A Catholic priest who stayed silent when he heard a colleague had sexually abused a child says he would speak up if a priest stole money.

Victorian priest Fr Lawrence O'Toole has told an inquiry he thought a victim of Gerald Francis Ridsdale was confessing his guilt and shame when the man told him about the childhood abuse.

That was in 1988, while Ridsdale was still serving as a priest in the Diocese of Ballarat.

Fr O'Toole did not tell church authorities or police even though he admitted under questioning in the child abuse royal commission he knew it was wrong and a crime.

"I would believe that he was old enough and man enough to be able to do that himself," he said.

Fr O'Toole said he treated the hospital conversation with the man, aged in his 30s, as a confession and not an abuse complaint.

"When he shared that he had been a victim, I felt that he was sharing with me more of his shame of being involved in a sexual aberration with Gerald Ridsdale," Fr O'Toole told the commission on Tuesday.

"Well look I can recognise a complaint when it comes, you know, blind Freddy can recognise a complaint. He was placid in sharing this with me.

"I gave him counselling in the sense that he wasn't blameworthy himself. He seemed satisfied with that response."

Counsel assisting the commission Angus Stewart SC said Fr O'Toole was obliged to at least tell the Ballarat bishop about a priest who was still out there potentially abusing other children.

Fr O'Toole said: "In hindsight, yes."

He told commission chair Justice Peter McClellan he would have told the bishop if a priest had stolen money or physically assaulted someone.

What was different about sexual offending against children?

Fr O'Toole said he would have presumed the bishop knew.

"It's a crime and it's a crying shame and it is proper for the bishop to know, and I would regret if I was responsible for, you know, if I didn't share that information," he said.