NAB liquidity premium lift puts spotlight on business loans

Increases in home loan rates might attract most of the political and media heat, but an increase in National Australia Bank’s business loans has also raised eyebrows.

NAB’s liquidity premium has risen 18 basis points to 1.13%, affecting larger businesses rather than small.

NAB head of business banking Joseph Healy told the Australian Financial Review the rise was the first since November 2010.

“We have been very transparent about this.”

“I think you would find the other banks have built this sort of rise into their business loans.”

John Hinchy, chief statistician with market researchers DBM Consultants, says business loan pricing attracts much less attention because business demand for credit is weak.

“In the last quarter, the amount of concern businesses have with financing growth, getting access and so on, has been decreasing,” Hinchy says.

Banking comparison site Mozo says all the big four banks – Commonwealth Bank, National Australia Bank, ANZ and Westpac – plus Suncorp have moved on their business loan rates, but only in line with rises in mortgage rates.

Mozo says Arab Bank has lifted business loans more than home loans and Bank of Cyprus has decreased its business loans but increased home loans.

Paul Dowling, principal analyst at banking research and advisory firm East & Partners, is puzzled by the NAB increase, noting that banks’ funding positions have eased significantly lately.

“Applying a liquidity premium to large institutional borrowers can only reflect a view from NAB that they don’t have an infinite pot of money to lend,” Dowling says.

“And if you’re looking to grow your lending book as a bank, it’s an odd thing to do, particularly now that small business is not borrowing.”

“It may well be implying that whatever funding NAB has, it’s more interested in lending to small business because small business pays more for the money.”

The comments come as Reserve Bank figures show that private sector credit edged up 0.2% in January, taking the annual rise to 3.5%.

Business credit fell by 0.2% in January, the RBA said, reversing a 0.3% fall in December. For the year to January, business credit lifted by just 1.4%.

Westpac said that although business credit turned a corner during 2011, following a 2.2% decline in 2010, it “remained weak and growth is well below that of business investment.”

“At this stage, firms have largely relied upon internal funds to finance a lift in business investment expenditure,” the bank said.

But ANZ says it expects the positive impact of last year’s rate cuts and an improvement in business and consumer sentiment to be reflected in improved credit growth over the coming months.