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SMEs are front and centre for banks following Ombudsman's report

SMEs are front and centre for banks following Ombudsman’s report

(3 February 2017 - Australia) Following a report from small business Ombudsman, Kate Carnell, Australian banks have vowed to be "more transparent and flexible" with small business loans and to change the Code of Banking Practice to ensure "commitments to small businesses are clearer".

The assurance came via the Australian Bankers’ Association (ABA) as Carnell’s report said lenders need to give business borrowers more power in credit contracts. She highlighted that the Code of Banking Practice required a specific section dedicated to protecting small business and for enforcement to come from government regulator, the Australian Securities and Investments Commission.

ABA chief economist Tony Pearson said: "The ABA will make changes to the code to make sure our commitments to small businesses are clearer.

"We're looking at having a separate section for small business lending and how we can improve the transparency of loan terms and conditions."

The Ombudsman added that banks must rescind the power to default loans if borrowers have paid on time. Carnell further argued that "there is high-level evidence that these conditions are rarely triggered suggesting that no price increase is required".

Speaking about the effectiveness of the Code, Carnell added: “For the Code of Banking Practice to be effective, it must contain substantive provisions and be monitored and enforced," she said. "Significant change is required for the code to be seen to provide protections for customers that banks will be held accountable for."

Carnell said the current review of the Code, being undertaken by Phil Khoury, "must change the code's focus from protecting banks to protecting customers of banks. The code must be written in a way that a customer can understand what to expect from their bank and what their rights are when banks fail to meet their obligations."

She called for ASIC approval of the code to "improve its transparency and enforcement". During hearings with bank executives in November, deputy chief executive at ANZ Graham Hodges said the bank would be "comfortable" with ASIC supervising it.

Six banks have not signed the code: Macquarie Bank, ME Bank, Bank Australia, Defence Bank, MyState and Qudos.

The review comes as East & Partners’ latest research shows historically low levels of overall satisfaction from the Australian Micro business and SME segments. The firm’s latest SME Transaction Banking Report found that value for money was one of the most important service factors to small businesses, overall satisfaction ratings were sliding quickly.

Added to that, and further highlighting the small businesses community’s dissatisfaction with banks, nearly one in four said they were “highly probable” or “definitely” changing their primary provider in the next six months, while another 28 percent of businesses said the likelihood of them switching was “possible”.

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