Westpac CEO Brian Hartzer faced the House Standing Committee on Economics on Friday, questioned by MP John Falinski who raised a previous speech the CEO gave alongside three of Westpac's now-successful business customers.
"You made the point in that speech, I believe, that as entrepreneurs are meant to do, three of your clients took a bet, that bet took their businesses very close to the wind in terms of cash flow requirements," Falinski recalled.
Falinksi said that because of Westpac's long-standing relationship with those clients and its fundamental understanding of their respective businesses, it was able to support them at the time. However, recalling Hartzer's speech further, Falinski said the Westpac CEO was concerned that making such a judgement today might not necessarily be reflective of the current legal framework.
Hartzer confirmed this, saying he was referring to the unintended consequences of the responsible lending laws for business lending.
"So in other words, these laws that Parliament passed, [the way they] were being interpreted, how they are by regulators, could have actually seen three otherwise incredibly successful Australian businesses that have earned a lot of money in exports, employ a lot of people, potentially not currently on as part of our business environment?" Falinski continued, returning a simple "yes" from Hartzer.
Hartzer said Westpac was able to help those people at a point in time where they didn't necessarily have the documentation to fit squarely within the box, and a banker was able to exercise judgement to support them.
Falinksi is concerned that not being able to make judgements such as these could potentially stifle entrepreneurship in Australia. He said that as mandated by Parliament, and enforced by regulators, the activity of ticking boxes is removing otherwise good judgements that banks and other credit providers used to have.
"I think that is at least a partial unintended consequence," Hartzer replied. "However, it's clear that some of the requirements are making it more challenging for bankers to feel confident to exercise that judgement."
See also: How small businesses can deal with getting regulated (TechRepublic)
Falinski pointed to Australian medical device company, Cochlear, and its recent remarks that if it had its time again, due to red tape, it would not have set up in Australia.
He similarly pointed to startup darling Atlassian, which packed up and listed offshore, and the founders of credit payment service Afterpay, saying that Australia's regulatory environment is the most difficult to navigate out of all the regions it operates in.
Falinksi asked Hartzer if he thought it was helpful for Westpac and the Australian economy to have a regulatory environment that is so inimical to entrepreneurship.
"Certainly not," the CEO replied. "The number one thing that we hear our small business customers talk about is the challenges of red tape and regulation at various levels that they face."
Westpac currently manages around 730,000 small business customers through its business bank.
Hartzer was further questioned on why cutting red tape for his bank's business customers isn't treated as a higher priority.
"When I think about the speeches that I've given they have been about business, they've been about the economy, they've been about suggestions we can make … from our standpoint, we engage on all of these topics."
The CEO said his bank has put a number of suggestions to governments at a state and federal level about particular "things" that it believes are getting in the way of small businesses thriving.
The Commonwealth Bank of Australia has denied the idea that it is impacting innovation in Australia by making it harder for small businesses to receive loans.
As part of its complaints handling overhaul, the bank is making use of data such as a customer's postcode and if they're in receipt of Centrelink assistance to find customers that need more 'care'.
Why Westpac is making 'frenemies' with fintechs (TechRepublic)
The bank's CIO has used the term 'frenemies' to describe the relationship Westpac has with the fintech community down under.