Banking royal commission: regional banks to join big four under small business lending spotlight

Regional banks will join the big four under the spotlight as the third round of bank inquiry targets small business lending.

Kate Carnell, Australian Small Business and Family Enterprise Ombudsman, committed her office to helping royal commissioner Kenneth Hayne carry out his investigation into the financial services industry. (Picture Kym Smith)

Regional lenders Bank of Queensland and Suncorp will be forced to send executives to face questioning at the royal commission for the first time, as Kenneth Hayne’s inquiry targets lending to small business later this month.

The hearings will likely be fiery, with Commonwealth Bank’s wholly-owned Bankwest business to also be put under the spotlight for its dealings with small business borrowers, many of whom were tipped into default at the height of the global financial crisis after the division was taken over from its British parent HBOS.

The royal commission into banking and financial services on Monday announced all four major lenders will also once again be grilled in Melbourne’s Federal Court over a fortnight starting May 21.

While the first two rounds of hearings covered mortgage lending and financial advice, the third round will focus on major financial institutions dealings with small- and medium-sized businesses. The Anna Bligh-led industry lobby group, the Australian Banking Association, will also face questioning, along with the Australian Securities & Investments Commission, about self-regulation. The ABA’s code of banking practice was recently overhauled with a key focus on small business loans.

The banking sector’s habit of tipping small businesses and farm owners into default with so-called non-monetary default clauses — which allowed the banks to use heavy handed contracts to tip borrowers who had been meeting all their repayments into receivership — has been a key focus for the small business ombudsman, Kate Carnell. Ms Carnell, who completed her inquiry into small business loans last year, has been a vocal critic of the banking sector in the lead-up to the calling of a royal commission by Malcolm Turnbull late last year. Ms Carnell committed her office to helping royal commissioner Kenneth Hayne carry out his investigation into Australia’s financial services industries.

ASIC will be questioned on the extension of unfair contract terms legislation to small business contracts.

June 26, 2014

Royal Commission timeline

The Senate economics committee calls for a royal commission following a lengthy inquiry into ASIC’s performance that focused on financial planning scandals at the CBA.

April 21, 2016

Royal Commission timeline

In an attempt to stave off continuing calls for a royal commission, the Australian Bankers Association announces former senior public servant Ian McPhee will oversee an overhaul of industry standards and practices.

November 30, 2017

Royal Commission timeline

After years of denying a royal commission is needed, the banks write to Prime Minister Malcolm Turnbull asking for one. He obliges.

February 12, 2018

Royal Commission timeline

Commissioner Kenneth Hayne formally opens the inquiry and sets the tone by laying into the big banks for failing to provide all the information he wanted in time.

March 13, 2018

Royal Commission timeline

The commission’s first full public hearings hear about consumer credit issues including a home loan fraud ring among NAB bankers in Western Sydney and out-of-control mortgage brokers at CBA subsidiary Aussie Home Loans.

April 16, 2018

Royal Commission timeline

Second round of hearings kicks off with a focus on one of the industry’s most scandal-prone sectors, financial planning.

The royal commission will call ANZ, Bank of Queensland, Commonwealth Bank, Westpac and Suncorp to give evidence about responsible lending to small businesses. National Australia Bank and CBA’s Western Australian subsidiary Bankwest have been asked to face questions about the management and monitoring of loans to businesses.

Bankwest has been a lightning rod for irate borrowers who had been pushed into default at the height of the global financial crisis, after CBA was asked to take over the ailing lender from distressed lender HBOS. Many Bankwest borrowers were defaulted after CBA reduced the value of the loans after the acquisition. A joint parliamentary committee investigated the saga.

CBA will also be questioned, along with Westpac, about product and account administration practices.

The ABA’s code of practice was recently rewritten after it was criticised for being overly complex and legalistic. The revamped code sought to limit the use of non-monetary default clauses, with protections for small businesses with $3 million or less of borrowings. Ms Carnell had wanted a higher threshold of $5 million, to include more small businesses, but the banks argued a $3 million limit would capture 97 per cent of business loans.