Senate told to boost bank competition to help SMEs

As a Senate inquiry into the ability of SMEs to access finance starts in Sydney today, small business lobby groups are urging the Government to strengthen competition in the banking sector to help get credit moving again.

The inquiry, which has been driven by the Coalition, has received more than 30 submissions from experts, banks and lobby groups including the Australian Bankers’ Association, the Australian Chamber of Commerce and Industry and the Council of Small Business of Australia.

ACCI chief executive Peter Anderson has accused the banks of ignoring the problem of small business finance following the end of the GFC.

“As important to our economy as a healthy banking system is, and as well managed as our retail banks are, the banking industry cannot hide behind its stability and profitability to sidestep the legitimate concerns of small and medium businesses when it comes to a fair deal in accessing affordable finance.”

The ACCI’s submission focuses on the issue of competition – while the organisation expects this will improve as the economy recovers, it says it does not want to see a repeat of the recent mergers of Westpac and St George and Commonwealth Bank and Bank West.

“The Government needs to ensure that competition in Australian retail banking system is not further eroded by future merger and acquisition activity.”

COSBOA chief Jaye Radisich wants to see the Government lift its efforts to encourage non-bank financiers into the market and investigate other financing models which may be worthy of support, such as large retail landlords providing finance to tenants.

At the more practical level, COSBOA wants to the see Federal and State governments work more closely together to ensure small business customers can move more easily between banks.

“Bank account number portability, like mobile phone number portability, has the capacity to promote choice, reduce costs and increase productivity,” COSBOA’s submission argues.

It would also like to see the Government tighten regulations about bank fee transparency, using the models of the retail sector (with unit pricing) and the telecommunications sector (with whole-of-contract pricing).

“The perception that small business is out of the woods and that finance is freely flowing to small businesses post-GFC is simply not the case. Many small businesses still struggle to get a loan to start up, or to expand, and often end up funding operational costs through personal credit cards at 20% interest rates,” Radisich says.

The Australian Bankers’ Association, the Reserve Bank, the National Association of Retail Grocers, Westpac and Commonwealth Bank are all scheduled to appear before the inquiry today.

However, some doubts remain about exactly what effect the inquiry will have on improving SMEs access to finance is not clear.

As this inquiry was the result of a Coalition proposal, the Rudd Government may be wary about turning any recommendations into policy initiatives.