Banks still in damage control post Royal Commission

Twelve months on from the Banking Royal Commission, the Australian Small Business and Family Ombudsman Kate Carnell says there is still plenty of lessons to learn if banks are to repair the reputational damage they suffered from the findings. 

Carnell suggests banks still have a long way to go if they want to regain teh trust of small business owners and the general public.

“Even a year on from the Banking Royal Commission, banks and other large financial institutions are more focussed on passing on their punishment to small businesses.

“For instance, many small businesses in the financial planning industry have faced financial ruin in the aftermath of the Banking Royal Commission, with hundreds of planners bearing the brunt of brutal restructures and fire sales by banks and wealth funds,” carnell said.

“Many of these small business owners are facing the prospect of losing their homes, families and livelihoods as these financial institutions and banks bulldoze their way through their exit strategies.

Carnell also suggests while the new Banking Code of Practice has resolved some issues it still fails to provide adequate protection to small business borrowers.

“The ABA claims it has implemented the Royal Commission recommendations but it has not acted on all of the recommendations including one that is critical to small business.

“Commissioner Hayne recommended that the definition of a small business should be businesses that apply for a loan up to $5 million and have fewer than 100 employees*.

“Despite our repeated efforts, the Code only protects small businesses with up to $3 million in total debt to all credit providers.

Carnell explains this means a large number of small businesses, particularly those that are capital intensive such as agriculture, building and manufacturing, are not covered by the Code.

“Of particular concern, is a new addition to the Code under paragraph 115 (b)** which in effect, allows banks to take action against the small business guarantor, before enforcing recovery against the security provided by the small business borrower. This is totally unacceptable and has the potential to be seriously detrimental to the small business borrower and their ability to secure guarantors.

“During the Royal Commission, Commissioner Hayne acknowledged the ABA Banking Code of Practice is the chief protection for small business borrowers and as such, it needs real and meaningful changes to give it teeth.”

The ombudsman said while the code has improved, her office will continue to lobby for a better framework to ensure a more level playing field for small business owners.

“The number of get-out-of-jail clauses for the banks still dilute the protections for small businesses,” Said Carnell. “We will continue to push for a better framework for a balanced relationship between banks and their small business customers.”