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Thursday, 1 November 2012
Page: 13028


Dr STONE (Murray) (16:48): There is a very sad and shocking situation playing out mostly in the electorate of Murray but extending to other parts of northern Victoria, and that is the failure of the Banksia Financial Group. It is a group that takes deposits and lends out money. Banksia was established in the 1960s in the small town of Kyabram. It was a home-grown enterprise that people felt proud of. Their own town had its own bank-like agency.

There were many thousands of investors—over 3,000—mostly farmers, small business people, self-funded retirees, sporting clubs and some local churches. Many pensioners had their welfare payments go directly from Centrelink straight into Banksia. You might wonder why people were investing in their own home-grown, non-banking, very minimally regulated investment vehicle. Well, it is what you do in country towns. You support your own businesses. You look after your own local population. People who worked in Banksia and the various branches were local people, known to the locals and trusted by the locals. You can imagine the shock when last Thursday, after a review by the newly appointed CEO, Mr Warren Shaw, they found that the business was in such a shaky financial situation that receivers were called in. There are over 3,000 clients who together are owed over $660 million.

This is, of course, an extraordinary situation because right now all of those 3,000 clients' funds are frozen. One of the features of the deposits in Banksia is that people typically had all of their savings or all of the funds that they had received from selling their farm or their water in this one agency. So at the moment there are thousands of families, individuals and older people who literally have no cash to buy food. Their funds are all frozen. Those who had Centrelink payments diverted into Banksia are the lucky few, particularly those on a full pension, because at least they can open a different account in a bank. But for those who had a very small part pension or who were not pensioners at all are in this extremely parlous situation.

In their latest prospectus, Banksia Financial Group reported an equity to total liabilities ratio of 3.6 per cent at the end of the 2011 financial year—that is, the end of June last year. This was well below the minimum equity ratio benchmark of eight per cent recommended by ASIC. You might ask: what did ASIC do about that? Did they ring bells, ask for an urgent addressing of the situation? It appears that nothing was done by ASIC because, they argue, they do not have much business when it comes to sanctions, demands, curtailments or anything else other than a requirement that such a liability ratio is actually published in the prospectus. Clearly this is a serious problem, and I am very pleased that this government has now urgently set up an internal ASIC inquiry into how we should better regulate this non-banking sector given that there are so many such groups in Australia and, sadly, they have a record of underperformance or collapse.

I quote here a special reference to what has happened to Banksia in an article just written by Matthew Drummond in the Australian Financial Review:

The Banksia collapse has returned the spotlight to the wide regulatory gap between banks, which are closely supervised by APRA, and companies who issue un-rated, unlisted debentures and invest the proceeds in risky construction and property loans.

He goes on to say:

Such companies receive comparatively no oversight despite many collapses. For the past five years, following the $300 million Westpoint collapse, they have been required to disclose whether they hold suggested minimum amounts of capital and face no sanctions if they do not.

I am most concerned that in fact we look harder at the regulation of this particular non-banking sector, given that there are a lot of people who are not familiar with how to interpret what can be a complicated prospectus.

In the case of Banksia, there were people who were into the second generation of trusting what they called their local bank. This agency also sponsored local sporting clubs. It was beloved by its community. This is a shock for them. I am grateful to Centrelink for trying to help them right now. More needs to be done in that regard. The process is still being sorted. I have to mourn, with my community, the loss of this bank and hope that people get some cash soon, literally to put food on the table. (Time expired)