Small business lending rates have barely fallen and those for credit cards have increased in the wake of three cuts in the official interest rate by the Reserve Bank to help spur economic growth.
As the big four banks endure a political backlash for not fully passing on the RBA’s latest cut for mortgage holders, analysis of the RBA’s database reveals the average interest rate on small business loans has fallen 0.23 percentage points to 7.07 per cent between May and the end of September.
Credit card interest rates have increased 0.08 percentage points to 19.94 per cent over a period in which the big four have cut their standard variable mortgage rates by an average of 0.57 per cent.
Peter Strong, head of the Council of Small Business, said businesses had been hit by a “double whammy” and business lending rates should be reviewed at the same time as the RBA changed policy.
“The banks should be forced to explain why they are so much higher,” he said. “It’s hard for us to get a loan and when we do, the interest rate is higher.”
Mr Strong said more businesses were asking for a line of credit for property but were instead using it for their business.
RBA governor Philip Lowe said cutting the official cash rate to 0.75 per cent this week would help lift anaemic household consumption and business investment, which have repeatedly undershot forecasts.
“We will all be better off if businesses have the confidence to expand, invest, innovate and hire people,” Dr Lowe said.
A spokesman for Ratecity, an interest rate comparison website, said the margin between the cash rate and the standard credit card rate had increased over time and, in the past few months, both Westpac and ANZ had hiked their credit card rates.
A spokesman for the National Australia Bank, the biggest small-business lender with 450,000 customers, said its rates were “already market-linked”, while Commonwealth Bank said its business lending rates were “under review”.
“Unsecured personal lending, small-business loans and credit cards all carry a significantly higher risk rating than home loans, which require banks to hold more capital against these types of loans,” a spokesman for the Australian Bankers Association said.
The $170bn outstanding stock of personal loans (which includes credit card debt) has been shrinking for three years, while the stock of business lending rose 3.4 per cent over the year to August to $954bn, the slowest for a year.
Melbourne finance professor Kevin Davis said banks’ pricing strategies were opaque. “With mortgages, they take average cost of funds across cost of deposits and wholesale funding; it’s harder to know for other products,” he said. “It’s perfectly correct to say (the) RBA rate cut doesn’t impact directly (on) their cost of funds.”
The gap between the cash rate and the average of the big four banks’ standard variable mortgage rates rose to a 25-year high of 4.05 per cent this week.
The gap with small business loans secured by residential housing rose to 6.32 per cent, with Mr Strong saying that there should “be no difference if it’s secured”.
James Pearson, chief executive of the Australian Chamber of Commerce and Industry, said small businesses were saying it was harder to access finance. “It’s understandable (after) the findings of the royal commission (that) businesses have become more risk-averse but it runs a risk of thwarting new investment.”