Increased competition between the major banks on new lending following subdued growth in the wake of the global financial crisis is opening up a new opportunity for stable businesses seeking access to finance.
The four major banks delivered combined underlying cash earnings of $29bn after tax with the result being driven by a fall in bad debts and a renewed demand for credit.
Analysis by PwC shows that while margins were down, this was overpowered by an increase in raw lending volumes predominantly to businesses and for housing investment.
According to PwC, margins fell 2 basis points to 2.06 per cent in the second half due to strong competition for new lending – the lowest since the all-time low of 2.05 per cent in the first half of 2008.
PwC’s Australia’s financial services leader Hugh Harley said the 3.8 per cent growth in business credit to $76 billion — up from just one per cent in the year before — was the “real highlight” in the results.
“This is a good news story and shows that the mild growth that emerged in business credit over the past several halves marked the beginning of a trend,” he said. “The question is whether that can be sustained.”
“Total growth in credit of 5.4 per cent over the year to September is the strongest since February 2009 when the full impact of the GFC began to really crimp demand.”
Brendon Watkins, partner of restructuring and insolvency at Minter Ellison, told Dynamic Business there was “no doubt” the banks had lifted their lending but warned there would be a long lead time before it was clear whether many loans needed to be recovered.
“Insolvency work is not at an all time low, but insolvency is still very slow,” he said. “In time, there’s no question that, as the amount of credit growth increases, that will be reflected in an uptick in insolvency. But not necessarily anything significant.”
While the banks were competing to get more money out the door, Mr Watkins suggested credit standards would not have been loosened greatly.
“The senior guys within the banks have been under a lot of pressure to start to improve their numbers. This is what’s to be expected after several years of below average growth for the banks.”
However, he said the trend meant it was a good time for business owners to engage their banks in a discussion about finance if they were looking to expand.
“After several years of subdued growth in the post GFC period, the banks are now competing aggressively on interest rates to help grow their books,” he said.
“There’s no evidence of any significant weakening in the credit standards and whilst a small percentage of loans will always turn bad, there is natural delay before this occurs.
“This would be a good time for businesses to have a discussion with their banks about expansion.”