Updated October 19, 2018 14:21:18

Photo: NAB CEO Andrew Thorburn is fronting Parliament today to answer questions raised by the royal commission. (ABC News: Ian Cutmore)

National Australia Bank chief executive Andrew Thorburn has laid bare a culture where profits came before people and banker incentives rewarded bad behaviour in the wake of damaging evidence emerging from the financial services royal commission.

In his opening statement to a parliamentary committee grilling major bank bosses, Mr Thorburn admitted the royal commission had exposed issues at NAB that he found "confronting and upsetting".

"I feel this deeply having worked in our profession for more than three decades," Mr Thorburn said in Canberra.

"In so many cases we have not had the care and respect for our customers that we should have and for that I am sorry."

The royal commission's interim report, released a fortnight ago, outlined "a culture of greed" and a system of incentives for bankers where the interests of customers came a distant second to shareholders.

This morning Mr Thorburn conceded the observations from the interim report were "fair and balanced" and that the bank would respond "thoughtfully".

Royal commissioner Kenneth Hayne has slammed the banks' culture of greed as the root cause of much wrongdoing.

Under questioning from the committee, Mr Thorburn revealed that hundreds of NAB staff have left the bank due to misconduct, while others lost pay.

"Seven hundred of these had a reduction in variable pay or consequences for themselves," he told the hearing.

"Of the 700, over 300 have been terminated or have left as a result of the investigation."

However, Mr Thorburn said he wanted to deal with the specific causes of the misbehaviour and "not just the symptoms", and highlighted significant changes in the sector over the past three decades.

"The focus has slipped away from customers. This has left our industry open to the challenges of profits before people," Mr Thorburn said.

"The move from base pay to greater incentive compensation hasn't been managed carefully enough and has rewarded wrong behaviours."

Mr Thorburn conceded there had been a move from "a long-term view to a short-term one" and that the interests of customers were ultimately the same as shareholders.

Banks set aside billions for customer compensation

Earlier this week, NAB set aside $314 million for customer compensation programs, joining other major banks taking a profit hit as a result of royal commission revelations.

Last week, ANZ announced $374 million in remediation costs as part of the "fees for no services" scandal, which is contributing to a $697 million downgrade in the bank's full-year cash profit.

The fallout from the royal commission is already tightening lending standards as borrowers prepare for rising interest rates and lower real estate values.

Home buyers could see their borrowing capacity cut by as much as 40pc due to reforms likely to be driven by the Hayne Royal Commission.

Mr Thorburn said while the Australian economy is performing well, sectors such as retail are operating in a difficult environment where household budgets are tightening.

"Consumers are less confident than they were and, as a result, are unlikely to continue spending at current rates," Mr Thorburn said.

Mr Thorburn is the last of the big four bank executives to face the House Economics Committee in semi-annual hearings established in 2016 as then-treasurer Scott Morrison pushed back against calls for a royal commission.

Royal commissioner Kenneth Hayne remains on track to deliver his final report on February 1 and speculation is mounting that he is likely to refer potential civil or criminal breaches of the Corporations Act to the Commonwealth Director of Public Prosecutions.

Topics: banking, federal-parliament, royal-commissions, australia

First posted October 19, 2018 09:15:47