ABA Statement to Small Business Summit on the Global Financial
Services Crisis, Brisbane, 24 October 2008

 
Small business is a fundamental component of the Australian economy, and Australia’s nearly 2 million small businesses must continue to prosper in the difficult times we all now face. We are here today to assure this sector that banks are continuing to lend to small businesses.

Banking services are key to the operation of any business, and Australian banks are working hard to maintain the level of services and support our business customers have always enjoyed.

Reserve Bank Governor Glenn Stevens commented this week on the strong balance sheets and capital positions of Australian banks, underscoring the widely-held view that, while not immune, the Australian banking system has weathered this global financial crisis very well.  It is from this position of financial strength that banks have and will seek to help all their customers, across all sectors of the marketplace.

Small business customers have a wide range of banking products and services from which they may choose, at competitive rates, and a wealth of advisory and information services on diverse matters such as business planning, cash flow management, export advice, succession planning and agribusiness management.

Recognising that many small businesses in Australia are either micro-businesses or sole practitioners, the product information and advice is often tailored to the needs of the individual, rather than addressed to the corporate or other legal entity.

For business lending services, most small businesses turn to banks.  Whether for cash flow and liquidity, or growth and investment, businesses may seek overdrafts, business loans, asset finance, trade finance, or business credit and charge cards. Some businesses seek specialised services such as debtor financing.

Where Australian banks have stood out in recent times in comparison with some others overseas has been in relation to their risk management practices.  Our banks haven’t been entirely immune from the global shocks to the financial system, but by maintaining strong risk management, including the risk management of credit decisions, banks will be able to continue to underpin the operation of the economy as a whole.  And in turn, this will allow banks to continue to make loans to creditworthy small business customers.

When a business seeks finance, they will always need to provide information to the bank.  Often this will include a business plan.  Putting the plan together will, of course, not only assist the business owner in achieving a successful credit application, but in many other aspects of managing their business.  The more information the bank has about the business - its plans, its cash flow, its industry - the more likely it will be successful in the application.

It is correct to say that both households and small businesses have been impacted by higher interest rates. The reason interest rates have risen is due to the substantial increases in wholesale funding costs.  In other words banks have had to pay more for these funds. Despite this, they have continued to make loans.

Other non-bank lenders, which rely solely on wholesale funds because they don’t accept deposits, have seen their business models founder and have been unable to lend.

Now, however, we are seeing an easing in these wholesale funding costs and this is why banks have been able to make recent cuts in interest rates. But the continuing effects of the global financial crisis mean that financial markets and the cost of wholesale funding remains uncertain.

The ABA cannot and does not determine the lending policies and practices of individual banks.  What we can say is that our banks have told us that there has been no decision to withhold or constrain the provision of credit to any customer segment.

Each proposal from a small business is judged by the bank on its merits. Banks lend money after assessing that a customer has the capacity and willingness to repay; they understand the risks they are taking and have the capacity to manage those risks. This is consistent with the need to preserve a sound banking system and a healthy small business sector.