Australian Banks Are Failing
(Time to read this article: 5 mins)
OK, so I used a lurid headline to get your attention and now that I have it here’s the real headline: Australian Banks Are Failing Small Business – and Thus Harming Our Economy.
Bank bashing is easy, but I’m not heading in that direction here. What I’d like to do is point out a series of simple facts that may widen your understanding of just what is going on when your bank manager either knocks back your next request for business credit, or jacks up your interest rate and fees:
History: Back in the 1980’s, after our banks were deregulated and transformed themselves overnight from dull regulation-protected clerks to sophisticated market players, they went partying with some real businessmen named Bond, Skase, Herscu, Goward, Connell et al (a crew whom Trevor Sykes called “The Bold Riders”).
When that decade’s bubble of easy money finally burst our banks woke up with a $28bn hangover. That was more than they were worth at the time and it could be argued that they were “technically bankrupt”.
They desperately needed to rebuild their balance sheets with high interest loans and big chunks of fees but big business had the same massive financial hangover as the banks (they’d partied together, remember?) and were no help at all. The government would not let the banks rip into the mortgage belt for fear of a voter backlash, but they did recognise the need to let the banks rebuild their balance sheets and so they turned a blind eye while the banks hoed into the only sector of the economy who had any money left – the conservative, under-leveraged, liquid and thrifty small business sector who hadn’t participated in the financial debauchery of the previous decade! The Cinderellas!
For those of us who remember it, running a business in the aftermath of the 90s was like trying to run a marathon while donating blood at every corner. We had to beg for the credit that we needed to grow our businesses and then pay interest rates and fees for that credit that were nothing short of iniquitous.
Given that small business employs the majority of wage earners and contributes more than 50% to our GDP and tax, it was akin to the banks (and a complicit Government) taking the oil out of the good half of the economic engine while that (small business) engine was doing its best to drag a recovering economy up the hill. It hurt!
Deja Vu: And now, it’s happening again! Big business – big banks – did some really stupid deals over the last 15 years involving instruments that they just did not understand, and they got out of their depth mixing with some real smart fellas – again. They lost hundreds of billions of dollars of shareholder’s funds but, in this aftermath, governments are issuing tax-payer-backed guarantees to banks for their borrowings to again enable them to rebuild their savaged balance sheets.
They are now doing that at the expense of other, more responsible sectors of the economic community – the traditional mortgage lenders, and small business.
The banks are still lending on normal commercial terms to big business – that is, to the same half-smart guys who lost fortunes through their own use of sophisticated financial instruments in the fist place – but they are screwing small business with interest rates that they say “reflect the risks involved in this sector”!
The SME Risk Factor: What risk!? No one that I know in small business has crashed for even a single billion dollars, let alone hundreds!
I couldn’t find any real numbers but I’m sure that if you added up the total small and medium business loan defaults over the last two years, you would not get anywhere near the $6bn our automotive industry says it needs from the government (us taxpayers) to survive; or the billions of dollars lost by the speculative property developers, managed investment schemes, superannuation funds – banks – and the like!
When one of our big four banks can trumpet that they have just borrowed money in Japan at 1% interest (thanks to a tax-payer backed guarantee), and that same bank applies 12.39% interest to a business overdraft, there is obviously something seriously wrong in the game.
When the big four Australian banks admit to making an extra $121m in fees in the past twelve months, I just shake my head and knuckle down to a long wait for justice.
Give Us a Break! We’re the good guys! Why penalise us? What have we done wrong? We didn’t participate in the Mad Hatter’s party that lead to the GFC. We haven’t laid off 50% of our workforce. Quite the contrary, many of us have tightened our belts, trimmed the business for stormy seas, taken a pay cut and are hanging in there with our team hoping that we can keep everyone together long enough to come out the other side in one piece. We haven’t turned and run.
And . . . we haven’t asked for a Government Guarantee!
What we would like to ask for, however, is a bit of consideration – access to the funds we need to grow our business (and to drive the recovery, by the way) at interest rates that reflect the true cost of the money to the bank, plus a realistic risk factor based on our real world performance (and not on those fancy financial models – remember, boys, they’re what got you into this mess in the first place!)
The second tier banks are looking pretty friendly to me at the moment – and they probably need to be after the Big Four used the Government Guarantee bogey to vacuum up 80% of the housing loans that the second tiers rely on to pay for their banking operations.
If you’re in business, I’d be talking to your local Bank of Queensland, Bendigo Bank and Suncorp manager about now – he or she probably feels as miffed as you, and may be able to provide something more accommodating than the straightjackets the Big Four are offering small business at the moment.
