Bank lending practices for small and medium enterprises (SMEs) were in the spotlight when the Financial Services Royal Commission (FSRC) held round three of its public hearings from 21 May to 1 June 2018. This round of hearings focused on the conduct of financial services entities when providing credit to SMEs. The hearings will also explore the legal and regulatory regimes, as well as self-regulation under the Code of Banking Practice.
The Royal Commission is interested in SME lending practices as they are an important sector of the economy – over two million SMEs account for more than 65% of private sector employment. The aggregate value of bank lending to small business (defined as loans of less than $2 million) accounts for around 28% of total bank lending to business. In addition to loan facilities and revolving trade finance, a Financial Services Regulatory Commission background paper notes that other financial products are often provided to SMEs, such as cashflow finance management and access to payments systems for credit cards and EFTPOS. SME owners also often rely on their personal finances and real estate to provide security to obtain access to SME finance.
The Royal Commission considered issues with SME lending practices by reference to case studies involving ANZ, Bank of Queensland, CBA, Westpac and Suncorp. The approach of the banks to enforcement, management and monitoring business loans will be considered by reference to case studies from CBA/Bankwest and NAB.
Remote and regional areas
The fourth round of the Royal Commission's public hearings (25–29 June 2018) is focusing on issues affecting those who live in remote and regional communities, which relate to farming finance, natural disaster insurance, and interactions between Aboriginal and Torres Strait Islander people and financial services entities.
The Royal Commission is expected to provide an interim report by 30 September 2018, with a final report due by 1 February 2019.