Small business ombudsman Kate Carnell says the banking royal commission's hearings into small business lending over the past two weeks were a missed opportunity because they failed to uncover a cozy relationship between banks and the administrators and receivers who work for them, and it didn't get to the bottom of the Bankwest saga.
She has called on the Hayne inquiry to conduct another round of hearings on small business lending.
This should be in addition to the fourth round, due to kick off later this month, which will focus on regional communities. She hoped the next round would also delve deeper into some issues not satisfactorily resolved last week, including the use of valuations to default borrowers, not giving reasonable notice before calling in loans, and relationships with liquidators that are not at arms length.
Documents released by the Hayne inquiry also show Ms Carnell is unhappy with the banks' revision of the Code of Banking Conduct, which was prompted by her 2016 inquiry. Australian Banking Association chief executive Anna Bligh is set to meet Australian Securities and Investments Commission chairman James Shipton to discuss the regulator's approval of the code this week.
Commissioner Kenneth Hayne is being urged to look into liquidators and administrators. Internet
In a letter to Ms Bligh, dated December 2017, Ms Carnell said the code "falls short of the meeting the changes agreed between ASIC and the four majors and your intentions outlined in your response to my inquiry".
For example, she said the draft code's wording would allow banks to apply penalty interest, which might not be considered "enforcement" action; the use of plain English had actually broadened clauses to give banks more power than what was agreed with ASIC; banks could still trigger general "material adverse clauses" in contracts by lifting interest rates to push borrowers into default; and banks can still disregard notice periods based on credit risk.
Ms Carnell, the Australian Small Business and Family Enterprise Ombudsman, told The Australian Financial Review on Tuesday the commission "needs to have another couple of weeks in the SME space, given the complexity and diversity of the cases involved".
Ms Bligh's appearance showed the "reality that it takes the banks so long to comply with legislation and make basic changes". Similarly, Ms Carnell said the banks' "are only just now getting to point where they are complying" with the government's unfair contracts terms laws even though they were introduced 18 months ago.
"Given banks have more lawyers than the government, I was surprised the inquiry didn't take them apart on the extraordinary timelines involved," Ms Carnell said.
Anna Bligh, Australian Banking Association CEO, told the royal commission last week the banks insisted the definition of small business should be limited. Internet
Her call for valuations and sales of property by bank administrators and receivers to be scrutinised comes after Senator Pauline Hanson turned up to the first week of SME hearings and also called for a new investigation into receivers and administrators, which she said had not been adequately covered by the commission.
The commission over the past fortnight had also missed several issues relating to the Commonwealth Bank takeover of Bankwest, Ms Carnell said, which might result in political pressure for further investigations to be reapplied.
"The challenge for the royal commission is it doesn't have enough time," she said. "We all know the royal commission happened because a range of back-benchers indicated they were going to cross the floor and believed it was essential their constituents had the opportunity to tell their story [about Bankwest]. The fact is, they haven't had that opportunity, and that creates a very real issue for people involved and more broadly.
"CBA made the call it was overweight construction, or didn't like hotels, or lending in Tasmania. It was entitled to do that. The issue is, what it then did - which was move to default the loans, change the terms, revalue the assets, and proactively move those loans off their the loan book," Ms Carnell said.
"I don't think anything in last two weeks suggested they didn't do that; their contracts allowed them to do it. Where I disagree is the impression the commission gave was that was somehow OK. I don't think it was. Did CBA have a right to proactively change the terms and condition of contracts in place to move a range of people into default, which then resulted in them losing the assets in bankruptcy? Or could they have done what other banks did, which is work with people over difficult periods of time?"
Even though the commission concluded there had been no misconduct by CBA involving Bankwest, groups of aggrieved Bankwest borrowers are mobilising and say they are going to continue their fight.
Geoff Shannon, the founder of activist group Unhappy Banking, said he hopes later rounds of the commission revisits whether Bankwest caused some of its customers in the construction sector to default as a result of its own precarious financial position in 2008.
"I don't believe it is the end of it," he said. "It is still unfinished business. It is not going to go away. Last week simply brought it to the surface".This article was first published by https://www.afr.com/
Author: James Eyers