Business sector in robust shape: RBA

The business sector has a stronger balance sheet than before the pandemic, according to the Reserve Bank of Australia’s (RBA) latest Financial Stability Review.

That finding was based on a study of non-financial businesses’ balance sheets over the three years to June 2022, the most recent period for which the RBA had data.

“Aggregate leverage (measured by the debt-to-assets ratio) continued to decline, while cash buffers (measured by the ratio of cash holdings to total assets) increased further,” according to the Financial Stability Review.

“However, the rate of accumulation of cash buffers has slowed since early in the pandemic and has been distributed unevenly across businesses. Data on bank deposits suggest that larger businesses’ cash buffers have expanded by proportionally more than those of smaller businesses.”

Most businesses meeting their borrowing commitments

The Financial Stability Review also reported that indebted small businesses were more exposed to higher interest rates than larger businesses.

That’s because about half of small business lending was collateralised with a residential mortgage, and most of those loans were on variable rates.

That said, the non-performing share of banks’ business loans remained low.

Also, unlike the household sector, small businesses were not being threatened by a ‘fixed-rate cliff’, in which a large and concentrated volume of fixed-rate loans was about to expire.

“Although fixed-rate loans account for around 35% of outstanding small business lending, these loans tend to be relatively small (e.g. for equipment finance), have shorter maturities and are likely to be fully repaid by the time they mature,” according to the Financial Stability Review.

The business finance market has changed a lot in the past year, so if you haven’t refinanced recently, it’s something you should seriously consider. Refinancing may allow you to reduce your repayments or improve your borrowing terms. Contact me if you’d like to discuss your scenario.


Published: 2/5/2023

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