UPDATE 1-Australian probe of bank-sector misconduct begins with focus on home loans


* Powerful Government-backed probe first round of hearings begins

* Focus will be misconduct in selling home loans and other loans

* NAB miss-selling through referral program case to be heard first (Adds NAB CEO comment)

SYDNEY, March 13 (Reuters) - An Australian government-backed inquiry into misconduct by the country's major banks is scheduled to begin its first round of public hearings on Tuesday, focusing on residential mortgages, car finance, credit cards and add-on insurance products.

The long-awaited Royal Commission follows years of scandals in Australia's financial sector including poor financial advice, interest-rate rigging, and accusations of breaking money-laundering rules.

Selling tactics on mortgages, car loans and credit cards will be the first focus of the inquiry whose final recommendations could lead to criminal or civil prosecutions as well as greater regulation.

Senior executives from National Australia Bank, the country's fourth largest bank by market size, will be questioned first over a loan referral program that rewarded outsiders such as accountants and lawyers with a commission for referring customers.

NAB fired 20 bankers last year and disciplined dozens more for submitting home-loan applications that had inaccurate or incomplete customer information in that program.

NAB Chief Executive Andrew Thorburn said in a statement on Tuesday morning shortly before proceedings opened that the problems were identified by a whistleblower in 2015 and that they were "regrettable and unacceptable".

"The simple fact is that none of these issues are acceptable," Thorburn said.

"They should not have happened in the first place, and they show that we havent always done right by our customers or treated the community with respect."

Mortgages are Australian banks' money-spinners, with the big four banks- Commonwealth Bank of Australia, Australia and New Zealand Banking Group, Westpac Banking Corp and NAB - holding about 80 percent of the country's A$1.7 trillion ($1.36 trillion) mortgage market.

The commission also will also examine the wealth management and financial advice industries.

Australia's big banks are among the most profitable in the world, earning profit margins of 36.4 percent in the June quarter of 2017, according to a paper published by the commission on Feb. 9.

A Royal Commission has the power to compel witnesses, recommend criminal charges and propose legislative changes. While Australia's finance sector has been subjected to numerous probes in the past, it is the first time the whole industry has faced such scrutiny.

(Reporting by Paulina Duran; Editing by Jane Wardell and Peter Cooney)