Big Four Banks defend lending practices against Four Corners claims

For every one dollar earned, on average, Australians have nearly two dollars of debt. Australia has a household-debt-to-income ratio of 190 percent.

Much of this stems from a national obsession with buying real estate, according to the latest episode of ABC’s Four Corners, which discussed the forces driving the debt-fuelled housing boom and the risks it poses for the country.

Reported by Michael Brissenden and presented by Sarah Ferguson, the show brought together experts to map the danger zones in the housing market and lending practices that have driven the boom in residential lending and was critical of banks in the event of potential hard landing.

Banks have at least 60 per cent of their loans in the housing market, and concerns grow that a housing downturn could be disastrous for the Australian economy.

All the Big Four banks have defended their lending practices following the episode on ABC.

ANZ CEO Shayne Elliott, who was on the show, said ANZ's market share was a bit lower than the average but “I think that's not a healthy, that's a, it is a healthy mix at about 60%”.

He said the reality was that housing loans are pretty good because they're quite diverse in terms of lots of reality small loans across  the country.

Ferguson said while the regulators have recently forced banks to tighten up on lending - “experts in tonight's program say the legacy of loose, irresponsible lending has many years to run”.

Brissenden said a big part of the story was the role of brokers lenders and developers who encouraged people to borrow more than they could afford.

Citing the case of Carlene Stafford, who was convinced to borrow $445,000 to buy an investment property in Queensland.

Stafford said she received an unsolicited phone call one night and the first question was “did I own my own home? I said yes. Was I working? Yes”.

“And I had a call from a developer and he told me that he could help be get into an investment property that would assist me financially when I retired.”

To do that she used the equity in her almost paid off home.

Stafford, however, didn't know at the time was that even the banks own estimates on her financial commitments left her with $9.17 at the end of each month.

She said while the developer told her it was a risk-free investment, “the only person and only people that it was risk-free for was for the banks, for the bank, the ANZ Bank.”

“They've got nothing to lose. They've got the house up there. They've got my house here if necessary.”

Or they've got a couple 100,000 to be paid back once I sell this or die.

“So that goes out of my kids' inheritance.”

ANZ CEO Shayne Elliott travelled to Armadale, WA last week to meet and hear directly from Stafford.

ANZ said in a statement that Stafford agreed she was responsible for declaring her estimated expenses and advising ANZ about her financial position and the bank was not responsible for introducing her to either the developer or the broker.

Elliott did concede that Stafford had been targeted by aggressive sales tactics by both the developer and broker and the bank has agreed to a revised settlement with Stafford.

ANZ said it has hardship programs in place for customers who find themselves in unfortunate circumstances.

Both the Commonwealth Bank and NAB cited their commitment to the remuneration reform recommendations of independent expert, Stephen Sedgwick. 

CBA said it will implement the recommendations to ensure remuneration structures are aligned to appropriate customer outcomes.

“Our employees, including lenders and managers, are measured on a balanced scorecard which includes customer-based and business performance measures,” it said in a statement.

Meanwhile, NAB said its staff have a balanced scorecard across both financial and non-financial objectives, including “delivering the right outcomes for customers”.

It said a vast majority of staff incentives have no direct link to product sales.

NAB said it had recently announced changes to its incentives program, effective 1 October, for its most senior branch and contact centre managers, which will see “greater emphasis placed on customer outcomes, actions and behaviours for staff incentives”.

Second-biggest mortgage lender Westpac said it was addressing the community’s feedback about product referral incentives.

“We were the first of the major banks to remove product-based incentives for our 3,300 tellers in our branch network, so they are now rewarded solely for providing quality customer service,” it said in a statement.

“We have also removed product-specific targets for personal bankers and will reward them equally for customer service and financial measures. These changes apply to all brands across the Westpac Group.”

It said Westpac Group home lenders are rewarded based on a number of factors including customer satisfaction and mortgage drawdowns, and subject to meeting risk and compliance measures.

While they provided a written repose, Brissenden added that “most bank CEOs were reluctant to speak to Four Corners”.

American economist Jonathan Tepper, who called out the Spanish housing crisis, said "bubbles really depend on loose credit, that's one of the things that's really fuelled the Australian housing market".

"Anyone with a pulse could essentially get a mortgage," he added.

"I go back to the analogy that I always use, which is insiders versus outsiders, right? If you're the insider, you're like the frog in the frying pan. The temperatures been turned up very slowly on you."

"If you're an outsider you might say, "Do you know what? That looks a bit too hot."

"I'm just the outsider sitting there telling people that the temperatures been turned up."

Brissenden said banks' exposure to mortgage risk has already caused some reassessments. In June, Moodys downgraded Australia's banks.

Frank Mirenzi of Moody's said "our concern is around the fact that you've got households holding more debt. That potentially makes them more vulnerable to a change in their circumstances, and if there's a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector."

"The banks could in fact experience higher losses because households are more indebted."