Australia losing business banking skills
Australian banks are losing their small business banking skills, one of the country's most senior business bankers said yesterday.
National Australia Bank's group executive for business banking, Joseph Healy, said that "a diminution in the core skills" of SME banking was one of the reasons why business credit as a proportion of GDP was falling.
Business credit outstanding is at 49 per cent of GDP - the lowest level since 2005, down from a peak of 62 per cent in December 2008. This shrinkage occurred during a period when residential mortgage lending was growing strongly.
Speaking at Dun & Bradstreet conference yesterday, Healy said there were a couple of other of reasons for this change: the incentive in the Basel II capital rules to favour residential mortgage lending; and the demise of a number of specialist SME finance groups during the financial crisis.
But changes in the management of big banks were also important. Healy said: "There is a growing body of research around the world suggesting that as banks have got bigger, including through M&A, some of the fundamentals have shifted.
"The move for credit decisioning to become centralised or regionalised; an emphasis on credit-scoring decision tools; an increasing application of technology, which has de-personalised service, and the introduction of one-size-fits-all policies in the quest for standardisation are all fundamentally aimed at achieving economies of scale, improving operating efficiency and delivering lower cost-to-income.
"However, the result has been a diminution in the core skills that once defined the traditional banker, where judgement, or soft information, has been replaced by a strong emphasis on hard information such as credit scoring outcomes, audited financial statements and the value of available security."
Where once the branch manager got to know the members of the local business community, most credit decisions now rely on the assessment of data.
"This issue is exacerbated by the lack of professional training and qualifications in what it means to be a banker. It is somewhat ironic, given the importance of the role banks play, that banking is one of the few professions where there is no professional standard or accreditation," Healy said.
"We need to recognise that banking SMEs is different. The quality of hard information and market information on a smaller business is not as robust and efficient as it is for larger businesses."
Healy exempted NAB from this general malaise, saying it had more business bankers (more than 3000) than any other Australian bank, and more dedicated business banking centres.
"We grew our lending to SMEs by net A$8 billion during the GFC, at a time when the other banks withdrew lending capacity and the system shrank by about $60 billion," said Healy.