The banking association is hesitant to support Commissioner Kenneth Hayne’s recommendation to change the definition of a small business.
The Australian Banking Association (ABA) has committed to “taking forward” seven of the banking royal commission’s recommendations concerning changes to the Code of Banking Practice.
Pending regulatory approval, new protections are set to be enshrined in the code in response to the commission’s final report, including:
- provisions that ensure that banks work with customers in remote areas or who have limited English to identify ways for them to undertake their banking
- the banning of informal overdrafts on basic bank accounts
- the abolition of dishonour fees on basic bank accounts
- provisions that ensure banks follow AUSTRAC’s guidance about the identification and verification of those identifying as of Aboriginal or Torres Strait Islander heritage
- amending the code to end charging default interest in areas declared to be affected by drought or other natural disasters
- the introduction of enforceable provisions of the code, identified and agreed with ASIC and backed by legislation
In addition to changes to the code, the ABA has also expressed support for the royal commission’s call for clearer and improved practices for banks assisting farmers in financial distress.
Reflecting on the changes, ABA CEO Anna Bligh said: “The royal commission final report is the industry’s roadmap for earning back the trust of the Australian people.
“The industry has taken the report and is acting with urgency to ensure lasting reform occurs without delay.
“The royal commission highlighted the need for the [Code of Banking Practice] to be strengthened to increase protections for small business and increase the accessibility of services for customers in remote areas or with limited English.”
Ms Bligh continued: “In addition to the changes to the code, banks will also deliver greater assistance to farmers through clearer and improved practices when assisting farmers with distressed loans.
“The industry will be implementing these changes to our code as soon as possible.
“This work will build upon the new code, approved by ASIC in July last year, which delivers a better banking experience for Australian customers.”
ABA contests change to SME definition
However, the ABA said that it “has not yet reached a view” on the commission’s recommendation to amend the definition of “small business” in the banking code to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.
“[More] consideration needs to be given to the issue by regulators, the ABA and the small business community, particularly the change from total credit exposure to per loan facility,” the ABA noted.
“Given the potential impacts, the industry believes this [is] a prudent approach to this change.”
Among the potential impacts raised by the ABA is concern about the effect that such a change could have on the availability of credit and competition in the market.
The ABA stated that the royal commission’s recommendation to expand the definition from total borrowings of a business to an assessment on a per loan basis regardless of the existing borrowings would be a “very significant expansion on the current definition, which the industry believes should be considered carefully before any change is made”.
The association added: “The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers.”