Clancy Yeates| Sydney Morning Herald| 17 May 2018
Business loans are likely to grow more quickly than lending for residential property, in a changing of the guard that would see banks compete more fiercely for business customers, National Australia Bank executive Anthony Healy says.
As the slowing housing market dampens banks’ outlook, the chief customer officer for NAB’s business and private banking arm highlighted indicators that suggest the home loan market’s growth rate could be overtaken by the growth in loans to business.
Such a shift would mark a major turning point in the local banking sector.
Aside from a brief period in 2015, home loan growth has consistently outpaced lending to businesses, a trend that has especially benefited the biggest retail banks, the Commonwealth Bank and Westpac.
However, any boost in business credit would probably trigger more competition in this part of the market, and it also comes as business banking practices are about to face the harsh scrutiny of the royal commission.
With surveys of business conditions at their highest level on record, Mr Healy said there was also strong growth in asset finance, which is another leading indicator of credit growth.
“Probably for the first time since at least the GFC and probably well before that, business credit growth looks like it’s going to be higher than mortgage credit growth,” said Mr Healy, who has been running NAB’s business since the start of the year.
NAB’s economists are forecasting business credit growth will exceed housing loan growth during the year to June 2019.
The prediction comes as banks are facing weaker revenue conditions, with the annual pace of housing credit growth slowing to 6.1 per cent.
This is still faster than the 4.2 per cent growth in business credit, but a further slowdown is expected in mortgage credit as banks’ tighter approval processes take effect. Latest figures show new housing loan approvals dropped 6 per cent in the year to March.
Although NAB’s results this month topped up a provision for bad loans in the retail sector, Mr Healy said conditions were looking better for most of its business clients.
“After probably a long period of uncertainty in the economy and a bit of flatness in economic growth, business is now starting to come out and invest again in plant and equipment, in trucks and trailers,” he said.
You can imagine when housing growth softens and business credit picks up, all of the banks will be pushing harder into business.
NAB’s Anthony Healy
“Our asset finance volumes are picking up – which I think is a good indication that not only is business confident, but they’re starting to invest a bit.”
Macquarie analyst Victor German said he believed there was “scope for businesses to borrow” more over the next three to five years, but over a shorter time frame “the jury is still out” on whether business credit would rebound.
Mr German said the slowdown in housing was one factor being reflected in bank share prices, with the share price premiums of CBA and Westpac fading.
Meanwhile, NAB’s former United Kingdom lender Clydesdale Bank, which is held by many NAB shareholders, on Tuesday reported a first-half statutory loss of ₤76 million, due to previous mis-selling of insurance. It also raised its guidance for cost-reduction.
NAB is the country’s largest lender to small to medium enterprises, and 45 per cent of its revenue comes from business and private banking, with another 15 to 20 per cent coming from its corporate and institutional arm, led by former NSW premier Mike Baird.
However, a bounce in business lending would likely cause the other big banks to divert more resources to the high-margin small business sector.
“You can imagine when housing growth softens and business credit picks up, all of the banks will be pushing harder into business,” Mr Healy said.
Business banking will next be put under the microscope at the royal commission, and Mr Healy said the inquiry would probably look at issues raised by Small Business and Family Enterprise Ombudsman Kate Carnell, who slammed banks over “non-monetary default” contract clauses.
Ms Carnell has suggested a government-backed business bank, but Mr Healy said this was a “tricky minefield to walk into”, because of the complications that arise once taxpayer funds are used to guarantee loans or provide credit. There was a gap in the market in how start-up businesses accessed equity capital, he said, as opposed to debt funding from banks.