The major banks are split over the federal government’s push to set up a fund for banks to inject equity stakes into fast-growing small businesses, with National Australia Bank and HSBC leading the charge but other big lenders less keen.
ANZ and Westpac are the most reluctant to sign on to the proposed Australian Business Growth Fund announced by Treasurer Josh Frydenberg on Wednesday, according to government and bank industry sources.
Commonwealth Bank of Australia is less advanced than NAB and HSBC in endorsing the proposal, but has signalled to the government it could ultimately join.
The private-equity style growth fund is intended to complement a separate $2 billion government securitisation fund being set up to buy small and medium enterprises (SMEs) loans from smaller banks and non-bank lenders to improve funding for SMEs.
The proposed bank-financed equity fund, which would take minority stakes in promising SMEs, is unusual because banks typically lend debt to clients, not invest equity in small businesses.
The fund would require a rare granting of regulatory capital relief from the Australian Prudential Regulation Authority to be economically viable and need to avoid breaching business collusion laws policed by the Australian Competition and Consumer Commission.
NAB’s chief customer officer of business and private banking, Anthony Healy, who has consulted with the government on the policy, called on other banks to join.
“We are very supportive and other banks should step up and commit to the growth of the SME sector,” said Mr Healy, who has visited London to examine a similar fund.
“If a fund is well-managed and diversified and you get the right capital treatment from the regulator then it’s quite a rational decision to put some funding into the fund.”
NAB is the country’s biggest SME lender and believes there is a gap in the funding market for firms seeking growth capital because superannuation funds and other potential shareholders typically don’t invest in SMEs. Hence, SME owners can sometimes try to borrow more than is prudent and are often forced to pledge their personal home as collateral.
The proposed equity growth fund is based on models in Britain and Canada, where the governments granted capital relief for a special fund financed by big banks injecting equity into SME clients.
UK growth fund
HSBC has experience with the UK growth fund, set up by five major banks and which has invested £1.6 billion ($2.8 billion) into more than 240 companies.
HSBC’s Australian head of commercial banking, Steve Hughes, said: “Fast-growing middle-market companies require finance and often there is a gap between the level of lending that banks will provide based on factors such as cashflow certainty, assets available as security or track record.”
“A business growth fund would offer another alternative, providing growth capital of $2 million to $25 million to private companies and delivering a contribution to economic growth over time.”
Some bankers believe banks are better at lending money, rather than making riskier shareholder investments like private equity firms.
ANZ in 2012 shut down an internal private equity fund, the ANZ Business Equity Fund, that cost the bank more than $100 million.
ANZ’s past equity investments in Asia were also not particularly successful. The shareholdings proved difficult to unwind and hurt the bank’s reputation, particularly its 25 per cent stake in Malaysia’s AmBank, which is embroiled in a corruption scandal involving deposed prime minister Najib Razak.
Continue to engage
Westpac business bank boss David Lindberg said it would continue to engage with the government to “gain a greater understanding of the proposed Australian Business Growth Fund and remain open to new policy ideas that will help accelerate the creation of new businesses”.
Westpac has committed $150 million to its corporate venture capital arm Reinventure Group for early stage fintech start-ups.
A Commonwealth Bank of Australia spokesman said: “Small business is a critical part of the Australian economy, and we welcome any initiatives that support the sector. As a major supporter of small-to-medium sized enterprises in Australia, we look forward to reviewing the detail of the proposal being discussed.”
It is understood Mr Frydenberg believes the fund can still materialise without all the big banks joining.
In the wake of the damning findings of misbehaviour in the financial services industry by the Hayne royal commission, banks are eager to curry favour with the government and foster better public relations so they will be under pressure to back the government’s proposal.