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30 April 2017

CBA's response to ASBFEO Report is much better than ABA's feeble effort

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is disappointed with the Australian Bankers Association’s (ABA) response to the inquiry into small business loans.

ASBFEO Kate Carnell said the ABA’s decision not to accept the ASBFEO's definition of a small business loan as any loan under $5million is disappointing.

The ABA released its response to the ASBFEO Inquiry into Small Business Loans on Friday.

Ms Carnell said: “The ABA's very restrictive definition would mean that any business with more than 20 employees would not be deemed a small business under the banking code of practice.

“Equally restrictive and unworkable is their approach to their $3million loan limit. The ABA is saying that any business that has aggregate loans above $3million, including loans with ALL financial institutions and including ALL associated entities, will not be treated as a small business.

“This would mean that all loans taken out by directors of the business and their partners would be aggregated to determine if a loan taken out by the small business would be able to access the removal of non-financial default clauses and the other recommendations of the ASBFEO Report.”

Ms Carnell said this would exclude a very large number of small businesses and make a nonsense of the ABA’s claim that its response will cover 95 per cent of business customers.

“I will be asking the ABA how they came up with this figure,” she said.

“The ABA talks about ‘covenant light’ loan contracts with small businesses - ASBFEO recommended that ALL non-financial default clauses should go except for situations where the small business breaks the law or goes into liquidation.”

Ms Carnell said the Commonwealth Bank’s undertaking last week was a better response than the ABA’s feeble effort

“We think the ABA should go and talk with the Commonwealth Bank to consider its approach and go back to the drawing board.”

Ms Carnell noted the range of undertakings given by the ABA, including working with ASIC to implement a new Code of Banking Practice in line with the Khoury Report.

“We welcome the ABA’s undertaking that it will work on a new Code of Banking Practice this year with the aim of publishing it by the end of this year. We will closely monitor its progress,” she said.