Tuesday, October 26, 2010
This Blog has moved!
As most Blogs do, we have matured, warranted our own URL and moved to www.bankingpearls.com. Follow us there!
Tuesday, October 5, 2010
Government's chance to increase bank competition
Bankers in major banks (ne all banks) are pushed very hard and are forced to give their employer more than a pound of flesh. However the last couple of years have frustrated banking's frontline. Believe it or not, most bankers get into banking because there is an element of doing community good in what we do. When you help a business by financing their investments and facilitating growth and success, you feel great. You have made a difference.
However in the last couple of years, the brief from above has been conflicting. Meet your profit targets, but don't lend money to new clients (unless they are amazing businesses with zero chance of default or loss). Relationship management have been the ones delivering the "no" regularly to finance requests from existing and new clients (even when they believe strongly in the applications) and then, often at the same time, delivering price increases which are the only alternative to cover declining loan portfolios which are not getting topped up by new lending so are naturally losing revenue/profitability. The bankers have been lucky that the environment has allowed then to creep margins up, as without this bonuses would have been scarce.
This is not why bankers got into banking for the most part, and there are a large number of frustrated employees out there itching to get back to helping businesses move forward.
Now credit teams are still ferociously powerful and difficult to convince to approve new business. The times are uncertain and many corporates are still challenged by the environment. The bankers are looking at their new budgets for the 2011 financial year just started and wondering how the hell they are going to get there.
The RBA is on to this. They've come out this week and poo pooed the banks thinking about putting up rates, clearly sensing that bank's leaning towards taking the easy way out of their dilemma. But the banks are in a corner and are naturally pushing back.
The recent Senate inquiry into Small Business lending gave the Government little in the way of options to drive increases in financing to this sector. Quite rightly you can't force banks to lend, especially to a sector that is a higher risk segment of the finance market. However perhaps the Government can increase the appetite of banks here by increasing pressure to not lift rates beyond the RBA.
Perhaps we will then get a situation where the banks have to start writing new loans to make their budgets.
However in the last couple of years, the brief from above has been conflicting. Meet your profit targets, but don't lend money to new clients (unless they are amazing businesses with zero chance of default or loss). Relationship management have been the ones delivering the "no" regularly to finance requests from existing and new clients (even when they believe strongly in the applications) and then, often at the same time, delivering price increases which are the only alternative to cover declining loan portfolios which are not getting topped up by new lending so are naturally losing revenue/profitability. The bankers have been lucky that the environment has allowed then to creep margins up, as without this bonuses would have been scarce.
This is not why bankers got into banking for the most part, and there are a large number of frustrated employees out there itching to get back to helping businesses move forward.
Now credit teams are still ferociously powerful and difficult to convince to approve new business. The times are uncertain and many corporates are still challenged by the environment. The bankers are looking at their new budgets for the 2011 financial year just started and wondering how the hell they are going to get there.
The RBA is on to this. They've come out this week and poo pooed the banks thinking about putting up rates, clearly sensing that bank's leaning towards taking the easy way out of their dilemma. But the banks are in a corner and are naturally pushing back.
The recent Senate inquiry into Small Business lending gave the Government little in the way of options to drive increases in financing to this sector. Quite rightly you can't force banks to lend, especially to a sector that is a higher risk segment of the finance market. However perhaps the Government can increase the appetite of banks here by increasing pressure to not lift rates beyond the RBA.
Perhaps we will then get a situation where the banks have to start writing new loans to make their budgets.
Friday, October 1, 2010
Small business owners lose the Aussie dream
Small business lending stinks and home loans are cool. That's the message that we are getting in the press and in practice when we go and ask for a small business loan.
You have to feel for the small business bankers actually (well you don't but having done the job once I do). They have a master that is telling them that they don't like property security and to focus on cash flow lending, however they have a credit department who can't get comfortable in today's environment with business performance so they only want to lend if there is limited or no probability of loss given default - ie residential property.
On top of this, if they just do the deal as a home loan, invariably the client moves from being a business bank client to a retail bank client and so not only does the bankers lose the client, but the client loses vaguely decent business banking support.
But look at the maths here - business lending rates are between 7.5% and 10%. You can get a home loan for less than 7%. Not only this, a home loan will often be automatically approved, on the spot, where as a business loan will take a minimum of 2 months just to get some sort of wishy washy maybe answer with a list of further info requirements that are longer than your arm, the last one being "can we have a mortgage over your home please".
Business managers are hence being forced to choose- give the bank your home, chock it up with debt, and you can have a loan now, or leave the home out and wait until you don't need the money any more to get a conditional approval on you giving you home...... And there goes the Aussie dream of owning your own home......
You have to feel for the small business bankers actually (well you don't but having done the job once I do). They have a master that is telling them that they don't like property security and to focus on cash flow lending, however they have a credit department who can't get comfortable in today's environment with business performance so they only want to lend if there is limited or no probability of loss given default - ie residential property.
On top of this, if they just do the deal as a home loan, invariably the client moves from being a business bank client to a retail bank client and so not only does the bankers lose the client, but the client loses vaguely decent business banking support.
But look at the maths here - business lending rates are between 7.5% and 10%. You can get a home loan for less than 7%. Not only this, a home loan will often be automatically approved, on the spot, where as a business loan will take a minimum of 2 months just to get some sort of wishy washy maybe answer with a list of further info requirements that are longer than your arm, the last one being "can we have a mortgage over your home please".
Business managers are hence being forced to choose- give the bank your home, chock it up with debt, and you can have a loan now, or leave the home out and wait until you don't need the money any more to get a conditional approval on you giving you home...... And there goes the Aussie dream of owning your own home......
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