THINKING OUT LOUD

(Un)commercial lending

So the cost of money has never been cheaper in Australia, yet commercial banks are not being commercial. My anecdotal reports tell me that they are reluctant to lend unless they have an abnormally high amount of security (collateral).

At this point, a bank should increase its lending rate when they are taking greater risk, but I am hearing that they don’t have the commercial ability to do so. Australian banks remain firm in their rules and as a result are not facilitating the credit requirements of smaller to mid sized Australian companies.

I could pick on another and greater offensive fact. The Reserve Bank of Australia’s official cash rate is 1.5% and Australian banks are lending money at 5% for home loans. This is 350 basis points above the Reserve Bank’s cash rate. Quite a juicy spread especially when its secured against bricks and mortar and your salary from your job probably counts on it too.

I would dare suggest that banks in no other developed world charge that high of a spread above the cash rate, than which the Australian banks do.

and the interest rates are much higher for business loans.

Oh… but here is NAB coming to rescue offering unsecured $50,000 business loans where “Your track record and the strength of your business is all you need to apply”.

for a friendly 13.85% p.a. interest rate.

It’s either time for Australian businesses to start courting cheaper foreign capital or Australian private funders, whether it’s other smaller companies or individuals who are willing to be the “bank” that the “uncommercial” banks aren’t prepared to be.

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