Tuesday, May 17, 2011

Banking on Small Business

An excellent post at BusinessSpectator. This is a paper by Joseph Healy, a NAB business banking executive, to a small business credit conference last week. Maybe some NAB propoganda but it gives a good insight into the issues around bank lending to small and medium business (SME's), particularly the systemic bias to residential mortgage lending over business lending and the potential for that to create harmful distortions.

"In all of this, we mustn’t lose sight of the fact that the efficient capital allocation by the banking system is important to long term growth of the economy and any bias can be harmful in crowding out lending to other sectors ie a bias to home lending could mean there is less capital to allocate to businesses, the most productive area of the economy – this could be bad for growth, competition, jobs and in the end bad for Australia."

Healy explains why it is rational for a banker to allocate more capital to a residential mortgage, rather than a productive business, under the current regulatory regime. Commentary from Robert Gottleibsen.

There is a lot of relevance here to our regional economy with it's strong reliance on SME's, particularly in tourism. Again, many of the problems and issues require broader fundamental policy responses rather than local. Beyond local politicking and bank bashing it's not clear our Federal member has any understanding or capability to contribute to a policy response.

Regional Queensland is also more heavily exposed to smaller banks, via Suncorp and BoQ, than other states.

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