In one instance a Rural Bank client who had reached a peak debt of $2.155 million tried to get a loan to purchase another property for $2.7 million in 2007.

It was declined, but was re-submitted shortly after with the support of two Elders senior managers.

This time, the amount sought was $1 million less.

The $1 million came from an alleged capital contribution from the client’s aunt, and the matter was approved.

But the Rural Bank district banking manager failed to disclose that the $1 million was, itself, a loan from Macquarie Bank.

The bank had been exposed to risk – the manager had “manipulated and suppressed” information.

The banking Code of Practice states bankers must exercise care and skill in selecting and applying credit assessment methods.

The only problem was that, at the time, Rural Bank had not signed the Code of Practice. In fact, it did not sign the code until 2017.

It was one of a number of examples provided to the Financial Services Royal Commission this week outlining the questionable lending practices of Rural Bank, which was established as a 50-50 venture between Bendigo Bank and Elders in 1998.

Bendigo and Adelaide Bank fully acquired Rural Bank in 2010.

Rural Bank managing director Alexandra Gartmann was questioned extensively on Monday, believing that many of the lending issues stemmed from the unstable nature of agricultural industries including drought, volatile livestock prices and natural disasters.

In one instance, a farmer was struggling to operate within his limits from 2005 to 2008, but applied to increase an existing facility from $700,000 to $800,000.

It was declined, and his account was found to be over its limits by $110,000.

Just before his application, Rural Bank appraised his livestock at $1.735 million. This resulted in a temporary limit of $850,000 being approved.

But six months later, his livestock was appraised again and valued at $728,000 – more than $1 million less.

Rural Bank had loaned the farmer more than the value of his security.

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Ms Gartmann, who became managing director in 2015, conceded the banking manager’s judgement “wasn’t appropriate”, but said external forces were also at play.

“It was Millennium Drought and the last thing we want to do, particularly with livestock, is not advance funds in order to feed livestock,” she said.

“So that is one of the challenges in lending in agriculture.”

A third example involved a Rural Bank district banking manager attempting to increase an overdraft for a farming business that was facing impending liquidation.

Its debt had increased to $2.91 million between 2004 and 2009, but no monthly updates were being provided despite requests from the lending manager.

A Rural Bank review into the matter was due, but did not occur.

The district banking manager did not draw Rural Bank’s attention to the business’ impending liquidation, and instead supported an attempt to increase its overdraft from $200,000 to $360,000.

When the request was declined, the manager sent a note days later saying he “didn’t agree with the credit team’s decision to refuse additional funding”.

Ms Gartmann agreed there were issues with the way the matter was handled by the district banking manager.

“I certainly recognise and acknowledge that there was poor timeliness in terms of reporting to Rural Bank of the performance and behaviour with his customer,” she said.

At the request of the Royal Commission, Rural Bank provided details of 62 loans it provided to Queensland cattle farmers in the 2000s and 2010s, admitting a string of failures.

The Australian Prudential Regulation Authority was concerned with a sharp rise in impaired loans in 2011.

Loans became non-performing for a range of reasons: there was a weak underwriting and an over-reliance on security values.

These combined with the live cattle export ban, falling cattle prices, prolonged drought and falling property prices.

Rural Bank conceded these loans had “prioritised asset growth” and fell below community standards.

Issues with Rural Bank’s lending have been a topic of discussions with Bendigo and Adelaide Bank for some time. In 2011, Rural Bank’s then head of risk Taso Corolis wrote a report outlining the problems.

He found there was a “strong bias” toward asset lending on the assumption that property prices would continue to rise. He believed Rural Bank saw asset sales as a comfortable “first way out” for recovery action.

Appraisers were also not visiting and inspecting some properties, resulting in inflated values.

Ms Gartmann believed Mr Corolis’ findings were “overstated” and subsequent training and development had shown that the situation was not as “dire” as the report stated.

It was also revealed that Rural Bank had no hardship policy until 2014 – a position Ms Gartmann could not explain.

But she believed practices within Rural Bank had improved since it signed up to the banking Code of Practice last year – the last Australian financial institution to do so.

Ms Gartmann said the delay was a result of the large number of changes taking place within Rural Bank after her appointment in 2015, and she wanted to avoid “change fatigue”.