when investments get wrong, if customers are poorly advised absolutely there should be consequences for that. But a normal person is going to be a lot more reticent about giving you the advice you should be getting (given threat of blame for any loss).”

3.25pm:The big pay divide

Now we are moving to another hot topic in executive pay. The top bankers take home a bundle, Keogh reminds us.

The Labor MP notes the discrepancy between Hartzer’s $5.7m pay and the introductory $45k rate for a teller, but Hartzer is not really forced to defend his pay as few questions are forthcoming.

When he has the opportunity, Hartzer notes his pay is clearly laid out in the annual report and incentives are tied to a range of different areas.

Keogh believes there is a gap between Westpac and other banks in terms of incentives tied to customer satisfaction, but questioning quickly shifts to financial planning misconduct.

3.15pm:

We are back up and running, with the focus again on the proposed banking tribunal.

Labor’s Matt Keogh takes control of proceedings, trying to ascertain whether the government-proposed tribunal has been in the works for some time.

Hartzer says idea was first brought up by Treasurer Scott Morrison in April or May, although he admits his “memory is a little hazy”.

Adds there was a discussion with representatives of the banks and the resolution of complaints was brought up.

Keogh also tests Hartzer on whether the nature of today’s proceedings had been discussed with the government

“I haven’t had conversations with anyone in the government about this process.”

3.10pm:Gender discrimination

Banks shifts attention to ‘unconscious bias’ in banking that discriminates against women.

The Liberal MP is seeking a better response than the one offered by ANZ’s Shayne Elliott yesterday, who largely focussed on the rise in female employees at ANZ.

“This is something the Westpac Group has focused on for a very long time,” he said.

“We continue to work on these things.

Hartzer notes he has four daughters so the “issue means a lot” to him.

“I agree one of the biggest issues for women has been unconscious bias,” he adds.

“We will do everything we can do to make sure women feel very welcome at Westpac.”

A quick 10 minute afternoon tea break has now been called. The home stretch is near.

3pm:

Liberal-pushed banking tribunal gets a conditional thumbs-up from Hartzer.

He says we need to look at the process for customer complaints and assess best way forward rather than just blindly introducing a new layer.

“If the answer is a tribunal that’s fine,” he said.

“By all means let’s simplify it so the customer knows where to go.”

2.55pm:Risk management approach

Hartzer responds to discussion on need for a proactive approach to risk management.

He agrees it is essential for banks to spot their own weaknesses before being pushed to address them by regulators.

“We can’t just wait for the regulator to knock on the door and say ‘what about this?’” he says.

“We need to look at our business and say ‘where are we letting ourselves down?’”

2.45pm:

Liberal MP Julia Banks now has the floor for questioning.

Asks if there is a bigger trust gap for Westpac as against subsidiaries St George and Bank of Melbourne.

“These brands are there to complement each other,” he said, without ever really answering the question. “It is certainly true the big bank brands have attracted more negative publicity,” he ultimately adds.

2.40pm:Passing on a a rate cut

Hartzer now addressing issue of not passing rate cuts on immediately - took 20 days following RBA decision.

“Each bank has a different funding situation,” he said.

Westpac believes we need to move on from commentary around “passing on a rate cut” as it is an “inaccurate statement” given the current make-up of funding for the big four.

“We don’t fund off the cash rate,” he said, adding it’s not a major determinant for mortgage rates.

Points to fall in net interest margins to show banks aren’t cashing in on recent RBA rate cuts.

2.30pm:Targets for staff

Thistlethwaite pressing hard on specific targets for staff - is this in best interest of customers and why are targets needed given customers should know what they need?

Hartzer suggests improvement is needed in financial literacy with some people unaware of what is available.

“We have an obligation to make sure customers are looked after. We feel we have a duty of care to have conversations,” he said.

Will make no apologies for trying to take customers from rivals.

“All our products should be competitive,” he adds. “Unashamedly our bankers sell our products.”

Says referrals from financial advisors have “clients’ best interests embedded” because of FOFA (freedom of financial advice laws).

2.25pm:Staff league tables

League tables are now in focus, Hartzer defends the use of rankings.

“We have expectations for people in all roles. If someone is underperforming against their targets then they can be put on a performance improvement program,” Hartzer says, adding rankings are not the primary focus of management.

The Westpac boss also says tables and rankings must not make employees feel uncomfortable.

“We would encourage a staff member who feels they were being singled out” to speak out.

2.18pm:

Questioning shifts to use of customer data. Hartzer indicates the company does tailor products based on knowledge of customers’ transaction history.

“It is common in the industry,” he says.

2.10pm:Removing a conflict of interest

Hartzer is queried on changes to incentives, which will shift focus of tellers to service away from sales. For now, Westpac division will pioneer, with group’s subsidiaries including Bank of Melbourne and St George, to follow in time.

“That is the direction we are heading,” he said.

“We want to remove any perception of a conflict of interest.”

Hartzer is unsure on timing for changes to incentives plans at subsidiaries, says it perhaps could be seen in second half of its financial year.

“It takes a fair amount of time to work this through with the union.”

Hartzer is unsure on timing for changes to incentives plans at subsidiaries, says it perhaps could be seen in second half of its financial year.

“It takes a fair amount of time to work this through with the union.

Westpac CEO Brian Hartzer. Picture: AAP

2.05pm:Erroneous fees

Labor’s Matt Thistlethwaite asks about millions of dollars in erroneous fees charged to customers.

Hartzer said those were revealed by the bank itself, rather than regulators, and it was now reviewing its processes to minimise the chance of it happening again.

Hartzer said issues tied to recent repayments of erroneous fees (relating to foreign transactions and student waivers) had been rectified: “Both of those were found in reviewing all of our policies,” he said “We reported them to ASIC and we took action to set customers right.”

2pm:Tracker mortgages

Hartzer says tracker mortgages - which are pegged to movements in the official cash rate - are appealing on their face, but they may not be so in reality.

“The impediment ... is because tracker mortgages are really quite fraught from a risk point of view,” he says, citing them as partly responsible for the collapse of Northern Rock which was plagued by sharp drops in official interest rates despite a higher real cost of funds.

“The answer in a sense is we could put that product out there, but the premium we would have to charge to manage all the risks ... make that product really unattractive.”

He suggests people look to a fixed-rate loan instead.

Hartzer also cautions against the government dictating that banks provide certain products in a competitive market.

1.55pm:Data sharing

Hartzer says he supports a “well-governed process” for opening up data-sharing among institutions.

“Data is a really important part of what we do and at Westpac we embrace that,” he says, but cites security concerns. “We’re very supportive, but don’t underplay how important it is to put that control around.”

Would you be open to providing financial incentives to senior executives based on the openness and data and making it easier for customers to switch banks?

“IIt already is easy to switch,” he says, notwithstanding claims that it’s in fact very difficult. “You can switch your bank to Westpac in less than 10 minutes online, we transfer all your payments, it’s very easy.”

However, portable account numbers would be much more difficult to implement. He cites different banks having account numbers of varying lengths, the existence of BSB codes and the differences between savings and loan accounts as making reform much harder.

However, he says, he’s happy to investigate what can be done and would of course comply with any change in law.

1.45pm:Execs taking responsibility

Coleman questions the lack of accountability among senior executives in the banking industry, notwithstanding the “fluffy” presentations about putting people first.

Shouldn’t the executives step up and wear the consequences?

“I agree. The role of leadership is incredibly important,” he says. “The trick is we’ve got a big, complex business and what we’ve got to do is proactively make sure we have processes in place ... to hold people accountable when things go wrong.”

Hartzer says natural justice demands a process that allows a range of disciplinary consequences including pay reviews, counselling, retraining and even dismissal.

1.35pm:Loan insurance premiums

Committee chair David Coleman has raised “grave concern” about customers being charged loan insurance premiums despite not even having a loan.

Hartzer says the customers were sold a life insurance policy that continued after the life of the loan, although the customers may have been confused about whether it still existed. ASIC’s view - although Westpac didn’t agree - was that the problem needed to be addressed.

“This was a legitimate product providing genuine protection,” he says, defending the charges as being for a product that was legitimate (if confusing).

1.15pm: ‘We’re not perfect’

This afternoon’s witnesses are Westpac chief executive Brian Hartzer and his chief financial officer Peter King.

Hartzer, who was a key player in cleaning up the Royal Bank of Scotland failure during the global financial crisis, says there have been significant global changes in the makeup of their balance sheets. Banks must be resilient with strong balance sheets and solid returns so they can absorb losses when sectors of the economy collapse, he says.

However, he says, Westpac is “not perfect” and he apologises for the company’s failings.

Hartzer says Westpac has abandoned financial benchmarks for employees, instead focusing on customer satisfaction.

“We want to remove any perception of a conflict of interest as to how we treat customers,” he says.

12.45pm:

That wraps up this morning’s session. The next bank, Westpac, will be interrogated at 1.15pm.

12.40pm: A CEO’s pay

Thorburn says his maximum pay in any year is $6.9 million.

It comprises $2.3m base pay with an extra $2.3m short-term incentive if he meets a balanced scorecard. There is a further $2.3m long-term incentive if he can maintain the bank’s profitability, dividends and share value over several years.

Liberal MP David Coleman asks whether the requirements to set up a new bank - including $50m capital - are too onerous and should be reviewed.

Thorburn says: “There should be high standards and a high bar for actually setting up a bank because a bank does very important things are there are risks.

“I don’t think the current numbers are inappropriate at all.”

Thorburn also says there are already scores of banks in the market and competition is thriving.

12.30pm:Leader boards

Labor’s Matt Thistlethwaite asks: do bank branches use leader boards to compare staff against each other?

Thorburn says “customer experience boards” are designed to “bring people together” in a “huddle” to discuss not only sales targets - “individual accountability and transparency” - but also customer satisfaction ratings and other metrics. They’re designed to encourage workers, not shame them.

“Where people are not meeting standards ... there would be an intervention,” he says, acknowledging “coaching and counselling” is unsuccessful it can lead to dismissal.

12.20pm:Shorten hits out at bank CEOs

Bill Shorten has accused bank CEOs of talking off a script “written” by Malcolm Turnbull, insisting this week’s hearings have shown the need for a banking royal commission, writes Rosie Lewis.

Shorten claims the PM and the big gour banks “want at the end of this week to go back to business as usual”.

“The third of the big four banking CEOs has engaged now in a sort of ritual ‘I’m very sorry for all the problems that my bank has caused the customers’ ... You see government members of Mr Turnbull’s whitewash committee asking spoon-fed questions to the banking CEOs and it almost seems like the bank CEOs have written off a script written by Mr Turnbull,” he says.

“They turn up, they say we’re very sorry to all the customers and by the way at the end of this inquiry I suspect they also want to say ‘we want to get back to business as usual, you have taken up enough of our valuable time’.

“If all of the bank CEOs are saying sorry for all the things they have done, doesn’t that just prove what Labor has been saying, that there is a genuine problem in our banking sector? If all of these bank CEOs keep saying ‘we’re sorry, we stuffed up, we got it wrong, we have caused problems for thousands of our customers’, haven’t they just made the final argument in favour of a banking royal commission?”

12.12pm:A question of market power

Liberal MP Craig Kelly asks: Do you now have, or have you ever had, a substantial amount of market power?

Thorburn declines to adopt that phrase, but says NAB has about 20 per cent market share in home loans and business banking, and his biggest competitor is twice his size.

Thorburn takes on notice questions about the bank’s view on the proposed effects test in competition law.

Kelly remarks that the bank’s margin in the small business market has doubled in recent years.

Thorburn and Cahill say secured loans to small businesspeople are only marginally higher than to owner-occupiers - about 5.59 per cent - but the high risk of default associated with unsecured small business loans justified rates of about 15 per cent.

12.06pm:‘More competition than ever’

Nationals MP Kevin Hogan has questioned the major banks for squeezing smaller players out of the market.

Thorburn says the banks are facing tougher competition than ever, citing the NAB’s falling margin.

“Our overall margin has gone from 3.9 per cent and has halved today over the last 20 year years,” he says.

Hogan is asking about farm management bonds and delays in account transfers.

Neither of the witnesses is across the detail and volunteer to take questions on notice.

Hogan asks Thorburn: why do you think you’re here?

“Over time people in the community have become concerned about a number of the things that you’ve raised today and I understand that,” he says.

“I welcome being here today. I’m a proud banker and this is the first time I’ve had three hours to actually talk about my profession.

11.59am:Banks and the retirement fund

Bandt questions the “inherent conflict” between banks managing both deposits and wealth creation. Why shouldn’t the government break up the banks?

Thorburn answers that the volatility of international markets and ageing population and tight government budgets mean people have to save more for their retirement, and banks are well placed to help that.

“Our planners have a best-interest duty of care to our clients. That is their first duty,” he says.

Asked if that duty should be reflected in rigorous legislation, Thorburn says the most powerful codes are those the planners accept voluntarily, such as the bankers’ oath.

He says banks are in the business of supporting customers and they generally do that well. Trust and confidence are key to business success, he says.

11.52am:Political donations

Greens MP Adam Bandt wants to know why the NAB stopped making political donations.

Thorburn says the board decided to reverse the bank’s long-held policy of supporting the democratic process in that way because the bank wanted to be respected as a company.

“In essence, we felt the donations we were making to political parties was being misconstrued, misinterpreted incorrectly,” he says, insisting the bank did not want to be seen as seeking benefits in exchange for money.

He said the bank maintained good relations with all political parties anyway.

Thorburn said the bank communicated its decision to those parties, and they accepted the decision.

11.45am: Credit cards? Yes, they are profitable

Buchholz has baited Cahill, getting him to put on the record that credit cards are indeed profitable. He created the impression earlier that it was a tough business.

“It is a profitable segment, Mr Buchholz, no doubt about that, but it has reduced (in profitability) in recent years and it is certainly under pressure,” he says.

Buchholz says banks should reduce their credit card rates if they want to be liked.

Thorburn says the market is “very competitive”, so a bank could drop rates if it saw an opportunity. “Over the last 20 years, our margins in our banks have halved,” he says.

Buchholz asks: does that mean there is “zero appetite” to cut credit card interest rates?

“If customers only wanted a product based on price, every single customer would apply for a low-rate card,” he says. Two-thirds are choosing to take the premium product over the low-rate product.”

Buchholz flags he’ll be pursuing documents. “We won’t be letting this one go,” he assures the committee.

11.40am:

Cahill says more than one-third of customers now have “low-rate” cards, rather than a premium product.

“It is one of our highest loss rates,” he says, but denies it is among the most profitable aspects of the business.

Are you suggesting your credit card business is not as profitable as it should be?

Cahill answers that credit card profitability is decreasing, but the rates they have at the moment are appropriate.

Cahill adds that customers don’t only buy credit cards on the rates and fees, saying they also enjoy the perks such as insurance and reward points. There is no fee to switch to a low-rate product or personal loan, he says.

11.35am:Credit-card fees

Now on to credit card interest rates. Liberal MP Scott Buchholz asks: Do you have an appetite to reduce rates? If so, how much? If so, when?

Thorburn says credit cards are unsecured and have among the highest rate of loss among their financial products.

Buchholz counters that they’re extremely profitable and the additional costs factored into the rate.

Thorburn says there are other benefits to credit cards, such as the ability to use them around the world. “Very few people are paying the highest rate and if they are it is attached to a premium product,” he says.

11.30am:

Keogh is confused that the banks have supported the introduction of a levy on banks to fund ASIC.

“We support ASIC as a strong regulator... They have a very important role to play,” Thorburn says. “We respect that even though we have some current disputes with them.”

Thorburn’s answer is less than clear. Keogh invites him to take on notice why exactly he supports the industry-funded model, and he does.

11.23am:

Cahill suspects property developers are assessing whether to go slower on building apartments.

There is still very much a view that there is a (housing) shortfall in Sydney, for example... In Melbourne, we’re not seeing any significant overhang,” he says.

11.20am:High-risk postcodes

Thorburn says the bank has 50 high-risk postcodes, including mining towns in Queensland and Western Australia, where it is much more cautious making loans.

Labor’s Matt Keogh is curious to know if the NAB worries about contributing to a housing bubble in Sydney that could burst, doing the bank harm.

“Absolutely we do think through scenarios in high-risk areas,” Thorburn says.

How exposed is the bank to the inner-city apartment boom?

Cahill says he’s most concerned about inner-city postcodes in Sydney and Melbourne, but they make up only 2 per cent of their housing book.

“We’re trying to gain an understanding of how many of these apartments are being funded by Australian institutions ... and how many by offshore banks,” he says, suspecting many are Asian banks.

11.15am:The housing bubble

Thorburn says household indebtedness is rising, but so too is the wealth of households. He doesn’t want people to take on debt they can’t service.

Asked about the “housing bubble”, Thorburn says it seems contained to Sydney and Melbourne but the bank only loans to people it believes could sustain a mortgage with an interest rate well above 7 per cent.

“We want to make sure that we’re disciplined ... to protect our shareholders ... but also individual borrowers,” he says.

11.10am:ATM fees

Matt Keogh is asking about the staged replacement of bank branches with ATMs, given the declining popularity of ATMs may see them phased out.

“That’s just something we will have to keep in balance,” Thorburn answers.

Does the $2 charge reflect the cost of providing ATM services to non-bank customers?

Cahill says he’ll need to discuss that with his team, but believes the $2 charge is fair.

11am: Royal Commission

Banks says a royal commission would only benefit the legal profession, but asks whether a tribunal would be “a good process” to help haul the industry into line.

Thorburn says the bank is already “doing a lot of this right” in terms of repairing its systems, but he would “absolutely” support a well-organised tribunal.

10.50am:Changing a culture

Banks challenges Thorburn over his assertion that it may take five or 10 years to fully reform the bank’s culture. She says there are larger, more complex companies that have achieved cultural change faster, such as the pharmaceutical industry to which she once belonged.

“It will take some time, but I believe we are relentless about that and we are focused on that,” Thorburn says.

She asks if it’s sufficient that clients whose planners were found guilty of forging signatures receive a letter of apology.

Thorburn says they’ve been rolling out millions in compensation and have also sacked several-dozen people.

10.40am: Bold or risk-taking?

Liberal MP Julia Banks is now the interrogator. She wonders why the NAB’s strategy tells their staff to be “bold”, which could be interpreted as “risk-taking” or “stretching the envelope”.

Thorburn says boldness is not to blame for the financial planning scandal, but rather a failure of respect for customers. She wonders if financial planners might misinterpret what boldness means.

She asks: “For a business that is in the context of serious financial scandals and a clearly flawed risk management process ... will you revisit this as a communications strategy?”

“I think we do need a character of boldness but it needs to be in the context of the other values,” Thorburn says, saying traditional banks need to be bold to fend off disruptive new businesses.

He denies the suggestion that any one of his thousands of employees could misinterpret what boldness means.

Banks questions whether Thorburn left the value of “boldness” out of his introductory remarks, but he denies removing it at the behest of his advisers.

Thorburn says every single NAB employee goes through a risk and compliance training program.

10.30am:In the customers’ best interest?

Thorburn says the bank has a “comprehensive and constantly improved remuneration and pay system” that is designed to ensure customers are kept happy. It’s a balanced scorecard.”

Thistlethwaite says it’s only natural that if, for instance, a customer needs to satisfy their score for selling credit cards, they may be more inclined to recommend a credit card than a personal loan.

“You call it hunger. The Australian people might call it pushing products on people that aren’t in their best interest,” the Labor MP says.

Thorburn says: “Well that’s not what we want... It depends on how it’s done.”

Cahill says tellers no longer have performance base pay increases, but they can “receive a small incentive” - in most cases less than $800 a year - for meeting certain benchmarks.

Matt Thistlethwaite on much more interesting ground now -- that NAB tellers are given targets to push home loans, credit cards, insurance.

— David Crowe (@CroweDM) October 5, 2016

"How is that in the customer's best interest?" Matt Thistlethwaite asks.

— David Crowe (@CroweDM) October 5, 2016

10.25am:Customers’ credit reference data

How does the NAB use information from credit reference agency Veda, which provides information about their clients’ dealings with other institutions?

Thorburn says its appropriate that, if there’s any data that could help the bank satisfy their customers’ needs, they should be reaching out to them. That said, if someone’s not interested in dealing further with the NAB, they would respect that.

“We have no interest in giving our clients products they do not need. That is our commitment as professionals,” he says, touting the “duty of honour as bankers”.

Thistlethwaite is unimpressed, suggesting it’s not about customers’ welfare but the opportunity to sell more products to people who are at risk of leaving the bank.

“Call me cynical, but I think that’s a lot of spin,” he says, suggesting the public wouldn’t be comfortable with the data being used in that way.

“If a customers has decided they’re going to pursue a product with another bank, why would you target them? ... Why don’t you just leave them alone?”

Thorburn says the bank’s business relies on “serving the client first” and maintaining trust. “If they don’t want that, we would cease immediately,” he says.

10.20am:Labor laws quizzed

Thistlethwaite is curious about the bank’s opinion on Labor’s Future of Financial Advice laws, which the Coalition sought to water down.

“It’s important that the bones and the principles of changes that have been made ... are closely maintained,” he says.

“It is good to see parliament focusing on it... I think FOFA has helped.”

Odd line of questioning. Labor asking about information NAB uses to target customers who may go to other banks. Isn't that competition?

— David Crowe (@CroweDM) October 5, 2016

If a customer has decided to take up a product from another bank, why does NAB call them? "Why do you have to target them?" Actual question.

— David Crowe (@CroweDM) October 5, 2016

10.15am:Reporting to ASIC

Thorburn says the bank previously reported “what we thought we needed to report” to ASIC in terms of shonky financial planners, but they now refer everyone who leaves under a cloud of misconduct to the financial regulator.

“My commitment here and the whole customer response initiative of us finding the 43, compensating over five years ... $15 million - we were doing that actively and willingly,” he says.

10.10am:Customer care

Thistlethwaite wants to know why the bank hasn’t alerted customers whose planners have been found guilty of the most egregious wrongdoing.

“I have no interest as a proud banker ... to cut any corners, sir,” Thorburn says.

Of the five most egregious cases, all of the planner’s customers were alerted in two. Specific customers were written to for two others, while the fifth planner’s customers were not alerted at all, since there was no loss of funds.

Even if there wasn’t a financial loss for some of these clients, wouldn’t it be prudent to let them know in the interest of fostering trust?

“We take this absolutely seriously. I think we have significantly improved our governance and controls and consequences for people,” Thorburn says.

10.05am: ‘No apology?’

Labor’s Matt Thistlethwaite notes Thorburn didn’t come to the hearing with a pre-prepared apology, as the ANZ and CBA bosses have.

Thistlethwaite: “I haven’t heard an apology from you today. Do you see no need to apologise?”

Thorburn: “No. Not at all... I have apologised and do so again.”

10am:Sharing data

Coleman wants to know what incentives it can offer to senior executives to introduce better sharing of information.

Cahill says the NAB agrees in principle with sharing customers’ data to increase competition, provided the right security protocols are in place.

“Trust is the key thing that we have with customers,” he says.

Coleman says the UK regulators seem to think it’s capable. He asks several times, why not provide incentives?

Thorburn says he will take on notice to provide advice on what the bank thinks it should do.

NAB chief executive Andrew Thorburn.

9.55am: Tracker mortgages

Coleman is now asking about tracker-rate mortgages, which are pegged to movements in the the RBA cash rate or some other independent benchmark. These are available to bank customers in Britain but not in Australia. Would you oppose a requirement to offer such loans in Australia?

Thorburn says if too many people applied for tracker rate mortgages, it would pose a “significant risk” for the bank since much of the banks’ funding is not affected by the RBA cash rate.

Cahill says there would need to be a sufficient premium on such a loan that would make the interest charges “significantly higher” than a standard variable rate.

Coleman asks: why these are available in other markets, but not Australia?

Cahill says the product “could be offered in the Australian market place” but he doesn’t believe, on a commercial basis, that there’d be much demand for it.

9.50am:No executives sacked

This wealth management division had to compensate 62,000 customers. Has anyone been held responsible?

“We still believe we have had these isolated cases, we have owned up to them and we are addressing them,” Thorburn answers.

But beyond withholding some bonuses, you haven’t held executives to a tougher standard? No, Thorburn says, but he’ll take that on notice.

9.45am:NAB says failure not systemic

“We have to put in place better systems ... better training, better leadership, but unfortunately, as long as banking’s been in existence ... there are going to be people who don’t play by the rules,” Thorburn says.

Thorburn said NAB executives were “disappointed” in the individual instances of wrongdoing but “because we concluded this was not systemic ... there didn’t need to be more severe penalties”.

9.40am:‘Not a black swan event’

Coleman’s not satisfied. He wants to know how it happened in the first place. They were all on a frolic as rogues on their own, were they?

“It was not a systemic issue,” Thorburn says. “Any customer who get’s the wrong advice, that’s one too many for me.”

Coleman says sacking one-in-40 financial planners is “not a black swan event”. How many senior executives were sacked?

“I don’t think there were any... There was no systemic issue,” Thorburn says.

“We have done a thorough comprehensive review. We have involved at least two third parties ... this has gone to our board ... and we have concluded and still believe this is not systemic.”

NAB admits 43 financial planners left the bank, customers lost money, but "no systemic issue". No managers lost jobs over this.

— David Crowe (@CroweDM) October 5, 2016

9.35am:Allegations of misconduct

Coleman asks about the “extremely serious” allegations of misconduct by his employees with 41 sackings.

Thorburn says it’s a “very relevant and fair” line of questioning and he needs to get it right because his business is built on trust.

He says financial planning is important because customers need “sound and reliable” opinions about how to manage their finances.

“We’ve acknowledged it and said it’s not good enough,” he says.

He says they’ve written to customers who may have received poor advice, brought in independent advisers and whistleblower protections and unshackled people from confidentiality agreements. “We’ve learned and we’ve really improved.”

9.30am:Deposit rates jacked up

Thorburn says the bank is funded by customer deposits, wholesale funding and shareholder equity. New global regulations designed to shore up the banks means they need greater levels of deposits, and have jacked up term deposit rates to attract that funding.

He says the industry itself must “lead with its own real and lasting reform”.

Thorburn acknowledges concern that bank employees work on incentive systems that could see them steered towards products they don’t need.

“Customers need to be confident that every time they deal with their bank, they are receiving products and services that best suit their needs,” he says.

“We have 12 per cent of our staff on incentive schemes involving product targets, and any payments are subject to various safeguards to protect the integrity of the system.

“I acknowledge more needs to be done on the critical area of product sales commissions and product-based payments.”

Committee chair David Coleman is winding him up, but Thorburn insists on reading the final page of his prepared remarks. It’s mostly platitudes.

Now to business ...

9.25am:Rates relationship

Thorburn concedes the bank has “not been clear enough” about the relationship between its interest rates and the official cash rate.

“Many of you would recall that, from the 1990s until the GFC, movements in mortgage lending rates did correlate to movements in the cash rate. But, we now operate in a low rate environment and other factors are having far greater influence,” he says.

“Funding costs have fallen overall — but they have not fallen by as much as our lending rates. This has meant a reduction in bank margins ... Put simply, banks are now earning less than they used to for every dollar they lend.”

9.20am:‘Privilege to appear’

Thorburn says it’s a “privilege” to appear before the hearing, describing himself as a “proud banker”

“For bankers, trust is the currency that matters most,” he says, noting he’s served his entire professional life in the industry. At its core, it has the purpose to help people, to help businesses, and to help the economy prosper. However, there have been some issues in our industry, and at NAB, which we cannot be proud of.”

9.10am: Fails on key tests

What does Economics Editor David Uren make if at all so far?

“Regulation that makes banking more secure is seen as an end in itself, with very little appraisal of its costs. Innovation and entrepreneurialism are the key to productivity growth but they are inevitably stunted by a financial system in which the sole focus of regulation is risk minimisation.” Full opinion piece HERE.

DAY ONE AND TWO

ANZ boss Shayne Elliot pledged to look at cutting credit card rates and said the bank’s board was considering whether to stop donating millions to political parties when he fronted the inquiry on Wednesday.

Like CBA boss Ian Narev the day before, he was full of apologies for past wrongdoings by his bank, admitting the industry had lost touch and had many unhappy customers.

Opposition financial services spokeswoman Katy Gallagher accused both men of trying to “defend the indefensible”.

She insisted bank bosses would leave the hearings feeling “pretty calm” given the government-dominated committee was only able to question each one for three hours.

MPs were only able to ask a couple of questions about major scandals which wasn’t enough time to apply proper scrutiny, she told ABC radio, repeating Labor’s call for a royal commission. — AAP