Mark Bouris's column was first published by the Sunday Telegraph and is published here with permission.
Don’t be fooled by some of the negative responses to the Morrison Government’s plan for a $2 billion Australian Business Securitisation Fund.
This new initiative is a game changer and will have a major impact on Australian Small and Medium Enterprises (SMEs) and their ability to fund growth, because the biggest barrier to growth for most small businesses is access to funding.
It isn’t about giving money away, as you might have read. It’s about rationalising the wholesale funding market that sits behind small business lending, so that we get competition back into the business finance market.
The $2 billion will be used for the securitisation of business loans — at lower costs — so that small banks and non-bank lenders can source their wholesale funds at similar costs paid by the major banks.
Currently the banking system is under new APRA rules that attempt to get stability into loan books by insisting on certain risk weights.
The APRA risk weights haven’t affected the big banks too much — but they have hurt smaller lenders, who service the SME market.
The Productivity Commission, in its June 2018 Competition In The Australian System Report, said: “Cost interventions (such as changes to risk weights) have been presented as targeting both stability and competition.
“While such interventions may have achieved stability objectives, they have had adverse consequences for competition. Prudential regulations … affecting warehousing activities (temporary lines of credit provided by larger banks to other lenders) that came into effect on 1 January 2018, take a one-size-fits-all approach to risk ratings for smaller authorised deposit-taking institutions (ADIs) and non-ADIs.
“These have increased the costs of warehousing and reduced the competitiveness of those (generally small) institutions that rely on warehouse funding.”
With a level playing field in the warehouse funding facilities used by non-bank lenders, their loan products can compete with the major banks and drive down costs for borrowers.
With about three million SMEs in Australia employing about seven million people, improving the business debt market will mean growth, innovation and jobs.
Morrison (right) and Frydenberg haven’t done the flashy with this plan — they’ve done something serious. By rationalising the wholesale funding markets we will see more competition in business lending, more innovation in finance products and lower loan costs to most business owners.