Banking lobby should back SME banking code of conduct

Yet another parliamentary inquiry into banking has recommended a voluntary code of conduct for small business lending to be developed by the Australian Bankers’ Association.

It was one of 20 recommendations stemming from the Senate enquiry into banking which heard complaints made by former Bankwest customers after the bank was taken over by the Commonwealth Bank during the financial crisis in 2008.

After 2008 banks began to bunker down, focusing on reducing the costs of capital and business banking seemed to be on the nose.

The tough love for SMEs hasn’t stopped with SMEs continuing to encounter increasingly tight lending conditions from banks.

So for SMEs a code of conduct – a document that sets out the ground rules for how SMEs and bank work together – would be welcome.

And what’s more, it would bring Australia into line with best practice in the rest of the world.

The UK Bankers’ Association, Canadian Bankers’ Association and the Irish banking regulator all have specific codes of practice for small business lending in addition to a more general code of banking practice while Australia has nothing.

The problem is that parliaments’ call for a code of conduct appears to have fallen on deaf ears.
This is the fourth time since 2009 that a parliamentary inquiry has recommended the ABA adopt a small business code of practice.

Besides an undertaking from the chief executive of the ABA that he would read the report, the bankers’ lobby doesn’t exactly seem likely to suddenly agree with a recommendation it has not acted on the previous three times.

“The code of banking practice already applies to small businesses but we will consider with ABA member banks whether any further measures are needed,” Steven Munchenberg said in a statement.

Unfortunately this glib response does not go far enough.

While the Australian code of banking practice does extend to small business, there are significant gaps between what that code covers on small business lending and what the Canadian, British and Irish small business codes cover.

For example, these international codes impose requirements on banks such as the need to explain the requirements needed to obtain bank credit and to provide an estimates for how long it will take a credit decision to be made which are nowhere to be found in the more general ABA code.

If the ABA has refused to respond to recommendations from a parliamentary committee, not once, but four times, then perhaps it is time for legislative change to bring the relationships between Australia’s banks and SMEs in line with the rest of the world.