Banks need to change approach to small firms: NAB exec

Australia’s banking system should be remodeled to encourage entrepreneurship and make it easier for SMEs to focus on their business, according to a NAB business banking executive.

Speaking at a Dun & Bradstreet conference, NAB Group executive Joseph Healy outlined the importance of SMEs within the national economy, calling for changes to the banking system to foster future growth.

“The small business sector generates around 34% of private industry value added and 48% of private sector employment,” Healy said in his speech.

“98% of all businesses in Australia are SMEs and they provide private sector jobs for nearly 4.8 million Australians.”

“It is imperative that we listen to the voice of SMEs and ensure we are putting in place the right frameworks and structures – legal, regulatory, taxation, competition policy and financing to name a few – to encourage entrepreneurship and make it easier for SMEs to focus on what they are in business to do,” Healy said.

According to Healy, the lack of a defined national agenda for SMEs is partly to blame for the “inherent difficulties” SMEs face when attempting to have their voices heard.

“Unlike other more defined sectors of the economy such as mining, agriculture and indeed banking, the SME sector is so diverse,” Healy said.

“The SME sector contains everyone from the corner shop in Sydenham to the tourism operator in Broome. Promoting a united SME voice therefore has been a significant challenge.”

Last month, it was revealed a Parliamentary inquiry, into access to finance for small business, has called for uniform definitions of “micro”, “small” and “medium” businesses.

The committee said the health of Australia’s financial system and the support of SMEs are of “enduring concern” to the Australian Parliament

According to Healy, the major banks need to reconsider their treatment of SMEs in order to reflect the “unique nature” of SME banking.

“Once upon a time, the banks were more attuned to small businesses, with the empowerment the local branch manager used to have and the role the local branch manager used to play in… local communities,” Healy said.

“That local connection meant that bankers had access to ‘soft information’ such as reputation, sense of character, the knowledge that comes from being close to your customer and their customers, etc.”

“In other words, bankers had a good sense for what counts as well as what is counted.”

“We need to recognise that banking SMEs is different. The quality of ‘hard information’ and market information on a smaller business is not as robust and efficient as it is for larger businesses.”

“Thus the approach to banking SMEs must be fundamentally different from that needed for larger businesses.”

Healy’s comments are in line with the long-held viewpoint of small business lobbyist Peter Strong, who argues banks and government fail to treat small businesses as people.

Summing up his speech, Healy said efficient capital allocation within the banking system is vital to long-term growth of the economy, and any bias could be harmful in crowding out lending to sectors such as small business.