EEF welcomes the opportunity to contribute to this inquiry. A continuing focus on credit conditions is important to ensure that policy responses remain consistent and targeted. With business investment growth falling short of expectations, there is a role of government agencies to ensure that financing conditions support recovering investment plans.
Our submission covers current trends in credit conditions for SMEs and manufacturers; changes in the demand for finance; how we view the current landscape for SME lending and actions taken to improve relations between banks and businesses.
- EEF's Credit Conditions survey has pointed to a gradual improvement in both the overall cost and availability of finance since mid-2012.
- The smallest companies in our survey were hardest hit by the financial crisis and have been slower to benefit from the improvements in cost and availability.
- Until recent quarters there was a growing proportion of companies not seeking finance, despite increasing investment intentions. Demand uncertainty was a factor, but other research has identified a group of discouraged borrowers – those with a need for finance, but reluctant to borrow.
- Commitments by banks to improve business-bank relationships, including the appeals process, can potentially reduce hurdles to borrowing for SMEs that have disengaged with the financial sector. However, awareness is low and greater accountability is required to ensure the range of commitments is being executed and delivering intended outcomes.
- The market for SME banking remains very concentrated, impacting in cost and low levels of switching. There are also, historically, limited finance alternatives outside of the banks. Incremental action from government to improve competition is welcome, but may be slow to deliver meaningful change. The Business Bank must also have clear objectives to ensure interventions are well targeted.
For further information, please download the full submission.