Bank culture
6.1
This chapter will turn to issues relating to broader bank culture, and
provide suggestions on measures to improve the current system.
Importance of bank culture
6.2
During the inquiry the committee received evidence emphasising the
importance of allowing farmers to exit with dignity in situations where
foreclosure is unavoidable.
6.3
For example, the ABA commented:
The [banking] industry will continue to work with government
and primary producer organisations on what can be done to support business
owners to exit the industry with dignity and with as much equity as possible
when that is unfortunately the only option.[1]
6.4
The committee also received evidence indicating that the culture of a
bank is an important factor in ensuring that farmers are treated with dignity,
particularly when they are experiencing financial difficulties. For example,
both Westpac and the ANZ informed the committee that the culture of an
organisation was important in this respect.[2]
Additionally, these two banks were identified by Mr Andrew McLaughlin from his
years consulting in the agribusiness space as banks 'leading the way' and
making positive cultural changes.[3]
6.5
Mr Ben Steinberg, Head of Lending Services for the ANZ noted:
Can I say, perhaps with some humility, that we [ANZ] think
we're doing everything we can in order to address the concerns that have arisen
over the last few years. We're listening to people like Andy McLaughlin and a
lot of other people around the concerns out in the industry. Like any good
business, we're in a process of continuous improvement. We are looking at our
processes and our procedures every single day. We are looking at ways to change
those so that we can be better banks every day, so that we can understand the
issues that our customers face, so that we can deal with those issues with
respect and, as was pointed out earlier before, so that we can ensure the
dignity of our customers is respected.[4]
6.6
Mr McLaughlin provided the committee with a personal insight about how
crucial it is to allow farmers to retain their dignity, even when exiting the
industry:
We understand that the bank is entitled to get its money; we
understand that the receiver have got the job – but they have an obligation, a
duty of care, to ensure they are not only representing the banks but also
ensuring that he farmers get a return. Mr Forrest [a former Federal Member of
Parliament] used to say to me, 'Andy, if we can go down to that bank and we can
do a deal, and that farmer can walk out with a dollar in his pocket and with
his dignity, that's a bloody good start'.[5]
6.7
The ABA acknowledged that bank culture can play a pivotal role in
addressing behaviour that is less than adequate. As Ms Bligh observed:
The banking industry acknowledges that bank conduct, culture
and communication needs to be improved. Evidence to this inquiry has
highlighted this need.[6]
Committee view
6.8
Evidence received by the committee indicates that although the corporate
culture of a bank may have improved in some areas, the reflected values
demonstrated by individual bank employees at the customer interface has in some
instances fallen significantly short of these ideals. In such instances,
farmers and their families are not afforded the dignity they deserve.
6.9
As such, the committee believes it is imperative that banks invest in
ensuring that the corporate culture, often so eloquently espoused by senior or
executive bank leaders, is actually demonstrated by frontline and middle
management bank staff during day-to-day interactions with customers.
6.10
Throughout the inquiry the committee heard numerous senior bank
representatives champion their institution's cooperative and empathetic
approach to dealing with customers, as well as emphasise their understanding of
and commitment to their agribusiness customers.
6.11
While the committee was encouraged to hear these sentiments, and also to
hear positive third-party reports regarding banks such as Westpac and the ANZ,
a positive corporate culture is of no use to customers if it is not followed or
respected by the staff farmers must actually deal with. Primary producers who
have been verbally abused, pressured, had their trust violated, or subjected to
other intimidating behaviour from bank staff take little comfort from these
broad assurances from bank executives.
6.12
The committee considers that it is crucial that banks take more
meaningful responsibility for the actions of their middle management and
frontline staff in order to ensure that primary production customers are
treated with dignity, particularly during financial difficulties. Banks must
invest in comprehensively assessing staff behaviour, take complaints seriously,
and where necessary, take remedial action against staff who behave inappropriately.
Recommendation 22
6.13
The committee recommends that the Australian Bankers' Association ensure
that banks offer better training and more comprehensive supervision of bank
frontline and management staff to ensure that they deal fairly and reasonably
with farming customers and have a sound understanding of the unique
characteristics of primary production enterprises.
Code of Banking Practice
6.14
The ABA Code of Banking Practice (the code) sets standards for fairness,
transparency, behaviour and accountability for banks, beyond legislative
requirements. [7]
6.15
The code was independently reviewed in 2017 by Mr Phil Khoury, and the
ABA informed the committee that it was in the process of redrafting the code,
with the aim to publish a new version by the end of 2017. For the first time
the Australian Securities and Investments Commission will be approving the
code.[8]
6.16
Ms Bligh outlined further details on the first rewrite of the code sine
1993:
This is a document by which banks need to be held
accountable, and it can't function as that unless customers are able to easily
understand it and read their rights as customers.[9]
6.17
When queried by the committee on the extent to which the interests of
farming or agricultural businesses will be accommodated in the code, Ms Bligh
responded that there were a number of new provisions proposed for the code that
went directly to small businesses, including farms and agribusinesses.[10]
6.18
The ABA submission set out in more detail the parts of the new code that
would assist in creating positive relationships between banks and farmers. For
example, under the new code, the banks will:
-
provide clearer information to farmers about credit products and
lending decisions;
-
give farmers more notice when loan contracts change;
-
give farmers more time to arrange alternative finance when a
facility is not going to be renewed;
-
outline how banks will assist farmers experiencing financial
difficulty;
-
develop better guidelines on valuation practices and how and when
they can appoint investigative accountants and receivers, administrators and
liquidators;
-
reduce the number of non-monetary covenants in loan contracts and
credit products for small business and agribusiness customers (including the
removal of all general adverse material change clauses and the reduction of the
number of specific events of non-monetary default entitling enforcement
action); and
-
explain remaining covenants in plain language and include a
summary of covenants with loan contracts for small businesses.[11]
Committee view
6.19
The committee is of the opinion that the ABA has a significant role to
play in setting the tone of bank culture in Australia. To that end, the
committee commends the ABA for its work in rewriting the Code of Banking
Practice, and looks forward to seeing the above changes reflected in the new,
ASIC-approved version.
6.20
The committee urges the ABA adopt all relevant recommendations of this
report and take into consideration the unique characteristics of agribusiness
and primary production lending when rewriting the code.
Recommendation 23
6.21
The committee recommends that the Australian Bankers' Association adopt
all relevant recommendations of this report when redrafting the Code of Banking
Practice.
Recommendation 24
6.22
The committee recommends that the new Code of Banking Practice currently
being drafted by the Australian Bankers' Association specifically recognise the
operating environment of primary producers.
Recommendation 25
6.23
The committee recommends that the Australian Bankers' Association
stipulate that banks must draw customers' attention to the Code of Banking
Practice when establishing new loans.
Additional guidance for primary producers
6.24
Throughout the inquiry numerous primary producers expressed disbelief
and disappointment that their bank managers had broken their trust, or not
acted in their best interests. For example, some farmers were incredulous that
they had been pushed to borrow or spend more money than they required or had
requested.[12]
6.25
Mr Denis McMahon, a senior lawyer from Legal Aid Queensland provided the
committee with an observation around the breach of trust between primary
producers and their bank staff:
In relation to the trust issue, I've had clients say that
when they were obtaining their loans they were told by the bank manager that
certain things would happen. For example, if they were going to be offered
market rate, market facilities, for three to five years, the bank manager had
indicated that those would just be rolled over at the time, and the clients,
trusting the bank manager, took those facilities. Then, when the facilities
came to expire, the banks didn't honour their word.[13]
6.26
Mr McLaughlin noted the demise of the once strong personal relationship
between a farmer and his or her local rural bank:
If you go back to the old system, where the local bank
manager had the ability to look at loans, review them and approve them
internally, he was very hands-on with the farmer... They had a family
relationship, where they went to the farm and sat down to have a coffee and a
scone or whatever else. That was very special, because then the farmer trusted
his banker and knew he could rely on him tough times.[14]
6.27
Additionally, Ms Scott from the ASBFEO observed that some individuals
viewed their banking relationships in a different light to their bank managers:
They have kind of treated their bank as partners of people
that they are in a strategic business relationship with. They have known them
for a long time whereas the game has changed; it is not like that anymore. They
are not like their doctor or their dentist – somebody that they hold up as a
professional in high esteem who is going to guide them. The bank is running its
business. It is almost like cutting through that myth of, 'The bank will
support me no matter what' to the reality of: 'If you face this situation going
forward, will you be able to carry the business through or not?'[15]
6.28
The committee also heard that the geographical dislocation between bank
managers and farmers impedes the relationship between the two parties. For
example, Mr Colin Nicholl from the Western Australian Farmers Federation
submitted:
At one stage the local bank manager used to be part of our
community. He was the man that made a lot of the decisions. He was empowered to
lend money up to certain sums, and that varied from bank to bank and from the
experience of manager to manager. Anything beyond that he passed higher up to
the people further up the bank with a recommendation. Today most of those
decision-makers are no longer in the local community – they are based in regional
towns – and they have no idea of who their clients are or how their businesses
are going.[16]
Committee view
6.29
Due to the changed nature of modern banking, the committee is of the
opinion that primary producers would benefit from assistance in regard to financial
literacy, business management and resilience training.
6.30
The days where customers could confidently trust their bank manager to
always act in their best interests are gone. As such it is even more imperative
that farmers are equipped with adequate financial literacy skills to assist
them in making informed decisions about their businesses, and allow them to
better assess the value of advice given to them from financial institutions and
related third parties.
Recommendation 26
6.31
The committee recommends that the government establish tailored
initiatives that provide primary producers with guidance on financial literacy
and business management, and resilience training.
Banking royal commission
6.32
As noted earlier in this report, the committee's inquiry unfolded amid
growing concerns about alleged misconduct in Australia's banking sector and
increasing calls for a royal commission. Recognising that it will be the only
way to restore public faith in the sector, the Turnbull Government announced
the Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry on 30 November 2017.[17]
Draft terms of reference released by the government cover a range of issues,
including, in the context of this inquiry:
-
culture and governance practices in the sector;
-
compensation and redress for consumers who have suffered; and
-
the overall efficacy of the current legal and regulatory
framework as it relates to banking and financial services.[18]
6.33
The committee notes that had the Turnbull Government not acted to
address the misconduct of the banking and financial services industry by
establishing the royal commission, the committee would have made a strong
recommendation in this report for such an inquiry.
6.34
Although the timing of the royal commission will not enable this
committee to be informed by any evidence which may emerge, the committee
nonetheless welcomes the announcement and the Prime Minister's commitment to
the Australian people:
The Inquiry [royal commission] will consider the conduct of
banks, insurers, financial services providers and superannuation funds (not
including self-managed superannuation funds). It will also consider how well
equipped regulators are to identify and address misconduct. It will not
inquire into other matters such as financial stability or the resilience of our
banks.
This will be a sensible, efficient and focussed inquiry into
misconduct and practices falling below community standards and expectations.
Most Australians are consumers of banking and financial services, and we all
have the right to be treated honestly and fairly by banking and financial
services providers.[19]
6.35
At this early stage, however, it is impossible to say whether any
recommendations that may arise as a result of the royal commission will be
sufficient to drive positive change for primary producers who have been
severely let down by their experience with financial institutions. This being
the case, the committee emphasises the importance of the evidence brought to
light by this inquiry and urges the government and other stakeholders to
consider and implement the recommendations within this report without
unnecessary delay.
6.36
Finally, the committee urges the royal commission to fully consider the
evidence published by this committee in the context of its inquiry.
Recommendation 27
6.37
The committee recommends that the newly established Royal Commission
into Misconduct in the Banking, Superannuation and Financial Services Industry
fully consider the evidence published by this committee in the context of its
inquiry.
Senator Pauline Hanson
Chair
Senator John Williams
Deputy Chair
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