Westpac has defended pursuing 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.
At the banking royal commission on Tuesday, Westpac's general manager of commercial banking Alastair Welsh came to the bank's defence.
Mr Welsh maintained it was entitled to rely on the guarantee and that there were no problems with the guarantee process nor with making the loan in the first place.
He said that the bank's policy was to exercise "extreme caution" in approving guarantees.
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 said.
"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.
Carolyn Flanagan appears at the royal commission. Source: AAP
"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.
After Ms Flanagan gave evidence to the commission on Monday, Mr Welsh said he felt discomfort about seeing an elderly person in her situation.
"My view of this situation is we allowed a mother to back her child. That's a big part of backing small businesses where parents support their children. In this situation, it has turned out in a very sad way," he said.
