Big banks must answer why small business faces big rates

Tuesday 4 October, 2016

The Chamber of Commerce and Industry Queensland (CCIQ) wants to know why small businesses must pay significantly higher interest rates.

CCIQ believes this is one of the key questions CEOs from the Big Four Banks should answer when they appear before a parliamentary committee in Canberra this week.

CCIQ Director of Advocacy Nick Behrens said the Australian banking industry had a profound influence on the Queensland business community’s capacity to grow.

“Interest rates, availability of credit and finance terms and conditions are crucially important for business and are greatly influenced by competition in the Australian banking sector,” he said.

“Unfortunately the major banks have become significantly more conservative in their business lending. This has resulted in an effective lessening of competition in business finance.

“Businesses are experiencing a range of difficulties at present in their lending arrangements.

“High bank fees and charges; higher interest rates and cost of finance; increasing levels of security required for loans; and difficulty overall in obtaining credit have all been listed as common problems for business in their banking.

“This directly inhibits businesses’ ability to grow, invest and employ.”

Mr Behrens said small business had voiced concern about instances of the banks’ tightened lending criteria threatening the ongoing viability of many businesses.

“Changes in lending requirements have undermined the feasibility of existing business plans resulting in businesses either shelving plans for expansion, downsizing, or in some cases exiting the market altogether,” he said.

Mr Behrens said banks had increased their risk margins for business loans and tightened their standards and terms for new loans through lower loan-to-valuation ratios (LVRs), stricter collateral requirements and higher interest coverage requirements.

“CCIQ recognises that the banks have a responsibility to run their businesses in a manner that minimises risks, which in turn delivers a profitable and strong foundation. 

“However, Queensland businesses are looking to our lending institutions for behaviour that focuses on a strong economy and not just their shareholders. 

“Ultimately financial institutions must have a broader responsibility for economic development in Australia.”

Key points for the parliamentary banking inquiry, which begins Tuesday:

1.         Banks have a crucial role in helping to shape and secure Queensland’s economic future by moving beyond a core responsibility to shareholders and instead assisting business to grow and employ. The primary example of this is the full pass-through of previous interest rate cuts to business and corporate customers.

2.         For small businesses, another means of finance is through credit card facilities. The level of interest currently charged on cards is considered to be beyond the actual cost of credit provision. CCIQ encourages the major banks to be proactive in driving down the costs of doing business in this area.

3.         Small businesses continue to advise that lending practices are too constricted and although they appreciate the need to tighten parameters, they are considered to be severely restricting growth in the economy. They are being forced to use credit cards as an overdraft facility and this situation is untenable in the long term.

 

 

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