Australia’s top banker defends lifting bonus caps for mortgage loan officers

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The chief executive of Australia’s biggest bank has hit out at regulators, saying they showed an “undue level of concern” with potential bonuses paid to some of its bankers after it lifted a long-standing cap on the amount staff can win.

The Commonwealth Bank of Australia lifted a bonus cap for mortgage servicers in April, which was adopted following a government inquiry into the financial services sector in 2017.

The move meant 1,800 employees could earn up to 80% of their salary, up from the previous limit of 50%, in the form of a bonus. NAB, another Australian bank in the top four, has followed CBA’s lead in removing the bonus cap, and Westpac is considering a similar move.

The Australian Securities and Investments Commission, the corporation’s watchdog, lobbied CBA senior management against removing the bonus cap and publicly criticized its lifting, with commission chairman Joe Longo describing it as “very disturbing and disappointing” in April.

CBA chief executive Matt Comyn told a parliamentary committee on Thursday that regulatory criticism was unwarranted given the competition in the mortgage market and the large number of independent commission-driven brokers not subject to similar levels of scrutiny regulations or bonus limits. .

“There just can’t be an undue level of concern about what we’re talking about – a few hundred lenders – compared to the 20,000 mortgage brokers who don’t have any of the controls on this,” he said .

The voluntary caps were agreed as part of a review of the banking industry, called the Sedgwick review. It found that bankers were motivated by financial incentives rather than customer satisfaction, leading to poor behavior in the financial services sector.

ASIC said in a statement that it would monitor the behavior of banks that raised bonuses for any sign of “bullish selling”. “Those banks should be notified. ASIC will not hesitate to act on any misconduct identified,” the regulator said.

Australia’s mortgage market, the lifeblood of the country’s banking sector, has become more competitive in recent years, with Macquarie – a challenger in its home market – gaining market share from established lenders. Several bankers have also opted to set up their own mortgage brokers where no bonus caps apply.

Elizabeth Sheedy, an academic at Macquarie University’s department of applied finance, said the potential increase in bonuses for the bank’s mortgage staff was not a big concern as long as those payments were deferred and subject to clawback.

She added that Comyn was right to highlight the growing strength of the independent mortgage broker market, amid concerns that many younger homebuyers are unaware of the huge financial risk they are taking on. “I worry that it’s quite an unregulated sector,” she said.

Comyn, who led the $233 billion ($158 billion) market capitalization bank as of 2018, was paid more than $10 million last year thanks to a long-term incentive plan and CBA’s record net profit of more than 10 USD. billion in 2023.

He also attacked a growing anti-business sentiment in Australian politics, which he said suggested corporate profits were being “unfairly extracted from consumers”.

“This is rhetoric without facts. . . it is very harmful. It’s eroding trust in institutions, in all our institutions, it’s a real cause for concern,” he said, pointing to political price-gouging allegations made against supermarkets and pressure on the banking sector to reduce the cost of digital transactions.

Comyn described a Greens proposal this week to introduce a “super tax” on the profits of big companies, including miners and banks, as “insidious”.