Bligh defends banks' small business stance

Megan Neil
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Anna Bligh said banks were still a little uncomfortable about the $3 million threshold

Smaller lenders fear they will be left at a competitive disadvantage behind the big four banks if new protections for small businesses extend too far into uncharted waters, chief banking lobbyist Anna Bligh says.

Ms Bligh's Australian Banking Association and the corporate regulator remain locked in a dispute about the definition of a small business, and therefore how far a revised industry code and its new protections extend.

The former Queensland premier defended the banks' conservative approach over the threshold that must be met for businesses to gain the protections and entitlements of the new small business section of the code, as it awaits approval from the Australian Securities and Investments Commission.

"The banks have indicated to ASIC that part of their conservatism on this is frankly we are in uncharted waters," the ABA CEO told the banking royal commission on Thursday.

"They haven't made loans of this size in these circumstances before."

The ABA wants the code to apply to small businesses with loans up to $3 million, compared to the $1 million limit under unfair contract legislation.

But ASIC favours - and others including the small business ombudsman back - the $5 million limit recommended by the independent reviewer of the Code of Banking Practice.

Ms Bligh said banks were uncomfortable about the $3 million cap, as they had to take on more risk with a small business loan.

They felt distinctly uncomfortable about a $5 million level, particularly in the case of smaller regional banks with smaller loan books, she said.

"(They) feel that not only will they be exposed to a high degree of risk with such contracts but that because of the size and nature of their loan book, that will put them at a competitive disadvantage against the four major banks."

They expect the effect of the code would be felt on a higher proportion of their business loans compared to the big banks, which Ms Bligh said affected their risk appetite when managing their loan book.

Ms Bligh said banks were open to a two-year trial at the $3 million threshold, reviewed by ASIC, with a view to raising it to $5 million if their concerns were not realised.

She said it was a matter of finding the middle line between the small businesses that would be more appropriately dealt with almost as retail customers and the large and sophisticated businesses.

The debate between the ABA and ASIC was put on hold pending the royal commission's two-week public hearing into small business lending, which ends on Friday.

Ms Bligh said the new code will address a number of the issues raised in the royal commission and create more protections for consumers.