A new report reveals that business deposits far outweigh loans to businesses, particularly among small firms facing an ongoing struggle to access finance.
The report, published by banking research and advisory firm East & Partners, comes as major banks insist that they are keen to lend to small companies, many of which have found it difficult to access finance since the global financial crisis.
Small business is already struggling with pessimistic consumer sentiment, which recorded its third consecutive monthly fall in July to hit its lowest level since May 2009, according to the Westpac-Melbourne Institute index.
Data from East & Partners, whose clients include about 30 banks, shows business deposits far outweigh loans to businesses, especially small firms.
According to the report the business banking ratio has reached 1.25, up from 1.18 a year ago, which means 25% more in deposits is being taken from businesses than is being lent back to business customers.
Westpac, the second largest home lender, has by far the highest business deposit-lending ratio of the big four banks, scoring 1.67, which means Westpac has 67% more business deposits than business loans.
The Commonwealth Bank recorded the next highest ratio, with 48% more business deposits than business loans. The business deposit-business lending ratio is the highest on record for Westpac and equal highest for CBA.
According to the survey firm’s principal analyst and report author Paul Dowling NAB is the only bank that hasn’t reduced its lending to SMEs since the global financial crisis.
“Banks are saying there’s no demand from SMEs for borrowing and our research shows less than 10% of SMEs have demand for borrowing over the next six months,” Dowling says.
“However part of the reason for that depressed demand is the experience they’ve had over the past few years trying to access credit. A lot of them have decided it’s too hard, too expensive and the hurdles are too high.”
Dowling says anecdotal evidence, based on the firm’s interaction with 35,000 businesses, is that SMEs are finding it hard to borrow money, which is cause for concern.
“SMEs are the wealth generators and drivers of employment and innovation, and if they are not growing it raises questions for the economy,” Dowling says.
The report reveals that small businesses may be subsidising borrowing by big business.
Micro firms (less than $5 million turnover) and small businesses ($5-20 million) deposit more than double the amount they borrow while institutional clients (with at least $530 million turnover) deposit only about half of what they borrow.
The gap between the small end of town and large corporations has increased sharply since the GFC, when small business borrowing roughly matched deposits.