Is Westpac facing a costly ANZ-style lending failure?
Monday, 1 November 2021
Westpac has signalled to investors it might have to pay compensation to borrowers, and could face the ire of regulators.
ANZ and ASB were taken to task by the Commerce Commission Te Komihana Tauhokohoko over failures in their lending processes, and faced a multi-million dollar class action lawsuit from borrowers.
In a note in its annual report, Westpac says its “New Zealand business is reviewing its processes for some products relating to the requirements of the New Zealand Credit Contracts and Consumer Finance Act”.
“The outcome of this complex review is uncertain and could result in customer remediation, regulatory action and litigation,” Westpac says.
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Fellow Australian-owned banks ANZ and ASB paid compensation to borrowers after deals struck with the Commerce Commission.
But borrowers have launched a class action claiming the amounts handed back by the two banks fall short of what the law says they should have paid.
ANZ and ASB had identified failures in their lending processes, and reported them to the regulator.
Westpac earned reported a profit of just over $1 billion after tax in the year to the end of September.
Westpac said it was always focussed on identifying any risks or potential risks.
“The review forms part of our larger Fix programme of work, which has been ongoing for some time. As it says in the report, the review is complex and the outcome at the moment is uncertain, so we wouldn’t comment any further,' the bank said.
Banking expert Claire Matthews from Massey University said it was not clear if Westpac’s note referred to the possibility that it had failures similar to those of ANZ and ASB.
Matthews said Westpac would have revealed the possibility of having to pay compensation, and possibly face regulatory action and litigation because it had a duty to do so to investors.
“They are simply taking the precaution of advising investors,' she said.
Peter King, Westpac Group chief executive, lamented repeated failures by the bank in both its treatment of customers, and also risk management failures which had prompted action by regulators including New Zealand’s Reserve Bank Te Pūtea Matua.
“These issues are not acceptable for a company of our quality and heritage,” King said, who noted three-quarters of the bank’s group executives had been hired in the past two years.
While detail is lacking in Westpac’s warning to investors, ASB and ANZ settled their failures with the Commerce Commission by admitting they had failed to take the necessary care required of a responsible lender.
ANZ paid customers $35.4million, while ASB paid customers $8.1m.
But, Scott Russell, the Auckland lawyer heading the class action against the two banks, said if a bank failed to comply with its disclosure obligations, it could not charge interest or fees on the affected loan until the situation was resolved.
Like ANZ, Westpac was undertaking a simplification project, partly to reduce costs, its annual report said.
ANZ chief executive Antonia Watson also said it reduced the chances of the bank making mistakes, when the bank reported an after-tax profit of nearly $2b last week.
Westpac’s report showed it had reduced the amount of capital set aside in case of losses on bad loans in New Zealand, but it had added “additional provisions for estimated customer refunds in 2021, including customer remediation in Westpac New Zealand”.