Bendigo and Adelaide Bank : statement on BCCC Findings

Bendigo and Adelaide Bank has taken swift and decisive action to remedy historical breaches of the Code of Banking Practice 2013 (Code) reported today by the Banking Code Compliance Committee (BCCC) regarding some customers within the Great Southern loan portfolio.

The historical breaches relate to debt collection processes, with 81 percent of the issues identified relating to the 2015 and 2016 calendar years.

Managing Director, Marnie Baker said: "We regret our actions and sincerely apologise for any negative impacts these breaches have caused for our customers. We fell short of our own expectations and that of our customers and the community. These actions do not reflect who we are and what we stand for. We always strive to put our customers and communities first and these historic issues are not acceptable.

"The Bank has addressed the operational issues to prevent this from happening again and has established a remediation program to provide payments to customers where we made mistakes that had an adverse customer impact."

Action taken by the Bank to address the operational issues in the Great Southern portfolio included:

• The integration of the Great Southern team into the team responsible for financial difficulty assistance to ensure increased oversight and staffing capacity, and consistent application of all financial difficulty processes.
• Strengthened call recording systems, complaints management, training and processes.
• Strengthened oversight processes to regularly review all Great Southern collections and financial difficulty activities.

"We accept and have reflected deeply on the findings and we understand how the mistakes occurred. When we recommenced collections activity following the Supreme Court finding in our favour in December 2014, we experienced a large influx of complex enquiry from Great Southern borrowers. As cited in the BCCC's notice of sanction, our Great Southern collections team was established and operated separately from the Bank's broader operations, was inadequately resourced, and our processes and systems were insufficient for these staff and the Great Southern customers. Because of this, we made mistakes in how we communicated with and responded to some of these customers.

"We are confident the corrective actions we have taken and the ongoing remediation program, along with the BCCC's report, concludes the matter.

"The BCCC has recognised the extensive work undertaken by the Bank to address the matters identified in its report and ensure continued compliance with the Code. We will continue to work closely with the BCCC.

"We remain committed to complying with all required regulations, standards and guidelines whilst continuing to prioritise the interests of our customers and their communities," concluded Ms Baker.

Additional Information:Remediation

• A provision for remediation for matters including these breaches was disclosed in the Bank's FY20 Results[1]. Specifically, in relation to this, our investigations and best estimates resulted in a provision of $1 million being raised. Potentially impacted Great Southern customers are those that sought financial hardship in 2015. At this stage based on our review to date, we estimate there to be less than 450 accounts that may require remediation and / or goodwill payments. To date, 15 percent of the accounts independently reviewed have been assessed as eligible to receive remediation or a goodwill payment, with the majority comprising goodwill payments which recognises any non-financial adverse impact on the customer.

Additional Information:Great Southern Loan portfolio

• The historic breaches do not impact Great Southern borrowers' obligations, nor do they affect the Bank's legal rights on loans that have previously been repaid and/or recovered by the Bank. This has been confirmed through extensive legal processes, including via the Victorian Supreme Court.

Additional Information:Great Southern Loan timeline

• Great Southern Limited was the parent company of the Great Southern Group (a Perth based agribusiness). Through its wholly-owned subsidiary, Great Southern Managers Australia Limited, Great Southern Limited established, sold and managed agricultural managed investment schemes (MIS).
• Finance for MIS was offered to investors via another wholly-owned subsidiary, Great Southern Finance (GSF). The majority of GSF's revenue was raised through the sale of interests in MIS, and through management fees associated with the MIS and interest on loans provided to MIS investors.
• Adelaide Bank Limited was involved with the MIS through two key mechanisms:
• purchased loans, which were bought from GSF in 2004 and
• originated loans, written by the Bank or its subsidiaries in 2006.
• On 30 November 2007, Adelaide Bank Limited merged with Bendigo Bank Limited forming Bendigo and Adelaide Bank Limited (BEN).
• On 16 May 2009, Great Southern Group and associated subsidiaries were placed into administration and subsequently went into liquidation in November 2009. The Great Southern loan facilities were then assigned to BEN.
• In 2010, a class action commenced in the Supreme Court of Victoria on behalf of investors, with various law firms advising their clients to cease making payments under their loan deeds. The initiating proceedings were issued between mid-2010 and August 2011. The trial commenced in October 2012 and BEN temporarily ceased collections activity for all group proceedings covered Great Southern loan files until February 2015.
• On 11 December 2014, the Victorian Supreme Court approved a settlement of the class action and a formal Deed of Settlement was agreed between the parties. The Deed provided that the relevant loans were valid and enforceable, with BEN agreeing to waive accrued and unpaid Loan Default interest (being the additional interest charged on top of the standard interest rate when a loan was in default).
• For the period May 2011 to February 2015, BEN had suspended its collections activity for borrowers that formed part of the class action. During this period, many investors did not continue to contribute towards their loans.
• Following the December 2014 Deed, BEN provided a moratorium to allow borrowers further time to engage with the Bank in relation to their loans. During early 2015, BEN recommenced collections activity for loans pertaining to the Group Proceedings, including the issuance of a No Contact Letter to reengage with its Debtors.
• From February 2015 onwards, BEN recommenced collections activity on the Great Southern loan portfolio.
• As at 30 June 2020, the size of the Great Southern loan portfolio was $31.4 million[2].

[1]Provision related to products not operating in accordance with terms and conditions and compliance with the Code of Banking Practice 2013. Refer to slide 29 of the2020 full year presentation.

[2]Total balance on group balance sheet that is outstanding from Great Southern Borrowers, including loans held in trusts and excluding provisions