Big banks divided on SME growth fund: NAB, HSBC lead charge but ANZ and Westpac cool

The big banks are divided in the face of pressure from the federal government to create a fund to allow banks to integrate stakes in fast-growing small businesses, led by National Australia Bank and HSBC, but other less troublesome lenders.

ANZ and Westpac are the most reluctant to join the Australian Business Growth Fund announced by Treasurer Josh Frydenberg on Wednesday, according to government and banking sources.

The Commonwealth Bank of Australia is less advanced than NAB and HSBC in approving the proposal, but has indicated to the government that it could join.

The Private Equity Growth Fund is intended to complement a separate $ 2 billion government-owned securitization fund established to purchase small and medium-sized business (SME) loans from small banks and non-bank lenders to help reduce the risk of bankruptcy. improve the financing of SMEs.

The investment fund offered by banks, which would take minority stakes in promising SMEs, is unusual because banks generally lend money to customers and do not invest in small companies.

Publicity

The fund would require exceptional regulatory capital relief from Australia's Australian prudential regulator to be economically viable and avoid violating the economic competition laws of the Australian Competition Commission and Australia. of consumption.

Anthony Healy, head of corporate and personal banking at NAB, who consulted the government about the policy, called on other banks to join them.

& # 39; Very encouraging & # 39;

"We are giving all our support and the other banks should step up their engagement and contribute to the growth of the SME sector," said Healy, who has traveled to London to look into a similar fund.

"If a fund is well managed and diversified and the regulator treats the capital correctly, then it makes sense to allocate funds to it."

NAB is the largest SME lender in the country and believes that there is a void in the financing market for companies looking for growth capital because pension funds and other potential shareholders are n & # 39; Generally do not invest in SMEs. As a result, small business owners can sometimes try to borrow more than prudence and are often forced to give their personal home as collateral.

The proposed equity growth fund is based on UK and Canadian models, in which governments provided capital relief for a special fund financed by large banks that inject shares into SME clients.

British Growth Fund

HSBC has experience with the UK Growth Fund, created by five major banks and which has invested £ 1.6 billion ($ 2.8 billion) in more than 240 companies.

Steve Hughes, Australian Head of Commercial Banking at HSBC, said: "Mid-sized companies in the fast-growing market need financing and there is often a gap between the level of lending that banks will provide based on factors such as as the certainty of the antecedents. "

"An economic growth fund would provide another alternative, providing growth capital of $ 2 million to $ 25 million to private companies and contributing to long-term economic growth."

Some bankers believe that banks lend money more easily than making riskier investments in equities, such as private equity firms.

ANZ closed in 2012 an internal private equity fund, the ANZ Business Equity Fund, which cost the bank more than $ 100 million.

Past participations of ANZ in Asia have also not been successful. The holdings proved difficult to liquidate and hurt the bank's reputation, particularly its 25% stake in AmBank, Malaysia, which is involved in a corruption scandal involving deposed Prime Minister Najib Razak.

Continue to engage

The CEO of Westpac Business Bank, David Lindberg, said he would continue to engage with the government to "better understand the proposed Australian business growth fund and stay open to new ideas. policies to accelerate the creation of new businesses ".

Westpac has committed $ 150 million to its venture capital group, Reinventure Group, to start early-stage fintech companies.

A spokesman for the Commonwealth Bank of Australia said: "Small businesses are an essential part of the Australian economy and we welcome all the initiatives supporting the sector.As the main support for small and medium-sized enterprises Australian, we look forward to reviewing the details of the proposal under discussion ".

Mr Frydenberg believes that the fund can still be realized without the accession of all major banks.

As a result of the Hayne Royal Commission's overwhelming findings of misconduct in the financial services sector, banks are eager to gain favor with the government and foster better public relations in order to encourage them to support its proposal.