Aussie banks face misconduct accusations
Print Edition
AUSTRALIAN banks famously rode out the 2008 financial crisis with barely a scratch, but no longer are they the exemplar of success, as a commodity rout ravages the economy and a growing storm of accusations over misconduct threatens to tar their name.
Last week, Westpac Banking Corp became the second Australian lender after ANZ Banking Group to be dragged to court by regulators over suspected rigging of benchmark interest rates. Both have denied any wrongdoing, saying they would vigorously defend themselves.
While increased regulatory scrutiny will eventually promote greater compliance, banks could face medium-term financial penalties, denting earnings and shareholder returns in a sector battling stricter capital rules and higher loan losses.
The industry has already been unsettled by probes into wealth mismanagement and insurance scams, and public pressure is piling on Prime Minister Malcolm Turnbull to order a sector-wide inquiry into bank conduct as he campaigns for a federal election in July.
In a speech at Westpac’s 199th birthday lunch last week, Turnbull accused banks of sometimes taking advantage of customers but stopped short of seeking a high-level inquiry. In contrast, Australia’s main opposition Labor Party on Friday promised a Royal Commission into the financial sector if it wins July’s election.
“We are not denying there have been problems, we are not denying there has to be ongoing scrutiny of the industry,” Australian Bankers’ Association CEO Steven Münchenberg said on Friday. “The question is do we need a Royal Commission to do that? No, we do not.”
National Australia Bank’s CEO Andrew Thorburn said a Royal Commission would be a “serious distraction.” ANZ Chief Executive Shayne Elliott said such an inquiry could damage Australia’s standing among global investors.
“The more immediate impact would be banks suffering some reputational damage,” Fitch ratings said last week in a note on Australia’s banks.
The Big Four — NAB, Commonwealth Bank of Australia, Westpac and ANZ — are among the worst performers on the benchmark S&P/ASX200 index this year, down between 14 percent and 19 percent.
End of an era
Until last year, the banks had boasted a decade of uninterrupted growth and delighted investors with generous dividends. When the 2008 global crisis hit, the banks sailed through with little damage, backed by a resources boom at home.
But as the commodities super-cycle plumbs new lows, the focus is falling on bank lending to Australia’s beleaguered agricultural and mining industries.
The sectors have shed jobs by the thousands, weighing on individual borrowers’ ability to pay their mortgages in an already cooling housing market.
Charles Littrell, a senior executive at the Australian Prudential and Regulation Authority, told local media that the concentration of lending by the Big Four in property is a “perpetual concern.”
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