SME’s miss out as banks favour housing
It is a major concern that lending to small-to-medium (SME) enterprises has shrunk, National Australia Bank Ltd (NAB) group executive of business banking Joseph Healy says.
Recent NAB research showed that lending for housing and lending for small business were on an equal footing a decade ago, but currently, for every $1,000 that was loaned for housing, only $600 was available for business.
Mr Healy told ABC TV on Sunday that this was a big concern.
He said a significant shift in the allocation of capital towards housing had resulted in growth in the level of household debt from about $280 billion ten years ago to about $1.1 trillion currently.
“There’s nothing wrong per se in lending to households but the issue is making sure that we’re also lending to businesses,” he said.
“We must not lose sight of the fact that small businesses are the engine room of the economy, they employ close to seven out of ten working Australians.
“I believe our future prosperity really depends on having a strong, vibrant small business sector and the fact that small businesses feel that the banking system is not working for them … is a big concern.
“We have one of the strongest banking systems in the world so a legitimate question is; why given that, do our small businesses feel poorly served by our banking system?”
Mr Healy said it was an “almost perverse situation” that it was more attractive to lend for a weekend holiday home than to lend to a small business amid scarce capital worldwide.
“Now that clearly is not good for the economy, and therefore it’s an issue that we should discuss and start thinking about how we’re going to solve rather than waiting for that problem to crystallise.”
Mr Healy said the Basel 2 capital rules, an international standard for banking regulators that intended to recognise the relative riskiness of lending, had created an incentive to lend the marginal dollar more towards the household sector than towards the business sector.
He said the government, banks including the Reserve Bank of Australia, bank regulators and representative agencies of small businesses had a role to play in discussions on the issue.
AAP
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Mike July 26, 2010
This only serves to confirm what we already knew to be fact. Since GFC the problem has only been exacerbated because SME’s overall general ‘risk’ profile appears to have deteriorated & reduced access to capital via wholesale money markets has occurred simply from a supply & demand perspective. The 2nd last paragraph of this article recognises the ‘higher risk’ & through 2008/09 when home lenders enjoyed the full 4% of rate reductions, we know that far less was past on to SME’s, despite the fact that in many cases their family homes were securing the business debts! All the major lenders business credit approval areas (NAB inclusive) have been enjoying their new found ‘power’ which they had not experienced since the early to mid 1990’s, & they have been excercising it with ruthless precision.