A senior ANZ executive has admitted a $220,000 loan given to a couple for a gelato franchise was not done with the care and diligence expected of banks.

And Westpac has defended its decision to lend money to a Victorian woman and her business partner for a Pie Face franchise that quickly failed.

The banking royal commission has shifted its focus this week to small business lending, with concerns raised about the major banks’ willingness to lend to small businesspeople with sometimes problematic business plans.

ANZ’s Kate Gibson, previously in charge of small business but now head of home lending at the bank, was grilled over a decision to loan $220,000 to a couple in 2014 to set up the first Australian outlet of a New Zealand gelato chain, which ultimately failed, largely based on a business plan filled with pages of “clip-art” ice cream pictures and unrealistic financial forecasts.

The borrowers complained to the Financial Ombudsman Service that ANZ should not have approved the business loan and other credit facilities totalling $220,000 because they could not service the debt.



The ombudsman found in their favour.



Gibson admitted a “number of errors” were made by the bank, including basic data entry mistakes, which other people then relied upon.



“Errors are going to be made, that’s just life,” she told the commission. “There are human beings involved and errors will be made. But when I stepped back and looked at the cumulative number of errors here, I was not comfortable. I don’t think that level of error is acceptable.”



Asked by senior counsel assisting Michael Hodge QC whether she thought that ANZ had demonstrated the care and skill of a prudent and diligent banker, Gibson replied: “No.”



Westpac was forced to defend its decision to lend money to a Victorian woman, Marion Messih, and her business partner for a Pie Face franchise in Melbourne.

Messih had given evidence on Tuesday that she was forced to sell her investment property when the store she bought with her sister-in-law failed.



She planned to use the proceeds of the sale of the investment property – $750,000 – to repay $165,000 of what was left of her investment property, $330,000 of what was left of her home loan and $165,000 to repay her half of the business loan. Her sister-in-law owned the other half of the business loan.

“In the last minute before ... Westpac actually would release my property, the day before settlement was due on my property, I get an email saying ‘no, we are not going to do that, we are going to take 100% owing on the business loan from the sale of your property’, which clearly shattered me, because that was not all my debt,” she said. “When settlement happened on my property, they took it all.”

Westpac executive Alastair Welsh told the commission on Wednesday that he reviewed Messih’s application and, while conceding there were a “few gaps” in the information provided to the bank, he was broadly “happy with it”.

“The loan should have been made,” he said.



The Financial Ombudsman Service found the loan to Messih should not have been given. However, it found Westpac was entitled to take the full amount owed for the business loan.

The commission also heard the case of Suzanne Riches, a primary school teacher of 42 years who was forced to sell her block of land after taking out a business loan to purchase a Wendy’s ice cream franchise that went sour.

Riches said she applied for a $280,000 loan from the Bank of Queensland to buy two Wendy’s outlets in Westfield Marion in southern Adelaide in 2012.

She had originally agreed to a $280,000 loan, for seven years, with monthly repayments of $4,420.

But the loan agreement was changed at the last minute, to $280,000 for three years with monthly repayments of $8,696, and Riches said she felt like she had to accept the offer.

“I felt I was in-between a rock and a hard place,” she said. “The cooling off period had elapsed on the 5th October, I had no way to get out of the contract. There was threats of legal implications. I sort of felt I was in a no-win situation.”