Sydney, 18 February, 2009: The Australian Bankers’ Association (ABA) will today assure the Council of the Small Businesses of Australia (COSBOA) that banks are still lending to the sector.
David Bell, Chief Executive of the ABA, this morning briefed the COSBOA meeting in Melbourne on how the banking sector continues to make loans to viable small businesses.
At $72.9 billion, new lending to businesses with a turnover of less than $2 million, remains $3.8 billion above its three year average. 1
After reaching near record growth in late 2007/early 2008 of $79.1 billion, the amount of lending and growth rates are naturally falling from these peak levels. The slowing growth can also be partly attributed to the reluctance of businesses to take on more debt in these uncertain economic times. 2
Small business interest rates have fallen since mid-last year and are around the same level as they were before the onset of the global financial crisis – which triggered steep rises in banking costs.
The US sub prime crisis has affected all Australian banks, increasing wholesale funding costs and forcing increases in interest rates on all lending. The commercial lending portfolio sources the majority of its funding from the wholesale market and so has been exposed to significantly increased costs.
Despite the increased cost of raising wholesale offshore funding for lending in Australia, the banks have continued to make credit available.
Mr Bell said: “It is true that banks’ business customers have not seen the same level of pass-through on interest rates as provided to home borrowers. The reason for this is that banks have to prudently manage risk in their loan books and generally speaking, some business loans are riskier.”
“For example, business conditions typically deteriorate faster and more deeply for small businesses than for home loans during economic downturns. The level of impaired business loans is currently fives time higher than impaired home loans3, and for these reasons, the regulatory capital required by the Australian Prudential Regulation Authority (APRA) to be held for small business loans can be in the order of three times higher than for home loans.”
There is no question that all businesses, including banks, will be facing tougher conditions going forward. But despite very difficult financial market conditions, Australian banks have not received any direct injections of taxpayers’ money, and are continuing to make credit available to businesses which invest and employ people.
The Government’s guarantee of wholesale funding was a response to similar guarantees issued by other governments. This was to ensure that Australian banks would not be disadvantaged in raising wholesale funding offshore and was not caused by weakness in our banking sector.
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
[1] Based on latest RBA data for the 12 months to the end of September 2008.
[2] A recent survey by Veda Advantage indicated that the demand for credit has fallen sharply. The survey showed business credit applications for the October – December 2008 quarter fell by more than 7% in comparison to the same period in 2007. Businesses’ making enquiries for credit dropped off rapidly, falling 3.2% in October, 8.0% in November and a significant 9.8% fall in December. Weblink: http://www.vedaadvantage.com/latest_news/global-financial-crisis.aspx
[3] Reserve Bank statistics show that banks’ loans 90 days in arrears for unincorporated businesses are at 2.2% versus 0.4% for home loans at the end of September 2008.