Westpac chief executive Brian Hartzer vowed to get on with implementing the Royal Commission recommendations, seeing the difficult experience as a potential “profound turning point” while also urging caution around any changes that could affect the flow of credit.
Appearing before the House of Representatives Standing Committee on Economics in Canberra, Mr Hartzer today outlined the bank’s response to Commissioner Hayne’s 76 recommendations, revealing that of the 53 that will require action by financial services participants, Westpac has completed, or are implementing, 25. The remainder will require further guidance or legislative change from government or regulators and Westpac was engaged with these stakeholders to ensure changes deliver “customer benefits while avoiding unintended consequences”.
“This will be especially important where changes could impact competition or the availability and cost of credit, such as in the way mortgage brokers are paid; the definition of small business; and anti-hawking provisions for insurance,” he said.
It comes amid commentary that tighter lending in the wake of the Royal Commission has played a key role in the softening housing market, in turn weighing on the broader economy. Soft consumer spending was confirmed in this week’s national accounts, which revealed GDP growth slowed to 0.2 per cent in the final quarter of 2018, and 2.3 per cent annually.
But echoing his recent comments, Mr Hartzer said while the “wealth effect” – consumers adjusting spending due to house price moves – is having an impact, the “price declines are more to do with housing supply and demand factors than with banks’ tightening credit”. Demand from property investors, in particular, had cooled, along with foreign investors, he added.
“What we’re seeing is a cyclical adjustment after six strong years of growth,” he said.
“Having said that, uncertainty about the future direction of regulation and government policy is having an effect on business and consumer confidence.
“As further reforms and legislative changes are enacted, it will be important to avoid changes that unintentionally impact the availability or pricing of credit, or have detrimental effects on the very consumers they are designed to protect.”
In a speech this week, Reserve Bank Governor Philip Lowe said while the tightening in lending standards had in recent years had contributed to the slowdown in credit growth, the “main story” was “one of reduced demand for credit, rather than reduced supply”.
Following Commissioner Hayne’s more than 1000-page final report at the end of seven rounds of public hearings, Mr Hartzer said there was “a lot” to be done and work would continue long after implementing the recommendations of the Royal Commission to ensure any new issues that may emerge are fixed.
Westpac has already removed grandfathered commission payments for its employed financial planners and implemented the Sedgwick retail banking remuneration recommendations for its own people . From next month, the bank will end variable reward for tellers, replaced with guaranteed fixed pay. The outcome of one of the Royal Commission’s most contentious recommendations, to phase out up-front and trail mortgage broker commissions, remains uncertain amid differing industry and political views.
Mr Hartzer, however, did call out the bank’s actions to improve addressing customer complaints, including setting up a team of specialist bankers dedicated to giving vulnerable customers extra care and building complaint handling into the scorecards of group executives and general managers.
It follows Commissioner Hayne’s stinging observations in his final report around the “connection between conduct and reward”, the “asymmetry of power and information between financial services entities and their customers”, the “effect of conflicts between duty and interest” and “holding entities to account”.
“While we can’t roll back the clock, what my management team and I can do is to get on with implementing the recommendations that have come out of the Royal Commission – to make sure that this experience is a profound turning point for Westpac,” Mr Hartzer said.
“We know we have a lot of work ahead of us to earn back customers’ trust – and we are getting on with it.”