‘Shell-shocked’ firms yet to reach out to banks

Small and medium-sized businesses are ‘shell-shocked’, with fewer than one in 12 asking about loan ­deferrals.

Small and medium-sized businesses are “shell-shocked” from the crippling impact of the coronavirus, with fewer than one in 12 asking about six-month loan ­repayment deferrals which were extended on Monday to 98 per cent of SMEs with bank funding.

However, National Australia Bank chief executive Ross Mc­Ewan said he expected a further wave of inquiries over the next month, as more businesses were hit and their suppliers suffered knock-on effects.

“It wouldn’t be up to 10 per cent but for us, being the largest business bank in Australia, (but) it’s still a huge number of inquiries coming in,” Mr McEwan told an online conference. “In NAB ­Assist, which is the area that looks after these inquiries, we saw in one week what we would normally see in an entire year. So the scale of this is very, very large.”

The nation’s banks announced on Monday an extension of their SME support packages to companies with up to $10m in loan ­facilities compared to $3m previously. About 30,000 more businesses will be able to defer interest and principal repayments for six months, taking the total figure to 425,000. About $250bn in SME loans will be covered by the scheme, up from $150bn.

The new measures will apply on an opt-in basis to all sectors of the economy, provided businesses have been affected by COVID-19, were up to date on their existing facilities 90 days before their ­applications, and agree to capitalise their interest.

Commercial property landlords must also provide an undertaking to their banks that they will not terminate leases or evict tenants for rent arrears as a result of the pandemic. The latter initiative covers 90 per cent of commercial landlords.

ANZ chief executive Shayne Elliott told the conference that the bank was at the very early stage of interacting with its business customers in relation to the crisis.

“A lot of our customers are literally just shell-shocked and they’re working through their own crisis in terms of what needs to be done,” he said.

“We’ve got about 130,000 small businesses that we deal with, and we’ve had a little bit less than 10 per cent of them reach out and ask for assistance.

“In terms of our home loan customers, that’s a very, very small percentage, so I think it is going to take time for people to digest this.”

Commonwealth Bank chief executive Matt Comyn said CBA had automatically enrolled 76,000 small businesses into payment deferrals. Over the past week and a half, the bank had got in touch with each customer but only 45 had opted out.

Contrary to some reports, Mr Comyn said CBA did not expect businesses to go into six months of hibernation because the environment remained “very dynamic”.

“What we are really trying to achieve is to give businesses some confidence that they can reduce any of their expenses wherever practical during that period,” he said. “Financing is obviously a substantial one. Rents are ­another.”

Mr McEwan said the strain on balance sheets would be too great if businesses went into hibernation for six months. “We’ll have to wait and see how long the ­impacts of this virus go for,” he said. “What we need to be thinking about is what does the economy look like in that six months’ period of time — how can we be ready to support businesses to get going again because it’s going to be pretty much a close down.

“That’s the piece that I think we all need to move forward to.”

Mr Elliott likened the purpose of the business support packages to the social isolation measures implemented to contain the virus.

“What we need to do is isolate and stop the spread, so a problem in retailing isn’t going to infect landlords and then keep going,” he said. “The way to isolate is ­exactly what the government has been doing and what the banks have been doing — to say: ‘Let's grant these payment holidays, let’s take pressure off people so they're not just passing the parcel right around the supply chain and infecting more and more of the economy’.”