The Australian Banking Association has earned a rebuke from the Australian Small Business and Family Enterprise Ombudsman over the ABA’s reluctance to amend the definition of small business in its Banking Code of Practice.
The Hayne royal commission recommended that the definition of small business in the code be amended to cover any business employing fewer than 100 full-time equivalent employees, where the loan applied for is less than A$5 million.
In the code which commences on 1 July the definition of small business includes annual turnover of less than $10 million in the previous financial year, fewer than 100 full-time equivalent employees and less than $3 million of total debt.
Yesterday the ABA issued a media release saying the code would be updated to reflect six royal commission recommendations covering such areas as dealing with customer in remote areas and banning informal overdrafts on basic bank accounts.
However, the ABA said it had “not yet reached a view” on changing the definition of small business. Its concern is with the proposed change from total credit exposure in the code now, to a per loan facility definition (regardless of existing borrowings).
It said the recommendation was a “very significant expansion” on the current definition.
“The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers,” the ABA said.
Small Business and Family Enterprise Ombudsman, Kate Carnell, said in a statement: “A $3 million aggregate loan limit is just not workable. It potentially excludes a large number of small businesses, particularly those capital-intensive businesses such as farms, building and manufacturing.
“This definition [the loan applied for is less than $5 million] was backed by the Murray Review, the ABA’s own independent Khoury Review and is applied by the new Australian Financial Complaints Authority.”
The Hayne recommendations that the ABA has agreed to incorporate into the code are as follows:
• provide that banks will work with customers in remote areas or who have limited English to identify ways for them to undertake their banking;
• ban informal overdrafts on basic bank accounts;
• abolish dishonour fees on basic bank accounts;
• banks will follow Austrac’s guidance about the identification and verification of those identifying as of Aboriginal or Torres Strait Islander heritage;
• amend the code to end charging default interest in areas declared to be affected by drought or other natural disasters; and
• introduce enforceable provisions of the code, identified and agreed with ASIC, backed by legislation.