Banking regulator targeting lax standards for business lending

The country’s banking regulator has said it will start cracking down on banks if it believes lending standards have become too relaxed, as some reports have indicated, but business leaders say SMEs are still strapped for cash.

The war of words comes after the federal government dropped its plan to regulate small business credit after industry criticised the original bill, saying it would make it even harder for SMEs to access funding.

In a speech yesterday, Australian Prudential Regulation Authority chairman John Laker said the issue of more lenient lending standards would be addressed next month.

“We have been talking very often and noisily with our institutions about credit standards,” Laker said at the Australian British Chamber of Commerce event.

“When things are going slowly, which is not in the experience of a lot of lending officers, one of the dangers is a temptation to compete on the basis of lower credit standards.

“If there’s been a re-thinking of (last year’s) conservatism, we’d certainly be taking that up with the institutions.”

The small business banking industry has tried to change its ways in the last year, with the big four saying they are more open to business loans.

Last year, NAB head of business banking Joseph Healy told SmartCompany banks are in competition for SME loans.

But SMEs disagree, saying there are still problems when it comes to accessing credit.

Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, told SmartCompany the banks are still cashed up but are requiring substantial security.

“So the terms under which creditors are operating are still very stringent, and the general experience of SMEs is that while financial institutions are prepared to discuss provision of credit, the terms are in some cases prohibitive.”

“The risk rating is still very severe for businesses that are still in that growth stage,” he says.

Council of Small Businesses of Australia executive director Peter Strong said while APRA has made sure the banking industry is well regulated, he argued “they’ve gone too far”.

“APRA has created a lot of paperwork and red tape around small business loans that is just unnecessary, and now they’re coming out and saying this.”

“I think they need to take a look at the red tape they’re creating.”

Graham Doessel, the chief executive of MyCRA Credit Rating Repair, also told SmartCompany he believes the credit market is “tight” and small businesses are having trouble accessing funding.

SmartCompany contacted APRA for comment, but no reply was received prior to publication.