Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Hansard source

there is a part which relates to the importance of affordable and accessible funding. Covered bonds may play a role in the availability of finance to small business. You would be aware that, during the global financial crisis, when there were constraints on funding availability and then cost implications, small business experienced a very cruel period when often banks told them that they were being risk rated and that they should wind back the facilities available to them, pay a higher price and provide security to cover their financing arrangements. Small business had a very tough time during the global financial crisis.

We need to not lose sight of what happens with banking activity for crucial customers to the Australian economy such as small business. I am optimistic that covered bonds will facilitate a new and potentially more affordable avenue for finance. I am particularly interested in what the banks will do with those funding instruments, and I am very focused on what the implications may be for second-tier and non-bank lenders, for whom access to covered bonds might not be quite as straightforward as it is for the big four.

Part of our banking plan went to seeking to encourage APRA to investigate whether the major banks and the financial institutions more generally are properly risk-weighting business loans where there is security provided by residential properties and other private assets. I submit that the current arrangements are punitive and conspire against lending to small business. If any one of us went to seek a home loan and provided some security, and we were then assessed and granted a mortgage for a certain amount with a certain bank, the loan would be offered at a certain rate. If the very same person went to the same bank seeking the same amount of money and offering the same amount of security, but this time for the purpose of small business development and operations rather than a home, they would encounter a punishing prudential arrangement that conspired against the small business and the banks that lend to them.

The way that capital adequacy requirements are applied makes it a challenge for banking institutions to stay as engaged in small business lending as they should be. The spread—the price difference between the cash rate and the amounts that are demanded of small business for such lending—is expanding, and the new reality of secured lending, where private assets are needed to support small business lending, is not adequately reflected in the prudential arrangements. Small businesses are getting a dud deal out of the cost that they are expected to pay for that facility. We need much more information about small business lending to understand the impact of finance's oxygen for that crucial sector of our economy. I call on the banks to continue to work with me to make that useful and relevant information more available. (Time expired)

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