Federal Treasurer Josh Frydenberg has delivered a festive-season public message to banks to ensure healthy lending flows to households and small business, in order to avoid a royal commission-induced credit squeeze that could crimp the economy.

Small business annual credit growth slowed to below 3 per cent in the September quarter, half of the 6 per cent expansion in early 2016 and well below the 20-year average of 8 per cent, based on figures on loans below $2 million compiled by the Reserve Bank of Australia.