Banks loosen the lending tap

Businesses are facing a loosening of credit standards, with senior bankers indicating that business lending has become easier for applicants as banks are pressured to increase market share in a stagnant economy. 

 In particular, covenants and terms in new lending deals have been relaxed, such as interest-cover ratios and repayment terms, according to bank executives interviewed by The Australian.

Paul Dowling, principal of independent banking research company East & Co, believes that more accommodative credit policies are a result of their surveys showing an increase in debt appetite from small to medium-sized firms.

"On our numbers, there's been a modest turnaround in the appetite for debt in the middle-corporate and the SME end but not so much at the top end of town, where demand for debt has been particularly depressed. The banks are responding quickly to the green shoots, and we're seeing price reductions on a case-by-case basis, with commitment fees up for negotiation when last year borrowers were told to 'take it or leave it'," Mr Dowling told The Australian.

"What is clearly apparent is the link between a modest increase in credit growth and banks responding by loosening the lending tap."

This comes as the Reserve Bank  reported a 2.8 per cent increase in business credit over the year to December 2012.

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