New research claims banking sector has abandoned SME market

New research into the banking sector’s treatment of small business customers claims many banks are uninterested in lending to SMEs, with some customers unable to even make an appointment to see a bank representative after six attempts.

The research, compiled by market intelligence and consultancy firm CoreDate, comes as Federal Treasurer Wayne Swan announced the Government would withdraw its banking debt guarantee, a move which could make it harder for banks to raise wholesale funding and put further pressure on their ability to lend to small business.

The CoreData research examined the way banks acquire business customers with turnover of less than $1 million.

To compile the research, 87 real-life customers who were looking to start a business or switch banks were tracked.

CoreData managing director Andrew Inwood says the research highlighted the dominance of Commonwealth Bank and Westpac over the small business market and he says these banks are doing are “pretty good job” of focusing on the sector.

But overall, he says “it appears that many have just abandoned the sector in the wake of the credit crisis”.

Even getting an appointment was hard enough, with 25% of shoppers who visited NAB reporting that they had to make contact with the bank more than six times just to get an appointment.

To compound the poor service, more than 40% of customers of all banks failed to receive a follow up after their first meeting. This is despite the fact that nearly every customer who did receive a follow up with 48 hours ended up taking their business to that bank.

Inwood also says banks fail to understand many small business customers’ total financial picture.

His favourite example of this was a woman starting an online business who needed a credit card and a $250,000 line of credit for a business that had been up and running successfully for around three months. She was denied on the grounds that she had no property to secure the loan against, but what many banks failed to ask was her cash position – she had $3 million in the banks as a result of a recent divorce. The CBA banker who did bother to ask was eventually rewarded when she brought business and her investment portfolio across to the bank.

Inwood says the example highlights the needs for banks to redress the balance between their processes and customer service.

“It’s the concept of getting to know the customer and actually getting on know their needs. The banks want the people on the front line to be sales people, but it’s hard to train in the style of selling they want. And those that excel usually get promoted very quickly.”

He says the biggest surprise to come out of the survey was the very poor performance of tier two banks outside the big four. While they are often seen as having good customer service, they were either “disinterested or not very good” at servicing SMEs.

Inwood expects the Government’s decision to remove the guarantee will make it harder for SMEs to obtain credit from the banks. He says that while Australia’s savings rate has actually increased, the retail divisions within banks are not giving excess funds to their business bank divisions.

The business banks have been told to increase business deposits, but this is not easy in the current recovery environment.

The result is less funding for SMEs.

“Through the GFC, the services that SMEs were being provided with just evaporated.”