We need to fix Business Banking – back innovation, not mortgages

We need a financial system focused on business growth and innovation, not $2 trillion of mortgages. Policy matters.

Business banking needs to be fixed.

There is no compelling mechanism to unlock over $156bn of cash sitting just in self-managed super.

Here are recent observations from some very notable Australians who know what they are talking about:

David Murray’s Financial Systems Inquiry last year made a very succinct point:

The core function of the Australian financial system is to facilitate the funding of sustainable economic growth and enhance productivity in the Australian economy.

 

Don Argus, chief executive of National Australia Bank (1992-99), wrote in his open letter to Malcolm Turnbull recently:

If we want growth, then we need businesses to lead the way and the National Reform Summit gives very sound guidance. You don’t get businesses with large numbers of employees without having an active pool of new businesses being created. The ­simple fact is that regulations and a complicated tax code have made starting and reinvigorating a business more difficult.
In Australia, we have a nominal GDP of $1.6 trillion. We have a commonwealth government gross debt of $425 billion, state government gross debt of $294bn and growing, non-financial corporate sector debt of $1.3 trillion (a large portion of which is funded from offshore markets) and household debt of $2.1 trillion, one of the highest debt-to-GDP ratios in the world.

 

Australian Chamber of Commerce and Industry chief Kate Carnell recently pointed to access to capital from the big banks as a hindrance holding small business back:

Ms Carnell said big banks were typically requiring mortgage security to be pledged for small business loans or otherwise providing credit cards with high interest rates. Alternative funding sources such as those from crowdfunding and other online lenders must be supported by the government, she told the summit.

Ms Carnell said it was understandable that banks wanted to minimise risk and maximise return on equity but “we went through the National Reform Summit where many comments were made about generating growth and productivity and innovation – which requires entrepreneurs growing and employing. That is all true, but none of it will happen if we have an environment where small business is not able to borrow. It seems like we skirt that issue a bit. The banks say there are no problems, of course they are willing to lend. Well, they are, but only when you can offer them a house.”

She called for light touch crowdfunding legislation to be introduced soon. She also encouraged alternative lenders to talk to SMEs about their offerings.

And then there’s the fight to save Sydney’s technology hub, the Australian Technology Park, led by Atlassian founder Mike Cannon-Brookes, from developers. It has gained additional momentum with more than 1000 people signing an online petition calling on NSW planning minister Robert Stokes to intervene in the government’s sale of the 14-hectare site on the outskirts on the CBD.