Over the past week Australian shares fell 0.9% with small company shares down 0.6%. Shares in developed countries declined 0.5% while the US market rose 0.3%. Shares in emerging markets were down 0.1%. The Australian dollar increased by 0.5% to 75.48 US cents. The Australian 10 year bond yield fell to 2.79%, with the US 10 year bond yield also declining to 2.93%. The oil price fell 4.8% to 67.88 US dollars per barrel.
One of many issues raised in the Royal Commission has been bank standards around lending to SMEs (small-to-medium enterprises). Banks have been criticised for not observing their own lending criteria in approving some loans to businesses.
SMEs are a crucial part of Australia’s economy, particularly from an employment perspective. There is a concern that banks observing their lending criteria will slow down Australia’s economy. How? Banks will likely be more rigid in the way they address SMEs against their lending criteria and, as a result, it is likely that fewer businesses will be given business loans by the banks. In addition to the range of rules and regulations that have already been implemented since the Global Financial Crisis, this would make it more difficult and costly for banks to lend to SMEs.
At Mine Super, we’re monitoring this situation. While there is a risk of this scenario playing out and having an adverse impact on Australia’s economy, it is far from certain. For instance, there are a range of non-bank lenders that specialise in making loans to SMEs under less-rigid lending criteria. Indeed, difficulty for banks to lend to SMEs may present an opportunity for super funds (among others) to invest in non-bank lenders, thereby supporting SME finance.
David Bell | Chief Investment Officer
Past performance isn't necessarily an indicator of future performance.
Data sourced from Bloomberg.