The ANZ bank has confessed to breaching “the standard expected from a diligent and prudent banker” in a surprise admission by its former small business lending manager Kate Gibson at the financial services royal commission.

Ms Gibson, who now has another role at the bank, was under questioning at the time from the bank’s own counsel, Matthew Collins QC, over loans made to a couple for an ice cream franchise.

Dr Collins appeared to be trying to get Ms Gibson to defend the bank’s overall actions in the deal despite some problematic actions admitted to earlier.

But Ms Gibson disagreed with the direction the questioning was taking.

“What view have you reached?” the barrister asked.

“I actually don’t think we did [act with diligence and prudence] in this case,” she replied.

“I am uncomfortable … there are a number of errors … I don’t think that level of errors is acceptable.”

The loan in question totalled $220,000 and was made to a couple who wanted to open a New Zealand ice cream franchise in a Westfield shopping centre. It was the first of its type in Australia.

As a result the bank lent to the business without having cash flow figures for Australia. Instead they used estimates provided by the NZ operation in a business plan.

But when it came to its own paper work the bank did not even make an estimate for the business’ likely cashflows.

Once the business was up and running the couple were unable to service the debt. They lodged a complaint with the Financial Services Ombudsman which eventually found in their favour.

FOS said ANZ should not have made the loan relying on estimates provided by the couple and it had not properly assessed their ability to service the debt.

Ms Gibson admitted the bank had done its calculations without adding in two liabilities to the couple’s financial situation. These were a $485 per month charge for a lease and a $7000 bank overdraft.

But she said the figures still stacked up, as the wife was to get a $30,000 salary from the business that could be varied.

Ms Gibson observed that FOS “didn’t believe we had considered that the director’s [the husband who worked outside the business] capacity to pay for all the family’s expenses and the business debts”.

Ms Gibson said the ombudsman’s approach to business lending was too restrictive.

“That would mean that somebody who wanted to start a business, who didn’t have a tangible security, and didn’t have a partner with an income sufficient to cover the business debt and all of the family expenses, would not be able to get a loan.”