Banking code questioned in regional banking inquiry

The Senate committee on rural and regional affairs and transport is continuing its investigation into the widespread closure of regional banking services, with the top executives of the big four banks facing tough questioning on Wednesday (20 September).

In addition, key stakeholders such as the Banking Code Compliance Committee, Finance Sector Union, Australian Banking Association, and Customer Owned Banking Association appeared before the committee during the hearing.

The inquiry heard more than 1,600 bank branches have closed nationally in the past six years, with 309 of those in the past year, leaving communities with no choice but to transition to digital banking or utilise Australia Post banking services through Bank@Post.

All four major banks have signalled a significant decline in ‘over-the-counter’ transactions as customers shift to digital banking.

However, the committee has challenged the banks’ roles in driving these changes, considering potential cost incentives and savings when branches are closed.

During her testimony before the Senate committee, Finance Sector Union member and finance employee Myrna Ellery highlighted the risks associated with the increasing reliance on Bank@Post services.

Drawing on her 25 years of banking experience with three major banks and her training in identifying different types of abuse and assisting victims, she argued that third-party services would fall short in protecting customers.

She shared two recent experiences of partner and elder abuse and stressed that third-party agencies like Australia Post staff, digital platforms, and call centre staff are unlikely to identify such abusive behaviours.

“The consequences for victims can be catastrophic and life-changing,” Ms Ellery said.

ABA’s code of conduct questioned

In addition, the committee probed the effectiveness of the Australian Banking Association’s (ABA) Banking Code of Practice in strengthening customer protections and holding banks accountable for supporting regional communities.

When Ms Ellery was asked whether she had seen any instances of banks being reprimanded for breaching the voluntary code of conduct, she responded with a definitive “no”.

The code, developed by the ABA, sets the standards of practice for banks, their staff, and their representatives, with member banks adopting it.

However, the committee pointed out an example of a Westpac bank branch closure in Cloncurry, where local officials knew about the closure before the bank’s staff did.

They also raised concerns about repeated failures to communicate with stakeholders highlighted in various inquiries since 1999, leading one senator to question why the committee would support a voluntary code of conduct when breaches were evident.

ABA chief executive Anna Bligh argued that breaches of the code are “very rare” and that the code has recently undergone significant improvements.

“We’ve spent the last 18 months consulting and redrafting the code and we’ve recently submitted it to ASIC,” Ms Bligh said.

She also mentioned that since most major banks had a moratorium on bank branch closures, the code had not been heavily invoked.

Despite the committee’s central goal of understanding the factors that influence banks’ decisions to close branches, one senator expressed frustration, saying they were “none the wiser.”

This senator proposed the idea of imposing social obligation licences on banks that profit significantly from the Australian community, suggesting that this would enhance transparency in the industry.

In response, Ms Bligh argued that while there may never be a single factor driving banks to close branches, the banking industry has become more transparent than ever before and will continue to improve in this regard.

“Maybe they could get better, but it’s a lot more transparent and certainly will be in the future than it has ever been in the past,” Ms Bligh said.

Transitioning to a society with less cash

Bank customers are increasingly embracing card and electronic payment methods, prompting Australian banks to adapt by offering digital services.

Commonwealth Bank’s CEO Matt Comyn estimated that sustaining cash distribution costs CBA approximately $400 million annually, roughly $40 for each of their 10 million customers.

“Five years ago 43 per cent of all point of sale transactions were cash. Today the figure is around 15 per cent,” Mr Comyn said.

“As time goes on, it becomes unsustainable to invest substantial resources keeping expensive services that fewer and fewer customers use.”

However, Mr Comyn emphasised the importance of sustaining a viable commercial model, particularly regarding ATM machines.

Ms Bligh agreed: “I don’t hear any bank talking about cashless society. But I do hear them talking about a society with less cash and in an environment of less cash.”

She acknowledged that some individuals, for various reasons, prefer to keep cash at home, providing them with a sense of security, which was “perfectly legitimate”.

“There has to be consideration given to how we can ensure those people who need cash can get it as it becomes a less and less significant part of the payment system by volume,” Ms Bligh said.

COBA member banks open new branches

Meanwhile, Michael Lawrence, CEO of the Customer Owned Banking Association, highlighted three examples of its member banks – Hume Bank, Heritage Bank, and Horizon Bank – opening new branches in recent months, emphasising the opportunities in the sector.

Mr Lawrence called on the inquiry to be mindful of making proportionate decisions for the sector.

“The banking sector has been hit by a wave after wave of poorly timed and coordinated regulation and regulatory action, offering little respite for the small players,” Mr Lawrence said.

“We recognise that regulation is critical to protect consumers and ensure financial stability and safety.

“What we are asking is that it is done in a more efficient way.”

[Related: Changes made to banking code of practice]