Bank had high-risk loan book

COMMONWEALTH Bank launched a number of reviews into the Bankwest business banking book, naming them after explorers Magellan and Columbus, when it discovered soon after acquiring the WA bank that its lending processes were doubtful.

CBA group chief risk officer David Cohen told the financial services royal commission yesterday that there were concerns the credit ratings used by Bankwest to rate business loans “were perhaps not as diligently applied as the Commonwealth Bank applied credit ratings”.

He said the management of loans by relationship managers at Bankwest was not as active as it could have been and the quality of the business banking was “poorer than thought” after it was acquired.

Concerns about whether there was adequate provision for loans led to the launching of Project Magellan to ensure they met prudential standards.

It looked at “good loans” which were not classified as “troublesome” or “impaired” assessed. More than 160 loans were transferred over to a special credit and assessment management department for closer scrutiny. Of these about 37 were terminated, 31 rehabilitated and the balance were refinanced or repaid.

Mr Cohen, who was general counsel for CBA in 2009 and never worked for Bankwest, said it was clear that Bankwest had an inadequate “watchlist” to pinpoint loans that were regarded as troublesome or impaired.

Mr Cohen will continue giving evidence today.