The boss of ANZ admits that "shortcuts" were taken when approving a loan

ANZ's general manager, Shayne Elliott, admitted that the bank's staff had been "more likely to shorten the process" in evaluating loan applications for existing clients by supporting them. on the controversial criterion of the HEM model.

The HEM, or measure of household spending, is a tool used by banks to determine if customers can afford to repay a loan. He has been criticized for greatly underestimating living expenses, potentially leaving borrowers struggling to repay their debts.

ANZ is committed to reducing its use of the tool after an independent review conducted by KPMG in 2016, which revealed that the bank had "defaulted" to the HEM system in 73% of cases, rather than make an appropriate assessment of the borrower's expenses.

When appearing before the Royal Bank Commission in Melbourne for the final day of hearings on Thursday, Elliott said he had accepted the fact that the HEM was "conservative with respect to the relatively low level of its spending".

"If we use HEM specifically, it's because we are dealing with candidates who are not our clients, so we have a hard time seeing their financial situation," he said.

"We do not know what other accounts they have.Most applicants for a home loan with us are not ANZ clients."

But he conceded that this product was even used by a large number of ANZ customers.

Elliott said that ANZ was developing an internal software that would allow the bank to analyze the actual expenses of its customers by identifying payments "rents, utility bills, discretionary" on their account.

He stressed that there would always be a place for the tool.

"There is finesse in the use of HEM," he said. "I think even if our system is working at the expected level, there will still be cases that will default to HEM." If we succeed in deploying our system, our HEM usage should fall to about one-third of the total number of applications . "

The total average utilization of HEM at ANZ was "now in the mid-1950s and continues to decline," he said, while he was even lower in the branch channel "in the mid-40s" . Before the policy change, he said the subsidiary channel "relies slightly more heavily on HEM than the brokers".

"It's counter-intuitive," he said.

"I think there is a rational answer.Applicants who contact us through a branch usually have a different look to that of a broker.There is a bias by compared to what we would call a complementary mortgage – mainly for renovation purposes.

"In this case, given the strength of the relationship with the bank manager, (they) were more likely to shorten the process in the past.The latest data (show) that the branch network is now less used than the network of brokers. "

Elliott said ANZ had updated its internal guide on housing loans with new processes that managers "must follow". He attributed the decline in the use of HEM to "just a greater care to be perfectly honest".

"We are more diligent, we have talked to our front line, which has reinforced the need for people to ask more questions," he said.

ANZ has also updated its guide to home lenders, which its brokers are required to use. "At the end of the day, when a broker submits an application, we always have control," Elliott said.

"We are much more likely to fire him, and their numbers are also decreasing rapidly."

Elliott said the HEM was useful "as a test".

"We know that people have trouble remembering their expenses, I'm not sure I understand the argument that people are deliberately misleading," he said.

"Most people know what they earn and what is left at the bank at the end of the month. What is difficult for them is determining the categories of expenses, especially if you ask them to call you back more than a year.

"So we ask questions, I think it's fair to say that in the past we did not ask enough questions, but we finally use it as a landmark, just as a test, as a basic rule. " Does this seem fair to a person in this family situation with this income? & # 39; "

Elliott continued his appearance from Wednesday, when he said the bank was limiting problem gamblers who use credit cards at gambling venues in the same way that bars can stop serving drunk customers.

He added that the bank had changed the terms of use of credit cards to create "slowdowns". "People can buy alcohol, but at some point they do not get intoxicated," he said.

"We have tried to apply these principles here to provide some level of protection to customers so that they do not go to great lengths using our products, perhaps irresponsibly."

Later on Wednesday, he said that ANZ was considering reducing the use of bonuses paid to staff in order to further rebalance the composition of compensation into a fixed remuneration.

"It's an unapproved plan," Elliott said. "This work program, as you can imagine, is an important job."

Bendigo and Adelaide Bank chairman Robert Johanson appeared after Elliott, the last witness being APRA President Wayne Byres.