Smaller players losing business lending market share

by Madison Utley07 Aug 2020

While lenders large and small recorded a drop in business lending volumes over the June quarter, the latter group experienced a plummet more than four times greater than the majors.

According to the most recent FAST Business Lending Index, this difference in pacing is partially attributable to the rise in wholesale funding costs driven by the COVID-19 pandemic.

The major banks recorded a 7.5% drop in volumes, while small lender volumes were down 32.3% on the same quarter last year.

“The three months to 30 June have been some of the most difficult in the history of the Australian economy,” said FAST CEO Brendan Wright.

“We are dealing with a global health pandemic that has challenged financial markets and had a significant impact on Australian businesses.”

For the three months to 30 June, total commercial and business lending was down 15.9% from the same period last year.

Australia’s non-bank business lending over the period was down 47.8% year on year; after managing to double market share from 6% in 2018 to 12% in 2019, non-banks accounted for just 7% of all commercial and business lending in the June quarter of 2020.

“Wholesale funding markets have been impacted globally and the cost of funds has risen,” Wright explained.

“Non-banks and fintech lenders that rely on wholesale funding and investment equity have had to manage their front books over the quarter as the rising cost of funds has placed upward pressure on margin.  

“What we have seen over the June quarter is a shift back to the mainstream lenders as more loans are placed with the banks, particularly the big four.”

Notably, the index also revealed that while large commercial transactions and residential property development loans have fallen significantly, demand for small business loans remains steady.

“Accessing finance remains critical for SMEs over the coming months and brokers continue to help their business clients secure working capital so that they can continue operating through this challenging period,” said Wright.