NAB quarterly shows woeful small business lending performance

Tony Boyd
Aug 15 2016
AFR
Weak small business lending data contained in National Australia Bank’s latest quarterly result goes some way to explain the bank’s recent management shake up.
NAB calls itself the business bank but its performance in the key area of retail small and medium sized lending has been woeful.
In the year to June NAB’s lending to retail SME customers barely moved. At June 30 it had $16.27 billion in loans to retail SME, compared to $16.26 billion in June 2015.
When NAB’s chief executive Andrew Thorburn shook up NAB’s management ranks late last month he created a division headed by Angela Mentis called business and private banking.
Thurburn said it would focus “on our priority SME customers”.
The division brings together the nabBusiness franchise with specialised agriculture, health, government, education and community services along with private banking and JBWere, as well as the small business segment from personal banking.
You only need read the NAB quarterly SME survey to understand that SME lending is one of the most lucrative markets for bankers in Australia.
Business conditions for SMEs rose two points to plus six index points, a level not seen since 2010 and comfortably above the long-run average of plus four index points, according to the NAB survey published on July 28.
“It is especially encouraging that low and mid-tier firms reported notable improvements in conditions and confidence in the quarter,” the survey said.
“In particular, low-tier firms reported positive business conditions for the first time in two years.”
The survey said that trading and profitability conditions surged ahead in the quarter to the highest levels since 2009.
SME lending is attractive to banks because it tends to carry higher profit margins. The ideal SME client will have numerous relationships with the bank across transaction banking, wealth management and treasury services.
Merchant terminals are an increasingly profitable business because of the greater use of tap and go credit cards.
Sharp contrast to Westpac
NAB’s lacklustre performance in SME lending is in sharp contrast to the performance of Westpac Banking Corp.
In the year to June 2016, Westpac’s small business lending rose 53 per cent to $12 billion, according to its latest Pillar 3 disclosure released last week.
David Lindberg, chief executive of Westpac’s business bank, told the St George Foundation dinner last week that SME business lending at Westpac is growing at the fastest rate in a decade. It is growing four times faster than big ticket corporate lending.
He said lending was surging on the back on improved confidence among business SME customers.
Three of the fastest growing SME sectors at Westpac are healthcare up 11 per cent, education up 14 per cent and professional services up 12 per cent.
Lindberg told the St George dinner in Sydney that NSW was the standout performer in the Westpac portfolio with growth in SME lending twice as fast as any other state.
The NSW bias in lending growth will go against NAB which is stronger in Victoria.
Either way, NAB needs to lift its game in SME lending if it is to keep its title as the country’s business bank.
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