26 September 2023

Ombudsman still wary of banks

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The Australian Small Business and Family Enterprise Ombudsman has warned that banks still have lessons to learn to repair their relationships with small business.

The Ombudsman, Kate Carnell (pictured) said small businesses continued to pay the price of poor behaviour by banks.

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

“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.”

She said many of the small business owners were facing the prospect of losing their homes, families and livelihoods as financial institutions and banks “bulldozed” their way through exit strategies.

“Equally the new-look Banking Code of Practice, in effect from March this year, fails to sufficiently protect small business borrowers,” Ms Carnell said.

“The Australian Banking Association 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.”

She said the Royal Commission recommended that the definition of a small business be a business that applied for a loan up to $5 million and had fewer than 100 employees.

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

“What that means is that a large number of small businesses, particularly those capital-intensive businesses such as agriculture, building and manufacturing, are not covered.”

She said that while the code had been improved, the number of “get-out-of-jail clauses” for banks still diluted protections offered to small businesses.

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