The member banks of the New Zealand Bankers' Association (representing New Zealand's major registered banks) recently agreed to a Statement of Principles in relation to their small, medium-sized and farming business customers. The Statement sets out rules to regulate the banker/customer relationship. Although the cover and introduction refer to small, medium-sized and farming businesses, the body of the Statement itself refers in a general way to business and farming customers and does not attempt to limit its application to small and medium-sized businesses.
The Statement places general obligations on banks such as requirements to:
- alert a customer in writing if the bank has concerns about that customer's business;
- discuss the results of any review of a customer before taking any action where possible;
- add its support to a recovery proposition which the bank believes will succeed; and
- act fairly and reasonably and seek to resolve problems quickly.
The Statement also provides that the Code of Banking Practice will now apply to business customers. The Code was introduced in 1992 and was intended to apply to personal banking customers. It provides rules in relation to such issues as the use of cheques, bank disclosure, the use of cards and PIN numbers. In a number of circumstances the extent of a customer's liability is limited by the Code. The Code also provides for a complaints procedure with a banking ombudsman as the final arbiter of any dispute between a bank and a customer. The Code is an example of industry self-regulation, with the signatory banks agreeing to be bound by the Code and decisions of the banking ombudsman (whose office the banks fund). In some cases it will prove difficult to apply the Code's consumer banking rules to business customers, and the banking ombudsman's caseload will certainly increase.
Cynical commentators may see the adoption of the Statement of Principles as an industry attempt to avoid legislatively imposed regimes, such as a recently mooted farm-bank mediation law. The Statement, however, does impose real restrictions on the way banks deal with their business and farming customers, particularly where customers are (or at least are perceived to be) getting into financial difficulties. It will be interesting to see whether banks find that they have pushed the balance too far in favour of their customers.
James Aitken/Vaughan Spurdle