ABA showdown with ASIC scheduled for next week

Australian Financial ReviewMay 31 2018 8:12 PM

James Frost

A showdown between the Australian Banking Association CEO Anna Bligh and Australian Securities and Investments chairman James Shipton has been set for next week as the industry body pursues approval for its new code of conduct, the Hayne commission has heard.

The looming showdown was revealed after a horror morning for NAB, where the self-described small business bank was exposed for taking the sale proceeds from a property and paying down another facility held with the bank despite having no right to.

The bombshell was thrown by counsel assisting Michael Hodge, QC, after counsel for NAB spent hours cross-examining small business owner Mr Ross Dillon, who showed his frustration as the line of questioning sought to cast doubt on his memory of events.

The heavily-anticipated appearance from the ABA boss was brief by comparison. However she did reveal the long-awaited revised code of banking practice had been held up by a difference of opinion with the regulator over the definition for small business with Bligh saying a broad definition could restrict credit.

"It is likely that banks are concerned that, the lighter the covenants, the more likely they are to have to price in the cost of that increased risk they're taking, or be less likely to want to take on the loan," Ms Bligh said.

The $5 million cap of has been recommended by ASIC and an independent reviewer of the code appointed by the ABA. However, the ABA has resisted the recommendation saying it will further penalise the smaller banks as a $5 million cap will cover up to 98 per cent of their entire business loan book.

Ms Bligh agreed that smaller banks who did not want to be subjected to a higher cap might be compelled to leave the ABA if it was adopted saying it "could be one option".

As part of its attempt to restore the trust of the Australian community, the ABA has committed itself to get regulatory approval for the code from ASIC but with ASIC not budging it may have painted itself into a corner.

Ms Bligh also revealed the new code contained 12 examples of non-monetary defaults the banks have agreed to take against small business customers, saying this was more efficient than listing ways it could not enforce the defaults.

"I think you will find that would list would go to several hundred pages, if you think about all of the things that might happen," Ms Bligh said.

NAB general manager of strategic business services Ross McNaughton had a more challenging time in the witness box after he seemed to agree the bank had no lawful entitlement to the proceeds of a property sale it used to pay down the debts of a company called National Music.

"If Mr Dillon understood that Goanna Downs secured the debts or the facilities of National Music with NAB, that understanding was incorrect?" Mr Hodge asked.

"If that's what he assumed, yes," Mr McNaughton replied.

National Music's managing director Ross Dillon had earlier been called back for a second day by NAB's lawyer Wendy Harris, QC, in order to explain the circumstances that led to the sale of the home and horse-breeding facility at Scone.

Mr Dillon said in evidence he had been pressured to sell the farm by the bank and planned to use the proceeds to pay down some debt and use the remainder to buy another house. The bank rejects it pressured him or agreed to any plan.

Mr Dillon said outside the Commonwealth Courts building he was shocked by the revelations that the bank had no legal basis for taking the proceeds of the property sale.

"I was absolutely and totally unaware of that fact ... at the time it was certainly not explained to us, we were told they were taking the money and that was it" Mr Dillon said.

Mr Dillon was also flabbergasted by NAB executive Ross McNaughton's belief that Mr Dillon had been treated honestly, fairly and in good faith by the bank.

"Having listened to all the evidence if he feels that's acceptable then the bank still has an issue to deal with," Mr Dillon said.