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Housing slumps points banks towards business

THE banking industry is looking to business lending to take up the slack following an expected drop in housing lending.

Business lending increased by just 4.3 per cent in the year to September 2002, according to the Reserve Bank.

This compares with 19.3 per cent growth in housing lending, the highest level since 1994, and 10.9 per cent growth in personal lending.

While still very low, business lending has actually increased over the past nine months. In the second half of 2001, business lending contracted by about 3 per cent.

An expected bounce in business investment is one factor that will underpin business lending.

The growth of business lending will, in turn, influence the interest margins and fees levied by banks.

Fees paid by SMEs have grown by about 12 per cent a year since 1999, according to Macquarie Equities.

A large part of this growth reflects increasing credit card and EFTPOS volumes, which have pushed merchant service fees up by 22 per cent a year.

However, recent reforms to credit cards and pending reforms to EFTPOS are likely to “significantly slash” this fee growth.

Macquarie Equities said the banks will aim to offset this fall by trying to slow the decline in interest spreads, a trend already apparent from Reserve Bank analysis.

“Margins on small business overdrafts and loans secured by assets other than residential property have risen by between 30 and 55 basis points,” the Reserve Bank says in its latest Semi-Annual Statement on Monetary Policy.

“Small businesses have, however, kept their average borrowing costs down by switching to lower cost products.”

This includes term loans secured by residential security.

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