The revelations from the banking royal commission have been “very sad and troubling”, if not completely surprising, the Treasury secretary has said.
John Fraser said the royal commission could lead to Australia’s banks tightening their lending standards but that would not necessarily be a bad thing.
“My own casual observation is … that’s already happening,” he said.
Treasury joins a growing list of economic authorities – including the Reserve Bank – warning that economic growth may suffer slightly if the banks respond to the royal commission by tightening credit.
But Fraser said the banks could make a profit without indulging in any unethical behaviour. “I have never seen any conflict between proper behaviour in terms of compliance and risk, and long-term profitability of the banks,” he said.
Fraser told Senate estimates in Canberra on Tuesday he had watched Monday’s hearings of the royal commission and took “no joy in it whatsoever”.
“I think it’s very sad what’s been coming out in the royal commission,” he said. “Not all of it is surprising but by any measure it’s very sad and troubling …
“I think the best thing is we will have a proper review by the institutions themselves on their lending standards, because … it’s very sad for our country and it’s very sad for the industry.”
During Monday’s royal commission hearings the financial ombudsman service admitted it had badly handled a complaint from a 62-year-old widow who was being chased by Suncorp over five business loans totalling $1m.
Philip Field, lead ombudsman for banking and finance at the service, said he regretted how he had handled the case.
On Tuesday the commission heard more business customer complaints about bank behaviour. Michael Doherty said his hotel group had undertaken a $60m project around Hobart’s historic Hadley’s Hotel, which included building a new hotel on an adjoining site. But by the time the new hotel was ready to open, his bank – Bankwest – was moving to appoint receivers to the project, he said.
“We were told … Bankwest no longer had an appetite for this sort of development, especially in Tasmania,” he said.
Doherty said the bank had later maintained the hotel group would still have to pay a $980,000 “break fee” to leave. “We said, ‘You are forcing us out and we have got to pay $980,000 as a break fee and that is just making the refinancing impossible.’”
The group, which was also being chased over a tax debt, was unable to find other finance. Bankwest appointed receivers in February 2012. Hadley’s, the hotel, and other properties that were used to secure the Bankwest facility were later sold.
Doherty said he and the other guarantors had ended up bankrupt and lost their homes. The inquiry heard that Bankwest suffered a significant loss in the order of $38m.
