The latest investigation, by the Senate Economics References Committee, has again recommended that the Australian Bankers’ Association (ABA) write a small business banking code. The committee handed down its Post-GFC Banking Sector report in November 2012.
But the ABA, the lobby group for Australia’s banking industry, maintains that the recently updated Code of Banking Practice is sufficient for small business customers. Says the ABA’s CEO, Steven Münchenberg: “Reports have suggested the current code doesn’t apply to small business. But it does.”
One of the problems Münchenberg foresees if a separate small business banking code is developed, is determining when a customer is a retail or small business customer and whether the small business banking code or the existing Code of Banking Practice would apply. “It’s not always clear where the line is drawn between a small business customer and a retail customer,” he explains.
Senator the Hon David Bushby, chair of the Senate Economics References Committee, says the recommendation was made in the context of ongoing issues between the financial services sector and small businesses.
“Issues have been raised for decades about that relationship,” says Senator Bushby. “Lots of things are to be gained [from a separate small business banking code], particularly reputationally [for the banks],” he adds.
Senator Bushby says any new code would be about fairer outcomes for small businesses, increased transparency and ensuring both small businesses and banks are aware of their rights.
Another committee member, Senator the Hon John Williams, suggests the ABA works with the committee to formulate an appropriate solution.
“The problem is that small businesses are doing it tough,” he says. “The majority are on low-doc loans and they put their houses up as security. Then, when it comes time to refinance, [the banks] won’t. Instead, they put the boot in.”
Senator Williams says a small business banking code would encourage banks to stick to original property valuations used as security for loans when small businesses refinance existing loans and would discourage banks from charging penalty interest rates when borrowers miss payments. “A loan is a partnership, which is something banks need to be more aware of,” he says.
Münchenberg says banking practices have already changed as a result of the Senate inquiry. For instance, the time small businesses have to refinance loans has been extended to 10 days.
“It’s about striking a balance between giving businesses time to refinance without allowing those that are in trouble to put themselves in an even worse position,” he says.
Rather than develop a separate small business code, Münchenberg says the ABA would prefer to concentrate on what it can do better for small business customers. “We want to focus on where the gripes are,” he says. “We want to look at issues like concerns about what happens when a business is in trouble.
“We’re also looking at ways to make it easier for small businesses to apply for credit. We’d like to explore how the existing code could be amended before looking at introducing an entirely separate code.”
[breakoutbox][breakoutbox_title]The committee’s wish list[/breakoutbox_title][breakoutbox_excerpt]The Senate Economics References Committee wanted a code.[/breakoutbox_excerpt][breakoutbox_content]
The Senate Economics References Committee wanted a code to:
- enforce notification of changes to loans;
- make banks rely more on initial valuation reports;
- have borrowers given copies of some valuation documents;
- require lenders’ notices of demand to have a minimum 14-day deadline;
- make banks provide information to help borrowers refinance; and
- set out default rates more clearly.
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