Parliamentary inquiry: Westpac and ANZ

  • By Elizabeth Fry
Brian Hartzer and Shane Elliot

Home loan repricing, responsible lending and anti-money laundering laws were just three of the topics covered by Westpac and ANZ chief executives when they appeared before a parliamentary committee as part of Canberra’s review of the major banks.

Parliamentary committee chairman David Coleman questioned Brian Hartzer on Westpac's decision to introduce higher price for interest-only loans for existing customers, rather than just limiting interest-only loans to 30 per cent of new mortgages.

The Westpac chief explained that in a bid to meet the new APRA requirement, Westpac lifted the price of existing interest-only home loans while offering lower rate for principal-and-interest home loans.

Seemingly unsatisfied with that answer, Coleman criticised Westpac for using compliance with the new APRA rule as a "profit center" saying that Credit Suisse and Morgan Stanley were both calling the stock a ‘Buy’ precisely because Westpac had the most interest-only mortgages.

Sending a message

Hartzer took umbrage at that suggestion and argued that Westpac's differentiated pricing for interest-only and principal-and-interest mortgages were introduced to existing customers in order to send the message to customers: "Switch to a principal and interest loan. It's cheaper".

The Westpac chief argued that the pricing mechanism was a better way to achieve APRA's requirement, while "preserving choice for people who want to get interest-only loan".

Coleman also asked ANZ’s Shayne Elliott the same thing.

The committee chair asked why when the banking regulator brought in the new rule, ANZ hiked rates for existing interest-only loans when the speed limit only applied to new loans.

Elliott said ANZ increased rates for interest-only home loans well before APRA put in the 30 per cent speed limit because ANZ believed the risk profile of interest-only home loans was changing.

"We wanted to give them the right signals to them to move [to principal and interest home loans," he said.

At the same time, ANZ decreased rates for principal and interest home loans to encourage customers to switch away from interest only home loans, he said.

Responsible lending

Westpac chief financial officer Peter King, then moved to defend Westpac against the corporate watchdog’s claim that the bank breached responsible lending laws because it used a statistical benchmark to assess borrowers’ living expenses instead of actual expenses when assessing their ability to repay the loan.

King said since 2015 Westpac has been using both benchmark and actual expenses because many applicants cannot accurately assess their living expenses.

Incidentally, this view has been backed up by UBS analyst Jon Mott who recently reported that up to one-third of Aussie mortgages could be ‘liar loans’ based on inaccurate information

"What we find is a lot of people underestimate their expenses and that’s why benchmarks have a role,’ King told the committee.

the finance director told committee members the benchmarks are different between the states and city and regional areas.

Elliott weighed in and criticised the UBS survey - which also revealed that ANZ had the highest percentage of ‘liar loans’ -  for its small sample size.

He also told the committee ANZ does not just rely on what customers fill out in forms. "Sometimes customers forget to tell us all the details," he said.

Money laundering

Parliamentary chair deputy chair and Labor MP Matt Thistlethwaite has asked Westpac to explain the allegation made by Austalia's financial crime fighting agency that the lender was targeted by the money launderers in the Commonwealth Bank debacle.

Hartzer replied that while the allegation was a concern it was hardly a surprise.

"There are lots of criminals out there trying to launder huge amounts of money," he said.

The Westpac boss said he is confident Westpac made the necessary disclosures to Austrac.

 When questioned about the intelligent deposit machines that were the subject of CBA's money laundering scandal, he said Westpac does not have the same machines as CBA and has a deposit limit of $4000.

"The issue of money laundering is a very serious issue, it's a challenge for the whole economy."

 "We're confident we're complying with regulations, we work very closely with Austrac," he said.

On anti-money laundering, Elliott confirmed that Austrac has advised that it has found no evidence of non-compliance concerning ANZ’s ATMs.

"ANZ works closely with Government to detect and disrupt those who seek to break our laws.

“Action against financial crime is in everyone’s interests”