Banking Summit: Business is a better home for bank lending than houses

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A shift out of low-margin home lending would release a mountain of capital for Australian firms of the future.

Already a subscriber?My father was a lawyer, not a banker, by trade – yet he started two banks. Frustrated by how difficult the citrus fruit farmers of 1980s Southern California found it to get a business loan from the majors, he and some associates started a bank catering to local small businesses. It did well, so they sold it.

In the short term, the economic and monetary policy cycle which powered our banks into near-record earnings last year is on a decidedly downward swing. Australia’s economy is slowing, seemingly stuck in a per-capita recession, while unemployment ticks above 4 per cent for the first time in two years and mortgage arrears rise.

But amid a cost-of-living crisis, this clear discrepancy between what the banks were charging customers and what they were paying customers could only be sustained for so long. Pressure to raise deposit rates, as well as an extremely competitive mortgage market, have seen net interest margins fall off recent highs.

The shift towards business lending is also being encouraged by longer-term uncertainty over the state of the housing market, with community concern over the impact of housing affordability and inadequate supply reaching a fever pitch best summarised by the NSW Productivity Commission’s recent statement that Sydney risks becoming “a city with no grandchildren.”

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