At a recent major banking event, the head of National
Australia Bank, Ross McEwan, sparked an important conversation about banks
being overly cautious creating a business economy needing a bit of fire, but
lacking fuel. He suggested that banks have become too risk-averse, which could
be limiting opportunities for their customers. This idea isn’t just about banks
playing it safe; it’s about the impact this has on our everyday businesses and
the broader economy.
Jonathan Mott from Barrenjoey, a seasoned banking analyst,
shares this concern. He believes that banks have become so focused on avoiding
risks that they’re not fulfilling their essential role in society. According to
Barrenjoy, this extreme caution is stifling growth for Australian’ businesses
curbing innovation, and slowing down our ability to progress economically.
The trend is clear: banks are increasingly lending only to
those who can offer property as security. This means if you’re a business owner
without substantial assets to pledge, securing a loan can be tough. The data
backs this up, showing a significant number of mortgages and loans now go to
higher-income households, while those earning less are getting sidelined.
The key takeaways from these recent events:
Increased Focus on High-Income Earners: Banks are giving
more loans to wealthier individuals, which leaves fewer funds available for
lower-income families and small businesses that might not have large assets but
have great potential.
Tougher on Housing Affordability:
With banks concentrating
on secured lending, it’s getting harder for the average person to buy a home,
especially when saving for a cash deposits is taking longer than ever before.
Challenges for Small Businesses:
SMEs are struggling to get
the funding they need to grow because they might not have the physical assets
(property) needed to secure a loan.
Economic Slowdown:
When businesses can’t get funding, it
affects their ability to grow, innovate, and create jobs, which in turn impacts
the economy at large.
Rise of Alternative Financing:
As traditional banks pull
back, other forms of financing like buy now, pay later schemes are stepping in
to fill the gap. While helpful, these alternatives can carry their own risks.
These funding options generally come with greater interest rates close to 20%
which is a catch 22 for small businesses.
What now?
The shift toward ultra-cautious banking is not just a
fleeting trend but a deep-seated shift that could have lasting effects. With
our banking oligopoly banks are becoming more like each other, focusing heavily
on secure, property-backed lending and outsourcing much of their loan
distribution to mortgage brokers. This strategy is squeezing their profits and
could lead to lower returns for their investors. A massive shift in the amount
of mortgage brokers over the last 20 years has contributed to this effect mean
banks are more ever than before offering commodity products, rather than
bespoke financing tailored to their clients.
For a you as a business owner, here’s the takeaway: the current banking climate is tough, especially if you’re starting or running a small business without a lot of property to your name. The banking sector’s cautious approach might make it harder to get loans, potentially slowing down your business growth. The challenge for the future is finding a balance. How can banks manage risk without stifling growth? It’s a complex issue that affects not just bank CEOs and investors, but all of us, especially small business owners who rely on banks for growth.
As the discussion unfolds, it’s crucial for business owners
to stay informed and explore all available financing options to navigate
through these changing times.
To ensure a sustainable future, as a business owners you
must focus on boosting profits and growing your asset base, to position
yourself for long-term success in an evolving financial landscape.
