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ASIC foreshadows action against other banks over lending practices

Westpac may not be the only bank in cross-hairs over lax home loan lending after Australia's corporate regulator said it was speaking with other banks and flagged more announcements due "in coming weeks".

The Australian Securities and Investments Commission appeared before the Senate economics legislation committee in Canberra on Thursday where it said it was also scrutinising the lending practices of other banks.

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ASIC takes aim at the banks

ASIC chairman Greg Medcraft tells the Economics Legislation Committee bank culture is still an issue that needs to be addressed.

On Wednesday ASIC announced Federal Court proceedings against Westpac, alleging the big four lender failed to properly assess whether borrowers could meet home-loan repayments.

The bank is accused of relying on benchmark household-expenditure rates instead of customers' actual living expenses when calculating whether they could afford repayments. In some cases ASIC alleges a proper assessment of a borrower's ability to repay their loan would have shown a monthly deficit.

Michael Saadat, ASIC senior executive of deposit takers, told the inquiry the regulator was in touch with other banks over the issue.

"We have announced action against Westpac but we have been in discussion with other lenders and we hope to make an announcement in coming weeks," he said.

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Westpac defended its loan-approval processes, pointing to its robust credit approval processes and deep experience in the mortgage market. It said it would fight the case.

The bank said it had changed its lending practices since 2015, but ASIC told the inquiry this occurred only because it started asking questions.

"The reason the conduct ceased ... is because that is when we engaged with Westpac on this issue," ASIC chairman Greg Medcraft said.

"Culture is still an issue. If you have good culture it shouldn't be a case of us detecting something and then it stopping."

Total penalties could be in the millions, according to Mr Saadat, with each contravention attracting a maximum penalty of $1.7 million. "And we have alleged a range of contraventions," he said.

Mr Medcraft said he hoped the actions sent a message to the banks. "It sends a clear signal that we are willing to take anyone on," he said.

During the hearing ASIC was also put on the spot about its failure to take action against disgraced NAB planner Graeme Cowper.

Mr Cowper, a Sydney financial adviser, was exposed by Fairfax Media last year giving inappropriate advice to a number of clients. He left NAB in 2010 but not before the bank sent a breach report to ASIC.

Nationals senator John Williams said ASIC should have acted sooner to stop Cowper.

"Here's the problem I have... NAB do a breach report in 2010. He [Cowper] then gets shifted on, he goes to Suncorp, then he goes to AMP. Then AMP sacked him. The obvious question is: why didn't you take action in 2010?" he said.

ASIC executive Joanna Bird blamed "impediments in the law" for a failure to take action but flagged that work was under way.

"We did look at Mr Cowper some years ago and did not take action for a number of reasons. One of the most significant reasons was impediments in the law to taking action against employed advisers – that situation has changed," she said.