Australia’s top bank defends lifting bonus cap for mortgage staff

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The chief executive of Australia’s biggest bank has criticised regulators, saying they had shown “undue concern” over potential bonuses paid to some bank staff after they raised a long-standing cap on how much staff could earn.

Commonwealth Bank of Australia in April lifted a bonus cap for mortgage managers that had been imposed following a government inquiry into the financial services sector in 2017.

The move means 1,800 staff can earn up to 80 per cent of their salary, up from the previous cap of 50 per cent, in bonuses. NAB, a top four Australian bank, has followed CBA in scrapping the bonus cap and Westpac is considering a similar move.

The Australian Securities and Investments Commission, the corporate watchdog, lobbied CBA’s senior management against removing the bonus cap and publicly criticised the removal when Joe Longo, the commission’s chairman, described it as “very concerning and disappointing” in April.

Matt Comyn, chief executive of CBA, told a parliamentary committee on Thursday that criticism of regulation was unfounded given competition in the mortgage market and the large number of commission-run independent brokers that were not subject to the same level of regulatory oversight or rewards.

“There can be no level of concern about what we are talking about – a few hundred lenders – compared to 20,000 mortgage brokers who have no controls on this,” he said.

The voluntary caps were agreed as part of a banking reform process known as the Sedgwick Review, which found that bankers were motivated by financial incentives rather than customer satisfaction, leading to poor behaviour across the financial services industry.

ASIC said in a statement it would monitor the conduct of banks that increased bonuses for any signs of “incentive selling”. “Those banks should be advised that ASIC will not hesitate to take action against any misconduct identified,” the regulator said.

AustraliaThe U.S. mortgage market, the lifeblood of the nation’s banking industry, has become more competitive in recent years, with Macquarie — a domestic competitor — gaining market share from established lenders. Many bankers have also chosen to start their own mortgage brokerage firms, without the bonus cap.

Elizabeth Sheedy, an academic at Macquarie University’s department of applied finance, said the bank’s ability to increase bonuses for mortgage staff was not a major concern as long as those payments were deferred and could be withdrawn.

She added that Comyn was right to highlight the growing power of the independent mortgage broker market, amid concerns that many young homebuyers were unaware of the huge financial risks they were taking. “I worry that this is a fairly unregulated sector,” she said.

Comyn, who has led the A$233 billion ($158 billion) market capitalisation bank since 2018, was paid more than A$10 million last year on the back of a long-term incentive plan and CBA’s record net profit of more than A$10 billion by 2023.

He also criticised the growing anti-business sentiment in Australian politics, saying it showed corporate profits were being “unfairly discounted from consumers”.

“This rhetoric that is not based on facts… is very damaging. It is eroding trust in our institutions, in all our institutions, which is a real cause for concern,” he said, pointing out political accusations of price hikes applied to supermarkets and put pressure on the banking industry to reduce digital transaction costs.

Comyn described this week’s Green Party proposal to impose a “super tax” on the profits of big companies including mining firms and banks as “insidious”.