Banking royal commission: ANZ admits bonus scheme made no sense

The Australian 11:50am May 23, 2018

Ben Butler, Elizabeth Redman

A senior ANZ executive has admitted to the financial services royal commission that a bonus scheme encouraging bankers to “relentlessly” sell small business loans made little sense.

ANZ’s Kate Gibson, who is currently head of home lending but was previously in charge of small business, also admitted that a disastrous $220,000 loan to a couple who wanted to open a gelato kiosk in Western Sydney was not made with the care and skill of a prudent and diligent banker, as required by the Australian Banking Association’s code of conduct.

The royal commission has been examining the loan, made in late 2014 based on a glossy business plan laden with clip-art that appears to have been prepared by the New Zealand-based franchisor.

The husband and wife had no experience in running an ice cream shop and the outlet — the first in Australia for the franchisor — failed.

Internal ANZ documents shown to the commission show that at the time bankers could trouser a bonus of up to half their annual pay by meeting sales targets.

In a “small business banking support pack” distributed in the second half of the 2014 financial year, ANZ delivered “key messages” to its small business bankers, the first of which was that the bank wanted to “relentlessly acquire new-to-bank customers”.

ANZ’s bonus scheme was changed to encourage this, the commission heard.

Performance reviews tendered to the commission show the bank regarded the banker who made the loan to the Sydney couple as having a “great half” in the first half of the 2014 year, although he fell short on getting new business through the door.

And in the following half, when the banker had been focusing on new business, the bank said he had “been fantastic outperforming across most measures” and was “a role model for the team”.

However, in 2017 the banker was disciplined by ANZ over two loans made in the 2015 financial year.

ANZ recorded that the banker told the bank: “In the excitement of closing new deals, a culture of sales pressure that you felt weighed heavily at the time, and your relative inexperience and newness to the role at the time all contributed to these oversights and the lack of due diligence you showed.”

Counsel assisting the commission, Michael Hodge QC, asked Ms Gibson if she accepted there was a culture of sales pressure.

Ms Gibson said the culture in small business was one of wanting to perform.

“I don’t accept the characterisation of being under sales pressure but I accept that that’s what the banker has said that they felt they were under,” she said.

She accepted that the performance targets in place at that time were primarily concerned with financial matters.

“There were sales targets that were against customer and process and that was something that I personally didn’t feel made a lot of sense.

“Those incentives have evolved.

“It wasn’t overnight but it has been an evolution that started with the first half 15 incentive plan and has reached a point now where the financial measures are up to 30pc of a banker’s measures and that the measures that are against customer and process and people I think are more appropriately aimed at, at what we’re trying to achieve in those objections.”