COVID-19 has taken its toll on the financial lending industry with rising funding costs adversely affecting loan providers, especially the small lenders.
The latest edition of the FAST Business Lending Index (BLI) report found that total commercial and business lending for the three months to 30 June 2020 decreased by 15.9 per cent from the same period last year. While large lenders, which include the four major banks, recorded a 7.5 per cent drop, small lenders experienced a significant 32.3 per cent drop.
“The three months to 30 June have been some of the most difficult in the history of the Australian economy,” FAST CEO, Brendan Wright, said. “We are dealing with a global health pandemic that has challenged financial markets and had a significant impact on Australian businesses.
“Mortgage and finance brokers are working harder than ever to help their business as well as residential customers through this difficult time.”
Meanwhile, non-bank lending in commercial and business finance over the three months to 30 June decreased by 47.8 per cent on the same period last year and only contributed 7 per cent of all commercial and business lending in the June quarter of 2020.
As a result, large lenders increased their market share from 66 per cent to 73 per cent, while small lender market share fell from 34 per cent to 27 per cent.
“Wholesale funding markets have been impacted globally and the cost of funds has risen. Non-banks and fintech lenders that rely on wholesale funding and investment equity have had to manage their front books over the quarter as the rising cost of funds has placed upward pressure on margin,” Wright said. “What we have seen over the June quarter is a shift back to the mainstream lenders as more loans are placed with the banks, particularly the big four.”
Wright noted that while large commercial transactions and residential property development loans suffered a significant drop, demand for small business loans remains solid.
“Accessing finance remains critical for SMEs over the coming months and brokers continue to help their business clients secure working capital so that they can continue operating through this challenging period,” Wright said. “The pandemic continues to impact the way we work and live. Businesses are continually adjusting to new measures imposed by state and federal government to control the contagion of the Coronavirus.”
The government has announced that it will guarantee loans to SMEs up to $1 million, on top of the current efforts of private brokers to secure critical funding lines for SMEs. As a result, it is anticipated that demand for working capital flows will increase over the next six months
“Finance brokers continue to play an essential role to commercial and business clients,” Wright said. “Small and medium businesses across the country are working with brokers to secure critical funding lines to keep their doors open during these uncertain times.”