The report by Mr Mott, who has been arguing Australia's banks are at risk of holding "liar loans" - those with incorrect borrower information - cited data on 420 Westpac loans, which has recently been published by the royal commission. Mr Mott told investors the data showed Westpac customers were carrying more debt than he expected, with his analysis finding the typical customer in the sample had total debt that was 5.4 times their income. In 29 per cent of the loans, he said the bank had not completed minimum income verification such as checking a borrower's payslips. "This data raises questions regarding the quality of [Westpac's] $400 billion mortgage book (70 per cent of

of its loans)," Mr Mott wrote. Westpac responded by saying very few of its loans were going sour, and the documents cited by UBS were part of a review that was holding the bank to higher standards than what it must do under the law.

"Our mortgage delinquencies and losses remain low both relative to historical and industry averages," chief financial officer Peter King said in a statement. The bank said that of the 420 loans analysted by Mr Mott, only four were more than 30 days behind on their payments and one was greater than 90 days past due, which was "well below" the average across the bank. The chief investment officer of Atlas Funds Management, Hugh Dive, said the UBS report had triggered the wider drop in bank shares, and the fall was especially sharp because investors were jittery over what the royal commission might find. Loading "What we are really facing here is the uncertainty over what's going to come out," Mr Dive said.

Regal Funds Management portfolio manager Omkar Joshi said the question of loan quality was an "issue for the whole sector, not just Westpac." Although the number of home loans going sour is still very low, Mr Joshi said the questionable mortgages identified by UBS could be a risk to banks in the future if there was an economic downturn. "What's the likelihood that somehow Westpac managed to pick up all the bad customers, and everybody else is clean?" he said. Clime Asset Management senior analyst David Walker said the UBS report tapped into a wider debate about whether mortgage customers could afford to pay back their home loans. Banks' bad debt costs were at "epic lows," he said, and whether this remained the case would largely hinge on the outlook for interest rates, and unemployment. "If the current conditions continue, then that bad debt experience will continue," Mr Walker said. The Westpac data used by Mr Mott was prepared by the bank in response to a 2016 demand from regulators for all of the banks to carry out a "targeted review" of their lending processes, due to concerns of a race to the bottom in banks' lending standards as they competed for customers.