Royal commission hears ANZ gave loan for gelato franchise using projections outside ATO guidelines

A HUSBAND and wife launching a gelato franchise were given a loan by the ANZ using financial projections far outside benchmarks provided by the tax office, the banking royal commission has heard. But the bank says the benchmarks are not appropriate for every case.

A HUSBAND and wife launching a gelato franchise were given a loan by the ANZ using financial projections far outside benchmarks provided by the tax office, the banking royal commission has heard.

Former ANZ small business general manager Kate Gibson, who is now head of home lending at the bank, is being grilled over the $222,000 loan provided to the couple who were launching the first Australian outlet of the New Zealand gelato chain.

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The business failed and, following a complaint from the couple, the Financial Ombudsman Service ruled ANZ should not have made the loan as the borrowers could not service the debt.

ANZ has disputed the finding and Ms Gibson this morning suggested the logic it was based on would stifle small business lending.

Documents presented to the commission show ANZ relied on financial projections from the franchisor, which had not opened any operations in Australia.

Former ANZ small business general manager Kate Gibson leaves the royal commission today. AAP Image/Tracey Nearmy

The ombudsman suggested it should have used financial benchmarks produced by the Australian Taxation Office using data from local ice-cream businesses.

ANZ signed off on a business plan that said expenses in the new business would clock in at 68 per cent of turnover.

The ATO industry benchmark was 84 per cent to 93 per cent, the hearing heard.

Ms Gibson agreed they were “outside the range” and significantly away from the average.

But she defended the assessment ANZ did on the loan, saying the ATO benchmarks were not appropriate for every individual case.

“If someone presents to us with a business plan where they’re outside the industry benchmarks you should expect that you have an understanding of why they believe that they can run the business that way,” Ms Gibson said.

She also warned the ombudsman’s ruling around loan serviceability tests would make it far harder for banks to extend loans to small business.

Ms Gibson said the ombudsman’s ruling suggested banks should only lend to someone who had a partner with an income outside the proposed business venture which could cover a loan’s interest payments.

This would result in single people with few or no assets being unable to gain finance to start a small business, she said.

“I’m not entirely clear how you would lend to a person who didn’t have a spouse or assets,” Ms Gibson said of the ombudsman’s decision.

‘If we as a bank say that we have got risk appetite to support small business owners in that situation and FOS (Financial Ombudsman Service) is saying that that’s contrary to the (banking) code, then I think that’s problematic.”

Yesterday, the royal commission heard the loan was made on a widely inaccurate business plan provided by the franchisor that identified the business as a “store”, providing a “romantic” atmosphere which would appeal to customers.

In fact it was a kiosk at Westfield shopping centre.

The business needed to sell 23 ice-creams, at $7 each, every hour of a 63-hour trading week to hit its business plan targets.

The third round of a commission is probing lending to small business.

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