The supply of business credit “appeared to have tightened,” the Reserve Bank of Australia curtly declared in the minutes of its Monetary Policy Meeting two weeks ago.
“Demand for new loans from SMEs had been low given the uncertain outlook [while] other policy initiatives [such as JobKeeper] had provided businesses with a source of funds,” the minutes recounted.
The RBA thus left its latest commentary of the vexed conditions in the loans market to the routine work of the monthly minutes, with the governor, Philip Lowe, side-stepping this sensitive topic to a major speech yesterday on ‘COVID-19, the Labour Market and Public Sector Balance Sheets.’
Lowe did point out that bank and credit union use of the Term Funding Facility – access to which is linked to credit flows to SMEs and large business - “is working as expected and is contributing to the plentiful supply of liquidity in the Australian financial system.
“To date, around A$25 billion has been advanced under the funding scheme for the banking system, with 66 ADIs having used the facility.
“We expect further drawings to be made over coming months, with the total amount available currently standing at $150 billion.”
Perhaps sensitive to the public debate (and dismay) at the feeble utilisation of the $40 billion in loans notionally available under the SME Guarantee Scheme set up in March, Lowe simply did not canvass one principal policy objective for opening the TFF lines to banks four months ago; namely to foster “Support for Business Credit”, as Lowe labelled this policy at the time.
One trenchant critic of these lending support measures, the consultant Neil Slonim (known as ‘The Bank Doctor) yesterday upped his disdain for the overhaul of the SME Guarantee Scheme.
“The reality is that for most SMEs, more debt at this time is not the solution,” Slonim wrote in a posting at his website.
“And expecting banks to provide more unsecured debt to businesses that may not survive is not in anyone’s interests. Offering a guarantee for half the loans written has not induced banks to lend more than they would otherwise have done.
“If they are reluctant to borrow up to $250k for up to three years, why would they be more inclined to borrow up to $1m for up to five years?
“It doesn’t matter whether the purpose is working capital or a long term investment. Until they can see a future, they will remain reluctant to borrow.
“Secondly, banks don’t want to provide unsecured debt to businesses that may not survive. If they don’t want to lend up to $250k unsecured for up to three years, why would they want to lend more unsecured money for a longer period?”
Some of the answers lie in business owners’ responses to the most confounding trading conditions in a century. And for a brief time, very recently, conditions for select business cohorts have been superb, thanks to cash splashes independent of the banking system.
A now weekly data snapshot by illion and complied by AlphaBeta, “has confirmed that spending in Australia has skyrocketed to 17 per cent above normal levels.”
This is driven by “the massive cash flow impact of early withdrawal of up to $10,000 in superannuation money; and the impact of $750 stimulus payments that will shortly arrive in the bank accounts of 5 million Australians as part of the next round of stimulus payments.”
It’s a sugar hit and cash flow softener for only a minority of employers.
The new analysis “has revealed that almost all of the growth in spending above normal levels was due to Stimulus and super,” Simon Bligh, CEO of illion said.
“When those who were eligible for the Stimulus and received super were removed from the sample, average spending was actually 2 per cent below normal levels.”
A complementary view from a different perspective lands in the form of the quarterly “NCI Trade Credit Risk Index score” from Adelaide-based National Credit Insurance (Brokers).
Drawing on claims data drawn from claims on trade credit insurance, NCI found “the overall index score has risen 2 per cent in the past 12 months.
“Claims and collections were on the rise until this quarter, when claims received dropped 5 per cent.”
So business cash flow (for those with the nous and a budget for trade credit insurance anyway” does not look so bad.