Westpac bid to liberate enterprise lending as squeeze looms

The banking industry has stepped up efforts to get regulators and Treasury to free-up requirements on business loans.

Westpac’s business banking boss David Lindberg

The banking industry has stepped up efforts to get regulators and Treasury to free-up requirements on business loans, which could help offset an overly cautious lending landscape and emerging credit squeeze.

Speaking on the sidelines of a Sydney conference, Westpac’s business banking boss David Lindberg revealed he was pushing for change and talks on the issue had already taken place with the banks’ industry association, corporate regulator, Treasury and the Australian Prudential Regulation Authority.

“Banks need to make it efficient,” he told The Australian of the sometimes arduous process of approving a business loan in the wake of the Hayne royal commission. “The banks have to do better than that.”

Mr Lindberg believes small business is being caught by declining house prices and unintended consequences of broader regulation, red tape and “banker fear” of making a mistake after the scrutiny of the royal commission.

“The power structure is letting Australian business down,” he said, noting an case where a relatively straightforward loan application took 60 hours to approve.

“What’s going on is micro-prudential regulation combined with human fear.”

He said a greater focus on responsible lending and more stringent and formulaic servicing criteria and documentation was curtailing business lending, which was more complex than lending to individuals.

Mr Lindberg wants business loans to be considered differently to individual mortgages, because companies are often investing to grow.

His comments come after Treasurer Josh Frydenberg late last year urged banks to keep lending to business and ease up on their conservatism. Research by fintech lender Judo Capital in January showed a funding gap of $83 billion confronted small and medium business as they tried to access finance.

The Australian Banking Association is said to have set up a working group on the issue of business lending and is liaising with regulators on potential changes to responsible lending obligations and capital requirements. The group is said to meet regularly and is also compiling an industry-wide snapshot of the business lending environment to assess issues and potential change.

Mr Lindberg stressed that the banks themselves had some work to do to ease the anxiety around loan approvals, as staff feared small mistakes such as forgetting to ensure a customer included their monthly Foxtel expense in their application.

“The banker is terrified of the consequences of that,” he said. “Risk-aversion is human but not the right answer in our current environment.

“Business has right now stopped investing,” Mr Lindberg added, saying that credit growth for small business had “ground to a halt” once infrastructure-related loans and mergers and acquisitions were excluded from the data.

As part of a restructure announced last week, Mr Lindberg will in April take over as head of Westpac’s consumer bank, making him a stronger potential successor to group chief executive Brian Hartzer.

Business lending is firmly on the radar of key regulators. Earlier this month, the Council of Financial Regulators made important observations on the small business lending sector, noting a slowing in lending.

“For many small businesses, personal and business finances are intermingled. As a consequence, the higher standards that lenders apply to personal borrowing are affecting some small business loan applications,” it said. “Further falls in housing prices could constrain small business borrowing, given that around half of loans to unincorporated businesses are secured by residential property. The Council will continue to monitor developments closely and stressed the importance of lenders supplying credit to small and medium-sized businesses.”

In a discussion paper released on Monday, APRA outlined potential revisions to its prudential standard on credit quality.

It said that for loan exposures not to individuals, a bank should consider the borrower’s business expertise, economic or industry sector and its position within that sector.

It also wants an assessment of the borrower’s historical financial and future cash flows and equity capital.

The Hayne final report recommended the small business definition under the ABA’s code of conduct be lifted from those applying for loans of up to $3 million to $5m.

Mr Lindberg stuck to Westpac’s support for the status quo yesterday, but said the bank was “open to revisiting that over time”.