Ombudsman grills bank executives on SME lending

SmartCompany, Tuesday, November 29 2016

Small and medium businesses can today and tomorrow tune in to watch executives from Australia’s big banks answer questions about their track record when it comes to SME lending.

The federal government gave Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell the task of “forensically” examining how the big banks treat their small business customers in August.

Carnell’s review will involve two days of public hearings, which kicked off [Tuesday, November 29 2016] with representatives from ANZ.

Private hearings have already been conducted and Carnell and her team are in the process of finalising recommendations to government, having also examined individual cases raised by the Parliamentary Joint Committee on Corporations and Financial Services.

Carnell said on Monday the public hearings will involve questioning the banks on potential reforms to ensure small businesses are protected from unfair treatment by Australia’s banking system.

“A range of themes have emerged during the ASBFEO inquiry process, and a number of potential reform measures have been identified as significant and necessary to a robust relationship between financial institutions and their small business customers going forward,” Carnell said.

“We’re interested in hearing from the banks about their procedures in relation to loan contracts, dispute resolution services and the treatment of valuations, and we will press them on their willingness to change their approach to things like monetary and non-monetary defaults, and the role of administrators in relation to small business bank customers.”

Representing ANZ at this morning’s hearings is deputy chief executive Graham Hodges, small business banking general manager Kate Gibson and customer advocate Jo McKinstray.

One of the first topics of conversation was the $1 million small business loan cap that ANZ has in place, and whether this is an appropriate level. The cap is in part based on ANZ’s retail credit model, as opposed to the wholesale credit model, which is in place for larger enterprises.

When asked if that definition is adequate, particularly when financial institutions in other jurisdictions like the European Union are considering doing away with a definition of a small business completely, Hodges said ANZ believes “the current definition broadly covers the section quite well”, with businesses then moving into brackets of up to $3 million, and between $3 million and $5 million, as they grow.

Once they reach those levels of turnover, they require an “increased level of sophistication to manage their accounts”, he said.

Carnell responded by saying her objective is to ensure SME banking definitions and practices are “understandable for a group of people that matter to our economy, who don’t have in-house lawyers, who don’t have an in-house accountant”.

“We’ve got to make the system as simple as possible,” she said.

“I understand banks needs to manage risk. I think the important issue here is manage risk, not avoid risk, and therein lies the balance.”

How to watch the hearings

A live stream of the hearings is available from the ASBFEO website here.

There are three options to listen to the proceedings: by calling in by phone, by listening to an audio stream, and by watching a live video stream.