RBA Kent: Business Failures to Rise as Pandemic Support Phases Out
- Published on
- 17 Mar 2021, 10:30 AM
--But Risk Of Small Business Defaults Relative to Large Ones Little-changed in 2020
By Sophia Rodrigues
(Sydney, March 17, 2021) -- Business failures are expected to rise as some of the pandemic support measures are phased out but despite smaller businesses suffering significantly, the risk of them defaulting relative to large businesses didn’t change much in 2020, Reserve Bank of Australia assistant governor Christopher Kent said Wednesday.
Kent made the comments in a speech to the Australian Finance Industry Association titled, “Small Business Finance in The Pandemic.”
In the speech Kent talked about how smaller businesses have been heavily affected by the pandemic, their difficulties accessing finance and the programs introduced by the government and the RBA to mitigate their financing problems in the past year.
The policy responses helped to cushion the impact of tighter access to credit, Kent said, adding outstanding rates on variable-rate loans to SMEs, on average, declined by about 85bps since February last year.
Still, the biggest impediment facing small businesses is not the price of finance but access to it, Kent said. Banks often have substantial collateral requirements and the process for getting finance is lengthy and onerous.
Overall SME lending has been little changed over the past year but there have been pockets of increased financing activity. In the second half of 2020, commitments for new SME loans increased a little to around the level seen in the lead up to the pandemic mostly due to borrowing for purchase of property, and plant and equipment to take advantage of tax write-off scheme.
Refinancing activity has also been higher consistent with businesses seeking to obtain a better deal with lower interest rates on offer.
Last year over 200,000 SME borrowers arranged to defer their loan payment but a vast majority of them have now resumed payment. The share of SME loans with a deferral peaked at 13% in June last year and is now around 1%, Kent said.
--Contact: Sophia@centralbankintel.com