Banks looking to restore confidence

AUSTRALIA'S major banks have sought to reassure the business sector they are willing and able to lend, despite a record decline in commercial lending over the past year.

Australian Bureau of Statistics data out last week showed that commercial finance approvals have nosedived 43 per cent over the past year.

This was on top of the banks' decision to not pass on all of the Reserve Bank's latest 25 basis points reduction in official interest rates.

Most of the big banks have launched new services and special marketing campaigns to demonstrate their support for small business.

BankWest has launched a business fighting fund, St George Bank's small business mentor program provides a business coaching service, while Westpac is poised to create a team to assist small and medium-sized enterprises (SMEs) in difficulty over loan repayments.

This week, ANZ said it would extend its earlier commitment of $8 billion in new lending to SMEs by providing specialist assistance to those in financial difficulty.

In a recent roundtable with national small business minister Craig Emerson, Australian Bankers Association chief executive David Bell said interest rates for small business products were at their lowest level since 2005 and that Australian banks were in a healthy state.

"Unlike many banks throughout the world, they are still profitable and continue to lend normally, albeit with some adjustments to reflect the deteriorating economic environment," he said.

Mr Bell said some banks have reported that businesses were deferring plans for further investment or expansion in the current economic climate, resulting in reduced demand for loans.

National Australia Bank's WA head of risk Paul O'Farrell told a chamber of commerce and industry briefing in Perth this week that the bank was unable pass on the Reserve Bank's 25 basis points cut in official interest rates this month because of increased operational costs and the rising cost of capital.

Nonetheless, the bank was still lending to SMEs with long-term prospects.

Westpac group executive retail and business banking Peter Hanlon said the bank continued to manage the challenging funding conditions with careful consideration of the impact on customers.

"We recognise that many of our small business customers are managing difficult economic circumstances and as a result we believe now is the right time to pass on in full the latest rate reduction to these customers," he said.

The Council of Small Business Organisations said Australia could not afford for SMEs to lose out through banks increasing business loan rates to keep up their profit margins.