The banking industry says it has serious concerns about a royal commission recommendation to further extend protections for small businesses, arguing it could restrict their access to credit.
The Australian Banking Association will update its already-revised industry code to take into account several recommendations by financial services royal commissioner Kenneth Hayne QC but it has not decided if it will expand the definition of a small business.
Mr Hayne wants the definition and therefore the code’s protections to apply to firms employing fewer than 100 staff applying for a loan up to $5 million, arguing the current definition is too complicated and confined in its reach.
The 2019 banking code of practice has a three-part test that applies to small businesses with total loans of less than $3 million.
Having already fought a battle with the financial regulator over the definition, the ABA on Wednesday said the change needed further consideration.
‘The royal commission recommendation to expand the definition from total borrowings of a business to an assessment on a per loan basis regardless of the existing borrowings is a very significant expansion on the current definition which the industry believes should be considered carefully before any change is made,’ the ABA said.
‘The industry has serious concerns that this recommendation may have a material impact on access to credit for small business borrowers.’
The Australian Securities and Investments Commission last year approved the banking code on the condition the small business definition was independently reviewed within 18 months of its July 2019 commencement.
The ABA has backed other recommendations in Mr Hayne’s final report such as stopping informal overdrafts and dishonour fees on basic bank accounts, no longer charging default interest on loans in areas affected by natural disasters and boosting support for customers living in remote areas or with limited English.