Emerson should intervene

Barely two months ago Small Business Minister Craig Emerson told a roundtable that it was difficult finding a solution to the squeeze on SME lending because the problem was more perception than reality.

“If we are talking about perceptions of the situation, frankly I don’t think we can ever fix it,” Emerson said.

“How come lending has returned to high levels if there is such a problem with access to finance? If we want to develop policy, let’s develop policy for the reality and not for the perception.”

Not very helpful as the point of the roundtable was to find solutions to SME problems. Worse, the small business minister was backed by a number of bankers and the bank’s lobby group also present.

But yesterday NAB”s executive Joseph Healy painted a very different picture.

He believes it is far more than “perception”. He says the banks (not his bank, of course) had redirected loans away from business towards mortgages. And he warned that the banks risked doing serious damage to the economy by ignoring small business.

And it is probably going to get worse. Healy says problems on the global credit markets could force banks to ration credit further.

A NAB spokesman this morning told me this is not just NAB having a go at the other banks. “There are factors in the current environment that could create a bias towards mortgage lending and away from business lending.”

APRA figures also show a decrease in lending to business last year to the tune of $28 billion. And a story in the AFR this morning says lending to business has dropped from 46% of bank loans to 35%.

So what is the real story? If NAB is right, it will be interesting to see if Emerson changes his position. Emerson might be able to dismiss distressed small business owners reporting the problems. But when Australia’s largest business lender with a 27% share of the market warns that bank lending for SMEs is drying up, one would expect Emerson to respond.

Emerson did not respond to SmartCompany’s calls to his office today. But he has been busy. I read a comment piece written by Emerson that run in The Australian this morning condemning Tony Abbott for running a party that favours government intervention in private markets.

Well, what’s wrong with that? I had always assumed that when there is market failure that will damage the economy and the community, it is the Government’s job to intervene.

Other countries are intervening with government guarantees for small business loans and other innovative schemes.

With the Government about to go into an election this is an issue that needs to be urgently addressed.