Australia

Big banks are confident Australia’s economy can make a successful soft landing

NAB’s Business Banking, Metro, Executive of Michael Saadie.

Michael Saadie, director of business banking for NAB’s metro area, said the bank’s pipeline of lending activity is similar to a year ago, but deals are starting to close at a slower pace, with firms Credit growth will “flatten out”. Saadie said Australia’s economy is in a better position than many other economies, with his NAB consumer spending data for sectors such as hospitality and retail doing well.

“Right now, the unemployment rate is below 4%, but even if interest rates rise further, GDP next year will probably be just below 2%.

Saadie also cited skill shortages as a key risk. More positively, he added that the COVID-19 pandemic has pushed companies to improve their balance sheets and pressure on supply chains appears to have eased.

“Overall, small businesses are probably in the best position for many years,” Saadie said. “We are not under a lot of stress.”

Joseph Healy, CEO of business-focused lender Judo Bank, also said the lender’s customers are performing well and small businesses can pass on higher input costs. In Healy’s view, the biggest financial risk is “extreme household leverage.”

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“Accordingly, we have aggressively reduced our exposure to certain forms of assets, particularly commercial assets,” Healy said in a statement.

Business banking has wider margins than retail banking, and although the corporate lending boom is expected to slow, the sector may remain a key battleground for banks.

Vacy-Lyle said all the big four are fiercely competitive in this space. “Banks will absolutely need to diversify their portfolios into business banking, obviously as mortgages slow,” said Vacy-Lyle.

Citi analyst Brendan Sprawls said in a recent note that past cycles of rising interest rates have typically seen corporate credit rise, and this pattern could have been a warning sign.

Mr Sprawls notes that Australia’s biggest bank lending losses, including the 1980s, late 1990s and early 2000s and the global financial crisis, all included a rise in corporate credit as a share of gross domestic product. said it had been

But this time around, corporate credit as a share of GDP has not risen as much, and as business investment has fallen in recent years, it appears that more borrowing will be needed, Mr Sproules said.

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Big banks are confident Australia’s economy can make a successful soft landing

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