Banks to maintain funding to small business sector

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1 6 March 2009 Banks to maintain funding to small business sector Australia s banks today gave important undertakings on the availability and cost of small business finance, Federal Small Business Minister Dr Craig Emerson said. Dr Emerson today facilitated the roundtable discussion between bank representatives and small business organisations in Melbourne to discuss credit flow to small business against the backdrop of the global financial crisis. The banks have indicated that they will seek to maintain funding to the small business sector. And they undertook to pass on to small business, to the maximum extent possible, any reduction in the cost of funds, while maintaining prudential standards. Dr Emerson said the commitment on the availability of funds will help assure the small business community that credit will continue to flow and the undertaking on passing on any reductions to cost of funds will help keep small businesses viable. Banks need to maintain prudential standards to keep them strong during the global financial crisis. As a result of the roundtable, the Government has set up a small business complaints clearing house with the Australian Bankers Association (ABA). Dr Emerson s office will receive complaints about access to and cost of bank finance which will be passed on through the ABA to senior bank management for response. The Rudd Government also announced the 55 successful applicants for its $4 million small business advisory program during the global financial crisis. This takes to 91 the number of small business organisations being funded by the Rudd Government to assist small businesses in obtaining finance. The Government has also reached agreement with the Victorian Government to have its Business Loan Finder available through the Commonwealth s business website ( The Business Loan Finder is an online information service that helps small business operators easily compare different loan products and find one that best suits their needs.

2 2 The Council of Small Business of Australia (COSBOA) has indicated small business organisations will continue to work with the ABA to identify and deal with ongoing difficulties small business might face accessing credit during the global financial crisis. Representatives from the ABA, ANZ Bank, Bank of Queensland, Bendigo Bank, National Australia Bank, Commonwealth Bank, Westpac Bank and Suncorp attended today s roundtable as did the COSBOA and other business organisations. Media Contact: Chris Ward

3 COMMUNIQUE - SMALL BUSINESS ROUNDTABLE Parties to the communiqué Melbourne 6 March 2009 The Minister for Small Business, Independent Contractors and the Service Economy, Craig Emerson, and representatives of banks and small business organisations today met in Melbourne to consider issues associated with the provision of finance to small business against the background of the global financial crisis. Representatives from the Australian Bankers Association (ABA), ANZ, Bank of Queensland, Bendigo Bank, Commonwealth Bank, National Australia Bank, Westpac and Suncorp attended the roundtable, as did the Council of Small Business of Australia (COSBOA) and other business organisations. A full list of attendees is attached. The global financial crisis The parties noted that the global financial crisis and the recession in advanced countries of the world had seriously affected the international availability and cost of commercial credit. Supported by the Federal Government s wholesale funding guarantee and the sound financial position of the banks that are party to this communiqué, the banks have been successful to date in securing ongoing wholesale funding from international credit markets. Approximately 40 per cent of bank wholesale funds are sourced offshore, although that proportion has been increasing significantly in recent debt issues. Banks also secure funding from the domestic market and from retail deposits. The average cost of short term (less than one year) wholesale funding has risen by 40 to 50 basis points from mid-2007, and of 3 year term funding by more than 200 basis points. Based on the latest release of Reserve Bank data (January 2009), which does not include the February rate cut, the cash rate is now 300 basis points lower than it was in June 2008, and the average rate for residential secured term finance is 180 basis points lower. The rate for three year fixed term finance has reduced by 324 basis points (more than the cash rate). Banks Banks noted that after 16 years of economic growth in Australia, market conditions have changed significantly in response to the global financial crisis and many of our trading partners going into recession. In response, banks have needed to tighten lending criteria as economic conditions have deteriorated, so that credit is not as readily available as previously. However, banks are very much still open for business for viable new customers.

4 Volume of credit: As at December 2008, the level of credit outstandings to small business was $20 billion greater in net terms than in June 2007, an increase of 11 per cent. Banks will seek to maintain the level of funds available to the small business sector and will continue to make loans to viable small businesses. Banks noted there are suggestions of an overall reduction in the demand for credit by small business. Banks considered that all businesses, including banks, will be facing tougher conditions going forward and that this environment necessitated banks prudently managing risk; making a loan to a small business which cannot afford to repay is not good for the bank, the business, or the economy in general. Price of credit: Banks acknowledged that banks business customers had not seen the same level of pass-through of changes to the official cash rate as provided to home loan customers. The reason for this is that small business lending is generally riskier than household lending. Banks noted that business conditions typically deteriorate faster and more deeply for small businesses than for home loans during economic downturns. The level of impaired business loans is currently fives time higher than impaired home loans 1, and for these reasons, the regulatory capital required by the Australian Prudential Regulation Authority (APRA) to be held for small business loans can be in the order of three times higher than for home loans. Banks undertook that reductions in the cost of funds to them will be passed on to small business customers, to the maximum extent possible, while maintaining prudential standards. Assistance to small businesses experiencing repayment difficulties: Banks advised any small businesses that had difficulty repaying loans to contact their bank immediately. Banks have specialist teams who can support businesses in financial difficulty by providing assistance to help them find the best possible way to regain and maintain control over their finances. On a case-by-case basis, and with regard to the customer s cash flows and with their agreement, banks will consider loan re-structuring and other options so that the business can continue to trade. Information on what steps the business should take if they are having difficulty repaying loans will be published on the ABA s small business banking website ( The website will publish telephone numbers for each bank which small businesses should call if they are experiencing hardship. 1 Reserve Bank statistics show that banks loans 90 days in arrears for unincorporated businesses are at 2.2% versus 0.4% for home loans at the end of September

5 Assistance to small businesses experiencing difficulty obtaining credit: Minister Emerson announced his office will establish a small business complaints clearing house. His office will receive complaints about access to and cost of bank finance and pass them on to the Australian Bankers' Association which will refer them to senior management in the relevant banks for action and follow up. The banks asked that the Minister engage in discussions with other lenders who provide credit to the small business sector, so they can be contacted if their customers call. The ABA will continue to work with COSBOA and other small business associations on systemic issues in relation to the provision of credit to small business, and will report to the banks on key issues identified. The banks also agreed that the ABA would provide detailed advice and information on applying for credit on its small business banking web site ( Commonwealth Government The Commonwealth has committed to the wholesale term funding guarantee and has undertaken to maintain the comprehensive bank deposit guarantee for a period of three years. The Commonwealth announced the 55 successful applicants for its $4 million advisory services program for small businesses during the global financial crisis, as foreshadowed by the Prime Minister at the Small Business Summit in October These organisations will assist small businesses in preparing business plans and applications for finance. They build on the $42 million national network of 36 one-stop small business advisory services which the Commonwealth has already funded and which provide advice to their customers on obtaining and maintaining small business finance. The Commonwealth has confirmed these organisations will provide financial and business planning advice as a priority during the global financial crisis. The Commonwealth has reached agreement with the Victorian Government to have its Business Loan Finder available through the Commonwealth s business website, The complex nature of credit offered to small businesses can make it difficult for business operators to make meaningful comparisons between credit products, especially during the current stage of the global financial crisis. The Business Loan Finder is an online information service which helps small business operators easily compare different loan products and find one which suits their needs. Small business organisations Small business organisations were concerned that banks may be restricting the provision of credit to the sector and that small businesses were paying higher interest rates than home borrowers. COSBOA will continue to work in co-operation with the ABA to identify and deal with ongoing difficulties small business might face in accessing credit during the global financial crisis. 3

6 Further agreements Banks and small business associations have agreed to further dialogue to identify issues relating to any potential shortfall, sector by sector. In doing this it is acknowledged that banks may not have been lending to some sectors which traditionally would have obtained credit from the non APRA regulated lender. Banks also undertook to re-communicate to branch managers that funds are available for viable small businesses in their local areas. Further meetings Banks and small business organisations welcomed the roundtable discussion and its outcomes and agreed to keep each other and Minister Emerson informed of any new developments which may affect the small business sector. For further information: Minister Emerson Chris Ward Australian Bankers Association Heather Wellard COSBOA Jaye Radisich, CEO, ENDS 4

7 Organisations which attended the Small Business Roundtable ANZ Association of Building Societies and Credit Unions Australian Bankers' Association Australian Chamber of Commerce and Industry Australian Industry Group Australian Newsagents' Association Australian Retailers Association Bank of Queensland Bendigo Bank Business Enterprise Centres Australia CavCorp Chamber of Commerce and Industry WA Commonwealth Bank Council of Small Business of Australia CPA Australia Export Finance and Insurance Corporation Family Business Australia Financial Ombudsman Service Franchise Council of Australia Hotel, Motel and Accommodation Association Housing Industry Association Institute of Chartered Accountants Master Builders Association Motor Trades Association National Australia Bank National Institute of Accountants National Retailers Association Pharmacy Guild of Australia Real Estate Institute of Australia Restaurant and Catering Australia Retail Confectionary and Mixed Business Association Suncorp Victorian Employers' Chamber of Commerce and Industry Westpac 5