Lending to SMEs falling, availability to credit drying up?

Lending to SMEs was falling, and availability to credit was drying up, warned Australia’s largest business lender, NAB, yesterday.

NAB executive Joseph Healy told a forum in Sydney yesterday that the banks had aggressively redirected loans away from business towards mortgages and that access to credit was a big issue for the “engine room of the economy”.

He says a bias towards allocating capital to home buying means there is less available to business lending. Healy asked why – as the largest contributors to GDP, and in the context of one of the globe’s strongest banking systems – do SMEs still find it difficult to get access to credit?

Healy says the banks risked doing serious damage to the economy by ignoring small business, although he claims NAB is continuing to lend to small business.

“If the business sector is being starved of capital it is bad for economic growth, it is bad for jobs and it is pretty bad for Australia”, he says.

Since 2000, he said, Australian home lending has grown from about $280 billion to $1.1 trillion. In 2000, the amount of lending for housing was broadly the same as the level of lending to business. Today, for every $1,000 of home lending there is only about $600 of business lending.

This means there is a structural bias towards housing – 57% of all lending now is for housing, against 35% for business loans. The first home owners grant had created a greater focus on home lending.

“The reality is that since the global financial crisis we have seen a decline in business lending. He says one reason is that the appetite to borrow has fallen. But he also blames the decline in the availability of credit.

He also said that the situation could get worse as Australia’s banks rely on offshore funding. An increase in costs could lead to a further rationalisation of credit further reinforcing a bias towards the housing sector, he says.