Westpac has defended trying to repossess an elderly disability pensioner's home that had been used as security for her daughter's failed business venture.
NSW woman Carolyn Flanagan, who is legally blind and has a number of medical conditions, faced losing her home after guaranteeing a business loan for her daughter and daughter's partner in 2010.
The banking royal commission heard Westpac would not accept a guarantee from a parent unless that person stood to receive a direct benefit from the business loan.
But despite what the loan application and documents said, Ms Flanagan - a disability support pensioner - was not employed by the franchise, nor was she a shareholder and likely to receive dividends.
Commissioner Kenneth Hayne QC questioned whether Westpac's assessment process on the guarantor's potential for financial benefit was more form than substance or "box ticking rather than looking at the reality".
Westpac executive Alastair Welsh agreed that it was "more form".
He said the process was to ensure there would be a commercial benefit but that many parents wanted to support their children, who may struggle to access finance for a business.
"The support of parents is critical," Welsh, Westpac's general manager of commercial banking, said on Tuesday.
"The support of a guarantee for many small businesses is critical."
Westpac maintained it was entitled to rely on the guarantee and that there were no problems with the guarantee process, nor with making the loan.
But Mr Welsh admitted the bank was wrong to initially deny Ms Flanagan's financial hardship claim, having moved to repossess the home after the borrowers defaulted on the loan.
"We made an error here, yes," he told the commission.
"We forgot this was about Ms Flanagan."
He said the bank focused on the legal process when Ms Flanagan's claim went to the Financial Ombudsman Service, which backed the bank.
"She was looking to stay in her home," Mr Welsh said.
"When we finally cut to the chase of that, that's what we did.
"We gave her life tenancy for her home."
After Legal Aid NSW intervened, Westpac ultimately agreed to let Ms Flanagan remain in her home until she dies or chooses to sell it.
It will then be entitled to take $170,000, plus three per cent in interest that has accrued each year.