The Banking Royal Commission Final Report

The long awaited final report of the royal commission was released yesterday. Commissioner Kenneth Hayne’s report offers 76 recommendations, all of which the Federal Government and Labor say they will support and implement. Of the 76 recommendation many of them are largely designed to guide the behaviour of the people and companies that protect our financial assets. The reforms are wide-ranging and will impact almost everyone at some level.

So… What’s in it for Farms and Small Businesses?

Recommendation 1.10 – Definition of ‘small business’

The ABA should amend the definition of ‘small business’ in the Banking Code so that the Code applies to any business or group employing fewer than 100 full-time equivalent employees, where the loan applied for is less than $5 million.

Recommendation 1.11 – Farm debt mediation

A national scheme of farm debt mediation should be enacted.

Recommendation 1.12 – Valuations of land

APRA should amend Prudential Standard APS 220 to:

  • require that internal appraisals of the value of land taken or to be taken as security should be independent of loan origination, loan processing and loan decision processes; and
  • provide for valuation of agricultural land in a manner that will recognise, to the extent possible:

– the likelihood of external events affecting its realisable value; and

– the time that may be taken to realise the land at a reasonable price affecting its realisable value.

Recommendation 1.13 – Charging default interest

The ABA should amend the Banking Code to provide that, while a declaration remains in force, banks will not charge default interest on loans secured by agricultural land in an area declared to be affected by drought or other natural disaster.

Recommendation 1.14 – Distressed agricultural loans

When dealing with distressed agricultural loans, banks should:

  • ensure that those loans are managed by experienced agricultural bankers;
  • offer farm debt mediation as soon as a loan is classified as distressed;
  • manage every distressed loan on the footing that working out will be the best outcome for bank and borrower, and enforcement the worst;
  • recognise that appointment of receivers or any other form of external administrator is a remedy of last resort; and
  • cease charging default interest when there is no realistic prospect of recovering the amount charged.
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