Hartzer backs Frydenberg on easing regulation shackles on SME credit

Hartzer backs Frydenberg on easing regulation shackles on SME credit

James Eyers

Westpac Banking Corp chief Brian Hartzer said bankers will be more confident extending credit to small businesses after the government said it wanted SMEs freed from banks’ stricter interpretation of ‘responsible lending’ regulation.

Yet Mr Hartzer,unveiling a messy full-year profit that saw the bank’s earnings hit by low interest rates and a soft economy, said the government must also strive for broader reform, including on tax and energy prices, to lift business confidence.

Making sure small businesses securing loans with residential property were not captured by responsible lending laws “would be a good development,” Mr Hartzer said on Monday. Treasurer Josh Frydenberg said last week thegovernment would tell the corporate regulator, which is finalising new guidance on responsible lending, that small businessesshould not be inadvertently caught by the regime.

“Anything that gives businesses more confidence to borrow and grow their business is a good thing,” Mr Hartzer said. “If it makes the process easier and gives confidence to our bankers on the decisions they make, I think that would fundamentally be a good thing… and hopefully, yes that will help in credit growth.”

Concern that a royal commission-induced clamp down was crimping SME credit was raised earlier this year by small business ombudsman Kate Carnell and Westpac executiveDavid Lindberg, who dubbed the problem “micro-prudential regulation” in a keynote speech to The Australian Financial Review Banking & Wealth Summit in March.Reserve Bank governor Philip Lowe has encouraged banks not to be ”scared” of lending to small business to drive economic growth.

Despite the clarification of the law’s remit, Westpac said on Monday business lending would continue to soften. It expects business credit growth to slow from 3.3 per cent to 3 per cent, after its business bank reported cash earnings for the year to the end of September was down by 12 per cent to $2.43 billion. Mr Hartzer said a lack of business confidence was due to a variety of factors, including the economy, trade wars, regulation, higher energy prices, tax policy and the perception it was difficult to get credit.

“All of the above needs to be addressed. Interest rates are pretty low, and it’s not obvious to me interest rate levels are the problem,” he said. “What we need are more fundamental reforms that give business confidence to get on and grow.”

It is important governments continue spending on infrastructure to support economic growth overall, Mr Hartzer said, “but it is more than just spending, – it is about creating an environment where businesses feel that taking risk is going to be rewarded.”

His comments come afterformer Westpac banker Rob Whitfield, aformer NSW Treasury secretary,called for a larger federal government fiscal stimulusto take advantage of low interest rates to boost the economy.

They also come after the government on Monday released draft legislation to create an Australian Business Growth Fund, also designed to lift lending to SMEs. TheFinancial Review reported on Monday ANZ is now planning to join the other major banks and HSBC as a founding member of the fundafter initially declining to participate.

There are more than 3 million small and medium-sized businesses in Australia employing around 7 million Australians. Enhancing small business access to funding is a core part of the government’s plan for a stronger economy.

Mr Hartzer said Westpac is expecting “operating conditions next year will continue to be difficult, against the backdrop of low interest rates, slower growth and continued regulatory intensity.”

Sentiment was “a bit fragile” and this would be assisted if global trade tensions were revolved, he added.

The bank is expecting GDP to improve, mainly due to more government spending, and housing prices to continue to recover, as new supply slows and investors return to the market. Mr Hartzer said house price gains would be strongest in Sydney and Melbourne, although price appreciation overall would be “modest”.

Housing and business credit growth would be around 3 per cent in 2020, while personal lending is expected to contract.

Westpac said the construction sector would continue to struggle, while consumer spending could be held back by low wages growth. Mr Hartzer said “we are expecting some stimulus from tax cuts and low rates, although the impact of this will be limited by continued softness in the labour market.”

James Eyerswrites on banking, fintech and technology. Based in our Sydney newsroom, James is a former Legal Affairs and Capital editor for the Financial ReviewConnect with James onTwitter.Email James at[email protected]

James Eyers

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