The market players need to know that the banking sector in Australia is exposed to several regulatory risks apart from the risks of the slump in the housing prices as well as stricter lending conditions. The banks’ misconduct cannot be overlooked and, as a result, the customers have lost their trust and confidence in the leading banks. Westpac Banking Corporation (ASX: WBC), which is one of the big four banks having operations in Australia, has also witnessed elevated costs because of the misconduct. Recently, the Federal Court has refused that the bank needs to pay $35 million in terms of penalty. This comes after the big bank admitted that it breached responsible lending laws.
This penalty was decided after undergoing the negotiations which happened between the Australian Securities and Investments Commission or ASIC and Westpac Banking Corporation. This proposed settlement was rejected by the Federal Court, and the reason given for this rejection was that the ASIC was unable to articulate how the big bank broke the responsible lending laws. The allegations applied by the ASIC on Westpac were that the bank broke the laws of lending by relying entirely on the benchmark instead of considering the declared expenses of the customers.
However, the Federal Court was of the view that the settlement was not clear enough. It did not reflect how the reliance of big bank on HEM or household expenditure measure equates to breaching the law of responsible lending. The bank has admitted that the automated loan approval system has utilized the HEM benchmark in order to arrive at the living expenses of the borrowers. The bank should have considered the living costs which were declared by the customers rather than considering the HEM benchmark. Since they have used the HEM benchmark, the big bank stated that this has resulted in the breach of National Consumer Credit Protection Act in some of the circumstances.
The Federal Court stated that how can the federal body be relied upon in assessing whether the penalty is reasonable or not if the federal court is not clear about what is the actual problem. However, Westpac Banking, as well as ASIC, had admitted that some loans witnessed unlawful approval, but the federal body stated that this could not be considered enough for the approval of the settlement. The Federal Court also stated that the declaration doesn’t throw light on the information about when the HEM benchmark should be considered and when considering this benchmark reflects the breach of the lending laws. The experts have stated that decision of the Federal court to reject the settlement happens rarely.
The stock price of Westpac Banking Corporation has been witnessing a decline on November 14, 2018. At the time of writing, Westpac Banking is trading at A$25.505 per share which implies that the stock has witnessed an intraday decline of A$0.735 per share or 2.801%. The bank’s stock price is trading towards the lower range. Westpac Banking Corporation has an annual dividend yield of 7.16%.
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