HBOS Australia and Bankwest incurred lending losses over the four years to 2011 equal to more than one fifth of their loans, a review by a UK parliamentary committee into HBOS, the bank's then owner, found.
The UK committee released its
review into the demise of HBOS on Friday. It is the most detailed account released by an oversight body of the events leading to the rescue of HBOS by Lloyds Bank, with UK government financial support, in late 2008.
Lloyds sold Bankwest to Commonwealth Bank at the end of 2008.
According to the review, impairments for HBOS in Australia over the period 2008 to 2011 totalled £3.6 billion, equivalent to 28 per cent of the value of its Australian loan book at the end of 2008, in sterling terms.
This was "an even higher loss as a proportion of loans than [that] incurred by the corporate division of HBOS in the UK," the review said.
It also commented: "This loss is all the more striking in view of the comparative resilience of the Australian economy in the global downturn. In this period, the Australian banking sector remained profitable and no entities received any public capital support during the crisis."
The committee concluded that "these losses [in Australia and also Ireland] were the result of a wildly ambitious growth strategy, which led in turn to significantly worse asset quality than many of its competitors in the same markets."
The report said: "Abroad as at home, HBOS took what it saw as the relatively quick and easy path to expansion without acknowledging the risks inherent in that strategy.
"As in the UK, HBOS concentrated on sectors [such as commercial real estate] which enhanced the intensity of its subsequent exposure."
The review said that in the mid-2000s, after HBOS took full control of Bankwest, the bank "sought to double its national market share and to be a new rival to the four local banks that dominated the market."
"By June 2006, [HBOS international chief] Colin Matthew was telling the top management that the longer term aim for the Australian business 'was to become a major Australian financial services company with market shares in the 15-20 per cent range in chosen segments.'
"Four local banks dominated the Australian market, but due to 'significant customer dissatisfaction' and 'relatively low levels of customer commitment', there was the opportunity for HBOS Australia to pursue a differentiated 'customer champion' proposition.
"The strategy planned growth in Corporate and Business Banking, Retail Banking and bancassurance, including in the east coast markets, where the Group's shares were smaller."
Matthews had "presented the growth strategy in Australia as 'credible, manageable and low risk'.
"By June 2006 Colin Matthew told the Board that the longer term aim for the Australian business 'was to become a major Australian Financial services company with market shares in the 15 to 20 per cent range in chosen segments."
The review said that the "[international] division's pursuit of rapid business growth led to a concentration in higher risk corporate areas, notably in commercial real estate and related sectors, rather than in potentially more sustainable and less risky areas, which would have involved a slower build.
"The specific nature of the division's loan portfolio resulted in higher credit losses."
In Australia, it said, "where the economy and the banking industry have been relatively resilient, the evidence… clearly suggests that HBOS had significantly worse asset quality than other banks."