Banks are taking longer to approve credit and rejecting more loans as they adjust their approach to risk in the wake of the royal commission, an inquiry has heard.
Reserve Bank Governor Philip Lowe told a parliamentary hearing in Canberra on Friday he'd been "appalled" by the behaviour being exposed in the banking royal commission.
He said the royal commission had shown the "benefit of sunlight" on exposing the banks' attitude of putting sales before customer service and not having adequate risk management processes.
"Sunlight is acting as a very good disinfectant here and we need this disinfectant and it is actually working," he said.
He said the inquiry would deliver better behaviour, in the wake of "strained" trust between financial institutions and the community.
The two common themes being exposed were the difficult of dealing with conflicts of interest and the role of pay, commissions and bonuses in driving "quite poor behaviour" by the banks.
"We need to rebuild trust and we need to have a very strong focus on delivering service rather than sales," Dr Lowe said.
However, there had been a flow-on effect from the royal commission on the supply of credit.
Banks had become more "risk averse" and the process for approving credit had slowed, Dr Lowe said.
"More loans are probably getting rejected than would previously have been the case," he said.
However, he said it was important for the future that banks looked at all of their processes "from top to bottom" and ensured that they were delivering good products to consumers.
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