June 27, 2018 / 10:07 AM / 3 months ago

Australian banking inquiry hears Rabobank conflict-of-interest case

SYDNEY, June 27 (Reuters) - Dutch banking giant Rabobank, one of Australia’s largest agricultural lenders, pursued a customer to buy a neighbouring farm so it could meet lending quotas despite being conflicted in the deal, an Australian inquiry heard on Monday.

Damaging revelations at the quasi-judicial Royal Commission have already wiped billions of dollars off market values of Australia’s top financial institutions, prompted executive departures and are likely to lead to recommendations of tighter regulation to protect customers.

In the first time a foreign bank has appeared at the inquiry, Rabobank’s regional manager for the farming-reliant Queensland state, Bradley James, acknowledged a branch manager contacted a couple suggesting they buy property they ultimately could not afford.

“It’s something we would do with caution,” James told the inquiry, referring to the practice of approaching customers and suggesting they buy additional property.

“As a general practice, I would not encourage it,” he said, adding it could be considered advice “and we’re a non-advice model”.

James acknowledged the practice after a former Rabobank customer, cattle farmer Wendy Brauer, testified that a manager at the bank emailed her and her husband with a suggestion to buy another farm, a move which resulted in a forced sale after the couple could not service the loan.

“I do understand the difficulties that Mr and Mrs Brauer experienced as a result of how those actions (purchase suggestions) may have come about, but in terms of us having objectives for managers to lend to increase the business, I have absolutely no problems with that whatsoever,” James said.

Earlier, Wendy Brauer told how the bank recommended she take an extra loan from the bank despite her voicing concerns about whether they could afford it. The concerns were dismissed but the extra debt led to the loss of family properties, she said.

“They came hunting for us to buy this block. And 12 months later, they wanted us to pay back more than we borrowed,” Brauer told the inquiry.

She added that they had lost at least A$1 million as a result of agreeing to the bank’s suggestion to purchase the property.

“It’s been a great financial and emotional cost,” she said.

The bank was also representing the sellers of the property but did not tell the Brauers about the conflicts of interest it had on the deal.

Under questioning, James said the bank’s conflicted position at the time was unacceptable and its policy too general in nature.

He said the bank’s current policy was clearer and attempted to manage potential conflicts of interest internally to actively avoid them. (Reporting by Paulina Duran; Editing by Christopher Cushing)

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