26/06/2013 - 07:03

Where is the competition?

26/06/2013 - 07:03


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The banking needs of the small business sector need more attention.

The banking needs of the small business sector need more attention.

THE easing in monetary policy over the past 18 months has delivered historically low interest rates for Australia.

The Reserve Bank has cut the official cash rate to 2.75 per cent, with the most recent 25 basis points reduction occurring in early May.

Every time the RBA moves, there is an intense focus from the mass media, politicians, and lobby groups on how quickly the commercial banks pass on the reduction to homebuyers.

That scrutiny ensures homebuyers generally benefit quickly, often in full.

With the banks keeping a close watch on their interest rate margins, they also move quickly on their deposit rates, which is bad news for retirees and others who are net savers and rely on their interest income.

Homebuyers aside, other borrowers cannot count on such a good deal.

Consumers who fail to pay off their credit card each month are hit with some of the highest interest rates.

Credit cards are a great tool for people who carefully manage their cash flow, but are a terrible trap for those who get stuck with large debts.

It’s safe to assume those people are the ones who can least afford to be carrying high-interest debt.

Another group that seems to have copped a raw deal is small business borrowers.

A survey by banking industry analysts East & Partners has found that four out of 10 small and medium-sized enterprises (SMEs) had interest rate increases on their loans during the six months to April.

That was a period when there were two cuts to official interest rates.

East interviewed a national sample of 1,491 businesses with annual turnover of between $1 million and $20 million.

The research found that 43 per cent of SMEs reported an increase in the interest rate on their loans, with an average increase of 5.3 per cent.

Less than 1 per cent reported their rates had dropped, while 56 per cent reported no change.

This adds to some worrying research East conducted last year on SMEs’ credit experiences with their banks.

Of the SMEs that applied for new or expanded credit lines, more than 2012, 44 per cent were not successful.

There were several reasons: the pricing was too high (18 per cent); the terms and conditions were unacceptable (22 per cent); or the credit application process took too long (15 per cent).

A small number of SMEs are looking to change banks, but the proportion is not high.

East found that only 4.8 per cent of SMEs said they would “definitely” be changing banks, while 14.6 per cent said it was “highly probable”.

One third said they would “definitely not” be changing their transaction bank.

There are a few reasons for the lack of mobility.

One is the amount of time and hassle involved in finding a new bank, setting up accounts, and transferring funds and loans.

Another is the uncertainty of whether the move would result in an improvement.

Banks, like telcos and many other service providers, often will offer good deals to lure new customers. Then you’re forgotten.

Many people point to the dominance of the big four banks as another problem.

However, for as long as I can remember the banks have been bashed by all-comers, no matter how many competitors are active in the market.

The fact is there are alternatives, even among the big four banks and their subsidiaries, like Bankwest and St George.

It’s also a fact that bankers are constantly looking for growth opportunities.

If small business borrowers do feel hard done by, they need to invest some time canvassing the options.

In many cases, they will get a better outcome if they obtain some guidance from their accountant, a finance broker or another professional adviser.

SMEs might also ask if they can improve their relationship with their bank by enhancing the flow of information.

Though for businesses at the smaller end of the SME segment, this can be near impossible, since they don’t have a relationship manager.

No wonder so many small businesses feel they’re in a bind when it comes to finance choices.



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