Finance is Australia’s biggest industry, and its banks are some of the most profitable in the world. Australia’s “Big Four” – Commonwealth Bank (CBA), ANZ, National Australia Bank (NAB) and Westpac – collectively hold about 80% of the country’s banking market.
Despite its strong position, Australia’s banking and financial services sector has been rocked by a series of scandals over the last decade, with all “Big Four” largest banks being accused of serious misconduct. As a result, a royal commission, Australia’s highest form of public inquiry, has been called to investigate the scale of wrongdoing and help restore confidence in the sector. Even though the investigation has only just started, it has already uncovered widespread examples of careless, and at times fraudulent, lending practices.
The issues investigated by the commission include lax lending standards and may cause a possible clampdown on mortgage lending, including less credit available to the housing market and more scrutiny when people apply for a mortgage. The investigation has also put a spotlight on the financial advisers, uncovering various instances of misconduct, including bribery, fraud and outright lying by Australia’s banking behemoths.
Australia’s largest lender, Commonwealth Bank, faces the strongest accusations, related to money laundering and terrorism financing. After the initial denial to accept responsibility, the bank has finally agreed to pay the fine, which subject to court approval will be the largest civil penalty in Australian corporate history.
The increasing regulatory scrutiny and a string of fines has darkened the outlook for the Australia’s banks, prompting fund managers to cut their stakes in the sector. The inquiry has come at a time when there was already a push for increased controls on lending and new capital requirements. Those had helped spark a wave of divestments of cash-intensive wealth management, insurance and financial planning arms.
As the Australian housing market sees a struggle and banks’ values plummet, there are increasing worries that the situation could escalate into a domestic financial crisis. Australia’s biggest banks are imposing stricter lending conditions on borrowers as damaging disclosures at an inquiry into financial-sector misconduct prompt fears the economy will be the victim of a new era of subdued credit growth.