The National Australia Bank says it will take no new thermal coal mining customers and wind down lending to existing customers to zero by 2035, an announcement that had NSW Liberal MP Craig Kelly accusing the bank on Friday of putting "a black line" through a legal industry.
Incoming NAB chairman Philip Chronican appeared before a parliamentary inquiry in the big four banks on Friday.
Mr Kelly accused him of virtue signalling, asking whether there were any other legal activities to which the bank would refuse to lend.
Would the bank refuse to loan to someone who presented a business plan for making X-rated videos? he asked.
Mr Chronican said the bank was required to make a risk assessment for customers in high risk sectors, including those where there was a risk of involvement with money laundering, human trafficking or organised crime.
That meant X-rated video lending would have "a higher threshold than lending to the corner store", but it wouldn't be ruled out like coal.
The bank's exposure to thermal coal mining stands at $762 million. Mr Chronican said it would be phased down to about half by 2028 and effectively zero by 2035. The bank would not fund new coal-fired power generation or expansions to existing plants unless there was technology in place to materially reduce emissions.
By 2035, the only exposure the bank would have to thermal coal mining would be financing for environmental remediation of mines, he said.
The Commonwealth Bank has also announced plans to "work towards" exiting thermal coal by 2030, but subject to secure alternative sources of energy.
How does it benefit the Australian economy if we have Australian banks refusing to loan to a sector that will be loaned to by foreign banks?Liberal MP Craig Kelly
Westpac told the same parliamentary inquiry last week that it would remain in fossil fuel power generation but would transition away over time. It would support new coalmining in existing basins and where the quality of the coal was in the top 15 per cent, the bank said.
Mr Kelly suggested firms would simply look elsewhere for financial of Australian mines, including to overseas banks, increasing the hold of foreign banks on Australia.
"How does it benefit the Australian economy if we have Australian banks refusing to loan to a sector that will be loaned to by foreign banks?"
But the bankers said they did not expect coal companies to look elsewhere for coal financing. They were already looking to new technology among a host of other measures.
But Mr Chronican said the bank's decision to phase out lending to coal was based on the Paris climate change agreement goals of keeping global warming to less than 2 degrees C and reducing emissions by 45 per cent by 2030 and zero by 2050 - and if those targets were to be met coal would no longer be economic.
After the hearing Mr Kelly accused the bank of virtue signalling to the extremists of the extinction rebellion group and he suggested regional customers of the NAB should consider switching banks.
"If I was living in a regional area of Australia and my income, directly or indirectly, relied upon the strength of the coal mining industry and I knew a particular bank wanted to try and close that industry down in the future I don't think I would be doing my business with that bank," he said.
"Demand for Australian coal export will still be strong for the next two decades at least, and therefore if the banks are not going to loan these businesses money there are plenty of other banks in China and India where the demand remains strong that will step into the breach."
Banks should make decisions based on commercial viability of businesses engaged in legal activity and not "put black lines through entire industry to virtue signal", he said
Asked whether oil and gas would be next, the NAB said it was developing a strategy over the next few years for those industries. There was a risk that other fossil fuels would also become riskier as the renewables industry grew.
Mr Kelly also questioned the bank's commitment to farming, given agriculture was responsible for 14 per cent of Australia's greenhouse gas emissions.
Mr Chronican said the bank's initial focus was ameliorating emissions from the New Zealand farming industry, which had been exempted from the New Zealand emissions commitment but only temporarily.
That industry could also become riskier for lenders, but in agriculture emissions could be reduced at source.