Big banks blitz SME lending market

As small business lending activity has started to recover this year National Australia Bank, Westpac and Commonwealth have taken the lion's share. ANZ has lost share and Suncorp is the only second tier bank to pick up share in the June half.

This is the reading of Australian Prudential Regulation Authority data in the latest JP Morgan Fujitsu small business banking report, published yesterday.

NAB has taken market leadership in the micro-business and SME segments with a 26 per cent share, followed by Westpac with 25 per cent and Commonwealth with 24 per cent. ANZ's share has dropped four percentage points to 15 per cent this year.

Some of the small lenders have suffered big setbacks. According to the report, Rural Bank's share of micro and SME lending has fallen from 3.4 per cent in 2007 to 1.5 per cent in 2010.

HSBC and Bendigo & Adelaide Bank have also suffered big falls, while Bank of Queensland, Citibank and ING Direct have been flat.

The report says lenders are now near completion of the re-pricing cycle and half of all SMEs are paying between eight and 10 per cent for secured finance.

According to Fujitsu's SME market profit model, lenders are making a profit on 80 per cent of the SME loans, compared to 70 per cent in the last survey.

While demand from SMEs for finance is picking up it is still weak and lenders remain cautious about extending credit. Borrowers report lower loan to valuation ratios, stricter collateral requirements, higher interest coverage ratios and requirements for more frequent accounting reports.