Regional banks to grow SME lending
(Australia) With the property market expected to dip over the coming year, regional banks will look to grow their lending to small- to-medium-sized enterprises in a bid to maintain profitability, according to a report by ratings agency Standard & Poor’s.
The report shows that regional banks will struggle to generate lending growth at a similar pace to the past two years, and that financial performance will be closely linked to the state of the property market.
S&P director of Financial Services Ratings group Peter Sikora said the country’s "booming housing sector" had been the cornerstone of regional banking, and that these banks would need to diversify their portfolio.
"With the potential slowdown in the home lending market, the regional banks may look to grow their small-to-medium business lending to maintain the recent upward
momentum in their profitability," Sikora said.
He said while regional banks had been successful at growing non-interest income, through transaction and service fees and commissions, they lacked the revenue diversity of major banks.
However, he said conservative underwriting practices of regional banks should help them avoid significant losses due to any "correction" in property prices.
"Non-performing asset levels at the regional banks remain at very low levels, and most of the recent additional loan loss provisioning has been raised to support growing loan portfolios," Sikora said.
"Regional banks have been especially successful in leveraging off the growth of the
broker-originated home-lending market and they continue to carefully control and manage credit approvals.'
He said regional banks’ profitability was slightly weaker than major banks, which reflected their lower net interest margins, less diverse revenue bases, and weaker operating efficiency.
S&P director of Financial Services Ratings group Peter Sikora said the country’s "booming housing sector" had been the cornerstone of regional banking, and that these banks would need to diversify their portfolio.
"With the potential slowdown in the home lending market, the regional banks may look to grow their small-to-medium business lending to maintain the recent upward
momentum in their profitability," Sikora said.
He said while regional banks had been successful at growing non-interest income, through transaction and service fees and commissions, they lacked the revenue diversity of major banks.
However, he said conservative underwriting practices of regional banks should help them avoid significant losses due to any "correction" in property prices.
"Non-performing asset levels at the regional banks remain at very low levels, and most of the recent additional loan loss provisioning has been raised to support growing loan portfolios," Sikora said.
"Regional banks have been especially successful in leveraging off the growth of the
broker-originated home-lending market and they continue to carefully control and manage credit approvals.'
He said regional banks’ profitability was slightly weaker than major banks, which reflected their lower net interest margins, less diverse revenue bases, and weaker operating efficiency.
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