UBS survey confirms banks tightening lending conditions for SMEs

A new report from UBS has found more Australian banks are tightening their lending criteria for SMEs, and for mortgage products as well, in response to tougher international economic conditions.

The finding correlates with comments made by NAB business banking chief Joseph Healy, who recently told SmartCompany that more banks are tougher, but were still willing to lend to small and medium businesses.

The new report, which surveyed bank loan officers mainly comprised of chief financial officers and chief risk officers between September and October, found that there has been a “tightening of underwriting standards in mortgages and SME lending”.

“Underwriting conditions for loans to SMEs appear to have been tightened for the first time since the first half of 2010,” analyst Jonathan Mott said in a report.

“We believe that this is consistent with some evidence of deterioration in SME credit quality seen over the last 12 months, especially in sectors exposed to the high Australian dollar.”

“Tighter collateral requirements and maturity were highlighted across the corporate book.”

The report also said the tightening of lending standards in the mortgage market is mostly due to repricing. But there is some good news – loan officers are expecting credit growth to be about 5% in the next year, as opposed to 4% in the last survey.

The survey’s findings will be a blow to businesses hoping to gain credit for new ventures. Over the past year, many have complained they have been unable to access funding – even established businesses with existing lines of credit.

Recently, Healy told SmartCompany that while competition for SME lending is better than ever, there are tough requirements to lend.

“I think we need to be clear on business plans,” Healy says. “The business plan has to be sensible, and it has to be grounded in the world we’re operating in right now.”

The survey also provides more hope for SMEs, with an indication that lending could increase within the next six months.

“Banks are still expecting an acceleration in the demand for SME lending over the next months,” it found.

“This may be partly because SME credit is currently at zero and partly due to an ongoing optimism that businesses will again begin to increase leverage.”