Former Liberal leader John Hewson has highlighted the inability of banks to lend beyond residential mortgages.
Speaking at the 14th Annual Wraps, Platforms & Masterfunds conference in the Hunter Valley last week, Mr Hewson said banks today are “basically mortgage providers and they run a few credit cards”.
“With the new Basel capital restrictions, they are not able to effectively compete in the business banking market,” he said.
“SME businesses now struggle to get a bank loan because the bank knows it doesn’t have additional capital to back those loans relative to what would be required if it was just doing mortgage lending.”
Mr Hewson said the SME lending process is now longer, requires additional security and produces excessive paperwork for prospective borrowers.
He told an anecdote about a family friend, a single mother who made a living through property investment in the Southern Highlands.
She decided to purchase a property with the aim of turning it into a site for storage units.
“She had already bought the storage units modular and pre-leased some of them. She had an immediate cash flow business from day one,” he said.
However, the bank would not write the loan on the basis of it being for business purposes.
“They were happy to write a residential mortgage but not a business loan,” Mr Hewson said.
“Some of these issues have to be looked at in the context of the Financial System Inquiry,” he said.
The Murray Inquiry interim report identified key issues in the SME lending process.
The report found that in some instances, lenders' application processes can be overly cumbersome for SMEs.
“Business owners may not be directed to bank officers who are qualified to provide proper advice on business loan applications, or may be directed to personal loan products because some bank officers lack familiarity with business lending,” it said.
“In some cases, banks do not communicate to business owners why a loan application has been declined.”
The report found information asymmetries are the most significant structural factor contributing to the higher cost and lower availability of credit for SMEs, and can be a barrier to SME lending.