Key Ethical Issues Faced by the Big Four Banks of Australia

This essay discusses the various ethical issues confronted by the Big Four banks of Australia and the ethical decisions made in this regard. It also justifies the applicability of various ethical theories to the issue. The key ethical issues raised in the article are the violation of ‘Corporate Sustainability Framework’ and the breach of trust of their consumers. The essay concludes that ethics in banking should comprise of codes and regulations which must be adhered to by the management of the banks as well as other stakeholders.

Running head: Comparative business ethics & social responsibility
Comparative business ethics & social responsibility

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“How Misbehaving Australian Banks Are Causing Global Pain “
Key Ethical Issues faced by the Big Four banks of Australia
The four largest banks of Australia viz. National Australian Bank Limited, Australia and New
Zealand Banking Group Limited, Westpac Banking Corp. and Commonwealth Bank of Australia
are facing a series of corporate issues in the recent times. So, the news article “How Misbehaving
Australian Banks Are Causing Global Pain “is focused on the accusations on these banks for
giving misleading advices relating to the financial decisions to the clients and manipulating the
standardized interest rates. The banks were blamed to be extracting fees from their clients to
increase their profits and to pay the remunerations to their executives (Cadman, 2018).
So in this essay the various ethical issues confronted by these banks and the ethical decisions
made in this behalf shall be assessed. Furthermore, the applicability and relevancy of the various
ethical theories to the issue will be justified below.
The Commonwealth Bank was being alleged for breaching the anti-money laundering
regulations thereby resulting in enquiry initiated by the Royal Commission .The lawyers were
investigating the series of consumer case studies to consider the instances which led to
misconduct and unethical behavior (Mikołajczak, 2017).
It was discovered that the National Australia Bank was accepting bribes to facilitate mortgages
which were based on false documents and it also charged fees from the consumers for advising
them on financial matters which they did not receive. The Westpac financial planners gave such
misleading advice that one nurse lost her house. Moreover, AMP, the company which dealt in
wealth management misled the Australian Securities and Investment Commission.
As a result, the government of Australia imposed severe penalties for the wrongdoing and
enhanced the power of Australian Securities and Investment Commission which can result in
selling off the advice business of banks .The Chief Executive, Chairman and three board
members of the 169 years old AMP have resigned post this decision of the government. To add
on the misery, these all were supported by the sluggish stock market, increased competition and
higher costs (Cull and Melville, 2017).

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ANZ confessed in 2017 that two of its managers were accused to be conspiring with third parties
to make fraudulent loans. It was found that the frontline staff was engaged in inappropriate
practices in order to increase the incentives. The consumers were sold unsuitable products and
some of which comprised of SME lending. It led to the authorities investigate about the
marketing strategies of the bank.
Commonwealth Bank of Australia was alleged for deliberately defaulting the loans of consumers
after it bought the lender from the failed British Bank HBOS. The consumers of Bankwest
accused CBA for defaulting their loans in the years 2009 and 2010 for its own financial interest.
After the investigation, it was found that it gratuitously defaulted some of the loans so that it can
adjust the amount of default from HBOS under the price adjustment method as mentioned in the
sale contract agreed upon between the two banks (The Guardian ,2018).
As a result the investigations have been initiated by the Banking Royal Commission and it has
focused on lending to small businesses as most of them have claimed that they had lost money in
the ventures because of the acts of the banks.
The key ethical issues raised in the article are the violation of ‘Corporate Sustainability
Framework’ .It had claimed in its Corporate Sustainability Report of 2016 that sustainable
growth, fair and accountable banking systems and social and economic participation are the core
principles of Corporate Sustainability. On the contrary, the bank granted a loan of $220,000 to a
couple in the year 2014 to establish the New Zealand based gelato chain outlet in
Australia .The proposal was based on fake financial forecasts and clip art ice cream pictures.
As expected, the business failed and the ombudsman awarded the decree that ANZ should not
have approved the loan. Many mistakes were found in the data entry of the bank and they were
relied upon by the stakeholders at that time. So, it had violated the Fair and Accountable Banking
principle of Corporate Sustainability framework (ANZ, 2016).
Another ethical issue had arisen when Westpac had made a claim against an elderly pensioner
who was suffering from multiple health disorders. In spite of her poor health, she was allowed to
be a guarantor for the loan taken by her daughter which was worth of $165,000, for her business.
The business failed and the bank claimed the property of the pensioner. Upon investigation, it

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was told by the officials of the bank that it had followed the right procedure and there was no
problem in accepting guarantee from the pensioner. Later it was discovered that the documents
were incorrectly filled by the staff. It was declared in the documents that the pensioner had
received the legal advice regarding the business lending agreement when she had not done so
and it was deceptively witnessed by one of the staff of the bank (PWC, 2016).
As per Westpac Banking Corporation ( n.d.) the core values of the bank are integrity,
performance and honesty . It is a clear issue of violating the principles of Corporate Governance
and Corporate Citizenship as it had overruled its vision, mission and values. It had deceptively
filled the documents of its disabled client to obtain her property. So, the banks have violated the
principles of corporate sustainability and corporate governance.
According to ABC News (2018) as a result of ethical violations by ANZ, the Banking Royal
Commission has formulated stricter norms for the consumers who are willing to borrow loams
for purchasing houses and the small entities who want loans for running their businesses. As a
result of this declaration of the commission, the bank had to sale its dealer group to the non-bank
wealth manager IOOF.
The various business platforms of ADG group are being charged with number of breaches as per
the Corporations Act. A penalty of $50 million was also imposed by the commission on the bank
. Additionally, it is being estimated that the bank has to bear additional costs as a result of this
action. There would be more legal and paper work formalities for the people interested in
obtaining loans from the bank.
The bank had to sell its six retail and wealth businesses in Asia comprising of Shanghai Rural
Commercial Bank which was established to set its business in China. The workforce of ANZ was
decreased by 10% in the past 12 months. There were major business transformations by the bank
including divesting its non-core assets, reshaping its workforce and decreasing the complexity of
the products to respond to the changing marketing strategies.
As per The Irish Times (2018) Westpac along with its other Big Four Counterparts had to pay
millions of dollars as a result of settlement to the stakeholders. In the year 2014 ANZ had to
refund AS$ 70 Million to a consumer due to a major default on the part of the bank. In the year

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2016 Westpac was fined AS$ 1 million due to its failure to make inquiries about the income of
the consumers prior to increasing their credit card limits. It is the most appropriate ethical
decision because the banks had violated the trust and integrity of its consumers.
The legal penalties imposed by the Royal Banking Commissions are reasonable as the banks
decisively used the benchmarks set by the industry instead of assessing the abilities of the
consumers to repay the loans in reality. They approved the loans even when the consumers to
whom they were granted were in deficit and they failed to consider the highest repayments at the
end of interest only time period.
Furthermore, the banks also breached the trust of their consumers by misleading them and falsely
witnessing their documents for which they were legally penalized which was fair on the part of
the commission.
The ethical decision making processes in the corporate scandals involve the applicability of
ethical theories in the banking sector .The most relevant ethical theory in this case is
Utilitarianism. It believes that the foundation of morality is the greatest good for the greatest
number of people. The rightness of the actions is governed to the extent to which they create
happiness. On the contrary they are considered wrong if they result in sadness or misery.
In this case, where the banks are alleged of misleading their consumers, forgery and wrongfully
granting loans to the consumers, thereby creating sadness and misery for the financial
community as a whole. The applicability of utilitarianism theory of ethics is best suited for
decision making in this scenario (Zaring, 2017).
It states that analysis of whether the act is morally upright or not is dependent on its results. So,
the banks should be governed with stricter rules and regulations in order to rectify the unethical
actions and to spread happiness amongst its consumers.
The Justice theory of ethics which is based upon fairness and commitment of the banks towards
their consumers is also applied in this case. The organizational justice is based on three models
viz. interactional, procedural and distributive justice. The organizational trust acts as a mediator
between the consumers and the bank in enhancing their business relations (Iqbal and Ahmad,
2016).

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The theory of organizational justice is based on the trust, commitment and citizenship behavior.
Procedural justice provides the methods to determine the results by the organization. It is related
to evaluation of organizational system of commitment and process satisfaction whereas the
distributive justice is related to the fairness of the results which should be rewarded. The
interactional justice pertains to the extend the procedures related to decision making are being
legislated and the treatment which is being received from decision makers. Hence the concept of
justice should be applied on the banking decision making system associated with handling of the
ethical issues. Since, the organizational procedures form the basis of regulations formed in this
behalf. In the context of organizational development, the employees should be allowed to
participate in the decision making process which makes it easier for them to comprehend and
abide by the rules (Robertson, 2018).
Hence to conclude, it can be said that ethics in banking is associated with social and
environmental influence of its investing and other financial activities on its stakeholders. The
ethical banking concerns the ethical investments, socially responsible transactions, corporate
social responsibility, fair trade movements, ethical consumerism and social enterprising. The
ethics in banking should comprise of codes and regulations which must be adhered to by the
management of the banks as well as other stakeholders. There should be transparency and
environmental values in the commercial transactions of the banks which will help to establish an
ethical environment in the banking industry of Australia.

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References
ABC News (2018) ANZ profit jumps, bank warns royal commission will make it harder to get a
loan [online] Available from:
http://www.abc.net.au/news/2018-05-01/anz-half-year-profit/9712580 [Accessed 27th May,
2018].
ANZ(2016) Corporate Sustainability Review 2016 [online] Available from:
https://www.anz.com/resources/9/9/99d1a990-7599-4dc7-87ef-ac502f327b85/accessible-corp-
sus-rev-2016.pdf?MOD=AJPERES [Accessed 27th May, 2018].
Cadman, E.(2018) How Misbehaving Australian Banks Are Causing Global Pain [online]
Available from: https://www.bloomberg.com/news/articles/2018-05-14/why-bad-bank-behavior-
down-under-causes-global-pain-quicktake [Accessed 27th May, 2018].
Cull, M. and Melville, B.(2017) A Review of Ethics Education in Financial Planning Courses In
Australia Financial Planning Research Journal [online] Available from:
https://www.griffith.edu.au/__data/assets/pdf_file/0035/295766/FPRJ-V4-ISS1-pp-11-32-
review-of-ethics-education-in-financial-planning-courses-in-australia.pdf [Accessed 27th May,
2018].
Iqbal, Q. and Ahmad, B.(2016) Organizational Justice, Trust and Organizational Commitment in
Banking Sector of Pakistan. Journal of Applied Economics and Business.4(1),pp. 26-43.
Mikołajczak , P.(2017) Sustainable banking. Implications for an ethical dimension of finance of
social enterprise performance [online] Available from:
http://www.ltn.lodz.pl/images/spe/104/mikolajczak.pdf [Accessed 27th May, 2018].
PWC(2016) Escaping the commodity trap: The future of banking in Australia [online] Available
from: https://www.pwc.com.au/pdf/pwc-report-future-of-banking-in-australia.pdf [Accessed 27th
May, 2018].

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Robertson, A.(2018) Banking royal commission: Does this prove banks are not an ethical
investment? [online] Available from: http://www.abc.net.au/news/2018-05-04/does-royal-
commission-prove-banks-are-not-an-ethical-investment/9728560 [Accessed 27th May, 2018].
The Guardian (2018) Buyers – and sellers – beware as royal commission exposes banking's risky
business [online] Available from:
https://www.theguardian.com/australia-news/2018/may/26/buyers-and-sellers-beware-as-royal-
commission-exposes-bankings-risky-business [Accessed 27th May, 2018].
The Irish Times(2018) Australian banking inquiry exposes litany of abuses [online] Available
from: https://www.irishtimes.com/business/financial-services/australian-banking-inquiry-
exposes-litany-of-abuses-1.3481709 [Accessed 27th May, 2018].
Westpac Banking Corporation( n.d.) Corporate responsibility and our business [online]
Available from: https://www.westpac.com.au/docs/pdf/aw/Corporate_Responsibility03.pdf
[Accessed 27th May, 2018].
Zaring, D.(2017) The International Campaign to Create Ethical Bankers. Journal of Financial
Regulation. 3(2),pp.187–209.

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The Image of the article referred in the solution:
https://www.bloomberg.com/news/articles/2018-05-14/why-bad-bank-behavior-down-under-
causes-global-pain-quicktake

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