Smaller firms 'starved of credit'

Small and medium sized businesses are being starved of credit by major banks whose dominance should be the focus of any parliamentary inquiry into banking, says PSIS chief executive Girol Karacaoglu.

Karacaoglu, formerly chief economist at the National Bank, believed there was a "bottleneck" in the availability of credit to smaller businesses, which he described as the lifeblood of this economy.

"That's where the big banks have an oligopoly. That's where the small and medium size businesses have nowhere else to turn," Karacaoglu said.

"I'm not saying the banks are exploiting that... all I'm saying is that's the reality and there is an increasing awareness of bad debts and credit risk associated with that so naturally the big banks are going to be careful."

If there was to be any inquiry into the banking industry, as Parliament yesterday indicated it was still considering, Karacaoglu believes this is where the focus should be.

"The point is how you open channels and competition in that small and medium sized sector. I believe that there is a structural problem there."

The Business Herald this week reported that Reserve Bank figures showed basic overdraft lending rates for small and medium sized businesses had hardly budged in recent months despite big cuts in the OCR.

"That's exactly where the issue is, that's where the focus should be," he said.

PSIS does not do any business banking but is considering offering a limited range of banking products. These would primarily be for sole traders such as taxi drivers, painters and hairdressers. Virtually all lending would be secured against residential property, said Karacaoglu.

The PSIS, the old Public Service Investment Society which has around 50 per cent of its 132,000 customer-owners employed outside of the state sector, has been weathering the recession well.

In the year to March total assets were up 6 per cent to $1.3 billion, making it one of the larger non-bank financial institutions in the country. Deposits were up 8 per cent to $1.07 billion and loans, 85 per cent of which are mortgages, were up 1 per cent to $1.06 billion.

Net profit was $7.9 million against a loss of $3.9 million a year earlier. This year the co-operative's bottom line was boosted by $6.7 million boost to the valuation of its treasury assets compared with a $14.5 billion negative revaluation last year.

Karacaoglu said he hoped the PSIS would obtain a banking licence within the next year.