Ombudsman grills Big Four on SME lending

by Madelin Tomelty30 Nov 2016
Going into their second day of questioning, executives from the Big Four banks are under the microscope again, this time by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, Smart Company has reported.
The two-day public hearing comes as a result of a request by the federal government in August to “forensically examine” how the big banks treat their small business customers.
The banks have already undergone private hearings, and Carnell and her team have begun the process of finalising recommendations to government, having also examined individual cases raised by the Parliamentary Joint Committee on Corporations and Financial Services.
The public hearing kicked off yesterday morning with the ombudsman questioning deputy ANZ’s chief executive Graham Hodges, small business banking general manager Kate Gibson and customer advocate Jo McKinstray on the suitability of the $1 million turnover cap that ANZ has in place as a definition of small businesses.
According to Smart Company, when asked if that definition was adequate, particularly in light of the fact that financial institutions in other regions such as 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”.
He added that when businesses move into brackets of up to $3 million in turnover, and between $3 million and $5 million, they require an “increased level of sophistication to manage their accounts”.
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.”
The aim of the hearings is to ensure small businesses are protected from unfair treatment by Australia’s banking system. However, it is widely believed that the biggest concern for SMEs remains access to funding and the lack of genuine competition in a market dominated by the big four banks.
“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 on Monday.
“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.”
The latest grilling of the major banks follows the House of Representatives Standing Committee on Economics report on the banking sector that was released last week, which focuses heavily on endeavouring to make banks more accountable for their actions.
The report included two recommendations focusing on improving competition in what is widely perceived as a banking oligopoly, with the Committee stating that it was “very surprised that no Australian government has completed a wholesale review of competition in the banking sector in recent times”. 

A live stream of the public hearings is available on the ASBFEO website.