15 April, 2020
The Reserve Bank of Australia has announced an A$90 billion facility for Australian banks with the purpose of encouraging lending to businesses amidst the economic turmoil triggered by COVID-19.
Cash flow is one thing, speed of cash flow is quite another…
The stress in small business is so great that the difference between business failure and resilience will come down to a matter of weeks and in some cases days.
The overall policy and the response from the banks is highly comforting. Now, the redesign of business lending programmes is crucial. The most important challenge for banks and SMEs is to get the cash to where it’s needed – and fast. Whilst we agree that the model of using the existing banking systems and processes is the right one, feedback from bankers and customers is that existing BAU activities are already creating huge workloads and strain on processes and systems.
The anticipated additional tsunami of requests in the coming weeks will risk what is already an overwhelmed and stretched workforce. We see three distinct challenges for banks in realising the effectiveness of the economic response from government and policy-makers:
- Operationalising a material change to credit risk appetite overnight and ensuring all frontline SME bankers to assess customers differently will not be easy or straightforward without fast and thoughtful design.
- Operating models are not configured for the volumes that will come, which will bring attendant operational and legal risks. These risks can be understood and well managed with proactive thoughtful design early in the process, and without compromising overall speed. We believe operating models can be adapted with smart, "no-regrets", risk-based decisions that need to be made upfront through good design.
- Customers will need clarity, speed and responsiveness to have confidence that the system is working for them. This is absolutely critical to ensuring they in turn have confidence to keep paying staff, suppliers and landlords. This will be more challenging when limit increases are requested (compared to requests for repayment holidays).
There are important legal and regulatory considerations for banks too ranging from; employee status, regulated credit requirements, relaxation of prudential standards, managing documentation processes and laws affecting how they can manage their customer outreach programmes.
It is imperative that a fast and thoughtful design, taking into account both the law and operationalisation imperatives are implemented. Ashurst is discussing with our banking clients the design of programmes to ensure that small businesses get the cash they need to remain resilient through the crisis.
The services provided by the Ashurst Risk Advisory practice do not constitute legal services or legal advice, and are not provided by Australian legal practitioners. The laws and regulations which govern the provision of legal services in the relevant jurisdiction do not apply to the provision of non-legal services.
For further information, please contact:
Jamie Ng, Partner, Ashurst
jamie.ng@ashurst.com
