KPMG highlights significance of SME lending

The group urged the federal government to recognise the potential contribution of the financial services sector to jobs and growth.

The KPMG report encouraged bank lending to SMEs, infrastructure and trade finance by reducing the regulatory disincentives (both capital and liquidity requirements) for banks undertaking long-term financing and trade finance, albeit while still recognising the inherently risky nature of the business.

In April, a Bank of Queensland spokesperson also told Mortgage Business that the Australian banking system’s current bias towards housing lending – which has increased since the global financial crisis as a result of regulatory anomalies that provide significant funding and capital advantages to the major banks – risks misallocation of resources, which has ramifications for the overall health of the banking system.

“Our submission to the Financial System Inquiry notes that regional banks have increased their share of lending to the business sector since the GFC while the majors have decreased their share of lending,” they said.

The KPMG report considered promoting “high quality” securitisation of bank lending, in the context of SME lending and more generally.

“A recent paper by the European Central Bank and the Bank of England set out the arguments here, but did not follow this up with specific proposals to reverse the many post-financial crisis regulatory constraints on securitisation (high capital requirements, retention requirements, and limited scope to use securitisation as high-quality liquid assets under the liquidity coverage ratio),” the report said.

“One simple improvement here would be to treat high-quality securitisation in the same way as covered bonds in capital and liquidity requirements (for both issuers and holders of these securitisations),” it said.