Mid-Sized Businesses employ 1 in 4 Aussies but barely get a mention in Productivity Commission discussion with Banks

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The Productivity Commission is carrying out a 12 month review of 'Competition in the Australian Financial System'. Mid-Sized Businesses got just one sentence in a 45,000 word transcript of a Roundtable Hearing in 2017 kicking off the inquiry. 

It was a good sentence though!

I do wonder whether the middle business market and the corporate market is getting the access to credit it needs to really grow and invest into the economy because there is so much of the capital of this system that is being directed at home loans and small business lending in recent times.

SUNCORP GROUP:
MR DAVID CARTER

"Business" was mentioned 69 times but mainly in reference to the banks' own business or business model! Of the remainder, with only one exception, the participants were referring to Small Business which bankers view as equivalent to Consumers.

"Mortgage(e)s" and "home loans" were mentioned a combined 125 times with "Consumer" 155 times. Our Regional Bankers' main concern is the uneven playing field in the mortgage market - they need more regulatory capital than the Big 4.

Can't wait to see the draft report!

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MS ABRAMSON:  Can I ask a point about small business lending, and I don’t want you to think I haven’t listened very carefully to what you’ve all said before about risk weighting, et cetera, but how competitive do you think the small business lending market is, because we hear a lot, anecdotally, about, well, it’s hard to get a loan, blah, blah, blah, blah, so I’m just interested in what your experiences are?

MR SUTTON:  I think from our experience it’s small lending secured by residential, it’s very competitive.  Probably the area where it varies significantly is probably just straight cash flow lending, and that’s really down to individual institutions’ risk appetites.  But from my perspective, at the SME part of the world, it’s pretty competitive out there if it’s secured by a residential mortgage. 

MR CARTER:  Yes, I tend to agree and I would suggest sometimes the feedback people give is because they’re not sufficient creditworthy to obtain the loan as opposed to there isn’t enough.  I mean I actually think the small business market at the moment, because it tends to come with good deposit balances, which is important for the regulatory settings that start from January, as well as lending, I think that is almost equal to owner‑occupied home loans at the moment in terms of intensity of competition. 

I do wonder whether the middle business market and the corporate market is getting the access to credit it needs to really grow and invest into the economy because there is so much of the capital of this system that is being directed at home loans and small business lending in recent times.

MR HIRST:  That’s right.  I think the major complaint in small business isn’t that they can’t necessarily get the finance, although that might be true in the property development space, the major complaint is around service, ongoing service, and can they get to talk to the people who make decision, and can they get service at the level they want, how much access have they got.  But they seem to be the major complaints that I hear.

MR SUTTON:  I concur with that.

MS ABRAMSON:  So just a very general question, I mean I have my own view but what do you regard as small business, because different banks have different market segmentation?

MR SUTTON:  Well, my perspective of it would be just residentially secured, so that, for me, that’s small business lending.  But if it’s cash flow lending you’re into another jurisdiction. 

MR HIRST:  We’d probably look at under two million.

MS ABRAMSON:  Sorry, under?

MR HIRST:  Two million.

MR CARTER:  Yes, I’d be in a very similar place.  I think we need to encourage people to think more than just about the lending and think about banking.  So I think it’s the sophistication and nature of the customer, a small business, to us, would probably have 10 or less employees, often dominated by family members running a fairly – without being disrespectful, relatively unsophisticated businesses, not systems and processes and people, we can picture those types of businesses, and in an lending sense they probably go up to towards $2 million, they might turn over anything up to 10.

 

 

Participants

REGULATORS

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

MR WAYNE BYRES                                                                                                                             

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

MR MARCUS BEZZI                                                                                                                      

AUSTRALIAN SECURITIES AND INVESTMENT COMMISSION

MR PETER KELL                                                                                                                                 

MR GREG KIRK                                                                                                                                        

REGIONAL BANKS

BANK OF QUEENSLAND: MR JON SUTTON                                                                                     

ADELAIDE BANK: MR MIKE HIRST      

ME BANK: MR JAMIE McPHEE

SUNCORP GROUP: MR DAVID CARTER                                                                                                                                      

CUSTOMER OWNED BANKING ASSOCIATION

MR MARK DEGOTARDI                                                                                                                              

CONSUMER GROUPS

CHOICE: MR MATT LEVEY                                                                                                                 

CONSUMER ACTION LAW CENTRE:

MR GERARD BRODY   

MS KATHERINE TEMPLE                                                                                                                     

FINANCIAL COUNSELLING AUSTRALIA: MS FIONA GUTHRIE