Commonwealth Bank criticised for paying 'lip service' on small biz loans
Australian Financial Review Nov 30 2016 4:37 PM
James Frost
Small Business Ombudsman Kate Carnell criticised Commonwealth Bank executives for paying lip service to proposals designed to provide small business with transparency around loan defaults and enforcement timelines.
After making progress on the first day of the hearings, Ms Carnell described caveats the bank placed on its commitment to give 30 days notice before taking enforcement action over a loan as unacceptable, saying that the exceptions allowed the bank to go back in its word anytime it chose.
"The proposal is no good because there is a caveat to say except when it suits you," Ms Carnell said. "That's not all right. It's not acceptable. If you are going to give people 30 days, you have to give them 30 days."
It was also revealed that although the bank agreed in principle with sharing the reports of investigative accountants with the loan owner the bank was unable to categorically guarantee that this was taking place.
Commonwealth Bank was represented by group chief risk officer David Cohen and group executive business and private banking Adam Bennett, who delivered the opening address, which included a commitment to remove financial covenants from loans of less than $1 million.
Ms Carnell also probed the issue of the covenants, which in some cases had been used to trigger defaults even when repayments were being made, with CBA promising not to put them in small business loan contracts of less than $1 million.
"The contract should say that we are lending you money today but we may call the loan at any time, for any reason, if you do not repay the million we will take your security and your personal property, including your home and bankrupt you. Sign here. Because that's fundamentally what the contract says," Ms Carnell said.
Mr Cohen didn't agree but conceded the clauses gave the banks a high degree of power.
"What the contract says actually is that there are various steps the borrower has to undertake and if they don't … I suppose we step back and say, is that a fair balance of power, and, no, so not a fair balance of power," Mr Cohen said.
Ms Carnell implored the bank to take a leadership position on these issues and the banking code of conduct, saying that as it was the biggest bank it had a responsibility to lead by example.
Westpac executives who fronted the hearings during the afternoon session didn't escape the opprobrium of the ombudsman either.
While Westpac chief executive of business banking David Linberg got off to a good start offering support for standardised client notices – 90 days ahead of a loan maturity and a minimum of 45 days for default and enforcement – the impact of these changes to contract length was less well received.
"I'm suppose I'm just disappointed," Ms Carnell said. "What you've done is make the contracts longer and more complex. I just hoped for a little bit more."
Mr Lindberg also supported the removal of non-monetary covenants for new property secured exposures of less than $1 million and suggested reporting bank enforcement activity to the ombudsman every six months.