The bias towards home loan lending over commercial lending by our banks could be hurting the Australian economy.
A new analysis by Industry Super Australia (ISA) shows that the volume of commercial lending per dollar of housing-related lending has fallen from $3.84 to $1.62 over the last 25 years. This could be indicative of the finance system’s inefficiency in being able to transform savings into investment – hindering Australia’s economic growth.
This finding will underpin ISA’s second submission to the government’s financial system inquiry. Chief executive, David Whiteley told Fairfax that this represents an issue with long-term financing in the economy.
"It is increasingly evident that Australia has a problem with long-term investment not being where it needs to be, especially when compared to previous eras.
"Consistent analysis demonstrates that we have a systematic issue transitioning national savings to real productive capital, such as nation building infrastructure, which ISA firmly believes should be front and centre of FSI deliberations," he said.
However, Barclays chief economist Kieran Davies told Fairfax that the decline in business lending was due to the choices of businesses, not banks.
"I don't think there's actually a constraint on corporate credit from the banks. I think it’s more the case that corporates in recent years have either had sufficient cash or access to offshore funding to enable them to do their investment," Davies said
Per Amundsen, director of Thinktank – a non-bank commercial property lender – told Australian Broker
he agrees more with Davies. He also added that this topic does come up from time to time, and he doesn’t believe it is an issue of insufficient capital, but rather the choices with respect to risk and return.
“The other issue is simply that the risk weighting for capital purposes is much lower for residentially secured mortgages than for other loans whether they be commercial mortgages, infrastructure loans or just business lending. This is driven by the Basel accords and has been shaping the way banks manage their balance sheets since its introduction in the late '80s,” he said.