Banking sector response to COVID-19 and the new banking code


by Katrina Bullock

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Australian Banking Association CEO, Anna Bligh discusses how the banking sector is responding to Covid 19 and what customers can expect from the new banking code.

Katrina Bullock: Hello, Katrina Bullock for the Finance News Network. And joining me today from the Australian Banking Association is Chief Executive Officer, Anna Bligh. Anna, lovely to have you back on the network.

Anna Bligh: Nice to be here, Katrina.

Katrina Bullock: Now, Australia has had a tough time recently with bushfires and now COVID-19. Are businesses and individuals still able to borrow money during a period of such stress on banks' balance sheets?

Anna Bligh: Well, I think the good news for Australia in a sea of bad news, the good news is that Australian banks went into this crisis better capitalised with stronger balance sheets than at any other time. Australian banks now are some of the best capitalised banks in the world, largely as a result of all of the reforms since the GFC building up capital buffers. Yes, banks are still in a position to lend and they have been lending very strongly over... probably more at the beginning of the first half of Covid, March till May. It slowed down a little bit in demand but there is still plenty of capital there for the economy to draw on.

And that sort of fire power I think it's going to be even more necessary as we see more businesses in most of the country, not everywhere, but in most of the country starting to open up more, see more customers and many of them in a position to change their business models. And we know that many are taking that opportunity. Of course, businesses will still have to be able to meet the serviceability requirements and all of the other things that go along with good lending practice, but there's no shortage there of capital for those who need it.

Katrina Bullock: Good to hear. Anna, could you take us through some of the mitigation measures that have been put in place and the sort of feedback you're receiving from customers?

Anna Bligh: Well, as I said, banks went into this better capitalised than they've ever been. And unlike the GFC which really saw banks and financial institutions around the world as the weakness in the economy, this time around they are the strength and it's meant that they could act as shock absorbers, as that economic shock hit households and hit businesses. There are a number of things banks have done but probably the most significant is allow both households and businesses to take a deferral on their loan repayments for up to six months.

Now, that's a very significant absorber of the shock. If it hadn't been for banks being in that position, then you would see households and businesses having to absorb it. And you would have seen I think quite catastrophic financial results for the people, their families and their businesses and the economy as a whole. This sort of feedback that I know banks are getting from their customers is that this feels to them like a lifeline. There are many customers who are reporting that when they were locked down, they didn't have any revenue, they were able to pay their staff because of government support through Job Seeker and Job Keeper, but if they had at the same time without any revenue, had to continue to make loan repayments, that would've just been impossible.

If you think of households where both partners do a mortgage, for example, may have either lost their jobs or had their hours cut in half, for most households mortgage payments are the single biggest outgoing they have every month, and in many cases up around 30 per cent of their income or more. This has been, I think, a really important lifeline. Banks are acutely aware that at the beginning six months seemed like a long time and that it would be enough. As this thing has played out we're all learning a lot more about what a long time is. And banks are acutely aware that for some customers at the end of the six months they're going to need more support and they will have a suite of options, everything from restructuring loans through to, in those cases where a customer really needs it, a further extension of up to four months.

It's a pretty good lifeline and I think it's making a real difference to the ability of people just to cope in really uncertain circumstances. And I think we all know that financial pressure can really build up. And what we've seen in customers is not only those who've taken the deferrals but right across the board, banks are reporting that customers are behaving in a quite conservative financial way. Where they do have some additional money they are using either to pay down their credit card or put on their offset, or just put it in a savings account. Savings are up and repayments are up across the board, but there is still a big number of customers, about 900,000 Australians have taken a deferral. That's a lot of people who are depending on this to get through.

Katrina Bullock: Thanks, Anna. Now turning to the new banking code, when did it come into force and what are the key measures?

Anna Bligh: The new banking code came into effect on the 1st of July, 2019. There have been a couple of small changes that took effect in March this year, but the new code really started to have an impact from July last year. There are a number of key features of this code. Firstly, it's been around for nearly 30 years and like a lot of documents it's been added to and subtracted from and it was not an easy document to read and wasn't particularly customer-friendly.

Firstly, the code was completely green-fielded, rewritten from the ground up in plain English, which might seem like a small thing but if people can't understand their rights, then it's pretty hard for them to enforce it. It has a new chapter, an entirely new chapter on small businesses, and I think we all understand the important role that they play in the economy and ensuring that they get a fair and ethical treatment from their banks is important. And the new chapter provides significant new protections, particularly in the loan contracts for those small businesses.

It also has a whole new section on vulnerable customers. I think it would be fair to say that one of the key themes in the Royal Commission was the way that businesses and banks in this example treat the most vulnerable will often have a very big impact on their reputation and on public confidence in them. This new section on vulnerability requires banks wherever possible to identify that a customer is vulnerable and having identified it to take extra care with that customer.

And there are some people who will be vulnerable customers all their lives. People, for example, who might have an intellectual disability. But for other people, any of us - you, me, tomorrow if you had a terrible health issue or you lose your job or your marriage breaks down, something happens to you unexpectedly that considerably affects your income, you can become vulnerable for a period of time. And banks have taken on a very explicit commitment to work with extra care with those customers.

There are a raft of new provisions. I can't go through all of them, but it's a document that considerably empowers customers and puts a lot more onus on banks to be careful about how they treat customers and to... it is basically a set of rules that binds banks. The code of practice is a binding document, it can be enforced in the courts. Most people are unlikely to take their bank to court but it is enforceable through the federal government's new complaints body, the Australian Financial Complaints Authority, which is free, accessible, and it will hear complaints against a bank and it will use the code to make a judgment about whether banks have done what they said they will do and what they're supposed to do.

Katrina Bullock: Now, Anna, you've touched on the recommendations from the Hayne Royal Commission, what has been adopted to date and how does the new banking code address some of these concerns?

Anna Bligh: Yes, it does. There have been a number of new provisions put in place through the code. In particular, a number of the cases that the commission looked at was the treatment of customers in the agricultural production sector, farmers, and there are new provisions there to protect farmers particularly as they experience things like drought. And banks have also put in place a range of other recommendations, for example, a recommendation that they have regular reviews of the culture within the organisation.

But many of the recommendations of the Royal Commission require legislation through the Australian Parliament. The federal government has put in place a road map for when all of that legislation will be in place. Understandably, they shifted some of their time frames when Covid came along so they've bumped it all out by about six months, which I think given that the federal parliament is only sitting intermittently during Covid, and given everything else that banks and the federal treasury are dealing with right now, nobody has dropped the ball on the Royal Commission. It's still something that the banking sector is absolutely committed to as is the federal government and indeed the Australian Parliament.

But I think we all have to be a sensible at what can be achieved during these times. There are nevertheless a number of pieces of draft legislation which the government is now actively or has recently been consulting on and I would expect to see them in the parliament before the end of this year. So, it is full steam ahead on the Royal Commission.

Katrina Bullock: It's good to hear. And last question, Anna. You have quite a long history in politics and you're certainly no stranger to dealing with crises. What advice do you have for Aussies as they navigate these tough times?

Anna Bligh: Well, you're right, I'm no stranger to disasters and Queensland has seen many of them, particularly natural disasters. I think these are times when... my experience is you never get through these things unless people work together as much as they can and that's on every level. At a macro level, it's absolutely critical I think right now that the banking sector works with the federal government, works with the RBA, works with all of the regulators, hand-in-hand very collaboratively where that's appropriate, to make sure that we're building the closest possible safety net. That is, government support can intersect with bank support and keep people afloat, but it applies just as equally on a personal level. When people reach out and look after each other, everybody has a better chance of getting through it.

I think one of the things that none of us really expect, whether it's a flood or an economic crisis, I think human beings we like to think that these things will be over pretty quickly. The reality is they echo for a very long time and long after the lock down is over or restrictions are lifted, people are still going to be rebuilding, and rebuilding their finances and rebuilding their relationship with work, rebuilding their whole careers. We're all going to have to just keep looking out for each other and I don't think you can underestimate how powerful that is.

Katrina Bullock: Anna Bligh, thanks for your time and insights, we really appreciate them as always.

Anna Bligh: Thanks, Katrina.