Thanks very much for joining us for our live coverage.
Hearings continue with the ANZ appearing before the committee on Wednesday and then NAB and Westpac on Thursday.
CBA fronts banking inquiry amid fresh concerns over CommInsure scandal - as it happened
The first day of hearing’s into the big four banks by the House of Representatives Economics Committee has concluded, and Commonwealth Bank of Australia executives will probably sleep easy after holding up under questioning.
Here’s what we learned:
- Nobody has been fired for rejecting insurance claims from terminally ill people or refusal to pay out on life insurance at CBA’s insurance arm, CommInsure
- The Commonwealth Bank refused to say how much it profits from home loans or credit cards, citing commercial sensitivity
- CBA chief executive, Ian Narev, acknowledged the bank may face more payouts and allegations of “poor customer outcomes”
- Narev expressed openness to but gave no commitments on two ideas to improve the banking sector, including a victims’ compensation tribunal proposed by Coalition MPs and restructure of incentives to prevent conflicts of interest
- Labor and the Greens are not satisfied with the committee process and will continue to push for a bank royal commission
In a statement after the hearing Greens MP Adam Bandt has taken aim at the CBA for refusing to reveal the profits it makes on home mortgages, which its executives said was commercially sensitive information.
“The bank also failed to rule out asking for government assistance if faced with another global financial crisis,” he said.
After one day, it is clear a royal commission is the only way we will get the banks to come clean on how much profit they make off the back of home owners and public subsidies.
The government’s ‘too big to fail’ policy means the big banks get to obtain funds more cheaply than their smaller competitors, but that benefit just goes straight to their bottom line rather than back to the public.
Labor says committee not good enough and it will keep up push for royal commission
Labor’s financial services spokeswoman, Katy Gallagher, told the press conference today’s hearing shows the committee doesn’t have “the power, the scope or the time” to get to the bottom of problems in the banking industry.
Gallagher confirmed Labor will continue to push for a royal commission.
Both she and deputy committee chairman, Matt Thistlethwaite, expressed outrage that no CommInsure advisers had lost their jobs over scandals at the bank’s insurance arm.
Asked whether anything good had come of the hearings, Gallagher said CBA’s apparent openness to a bank tribunal was “another stitch-up” and such a body would only be designed to give the prime minister an excuse not to hold a royal commission.
Thistlethwaite said CBA executives had “cunningly avoided” questions about victims. When asked to nominate such an evasion, he said the CBA had not explained how incentives such as pay structures forced employees to push products that weren’t in their customers’ best interests.
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Formal proceedings have closed at the House of Representatives Economics Committee examining Australia’s big four banks. But don’t go anywhere.
Labor’s financial services spokeswoman, Katy Gallagher, and the deputy chairman of the committee, Matt Thistlethwaite, will hold a press conference which I’ll dash off to then give you a summary of what we learned.
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Brian Loughnane is consulting for the Commonwealth Bank
Ian Narev has confirmed that the former federal director of the Liberal party, Brian Loughnane, is consulting for the Commonwealth Bank.
Brian Loughnane is not employed by the CBA. It is a matter of common record that he and a number of other people have helped us generally in thinking through how we respond to a number of issues.
Asked whether that included helping the bank avoid a royal commission, Narev said the advice related to “putting the best foot forward for customers and the families that own us”.
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Matt Thistlethwaite is asking why the Commonwealth Bank lobbied against tighter financial advice regulation during the Abbott government era on the basis regulation was “unnecessary complexity”.
Ian Narev says its concerns were about “unintended consequences” that would “in the end not mean that customers were better off”.
Thistlethwaite focuses on removing the requirement that financial advisers act in the “best interests” of clients, and Narev points to uncertainty of what “best interests” is adding to the cost of financial advice.
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Labor’s Matt Thistlethwaite is in for a second round of questions, asking how much compensation was provided to customers of three financial planners struck off by the Australian Securities and Investment Commission.
Chief risk officer, David Cohen, said there was no compensation for customers of one, $1m for those of another, and $247,000 for those of the third.
Of 6,000 financial advice customers whose cases have been reviewed, 800 got compensation.
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CBA "completely open" to restructure of pay to prevent conflicts: Narev
Ian Narev has addressed the perception that bank staff have a conflict of interest because they are paid commission to sell financial products.
Narev said conflicts of interest are part of the review with the Australian Banking Association.
We’re looking at that very closely, not only actual conflicts but also potential conflicts of interest. Our minds are completely open to changes that may need to come from that.
Adam Bandt has had a stoush with Ian Narev about whether CBA wants house prices to stay high so the amount and value of home loans stays high.
Narev replied:
The conditions that are right for Australia in the long term are the conditions that are right for the Commonwealth Bank. We’re not interested in short term distortions.
Bandt notes that 80% of Narev’s pay is contingent, largely on increasing returns to shareholders. He questions whether this leads to a bank structure tailored to writing more housing loans.
Narev replied:
One of the key determinants of everybody’s remuneration is doing the right thing by customers.
He accepts that there is “some component relation to performance” but insists the customers come first.
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Bandt has asked whether the banks have passed the cost of the government guarantee scheme onto customers through higher interest rates.
He replied:
There will be a cost to regulation, some of it will be passed on to customers.
But Narev insists some of the cost is also passed on to shareholders, pointing to the fact CBA’s return on equity has dropped from 22.1% in 2007 to 16.5% in 2016.
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Greens MP Adam Bandt is doing his questioning by telephone – he is in Melbourne because his wife is about to give birth.
Bandt wants to know whether CBA gets cheaper credit than smaller banks because it is judged to be “too big to fail” and the government will step in and save it if it gets in trouble.
Ian Narev replied:
It’s difficult to judge any assessments global funders are making in relation to future government decisions.
Bandt suggests the International Monetary Fund has put the CBA and big banks’ advantage at 0.2% and Narev doesn’t quibble with the figure.
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Liberal MP, Scott Buchholz, is asking about why credit card interest rates are so high.
Ian Narev says credit cards are “high-risk unsecured debt”.
The risks are higher and that flows through into pricing ... This is in some degree the riskiest debt we have.
Asked whether credit card rates strike the right balance in fairness to customers, Narev said:
There are some products that could be a bit more cheap, there are some products that could be a bit more expensive.
He added that customers are advised when a loan might be more appropriate than a credit card debt.
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Chief risk officer, David Cohen, has told the committee compensation has been paid to the customers of three CBA financial advisers delisted by the Australian Securities and Investment Commission.
He said customers affected by poor advice are told when advisers are moved off their case before the advisers are actually struck off.
If you want a sense of how common it is for financial planners to lose their registration, here’s a timeline of banking scandals Guardian Australia published in April.
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Matt Keogh has asked about the $2.8m of Ian Narev’s pay based on performance. Commonwealth Bank and other companies are under fire for paying executives extra for things that should be core business, such as customer satisfaction.
Narev explains his pay is set by the board and shareholders.
It’s performance-based remuneration – nowhere should it be described as a bonus.
Narev rattles off consumer surveys that show Commonwealth customers are happy with the bank. He said he took a hit on pay because the bank’s response to financial advice controversies was “not good enough”.
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Ian Narev explains why he didn't make banking ethics oath
Labor MP Matt Keogh starts his questioning by disclosing that he still has his Dollarmite account.
He then asks why Ian Narev has not taken the Ethics Centre banking and finance oath despite the chief executives of the other three big banks signing on. The guts of the oath are:
- I will serve all interests in good faith.
- I will compete with honour.
- I will pursue my ends with ethical restraint.
- I will help create a sustainable future.
- I will help create a more just society.
- I will speak out against wrongdoing and support others who do the same.
- I will accept responsibility for my actions.
Narev replied:
I agree completely with the content.
The sole reason I haven’t [sworn the oath] to date is ... my view is that the day I took the job I signed up for that, I made that commitment to all our stakeholders.
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And we’re back.
Liberal MP, Julia Banks, is asking about CBA’s risk assessment, and whether it has an alert system where two or more consumer complaints or a report of wrongdoing by a whistleblower will trigger an alert for the chief executive and other senior executives.
Ian Narev says there is no system where two complaints trigger an alert, and says given the size of the bank it would be “unworkable”.
Narev explains the process it does have:
I’ve lost count of the number of times I’ve emphasised escalation.
[In senior executive meetings] We have a specific agenda item for complaints, where we specifically consider patterns in complaints.
The newly created customer advocate inside the bank will provide a further alert, Narev said. He adds he can’t guarantee it would have sped up the time to alert executives of problems such as the definition of heart attacks being used to deny payouts.
Chief risk officer, David Cohen, adds that there is a whistleblower hotline.
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Labor’s Pat Conroy is trying to discover just how big the Commonwealth Bank’s returns on home loans and credit cards are.
Chief executive Ian Narev replied:
We don’t disclose the returns on equity by individual products. In highly competitive markets, you don’t want these individual aspects of product profitability disclosed to your competitors.
Narev said home loans are just over half the bank’s balance sheet and gives general figures for the performance of the bank: in 2007 the bank’s return on equity was 22.1% and in 2016 it’s 16.5%.
Chairman David Coleman reads the rules on refusing to answer a question and notes the committee can determine it still requires an answer which can be provided in private.
Narev said he has the “highest respect” for the committee’s ability to ask for information.
We will engage in the way we should engage with the committee, with requests that come through the chair.
Conroy labels the committee “a farce” when he’s cut off for lack of time, and the hearing goes to a 10 minute break.
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No employment terminations over denying life insurance claims: Narev
Labor’s Pat Conroy has asked about whether there have been any disciplinary consequences for CommInsure claims officers for rejecting insurance claims from terminally ill people or refusal to pay out on life insurance.
Ian Narev replied there have been disciplinary outcomes, but no terminations of employment.
There are certainly individuals where we know enough about them that they’ve had some consequences related to remuneration but at this stage we have not had individuals terminated because of this because we’ve not seen the need to do that.
Narev said the bank had to “finish the work and make sure the consequences are dealt with as part of that”. After reviews are completed, independent committees within the bank will decide on disciplinary action.
We’re committed to an environment where if people are accountable, they will be held accountable.
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Labor MP, Pat Conroy, has asked about an ABC report that CommInsure ignored the findings of police and the coroner to refuse a payout for a woman who died of an accidental prescription drug overdose because it decided she had taken her own life.
Ian Narev said it hadn’t been established that the claims officer had wilfully ignored the coroner’s finding.
They made a conclusion that was mistaken.
It was not a customer-friendly process.
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Liberal MP Craig Kelly and chief risk officer, David Cohen, have been going back and forth over the interest rates businesses pay on loans.
Cohen explains the bank has repriced risk so it’s not as simple as saying that defaults have gone down since the global financial crisis so rates should have dropped more.
During the GFC the banks got it wrong, we weren’t pricing for risk appropriately.
The reason [the margin on loans] is higher is the risk we have learned to price for. Around 40% of new businesses fail in the first couple of years. That risk was not priced appropriately previously.
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Labor wants more time to question CBA chief Ian Narev
Labor’s Matt Thistlethwaite has concluded questioning but rattles off several topics he didn’t get round to, including the review of Commonwealth Bank financial advice and Future of Financial Advice reforms.
Are you willing to come back? I simply don’t have enough time: I have two days worth of questions to ask on behalf of the Australian people.
Ian Narev, replies that he has appeared as requested and he is happy to leave the issue of whether a further hearing is required to the chairman, Liberal David Coleman.
Liberal MP Craig Kelly is now asking about defaults on debt and has established there have been fewer since 2010. It’s a set up for a question about why business lending interest rates haven’t dropped more if default rates are low.
Narev said the bank needs to take a “through the cycle view” to consider that default rates might rise again in future.
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Matt Thistlethwaite has asked about performance targets and league tables of the financial performance of CBA branches.
Ian Narev replies that financial results are “an input” into assessing branch performance, but they are more dependent on the overall performance of the economy.
Asked if individuals would be performance managed as a result of financial results, Narev replied:
There’s no direct link between a branch performing above level X or below level Y and any consequence at the branch or individual level.”
Labor’s Matt Thistlethwaite has asked about the Commonwealth Bank’s insurance division and why it took CommInsure’s former chief medical officer, Dr Benjamin Koh, blowing the whistle to discover allegations that doctors were asked to change their assessments to deny claims.
Narev said the bank has a “very, very different view from the former chief medical officer about the substantive issues of assessment of claims”.
Chief risk officer, David Cohen, said Koh’s claims were being investigated by the chief risk officer and chief legal officer when Koh went to Four Corners with the claims.
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As Ian Narev faces questions about his bank’s financial planning scandal, the Reserve Bank has kept the official cash rate unchanged at 1.5%.
The new RBA governor, Phil Lowe, says inflation remains “quite low” and he expects it to remain low for some time.
He’s listed the reasons:
- Very subdued growth in labour costs (ie wages)
- Very low cost pressures elsewhere in the world (ie low global inflation)
- Some lenders are taking a more cautious attitude to lending
- Growth in lending has slowed over the past year
- Turnover in the housing market has declined
- The rate of increase in house prices is lower than it was a year ago, although some markets have strengthened recently
- A considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities
- Growth in rents is the slowest “for some decades”.
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Narev gives an update on the financial advice review program, which has looked at 10 years of complaints. He said the review found 800 cases of poor advice out of hundreds of thousands who had received advice in that time.
The figure is just 10% of the people who applied to have their advice reviewed, Narev said, correcting Labor’s Matt Thistlethwaite who construed the figure as 10% of all consumers receiving poor advice.
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The chairman of the committee has raised the concept of a one-stop banking tribunal to allow consumers to pursue redress in an environment more simple than a court as Liberal MP Warren Entsch has called for.
Ian Narev said the Commonwealth Bank is “very open” to discussions about the tribunal.
We’re for any work that can be done that allows customers to be heard.
Narev said he wanted such a body to be cost-efficient and the architecture to be very clear. He accepted that the “industry would have a role in funding it” and said introduction of a new tribunal would need to clarify what happens to existing avenues for redress.
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The third topic is interest rates. Chairman David Coleman has asked why Commonwealth Bank doesn’t offer interest rates that track the increases and decreases of changes in the official cash rate.
Ian Narev replies:
The Reserve Bank cash rate is an important benchmark but a large number of funding costs exist irrespective of that benchmark. If we were to provide such a product, we would need to take into account all potential factors on the costs of funds.
He gives as an example new regulations in the US which come into effect next week and which he says will “materially change” the amount and price of short term borrowing.
Coleman foreshadows the committee may recommend banks be forced to provide interest rates that track the official rate, which would prevent banks refusing to pass on rate cuts.
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The second question from chairman, David Coleman, is about financial advice.
Ian Narev concedes: “We did not act with the requisite speed … on financial advice matters.”
The Commonwealth Bank chief executive said the bank had already paid out $52m in the first round of remediation for poor financial advice, and has made a further $11m of payouts.
The first question is about CommInsure. Narev said that after criticism of the definition of heart attacks being used to deny customers payouts, 17 customers received a payout using a fairer definition applied retrospectively.
Narev predicts more cases of poor customer outcomes and compensation
The only two witnesses at the committee table are Commonwealth Bank chief executive, Ian Narev, and chief risk officer, David Cohen.
Narev has delivered an opening statement that the bank comes to the hearings in the “spirit of openness”.
The chief executive said banking regulation is about balancing “strength and fairness”. “You cannot have a prosperous economy unless banks are strong,” he warned.
Narev said banks have to balance the demands of borrowers and businesses who want cheap credit, depositors who want higher returns, and returns for shareholders.
He foreshadows that the two main concerns of the committee will be bank profitability and “the unequal power between banks and their customers”.
I have personally met with customers we have let down ... I have said before how sorry we are for the pain we’ve caused them, and I say so again today.
Narev paints problems as arising from a combination of human error and defective processes and promises to make changes to the root causes of problems.
As we do this work I expect there will be cases of more poor customer outcomes. And there will undoubtedly be more announcements of compensation due to customers, which will include some significant monetary amounts ...
Critics will paint these as signs of ongoing problems, actually they’re signs of how serious we are about fairness.
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The committee hearing has just kicked off, for those who’d like to watch along a live stream is available. Chairman David Coleman has just rattled off the committee’s terms of references and is going through house rules now.
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The director of policy and campaigns at the Consumer Action Law Centre, Denise Boyd, has told ABC24 the committee hearings are unlikely to make calls for a royal commission go away but “if the CEOs of the big banks … are being asked some searching questions about their policies and practices, within their businesses, that’s got to be a good thing for all Australians”.
Boyd said she wants the committee to examine credit cards because half of the Consumer Action Law Centre’s clients face credit card debts of more than $10,000
There are really high interest rates that apply for those when interest rates in Australia are at record lows so we’d like to know how the banks justify charging those high rates.
There is a duty of care. Everybody has got their own personal responsibility but for a bunch of reasons, people do fall into difficult circumstances and by the time they have racked up … more than $10,000 worth of debt, that is a long way back.
Before the action kicks off at 2pm AEDT, you’ll want to know who is on the house committee on economics. It consists of six government MPs, three from Labor and Greens MP Adam Bandt. Its chair is the Liberal Party’s David Coleman, the deputy chair is Labor’s Matt Thistlethwaite.
One government MP on the committee, Craig Kelly, is an outspoken critic of excessive credit card late fees which he has labelled a “plain rip-off”. Kelly has also expressed support for a proposal from MP Warren Entsch calling for bank victims to be compensated by a special tribunal rather than set up a royal commission that can’t grant compensation.
The other MPs on the committee are: Liberals Julia Banks, Scott Buchholz and Trevor Evans; The Nationals’ Kevin Hogan; and Labor’s Pat Conroy and Matt Keogh.
I’ll bring you a list of Commonwealth Bank witnesses when we have it.
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Hello and welcome to our live blog on the first day of parliamentary committee hearings into the big four banks. Tuesday’s hearing will focus on the Commonwealth Bank, followed by ANZ on Wednesday and then NAB and Westpac on Thursday.
In August, Malcolm Turnbull announced the new review mechanism in response to Labor pressure for a royal commission into banks. The House of Representatives Standing Committee on Economics will hear from the big four at least once a year.
Its terms of reference include questioning the banks on their decisions about whether to pass on interest rate cuts, as well as how they plan to enhance consumer protections. That will be where Labor wants the main action, as it’s a juicy opportunity to raise allegations of rate rigging and claims insurers systematically delayed payouts to sick and dying customers.
Opposition frontbencher Matt Thistlethwaite, deputy chair of the committee, has indicated he will ask about industry scandals, credit card interest rates and commissions that encourage staff to push customers into products that may not be right for them.
After calling for a bank royal commission in April, Labor has indicated it will continue to push for a fuller inquiry. The government points to the new accountability mechanism and powers for the Australian Securities and Investment Commission as sufficient to regulate the banks.
Let’s see whether Commonwealth Bank chief executive, Ian Narev, and other executives can convince the committee the industry is well-regulated or whether the hearings add to calls for a royal commission.
Comments for the live blog are open – so please contribute your take on proceedings below. You can contact me on Twitter @Paul_Karp.
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