Cross-posted from DFABlog.
We have updated the DFA SME Survey, to take account of the latest statistical data from the ABS, and our rolling surveys. Overall commercial credit was up slightly, but borrowings by SME continues at a low level. This is a continuation of the trend started in 2009, despite the low current interest rates. SME’s are unwilling or unable to borrow more, which is concerning, given that they are the dynamo of the economy, providing employment for more than half the work force. Many continue in survival mode, with little expectation of growth recovery in 2014.
As we highlighted previously, working capital, thanks to longer debtor days was the main driver for credit, plus vehicle acquisition, whilst business expansion is hardly on the agenda.
In our survey we asked SME’s about the barriers which are stopping them from borrowing, and their levels of satisfaction with the banks and their ability to assist. Around 20% were not able to get the funding assistance they required, although price and compliance factors were also in play. In recent years, poor service as a factor has reduced in importance, thanks perhaps to service improvement initiatives, or it being outweighed by other issues.
Finally we also asked them to rate the service and products provided by their banks – the higher the scores, the better. ANZ wins out on service, whereas ING wins on product quality. (The product category examines how well specific products are delivered, not the range of products available). This is a summary chart of a number of different service and product factors.
The bottom line is that SME’s are yet to see a significant rebound in confidence or growth, so we would expect to see lending to continue at close to current levels. It is unlikely any further interest rate cut would be sufficient to kick lending along. As we have said previously, perhaps there is scope to change capital allocations to encourage banks to lend more this important sector.
