Lenders to struggle as business confidence plunges

By: Mitch Gaynor


Plunging business confidence and borrowing intentions paint a grim picture for lenders battling for market share and profitability, a new

Plunging business confidence and borrowing intentions paint a grim picture for lenders battling for market share and profitability, a new report into Australia’s small and medium-sized enterprise (SME) market has found.

The joint JPMorgan / Fujitsu Consulting Australian SME Market Report, July 2008, also notes the combination of interest rate rises, the global credit crunch and lower levels of consumer confidence could result in a lagged increase in unemployment.

"Significantly, SME lending currently accounts for 24 percent of the total business lending portfolio," says JPMorgan Banking Analyst, Brian Johnson.

"With the latest data for the 12 months to May 2008 indicating that total business lending is slowing significantly, we anticipate a corresponding slowdown in SME credit growth."

Fujitsu Consulting’s Managing Consulting Director and Executive General Manager, Martin North, says the gloomy outlook projected by the report is matched by this week’s 2008 Bank for International Settlements’ (BIS) report.

"Importantly, the BIS report warns that the global economy is at a tipping point, where easy credit conditions, low interest rates and complex financial instruments have created the potential for a major and sustained downturn," North says.

Johnson adds the potential burden faced by SMEs is exacerbated by the relatively benign interest rate period between 2002 and 2007, during which time approximately 70 percent of borrowers were paying interest rates of less than 8 percent.

"As monetary policy tightened in 2006 and 2007, that proportion dropped to 40 percent, and today, it stands at 20 percent," he says.

Johnson warns that a similar upswing in interest rates in 2000/01 resulted in a lagged increase in unemployment showing up 12 months later.

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