Banks squeeze businesses

Bank fees for business have surged 26% over the past three years to a record $7.3 billion, according to the Reserve Bank (RBA).

While retail customers have been protected to some extent by political pressure, businesses haven’t had the same luck. Since 2010, fee income from businesses has risen while banking fees collected from households have fallen.

The rise in fees has led business representatives to suggest that firms are subsidising households, and were losing out because of the government’s focus on mortgage rates. The federal government has banned some fees including mortgage exit charges, while National Australia Bank (ASX:NAB) has led a campaign to remove other fees.

A detailed report by the central bank has found that much of the growth in bank fees was due to account servicing fees and merchant fees for credit and debit card transaction services. Fee income from business loans rose 11% in 2012, while households are paying around the same in fees as the year before, and down 21% since 2009.

East & Partners analyst Paul Dowling has told the Australian Financial Review that slow business loan growth had resulted in the banks going to the ‘fee bucket’. “Business has no single strong voice. Exactly the same thing is happening with interest rates, where the small to medium businesses have been missing out on rate cuts. So they’re getting hammered on both fronts.”

At the same time, a survey by East & Partners has found that small to medium businesses face issues sourcing finance from banks at a suitable price. Around 44% of small to medium businesses which applied for credit in the previous 12 months did not succeed. Mr Dowling said in most cases, the businesses walked away from the application because the pricing was too high, the terms and conditions were unacceptable or the application took too long.

The big four banks, ANZ Bank (ASX:ANZ), Commonwealth Bank (ASX:CBA), NAB and Westpac Banking Corporation (ASX:WBC) operate as an oligopoly and there is a distinct lack of real competition. Businesses have very little real choice but to choose one of them to provide banking services.

Foolish takeaway

Businesses are feeling the brunt of the bank’s lack of credit growth. Until credit growth picks up, businesses are unlikely to see any relief. That is, unless the federal government take up their plight – which appears highly unlikely.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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