This week, Australia's four major banks were forced to explain why they are raking in billions of dollars in profit at the expense of consumers to a parliament hearing. They were also grilled about a string of banking scandals in recent years. Here's a summary of what the Commonwealth Bank, ANZ Bank, NAB and Westpac had to say for themselves.
It's safe to say that most Australian consumers don't trust banks. Which is reasonable given the negative image they have cultivated through wheeling in big earnings while treating their customers poorly.
"I acknowledge that many people in Australia don't like banks," ANZ Banking Group chairman David Gonski said at a shareholders meeting in December last year. "I know that we need to continue to work hard to have the respect and trust of our customers and of the wider community."
Common complaints about banks include the fact they take a long time to pass down interest rate savings but jump at the chance to raise them, paying ridiculously generous salaries to CEOs, charging their customers excessive fees and generally shady practices that have come to light after a series of scandals.
Last month, the banks were criticised for only passing on half the 0.25% cut in cash rates by the Reserve Bank and even managed to increase some of the interest rates on deposits. That was the proverbial straw that broke the camel's back and the banks were called up to answer to the House of Representatives Economics Committee this week.
The heads of Commonwealth Bank, Westpac, NAB and ANZ Bank were all called up to face the parliamentary committee. Here's what we found out during the three-day hearing:
Some Key Points
Regarding why banks take so long to pass down interest rate savings to customers: The interest rates banks charge on loans, be it mortgage or personal loans, are influenced by the official interest rates set by the Reserve Bank of Australia (RBA). The RBA has made numerous cuts to the official interest rates, which theoretically should bring down the rates banks charge on loans.
But banks have been slow to cut interest rates yet they're the swift to raise them when the RBA does so. The big four banks were questioned about this during the parliamentary hearing. None of them could provide a legitimate answer as to why this happens. They did mention that it's a matter of looking at the entire cost of funding loans and official interest rates are just part of the equation.
The parliamentary committee wasn't satisfied with their answers and has demanded that the banks provide a better explanation in writing. Stay tuned.
All four banks apologised for their scandals and shortcomings but that didn't reassured the parliamentary committee that they will clean up their act.
Commonwealth Bank CEO Ian Narev
- The bank has been plagued by scandal in recent times. Earlier this year, the Commonwealth Bank's insurance arms CommInsure denied heart attack claims by using loopholes that were buried in the fine print of its policy documents. Narev admitted that nobody from the bank has been fired over the scandal. He said that CommInsure had since changed its definition of heart attacks and retrospectively paid 17 account holders.
- Last year, a whistleblower exposed the bank's dodgy financial planning practices that lead to customers losing hundreds of millions of dollars after planners put their money into high-risk investments without their consent. Earlier this year, two Commonwealth Bank staff were allegedly involved in a $76 million Ponzi scheme which was ignored by the bank's management for almost five years. Narev apologised for the scandals and said the bank has taken these issues seriously and customers are being compensated. He admitted the bank needs to "do better".
- In defence of the Commonwealth Bank's massive profits, Narev said: "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. Our profits are at a level that enable us to keep the confidence of global funders who play a critical role in our ability to consistently extend credit."
ANZ Bank CEO Shayne Elliott
- ANZ has reinstated some of the employees that were investigated after Australian Securities and Investments Commission (ASIC) took the bank to court over alleged market manipulation of the bank bill swap (BBSW) rate.
- Elliot denied there was an endemic "blokey" culture (allegedly fuelled by sex, drugs and alcohol) which treats women differently: "This idea that the entire bank has a blokey culture, frankly, I reject that. If we looked at the vast part of the bank, we’re talking about retail customers, branchland, it’s overwhelmingly run by very, very good women."
- ANZ Bank is reviewing its political donations arrangements. The bank has allegedly donated $1.65 million to the Coalition and Labor parties.
- Elliott admitted that there was an opportunity for ANZ to show leadership and review credit card rates and fee structures.
- Elliot was a bit more forthcoming about why banks would want to delay passing on interest rate savings: "If some of our cost of funds goes down, the longer we delay, clearly that is to the advantage of the bank."
- When pressed about ANZ's shortcomings, Elliot said: "I think that’s the reality of large organisations, that when things go wrong our responsibility is to fix them and make sure they don’t happen again and make sure our customers are treated respectfully. But the reality is that most things don’t go wrong and that most of our customers are satisfied with the bank."
NAB CEO Andrew Thornburn
- 43 financial planners from NAB were sacked for giving shoddy advice and yet no senior executive from the bank have been dismissed.
- Thornburn defended the bank's right to charge higher credit card rates: "If customers only wanted a product based on price, every single customer that came to us today would take our low rate card." He said only one-third of customers took a low rate credit card while the rest preferred the premium options which charged a higher interest rate.
- NAB has stopped making any political donations at a federal, state or local government level from May this year. Bank employees must get approval for all invitations to political events reviewed by NAB’s Government Affairs and Public Policy team.
- NAB offered an apology to customers: "I have apologised to the customers, particularly in the financial advice part of the business. I’ve met with a number of them and when I read and hear their stories I am extremely disappointed."
- When asked about why there was a widening gap between small business loan rates and mortgage rates, Thornburn had this to say: "It would be fair to say in the past we underestimated the loss rate [for small business loans]. 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 gap in rates is around one per cent.
Westpac CEO Brian Hartzer
- He makes $5 million in base pay and incentives. The average annual salary for Westpac bank tellers is $50,000.
- Hartzer admitted that "Westpac isn't perfect". He said: "In recent years we’ve had operational errors and we apologise for those. We’ve made some difficult decisions on pricing, and at times haven’t done a good job at communicating why we’ve made those decisions. We are working hard to improve."
- Hartzer conceded that the complaints process for bank customers is currently too complicated but is opposed to the idea of setting up a banking tribunal, claiming that it would just add another layer of bureaucracy.
- Westpac’s policy of allowing donations remains unchanged.
The Committee will now compile a report based on the responses received during the parliamentary hearing.