CBA chief Ian Narev set to face grilling by panel

The Australian 12:00am October 1, 2016

Richard Gluyas

Commonwealth Bank will tell a parliamentary committee hearing on Tuesday that it is close to a comprehensive resolution of the two big customer issues to have hounded the bank in recent years.

It is understood CBA will say that an internal investigation into allegations its CommInsure unit dodged payments to seriously ill customers is well-advanced, with no evidence uncovered of systemic problems or deliberate ­misconduct.

That is in contrast to the long-running remediation program in financial planning, where the bank has acknowledged there were widespread faults related to planners putting clients’ money into high-risk investments without their permission.

The sixth report of Promontory Financial Group, the independent expert hired by CBA to undertake its Open Advice Review Program, said yesterday that the 8600 file assessments would be completed by the end of this year, with more than 6000 assessments already undertaken.

Promontory has so far ruled that the advice given to customers was valid in 83 per cent of cases. In addition to the $54 million previously paid to victims, the latest open advice program has resulted in $11m of extra payments, figures released yesterday showed.

CBA chief executive Ian Narev and chief risk officer David Cohen, who was formerly chief legal counsel, will kick off the annual committee hearings, established by Malcolm Turnbull after the major banks held back half of the 25-basis-point August rate cut by the Reserve Bank.

The Prime Minister also wanted to be seen as tough on the banks, with Opposition Leader Bill Shorten accusing him of running a “protection racket” for the industry and repeatedly calling for a bank royal commission.

The other banks are pinning their hopes on a strong showing by Mr Narev. In the eyes of the public, there is not much, if any, difference between the majors, so customer issues at one bank tend to reflect poorly on the others as well. The Australian Bankers Association yesterday outlined a framework for a newly created customer advocate role inside each bank. The role, which is designed to have regular access to the bank chief executive and in some cases the board, is designed to help banks “handle complaints better, improve customer experience and minimise the likelihood of future problems”, ABA executive director Diane Tate said. “The appointment of a customer advocate is an important initiative and opportunity to make it easier for customers when things go wrong and reach fairer customer outcomes,” she said.

While all four of the majors have had their share of customer problems to deal with, CBA’s have been the most significant, with a group of aggrieved ­commercial customers also maintaining their rage over the fallout from CBA’s controversial $2.1 billion Bankwest takeover in 2008. CBA has persistently denied any wrongdoing, in contrast to ANZ’s concession that some customers were treated poorly after the purchase of the $2.4bn Landmark loan book in 2009.

ANZ, to be represented by chief executive Shayne Elliott and his deputy and seasoned committee performer Graham Hodges, has since privately settled with a number of those customers.

One of the key issues to be examined by the committee, chaired by Liberal Party MP David Coleman, will be the industry’s high level of concentration and generous return on equity compared to other banking systems in the developed world. Return on equity is a measure of financial performance and stability, and the industry is extremely sensitive to suggestions it is “over-earning”.

If challenged, the CEOs are expected to say it is unfair to compare the ROEs of their institutions with the broken banking systems of Europe, Japan and to a lesser extent the US. All of those countries, to varying degrees, have weak economies, close-to-zero or even negative interest rates, and deflation.

The major banks have always pointed to Canada’s strong banking system as the most appropriate benchmark. In the 2015 financial year, the average ROE for Canada’s top six banks was 15.7 per cent, just ahead of Australia’s big four on 15.3 per cent.

The more adventurous of the big four chief executives could also point out to the committee that there is a trade-off between competition, on the one hand, and stability and relatively high ROEs on the other.

If politicians want cutthroat competition and lower ROEs, the trade-off will be less stability in an increasingly volatile world.

The CEOs could also argue that competition is coming, in a big way, from nimble, ­financial technology — or fintech — start-ups, and inter-bank rivalry through portability of account numbers.