We need to do more to support SMEs: NAB business banking chief

The head of NAB’s business banking unit says lenders must support small businesses more and fund them properly so that economic growth can be sustained beyond the mining boom.

NAB’s Joseph Healy told SmartCompany this morning that financial institutions are shifting more funds into more profitable household mortgages, but that is detrimental to small businesses.

“Part of the problem is that lending to small business has become more capital intensive compared to lending to households for mortgages,” Healy said.

“So you have to allocate between households and business, and it’s more profitable for a bank to lend for a mortgage than a business.”

Speaking to an ASIC summer school yesterday Healy highlighted a scenario where it is more profitable for a bank to lend money for a weekend holiday home than for a small business.

“And while that may be a rational thing for a bank to do how does it help the economy in the long-term?” he asked.

Healy says the banking system as a whole has not served the best interests of SMEs and is not ready to equip those businesses for growth.

He says part of the problem is a focus on big business along with a lack of resources for start-ups.

“I think you’re seeing a consistent voice across the small business community that they feel they’re not being well served. Banks need to acknowledge that rather than being defensive and they need to have an appreciation about the needs of small business and how they might be met,” he says.

Healy points out that in the decade to 2009 major banks were accounting for about 65% of all business banking with the other 35% accounted for by regional banks and other non-bank financial institutions.

“But many of those have pulled back because of funding challenges, which means a lot of SMEs that relied on the capital have had to find new sources,” he says

“But at the same time the banks were lending at various levels of commitments to small businesses and SMEs found it quite challenging to get credit, and particularly at terms they believed were reasonable.”

SMEs have found it notoriously difficult to access funding during the past two years due to high interest rates and a variety of other factors, with reports indicating that banks have become extremely strict on what they want to see in financial reports. 

Some reports indicated that business loans were knocked back on the basis of an entrepreneur’s age.

While Healy is hesitant to give any concrete suggestions on how banking can improve for SMEs he says any improvement needs to start with the regulatory system.

“We must ensure there is a healthy small business agenda on a national scale. My comments go beyond the banks, they reach to the regulatory environment which must be more supportive of the needs for small business,” Healy says.

“It is in our long term economic interests to have a strong, viable small business sector and we mustn’t be complacent about that. The strength of the economy is underpinned by small business.”

He says businesses need to ensure they are providing resources for banks to make justifiable decisions on any funding.

 “I think that business plans still need to be well thought through. And relationships are very important and banks should work to build strong relationships with businesses,” he says.