Why are banks so afraid to call a loan to small business a loan?

The Australian 12:00am May 24, 2018

Ben Butler

Bankers called it “supporting small business”, but a better phrase might be “lending money for profit”.

There’s nothing wrong with banks wanting to make a return on the money they lend out. If they didn’t, they would soon collapse, which begs the question: why were the executives in the witness stand at the royal commission apparently so afraid to call a loan a loan?

Instead, witness after witness spoke of “support” or “backing” as if lending was a public service rather than an attempt to make money.

Small business has made it clear it doesn’t want the flow of money to dry up. But flogging more than eight products to every customer?

This was “supporting customer needs”, Westpac’s Carol Separovich told the commission.

It was also what, in 2011, Westpac’s army of business bankers had to do to trouser that final 20 per cent of their bonus.

New boss Brian Hartzer changed everything last year — it’s much more “holistic”, Separovich said — but half of the bonus envelope still depends on financial measures.

According to Westpac’s Alastair Welsh, competition among banks to “support Australian businesses” has only become more intense. “I think they’ve all got a clear strategy to try and support this market and improve in it and back businesses,” he said of his competitors.

Documents before the commission show that back in the day, all the criteria at Westpac were just as nakedly greed-oriented as the hefty cross-selling target.

In 2012, for example, the bank ditched the cross-selling target. Instead, that last 20 per cent now depended on bringing new customers through the door.

A couple of years later, over at ANZ, bankers were told they needed to “relentlessly acquire new-to-bank customers” in order for their wallets to feel the full weight of an annual bonus of up to half their annual pay.

ANZ’s Kate Gibson also told the commission of the “support” the bank provides to small business — provided, of course, a guarantor is willing to risk being tipped out of their home if the venture fails and the bank calls on its security.

She said she disagreed with a Financial Ombudsman Service ruling that the bank should have been more conservative when deciding whether a husband and wife could afford to pay back a loan to open the first Australian branch of a previously unknown Kiwi gelato chain. (It failed.)

“If we as a bank say that we have got risk appetite to support small business owners in that situation, and FOS is saying that that’s contrary to the code, then I think that’s problematic, yes,” she said.

So much support.