Testifying at the banking royal commission on Monday, Philip Khoury — a director at Melbourne-based business advisory and governance firm cameron. ralph. khoury — said he had thoroughly reviewed the previous banking code in 2013, and found plenty of recommendations to make in a bid to make it more accessible to SME borrowers.
According to Mr Khoury, while it was supposed to spell out banks’ commitment and responsibilities to their customers, it was in fact written “from the bank’s point of view” and was not accessible to ordinary business owners or consumers.
He said such jargon made it virtually impossible to understand bank procedures or loan agreements, and that terms such as “fair and diligent” leave a wide scope of interpretation.
Yet the banking code is crucial for SMEs, he added, given that “the law doesn't provide a huge number of protections for small business in their dealings with the banks.”
Mr Khoury used the examples of non-monetary default clauses and a lack of transparency around why a loan application is rejected as evidence of the “impenetrable” contracts imposed on SMEs by major lenders, and suggested that, where they did outline conditions, the wording used was unintelligible for anyone without a legal background.
“I take exception to the language — I think small businesses reading that would read it as weasel words,” he said of the revised code.
Mr Khoury also suggested that banks have been overly reliant on using guarantors to cover business loans rather than to properly assess the risk of the loan itself.
This was outlined by the experience of disabled pensioner Carolyn Flanagan, who was almost evicted from her home by Westpac after she guaranteed a business loan for her daughter.
Yet Mr Khoury’s stressed that business owners should not fear that tighter controls of lending standards will restrict credit and/or push up its cost.
He said that many SMEs are frightened that any moves to improve lending standards will crimp the banks’ willingness to lend, and to do so at an affordable price — a position that is supported by the banks themselves.
“But we didn't take that view,” said Mr Khoury.