Banks are being squeezed by increasingly strict regulations such as Basel III, reducing financing choices for Australian businesses, highlighting a need for alternative solutions.
A raft of regulatory changes adopted after the financial crisis of 2007/2008 has strengthened the global financial system. But tighter rules mean corporate borrowers may not be able to access credit from traditional lenders as easily as they have in the past.
As a result, new options are needed so businesses can access the funds they require to operate their company and pursue growth strategies. But before looking at new strategies to access finance, it’s important to understand how the rules have changed and what that has meant for the lending market.
In 2015 the Australian Prudential Regulation Authority (APRA) introduced a liquidity coverage ratio (LCR) that means banks are required to hold a greater proportion of more liquid assets like cash and government bonds. This has led to a reduction in the volume of other assets held by banks, such as commercial loans.
Other similar regulations, for instance the Basel III rules, also mean banks must hold more assets like cash and bonds. This has also led to lower appetite for corporate loans among some institutions.
The Australian Bureau of Statistics’ (ABS) data supports this showing a 1.7 per cent drop in commercial finance for the year to 30 June 2016.