June 2013

SME's want to grow, but who will fund it?
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.

Eastís 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 SMEís 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.

Eastís 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 Eastís 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.


Access to Credit Experiences
  % of SME's
Have applied for new / extended credit lines in past 12 months 23.2

Application successful


Application not successful


Reasons for unsuccessful credit application


- Bank / lender declined without reason


- Inadequate security offered


- Serviceability barriers


- Other




- SME borrower withdraw due to pricing


- Terms and condition requirements unacceptable to borrower


- Credit application process took too long


East & Partners Business Banking Index (BBI) - January 2013
National, structured sample of 538 SMEs interviewed
SME Segment : A$1-20m turnover enterprises

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