A National Australia Bank executive has admitted the bank breached responsible lending laws through its Introducer Program, which saw business people, including a gym owner and a tailor, refer customers to the bank for loans in return for commissions.
Key points:
- Banking royal commission heard four introducers were responsible for referring $139 million in loans
- Last year NAB sacked 20 bank staff for fraudulent home lending involving the Introducer program
- Some customers were forced into financial stress due to unsuitable home loans
NAB executive general manager of broker partnerships, Anthony Waldron, told the banking royal commission the gym owner was one of the highest volume introducers responsible for referring customers to the bank, even though the profession was not accepted as part of the program.
Senior counsel assisting the commission, Rowena Orr QC, told the commission $3.6 million out of the more than $139 million in loans written by the most high-volume introducers were in severe arrears.
Just four introducers, including the gym owner, were responsible for referring the $139 million in loans.
Out of 44 personal loans written by a banker who was sacked, 34 were still active, 20 of those were being managed by NAB's collection division, 14 were more than 90 days in arrears and three had been written off.
Last year NAB revealed it had sacked 20 bank staff and disciplined more than 30 others for fraudulent home lending involving the Introducer Program.
The commission heard the misconduct included bankers forging customer signatures, faking documents, accepting cash bribes for loans, and lending to customers who couldn't afford it.
Ms Orr told the hearing that NAB documents revealed that some customers had been forced into financial stress because they were granted unsuitable home loans.
"Do you accept what I am putting to you — that the file reviews have revealed that there were significant numbers of customers who ended up with loans as a result of this misconduct that they ought not to have had and they were unable to service?" Ms Orr asked Mr Waldron.
"Do you accept that your file review revealed responsible lending breaches by these bankers?"
"Yes," Mr Waldron said.
He agreed with Ms Orr that the bank's incentives program had contributed to the fraud committed by its bankers.
Internal NAB documents also reveal Mr Waldron was unhappy at the time taken to refund customers who were granted unsuitable loans.
He told the commission that it could take up to November this year to complete the remediation process.
The bank also closed the Introducer Program to new applicants from July to November 2016 while it investigated the program and the issues with bankers getting bonuses for writing more home loans. It later changed the incentive structure for the program.
By early 2016, NAB had fired six bankers for their alleged involvement in a cash-for-loans ring at five branches in greater western Sydney.
Formal breach report made months after board was told
The commission heard a NAB internal document, which was only lodged with the commission this morning, showed the board was told about the misconduct in early November 2015, several months before the bank lodged a significant breach report with the corporate regulator.
A letter was sent to the corporate regulator, the Australian Securities and Investments Commission, notifying it of the fraud in late December 2015, but a formal significant breach report was not made until February 2016.
New South Wales police were notified in December 2016.
NAB appointed KPMG to investigate the problems with the Introducer Program and the consultants uncovered a litany of problems, including approximately $50 million worth of loans with serviceability issues, meaning borrowers were having problems repaying the loans.
Reading from NAB documents from early 2016 given to the commission, Ms Orr outlined some of the issues that KPMG found.
"What KPMG has identified is bankers are not holding face-to-face meetings with customers, they are transferring their own funds to customer accounts, they are assisting customers in preparing false payslips, they're accepting payments from customers for loan approvals," she said.
In July 2016, the bank set up Project Beacon to investigate suspicions that the fraud uncovered in the Introducer Program went beyond greater western Sydney.
NAB identified 44 bankers of interest with 28 located in New South Wales and the ACT and 16 in Victoria and 62 introducers who were also suspected of misconduct.
Project Beacon uncovered more fraud including bankers who were too close to introducers, and the use of fake documents by bankers, introducers and customers in loan applications.
Of the 44 bankers suspected of dodgy conduct, six were sacked, five resigned, and 12 were suspended by the bank.
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