Borrowers who will not have their loans renewed will get 90 days’ notice as banks respond to Carnell Inquiry
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Borrowers who will not have their loans renewed will get 90 days’ notice as banks respond to Carnell Inquiry
The Australian Bankers Association has announced that business borrowers will get 90 days’ notice of whether their loans will be renewed.
The ABA was responding to the Carnell Inquiry into small business loans, which was launched in 2016 to protect borrowers from what the report terms “complete asymmetry of power in the relationship between banks and small business borrowers.” Small business ombudsman Kate Carnell recommended that for loans under $5m banks should give borrowers a decision on roll over at least 90 business days before loans mature, so borrowers can organise alternate financing.
These changes will affect brokers’ customers and come just after minister for small business Michael McCormack MP praised brokers at an MFAA breakfast last week: “You’re assisting not just with home-loan mortgages, but financing for many small businesses. And this is as many bank branches reduce their retail footprint, making brokers the only source of financial services for many Australians.”
2,400 residential mortgage brokers also settled $8.2 billion of new commercial loans over 6 months, contributing to a commercial loan book of just over $27 billion, according to the MFAA’s latest Industry Intelligence Report.
In their response to Carnell’s recommendation, the ABA have specified a number of conditions. Banks will give 90 days’ calendar notice on rollovers rather than the 90 business days Carnell suggested and the changes will come into effect with the revised Code of Banking Practice in late 2017, rather than July 2017 as recommended.
With many of the recommendations point to small businesses the ABA has devised its own definition of a small business which it claims includes 95% of its business customers. Businesses must have fewer than 20 employees (100 in the case of manufacturing) and turnover of under $10. Total credit exposure must be under $3m.
The ABA also say they support simpler and more clearly worded small business lending contracts, without explicitly committing to a standardised contract as Carnell recommended. They have also agreed - with extensive caveats - to Carnell’s recommendation that banks should not be allowed to default a small business loan for any reason, when lenders have complied with loan payment requirements and have acted lawfully.
The Australian Bankers Association has announced that business borrowers will get 90 days’ notice of whether their loans will be renewed.
The ABA was responding to the Carnell Inquiry into small business loans, which was launched in 2016 to protect borrowers from what the report terms “complete asymmetry of power in the relationship between banks and small business borrowers.” Small business ombudsman Kate Carnell recommended that for loans under $5m banks should give borrowers a decision on roll over at least 90 business days before loans mature, so borrowers can organise alternate financing.
These changes will affect brokers’ customers and come just after minister for small business Michael McCormack MP praised brokers at an MFAA breakfast last week: “You’re assisting not just with home-loan mortgages, but financing for many small businesses. And this is as many bank branches reduce their retail footprint, making brokers the only source of financial services for many Australians.”
2,400 residential mortgage brokers also settled $8.2 billion of new commercial loans over 6 months, contributing to a commercial loan book of just over $27 billion, according to the MFAA’s latest Industry Intelligence Report.
In their response to Carnell’s recommendation, the ABA have specified a number of conditions. Banks will give 90 days’ calendar notice on rollovers rather than the 90 business days Carnell suggested and the changes will come into effect with the revised Code of Banking Practice in late 2017, rather than July 2017 as recommended.
With many of the recommendations point to small businesses the ABA has devised its own definition of a small business which it claims includes 95% of its business customers. Businesses must have fewer than 20 employees (100 in the case of manufacturing) and turnover of under $10. Total credit exposure must be under $3m.
The ABA also say they support simpler and more clearly worded small business lending contracts, without explicitly committing to a standardised contract as Carnell recommended. They have also agreed - with extensive caveats - to Carnell’s recommendation that banks should not be allowed to default a small business loan for any reason, when lenders have complied with loan payment requirements and have acted lawfully.
