NAB floats compromise in small business loan debate

National Australia Bank has put forward a compromise in the debate over which firms banks should treat as  "small businesses," extending protections to customers with total debts of up to $5 million.

While banks have accepted most of the royal commmission's 76 recommendations, a key sticking point has been its call for a much wider definition of a small business banking customer.

NAB will extend small business protections to customers borrowing up to $5 million in total, up from $3 million today.Credit:Carla Gottgens

Currently, banks treat any firm with total debt of up to $3 million as a small business, but the commission said this should change to "any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million".

The definition is important because it gives borrowers extra protections in their loan contracts, whereas from the banks' perspective, these loans are seen as riskier.

NAB, the country's biggest small business lender, on Friday said it would go part of the way to implementing the change sought by commissioner Kenneth Hayne, and it would treat businesses borrowing up to $5 million as small businesses, up from a $3 million threshold today.

It did not go as far as the commission's recommendation, which would entitle businesses taking out multiple loans of less than $5 million to small business protections, as long as they employed fewer than 100 staff.

NAB's rivals have not offered a similar change, and the issue is particularly sensitive for second tier banks, which are more exposed to adopting a wider definition.

The Australian Banking Association (ABA) last month raised "serious concerns" over the proposal,  and said it would consult with the federal Treasury, regulators and small business  groups.

Westpac and Commonwealth Bank last week said they would work with the ABA on the proposal, and ANZ Bank's initial response to the royal commission did not directly address the issue.

NAB on Friday said it supported 72 of the 76 recommendations of the royal commission (some of these do not affect the bank).

In addition to its stance on the small business definition, NAB also wouldn't support recommendations for customers to pay mortgage brokers up-front fees, brokers to be regulated as financial advisers, and for banks to create a senior executive role with accountability for the design of financial products.

NAB's acting chief executive Phil Chronican reiterated that he was focused on helping the bank regain trust, highlighting the need to compensate customers when the bank got it wrong, and building "a culture that puts customers first".

“The royal commission’s recommendations will help lead to a better, more customer-focused industry as organisations change in response. The commission has also rightly challenged NAB to close the gap between where we are today and where we need to be,” Mr Chronican said in a statement.

Source: Read Full Article