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Major banks are confident that the Australian economy can make a soft landing

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Michael Saadi, Head of Business Banking, NAB, Metro.

NAB’s chief executive of business banking in urban areas, Michael Saadi, said the bank’s lending activity was in line with a year ago, although deals were starting to close at a slower pace and growth in business lending would stall. Saadi said the Australian economy was in a better position than many others and NAB data on consumer spending in sectors such as hospitality and retail was positive.

“We currently have unemployment below 4 percent, GDP still looks like it will be positive next year at just under 2 percent, even with more interest rate hikes,” he said.

Saadi also cited a lack of skills as a major risk. On a more positive note, he said the COVID-19 pandemic had encouraged firms to improve their balance sheets, adding that pressure on supply chains appeared to be easing.

“Overall, small and medium-sized businesses are probably in the best position they’ve been in a long time,” Saadi said. “We don’t see a lot of stress.”

The chief executive of specialist business lender Judo Bank, Joseph Healy, also said the lender’s customers were doing well and said SMEs would be able to pass on higher costs. The biggest economic risk, according to Healy, is “household leverage.”

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“Accordingly, we are actively reducing our exposure to certain forms of ownership, particularly commercial property,” Healy said in a statement.

Business banking has wider margins than retail banking, and while the corporate lending boom is expected to slow, the sector is likely to remain a critical battleground for banks.

Wassey-Lyle said the big four are fiercely competitive in the sector. “Obviously, with housing lending slowing down, banks will definitely need to diversify their portfolios into business banking,” said Vesey-Lyle.

Citi analyst Brendan Sprouls said in a recent note that business loans have typically grown during past rate-hiking cycles, and at times that pattern has been a warning sign.

Sprowles said the biggest episodes of bank loan losses in Australia – the 1980s, the late 1990s/early 2000s and the global financial crisis – all involved growth in business lending as a share of gross domestic product.

This time, however, Sprowles said business loans as a share of GDP have not increased much, and there appears to be a need for more borrowing because business investment has fallen in recent years.

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