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On the latest episode of Finance Specialist, hosts Liam Garman and Trent Carter unpacked the expansion of Australia’s major banks into business lending, highlighting how a trillion-dollar market is reshaping competition across the commercial credit landscape.
With APRA data showing the top 10 banks’ business lending books nearing $1 trillion, the discussion focused on why business credit has become an increasingly attractive battleground for lenders and what it means for brokers operating in the space.
“$1 trillion is a pretty phenomenal number,” said Garman.
“We want to look into the theme of the banks’ aggressive push into business lending and how it’s reshaping the commercial credit landscape, as well as the questions this is raising for brokers and SMEs about risk, appetite and whether non-banks might be offering a better deal.”
A trillion-dollar opportunity
Carter said the major banks’ push into business lending was largely driven by margin pressure in residential lending.
“Home loans are a very highly competitive low margin space for the banks to play in at the moment,” he said.
“Where can they find better margins? In business banking they can offer relationship-based revenue across multiple products. Fundamentally it is a great space for banks to claw that margin back that they’re losing in the home lending space. So they of course are going to focus on it as an area of priority.”
He added that business lending allows banks to pursue a “whole-of-wallet” strategy.
“I can get you on your debt and I can risk package that up so I can get some good margin in there. But while I’ve got that relationship, I also get your deposit accounts, your cash management accounts, your working capital products, your asset finance, and wrap it all up into a revenue stable of the bank,” Carter said.
Carter noted that the $1 trillion lending book equates to approximately $366,000 per business across Australia – a significant pool of opportunity that banks are actively competing for.
However, business debt encompasses far more than traditional SME loans. It includes commercial property lending, asset and equipment finance, corporate and institutional facilities, and large syndicated loans used by major ASX-listed enterprises.
“A large chunk of this trillion dollars is corporate and institutional based debt,” Carter said.
“They're syndicated loans with multiple lenders pulling capital together to fund organisations that are as big as Woolworths or the biggest ASX 200 listed companies.”
He cautioned brokers not to lose sight of where their influence is strongest.
“Removing that, there might be slightly less than a trillion dollars of debt sitting out there. But as a broker, let’s position ourselves – where are we most impactful? Where do the banks probably put their least focus on? And it is the SME lenders,” Carter said.
“I think we shouldn’t get too lost in the big numbers and focus on where we can be really influential in the business debt world as a broker.”
Major bank dominance
The big four banks account for the majority of business lending in Australia, forming the core of the 87 per cent share held by the top 10 institutions.
However, beneath that concentration sits a broad ecosystem of foreign banks, mid-tier, and challenger banks, as well as specialist non-bank lenders competing for business loans, particularly in defined niches.
“I’m not here bank bashing,” Carter said.
“But perhaps there are alternatives that SMEs could be using to get better access to credit, faster access to credit, niche policies when they need it by looking at that tier down.
“I think that’s probably where the cracks are showing and where the majors aren’t winning, in those spaces of faster turnarounds, bespoke structure and policy-edge type deals where other banks can be more nimble.”
Where brokers fit in
While larger institutional loans may operate outside broker channels, brokers remain central in SME lending, particularly where structuring and lender selection are critical.
Garman reiterated the importance of specialisation.
“All roads go back to making sure that you have a niche and that core competitive advantage where you have an implicit understanding of the cash flow analysis of the industry,” he said.
Carter agreed, emphasising clarity of focus.
“Be really clear on who you are serving, whether that’s a geographical region, a demographic of business, or an industry vertical. Understand the needs and wants, then find the right solution mix,” Carter said.
He added that knowing which lender fits which scenario is critical.
“I deal with plenty of big four clients and I know people that we mentor, where probably 90 per cent of their portfolio are big four clients. But from time to time a need pops up where one of these other players has got to fit into the mix,” Carter said.
“It won’t be that we’re going to pick all your lending up and move it all. We’re going to use this lender for this bit now, keep your core banking here, use asset finance from another, property with another, and your business loan over here so you can mix and match.
“There’s a real broad world that brokers can live in. If you’re going to dip your toe into this space, you need to get familiar with these players, and probably have a good half a dozen of them.”
[Related: SMEs push for growth despite ATO and Payday Super pressures]