Uncertainty making firms wary of debt: RBA

Colin Brinsden, AAP Economics and Business Correspondent
(Australian Associated Press)


The Reserve Bank is playing close attention to the availability of credit for small businesses, given their importance to the economy and having been hit hard by the COVID-19 pandemic.

RBA assistant governor for financial markets Christopher Kent says while business confidence has improved markedly as of late, smaller businesses in particular remain reluctant to take out new loans.

“Some of this reflects an economic outlook that, while improved, is still very uncertain,” Dr Kent told the Australian Finance Industry Association in an online conference on Wednesday.

“Also, access to finance for smaller businesses has been a long-standing challenge.”

He said smaller businesses have suffered significantly from the economic hardship caused by the pandemic, but a wide range of monetary, fiscal and private-sector measures had been provided support.

“Given the importance of small businesses to the economy, we will continue to pay close attention to their access to finance and their prospects more broadly,” Dr Kent said.

At the same time, the RBA, and other members of the Council of Financial Regulators are keeping a watch on lending standards being maintained as asset prices, such as housing, rise.

Dr Kent said if asset prices were to rise on the back of deteriorating lending standards, that would be a concern to council members and a number of different responses would be considered.

“We are not at that point currently,” he said in response to a question.

“But those responses would not be first and foremost from monetary policy. In fact, there are a lot of other avenues they would pursue.”

Meanwhile, the number of outstanding small businesses and households that deferred their loan repayments during the pandemic continues to shrink.

New figures from the Australian Banking Association show almost 97 per cent of deferred loans had resumed payments by the end of February.

ABA chief executive Anna Bligh says the figures confirm that more customers are getting back on their feet.

“Over the past year, banks have cushioned the blow for their customers,” she told AAP.

“Through 2021, their priority is helping customers rebuild and get ahead.”

Just 2803 small-business loans remain deferred out of the 234,270 that were requested during the depths of the recession.

For households, there are 22,480 still deferred out of the 448,864 requested.

With two weeks to go until the JobKeeper wage subsidy ends, Prime Minister Scott Morrison insists the economy is getting back on its feet.

“It is recovering and the comeback is there and that is enabling Australia to move away from the emergency supports that were so necessary at a time of crisis,” he told parliament.

The Australian Bureau of Statistics’ latest survey of the impact of COVID-19 on households found almost one in five expect expect their finances to improve during the next 12 months and only one in eight expect them to worsen.

During the same period, almost half expect their household will be above to save money.

Even so, Westpac chief economist Bill Evans expects the household sector will be the key driver of growth in 2021 as elevated saving levels unwind and support strong consumer spending.

The Westpac-Melbourne Institute leading index for February – which indicates the likely pace of economic activity three to nine months into the future – continues to point to above-trend annual growth, which is usually seen about 2.8 per cent.

Mr Evans said the result is consistent with Westpac’s view, having recently lifted its growth forecast for 2021 to 4.5 per cent from 4.0 per cent.


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