The Balancing Act
After several years where the focus has been on survival, Australian Small
and Medium Sized Enterprises (SMEs) are showing some signs of confidence.
Growth is at last returning to the agenda for many SMEs and they are
looking to fund this partly by way of new debt.
East’s monthly Deposit Funding and Debt Index (DFDI) shows that the SME
sector, or those enterprises with turnover of between $5-20 million a
year, are finally starting to re-leverage post the Global Financial
Crisis.
The DFDI is a ratio of deposit balances against lending balances, and the
most recent research reveals that this dynamic is at a turning point with
share of deposits starting to fall and share of business lending starting
to climb.
For every $1 they have in borrowings, SMEs now have $1.94 in deposits, and
this has come down from $2.51 in deposits in July 2012. Micro businesses,
or those with turnover of $1-5 million a year, are showing a similar
pattern: where they had $2.70 in deposits for every $1 of lending last
July, they now have $2.56.
The Credit Experience
While SME’s are in control of their deposits, their debt financing remains
troubled.
Research from the first quarter of 2013 shows that 23.2 percent of SMEs
with $1-20 million turnover applied for credit in the previous 12 months.
56.0 percent of these applications were successful, but the real story is
in the 44 percent of applications which did not succeed. |
In the majority of these cases, the
SME walked away from the application because the pricing was too high
(18.2 percent), the terms and conditions were unacceptable (21.8 percent),
or the credit application process took too long (14.6 percent).
On the bank side, inadequate security was an issue in 14.5 percent of
cases, while 16.5 percent of applications were declined due to
serviceability barriers.
East’s research also shows that 68.7 percent of SMEs now perceive their
primary banking relationship to be with their lender, and not their
transaction banker (30.5 percent).
In East’s view, a significant opportunity exists in the market for a bank
which is prepared to become the SME champion.
Many banks claim that SME champion status but the reality is that the
title is still up for grabs and this is a moment in time when it could be
seized.
In the SME world, lending relationships are driving transaction banking
relationships. At this moment, SMEs are in re-leveraging mode and showing
early signs of renewed credit demand.
A bank which joins these dots will also be well placed to improve its
business as a transactional banker to this segment.
Fully 23.2 percent of SMEs applied for new or extended credit lines over
2013. Our 2013 research strongly suggests that significantly more will
apply this year.
This is a major opportunity for a bank which wants to seize that title of
SME champion.
|
