By Jonathan Barrett and Paulina Duran
SYDNEY (Reuters) - National Australia Bank Ltd's (AX:NAB) system of bonuses and incentives encouraged bankers to engage in fraudulent lending practices to boost their incomes, NAB told a powerful judicial inquiry into the scandal-ridden sector on Wednesday.
Scrutiny of the bank's various incentive schemes dominated the second morning of testimony at the Royal Commission in Melbourne, where the country's fourth-biggest bank conceded falsified mortgage documents were used to help people collect bonuses and commissions and beat sales targets.
"So from a very early point, NAB was aware that a driver for these ... fraudulent behaviours was its own remuneration structure," Rowena Orr, a barrister assisting the inquiry, said on Wednesday.
Under questioning, senior NAB executive Anthony Waldron said the structures were "certainly one of the root causes".
NAB disclosed in documents that some employees accepted over-the-counter cash bribes to facilitate loans based on fake documents.
"There's been breakdowns right throughout the end-to-end process here for the application of loans," Waldron said.
Financial incentives and poor lending practices are expected to feature prominently in the potentially explosive year-long inquiry into the financial sector and especially the "Big Four" banks, which dominate the country's A$1.7 trillion ($1.36 trillion) mortgage market.
NAB is the first bank to come under scrutiny, with testimony from its rivals to follow.
The start of the inquiry has largely focussed on NAB's so-called introducer programme, where the bank rewards people who are not staff with commissions when they introduce potential home-loan customers.
Some of those rewarded commissions of 0.4 percent of the size of the loan included a gymnasium and a tailor, the inquiry heard.
Forged loan documents and dishonest use of customers' signatures were used to enable "introducers" to collect commissions, and bank staff to earn bigger bonuses, the inquiry heard.
NAB derived more than A$24 billion ($18.9 billion) in home loans from the scheme between 2013 and 2016, when the misconduct took place.
The inquiry disclosed on Wednesday that A$630,000 was paid to introducers during the four-year period, with the majority of that amount paid to one party.
NAB said it has since reworked the incentives programme and sacked 20 employees in connection with the scheme.
($1 = 1.2721 Australian dollars)