ASBFEO disappointed but not deterred on bank reform

AUSTRALIAN Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell said she remains committed to eliminating non-financial covenants in small business loans under $5 million despite NAB executives today re-stating their opposition to the reform.

Speaking after the House Economics Committee concluded the first of its latest round of bank hearings with executives from NAB, Ms Carnell said the bank’s unwillingness to make changes to the way they treat small businesses who are consistently making their loan repayments, is unacceptable.

“As I reiterated during Senate Estimates yesterday, for the banks to be able to default small business loans when people are compliant financially, is simply not a reasonable approach,” Ms Carnell said. 

“NAB pushed back on that today, indicating there are risks associated with removing such clauses, and that doing so would put up the costs of the loans.  That’s not the feedback we’ve had from experts.  Remember the banks already put a premium on top of small business loans to take into account a higher level of risk, so you can’t have it both ways; you can’t have a contract that allows the banks to move all the risk to the borrower, while also having a higher interest rate.

“Our recommendations in this area – indeed all of our recommendations – are not unreasonable; these are not new issues, these are not unrealistic expectations. In fact, many of our recommendations have been supported by various other inquiries and reviews.

“NAB today indicated that they supported the ‘vast majority’ of our recommendations, including giving consideration to implementing 90 day notice periods, as well as providing simple plain English contracts.  I certainly welcome this response, but so far it’s only lip-service; I want to see these changes in place sooner rather than later.

“Our recommendations are do-able and do-able quickly; most importantly, the recommendations we’ve come up with will make a significant difference in the lives of small business borrowers, so we really need to see action now,” she said.

Ms Carnell also restated the importance of amending the definition of a small business loan facility to $5 million; a move also backed by David Murray and Phil Khoury in their respective inquiries.

“Small businesses are the engine room of the Australian economy; these businesses are growing all the time, with more and more now falling outside the existing $1 million definition, so reform in this area is vital if we’re to support growth in this sector,” Ms Carnell said.

“The banks say they’re ‘making banking better’, but I’m afraid there’s still a lot more work to be done to prove there’s any real substance behind the PR slogan,” she said.

www.asbfeo.gov.au

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