A study has suggested that small business is effectively subsidising mortgage and big business borrowing through banks, with SMEs and bankers still not seeing eye-to-eye despite banks now screaming from the rooftops that they are ready to lend.
A monthly study by East & Partners of deposit and lending data has found that business deposits well exceed loans to businesses.
“Banks are saying there’s no demand from SMEs for borrowing,” the firm’s principal analyst Paul Dowling told SmartCompany.
“And our research shows less than 10% of SMEs have demand for borrowing over the next six months.
“However part of the reason for that depressed demand is the experience they’ve had over the past few years trying to access credit. A lot of them have decided it’s too hard, too expensive and the hurdles are too high.”
Dowling says there are several reasons for the mismatch between SME deposits and borrowings, with SMEs more conservative and unable to borrow as much as they would like.
He says aggressive repricing by banks during the GFC as well as chasing additional security and tighter covenants, are likely to have annoyed SMEs.
But it’s not just problems with the banking sector holding SMEs back from borrowing.
Dowling says SMEs are being conditioned by negative sentiment.
“They’re not hiring, they’re investing in growth and for many it’s about managing margins and profits until some kind of change occurs,” Dowling says.
“SMEs are continuing to deleverage their balance sheets, decrease borrowing and increase equity. The average SME gearing level is 41%, which is very conservative.”
According to the report the business banking ratio has reached 1.25, up from 1.18 a year ago. That means 25% more in deposits is being taken from businesses than is being lent back to business customers.
The ratio for retail customers is 0.44, meaning banks are taking less than half in deposits from consumer customers than is being lent back into the mortgage market.
That indicates “active reallocation of deposit funding from business customers to mortgage lending is taking place,” the report says.
In May the big four banks – ANZ Banking Group, National Australia Bank, Commonwealth Bank of Australia and Westpac Banking Group – captured 77% of business deposits versus 70% share of business lending.
Dowling says the increase can be attributed to an aggressive push by the big four for complete banking packages.
But that push may be counterproductive, with Dowling saying the banks’ push for the whole of wallet share grates against a consumer preference to mix and match banking products.
“If they’re going to lend to an SME they want all of that SME’s business,” Dowling says, and he warns the mismatch is a broader problem than just for SMEs and their bankers.
“If intermediaries in the banking system are not funding small business, which represents the rump of the country’s employment and is certainly where innovation is driven from and these companies are not growing or investing there are quite serious consequences.”