Page 999 - Week 04 - Wednesday, 31 March 1993
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Even things such as a deposit book have a cost, and that is a charge for doing the bank's own work. While there may have been some benefits under deregulation - and I suspect that those benefits are quite definite in some areas of banking - I doubt very much whether the small business sector would heap praise on our current system.
While financing a business under the old system could be somewhat restrictive, it was relatively cheap for small businesses. The ceiling rate on small loan overdrafts was lower, for the most part, than the rate for large overdrafts. However, banks rationed finance to low risk customers. While deregulation has opened the doors to some small businesses, it has provided access to finance at a very definite price. In general terms the cost of a debt is notably higher for small businesses than for larger businesses, and one would have to argue whether this higher margin is justified.
One of the glaring problems is the impossible task of comparing one banking service with another. This can be a problem when comparing in-house services, but more so when trying to find out where you can get the best deal for your business, one of the reasons being the failure of banks to disclose many of their fees and charges. Banks have made very little effort to clearly explain their products and their associated costs. Apart from being unfair, non-interest add-on costs are a very real problem for small businesses. These add-on costs make it complex for owners to assess the overall cost of borrowing and, as I have said, make it almost impossible for them to compare services that are provided.
As mentioned, small businesses have concerns about a number of aspects relative to their relationships with banks. We hear a great deal about the importance of our small business sector, Madam Speaker. We are often told that the growth of Canberra and Australia will be based upon a small business led recovery. Many people believe, and I think appropriately, that banks have actually undermined the growth of the small business sector by poor practices and by conducting their own monetary policy, which has slowed down lending rates to small businesses and kept some business related interest rates extremely high, particularly for small businesses, which do not have the capacity to deal with their banks in the same way as large businesses or chains do.
This view is supported by the Bureau of Industry Economics in a paper entitled "Small Business Finance", which states that BIE research suggested that tighter lending by banks was actually impeding much needed investment. (Extension of time granted) If we in Australia, and particularly Canberra, are serious about regaining lost ground, if small business is to lead the recovery or, in Canberra, to provide the necessary growth in employment, then things simply have to change. It may be said that this is just the marketplace at work, but I very much doubt it. We have to turn all the imposts on small businesses around. Banks should provide a genuine service, a service which is fully understood by those who use it.
In an attempt to achieve this, the Liberal Party fully support the recommendation of the House of Representatives Standing Committee on Finance and Public Administration that a code of practice be instituted and that the requirements of that code be widely advertised and be widely explained to those who use the banking system. Until these things are achieved, I believe that small business in Australia, and more particularly in Canberra because that is what we are worried about here, will be badly affected by its inability to compete equitably in the banking sector.
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