GREATER COMPETITION IN THE SMALL BUSINESS BANKING MARKET IN THE LAST TWO YEARS- NEW KMPG REPORT Sydney, 25 November, 2003: The Australian Bankers’ Association (ABA) has today released an independent report by KPMG, concluding there is greater competition in the   small business banking market compared to two years ago.   That is the conclusion of the “Small Business Banking in Australia 2003 – A Research Report” [1], which was commissioned by the ABA to add to the public discussion on these issues.   The main findings of the report are: 1.  The number of providers of financial services to the small business banking market have increased over the last two years – 55 institutions offer 800 different debt finance and business transaction accounts, representing a 25% increase in the number of business transaction account providers in the last two years; 2.  There has been increased product innovation in this market – examples include accounting software, enhanced Internet banking capability, merchant facilities and investment options – specifically designed for small businesses; 3.  It is clear small businesses are paying less in fees for debt finance than at any time in the last six years. There has been a reduction in a number of prices including interest rate margins, lower establishment fees on term loans and overdrafts, and lower service fees on term loans; 4.  In the aggregate, the decline in fees charged on loans more than offsets the increase in fees charged on deposits over the last five years; 5.  Greenwich Associates research notes that regional banks have increased their market share of debt and deposits; 6.  GiroPost has expanded its business banking network from around 200 to 587 outlets in the last two years, giving small businesses another banking choice; 7.  72% of small businesses use the Internet for banking purposes which is a 35 percentage point increase from 1999-2000; 8.  On average, 12% of small businesses switch their financial institution – very similar to rates experienced in North America and Euorpe;  9.  Regulatory changes such as credit card reform, the impact of Basel II Capital Accord, Financial Services Reform, and self regulation, such as the Code of Banking Practice 2003, have all added to increased compliance costs for banks. David Bell, Chief Executive of the ABA said: “This report notes there is greater competition in the marketplace with more providers offering more products. Many banks have signalled that they are vigorously competing for this market, given the expected slowdown in the housing market.”   “The diversity of product and price shows that small businesses are able to shop around for the best deal that suits their needs, negotiate with the bank and receive some products specifically tailored for this market.”   The KPMG report has shown that small businesses which borrow are ahead as a result of the net interest rate margin declines and overall they are paying less in fees for debt finance than any time in the last six years.   Mr Bell said: “If you were a small business with a $100 000 loan the savings would be $1450 pa and if the business also has an overdraft – the saving is $1670 pa – compared to six years ago.”   “And adding to these savings are lower establishment fees on term loans and overdrafts, and lower service fees on term loans.”   Peter Nash, Head of KPMG’s Financial Services Practice, said: "Going forward, we believe that the small business banking market will continue to increase in competitiveness.    “All of the major banks have publicly stated that the small to medium sized business is an area of focus for them.  Each has a different strategy to achieve their goal and this further differentiation should provide even more choices to small businesses."   Mr Nash pointed out that many of the regional banks are also on a drive to capture more of the market, especially outside their home states.   "Non-bank and niche players like credit unions, building societies, finance brokers and mortgage originators will continue to refine their offerings to this market, with a likelihood of further new entrants," he said.   "All in all, we see a more competitive market and, given the market itself is not expected to grow greatly in size; participants will be scrambling for a larger piece of the pie."   For a copy of the report visit the ABA website: http://www.bankers.asn.au/ or the KPMG website: http://www.kpmg.com.au/     For further information: Peter Nash KPMG Head of Financial Services Mobile: 0412 256 094   Kerry Little KPMG Communications Consultant Mobile: 0402 013 224   Heather Wellard ABA Public Relations Phone: 02 8298 0411 Mobile: 0409 830 439     ENDS [1]This report updates the first report “Small Business in Australia – A Research Report, February 2002, completed by KPMG Consulting.