Accidental or on purpose???
CBA, NAB used wrong loan column
28 September 2012
by George Liondis
http://www.afr.com/real-estate/residential/cba-nab--used-wrong-loan-column-20120928-j1o6o
Two of Australia’s biggest banks have admitted to wrongly classifying billions of dollars of loans as mortgages when they were in fact business debt.
Commonwealth Bank of Australia and National Australia Bank revealed the error on Friday after earlier reporting it to regulators.
Since June 2011, CBA has categorised $9 billion worth of business loans as household debt. It also classified up to $1 billion of deposits as coming from households, when they originated with corporate customers.
Similarly, for two years NAB wrongly labelled 5000 business loans worth $3.9 billion as either mortgages or personal debts.
The banks uncovered the problems during internal reviews, and reported the mistakes to the Australian Prudential Regulation Authority.
Both banks said the reclassification would not affect their financial positions. However, business loans are typically riskier than housing credit.
In a statement on Friday, CBA said moving the loans to the business category would “better align with the categorisation of the loan holder".
A spokeswoman for NAB said the amount of capital the bank would have to hold in reserve to cover for risks in its loan book would be unchanged.
APRA declined to comment. However, in an unrelated speech on Friday, APRA member Ian Laughlin said assessing the risk appetite of financial institutions was a key priority for the regulator.
“A well considered, clearly articulated risk appetite is the very foundation of sound risk management," he said.
“Without this, risk management throughout the business will be carried out with unclear boundaries ... on an uncertain foundation."
The issues are not a first for Australia’s major banks. Last December, Westpac Banking Corp admitted to mistakenly labelling $29 billion worth of property investment loans as belonging to owner-occupiers.
Meanwhile, official Reserve Bank of Australia Statistics on Friday showed that business lending declined by 0.1 per cent in August, while home lending grew by a subdued 0.3 per cent.
“We expect a lift in housing credit growth over the year ahead ... although, a sustained strong upswing is unlikely in the current environment," Westpac economist Andrew Hanlan said