Corporate Australia is worried about a pending credit crunch

(Photo by Win McNamee / Getty Images)
  • A survey by consulting firm Ernst & Young shows mid-size Australian companies now see reduced access to credit as their top external risk.
  • The latest results come in the wake of further regulatory oversight of the banking sector, led by the ongoing Royal Commission..
  • EY’s Rob Dalton said good regulation also needs to encourage a positive growth environment for mid-size Australian companies.

Australian companies are increasingly concerned about a lack of available credit to boost growth, as domestic banks tighten lending standards amid increased regulatory oversight.

A survey by accounting and consultancy firm Ernst & Young showed reduced access to credit was now ranked as the biggest external threat for middle-size companies.

Around one quarter (24%) of those surveyed highlighted it as a risk, up from just 6% in 2017. The survey was carried out for companies with revenues between $US1 million to $US3 billion.

EY’s Rob Dalton, who commissioned the survey, said the responses stem from “a real perception that banks have started a pre-emptive lending crackdown”.

“We’re continuing to see the impact of increased regulation of financial services driven by continued post-GFC measures and an increased focused on culture and conduct through activities like the Royal Commission,” Dalton said.

“While it’s important the sector is well regulated, we need to make sure we’re providing a framework that encourages growth for our middle-market companies, the engine of our economy.”

Concerns around tighter lending standards have been raised often so far in 2018, but generally in relation to a slowdown in home loans rather than business lending.

In response to tighter lending standards, the EY survey results showed that more local companies are considering alternative measures to fund growth.

Around three-quarters of the mid-size Australian companies surveyed said they had considered an initial public offering (IPO) to raise cash — a “significantly higher” result than their global peers, where less than half of respondents had looked into an IPO.

In addition, “there’s a huge amount of private capital out there looking for a home, and middle-market businesses are looking to access this to fund their growth,” Dalton said.

Half of the Australian companies surveyed said a company tax cut was a good idea to boost growth, which was again well above the international average.

Reports over the weekend suggested the Turnbull government may look to tweak its company tax-cut proposal, after losing ground to Labor in Saturday’s by-election results.

“It’s important we ask ourselves why Australian firms are concerned about cash-flow, credit availability and corporate taxes – we need regulatory conditions which promote growth rather than dampening it,” Dalton said.

“We need to afford these businesses every opportunity to expand, create jobs and create wealth that can be shared throughout the community.”

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