ANZ Banking Group did not behave ethically towards a Queensland farmer who was forced off his property, after it took over his loan from Landmark, the royal commission has been told.

It was one of 10 cases in which ANZ accepted it engaged in conduct which fell below community standards and expectations or was in breach of the Banking Code of Practice.

The banking royal commission has entered its second day of hearings in Brisbane into farming finance.

Out of the 268 submissions related to agricultural finance received by the royal commission, 32 related to the ANZ acquisition of Landmark in 2010.

At that time, ANZ acquired 7124 loans worth $2.3 billion.

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Charlie Phillott, who ran a station in central-west Queensland, was 81 when he was forced off his property, despite never missing a mortgage payment, after ANZ devalued his property due to the drought.

ANZ head of lending services Benjamin Steinberg accepted the bank did not act fairly and reasonably in the Phillott case, fell below community standards and expectations, and breached certain clauses of the Banking Code of Practice.

"I think the dealings were consistent but I think they weren't fair and they weren't reasonable," he said.

Questioned by Commissioner Kenneth Hayne over whether the bank acted in an ethical manner, he said: "It's fair to say we didn't."

Speaking outside the royal commission, Mr Phillott said he felt vindicated.

"I think people in the banks, those that are running them, have to change their tack, it's important that they treat people and their clients everywhere as human," he said.

"They need to also… tailor their services to the rural industry."

In another case, ANZ's conduct toward Arthur and Rhonda Cheesman, who ran a hay, cereal and lentil farm in western Victoria, resulted in them losing their home.

The Cheesmans had been with Landmark since 2004, and had a term loan with a limit of $2.95 million and season facility with a limit of $650,000 when their loan was acquired by ANZ.

They were already facing financial difficulties before the ANZ takeover, with the region experiencing droughts and below average rainfall, and had been considering downgrading their risk rating.

In October 2010, ANZ increased the facilities to allow the Cheesmans to trade for the rest of the season on the basis they would sell assets in early 2011 to clear debt.

However, by October 2011 the family was given about two months to sell all of their properties under an asset management agreement, and if it did not sell at auction, they would need to surrender their properties within seven days of ANZ's demand.

The family wanted to delay selling their homes and means of earning a living, and if they could not clear the debt entirely or refinance after clearing most of the debt, then they accepted they would need to sell their homes and equipment.

An ANZ staffer's diary note showed the bank did not want to be left with the house with residual debt and required the properties to be auctioned off as a whole, including the houses.

That was despite the bank being aware it was possible that excluding the houses from the sale would not make any difference to the sale price, counsel assisting Rowena Orr said.

An auction was scheduled for February 2012.

But the royal commission heard ANZ was aware by January 2012 that the Cheesmans would not have a place to live if the bank's plan went ahead.

"I find it sad that that happened, I'm struggling … if this was done today, it would be dealt with in a different way," Mr Steinberg said.

"I guess as a counter balance, I could only put this in the background of the fact that there had been long-standing arrangements with the Cheesmans to sell these assets and they understood that they had the obligation to repay the bank but I accept that it's difficult reading what we read."

Three of the Cheesmans' properties sold at auction for $2.7 million – except for the house where the couple's son Reuben and his wife Katrina lived.

The  family was able to reduce the remaining debt from $550,000 to $450,000 by selling equipment and cattle. During negotiations, the Cheesmans made four offers to the bank, which were rejected.

Ms Orr put to Mr Steinberg that ANZ still had a mortgage over the remaining property and believed it could get more money if it sold the property. He replied, "yes".

By late December 2012, the family had managed to pay the debt down to $275,000.

In a letter two days after Christmas, a financial counsellor wrote to ANZ to offer $250,000 to settle the debt after the family was offered a loan from a family member, but the offer was rejected.

The letter detailed the desperate plight of the Cheesman family, who were sending all proceeds from the sale of machinery to ANZ – without even keeping the GST – at prices lower than they had hoped.

ANZ later said it would accept $265,000, which was accepted, and Reuben and Katrina were able to keep the house.

Mr Steinberg said ANZ would take a more empathetic approach if dealing with the same matter today, and look at an option that would allow the family to keep their home.

"I think the right thing to do at the time of these events would have been to structure a different arrangement with the Cheesmans, one that would have potentially given them an opportunity to retain some form of home ownership, as well as retaining some way of earning an income and that could be achieved in a number of different ways," he said.

However, Mr Steinberg defended the bank's actions at the time.

"When you analyse it clinically … We did what we said we were going to do," he said.

"I don't mean to justify the way it was done."

By 2013, 1050 accounts – or about one-third – of the Landmark accounts were considered impaired or high risk, with a total value of $722 million.

Mr Steinberg said the losses were higher than what ANZ expected it to be, but he said he was not aware of any stress testing of the expected losses.

"What I've seen is the due diligence work that was done and then the completion accounts," he said.

The hearings continue.

Farmer Charlie Phillott was forced off his farm.

Farmer Charlie Phillott was forced off his farm.

Photo: Glenn Hunt

Felicity Caldwell is state political reporter at the Brisbane Times

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