Scott Morrison Backs Superannuation Industry Push On Business Lending

Treasurer Scott Morrison has swung his weight behind a push for more superannuation funds to develop new ways of lending to local companies.

The Treasurer is also eager for both sides to get on with developing the domestic private lending market led by super funds. However, he did not offer any concrete solutions,

"The Turnbull government is already supporting the development of new lending platforms in the FinTech sector and fostering greater competition in financial services.

"Nobody needs to ask for permission, they should just be encouraged to get together and make it happen," a spokesperson for the Treasurer said.

"The government would welcome the superannuation industry and businesses supporting and creating new vehicles to encourage the availability of capital for business lending, especially to small business."

The call follows from last month's Superfunds Round Table - hosted by packaging company Visy and The Australian Financial Review - for financiers, investors, superfunds and businesses to escalate development of the sector.

Concerns were raised at the function that increasing capital charges were making it prohibitive for domestic banks to issue loans beyond seven years to corporates, forcing many offshore, which is often not a realistic option for smaller and medium-sized companies.

Many super funds say they are already moving into the corporate lending space, but former prime minister Paul Keating has warned that local companies are at risk of being "underbanked" without help from the $2.4 trillion pool of savings now locked up in super.

The government's support for the push comes as the Reserve Bank of Australia warned that small businesses continue to face challenges accessing finance, despite a collapse in debt servicing costs to near historic lows.

In a report published on Thursday, Reserve Bank official said growth in business borrowing has "only been moderate" over recent years and initial sales of shares have been "relatively subdued".

"This has been partly because the domestic banks have scaled back their exposures to certain higher-risk sectors, such as commercial property," said Ellis Connolly and Ben Jackman, from the Reserve Bank's domestic markets department.

"In contrast to large businesses, it remains challenging for young small businesses to fund their expansion plans."

Barriers include bank demands for entrepreneurs to provide personal guarantees and collateral, which "concentrates their risk and excludes those who do not have existing wealth to draw upon," they said.

The Reserve Bank suggests development of comprehensive credit reporting systems, as well as the growth of alternative funding platforms such as crowd-funding.

They point to research that indicates the alternative funding market started in Australia around 2013 and lent around $600 million in 2016, but remains small relative to the overall economy.

Government has moved to boost alternative sources of funding, with the Australian Securities and Investments Commission setting up an innovation hub to help financial technology start-ups navigate the regulatory system.

"It is unclear whether marketplace lending platforms are significantly reducing financing constraints for small businesses," they said in the report.

"Marketplace lenders do not have an information advantage over traditional lenders. As a result, they need to manage risks with prices and terms in a similar manner to lenders."

By Jacob Greber

Financial Review

7 December 2017

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