The current market provides an ideal opportunity for one of the big banks to break away from the pack.
Bank bashing rhetoric has been ratcheting up this year, hitting a crescendo when Prime Minister Kevin Rudd twisted Reserve Bank research to support his latest off-hand attack.
“The Reserve Bank is right,” he said last month. “The banks have been gouging. That is the bottom line here.”
The Reserve Bank didn’t actually say that. Rather, its research found that the major banks’ net interest margins have widened by 0.25 percentage points since before the global financial crisis.
The widening of interest margins follows a large increase in market share for the big four banks, namely the ANZ, Commonwealth, National and Westpac banks.
Some commentators have attributed this to the big banks’ ability to take advantage of the federal government’s wholesale funding guarantee, which was introduced after the global financial crisis took hold in late 2008 and has just come to an end.
That was certainly a factor but a bigger contributor was two takeovers: the Commonwealth buying Perth-based BankWest, and Westpac buying Sydney-based St George Bank.
BankWest and St George still hold themselves to be autonomous brands but the market at large is not convinced, seeing them instead as divisions of the parent banks.
Added to the widening of interest margins and the lift in market share has been concern over the tightening of lending conditions, especially for business borrowers.
The Australian Chamber of Commerce & Industry, for instance, stated last week that “access to and renegotiation of affordable finance” has become the most substantial issue facing small to medium businesses.
ACCI chief Peter Anderson said “there will be no private sector led recovery among SMEs unless lines of credit are eased and retail banks demonstrate a greater sensitivity to their SME customers”.
The Council of Small Business of Australia has a similar message, stating that “banking and finance issues have been the number one concern for small businesses at least since the global financial crisis hit in 2008”.
Both organisations are compiling data to submit to a Senate inquiry currently underway into small business finance.
They will run up against a Reserve Bank submission that is much more nuanced in its findings.
It finds that competition in business lending has decreased, and that small business borrowers have faced lower loan-to-valuation ratios, stricter collateral requirements and higher interest coverage ratios.
The Reserve Bank also confirmed the increased market share of the big four banks, which it said account for 85 per cent of the total value of business loans smaller than $2 million.
All of this would appear to support the arguments put forward by the business lobby groups, but not so.
The Reserve also concluded that the easing in competition is to some extent cyclical, and that “small business surveys provide mixed evidence on the availability of finance”.
That was supported by the Business Spectator Accenture CEO Pulse survey of chief executives out this week; it found that the supply of skilled staff was the biggest issue.
The Reserve Bank’s overall conclusion, based on available data and its business consultation program, is that “small businesses in most industries have had tighter but still reasonable access to funds throughout this financial crisis, with property companies being a notable exception”.
Any businesses that have had a different experience should be shouting their story from the rooftops to ensure the media, business lobby groups and the Senate inquiry hear them.
There is untold anecdotal evidence painting a dire picture but either the Reserve Bank has not heard the anecdotes or has chosen to ignore them.
Looking ahead, the Reserve has also predicted that competition for business lending is likely to pick up as the economy strengthens.
This is where the opportunity arises for the big banks. If one of the banks is brave, astute and nimble enough to move faster than its competitors, it will win many friends in the small business sector and will set itself up for lasting success.