Minister calls for big banks' support for SMEs

Big banks' support for small business has been brought into question at a meeting between Minister for Small Business Craig Emerson and banks

Big banks’ support for small business has been brought into question at a meeting between Minister for Small Business Craig Emerson, the Australian Bankers’ Association (ABA) and six leading banks.

Emerson told representatives from ANZ, Bank of Queensland, Bendigo Bank, National Australia Bank, St George and Westpac that credit is the lifeblood of small business.

"I told the banks that they have a vital part to play in keeping small business trading," he says.

Emerson expressed to the Sydney congregation on Thursday that reductions in funding costs need to be encouraged.

"The purpose of the Reserve Bank cutting interest rates is to stimulate the economy and it is essential that this stimulus flows on to small business," he says.

Peak industry body, the Australian Retailers Association (ARA), is in support of Emerson’s view that big banks are not doing enough for small business.

ARA Executive Director, Richard Evans, says the ABA is not close enough to the real small business market, which is doing it tough given the current financial climate.

"Fact sheets recently developed by the ABA may make big banks feel like they’ve addressed the issue of small business access to credit, but the fact remains banks have no clue about the SME market," he says.

"Minister Emerson has clearly reminded banks of their responsibility to provide adequate credit flows to the small business sector and to pass on to small business Reserve Bank interest rate cuts to the maximum extent possible."

Evans says a March poll of small and medium-sized retailers shows that in the past three months 25 percent have attempted to re-negotiate lending facilities with their banks.

Of these, more than 45 percent are having difficulty re-negotiating loans and lines of credit.

"Small business owners commonly use their personal credit cards to fund their day-to-day operations such as cash flow and small capital equipment purchases. However, only 4 percent of SME retailers have had interest rate cuts passed onto credit cards," he says.

"A further 70 percent of SME retailers with overdraft facilities haven’t been passed on interest rate reductions. And over 50 percent of SME retailers with business loans are still waiting to feel the effects of interest rate cuts."

Evans suggests Australian banks need to generate new low-rate credit cards and other lending products for small business.

Collecting data on how small businesses operate and attain funding was also a popular notion.

The ABA fought back at the criticism from Emerson and the ARA to support the performance of Australia’s banks.

ABA Chief Executive David Bell says Australian banks are well-capitalised and have performed well through the recent difficult times.

"Unlike many banks throughout the world, they are still profitable and continue to lend normally, albeit with some adjustments to reflect the deteriorating economic environment," he says.

In relation to the volume of credit, the banks advised the Minister that they are continuing to make loans to viable small businesses and many are looking to grow their loan books.

"While there is reluctance of some businesses to take on more debt, banks are still lending to businesses with solid long-term prospects," Bell says.

"Some member banks report that some businesses may be deferring plans for further business investment and/or expansion in the current environment, resulting in reduced demand for lending."

Thursday’s meeting was a follow-up to the Small Business Roundtable held in Melbourne on March 6 and a meeting of the banks with small business representative organisations on April 8.

At the March 6 roundtable, the banks offered to meet with the industry associations in attendance to identify and seek to resolve or amend any industry-specific issues in securing bank finance.

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