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Few firms switch banks: survey

MYAREE company Tasman Oil Tools changed its bank last year – a move that makes it an exception among small and medium sized companies.

A new report on small business banking in Australia has found that about 11 per cent of businesses changed their bank over the past two years.

The KPMG report, commissioned by the Australian Bankers’ Association, said this percentage has remained reasonably consistent over the past decade.

It added that a further 28 per cent of businesses had considered switching but ended up staying with their current bank.

Tasman switched banks after a falling out with National Australia Bank.

Managing director Ross Luck said the business had always traded profitably but ran into problems with an ill-fated diversification into the sewerage business and one large bad debt.

Mr Luck said he moved to a new bank after obtaining advice from accountant Mervyn Kitay, a partner at Grant Thornton, and finance broker Brian Preston, executive director of CrediFlex.

“They were instrumental in the changes we had to make to get us out of our problems,” Mr Luck said.

At least three banks were interested in taking over as Tasman’s banker and two submitted firm proposals.

Mr Luck selected BankWest based on its competitive pricing and quick response to the opportunity.

More than a year after the change, Mr Luck could not be happier.

“It has been extremely successful changing from one bank to another,” Mr Luck said. “We’ve gone from an unsupportive bank to having a very supportive bank.”

The KPMG report says the main reason small businesses change banks is to obtain better service and lower fees.

Businesses that have been in operation for less than three years are the most likely to change their financial institution.

The report says this is partly because changing banks is more difficult for businesses with greater dealings (especially loans) and history with a particular bank.

Factors that discourage small businesses from changing banks include a perception that a long-term relationship would make it easier to negotiate loans.

Other factors include a perception that all banks are the same, that the incumbent bank will match the terms offered by competitors, and that switching institutions would take too much time and hassle.

“It appears that this ‘hassle factor’ is the main reason small businesses stick with their banking provider because, as the majority of banks we spoke to stated, the financial cost of switching has actually decreased over the last few years,” the report says. 

The KPMG report also found that finance brokers are becoming an alternative distribution channel for both major banks and regional banks.

Some banks reported anecdotally that in various regions broker-originated loans represent about 20 per cent of small business lending.

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