CANBERRA, Australia - Faced with appalling allegations of corruption and greed, bosses at Australia's big four banks were forced to answer tough questions by the parliamentary inquiry committee over the last two weeks.
Australia's banking sector and the four big banks in specific have come under intense pressure following a scathing interim report released by the Banking Royal commissioner Kenneth Hayne in September.
Spread across three volumes, the banking royal commission skewered the country's top banks for being driven by greed and dishonesty, before pulling up ineffective and lazy regulators for failing to hold lenders accountable.
In light of the revelations, a quasi-judicial inquiry was set up to examine the evidence of wrongdoing at big banks and its impact on the banking industry in Australia.
Ashamed and aggrieved
Over the last two weeks, CEOs of Australia's top banks testified before a parliamentary committee in Canberra, delivering their first public response to the searing observations made by the Hayne royal commission.
In his opening comments before the House of Representatives Standing Committee on Economics in Canberra, Thorburn offered the bank's first official response to the damaging royal commission report.
In his public testimony, Thorburn first issued an apology to NAB customers and then went onto reveal the findings of an internal investigation carried out in light of the shocking cases of misconduct uncovered by the royal commission.
He said, The royal commission has exposed issues in our bank and the industry that have been confronting and upsetting. I feel this deeply, having worked in our profession for more than three decades. In so many cases, we have not had the care and respect for our customers that we should have. And for that, I am sorry.
Thorburn then detailed the findings of the Melbourne-based bank's extensive internal investigation into the cases of wrongdoing.
He revealed that 1,215 of its 33,000 staff members across the country had been investigated for adherence to the bank's code of conduct.
He added that 700 of those questioned had faced penalties, including a reduction in their variable pay over appalling behaviour" that came to light.
Further revealing that 300 of its staff members had been sacked or had decided to leave the company over wrongdoing.
While Thorburn did not reveal the departments impacted, he told the committee, If theres anybody whos committed a fraud or absolute clear misconduct theyre terminated immediately and files in many cases are handed straight to police."
During the grueling session, the parliamentary committee's chairman and Liberal MP Tim Wilson questioned Thorburn over the extent of accountability for misconduct within NAB.
Wilson asked the bank's chief executive, "Would you say that you were ashamed at some of the conduct of the bank?"
In response, Thorburn admitted that he was "ashamed" of the bank's behaviour and claimed that he "agreed" with commissionerHayne's interim report into misconduct within the sector.
While leading financiers strongly opposed the establishment of the Hayne royal commission a year back, during the parliamentary hearings, Thorburn and the three other top banking chiefs praisedthe findings of the commission.
On Friday, Thorburn told MPs that commissioner Hayne's report was "fair and balanced," and added that banks now needed to "step back" and reflect.
Describing 2018 as a "difficult and shameful" year, Thorburn admitted that watching the internal investigation process this year had left him "disappointed" and "aggrieved.
He said, "I have felt through the year as I've heard the cases, through the rounds, upset and disappointed and aggrieved really because our customers, we just haven't treated a number of them with the respect that we should have."
Putting profits over people
Thorburn said that 30 years back when he entered the banking industry, he was taught that banks existed to serve customers but said that over the years, banking in Australia had "drifted" from its core purpose.
He explained that the industry started to drift in the late 1990s, with the focus of banks shifting away from customers, leaving the sector open to the criticism of putting "profits before people."
Thorburn said, When I started in banking, it was serving customers, [that] was what was drilled into us [about] why we existed. Ive been in banking 30 years and I think the last 20, we drifted. When you drift you sort of, you dont know that its happening. It looks incrementally sensible. Others are doing it. Theres a system that reinforces it, so shareholders appreciate it if youre making good and better profits."
He said, [NABs banking scandals] happened because we drifted and we lost focus on the most important purpose [for which] the bank exists, which is to serve and enable customers to make very big financial decisions and to trust us in that process.
Thorburn added, When we go back to how did it happen, not focusing on customers, too much focus on financial incentives leveraged, you know, not on customers, and a lot of compliance and regulation and old systems and bureaucracy which kept us, you know, we became too slow and not agile enough, too many layers."
Denouncing the "short-term" view of banks, he said, "Given the risks and nature of our business, we should be planning over afive-to-10-year horizon, not just one to two years."
Thorburn pointed out that NAB had overhauled its policies into bonus schemes, which earlier rewarded the "wrong behaviours" and were too focused on selling products and short-term growth.
He also said that he regretted the devastating impact on NAB's reputation because of the misconduct of a few bankers, calling it "the most terrible thing."
Later, Thorburn conceded that NAB did not have sufficient controls to fix issues when they arose and said that it had not compensated its customers fast enough.
Further, in response to the committee's revelation that 245,000 NAB customers have been overcharged fees, Thorburn noted that by the end of 2018, the bank would have paid out A$130 million ($92.42 million).
He said that another A$300 million ($213.27 million) would flow as soon as possible.
Tough policy, tougher penalties
At their respective hearings, the other three banking chiefs too admitted misconduct and described the actions taken in the aftermath of the expose.
ANZ accepted responsibility, with the bank's chief Shayne Elliott expressing determination to improve.
Head of Westpac, Brian Hartzer said the bank was "focused on learning from the mistakes of the past and preventing them from happening again."
CBA's Matt Comyn admitted that there had been failures of judgement, failures of leadership and greed within his institution and said the bank became complacent to addressing customer issues uncovered.
Meanwhile, AMP interim chief executive Mike Wilkins said his firm was committed to improving its business, adding that the bank was accelerating its remediation to affected customers.
Yet, despite the largely successful Parliament House outings, the banks now face their biggest challenge in decades if they hope to win back public confidence and their market standing that has been dented by the scandal.
The big four bank CEOs are scheduled to appear at the Hayne royal commission next month, to discuss the policy questions that have emerged in the aftermath of their respective internal probes and the government's parliamentary banking inquiry.
While the interim report drew observations from hearings into mortgages, consumer credit, financial planning, small business and lending to regional and rural areas, Commissioner Hayne's final report is likely to include recommendations to reign in the industry.
In his final report, Hayne will likely focus on whether the revamped home loan assessment procedures at the major banks comply with necessary laws.
In case any of the procedures are found to be in breach of laws, not only will banks have to tighten access to credit, but will also face potentially costly regulatory and consumer lawsuits.
The mortgage broking industry too is set to face strict inspection by the commissioner.
The slew of compliance failures exposed by the interim report has already cost the country's major lenders damages that run into billions, with the big four banks and AMP claiming to have set aside at least $1.3 billion to cover legal costs, compliance charges and refunds that arise from the inquiry during the latest financial year.
Since the banking commission's report was released, the big four banks have already lost nearly A$55 billion ($39 billion) of their market cap.
Analysts at Morgan Stanley forecast that the banks could face a further $2 billion in compensation and related remediation costs in 2019 and about $875 million the following year.