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The professional body has urged Treasury to extend the small-business responsible lending obligations exemption to help small businesses access credit.
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ABA calls for extension of SME loan exemption
21 August 2024
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The Australian Banking Association (ABA) has requested the extension of the exemption for a period of a further two years to 3 October 2026.
The ABA has also requested the Treasury to explore making the exemption permanent to ensure certainty and reduce regulatory restrictions and barriers for SMEs that seek access to credit.
In April 2020 a time-limited exemption was established as a temporary measure to support timely access to finance for SMEs during the COVID-19 pandemic.
Initially, the exemption was put in place for six months, however, has seen three extensions with the ABA petitioning for a further extension.
ABA said the exemption has been beneficial for small businesses in the way it operates.
The exemption “provides that certain, mixed-purpose small business loans are exempt from the responsible lending obligations so long as there is a ‘genuine’ business purpose that is not minor or incidental.”
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“The exemption means a mixed-purpose small business loan is not subject to the responsible lending obligations where the loan has a real business purpose that is not insignificant or peripheral to the loan,” it said.
Small-business customers continue to benefit from the existence of the exemption, with small-business credit growing by 61 per cent from $418 billion in July 2019 to $672 billion in June 2024.
According to the ABA, small businesses make up 33 per cent of Australia’s GDP and employ 42 per cent of Australia’s workforce.
Over 93 per cent of the total employing businesses in Australia are small businesses.
The ABA submitted the submission to the Treasury’s consultation under the belief it considers the continuation of the exemption to be important, especially in the current market of inflation and higher interest rates.
“ABA members have observed that the exemption has supported sufficient availability of credit to small business and reduced the cost of credit for small business via a less onerous and more efficient process,” the submission said.
“The existence of the exemption reduces the number of inquiries and verification tasks that must be completed by banks and small businesses, which can often result in customers spending more time and resources to provide additional documentation that would otherwise be required under the National Consumer Credit Protection Act 2009.”
The association said there are various regulatory provisions and consumer protections that exist to support banking customers and small businesses.
These include The Australian Securities and Investments Commission Act 2001, the ABA’s Banking Code of Practice, and relevant APRA Prudential Standards Guidance such as the APS 220 Credit Risk Management.
The ABA has also argued the exemption has provided no evidence to suggest it has led to an increase in customer detriment such as loan defaults.
Business loan arrears remain low at 0.5 per cent in 2024, compared to 0.7 per cent in 2019.
Small-business repossessions have also been low due to banks’ customer-centric approach, as banks support customers to voluntarily exit the product or service and support security if they are unable to service the loan.
The ABA said the submission has been made on strong grounds and should be considered for extension or permanency.
“The ABA notes the explanatory statement on the exemption states that extending the exemption will provide an additional two years of data to inform a future decision on whether the exemption should be made permanent, allowed to expire or modified to improve its effectiveness,” the submission said.
“The ABA welcomes this position and would be pleased to provide further information or support to the Treasury as it considers the permanency of the exemption, which we strongly support.”
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