Banking News

Greatest growth to come from SME sector as borrowing among Top 500 slows

(Australia) - Banks should focus their attention on the SME sector because it has the greatest growth prospects whilst borrowing amongst the Top 500 corporations is expected to slow, a joint survey on Australia's banking sector has revealed.

The Australian Corporate Banking Quarterly Survey Volume II (January-March, 2003), jointly published by JPMorgan and East & Partners every quarter, is a poll of the Top 500 Australian corporates and their opinions on credit re-pricing, banking relationships and their future intentions to borrow.

"This quarter's survey (January-March, 2003) confirmed that the greatest growth area for major banks is poised to come from the SME sector because larger companies have direct access to wholesale capital markets as opposed to using banks as credit intermediaries," said Mr Brian Johnson, JPMorgan's Chief Banking Analyst.

"SMEs appear to have a far greater appetite for borrowing than their larger peers, with much of the new finance being used to fund capital expenditure rather than simply refinancing, which is the most popular preference for the larger companies.

"At the same time, the appetite for borrowing among the Top 500 Australian corporates remains intact, with the current turmoil in the world increasing the caution exercised by companies as a result of significant event risk."

"Despite this trend, more than 30 per cent of the Top 500 corporates surveyed indicated an intention to borrow in the next 12 months so our expectation is that business lending will pick-up to around 8 per cent per annum in the medium term. Our anecdotal evidence also supports this expectation," explained Mr Johnson.

According to East & Partners, competition in the banking sector is intensifying with the CBA winning business at the expense of Westpac and NAB during the January-March, 2003 period.

"In the previous survey (October - December 2002), Westpac and NAB were the two most popular sources of additional finance for the Top 500 corporates however the most recent survey shows that while Westpac remains number one, its share has been eroded by CBA. St George has also clearly consolidated its fifth ranking," said Mr Paul Dowling, Principal Director of East & Partners.

"In addition, banks outside the Big Four have substantially more penetration in terms of secondary transaction banking relationships with over 40 per cent of this group using secondary transactional services against 28 per cent six months ago."

The survey also showed that banks are continuing to actively re-price credit in terms of overall interest rates and increases in the spread above the banks' published reference rates.

"This evidence of pricing for risk on the part of the Australian banks is consistent with JPMorgan's view that the asset quality if domestic banks is extremely high, particularly in comparison with their global peers," added Mr Dowling.

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