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Big banks’ popularity deteriorating amongst small businesses

According to a survey undertaken by East & Partners, Commonwealth Bank (ASX: CBA), ANZ (ASX: ANZ) and Westpac (ASX: WBC) are at their least popular level in history when it comes to small businesses, due to deteriorating relations and increased borrowing rates.

The survey, in which more than 6,000 businesses were asked to rate Australia’s largest banks, revealed that customer satisfaction has deteriorated rapidly since the global financial crisis, with a Business Banking Index (BBI) score of just 11.4 given for micro-businesses. In comparison, a score of 21 was realised in 2008 for the same 10 banks.

There are two likely causes of the recent dissatisfaction amongst customers. Firstly, despite the fact that the Reserve Bank has cut the official cash rate to a record low of 2.75%, the borrowing rates for small businesses has actually increased. In fact, over the last three years, these fees have leapt 26% to a record high $7.3 billion, as reported by The Australian Financial Review.

Secondly, many believe that the quality of service provided has fallen significantly. Greg Evans from the Australian Chamber of Commerce and Industry said “after a sustained period of cost-cutting the larger institutions have de-skilled their ranks in the business finance area, sacrificing relationships and knowledge of the requirements of individual businesses.”

Scoring a BBI score of around 64, Bank of Queensland (ASX: BOQ) was the most popular bank, followed closely by HSBC, St George and National Australia Bank (ASX: NAB). Bank of Queensland’s Brendan White suggests that the bank’s strong satisfaction result was due to its unique operating model, whereby each franchise is setup as a small business, so each has a greater understanding of smaller business’ needs.

Foolish takeaway

In order to maintain market share and increase customer retention, the big banks need to dedicate a heavier focus on satisfying small businesses. Earlier in the year, the ANZ and NAB both announced their intentions to explore the smaller businesses market, as it contributes around 20% of Australia’s GDP.

This could be a key area for Westpac to improve on after losing 0.7% of its market share in the home loan sector due to its higher mortgage rate than competitors.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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