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Our banking double standard

Robert Gottliebsen

Published 10:27 AM, 9 Mar 2010 Last update 9:57 AM, 9 Mar 2010


It could change overnight, but bank behaviour is not consistent with the big general recovery being predicted by stock markets in the US and Australia.

On the surface all looks well. Last night the D&B business survey showed that not only are sales and profits levels improving from the lows of mid 2009, but we are seeing levels of business confidence not seen since the middle of the decade. And to that we can add high levels of consumer confidence.

In the US, McDonald's is booming and the rate of job losses is declining. In both the US and in Australia bank profits are rising. So what’s the problem?.

Let's start with Australia. Readers will remember Stockland chief executive Matthew Quinn revealing in his KGB Interrogation that banks were not lending to retailers and Stockland and other shopping centre owners were having to be bankers to their tenants.

The D&B Survey shows that Quinn was spot on. While half Australian executives said they had experienced no change in their access to credit, our retailers were experiencing difficulties, with a very high 40 per cent actually reporting less access to credit. Only 20 per cent of retailers had better access, while for 38 per cent there was no change.

One of the reasons why we have such a strong housing property market is that banks are restricting loans to property developers but spraying housing buyers with loans. There is a shortage of dwellings, so buyers armed with bank cash want to buy, but the industry can't create sufficient new dwelling stock partly because of bank lending policies.

In the US, their banking system has deeper problems. The Federal Deposit Insurance Corporation (FDIC) quarterly banking profile showed the number of "problem" banks rose 27 per cent in 2009 to 702 – the highest level since 1993.

According to Yahoo, Richard Suttmeier, chief market strategist at Niagara International Capital, more than half of the nation's roughly 8,000 banks "can't lend anymore" because of rising levels of bad loans on their books. The problems are especially acute in construction and development and commercial real estate loans because many of these loans are delinquent. Banks don't have the repayments coming in to lend out and thus are content to mostly sit on deposits.

As I see it, while the Wall Street banks are resuming their big executive bonuses, out there in the heart of the US half the banking system is frozen. So life is tough and while that continues US recovery statistics will continue to be varied.

In Australia, we have nothing like the US situation but our banks are over-exposed in certain areas like small retailers and property developers, so they adopt strict criteria for these loans.

As the economic recovery proceeds the banking attitude may change but right now it’s a deep problem because the retail link in the business chain is being starved of credit and house prices are exploding forcing up interest rates partly because banks are boosting demand but squeezing supply.

There is work to be done in both the US and Australia.


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3 Comments


John Gvozdenovic wrote:

In regards to the sentence "In Australia, we have nothing like the US situation but our banks are over-exposed in certain areas like small retailers and property developers, so they adopt strict criteria for these loans", I think that it is also a factor that banks are overexposed in the residential property market. (See Our banking double standard, March 9.)

Don't forget that house property purchasers can leverage their purchases to very high levels. I think that another reason why banks are restricting lending to developers is to mitigate against a risk of falling house prices in a climate of increasing interest rates. I think the level of gearing in the residential property market has been way too high and contributed to the inordinately high house prices across the country. Why are house prices too high – on any scale they are, for instance affordability or potential return on investment current values are not sustainable. I'm sure the banks realise their risk exposure in the housing market is way too high, so restricting supply is one way to control the downward slide we will inevitably experience.

9 Mar 2010 6:10 PM

Baz from Newy wrote:

This report is spot on. (See Our banking double standard, March 9.)

I would argue that very little money is going to businesses – just the perceived 'safe bet' home loans. Let's keep praying for more competition in the business finance arena, then the banks may realise that throwing a blanket over an entire industry and 'tarring all with the same brush' is a nonsense process. Are there any bank executives's out there with the guts to tell it like it is? I bet not!

10 Mar 2010 8:41 AM

Michael Bragg wrote:

Given the good economic growth projections and short supply in housing, I believe the banks are restricting their own profit growth by not lending more freely (see Our banking double standard, March 9).

Surely they could do so at minimal risk. It will be years before supply catches up with demand. Are they missing out because they have become even more risk averse than they were before the GFC? There would appear to be a good opportunity for one of the big four to make the first move into this space.

10 Mar 2010 11:42 PM



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