Accounting body pushes for new banking code of conduct to improve communication with SMEs

Accounting body CPA Australia has suggested the banking industry introduce a new code of conduct to deal with SME customers, which would force the banks to explain why they have rejected an SME’s loan application.

The proposal, which CPA Australia made as part of its submission to the Senate inquiry into small business access to finance, is based on similar codes which have recently been introduced in the European Union, Canada and Ireland.

Under the CPA Australia suggestion, banks would need to provide SMEs applying for credit with directions on how to do this, and explanation of the security and documentation required in a loan application and an estimate of the time it will take to process.

The code would also require banks to judge each application on the merits of the individual business (rather than taking a view of a specific sector) and when a application is denied, the reasons for the decisions would need to be explained.

The Code would also set out rules governing the circumstances under which a bank can change the terms and conditions of a loan, including giving an SME customer sufficient notice of such changes.

Gavin Ord, CPA Australia’s small business policy adviser, says the issue of sudden changes to loans terms is one of particular concern to his organisation’s members.

“They continually came back and said that banks often changed loan requirements with no or very little notice.”

Ord says the code of conduct would be something that could be introduced relatively easily, and would have an immediate impact on the flow of communication between banks and SME customers.

He says that while the codes of conduct adopted overseas are still relatively new, the fact that numerous nations have introduced a code shows that Australian SMEs are not alone in struggling to access bank finance.

“It’s pretty global this issue. The feedback we get from our overseas offices is that there is similar issues in terms of access to funding.”

CPA Australia has written to the Australian Banker’s Association about the idea. The ABA currently has a Code of Banking Practise, although this primarily focuses on individuals.

The accounting body will also float the idea with Small Business Minister Craig Emerson and his Opposition shadow Bruce Billson at an upcoming industry roundtable.