The announcement early in August that lusted public company Australand quietly informed the market that it had replaced a $1.15 billion secured facility with $1.3 billion of unsecured syndicated bank debt is of significance to CFOs of small to mid sized firms. Australand is a real estate developer, the class of business that the banks ran furthest and fastest from when the global financial crisis hit, but here they were back again, prepared to lend on an unsecured basis. Australand of course has a healthier balance sheet than the average developer, but it was still a major change in banking attitude.
This may be idiosyncratic and much more to do with a large developer and a strong balance sheet gearing up to meet market demand but it could also be signalling – finally – a loosening of bank purse strings. This should be welcome news for CFOs. There are wider signals coming form the market.
This is at a time when commercial property development is at a extreme low levels due to the risk profiles of many commercial property developers and also comes at a time when credit card balances have remained relatively static after an 18-year run of increasing personal credit.
There's anecdotal evidence that the banks are more open to business again now that the worst of the bad debts have been ruled off. Competition is breaking out between the major banks in business lending with a NAB vs Commonwealth Bank war of words about the CBA's alleged reliance on mortgages damaging the economy.
With business confidence suffering a lull, the timing of increased availability of business credit would be most welcome. The reality however is that small businesses will still be hit with stiff margins, but the one thing worse than expensive credit is no credit.
The period form late 2008 until mid-2010 has been one that has seen the banks hiking the costs of business loans through charging higher margins and fees out of business customers during the GFC. The developments are not surprising too because business lending is good business – in theory at least. Those superior margins for business loans are a further incentive for the banks to grow their business books when funding costs are under pressure.
This has had some positive consequences with evidence (at least in the listed company area) indicating rising cash balances as corporate CFOs squeeze their asset book for liquidity. De-stocking, higher inventory turn, better accounts receivable management and tighter supply chain management has increased margin to accommodate for the extra cost of doing business with the voracious banks. By forcing so many businesses to pay down loans and increase equity, they've reduced the need to borrow.
The banks of course were hit by the GFC – big time. A raft of failures including Allco, Babcock & Brown, ABC Learning exposed some slack lending practices and certainly put CFOs on notice to get the books squeaky clean.
There is a groundswell of opinion emerging that corporate Australia is gearing up for a round of capital investment with downstream effects of a resources boom taking hold. Employment data is confirming this. A competitive banking environment but one that is still cautious in an uncertain global environment, is not one to presume outcomes. Bankers will still have their eye on security: collateral, after all is an assurance that they can collect at least a portion of their outlay, even if it is not monetary. The assets can include property, machinery, inventory, equipment or cars. For obvious reasons, business assets are preferable collateral for lenders but smaller business owners may need personal collateral and it could include a house.
Meanwhile, as if to underline the point that Australia’s banks need to constantly be on the alert for funding opportunities in offshore markets, comes news in late September that Westpac raised US$3 billion ($A3.34 billion) on the US capital markets in a dual-tranche sale. CFOs should be prepared for a grilling, but a firm No is less likely today that at any time in the past 20 months.
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