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Bank closures are disruptive to SMEs and may have a wider community impact: Ombudsman

Small businesses in rural and regional areas depend on banking services, and more needs to be done to help those affected by branch closures, the Ombudsman said. 

In a submission to the Regional Banking Taskforce, the Small Business and Family Enterprise Ombudsman Bruce Billson said that bank branch closures are disruptive to small and family businesses, which can have a ripple effect on the broader community.

“Small businesses rely on banking services to operate in the modern economy, and it is essential those in rural and regional areas have access to the full range of banking facilities,” Mr Billson said.

“Branch closures increase small business administrative costs, the level of risk for business owners, and have a community-wide economic impact.

“This is caused by business patronage moving away, along with reduced community amenity, particularly if it is the last remaining bank in town,” he said. 

What happened?

In October, the Australian government announced a task force, including the big four banks, to assess the impact of bank branch closures in regional communities. The task force is evaluating the effects of branch closures on regional communities and suggesting solutions. 

This comes after the Australian Prudential Regulation Authority (APRA) revealed that more than 100 regional and rural banking branches had closed in the previous year. 

Bridget McKenzie, Minister for Regionalisation, stated that having access to bank branches is essential for every community, especially for residents who cannot access online banking.

“As we have heard, bank branch closures in the regions also affect the liveability of towns, and so I am pleased to announce this task force will be looking at how we can keep banking services in rural Australia,” Minister McKenzie said.

A major hurdle

Mr Billson said that SME owners become more reliant on non-bank financial institutions with bank closure.

“For some small businesses, the loss of a local bank branch may even cause them to look for services outside the regulated financial system. That is a bad outcome, and there is more than can be done to support small businesses when a bank branch closes.”

Mr Billson also said that he is happy to collaborate with the Australian Banking Association (ABA) to amend the code of conduct to ensure that customers affected by branch closures can transfer to any other bank without incurring any costs.

“We have also asked the task force to consider expanding programs such as the Regional Tech Hub to help rural and regional small businesses secure safe banking services.

“Particularly in areas with no local bank branch, National Broadband Network (NBN) connectivity is critical. 

“When the standards aren’t met, they impact small or family business. Hence some consequences and remediation steps should apply.

“Australian small and family businesses have faced many difficult challenges over the past two years – the pandemic has exacerbated the impact of bushfires, floods and drought. 

“These businesses need support as they work to get back on their feet, including access to essential banking services.”  

Changes in customer preferences

There is no doubt that the nature of banking and the way people obtain financial advice has changed dramatically over the last decade. 

According to Anna Bligh, Chief Executive Officer of the ABA, branches are closing because customers no longer need to do their banking in person.

“As the world we live in continues to become more digitalised, the way customers want to do their banking is following the same trend,” Ms Bligh said.

“Recent APRA data shows that the overwhelming majority of bank branch closures in the past year have been in major cities, and not in regional areas.”

“Australian banks remain committed to providing banking services to every Australian, especially those in regional and remote areas,” Ms Bligh added.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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