RBA confirms it is time for Small Business Overdraft margins to fall

Illawarra Business Chamber said that the Reserve Bank Deputy Governor, Ric Battellino, has added weight to the call by the IBC for the small business lending margins charged by banks to fall immediately.

The RBA Deputy Governor said in a speech to the 22nd Australasian Finance & Banking Conference in Sydney

"Margins on business loans...are now substantially higher than they were immediately before the crisis"., and;

"With the economy and business climate now improving, the economic justification for wider margins on loans is becoming less compelling, so it would be reasonable to assume that, in a competitive banking sector, we should see margins level out soon. Over the past couple of months, there have been some signs that this is starting to occur".

The IBC congratulate Mr Battellino on his speech. The Reserve Bank, in its own way, is saying to the banks that the time has come to reduce the margins on small business overdrafts - and we agree with the Reserve Bank.

The Reserve Bank has sent a clear message to the banks.

The banks have to play a straight bat with small business. Small business overdraft margins should be falling.

"On a $300,000 small business overdraft, the banks are withholding from small business an extra $4,350 per year. This is a significant cost for small business.

The fact is that it wasn't lending to small businesses that caused the GFC. In reality, the GFC was caused by greed at the big end of town and by home owners over-extending themselves.

Small business, on the other hand, has always proved itself to be a pretty safe risk. Small business owners, by their nature, are passionate workers, committed to making their business work. They work hard, employ people and are the real engine room of the economy.

There is only one direction we expect the margin on business overdrafts to head and that is downwards."